A double-entry system of accounting (now called FINANCIAL ACCOUNTING) was first described in 1494 by a Franciscan monk, Fra Luca Pacioli, living in the Tuscany region of Italy. As a result of his extensive treatment of the doubleentry system, then known also as the Venetian system, Pacioli is regarded as the father of accounting. Born in 1445, he was one of the greatest minds of the Renaissance, distinguishing himself as a mathematician, college professor, and author. The accounting process Pacioli described is called a double-entry system because it takes two entries to record a transaction. Drawing upon the nature of a transaction, an exchange where equal-valued RESOURCES are simultaneously received and given up, the accounting system uses one entry to record the resource received in a transaction and another entry to record the resource given in exchange. The first entry of the double entry is known as the debit, and the dollar figure of the first entry is placed in the left column of the journal. (Debit comes from the Latin word debere meaning “left” and is abbreviated dr.) The following entry is the credit, and the dollar figure of this entry is placed in the right column of the journal. (Credit comes from the Latin word credere meaning “right” and is abbreviated cr.) Because the double entry represents a transaction, an exchange of equal-valued resources, the amount of the debit entry is equal to the amount of the credit entry, and at any given time in the accounting cycle, the sum of all the debit entries must equal the sum of all the credit entries. For centuries, accounting existed as an oral tradition passed from one generation to the next. The rules, methods, and formats for accounting became widely known and generally accepted over time by accounting practitioners. It was not until the 20th century that accounting rules were made more formal, rather than accepted as an oral tradition. Largely due to the efforts of the FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) and the AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS (AICPA), perhaps the two most important organizations governing the practice of financial accounting today, the rules for the practice of accounting are now codified and are regarded as “generally accepted accounting principles” (GAAP). The SECURITIES AND EXCHANGE COMMISSION (SEC) requires that all published FINANCIAL STATEMENTS be constructed in accordance with GAAP. The INTERNAL REVENUE SERVICE (IRS) requires that the accounting for businesses follow GAAP. Because of the long oral tradition, the codification of GAAP, the various organizations concerned with the practice of financial accounting, and its backing from the SEC and IRS, financial (double-entry) accounting has become the standard among today’s businesses and organizations.
See also DEBIT, CREDIT.