Reviewed by Yoshiro Kimizuka Denkitsushin University
In Japan, where double-entry bookkeeping is only a century old, it is natural that studies in accounting history focus on other countries, primarily European. As long as they are concerned only with discovery of new facts, however, they do not deserve to be called scientific, though they may be a prelude to scientific research.
The volume under review is a challenging book that describes the logic, or theoretical schema, underlying the development of profit and loss accounting (hereinafter called “income accounting”) in the eighteenth century English-language accounting literature. The first part, consisting of six chapters, is entitled “Growth of periodic income accounting” and is devoted to theory; the second part, entitled “Development of modern bookkeeping methods in Great Britain” traces the evolution of income accounting by analyzing typical textbooks, in an attempt to verify the theory. The first part is therefore more appealing to us.
The first chapter, “Historical schemata of development of income accounting,” fascinates by revealing the author’s original thinking. He reexamines the popular idea that regular, or periodic, income accounting developed from profit measurements for individual merchandise or venture accounts. According to Watanabe, the latter developed into control, or “general merchandise” accounts, quite separate from the total (lifetime) income which sums all calculated incomes from the firm’s cradle to its grave, as it were. Moreover, total income includes all regular and special closings, and regular closings can be further subdivided into annual closings and those of other periods.
Until the fifteenth century, the basis for calculating income was the “balance,” based on an inventory in the case of small, family businesses; partnerships could be liquidated at the end of the contract period of two to five years. A balance was more reliable because the complicated weights and measures of the time produced inaccuracies in the accounts. The books were closed in order to transfer the accounts to new books, or to liquidate after the merchant’s death.
Thus, the author proposes a new concept that could be called “pioneer income accounting,” a transitional form that connects the individual merchandise or venture accounts to period or annual income accounting, lt implies that (1) merchants were concerned more with total profits than with the profit on each individual article of trade, (2) this was not calculated periodically, and (3) income was determined on the withdrawal of a partner, or on liquidation, but the balance of the profit and loss account was not posted to the capital, or equity, account. In short, Watanabe’s schema is: non-period income accounting a periodic income accounting period income accounting.
In the second chapter, “Early form of periodic income accounting,” this viewpoint is verified by examining the works of Pacioli and Ympyn, and Italian conventions in respect of closings. Ympyn showed how to post the balance of the profit and loss account to the capital account, and may have initiated this practice. Chapter three, “Establishment of periodic income accounting” is discussed against the background of the shifting of international markets from Antwerp to Amsterdam. Trading was done through the medium of the “going concern” as corporations appeared on the scene. But worksheets were used for accuracy in closing the books, and annual income accounting was not practiced generally.
The fourth chapter, “Formation of general merchandise ac-counts,” shows the introduction of a “sundry merchandise” account for a variety of individually insignificant articles, and then the emergence of a “general merchandise” account to simplify record-keeping. The trial balance appears to have originated in the latter part of the eighteenth century, according to the fifth chapter, “Appearance of the trial balance.” During that century, medieval book-keeping was transformed into modern bookkeeping. Work sheets evolved to find period income and prove the correctness of closing accounts, discussed in the sixth chapter, “Germination of work sheets.
The second part of the book describes the texts by Malcolm, Mair, Weston, and Hamilton. The author emphasizes the Scottish contribution to the industrial revolution and many other fields, including bookkeeping. A bibliography of books from Hugh Oldcastle (1543) to Henry Tuck (1843) is appended, providing valuable information for students.
This reviewer believes that the favorable comments that this volume has received in Japan attest to its excellence. Both he and Inoue regard Watanabe’s work as important, because it systematizes the evolution of both work sheets and the trial balance. Kimizuka and Moteki expect that Watanabe’s ideas will one day be verified by analysis of actual records.
