Reviewed by Norlin G. Rueschhoff University of Notre Dame
This book, published in German, presents an historical view of accounting theory from the fourteenth century up to the time of the first German Commercial Code in 1861. It is a reprint of a book written in 1928 by a lawyer holding a university lectureship at the Commercial College of Berlin. The book has six chapters.
In the first chapter is a chronological listing of the references used in the study. The references include not only Italian, German, Dutch, French and English textbooks, but various other literary and official documents from what is now the European Common Market area. Each reference listing is accompanied by some brief remarks which show the development of some basic balance sheet and income statement concepts.
The first topic covered, in Chapter II, is inventories. Under single-entry bookkeeping, a periodic inventory had to be taken in order to compute a profit, The advent of double-entry bookkeeping in the fifteenth century fostered the practical development of the perpetual inventory system. That the perpetual inventory system required a physical inventory verification for balance sheet valuation purposes was not clearly set forth in theory however until the sixteenth century.
The next chapter, Chapter III, deals with the balance sheet. In the 15th century (Pacioli’s times) and the 16th century, the balance sheet was basically a trial balance. The computation of the profit and loss was most important and the balance sheet accounts were residuals. Inventory was also quite important and specifically dealt with in 18th century texts. The reason for the importance of inventory valuations was the early concern for the proper determination of a merchandise profit or loss.
Chapter IV deals with valuation problems. Up until Savary’s management text was published in French in 1675, there appeared to be no clearly distinguishable valuation theory. The development in practice showed some significant variances specifically presented in three examples, namely, (1) the calculation of the capital balances of the Fugger firm in 1527 after seventeen years to determine the firm’s distributions upon the founder’s death; (2) the biannual closings of the Haug firm’s books during the 1543-1562 period, and (3) the use of a “retail method” valuation at sales price less 10% by the Schickler firm of Berlin in 1795. In these examples and in the literature of these times, cost valuation was most often used. Appraisal prices were utilized occasionally. The “lower-of-cost-or-market rule” first appeared in 1675 and is treated historically in the next chapter.
The main origins of the rule of “lower-of-cost-or-market” were the theoretical presentation in Savary’s textbook in 1675 and the practical requirement set forth in the Prussian Federal Law of 1794. The difference in dates shows the considerable length of time before the rule’s use became widespread.
The final chapter provides a brief discussion of (1) receivable write-offs and (2) depreciation. Both of these accounting policies were long utilized in practice in the sixteenth, seventeenth, and eighteenth centuries, yet the 1861 German Commercial Code gave no heed to them. Theorists did not consider them in their texts until 1865 when Savary published his text; however, depreciation was treated by Magelsen as early as 1772. Until then, plant property accounts were often intermingled with the inventory accounts.
In total, the book is rather brief and covers some very simple con-cepts. The book’s main asset is its very clearly presented chrono-logical listing of excellent European references on accounting theory and practice. As a reference source, this book might be quite useful to the scholar of accounting history.
