Accounting - Theses
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ItemUniformity and diversity: the development of classification concepts in double-entry accounting( 1973)Until well into the 19th century accounting data was processed under a system of "natural" classification. The categories used were purely descriptive with hardly an attempt at establishing an interrelated framework of classes. Accounts were regarded as isolated records intended to show movements or changes in individual assets and liabilities and to serve as evidence of property owned and liabilities owed. The only classification on two connected levels was the treatment of nominal accounts as subdivisions of capital but in practice closing transfers or expenses and revenue to capital were not usually carried out simultaneously and in a systematic manner and sometimes they were omitted altogether. Net proprietorship was regarded as a higher category comprising all assets and liabilities but it did not necessarily form part of the accounting system - many ledgers did not include capital accounts in the modern sense - but only appeared on statements outside the books. Almost from the beginning of accounting literature, writers recognized essential differences between various types of accounts and endeavoured to identify their respective characteristics. This primitive "theory" served practical purposes insofar as it helped to define and explain posting procedures and to establish posting rules. Rote learning of these rules and counting-house experience were the mainstay of accounting education. Up to the end of the 18th century the pattern of classification as set out in accounting treatises was remarkably uniform, although alternative procedure (e.g. in the treatment of investments) was recognized for certain types of accounts. On the other hand, accounting practice during that period shows considerable diversity, mainly because accountants - by design or neglect - frequently fell short of the standards set by contemporary authors. Both in accounting literature and in applied accounting of that period there were few examples of an independent, creative approach to the classification of accounting data. In the first half of the 19th century a new spirit of scientific investigation which is evident during the industrial revolution made itself felt in accounting literature. An increasing number of writers, particularly in France and Italy, questioned traditional techniques and began to analyze the basic concepts of the double-entry system in order to explore its inherent logic. Many of them believed that accounting was a science governed by laws or principles which they endeavoured to formulate. Because they proceeded from different points of departure, their theories differ widely although certain recurrent themes may be discerned. All of these theories are concerned with accounting as a process of classification; they enquire into the nature of transactions, the types of accounts on which they are recorded and the way in which this information is grouped and summarized. Early theories of accounts were mainly personalistic and balance-sheet oriented. However, towards the end of the century there is an increasing tendency towards a "materialistic", i.e. impersonally objective view of accounts and a stronger emphasis on the revenue statement. Economic flow concepts exercise an influence on the theory of accounts from the second half of the 19th century although they are not always applicable to enterprise accounts and are often supplemented by considerations of accounting flow. Several of the 19th century writers devised new systems intended to improve upon conventional classification methods. Early reformers developed various forms of multi-columnar journals and accounts which produced concentrated control data, e.g. a progressive total of period profit or capital. Some of these systems - usually directly derived from the authors' theories - were used in business practice but in most cases their impact was inconsiderable or at least only temporary. Towards the end of the century a group of authors showed great interest in the construction and design of charts of accounts, a development which may have been stimulated by the notion of account "series" - a distinctive feature of 19th century theory - and the increasing importance of industrial accounting. Some of the national systems of uniform accounting introduced in a number of European and other countries after World War II go back to these early classification theories. The confusing diversity of accounting thought expounded during the 19th and early 20th centuries did not have an immediate effect upon the majority of practising accountants and text-book writers; they continued to apply variants of traditional "Italian" system throughout most of that period and showed little, if any, propensity for the discussion of theoretical principles. It was only after World War I that the ideas and suggestions of 19th century theorists began to exercise an influence on business practice, mainly in connection with the post-war drive for rationalization and efficiency which emphasized the need for a systematic structuring of accounting data. The variety of conflicting ideas and theories proposed during the 19th and early 20th centuries caused a mild reaction even before the turn of the 19th century and led to repeated demands for greater consistency particularly in the preparation of accounting reports. The movement for uniform classification of accounting data which brought forth the first inter-firm comparison schemes and later encouraged the introduction of uniform national charts, used the categories and theoretical concepts of 19th century theory while endeavouring to reduce the number of alternatives to a workable minimum. Uniform classification of reports and accounts made great strides in a number of European countries after World War II, although the concept of uniformity was not necessarily extended to asset valuation and other aspects of the accounting process. Most national and sectional classification schemes in free-enterprise economies operate on a voluntary basis with a varying degree of acceptance. Both in uniform and conventional systems accounting classification tends to become stagnant unless methods and objectives are regularly re-assessed. It is therefore desirable that the principles of classification - the underlying rationale rather than the procedural detail - should be given continued attention both in accounting education and in applied accounting.