Before the details in CPA review courses existed, development of accounting with numbers evolved very gradually. A major step was the adoption of Arabic numerals in Europe during the 15th century. Before then, Roman numerals were the norm. The characters of 1, 2, 3, 4, etcetera probably started in India or China. But, the Arabic contribution was apparently the introduction of the zero, which marked a position of no value.
The Arabs may have kept the secret for over a thousand years. Modern arithmetic became possible during the European renaissance upon the adoption of Arabic numerals – including the zero. This change caused people to write such numbers as 946 instead of CMXLVI. Without the innovation, Copernicus never would have measured the rotation of planets and Newton would not come close to inventing calculus. Along with the new mathematics, people found a way to measure the results of Europe’s expanding trade and commercial activity.
The great leap forward that impacted future study for CPA exam preparation started a little more than 500 years ago. That’s when merchants in Venice began to implement the system known as “double-entry” bookkeeping. Before this creation, a businessman maintained a simple diary of sales and counted his money at the end of a day’s work. He had no idea about the status of various business circumstances.
The true financial condition for a merchant was unknown before double-entry bookkeeping. No financial statement compilations, no evaluation of financial ratios, no trend analysis, no audit verification. None of the processes existed that comprise today’s CPA exam material.
With double-entry bookkeeping, every transaction was recorded on two ledgers. Credits on some ledgers were offset by debits on other ledgers. Amazingly, ordinary business owners understood that these entries represented increases or deceases in the ledger balances. Unlike today, no accountants were around to translate CPA course explanations of this concept.
Luca Pacioli was a Franciscan friar who developed a fascination with numbers. Some sources state that Pacioli was a monk. This is a common mistake, but the difference between a friar and a monk is huge. Pacioli discovered the use of double-entry bookkeeping in Venice. When he published an encyclopedia of mathematics in 1494, he included a section of instructions for double-entry bookkeeping. The invention of the printing press a few years earlier permitted mass production of the book.
People in the 21st century might have difficulty believing the fact that Pacioli’s mathematics book was somewhat of a best seller five centuries ago. Apparently, a large percentage of the population pursued higher knowledge back then. Plus, they didn’t have television or movies to distract them from book learning.
Next came accountants, who set rules for recording bookkeeping entries. The aim of these accounting standards was assuring that the financial statements resulting from bookkeeping were accurate reflections of business conditions.
The implication for CPA preparation courses centuries later is that businesses are able to itemize their operations. They learn which products sell best and are able to plan business actions. Merchants in the 15th century definitely did not consider accounting boring. They viewed accountants as vital scorekeepers. Five hundred years later, the use of double-entry bookkeeping – and the accounting rules it spawned – is pervasive for businesses throughout the world. It all started with a small section in a popular math book by Luca Pacioli.
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