Richard H. Homburger
PROFESSOR OF ACCOUNTlNG WICHITA STATE UNIVERSITY
Gary John Previts
ASSOCIATE PROFESSOR OF ACCOUNTING THE UNIVERSITY OF ALABAMA
THE RELEVANCE OF “ZWEI PFADFINDER”
While double-entry as a method was rather fully developed at the time of Luca Paciolo (1494) its underlying concepts were less well understood and explained for some time. Early teachers were more concerned with the mechanics of debits and credits than with the underlying theory of accounts which could explain the economic rationale of the system. Even after such a theory had begun to develop, it was concerned more with the nature and meaning of individual accounts and their classification than with the overall significance and meaning of financial reports which could be drawn therefrom. Until the last century, therefore, a theory of valuation which must essentially rest upon an established theory of accounts, could not be adequately developed. All of this suggests the im¬portance of establishing an understanding as to when and how a theory of accounts emerged.
Zweikonten Theorie
The article by Hatfield deals with one rather peculiar phase in the development of the theory of accounts, namely the “Zweikon-ten-Theorie” or theory of two account series which was prominent in Germany and Switzerland in the middle and later part of the nineteenth century. This theory was spearheaded by Augspurg and Kurtzbauer and, around the turn of the century more fully developed by Hugli and Schar. It is Hatfield’s contention that two American writers, Thomas Jones and B. F. Foster preceded Augspurg and Kurzbauer in the discovery of this theory of accounts.
The substance of this theory is the classification of all accounts into two main categories: on one hand, those representing the sub-stance of the business investment (Vermoegens-Bestandteile)-such as the various asset and liability accounts; on the other hand, those representing the results of the investment (Reinvermoegen) and (Erfolgskonten) such as the capital, revenue and expense accounts. At first glance, such a theory would seem to provide the founda¬tion for our modern proprietary theory of accounts and the account¬ing equation which was developed by Cronhelm and others during the nineteenth century and which, in our modern teaching approach to double-entry bookkeeping, have replaced the account personifi¬cation approach used for so long and so extensively in the past. On the other hand, this theory of a residual net worth is so closely allied to the double-entry idea itself that it is reasonable to assume that it was intuitively understood by those who developed the double-entry procedure originally. The difference between the theory of the two account series and the somewhat older person-alistic account theory is that the advocates of the personalistic theory viewed the account or accounts of the proprietor as claim¬ants against the enterprise not as the “other side of the same coin.”
Van Gezel’s Dichotomy
Early traces of the theory of the two account series are found among authors of the 16th century Flemish school. [Littleton, p. 202; Chatfield, p. 551. Simon Stevin is regarded by 19th century authors to have been the precursor of the theory [ten Have, p. 64]. Yamey notes, however, that it was Van Gezel (1681) who should receive the credit for devising the first fully satisfactory account classifica¬tion under this theory, some eighty years after Stevin [Yamey, p. 155]. Van Gezel employed his own terminology and his writing was sometimes difficult to follow, therefore his book was not well known and is not believed to have reached a second edition, a factor some¬what unusual for books of that era. The title and specifics of his work lead us to additional insights as to the purposes he sought to fu ifill :
Short treatise of the contemplative Instruction of Commercial Accounting, useful to all those who like the true Knowledge of this Art and are well-disposed to understand it more thoroughly than it was ever described or taught to this day, . . , [ten Have, p. 70]
Yamey acknowledges Van Gezel’s dichotomy as follows:
“At the most general level of classification, he wrote, there are only two classes of accounts: “own” accounts (eigene) and “contrary” accounts (tegengestelde). An own account is one “whose debit means the merchant’s [owner’s] debit, and whose credit means the merchant’s credit.’’ The contrary accounts include accounts for other persons, for cash and for goods. A contrary account is one “whose debit means the merchant’s credit, and whose credit means the merchant’s debit.” This somewhat cryptic explanation is elucidated immediately. The own accounts are kept so that the owner can know how big his initial capital (estate) is, and why and by how much it increases or decreases in a period of trading. The contrary accounts, on the other hand, are necessary to show how the owner “stands with each person, and money, and goods, with whom or which he trades.” Together the own and the con¬trary accounts are also necessary “to provide the proof of each other in the making of the balance account.” The rules for debiting and crediting ledger accounts are then derived. The author distinguishes three classes of transac¬tions or events (posten): advantageous (voordeelig), dis-advantageous (nadeelig), and indifferent (middel-marig). Transactions of the first class are those which (taken by themselves) increase the owner’s capital; the second are those which decrease it; and the third are those which leave it unchanged. It follows that for an advantageous transaction an own account must be credited and a con-trary account debited; that the converse applies for a dis-advantageous transaction; and that an indifferent trans-action affects contrary accounts alone.
In his rules for making debits and credits, van Gezel placed the emphasis on the nature of the accounts and not, as was customary, on the type of the transaction. (Yamey, pp. 155-6)”
Yamey further indicates that earlier works by moschetti (Venice, 161 0) suggest a familiarity with Stevin’s writings and correspond to Van Gezel’s treatment, apparently having derived the approach independently. Zambelli (1671), he notes, also had a bi-partite classification but arrived at it by a different route than that used by the Flemish writers.
Controversy
The issue of the first discovery of a bi-partite theory of accounts has lost much of its appeal because of the corporate entity theory and newer international developments. Yet we stand to benefit in learning more about the origins of this theory in the sense we acknowledge that all knowledge is the product of many ages- and when one link in the chain of development is lost it becomes ir-replaceable.
Resolution of the conflicts over the origins of this theory is likely to involve understandings and misunderstandings of a host of vague notions advanced by early writers which, when given the current level of knowledge, appear to resemble forerunners of our modern theory of accounts. Historians must take care to distinguish be¬tween a concept’s initial function and its dialectic relation to the process of accounting development. Undoubtedly scholars will con¬tinue to discover evidence which hints of earlier uses of a bi¬partite theory of accounts and further controversy will ensue. A comparison could be drawn between this and the more widely known controversy concerning when the idea of the double-entry form first originated. Perhaps neither controversy will ever be com¬pletely settled-a prospect which holds a particular appeal to the historian and the cynic.
Contemporary Relevance
From about 1894 to 1925, Frese notes that there existed in Ger-man accounting and business periodicals (notably Zeitschrift fur Buchhaltung and Zeitschrift fur Handelswissenschaft und Handel-spraxis) a series of heated literary debates as to the merits of funda¬mental theories of accounts related to double entry. [Frese, passim]. Hatfield’s article enters into the thick of this debate in a timely and authoritative manner to establish the “theoretical credentials’’ of American writers in topics thought to be previously reserved for the advanced accounting intellectual communities of Europe. We now know of the contributions of Hautschul (1840) which are contem¬porary to Jones’ views, and that we have evidence that earlier European writers including Crippa (1838) [Gomberg, p. 48], Cron-helm (1818), Hostcraft (1735), and Malcolm (1718) had related the essence of proprietary theory [Littleton, p. 201; Chatfield, p. 221] much earlier. The point remains that although Hatfield’s research was supplanted, he gained the attention of the theoretical com¬munity, and the practitioner as well (recall that the Journal of Ac¬countancy commented on the article) on a matter related to the maturity of American theory per se. This is the relevance of “Zwei Pfadfinder” to historians at this point of our study. Hatfield’s article suggests a milestone as to the maturity of our scholars and writers
-in that by the mid nineteenth century American writers had de-veloped proprietary theory comparably with theoreticians of other leading countries. By the twentieth century American theorists were in a position to be regarded by other nations as capable of under¬standing and contributing to the overall theory of accounting.
BIBLIOGRAPHY
1. G. D. Augspurg, Grundlagen der doppelten Buchhaltung, Ed Hampe, Bremen, 1852.
2. Michael Chatfield, A History of Accounting Thought, Dryden Press, Hinsdale, Ill., 1974.
3. F. W. Cronhelm, Double Entry by Single, London, 1818.
4. B. F: Foster, The Theory and Practice of Bookkeeping, Boston, 1840.
5. Walter F. Frese, German Explanations of the Fundamentals of Double Entry
Bookkeeping Theory, (Unpublished Masters Thesis), University of Illinois, 1930.
6. Leon Gomberg, Histoire Critique de la Theorie des Comptes, Geneva, 1929.
7. Hugli, Buchhaltungsstudien, Bern, 1900.
8. A. C. Littleton, “Pioneers of Accountancy,” The Certified Public Accountant, July, 1928, pp. 201-22; 217.
9. 0. ten Have, The History of Accountancy (1972) translated by A. Van Seventer, Bay Books, Palo Alto, California, 1976.
10. B. S. Yamey, “Pious Inscriptions; Confused Accounts; Classification of Ac¬counts: Three Historical Notes,” in Debits,Credits,Finance and Profits edited by Harold Edey and B. S. Yamey, Sweet & Maxwell, London, 1974.
