GDP and Luca Pacioli

In my last blog, I wrote that GDP ignored the difference between credits and debits, or assets vs. expenses. It only records “transactions”. In a prior blog I also referred to National Debt as a humongous concept and was wondering what we as “peons” can do about it. I think we can do something about it! We have to speak up against the “Enrons” of the world, who misrepresent the accounting principles. They should be forced to explain their accounting processes. Also banks often use very “loose” accounting practices to make their status look good; better than it really is. Paclioli addressed not only double entry accounting, but also the ethics of accounting. Alas, the ethics today are going by the wayside.

Thomas G Rooney: “Paclioli was a Catholic monk who observed local Italian parissoners often in need of a hand out, not able to keep track of their activites, so he came up with a kind of community outreach plan in the form of a work book to help people 500 years ago keep track of their transactions by type. Debitiere is what one was to do with where something was put, and creditiere was what one was to do in recording where something came from. But in the “Nobody is going to tell me what to do” society, people often do not want to be told to keep track of messy things like that, and just enjoy the fact that transactions are occurring.  Paclioli’s system spread far and wide, now used by just about every entity that exists to keep track of things…. banks, trust companies, realtors, insurers, the professions, businesses, many churches, etc. But for some reason, governments only like half the system, emphasizing trnasaction volume, happy with inflows, whether the source is income or debt….. happy with outflows whether the object is an asset or an expense … as long as there is movement, you got that right Bert.”

“Since Pacioli was a Franciscan friar, he might be referred to simply as Friar Luca. While Friar Luca is often called the “Father of Accounting,” he did not invent the system. Instead, he simply described a method used by merchants in Venice during the Italian Renaissance period. His system included most of the accounting cycle as we know it today. For example, he described the use journals and ledgers, and he warned that a person should not go to sleep at night until the debits equalled the credits! His ledger included assets (including receivables and inventories), liabilities, capital, income, and expense accounts. Friar Luca demonstrated year-end closing entries and proposed that a trial balance be used to prove a balanced ledger. Also, his treatise alludes to a wide range of topics from accounting ethics to cost accounting

Pacioli was about 49 years old in 1494 – just two years after Columbus discovered America – when he returned to Venice for the publication of his fifth book, Summa de Arithmetica, Geometria, Proportioni et Proportionalita (Everything About Arithmetic, Geometry and Proportion). It was written as a digest and guide to existing mathematical knowledge, and bookkeeping was only one of five topics covered. The Summa’s 36 short chapters on bookkeeping, entitled De Computis et Scripturis (Of Reckonings and Writings) were added “in order that the subjects of the most gracious Duke of Urbino may have complete instructions in the conduct of business,” and to “give the trader without delay information as to his assets and liabilities” (All quotes from the translation by J.B. Geijsbeek, Ancient Double Entry Bookkeeping: Lucas Pacioli’s Treatise, 1914).”

 

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Luca Pacioli: The Father of Accounting

One thought on “GDP and Luca Pacioli

  1. Great summary Bert, after your delving into historical accounts of Friar Luca. My comments you about him were form an article recalled reading from 30+ years ago, so thanks for taking the idea and digging with it about this helpful fellow.

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