Reviewed by Alvaro Martinelli Appalachian State University
The renewed interest of historical research in accounting and the contribution brought by many scholars during the last fifty years have left no doubt that the use of financial statements originated during the thirteenth century. Indeed, the earliest example of a balance sheet dates back to 1277, and it belonged to the partnership of Filippo Peruzzi of Florence. It is now recognized that from those earlier times, financial statements were drawn as separate and autonomous documents, although they were always closely related to the entries in the ledger. This is also the conclusion reached by Tito Antoni, a brilliant scholar in the history of accounting.
The documents analyzed in this book were found by the author in the State Archives of Pisa, in the “Book of Accounts” that the company of Biagio delle Brache, merchant from Pisa, kept from 1326 to 1356. In particular, two financial statements were drawn in 1347: one prepared by Biagio “for my own accounts,” and the other by one Colo Bugarro for the transactions in the “shop of the wool.”
Colo and Biagio had established a partnership for the manufacturing of cloth. Biagio, who contributed the capital, was to receive two-thirds of the profit, and Colo, the merchant-entrepreneur, the remaining one-third. Colo was also the accountant of the partnership.
The pages on which the financial statement discussed in this book was drawn were added and stitched, at different dates, to the ledger of Biagio, where he recorded his personal business transactions. The statement is formed by two different groups of accounts recorded in running form one after the other, with the assets first, followed by the division of profits, liabilities and the owners’ equity. The purpose of this statement was to show to Biagio how his capital had been invested and the amount of profits to be shared as of the first of September 1347. The accounts summarize several homogeneous classifications of debts and credits, transferred from the final totals found in the ledger.
The accounts are expressed in arabic numerals, and the monetary unit is an abstract lira called “good money” divided into 20 soldi and 240 denari. Only the submultiples of this abstract currency were minted in silver and copper.
The author gives us a vivid and detailed description of the manu-facturing and commerce of woolen cloths during the Middle Ages. Inside the shop of Colo and Biagio only small or minor works were performed, for which no expensive equipment was necessary. When during the long process of transformation of the wool into cloth the two partners had to go through a phase where big immobilization of capital was necessary, such as buildings and machinery, one may notice the intervention of outside entrepreneurs, specialized in that particular industrial stage of the manufacturing process. Consequently in the shop, the partners undertook the simple operations of cutting, carding and combing, performed by workers called by the generic name of “labourers.” The additional operations of washing, spinning (performed mainly in the countryside), warping and weaving, purging, fulling and dyeing, were performed by workers who exercised their art independently.
In order to determine production costs Colo Bugarro kept several subsidiary ledgers where he recorded all the facts in great detail. In the quaderno he recorded the cost of the wool delivered to the shop, including the original cost, transportation charges to the port of origin where it was loaded, and eventually the freight, unloading and storage expenses at Porto Pisano, and finally the carriage by land to the shop in Pisa.
All the different manufacturing operations performed outside the shop were initially recorded by Colo in the libro del mandato, and later transferred to special ledgers open to weavers, dyers, etc. At the end of the period the totals from these ledgers were used to prepare the financial statement. The libro del mandato was one of several subsidiary ledgers used by the partnership. In this book Colo kept record of all orders remitted to outside workers specialized in specific phases of the manufacturing process. Each account was debited for advance payments given to the worker, and it was credited for the total amount of the job just completed. The debit balance represented the debt of the company toward the independent worker.
The financial statement may be summarized as follows:
Assets
Cash L. 48 s. 6
Accounts Receivable 2,685 10
Inventory 780 2
Equipment 13 9
Prepaid Expenses (3 6
L. 3,533 s. 13
Liabilities and Equity
Accounts payable (short term) L. 127 s. 16
Accounts payable (long term) 1,608 6
Partners’ Equity 1,207 10
Net Income 590 1
L. 3,533 s. 13
It is of interest to notice that accounts receivable represent 76.46% of the total assets, since there was a long delay between sales and collections. During the Middle Ages money was a scarce commodity, so that quite often the customer had first to sell the merchandise he bought before being able to make any payment. It appears that this practice was causing some problems to the part-nership, which had to borrow from Biagio an additional L. 1,608 s. 6. One may also notice that the current ratio is 27:1, however if we include among liabilities the amount loaned by Biagio, the ratio becomes a more modest 2:1.
The author emphasizes how in the fourteenth century the partnership was already considered as a separate entity, more like an abstract person, and the capital account or equity represented a debt of the company toward its owners, as expressed by Colo: “I found that I owe ser Biagio 700 gold florins (L. 1,207 s. 10), which represent our capital.”
At the end, Colo will record the division of the profit: “Of three denari Colo shall receive one, or L. 196 s. 13. Of three denari ser Biagio shall receive two, or L. 393 s. 6.” So that Biagio invested his capital with a rate of return of 32.57%.
With this book Tito Antoni makes a significant contribution to the history of accounting in the Middle Ages, and he shows how during the first half of the fourteenth century the profit motive was already well rooted in the average merchant and how real capitalistic organizations were created in order to satisfy this need.
