III. The double-entry system the double entry system – the basic method of accounting

I. Practice in reading these words and word-combinations:

3,000 B.C., the Sumerians, the Egyptians, backbone, Columbus, Luca Paciolli, a Fransiscan monk, Goethe, to appreciate, to penetrate, chaos, Urals, to acquire, sophisticated,

II. Read the text to find out: 1) when the double-entry system was introduced in Britain and what its significance for accounting practices was; 2) what enterprise in Russia used this system first.

About 3,000 B.C., the Sumerians, the Egyptians, and other peo­ples of the Middle East developed the first known business records. The results of tax collections, farming harvests, and the transactions of mer­chants were recorded by means of written numbers. The Romans, too, were prolific keepers of records. Indeed, Roman numerals were used in many parts of Europe until the fifteenth century A.D. The stimulus for modern bookkeeping came with the introduction of Arabic, or Hindu-Arabic, numerals and the decimal system in the twelfth century A.D. Most people today use Arabic numerals.

The two basic systems of bookkeeping are double-entry and single-entry. The double-entry system, the backbone of accounting, evolved during the Renaissance. The first systematic presentation of double-entry book-keeping appeared in 1494, two years after Columbus discovered America. It was described in a mathematics book written by Luca Paciolli, a Fransiscan monk who was a friend of Leonardo da Vinci. Goethe, the famous German poet and dramatist, referred to double-entry book-keeping as "one of the finest discoveries of the human intellect". And, indeed, the importance of the double-entry system is difficult to appreciate. Suffice it to say that the double-entry technique made accounting records more comprehensive and orderly. Before the invention of double-entry book-keeping accounting records had been disorganised. Merchants literally had not known the state of their finances. The use of this technique had a positive effect on both business and trade. Some scholars think that there was a close relationship between the adoption of the double-entry system and economic growth in many countries. In the Middle Ages the knowledge of this technique was a pre-condition of rapid economic growth of most European countries. And the other way round, where this technique was lacking or slow to penetrate, economic development was delayed.

In Britain the first book on the double-entry system was written by one Hugh Old-Castle schoolmaster, who taught arithmetic. No copy of this first book has survived. Later some more books describing this new method were published. English businessmen began to employ this recording device. The primary advantage of double-entry accounting, to many historians of accounting, was that it abolished confusion in the accounts by creating order out of chaos.

In Russia double-entry accounting was introduced to the state administration under Peter I. It was first applied for the Admiralty and the army. Peter I required the managers of all the mining and smelting works to maintain records of their operations, thus providing a basis for the collection of national statistics. The first large enterprise to use double-entry was the Demidovs. It had over 50 works, mostly iron-making in the Urals. By the end of the 18th century the Demidov enterprise had acquired sophisticated accounting techniques.

What is the significance of the double-entry system for accounting? The double-entry system is based on the principle of duality, which means that all economic events have two aspects — effort and reward, sources and uses — that offset or balance each other. In the double-entry system each transaction must be recorded with at least one debit and one credit, in such a way that the total amount of debits and the total amount of credits equal each other. Because of the way it is designed, the system as a whole is always in balance.

Comments

suffice it to say – достатньо сказати

a merchant – купець

to penetrate –проникати, охоплювати; вникати

to survive – вижити, уціліти

to abolish confusion – знищити (відмінити) плутанину

chaos [kes] – хаос, повний безпорядок

sophisticated – витончений, досвідчений, складний

to acquire – отримати, набути

significance – значення, важливість, значимість

III. Re-read the text to find out which of its paragraphs deals with:

1. the first book on double-entry in Britain;

2. a short description of the double-entry system;

3. the introduction of double-entry into accounting practices in Russia;

4. the importance of the double-entry system for accounting.