Luca Pacioli and double-entry bookkeeping

A double-entry bookkeeping system is defined as any bookkeeping system in which there was a debit and credit entry for each transaction, or for which the majority of transactions were intended to be of this form. The oldest discovered record of a complete double-entry system is the Messari (trans. treasurer’s) accounts of the city of Genoa in 1340. The Messari accounts contain debits and credits journalised in a bilateral form, and contains balances carried forward from the preceding year, and
therefore enjoy general recognition as a double-entry system.

Pacioli’s portrait, a painting by Jacopo de’ Barbari, 1495, (Museo di Capodimonte).The open book to which he is pointing may be his Summa de Arithmetica, Geometria, Proportioni et Proportionalità

Although Luca Pacioli did not invent double-entry bookkeeping, which was developed by merchants in northern Italy sometime during the late 13th or early 14th centuries, his 27-page treatise on bookkeeping contained the first known published work on that topic, and is said to have laid the foundation for double-entry bookkeeping as it is practiced today. Even though Pacioli’s treatise exhibits almost no originality, it is generally considered as an important work, mainly because of its wide circulation, it was written in vernacular Italian, and it was a printed book.

Pacioli’s Summa de Arithmetica, Geometria, Proportioni et Proportionalità (trans. “Review of Arithmetic, Geometry, Ratio and Proportion”) was first printed and published in Venice in 1494. It included a 27-page treatise on bookkeeping, Particularis de Computis et Scripturis (trans. “Details of Accounting and Recording”). It was written primarily for, and sold mainly to, merchants who used the book as a reference text, as a source of pleasure from the mathematical puzzles it contained, and to aid the education of their sons. It represents the first known printed treatise on bookkeeping; and it is widely believed to be the forerunner of modern bookkeeping practice. In Summa Arithmetica, Pacioli introduced symbols for plus and minus for the
first time in a printed book, symbols that became standard notation in Italian Renaissance mathematics. Summa Arithmetica was also the first known book printed in Italy to contain algebra.

According to Pacioli, accounting is an ad hoc ordering system devised by the merchant. Its regular use provides the merchant with continued information about his business, and allows him to evaluate how things are going and to act accordingly. Pacioli recommends the Venetian method of double-entry bookkeeping above all others. Three major books of account are at the direct basis of this system: the memoriale ( trans. memorandum), the giornale (journal), and the quaderno (ledger). The ledger is considered as the central one and is accompanied by an alphabetical index.

The nature of double-entry can be grasped by recognizing that this system of bookkeeping did not simply record the things merchants traded so that they could keep track of assets or calculate profits and losses; instead as a system of writing, double-entry produced effects that exceeded transcription and calculation. One of its social effects was to proclaim the honesty of merchants as a group; one of its epistemological effects was to make its formal precision based on a rule bound system of arithmetic seem to guarantee the accuracy of the details it recorded. Even though the information recorded in the books of account was not necessarily accurate, the combination of the double entry system’s precision and the normalizing effect that precision tended to create the impression that books of account were not only precise, but accurate as well. Instead of gaining prestige from numbers, double entry bookkeeping helped confer cultural authority on numbers.

Post Pacioli

The spread of the Italian accounting rules over the rest of Europe and thence further afield, was the result of treatises, some of them strongly based on Pacioli’s work, describing and explaining the system and its practice. The “Quaderno doppio” (trans.
Double-entry Ledger, Venice, 1534) of Domenico Manzoni da Oderzo was one of the first reproductions of Pacioli’s “Particularis de Computis et Scripturis”. This work, important because of elaborate examples, was very popular and widespread
among merchants: it enjoyed no less than seven editions between 1534 and 1574. Other books that are directly or indirectly based on Pacioli’s work are Hugh Oldcastle’s “A Profitable Treatyce called the Instrument or Boke to learne to knowe the good
order of the kepyng of the famous reconynge called in Latyn, Dare and Habere, and in Englyshe, Debitor and Creditor”
(London, 1543), a translation of Pacioli’s treatise, and Wolfgang Schweicker’s “Zwifach Buchhalten” (trans. Double-entry
bookkeeping, Neurenberg, 1549), a translation of the “Quaderno doppio”.

Between the publication of Paciolli’s “Particularis de Computis et Scripturis” and the 19th century, there were few changes in accounting theory. There was a general theoretical consensus that the double-entry method was superior because it could solve so many accounting problems simultaneously, but despite this consensus, accounting practices were remarkably varied, and merchants in the 16th and 17th centuries seldom maintained the high standards of the double-entry method. The application of double entry bookkeeping varied across countries, industries, and individual firms, depending in part on its audience. This audience shifted in general from sole proprietorship alone to a larger more dispersed group of partnership, coinvestors, shareholders, and even eventually the state, as capitalism became more sophisticated.