An integral element of the modern economic system is accounting. As historical practice shows, the idea of money and its circulation have an inextricable link with the existing economic structure. With the development of statehood, a need arose to systematize and streamline financial transactions. A huge contribution to solving this problem was made by Luca Pacioli - the "father" of accounting. Next, we find out what the merit of this mathematician is.
Luca Pacioli: biography
He was born in 1445 in the Apennines, in the small town of Borgo Sansepolcro. As a boy he was sent to a local monastery to study with the artist. In 1464, Luca Pacioli moved to Venice. There he was engaged in the education of merchant sons. It was at that moment that he first became acquainted with financial activities. In 1470, Luca Pacioli (photo mathematics presented in the article) moved to Rome. There he finishes compiling his textbook on commercial arithmetic. After Rome, the mathematician goes to Naples for three years. There he was engaged in trade, but, apparently, to no avail. In the years 1475-76, he tonsured monks and joined the Franciscan Order. Since 1477, Luca Pacioli taught 10 years at the University of Perugia. During his career, his ability to teach was repeatedly marked by salary increases. While working at the university, he created the main work, one of the chapters of which was "A treatise on records and accounts."
In 1488, the mathematician left the department and left for Rome. Over the next five years, he was in the state of Pietro Valletari (bishop). In 1493, Pacioli moved to Venice. Here he prepared his book for publication. After relaxing for a year, Pacioli took over the department of the University of Milan, where he began to teach mathematics. Here he meets Leonardo da Vinci and becomes his friend. In 1499, they moved to Florence. There, Pacioli taught mathematics for two years. After that, he goes to Bologna. In this city, almost half of the local budget was directed to the maintenance of the university. Acceptance of a mathematician for such a profitable and prestigious position speaks of his recognition.
A few years later, part of the book written by Luca Pacioli, A Treatise on Bills and Records, is published in Venice. The publication date of this work is 1504. By 1505, the mathematician had practically abandoned teaching and moved to Florence. But in 1508 he again went to Venice. There he gave public lectures. However, his main occupation at that time was preparing for the publication of his translation of Euclid. In 1509, another book was published, which was written by Luca Pacioli, “On Divine Proportion”. In 1510, the mathematician returned to his hometown and became a prior in a local monastery. However, his life was burdened by numerous intrigues of envious people. This was the reason that after four years he again went to Rome. There he taught at the Academy of Mathematics. In the hometown of Luca Pacioli, he returned shortly before his death - in 1517.
Mathematics Contribution to Methodology
In order to fully understand the meaning of the book written by Luca Pacioli ("Treatise on Accounts and Records"), it is necessary to evaluate the principles laid down in the system. Almost all experts say that the criteria proposed by the mathematician existed before him. For example, one cannot assume that Luca Pacioli is the author of a double entry. She existed before him. In this case, the question arises, what is the contribution of the mathematician in this case? Unlike his contemporaries, Pacioli believed that all the most important had already been invented before. The main task of scientists, he saw in the most effective construction of the curriculum. Pacioli did not imagine scientific creativity beyond the framework of the pedagogical process. Therefore, teaching has become an integral part of his life.
The ideas that Luca Pacioli had fully determined his scientific approach to both solving mathematical problems and related disciplines. This position was quite accurately subsequently determined by Galileo. Luca Pacioli's knowledge of mathematics was closely connected with the study of the harmony of the world. Moreover, the correctness of geometric shapes, as well as the convergence of balance, became for him manifestations of this harmony. The scientist did not just record those practices that existed before, but gave them a scientific description. This is the main significance of the activities carried out by Luca Pacioli. The Treaty on Accounts and Records thus became the foundation for improving the balance sheet system.
The essence of the scientific approach
Reflection of facts at the time of their existence is the most accurate. But along with this, this technique does not contribute to the further development of practices, since the method of cognition is focused on the past, an exact reproduction of what has already happened and is taking place. The approach used by Luca Pacioli made it possible to assess the situation not only on the segment of its development, but also in the future, as well as from the side of system and integrity. In his work, the mathematician did not take much into account, made a number of mistakes, described a more obsolete Venetian system, and not a progressive Florentine one. Nevertheless, the Treatise by Luca Pacioli showed that a scientific approach can be applied in the preparation of financial statements. He was able to turn the formation of balance into one of the directions of the exact sciences. This, in turn, led to the fact that many people (Leibniz, Cardano and others) became interested in the theory of accounting.
The introduction of a mathematical system
In his Treatise, Pacioli supplemented existing methods with ideas about combinatorics. In drawing up the balance at that time fractions were used due to the simultaneous use of several currencies. But during operations they were simply rounded. However, the main contribution of the mathematician to the methodology is considered to be his introduction of the idea of the integrity of the accounting system and that the convergence of the balance acts as a sign of its harmony. The latter definition was considered at that time not only as an aesthetic, but also as an engineering category. Assessment of the trade balance from this position made it possible to present the enterprise as a holistic system. The method that Luca Pacioli perfected - double entry - in his opinion, should have been applied not only to a certain trading enterprise, but to any organization and to the economy as a whole. This allows us to conclude that the approach that the mathematician introduced predetermined not only the development of financial reporting, it became the foundation for the formation and subsequent embodiment of economic thought.
Luca Pacioli: A Treatise on Accounts and Records (summary)
First of all, it should be said that the mathematician’s financial balance is presented in the form of a strictly ordered sequence of operations. The most complete reflection of "procedurality" can be seen in the principle of maintaining three books of accounting. The first - "Memorial" - reflects the chronological sequence of all cases. The sixth chapter of the Treatise describes the procedure for its maintenance. Over time, the Memorial was replaced by primary documents. As a result of this inconsistency arose between the dates of discharge, transaction and registration of the fact.
The next book is The Magazine. It was intended solely for internal use. It recorded all the operations that were described in the Memorial, but at the same time took into account their economic meaning (loss, profit, and so on). It was intended for postings and was also compiled in chronological order. The third book was Home. It is described in chapter 14 of the Treatise. In it, operations were recorded in a systematic rather than chronological order.
Clarity
This is the next principle that Pacioli has described. Clarity meant providing users with clear and complete information about the economic activity of the enterprise. All entries in books, in accordance with this principle, should be compiled in such a way that they provide for a conceptual reconstruction. In other words, operations should be recorded so that subsequently it was possible to restore the participants in the act, objects, time and place of the fact. To achieve the greatest clarity, knowledge of the accounting language is necessary. The mathematician used the Venetian dialect when writing the book, everywhere he used mathematical concepts. It was Pacioli who formed the prerequisites for creating the accounting language, which was the most understandable for most Italian financiers.
Inseparability of the property of the owner and the enterprise
This principle was quite natural for that time. The fact is that many merchants then acted as the sole owners of the enterprise, managers and recipients of losses and profits from trading activities. In accordance with this, accounting is carried out in the interests of the owner of the company. However, in 1840, Hippolytus Wannier formulated a different approach. In accordance with it, accounting is conducted not in the interests of the owner, but in the company. This approach reflected the proliferation of share capital.
Credit and debit
One of the most important principles in Pacioli was a dual recording. The mathematician adhered to the position that each business transaction should be reflected both in debit and in credit. This approach has the following objectives:
- Control over the correctness of fixing facts of economic activity.
- Establishing the size of the owner’s capital without inventory.
- Determination of financial result.
In his work, Pacioli paid much attention to the first task. At the same time, the second and third remained undeveloped. This leads to the formation of a method that distorts the correctness of the turnover. The fact is that Pacioli was primarily a scientist, and then a financier, so he considered the double-entry system within a causal relationship. In the debit, presumably, the mathematician saw the cause, and in the credit - the effect. This way of considering the financial system is primarily used in the economy. The most capacious formulation of this principle was given by Jezerski: there can be no income without spending. As the main aspects of dual recording, Pacioli took the following:
- The amount of debit turnover will always be identical to the amount of credit.
- The value of debit balances will always be identical to the value of credit.
These principles subsequently became widespread in accounting systems.
Reporting Subject
As Pacholi, he acted as the execution of the contract of sale. The reduction of all agreements to a document of this kind was quite typical for that time. Undoubtedly, the current variety of forms of economic life cannot fit into the framework of the concept of purchase and sale (for example, offsetting, barter, debt restructuring, and so on). However, in the time of Pacioli, this view was very progressive. In addition, this approach made it possible to formulate an adequate definition of value for that period as not only a fair price, but also a consequence of cost and market conditions.
Principle of adequacy
Its essence lies in the fact that all expenses incurred by the enterprise are correlated over time with the income received by it. Pacioli’s principle of adequacy provides for rather than introduces directly and explicitly. Only the money received is considered as income. At that time, concepts of profitability and depreciation were just beginning to take shape. Together, all this contributed to the creation of ideas about both monetary and other forms of profit. In accordance with the new understanding of income, we can say that it is formed not only as a result of business operations, but also as a result of applying the accounting methodology.
Maintaining balance
Pacioli considered accounting to be something in itself; in this regard, the value of the results of reporting acted as a relative concept. The results recorded in a particular book depend largely on the method of reporting. This provision is consistent with the idea of the most accurate recording of business transactions in the balance sheet, since all methods involve a fairly accurate reflection of the facts, while the conclusions can often be directly opposite. Pacioli understood all this perfectly. In this regard, as the main result of the financial statements, he saw its impact on decision-making in the field of economic management.
Honesty
This is the last principle that Pacioli proclaimed in his Treatise. The person who is engaged in balancing should be absolutely honest. This should be manifested not only in relation to the employer himself. The accountant should be primarily honest with God. In this regard, the hope of him in almost every chapter for a mathematician is neither a tribute to tradition, nor fulfillment of a monastic duty, but the main life principle. Pacholi considered deliberate misrepresentation of accounting information not only a financial violation. For a mathematician, this was primarily a disorder of divine harmony, which he sought to comprehend through computation.
Disadvantages of work
It should be said that the work of Pacioli acted primarily as a theoretical book. In this regard, it does not reflect many elements of the financial statements that existed at that time. These include, in particular:
- Maintaining additional and parallel books.
- Accounting for industrial costs.
- Maintaining balance for analytical purposes. At that time, reporting was already being carried out not only for reconciling information and closing books, but also acted as a management and control tool.
- Account management nostro and loro.
- The basics of the audit and the procedure for checking the balance.
- Calculation methods regarding profit distribution.
- The order of reservation of funds and distribution of totals for adjacent periods.
- Confirmation of reporting information by inventory methods.
The absence of these components indicates primarily the insufficient commercial experience of Pacioli. It is likely that he did not include the given details due to the fact that they simply did not fit into the whole system created by him.
Finally
The work of Pacioli was one of the first to use Italian as a means of expressing a scientific idea. The principles and categories formed by a mathematician find application at the present time. The main merit of Pacioli is not that he fixed them, because it would have been done so. His contribution is that it was thanks to his book that accounting was elevated to the status of science.