In recent blogs, we’ve looked at accountancy software and the impact of AI. But there’s one tech revolution that’s behind everything we do at Merlin. You may know its name, but would struggle to explain it to a stranger. You probably have no idea it’s linked to the genius who painted the Mona Lisa.
The invention we’re talking about is double-entry bookkeeping. Its story begins in Italy during the 14th and 15th centuries, in busy trading cities like Venice and Florence. They traded colourful luxury goods like silk and spices through Constantinople. Sugar and Asian goods came through Alexandria. English wool was turned into the finest cloth and exported across Europe.
Who remembers what we sold last year?
Initially, merchants recorded their sales using a ‘single-entry’ system. So you knew you had made a sale, but perhaps you didn’t record whether it was paid in full. Imagine looking back at that record a year later. What happened? You might not remember.
Single-entry made it easy to lose track of money or make mistakes. When that happened, who had an accurate view of their profits? If the business owner didn’t know, why would someone else risk investing in them?
Meet the Father of Accounting
The world of business changed thanks to a man called Luca Pacioli, a close friend of Leonardo da Vinci. They lived in Milan for several years, and shared a deep love for maths and geometry. Pacioli learned about a system called ‘double-entry’. He was the first to write about it in a clear and organised way, allowing merchants and scholars to use and spread the idea.
In double-entry bookkeeping, every transaction is recorded in two places – there’s a debit and a credit. If your business buys office supplies with cash, it records them as an increase (a debit) and the cash as a decrease (a credit). When a vehicle depreciates, that’s handled by recording one entry for the expense and one that reduces the asset’s book value.
Balancing the books
This means that the books are always balanced. If the total debits are not the same as the total credits, that tells you something is wrong. It also makes fraud and errors easier to spot. This balancing helps you (and your accountant) see what’s been earned or spent. A trial balance can be used to check the accounts from a company’s general ledger along with their debit or credit balances at any specific time.
Pacioli’s description appeared in a book called Summa de Arithmetica at the end of the 15th century. Looking back, we can see that double-entry bookkeeping was essential in helping capitalism succeed. It gave people a better way to keep track of money and business deals. It allowed trade and business to become more complex, as this clever system was clear and reliable.
It helped businesses know what they owned, what they owed, and how much profit they made. When companies could show clear and accurate records, it became easier to get funds from banks or find investors. People were more willing to lend money or invest when they could see exactly how a company was doing. This helped businesses grow faster and take bigger risks.
Double-entry also helped larger businesses and partnerships. As companies grew and more people became involved, it was important to have clear records everyone could trust. This encouraged managers to stay honest, and helped investors feel that they were being treated fairly.
It changed how we think about money
So double-entry bookkeeping wasn’t just about keeping records — it changed how people thought about money and business. It helped businesses become more efficient, more trustworthy, and better at growing. That’s why it was such an important revolution, and why it’s still used all over the world today.
Poor Luca Pacioli, though. His writings laid the foundation for modern bookkeeping and financial accounting. So his legacy was to become known as the ‘Father of Accounting’. We’re not sure anyone would want that carved into their gravestone!
How Merlin can help
To find out more about how we can help your business, please contact us. Our clients say that it’s useful to have a numerate friend prodding their thinking, especially one who understands the issues. If you’re not already a client, please get in touch here. You’ll find us a good fit if you’re looking for an accountant as an investment – rather than just a cost.
