"It sounds extraordinary, but it's a fact that balance sheets can make fascinating reading." - Mary Archer
“Numbers are like people; torture them enough and they’ll tell you anything.” - Anonymous
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Who invented accounting?
Accounting was invented by Luca Pacioli in Venice in 1494. He was a priest, a teacher and a mathematician and he described the basic accounting model --- income minus expense equals equity and double-entry bookkeeping in a book called Summa de Aritmetica, Geometria, Proportioni et Proportionalita, or in English, Collected Knowledge of Arithmetic, Geometry, Proportions and Proportionality.
Pacioli was born in 1445, so he was 49 years old when he invented accounting. This was during the era that was known as the Renaissance and Pacioli actually tutored Leonardo Da Vinci and later watched Leonardo paint The Last Supper. In fact, he first tried to put his accounting theory into practice by dividing up the bill for the Last Supper.
You may have noticed that accounting was invented two years after Columbus discovered America. That's why Columbus had to use beads to trade with the Native American Indians --- accounting hadn't been invented yet, so he didn't have a checkbook. Plus, all the banks were closed … because it was Columbus Day.
Debits & Credits
Although the basic accounting model developed by Pacioli hasn't changed, there have been refinements through the years --- pronouncements, generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS). The most significant enhancement to Pacioli's original model was developed by an accountant, known only as George.
Once upon a time there was an accountant named George who worked at the same company in the same office for 30 years until he finally retired. George always kept his desk locked and carried the key with him, except that every morning, he would come in to work, sit down at his desk, unlock the desk, pull out the right hand drawer and look in the drawer. Then he would lock it up again and leave it locked until same time the next morning.
Everybody in the office wondered what it was that George was looking at --- even the supervisor of the accounting section. So, when George retired and finally turned in his key, the chief accountant went in to finally see what it was that George had to look at every morning. All of the other accountants came to watch as the chief opened George's drawer.
There was a piece of paper taped to the bottom of the drawer and it said, "Debits toward the door; Credits toward the window."
The door was to the left of George as he was sitting at his desk and the window was to his right, so that's why accounting entries are made with the debit entry on the left and the credit entry on the right.
Coming Soon: the difference between Accountants, Economists & Appraisers
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