History and Single-Entry Accounting
Granary Inventory Log
|Notes/Events||Grain In||Grain Out||Grain Left|
Double-Entry Accounting and T Account
Double-entry accounting is a system of recording economic events in which every entry affects at least two accounts. This can be especially beneficial for businesses, as they have numerous transactions and need to make complex decisions. The Western use of double-entry accounting can be traced to Fra Luca Pacioli, a Franciscan monk and mathematician living in Florence, Italy. In 1494, he set out to document the Venetian system of accounting. He summarized his findings in his book Summary of Arithmetic, Geometry, Proportions and Proportionality. Portions of the book eventually became the founding textbook for accounting.Venice, located on the northeast coast of Italy, traded extensively with the Arabic countries of the Middle East. Venice was perfectly positioned as a 15th-century center of trade. At that time in history, Arabic cultures, which included large parts of the Indian subcontinent, were far more advanced than European cultures. It is almost certain that the double-entry accounting system came to Venice from Arabic traders.
Venice, Italy, and Early Trading
An Ancient Form of Double-Entry Accounting
Essentially, this is a form of double-entry accounting. It keeps track both of how much grain, or inventory, was available and how much belonged to each king. The grain, a type of inventory, is an asset. An asset is an economic resource that a business owns that is expected to provide future benefits. Assets can be resources of value, such as cash, property, or an intangible resource, owned by the company that is the result of past transactions. The amounts owned by each king are called owner's equity, which is the value after debts and obligations have been accounted for, or the total business assets less liabilities.
T Accounts, Debits, and Credits
Structure of a T Account
Cash and Bank T Account Example
Using Double-Entry Accounting
Cash and Wages T Account Example
If this were the only transaction, Jim would be just as well off to keep a simple list. When there are many or complex transactions, a more complex system of accounting is needed.