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The History of Accounting - From Record Keeping to Artificial Intelligence

Discover how the history of accounting evolved into the modern AP processes, including intelligent automation and data capture technology, that businesses use today.

Modern AP processes are a result of the colorful history of accounting. Records of business and financial transactions began on clay tablets. Today automation technology is used in many accounts payable departments for data capture, validation, matching and more. Explore the compelling evolution of accounting and how the numbers game has become what it is today.

Ancient History

Accounting is a system of recording and summarizing financial and business transactions. Various methods of record keeping, accounting, and accounting tools have been used as long as civilizations have engaged in trade. Many historians hypothesize that one reason writing systems were developed was to record trade transactions. Some of the earliest writings archaeologists discovered are accounts of tax records on clay tablets. These first examples of accounting from Mesopotamia and Egypt date back to 3300 to 2000 BCE.

In the 13th century, medieval Europe moved toward a money economy. Merchants relied on bookkeeping to oversee the multiple simultaneous transactions financed by bank loans. As industry moved forward, it was clear that accounting procedures needed to be refined for higher accuracy and efficiency.

The Father of Accounting

In 1458, Benedetto Contrugli invented the double-entry accounting system. It is defined as any bookkeeping system that involves a debit and/or credit entry for transactions. The double-entry system revolutionized accounting.

Luca Bartolomes Paciolo, an Italian mathematician and Franciscan monk, invented a system of record keeping that used a memorandum, ledger, and journal. He also wrote many books on accounting. Paciolo became known as the father of accounting and bookkeeping. In 1494, he wrote Summa de Arithmetica, Geometria, Proportioni et Proportionalita ("The Collected Knowledge of Arithmetic, Geometry, Proportion, and Proportionality"), which included a 27-page treatise on bookkeeping.

Centuries later, in 1854, the first professional organizations for accountants were established in Scotland. These early organizations were the Edinburgh Society of Accountants and the Glasgow Institute of Accountants and Actuaries. The members of these organizations could refer to themselves as “chartered accountants.” In 1887, the American Institute of Certified Public Accountants was established.

The Early Systems and Electronic Data Interchange

Always finding ways to improve accounting and AP processes, inventors started to create machines for mathematical calculations. In the 1880s, American William Burroughs invented the adding machine. Early adding machines did not have the critical features of a computer, such as internal memory. However, they enabled accountants to carry out arithmetic with higher accuracy and efficiency.

By the end of the century, technology continued to progress. Herman Hollerith developed a punch-card machine to speed up data handling for the U.S. Census. These innovative tabulating machines recorded data by punching a pattern of holes into cards. Also, the machine could read these patterns to call up pertinent information. Hollerith then took the punch-card concept into private industry when he founded IBM. Businesses were using punch-card machines for accounting by 1907. An IBM tabulator could process 100 cards a minute by 1928.

The history of accounting progressed into the future as we know it in 1955 when a company bought a computer for the first time purely for accounting. After World War II, General Electric purchased the UNIVAC (the UNIVersal Automatic Computer) to run payroll in its factories. The UNIVAC stored data on magnetic tape instead of punch cards. John Mauchly and J. Presper Eckert developed it. The UNIVAC took 40 hours to complete the payroll process.

The Ongoing Evolution of Technology

AP processes were streamlined in the 1960s when the U.S. transportation industry developed EDI to standardize transactions between vendors and customers. By 1982, automotive industry customers, such as Ford and General Motors, started to mandate EDI for their suppliers. Today, all major industries employ EDI, making it a significant milestone in the history of accounting. Sets of EDI standards, such as EDIFACT and X12, govern the structure and content of documents. In the United States, the primary standard used is X12. EDIFACT is the primary standard in Europe.

In 1978, the accounting world saw the birth of Visicalc. It was the first spreadsheet software that enabled financial modeling on the computer. During the same year, Peachtree Software introduced an accounting software package for the early personal computer. As a result, companies could computerize their accounting at a fraction of the cost of purchasing a mainframe. In 1998, Quickbooks was launched. It soon dominated the market for day-to-day bookkeeping. Now over 4.5 million companies use Quickbooks, making it the most popular accounting program in the U.S.

Optical Character Recognition (OCR) and Intelligent Data Capture (IDC)

Another shift in the history of accounting occurred in early 2000. The financial world experienced the entry of Advanced Data Capture: Optical Character Recognition (OCR) and Intelligent Data Capture (IDC) technology, which enables the automation of the accounts payable process. Instead of manually entering the information, key bits of data – such as the PO number, amount or date – are digitally captured and populated in a variety of index fields. Pre-set templates for commonly structured documents enable information to be automatically entered into the system. Customized business rules can be applied to add automation to the process from start to finish.

Today companies are increasing their AP efficiency with benchmarks based on robust technology that identifies and tracks complex factors that impact accounts payable workflow. Powerful performance dashboards and benchmarking capabilities improve the AP processes continuously. Analytics tools can monitor key performance indicators (KPIs) touchlessly, compare automation levels against real-world benchmarks, leverage best practice workflows, and consult experts for ongoing improvements.

Artificial Intelligence and the Future of Accounting

A study by Atherton Research revealed accounting tasks, as well as payroll, tax, banking, and audits, will be completely automated using AI-based technologies by 2020. Being fully automated will disrupt the current accounting industry, bringing both opportunities and challenges.

Rest assured that artificial intelligence will not eliminate accountants. Stephanie Weil, CEO of Accounteam, a Silicon Valley-based accounting firm, explained, “Having machines to do all these tedious and repetitive tasks could sound scary for many accountants because they are also very time-consuming and thus very lucrative.” She adds, “however if the AI system is well-configured, it can eliminate accounting errors that are generally hard to find and thereby reduce our liability and allows us to move to a more advisory role.”

The history of accounting has continued to evolve to improve accuracy, achieve optimum efficiency, and accommodate the growth of business and commerce around the world. AP processes are simplified, giving the AP team more time to devote to the analytical and administrative functions that benefit the C-suite and the company at large. By studying the past, accounting professionals can recognize the need for the ongoing changes that continue to occur to boost the value of this essential industry.

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