Accounting from the Stone Age to today
It is difficult to determine when, on what date, and in what year accounting originated, as the definition of accounting is not unambiguous, and the concept has evolved over time and continues to do so.
It is equally difficult to answer the question of who the first accountant was. It could just as easily have been a prehistoric human (100,000 BCE), an ancient Sumerian (4,000 BCE), an Egyptian scribe (3,500 BCE), an ancient Greek banker (8th century BCE), an ancient Roman bookkeeper (1st–2nd century CE), the inventor of double-entry bookkeeping Luca Pacioli (1445–1517), the first person to hold the title of accountant, Kristofor Stecher from Innsbruck, or someone else entirely.
The Latvian Conversation Dictionary states that the earliest records of accounting date back to the time of the Babylonian ruler Hammurabi (2123–2081 BCE), when record-keeping was a legally mandated duty.
Prehistoric humans
Did prehistoric humans need to keep accounting records? Most likely not, as their economy was modest and could be kept in mind. However, an analysis of ancient cave paintings suggests that prehistoric humans did record certain things, marking hunted animals with strokes on cave walls.
The ancient Sumerians
The ancient Sumerians, famous as the founders of writing, used clay and stone tablets to record material assets. Furthermore, as archaeologists have discovered, the tablets indicated various "values" that symbolized not only material but also numerical worth. The tablets were stored in clay cases, which in later times evolved into tables for recording economic values and activities. It is significant that the first evidence of writing in Sumer is devoted specifically to economic matters, and these could be considered the origins of an accounting system. Moreover, scholars believe that synthetic and analytical accounting, or at least the seeds of such accounting, existed in ancient Mesopotamia. Analysis of ancient Sumerian texts has led to the conclusion that they contained specific rules and norms for accounting procedures that regulated, for example, leasing relationships.
Ancient Egypt, Greece, Rome, and Babylonia
In ancient Egypt, accounting emerged around the same time as in Sumer, and it was performed by scribes, who were representatives of a very prestigious profession at the time. Records were kept in tables, but the primary accounting method was inventory. The duties of scribes included recording land, grain, food, harvests, property, and taxes, controlling the compliance of accounting operations, and preparing legal documents. Essentially, scribes performed both administrative and accounting functions. Accounting in ancient Egypt was at a very high level, as evidenced by records carved into some Egyptian pyramids regarding the amount of food consumed during their construction. Furthermore, according to historical evidence, income and expenses were recorded separately, as was the receipt and issuance of each material asset.
It is believed that money in the form of various coins first appeared in ancient Greece. Initially, money was an independent object of accounting, but later all material assets were converted into coins, and all property was recorded in "money."
The ancient Romans, on the other hand, did not pay serious attention to accounting until the reforms of King Servius Tullius (578–534 BCE) determined social influence based on each citizen's financial status—the wealthier the person, the greater their influence. Following this reform, citizens of Ancient Rome were interested in keeping special household books to prove their financial status, thereby raising their social standing and increasing their influence. It should be added that during the time of Emperor Hadrian (117–138 CE), a strong centralized state apparatus was established, which managed the emperor's council and networks of departments. One of the first departments mentioned in scholarly writings is the finance department, where counters, scribes, and cashiers worked.
Even in ancient states, administrators understood the importance of accounting. For example, in Babylonia (2200–2150 BCE), special laws regulating accounting were issued, stipulating that merchants must keep regular records, the church must keep records within the state system, and the transfer of money without the recipient's signature was to be considered a void transaction. To ensure that accounting was carried out properly and appropriately, special schools for bookkeepers were established in Anteia in 135 BCE. In Athens, a special higher education institution was even created to train accounting staff—"counters." The daily duties of these counters did not differ from those of modern accountants, so it can be said that the "counter" of Ancient Rome was the first accountant. It should be noted that professional organizations of counters, known as decuriae, also existed in Ancient Rome.
Founders of modern accounting
We have arrived at the founder of the modern accounting system, Luca Pacioli. In 1494, the mathematician Luca Pacioli (Fra Luca Bartolomeo de Pacioli) invented and introduced the meaning and essence of double-entry bookkeeping. He described the accounting method used by Venetian merchants during the Italian Renaissance. The system created by L. Pacioli was an accounting cycle that is well known today; namely, it is based on entries in journals and ledgers—assets in debtor and inventory accounts, liabilities and capital in equity accounts, as well as revenue and expense accounts (chart of accounts). L. Pacioli believed that a chart of accounts could not be static, as it depends on the goals of the company and must be adaptable to them. The recommended accounting principle was as follows: debits must always equal credits, and if they do not, there is an error in the records. The recommendations offered by L. Pacioli regarding accounting entries and year-end account closings became so famous that they are still used in the organization of financial accounting today. We continue to use the basic principles of his journal and ledger accounting system, which shows the balance between debits and credits and provides an accurate financial result. L. Pacioli also introduced many accounting techniques and informational requirements that had to be followed in texts and were used in accounting for the next four centuries. The double-entry technique in an accounting system allows for the tracking of transactions from one company to another. This technique is reliable and effective for accounting in both companies and state organizations, and it can be used to gain a financial understanding of global investment opportunities for a specific partner.
Meanwhile, the Italian merchant and Neapolitan diplomat Benedetto Cotrugli (Benedetto Cotrugli) placed credit pages on the left margin and debits on the right. For recording cash, he introduced two columns: in the first, amounts were shown in the original currency, and in the second, in the local currency. Although B. Cotrugli did not create a method for calculating foreign exchange differences, he emphasized its importance, noting that anyone who does not understand the necessity of such conversion does not deserve to be called an accountant. B. Cotrugli also described the procedure for recording income and expenses and indicated that the balance must be transferred to the capital account. He was the first in his works to emphasize that accounting is equivalent to a science. In his treatise "On Merchant Accounting," B. Cotrugli pointed out the necessity of an accountant's oath, as at that time, entries in books were often made without supporting documents. Since an entry must be true and fair, integrity was of the utmost importance.
As early as 1390, the prominent Florentine merchant Francesco Datini (Francesco de Marco Datini(1335–1410) at the second-largest Florentine merchant bank, Peruzzi the double-entry bookkeeping system was concluded with a balance sheet, and the reports incorporated the accrual principle, depreciation, the lower of cost or market value determination, and foreign exchange reports.
The term "accountant" was first mentioned in historical records in the 15th century; prior to that, those who maintained records were called either scribes or counters.
The National Museum of Geneva holds a decree issued by the Roman Emperor Maximilian I on February 13, 1498, regarding the appointment of Christoph Stecher, an official of the Innsbruck Chamber, to the position of accountant. While little else is known about Stecher himself, the term "accountant" subsequently spread from Germany to other countries.
The Industrial Revolution in England and the French Revolution in 1793 fostered the rise of accounting. Organized international commodity markets, large banks, and joint-stock companies emerged, and the role of stock exchanges grew. To protect the interests of the public and corporate shareholders, it became necessary to regulate accounting and introduce uniform accounting principles. In response to numerous corporate bankruptcies, England, for example, established requirements for auditing bankrupt companies. The Companies Act of 1862 in England mandated the auditing of financial statements, and a similar law came into effect in France in 1867. In America, it was not until July 1, 1933, that all companies listed on stock exchanges were required to submit financial statements along with an auditor's report.
The global stock market crash of 1929, which triggered a prolonged economic crisis in developed nations, created a need for the preparation of public financial statements. The United States developed a system of generally accepted accounting principles that were applied to companies involved in the stock exchange. Other U.S. companies began to adopt these standards voluntarily, whereas in Europe, mandatory national charts of accounts were introduced at the time instead of a system of standards. Even today, the fundamental principles of accounting differ between America and Europe; however, due to the globalization of capital markets, there is an increasing harmonization of accounting standards to ensure that accounting can be conducted according to uniform principles and that financial statement items are comparable.
Accounting in Latvia
Latvia also has historical evidence of record-keeping, which was regulated during certain periods of history. Among the oldest records are the account books kept during the Livonian period (dating from approximately 1341). The Riga Debt Book recorded loans of goods and money, as well as repayment deadlines. It is the oldest of the Riga city books and contains entries from 1286 to 1352. Judging by the entries in the debt book, it can be said that the interest on loans was typically 6–8%, though the rate could exceed 20%. Alongside debt books, income and cash books, or "chamber books," were also used, though only fragments have survived to the present day. Another type of accounting record that has survived is the land register, which contains data on peasant farms, their livestock, and inventory.
Reports from the Livonian period have also been preserved, such as the reports of the Livonian Order masters to the Grand Masters of the Teutonic Order regarding the economic situation in Livonia, as well as transcripts of the 1451 audit protocols for all castles of the Livonian Order.
Following the invasion by the Russian Tsar Ivan the Terrible in 1558 and the Livonian War, the state of Livonia was divided into seven parts: some territory became a Polish province, while other parts fell under Danish and Swedish rule. Each authority issued its own decrees. For example, during the Swedish era, land inventories and land taxation were conducted to determine the tax burden for peasant farms. The results were recorded in special "vaka" books (Wackenbuch), which were issued to each head of household. Similar property inventories and record-keeping were carried out in the territories under Polish and Danish influence.
For 300 years in the Baltics, starting from the 12th century when written legal norms emerged, there were no systematic law books; therefore, many different legal acts had to be used, in which the laws of various lands and cultures intersected, particularly German and Polish laws—both Roman law and German feudal law. It should be noted that the frequent changes in spheres of influence and the constant redistribution of Latvian territory made the implementation of common laws and accounting virtually impossible. After the Great Northern War (1700–1721), several Latvian territories were incorporated into the Russian Empire as governorates under the terms of the Treaty of Nystad. In accordance with Russian law, provincial administrations, crown chambers, district treasuries, state property management institutions, public welfare boards, customs, medical administrations, and others were established. All governorates were subject to the laws of the Russian Empire, which were compiled in the "Complete Collection of Laws of the Russian Empire" (Полное cобрание законов Российской Империи), in which legislative acts were numbered chronologically, with the dates of the Tsar's approval attached to each. This collection of laws was published in three editions; for instance, the first edition contained more than 30,000 legislative acts approved between 1649 and 1825.
Beginning in 1914, Latvia was drawn into the World War. For several years, the territory was divided into two parts—the German and Russian spheres of influence—and all residents were subject to the legislative requirements of the state overseeing their specific territory.
In 1918, upon the restoration of Latvia's independence, no separate law regulating the maintenance of accounting was adopted. In the first months of its operation, the independent Latvian state proclaimed in 1918 faced great difficulties not only in material terms but also in legal aspects, as the state lacked its own legislative system. Latvia continued to operate under Russian laws, which were officially recognized as valid on December 8, 1919, when the Law on the Continued Validity of Former Russian Laws in Latvia was adopted. It stated that all former Russian laws that had existed within the borders of Latvia until October 24, 1917, and which had not been repealed by new laws and were not directed against the Latvian state system, were to be considered temporarily in force after November 18, 1918.
A separate law on accounting was first adopted during the time of independent Latvia on January 18, 1939, and was signed by the President of the State and Prime Minister Kārlis Ulmanis. This was the Law on Commercial Accounting, which came into effect on February 1, 1939. On September 15, 1919, temporary regulations "On State Control" were adopted, and in 1938, the law "On Sworn Auditors" was passed.
When shifting from historical aspects to accounting and the legislation governing it in restored Latvia, it must be noted that the foundational Law on Accounting and the now nearly archaic Cabinet Regulation No. 585, Regulations on Accounting Organization and Management, are essentially the only legal acts governing accounting.
The Law on Accounting was enacted in 1992 (effective from 1993); it is now 26 years old and has been amended 20 times. Have these changes been significant? No, they have not. In some places, the wording of articles has been changed, defined sums and currencies have been updated, the law has been supplemented with references to the accounting principles of public organizations and political parties, and articles have been added as a result of changes in various business-related laws, such as the Commercial Law, with some regulations being elevated to the status of law. The same can be said for Regulation No. 585: it dates back to 2003 and has undergone 14 amendments. Prior to that, there was another regulation with the same title but a different number – No. 243 (adopted in 2000). Before that, there were the Regulations on Enterprise Accounting Organization and Management, No. 339 (adopted in 1995).
Evaluating all three Cabinet regulations, it can be concluded that the very first ones were the most valuable, as they contained terms and definitions that ensured the content of the regulations was unambiguous. Currently, the legislation uses outdated or inappropriate terms, which makes reading and understanding both the law and the regulations very difficult. A completely new, modern law and new regulations governing accounting in Latvia are currently being developed.
Accounting Forms
From accounting that began with drawings on cave walls, notches on wolf bones, clay tablets, and papyrus, and then, with the development of civilization and inventions, continued in paper journals and books from about the 15th century, we have moved to computerized accounting using various software. Until quite recently (about 10 years ago), accounting software was intended solely for accounting, but now a single accounting system also includes the management of company assets and resources. Such systems process not only initial data (entry of source documents) but can also continuously analyze the entered data across various dimensions according to specific parameters. These systems record not only monetary and physical values; they organize the entire customer management process and track human resources: employee registers, planned and completed work, as well as calculated salaries and tax amounts. In such systems, one can organize and manage not only accounting but all business operations, logistics, plan company work and track results, generate management and financial reports, evaluate company profitability and efficiency, prepare contracts, and more. Today, accounting systems are used not only by accountants but also by human resources, marketing, and sales specialists, lawyers, and managers.
When it comes to computers, keeping track of their development has become problematic. The computer and the way we worked with it until recently have largely become history. A server is no longer a box on or under a desk, contained within a computer or a chain of computers in an adjacent room – cloud servers are now triumphant, providing the ability to connect to data from anywhere in the world where there is an internet connection. Data entry must be fast and convenient, and data exchange should also be organized electronically.
A modern accountant does not carry around a massive computer and does not always sit in one place; they have a tablet or a powerful smartphone, and it is important for them to access their data regardless of where they are. This is precisely why cloud services are so widespread—they help one be fast and mobile. Furthermore, cloud services save resources because there is no need to purchase expensive and powerful servers, no need to worry about space to store them, and perhaps no need to hire an IT specialist to maintain them. By using cloud services, one can plan resources—effectively and immediately increasing the capacity and storage of the data server when necessary, or, conversely, reducing it to avoid wasting funds. One must take into account the rapid development of technology—what was fast and modern a year ago is already thoroughly outdated today, and in another year, it may no longer be usable. Artificial intelligence, which has rapidly entered not only science but also our daily lives, is slowly beginning to replace human resources in various tasks. Will artificial intelligence also replace the accountant?
In Latvia, accounting is inseparable from tax accounting, and our country's tax system is very complex. Therefore, as long as the application of taxes is not easily understood and as long as it can be interpreted and misunderstood in various ways, a person with logical and creative thinking will be necessary.
Accounting is an important tool for company management; it is used to obtain information about each company's economic and commercial activities, the material and monetary resources used in business, their owners, and many other issues.
Summarizing the definitions of accounting mentioned in various sources, it can be said that accounting is both an art and a process in which monetary units are recorded chronologically and systematically, and company transactions and events that are at least partially financial are analyzed, as well as reports being compiled, prepared, and the results of transactions explained. It is a process in which financial information is determined, measured, and disclosed so that users of this information can make decisions and judgments.
Bibliography
Paliy, V.F. Modern Accounting
Kuter, M.I. Theory of Accounting
Hendriksen, E.S., Van Breda, M.F. Accounting Theory
Latvian Conversation Dictionary
Eglīte, B. Riga Pays
Balodis, A. History of Latvia and the Latvian People
Zeids, T. The Oldest Written Sources of Latvian History up to 1800
Latvia in the 19th Century: Historical Essays
Benze, J. Financial Accounting
Ducmanis, K. On the Law of the Baltic Provinces
Various Internet resources
