Accounting arose from the basic need-to-know thought. We always want to know how and where our wealth is being used and circulated. Needless to say, the definition of wealth is ever changing. What was initially grains and livestock, has now transformed into currency. Just like our concept of wealth has evolved over time, the process of accounting has changed too.
In this article, the evolution that accounting has witnessed over the ages. Additionally, we try to comprehend the reasons for our change in perception of an accountant from that of a ‘numbers guy’ to that of a ‘business monk.’
Birth of Accounting:
Accounting dates back to a time when humans learned how to keep a count of their possessions. Although we can’t say for sure if it was before the discovery of fire, or the invention of the wheel, It is however certain that humans always wanted to keep a vigilant eye on the wealth they were creating. They kept a note of fruits, animals, and other physical possessions through markings on trees or the walls of caves, through symbols, or though rope knots.
A system of exchange, and the birth of bookkeepers
With societal changes, came in the barter system. Here, people exchanged goods for their needs. Clay balls of different shapes and tokens were used to represent the inventory figures of the agriculture stock. This system of tokens led to the development of the early balance sheet. Here the tokens represented the share that belonged to a particular individual. Given that it involved a lot of data and record keeping, it eventually led to the birth of the modern day bookkeepers.
Unlike the current bookkeeping systems, the early ledgers contained detailed statements of how the barter trade happened. It was quite similar to a single entry book-keeping, but instead of money, it recorded the exchange of goods and services. This sort of record keeping, although tedious, helped know what belonged to whom, and the corresponding exchanges that took place..
Although the barter system was workable, it was a time- consuming process. Also, the value assigned to the goods and service was subjective. For instance, if you were looking to buy a sack of rice in exchange for seven eggs, you first had to find a rice merchant who was looking for eggs. Once a list of merchants were finalized, you would also need to get a consensus on whether the potential buyer considered seven eggs a good deal in exchange for rice. This kind of subjectivity and delay, further accelerated the creation of a currency system.
When double entry bookkeeping came into the picture
With the advent of currency, businesses started picking pace. Currency changed the concept of wealth. As people now had a different medium of exchange, the rules associated with bookkeeping changed accordingly. For a long time, bookkeepers relied on single entry bookkeeping. But instead of goods and services, they recorded monetary transactions. However, single entry bookkeeping soon proved to be confusing, as bookkeepers had to write detailed descriptions to understand whether to add or deduct money. It was not only time consuming, but also an error-prone method to calculate profits.
With double entry bookkeeping, managing books became a lot easier. Although it is not certain when and where this system came from, it was Luca Pacioli, an Italian monk, who documented this procedure in his book, ‘Summa de Arithmetica Geometria, Proportionate Proportionality.’ In simple words, double entry bookkeeping helped in creating a balance sheet with separate columns for debit and credit. It was a straightforward system utilizing which businesses knew how much they have and how much they owe. It also made work easier for the bookkeepers. They no longer had to go through numerous statements, to account for additions or deductions to deduce their profit numbers.
Inception of the First Accountants
With time, businesses grew. Alongside, they started looking for more avenues to make money. Attracting investments became an important part of a growing business. As a result, businesses started making their numbers public. Financial statements like cash flow, profit and loss, and balance sheets were available for the shareholder’s perusal. It was the onus of the bookkeepers to maintain accuracy and release the statements on a timely basis.
However, shareholders needed someone who was not a part of the business management. They needed an independent reviewer who could tell the shareholders how the business spends their money and its scope of growth. Fulfilling this requirement was paramount for businesses to maintain the shareholders’ trust. This eventually lead to the creation of the ‘Certified Professional Accountants’ in 1896.
Impact of Technology
From the abacus to the calculators, to the bookkeeping system, technology has played a vital in the evolution of an accountant. It helped them with calculations, which ultimately helped them reconcile their books faster. But their responsibilities do not end there. They had to also ensure timely expense submissions and handle budget allocation. Additionally their work included business forecasting, and had to look for ways to minimize spend. Software like QuickBooks, Netsuite, etc. has helped manage a lot of repetitive tasks effortlessly. Additionally, expense management software like Fyle remind employees about their expense submissions and help in faster reimbursements.
As a result, accountants now have more time on their hands to work on their career growth. Technology takes care of all the number crunching and time-consuming tasks. As a result, accountants can slowly evolve from a desk employee to a growth leader. They need to work closely with the top management, advise them in all matters finance, and contribute effectively to the growth of the company. In short, they are expected to become business monks.
Be The Monk who gives Business Advice
According to The Gartner group, thought leadership is an established field in marketing and a basis of competitive differentiation. Which means, well-informed buyers see little perceived differences between existing solution providers and thought leadership helps set you apart. In simple words, your knowledge sets you apart from your competitors. Then, what better way to display your expertise than thought leadership?
Thought leadership is the way you let the world know what you are good at and how you can help them. You give them an inside look into your skills and expertise, in such a way that they value your knowledge. You become an industry leader. People will now be willing to pay money to an industry expert, mainly because thought leadership helps instill trust in their mind.
Here are the 5 thought leaders you need to follow for business advice:
1. David Chase
David refers to himself as a CEO’s best friend. He is a strategic CFO who specializes in cash flow forecasting. He is the go-to person if you run a start-up or are a fellow-leader on the look for inspiration. Connect with David via LinkedIn.
2. Peter Chisambara
A finance department is the heart of every business. Although they say, you need to make decisions using your mind, in this case, the heart plays a crucial role. Peter aims to connect all entities of your business with Finance, ultimately helping in better decision making. Learn more about him on Linkedin.
3. Jason Blumer
Jason calls himself as a creative CPA, who is particularly intrigued by the unlimited potential of an individual. Jason is not just a numbers guy; he will also is a growth coach, who will mentor you and business towards growth. Learn more about him on LinkedIn
4. David Cieslak:
David has helped numerous businesses take control of their Finance. With over 30 years of experience, he is one of the top 100 influential people in Accounting. Learn more about him on Linkedin
5. Kelly Phillips Erb :
Kelly Phillips or the @TaxGirl is the go-to person for all things tax. She is a writer, tax lawyer and a senior contributor at Forbes Media, where she writes about, tax, tax policy, and related technology. She has created and co-authored several books, including Forbes bestseller, ‘100 things you need to know about money.’ Learn more about her on Linkedin