How Technology Has Impacted Accounting

Accounting technology

From the early days of clay tokens to the invention of the abacus, accounting is as old as civilization. It wasn’t until the commercial revolution at the end of the dark ages that double-entry bookkeeping came into existence. (It began in the Venice/Florence area in Italy.) A hundred years later, Luca Pacioli, a Franciscan monk, wrote a math book that suggested merchants needed three things: sufficient cash or credit, an accounting system, and a good bookkeeper. Today accounting is commonly offered as a major of study.  What do you, as a prospective accounting major, need to know about the field and the technological advances in accounting?

What is commonly known today as “cost accounting” (defined as “The discipline of estimating, tracking and controlling product and service costs”) didn’t start until the late 18th century, and was spawned by an unlikely source—a world famous potter. Josiah Wedgwood was a highly successful potter when a depression hit, and he discovered that not only were his clerks ignoring much needed paperwork, they were also stealing money hand over fist.

He took the time to examine the books in detail, noting inaccuracies and becoming aware of the importance of calculating overhead into the costs of his pottery. He hired a new clerk and began weekly accounting reviews, and according to historians, the concepts of “economies of scale” and “sunk costs” were discovered. He changed the prices of his pottery to reflect the influence of demand, creating both a high-end line and a lower quality mass market line. Wedgewood’s company was one of the few to survive that depression.

It took another fifty years or so for the occupation now known as “accountants” to come into vogue. In the mid-19th century, a group of clerks in London advertised their services as “accomptants.” As business regulations increased along with taxes, the need for professional number crunchers became clear. The first accounting firm opened in 1845 in London, but accounting technology and technological advances in accounting such as accounting software didn’t come until much later.

Early Technology

Accounting technology has always played a role in keeping track of numbers, and the idea of using machines to solve mathematical problems goes back centuries. Leonardo da Vinci actually designed a machine he called the “Codex Madrid” that contained thirteen wheels that registered digits.

While there were several other attempts to build a numbers calculator, it was Blaise Pascal, a French scientist, who invented the early calculator (interestingly enough, he also is credited with inventing the roulette machine and the wrist watch).

In 1885, William Burroughs invented the first working adding machine. The first batch of machines didn’t sell very well since Mr. Burroughs was the only person who could use them, so they were recalled, and the corrective automatic adding machine was invented. Naturally, this model sold much better.

Adding machines and then later—much later—calculators made the job of accounting much easier. They led to fewer mistakes, greater accountability, and sped up the work of the average bookkeeper or accountant. Technological advances in accounting always mean increased speed and efficiency.

The 20th Century Information Revolution

While there were subtle changes in the field of accounting from its early days through the 1970s, the job remained virtually the same: paper records of columns of numbers. But with the invention of the computer and accounting software, that all changed.

In 1930, Vannevar Bush, a professor at MIT, built an electronic differential analyzer. Other inventors such as Konrad Zuse and Howard Aiken built hybrid binary arithmetic machines and used electric relays to calculate sums.  Professor Aiken worked with IBM, and in 1942 they built what could be called the first computer. Over the course of the next fifty years, massive computers capable of only simple calculations went from filling entire rooms to the small desktop computer most of us use at home and the office today.

Computers and accounting software allow accountants to use electronic spreadsheets—eliminating the need for adding machines, calculators, and pencils and ledgers in one fell swoop. It became much simpler for accountants to keep track of information on a minute-by-minute basis and completely eliminated most mistakes. This has led to greater efficiency and accountability, and has changed the face of accounting considerably.

New Technology Leads to New Risks

Of course, all the technological advances in accounting and accounting software is prey to sabotage and other forms of destructive action. Fraud is still possible. But this has led to new areas of accounting work, such as forensic accounting. New computer programs help track any attempts to initiate fraud. This area of accounting protection and investigation will continue to grow and evolve.

Accounting Technology at Home

The computer has not only revolutionized business accounting, it’s also changed how people keep track of their own money. Banking online, software programs that do your taxes, and automatic bill paying have dramatically altered how the individual handles their money.

Most of us are grateful that we no longer have to use an abacus to balance our checkbooks, or clay tokens to figure out the grocery budget. As accounting technology continues to evolve, keeping track of our money will be easier and easier. Thanks to some early mathematicians and accountants, crunching numbers is more accurate, accessible, and error-proof. In the future, new technological advances in accounting will no doubt make our lives easier.

The first step in any area of study is to review the history of the field. Accounting is a career path anticipating strong growth in the coming years. Students majoring in accounting can be assured of long-term career stability and success. If you have a head for numbers, consider becoming an accountant.