Kojiro Nishikawa
GRADUATE SCHOOL, NIHON UNIVERSITY

THE INTRODUCTION OF WESTERN BOOKKEEPING INTO JAPAN

Double-entry bookkeeping is believed to have originated in medieval Italy and, as it developed, writers on the subject such as Luca pac ioli helped spread the system to the rest of Europe in the paths of Ita lian trade. In those countries there were practically no indigen ous bookkeeping methods to impede the adoption of the new system. In Japan, however, a quite adequate method had long been firmly established and was continued in use by most merchants long after double-entry bookkeeping was introduced.

Fr ancois Caron, director of the factory of the Dutch East India comp any in Hirado from 1639 to 1641 was the first Westerner to comm ent on Japanese bookkeeping. In his report to the Governor Gener al of Batavia he stated:

“They have not the Italian manner of keeping Books, and yet fail not in their calculations; they reckon with little pellets, stuck upon little sticks upon a board, for the same purpose, after the manner of the Chineses, wherewith they will add, multiply, and divide, with more facility and certainty than we with Counters.”

Indigenous Japanese Bookkeeping in Feudal Days The Economic Background

In the year 1881 , the Japanese government investigated book-keeping methods of the average tradesman throughout the country and published Shojikanrei Ruishu (Compilation of Commerical Usage). The study disclosed that the traditional usage from the Tokugawa era (1603-1867) was still prevalent. The system wars characterized by a variation in the number of account books and the lack of uniformity as a whole.

*Based upon a paper delivered at the Second World Congress of Accounting Historians.

Larger merchants and wealthier families evolved more elaborate and ingenious systems of recording to serve their needs. These systems were cherished as a secret of the family and handed down from father to son. They were not made public in the Tokugawa era. The above mentioned Shojikanrei Ruishu was the first to describe any of these systems to the public. Here were illustrated the account books of two Hyogo merchants consisting respectively of twenty five and twenty nine books. These elaborate systems kept with great care in few large families were a phenomenal contrast with the common system prevailing among a multitude of small businesses.

The Shojikanrei Ruishu did not receive a wide distribution how-ever and it was not until 1936 that Professors Yasutaro Hirai and Katsuji Yamashita found “lzumo Bookkeeping” and brought it to the attention of the academic circle. They disclosed the bookkeep-ing system of the Tanabe Family, millionaire owners of iron forges in the early years of the nineteenth century.

After World War II interest in the historical development of old business firms increased and research was carried out based upon the actual data in account books and records of the famous Mitsui, Koonoike, Nakai, Hasegawa and some more Families of the Tokugawa period. In 1962 Eiichiro Ogura, Professor of Economics, Shiga National University published an outstanding book, Goshu Nakaike Choainoho (Bookkeeping Method of the Nakai Family)3 It was based upon the actual books and records of a prosperous business in drugs, dry goods, grain, etc. for a period of over one hundred and fifty years from 1734. More than 30 branches scattered over the country were controlled by the head of the family through annual balancing and reporting of accounts. Imputed interest was charged to each branch in evaluating their operations. A distinction of Nakai’s bookkeeping was that its main ledger, daifukucho, contained all accounts from which tanaoroshi mokuroku (inventory accounts) were prepared every year. The inventory accounts were in three parts showing respectively operating results from a balance sheet calculation of capital, liabilities and assets, and an itemized and a summarized statement of income.

Although the systems of the large mercantile families were kept secret, a written manual was sometimes prepared for the guidance of future generations. Such was the case of the Nakai Family which had prepared in about 1828 a manual listing 47 books together with a description of the items to be entered in each. However, no author attempted to formulate a basic theory of accounts and no text book was written. Therefore, as Arthur Woolf states,4 no uniform accounting system existed in Japan. Nevertheless, there were several basic similarities or common characteristics in the isolated systems which were developed independently, probably because of the fact that in order to maintain the effectiveness of a system it must constantly be compatible with the common environment in which it operates.

Such was the situation of Japan when Western bookkeeping was first introduced.5 The prosperous mercantile families had gained the real power in the feudal society and adhered to their traditional methods of keeping books long after they had been replaced by the new method after the restoration of the Meiji Government.

Characteristics of the Traditional System

As stated before, the bookkeeping systems of both small and large merchants were far from uniform. The names of books and the system of record keeping varied in different businesses and districts. The most popular books, however, were a personal ledger (daifukucho), a purchase book (kaicho), a sales book (uricho), and a cash book (kingindeiricho).
Account books were made of common writing paper, usually about 34 x 44 cm. in size, folded in two and bound either at the end or the middle of the paper. These books were neither ruled nor paged. Entries for deductions or decreases were marked with a Japanese character to signify their nature. Sometimes the original entries were dimly struck out or marked with a symbol resembling an inverted capital letter L, instead of making a contra entry.

The most conspicuous difference of traditional Japanese book-keeping from Western bookkeeping is its treatment of fixed assets which are charged to expenses when purchased. Another differ-ence, the use of a multitude of account books, can probably be explained by the narrowness of the paper and the large characters employed. The lack of systematic arrangements and classification of recordings has also been noted.

But in some of its aspects Japanese traditional bookkeeping was curiously similar to the double entry system. In Nakai’s bookkeeping method, as Professor Ogura notes, a duality of entry was maintained throughout the entire system. All entries were made in pairs in different books and checked against each other and marked with a stamp, For instance, the total of cash sales entered in the sales book was balanced with a cash receipts entry in the cash book. In the same way all entries were balanced and marked one by one continuously through all related account books to: the final end, the annual inventories. These provided a proof of entries and calculations and also substantiated the duality of entries maintained throughout the whole system. The Tanabe family system provided for three semi-annual statements, one statement of assets and liabilities, and two income statements respectively showing (1) net results by comparing opening with closing balances of assets and liabilities6 and (2) summaries of revenues & expenses and operation results. One was prepared by “inventory method” and the other by “derivation method.’’7 Tanabe businessmen called those “double-sided accounts.”

Debits & Credits and Some Contradistinctive Terms in Japan

There are several contradistinctive terms to denote the natural duality involved in business transactions in Japan, as follows:

Japanese Terms English Equivalents

1. Kasi & Kari or Tai & Shako Lending & Borrowing
2. Sui & Too or De & Iri Payment & Receipt or Outgoing
& Incoming or Outlay & come
3. Shu & Shi Receipt & Payment
4. Son & Toku Loss & Gain

At present, “debit & credit” in Japanese are “kari & kashi” or “karikata & kashikata”. But strictly speaking, there were no Japanese words identical in sense and usage with “debit & credit”. The early authors had to learn by trial and error. At the beginning the Osaka Mint adopted “sui & too” (outgoing & incoming) in place of “debit & credit” and used them for eleven years until “ka rikata & kashikata” replaced “sui & too” in 1882. Fukuzawa in his Ch oainoho rendered them into “kari & kashi” with the following expl anation;
“In Western Bookkeeping, they use ‘Debit & Credit’ from C ustomer’s standpoint, while in Japan the terms ‘kari & kashi’ are used from shopkeeper’s point of view.

It is easier for us to understand to reverse ‘Debit & Credit’ or to consider all transactions as being analogous with money transactions and substitute the terms ‘Receipt & Payment’ for ‘Debit & Credit’, so as to conform closer to conception of the people of Japan.” (Abridged)8

Ho wever, in view of increasing dealings with foreigners, Fuku-zawa decided to use the terms “kari & kashi” (debit & credit), rathe r than his own suggested terminology. In Ginko Boklseiho publi s hed six months later than Choainoho, Fukuzawa’s idea was adop ted by his former students who were among those who translated the original manuscript of Shand. They first explained principle s of debtor & creditor basing on C. C. Marsh’s Bank Bookkeeping9 and then touched Fukuzawa’s idea, “an opinion to construe deb it & Credit as Receipt & Payment”,10 and translated “credit slip” a nd “debit slip” as “payment slip” in Ginko Bokiseiho. This gave rise to a system of “Shushi Bokiho” (Receipt & Payment Bookkeeping or Cash Method Bookkeeping) which gained a great popularity for sometime before the World War II in Japan.”

Japanese Bookkeeping Versus Western Bookkeeping

The Committee on Accounting History of the American Account-ing Association once suggested the possibility of comparative his-torical research among different countries.12 In Japan, however, such a comparison was made a century ago. Waoo Chomen Kufabe (Japanese & Western Bookkeeping Compared), 1878, by Kiyoshi Fujii (1851-?), a teacher of Kobe Shogya Koshujo (Kobe Commercial School) is an early example. The author was a pupil of Fukuzawa and once studied bookkeeping at the Osaka Mint. This book consists of two volumes and illustrates three sets of books in two ways, (1) Western bookkeeping of ruled books with horizontal decimal notation of Japanese figures, and (2) Japanese bookkeeping of unruled books and vertical traditional notation of Japanese figures. The first set of books consists of three slips, a Journal and a ledger as follows:

Payment slip
Transfer slip Day Book General Ledger Daily Balance Sheet
Receipt slip

The Day Book is a cash journal (with three columns on each side; cash, transfer and total), evidently taken from Shand’s Bank Bookkeeping together with slips and a ledger. The author introduced the transfer slip for the first time in Japan. This is the origin of the form which was later called “Shand’s Bookkeeping” and spread all over the country before World War II.

Using the unruled books of Japanese bookkeeping the author suggested that entries in the day book (cash journal) be made in black for cash and in red for transfer; and all entries in general ledger be marked with a character signifying either receipt or pay-ment. This was certainly an innovation from the traditional book-keeping method of Japan, but it was too complicated to be of practical use. The comparison presented in Waoo Chomen Kurabe brought out clearly the superiority of the column-ruled books and decimal notation to the unruled books and traditional notation of Japan.

Another comparison was made in Bokigaku Seiri (Theory of Sci-ence of Bookkeeping), 1879, by Shin-ichi Kure (1848-?). The au-thor studied English from Japanese teachers and an American, Carroll, by name, and operated a private school himself. He com-piled this book based on the first part of William Inglis’s Book-keep-ing by Single & Double Entry. This is the second bookkeeping text to have adopted Arabic figures in Japan. The author showed and explained two English forms of balance sheets, horizontal notation of Arabic figures and vertical notation of Japanese figures for comparison. He also illustrated profit calculations charging cost of furniture to expenses when incurred. Here he has pointed out for the first time in Japan the important differences of Western book-keeping from our own.

The Japanese Monetary System

The money system of the Tokugawa era (1603-1867) was com-plicated; three kinds of coins (gold, silver and copper) and notes issued by the local feudal lords were in circulation and rat es of exchange fluctuated from time to time. Each entry in the cash book was marked with a Japanese character to signify the ki nd of money. The units of money and an example of exchange rate are as follow;

Units of Money
Gold 4 shu = 1 bu14 4 bu = 1 ryo
Silver 10 rin = 1 bu14 10 bu = 1 monme
Copper 1,000 mon = 1 kan
Exchange Rate
1 gold ryo = 60 silver monmes = 6 copper kans

Nishikawa: The Introduction of Western Bookkeeping Into Japan

31

In 18 54, Japan opened its doors to foreign countries and the long Toku gawa regime ended in 1867. Four years later the new government adopted a mode rn decimal coinage system and the gold standard for the yen.

Nu merical Notation in Japanese Bookkeeping

In Accounting Evolution to 1900, A. C. Littleton lists writing, mo ney and arithmetric as the mechanical elements for the formatio n of systematic bookkeeping.15 Writing and arithmetic were, ho wever, soon combined into written arithmetic or a system of nu merical notations which were further developed into Arabic nu-meral s and method of computation. This new method, algorizm, using nine numerals and a zero enabled the Medieval Italian mer-chant s to arrange figures in columns, perform subtraction by contraposition and red uce their bookkeeping procedure to a sequence of simple computations.

In Japan, however, the process of account keeping was sepa-rated into two phases, (1) making a record in the book with a writ-ing brush and (2) computation on the abacus (“soroban”). In the Japanese notation numbers are expressed in writing by nine char-acters denoting one to nine and, in the place of the zero, some more characters respectively denoting ten, hundred, thousand, ten-thousand, hundred-million, and so on. Numbers are written as they are read. To write 1976, for example, the characters representing thousand, hundred and ten are placed between the characters denoting 1, 9, 7 and 6. In traditional account books numerals are written vertically in cursive style probably to speed writing and also as a precaution against fraudulent changes.

The numerical notation was the most troublesome problem for Fukuzawa and other early authors in introducing Western book-keeping, as the Arabic figures were completely unknown in those days in Japan. In early 1871, the government erected a mint in Osaka and adopted the English system of bookkeeping. The chief accountant Vicente E. Braga (1840-I911), a Portuguese, kept all books in English, subsequentially they were translated into Jap-anese, using horizontal notation of the Japanese figures for the first one and one half years and Arabic figures thereafter. In the year 1876, the government adopted Arabic figures for the entire official system of bookkeeping of Japan. The following list shows the form of numerical notations found in the earliest accounting texts printed in Japan;

The Accounting Historians Journal, Spring, 1977

Numerical Notation
Bibliography Foreign Model Horizontal Vertical

1. Tametsugu Mishima;
ZOHEl BOKINOHO (MS) None Japanese

2. Yukichi Fukuzawa; Bryant & Stratton:
CHOAINOHU, 1873-4 Common School Book-
keeping Japanese

3. Nakaba Kato;16 William Inglis; Book-
SHOKA HITSUYO, 1873-77 keeping by Single &
Double Entry Japanese

4. Finance Ministry; Alexander Allan Shand;
GlNKO BOKISEIHU, 1873 Bank Book-keeping (MS) Japanese

5. Norihide Kobayashi; C. C. Marsh: A Course
MARUSUCHI KIBOHO, of Practice in Single
1875 Entry Book-keeping Japanese

6. Norihide Kobayashi; C. C. Marsh; The Science
MARUSUSHI FUKUSHlKl of Double Entry Book-
KIBOHO, 1876 keeping Japanese

7. Ryuichi Kurihara;17
KlSOHO HITORIMANABI, None Japanese
1876

8. Anonymous; S. S. Packard; Manual
SHOYO BOKIHO SHOHO, of Theoretical Train-
1877 ing in the Science of
Accounts Arabic

9. Hidejiro Usagawa;18 Charles Hutton; A
NlCHlYU BOKIHO, 1878 Complete Treatise on
Practical Book-keeping Arabic

10. Shutaro Morishima; E. G. Folsom;
BOKIGAKU REIDAI, 1878 Logic of Accounts Japanese

11. Shutaro Morishima & Bryant & Stratton;
Iwakusu Morishita; Counting House Book-
BOKIGAKU KAITEI, 1878 keeping Japanese

Nearly all of the above named authors were of the intellectual samurai class. Fukuzawa (1835-1901) was the founder of Keio-giiuku, the precursor of the Keio University. Six authors of the above mentioned works had received their training from Fukuzawa-He introduced the vertical decimal notation of Japanese figures in his Choainoho. Ginko Bokiseiho (Bank Bookkeeping) was written by a Scotsman, Alexander Allan Shand (1844-1930), secretary of the Currency Bureau, the Finance Ministry, and was published by the Ministry. The Department of Education published a translation of C. C. Marsh’s Book-keeping By Single and Double Entry as a text book for Japanese schools.

Shoyo Bokiho Shoho, a reprint of S. S. Packard’s text was also used by William C. Whitney (182 5-1882), the first teacher from America at Shoho Koshujo, (later Hitotsubashi University). The Osaka Mint, the Currency Bureau of the Department of Finance and the Department of Education and two schools, Keio-gijuku and Shoho Koshujo were the main gate-ways through which Western bookkeeping was imported into Japan. The above listed bookkeeping texts may be recapitulated by those entrances as follows;

British American
Gateways Teachers Bookkeeping Bookkeeping
Osaka Mint Vicente E. Braga 1.
Currency Bureau Alexander Allan Shand 4, 9.
Department of Education Marion M. Scott 5, 6, 7.
Keio-gijuku Yukichi Fukuzawa 2, 11.
Shoho Koshujo William C. Whitney 8, 10.

Unique Contributions of Japanese Authors Mint Bookkeeping, a Double Entry Bookkeeping in Kind,

As noted earlier, Braga introduced the English method of mint bookkeeping which consists of voucher—waste journal—journal— general ledger—daily balance—profit & loss account and balance sheet. There were three complete sets of books and separate ac-counts maintained for quantities (ounces) of gold, silver and copper. In early 1873, Tametsugu Mishima (1 837-1880), Japanese accountant under Braga, wrote Zohei Bokinoho (Mint Bookkeeping), a manuscript originally in four volumes of which two volumes are not extant.

Here he set forth in sufficient details and exactness what he had learned from Braga. He explained the actual procedures of mint bookkeeping based on the transactions of gold for two months ending February 28, 1873. It may not be too much to say that this is the only treatise known in the academic circles of the world on double entry maintained in kind instead of in terms of monetary value. Here is a speciment of calculation of a shipment of gold bullion received for coining;19

Received Standard
Bullion Gold Remarks
Bullion received 734.45 oz oz Standard fineness, 900
Assayed fineness,
995.2 73.80 81 1.41 733.80 X 995.2 ¦*¦ 900
Gold sweep .22 .22
Assaying pieces .08 .08
Melting loss .35
Total 734.45 811.71

Received Standard
Bullion Gold
Premelting Fees,
1/1000 .81
Seignorage, 1/100 8.11
Standard gold to
be returned 802.79 oz
Equivalent in gold
coins 14,982.08

Remarks

1 oz -480 gr. 1.00-25.72 gr. 802.79 X 480 ¦*¦ 25.72

The Earliest Printed Book on the History of Bookkeeping

Japan in adopting the double entry system, was a leader in the field of the history of accounting. In the year 1886, Rikitaro Unno (1861-1944) published Bokigaku Kigenko (Origin of Bookkeeping). It is a small pamphlet, 12.5 x 18.2 cm in size, 39 pages, but it is one of the earliest printed works on bookkeeping history in the world. The author learned bookkeeping at Mitsubishi Shogyo Gakko (Mitsubishi Commercial School), where the aforesaid Morishita was principal and Morishima, the teacher, and their works, Bokigaku Kaitei and Bokigaku Reidai, were the text-books. After graduation in 1881, he entered Nihon Railway Company and as a hobby, published a few books including this one.20

At first he intended to compile a history in English and gathered material from books of reference. His bibliography contains nine-teen books, including six treatises on bookkeeping, three on mathematics, two history books and eight dictionaries and encyclopedias. There is an interesting confusion about the author of the first printed work on double entry who was called Lucas de Burgo or Lucas Paciolus in one place and Brother Luke in another place.21 The following is the most noteworthy passage in this book;

“As Anderson23 tells us, double entry seems to have been deduced from the principles of numerical algebra. Rela-tions between gain and loss and stock, and functions of debit and credit are all proved clearly by using equations and algebraic symbolizations, as shown below;

Let S = the net stock at opening the books.
p = the gain and loss at closing the books.
D = the Dr. side of the balance account.
C = the Cr. side of the balance account. Then S ± p = N = the net stock at closing the books, and D – C = N = the net stock at closing the books.

Hence (per Ax. 1. Euclid) D – C = N and therefore D = N + C which was to be proved; that is, the Dr. side of the balance account should equal the Cr. side, added to the net stock. Hence the proof of book-keeping may be con-sidered as consisting of two methods of ascertaining my property and these must always agree if the work be right.”

I have just found the source of this important passage in Abraham Rees’s cyclopedia. It is noteworthy that this suggestion appeared earlier in Japan than a similar idea of Friedrich Hugli in Europe.25 This is not the end of the story. It can be easily seen that to assimilate foreign techniques and practices quite different from the indigenous ones would meet with difficulties. It will take time for the Western System of bookkeeping to be thoroughly under-stood and adapted to the environment before it takes firm root in Japan.

FOOTNOTES

1Caron, p. 57.
2Nishikawa, The Early History, pp. 380, 381.
3Ogura, “The Nakai Family’s Bookkeeping Method” pp. 123-129.
4Woolf, p. 111.
5Nishikawa, working paper #10.
6Most certainly a type of statement of changes in financial position.
7Sprague, p. 31.
8Fukuzawa, pp. 6-7, pp. 9-10.
9Marsh, p. 9.
10Finance Ministry, pp. 5-7.
11Nishikawa, “Origin of Cash Method Bookkeeping in Japan”.
12American Accounting Association, p. 54.
13Ogura, Goshu Nakaike Choainoho, p. 50.
14The gold bu and the silver bu are different monetary units.
15Littleton, pp, 13-14.
16Nakaba Kato (1844-19l4) was introduced to Western culture by a teacher of the feudal clan and became an official of the Department of Industry of the Meiji government. This book was published by his own effort and therefore cannot be assigned to any gateway.
17Kurihara, a normal school teacher, wrote this book as a textbook. This is the first book written by a Japanese without a direct foreign model.
18Hidejiro Usagawa (1849-1881) was a graduate of Fukuzawa’s school and a member of the group of five officials in charge of translation of Shand’s Bank Book-keeping. Nichiyo-Bokiho is the first Japanese text having adopted Arabic numerals. He suggested omitting the prefix “To & By” to the debit and credit entries for the sake of simplicity.
19Mishima, pp. 6-7.
20Nishikawa, “An Essay on Rikitaro Unno’s Bokigaku Kigenko – Origin of Book-keeping, 1886”, pp. 1-8.
21Unno, pp. 12-13.
22Unno, pp. 8-11.
23Adam Anderson published a four-volume history of commerce in the late 18th century in London, Historical & Chronological Deduction of the Origin of Commerce, Vol. 1, p. 408.
24Rees, The Cyclopedia.
25Koima, pp. 196-209.
BIBLIOGRAPHY
American Accounting Association, Report of the Committee on Accounting History,
Supplement to the Accounting Review, Vol. XIV, 1970. Caron, Francois, A True Description of the Mighty Kingdoms of Japan & Siam,
Reprinted from the English Edition of 1663 with Introduction, Notes and Appendixes by C. R. Boxer, London, The Argonaut Press, 1935. France Ministry, Ginko Bokiseiho, Tokyo, Finance Ministry, 1873. Fukuzawa, Yukichi, Choainoho, Vol. 1, Tokyo, Keio-gijuku Shuppankyoku, 1873. Kojimi, Osamu, Bokishi (History of Bookkeeping, in Japanese with English resume),
Tokyo, Moriyama Book Store, 1973.
Littleton, A. C., Accounting Evolution to 1900, New York, American Institute Pub-lishing Co., 1933. Marsh, C. C., The Theory and Practice of Bank Book-keeping and Joint Stock
Accounts, 7 ed., New York, D. Appleton and Company, 1871. Mishima, Tametsugu, Zohei Bokinoho (Mint Bookkeeping) MS, Owned by Osaka
Mint, 1873. Nishikawa, Kojiro, “The Early History of Double-entry Book-keeping in Japan,” in
A. C. Littleton & B. S. Yamey ed., Studies in the History of Accounting, London,
Sweet & Maxwell Limited, 1956. Nishikawa, Kojiro, “A Significant Year (1873) in the History of Bookkeeping in
Japan, “The Academy of Accounting Historians’ Working Paper Series No. 10,
1974, contains additional information. Nishikawa, Kojiro, Origin of Cash Method Bookkeeping in Japan, Tokyo, The
Science Council of Japan, 1956.
Nishikawa, Kojiro, “An Essay on Rikitaro Unno’s Bikigaku Kigenko (Origin of Book-keeping), 1886,” in Kokuminkeizai Zasshi, Vol. CXXXII, No. 4, Keizai-Keiei
Gakkai, Kobe University, October, 1975. Ogura, Eiichiro, “The Nakai Family’s Bookkeeping Method”, in Today’s Japan,
Takoyo, Cross Continent Company, January, 1960.
Ogura, Eiichiro, Goshu Nakaike Choainoho, Kyoto, Minerva Shobo, 1962. Rees, Abraham, The Cyclopedia: or Universal Dictionary of Arts, Sciences and
Literature, London, Longman, Hurst, Rees & Co., 1819., Vol. V, p. 5, Section
“Book-keeping,—The proof of book-keeping.’’ Sprague, Charles E., The Philosophy of Accounts, New York, The Ronald Press
Company, 1923. Unno, Rikitaro, Bokigaku Kigenko (Origin of Bookkeeping), Tokyo, Keizai Zasshisha,
1886. Woolf, Arthur H., A Short History of Accountants and Accountancy, London, Gee
& Co., 1912.