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Writings, notes and papers > Genoa and the history of finance: a series of FIRSTS? > Chapter 7
Chapter 7 - Double entry and public accountancy
Abstract
A state with modest territories, but complex to manage both because of the one year duration of most of its public offices and the multiplicity of cash flows (both in and out); the need to distinguish between purely financial cash flows on the one hand and between revenues and expenses on the other; the necessity for an accounting system which would permit quick check and the easy spotting of mistakes. These were the main factors, which must have led the municipality of Genoa to apply the double entry system to the accounts of state; an accounting system introduced between 1327 (probably) and 1340, perhaps following the example of private bankers, but in any case before – unless proved otherwise – all other Italian and European states.Definition
Double Entry. The method of bookkeeping in which every item entered to the credit of one account in the ledger is entered to the debit of another, and vice versa (The Oxford English Dictionary, 2nd ed.).Documentation
The accounts of the municipality of Genoa and later of the Genoese republic are collected in a series of ledgers starting in 1340 and ending in 1805, with the state’s annexation to the French empire. Despite many gaps in the records up until 1528, the richness in the documentation in existence is unique with respect to other Italian archives. It must be emphasised that in all documents left to us, starting with the first one (dated 1340) 23, entries are in double entry format and this is the oldest known record of the application of the double entry system to public accounts.
Part of the very long account started in the name of the municipality of Genoa and recorded in the oldest ledger 24 looks like this:Commune Ianue
debet nobis
...
recepimus
...
(c. 119)
(c. 119)
die 5 marzo 1341
pro racione expensarum dicti communis, in isto in c. 237
£ 63235.18.08
die 5 marzo 1341
in Thobia Lavagio et sociis col lector(ibus) cotumorum veterum, in isto in c. 3
£ 202.10.00
…
…
ea die
pro salario domini ducis pro men sibus quattuor finitis in kalendis marcii proximi preteritis de racio ne dicti domini ducis, in isto in c. 133
£ 1783.06.08
ea die
in Iohanne Spinula de Sancto Lu cha et Iacobo de Bargalio cabelle ris ca belle salis Ianue de MºCCCXXXX, in isto in c. 163
£ 3000.00.00
...
ea die
pro salario nunciorum duodecim of ficiorum quindecim [mensis fe bruarii proximi preteriti ad racio nem de soldorum 4 in mense] de racione dictorum nunciorum, in isto in c. 120
£ 24.00.00
…
The layout is the same as that used today: the account is divided into two sections, debits on the left and credits on the right. The entries are recorded in chronological order, with fairly detailed descriptions and include both the name of the account (or “racio”) where the corresponding entry is recorded and the card number within the relevant ledger. In the original ledger the amounts were recorded in roman numerals and not as shown here in Arabic numbers (for the sake of clarity).
When a financial activity ended or when it had to be transferred to a new page the accounts were systematically closed and the balance was recorded in the section with the lowest total.Historical background
The adoption of an orderly and rational accounting system was very important during the development of capitalism. However, the path to achieving such a system was long and laborious.
Accounting techniques of some sort were known to have been applied by the Arabs, but they were improved and perfected only in Italy. It is likely that attempts to establish an accounting system were made within private businesses. The techniques were then improved upon and refined, finally converging into a common system. The aim was to develop an accounting method that allowed both an easy understanding of transactions and to exercise easy control over them, especially if the business had branched out into foreign countries. Thus double entry came into being: dual recording of the same entry in two distinct, opposite accounts registered on opposite sections.
The need for an accurate and easy accounting method was perhaps even more pressing when local government began to settle down. The accounts of the Genoa city-state were usually organised on a yearly basis. This was for two main reasons: most public offices lasted one year and therefore a yearly accounting system was required to easily assess the work of the officials; and, secondly, long term activities were reviewed each year to keep things simple, according to a general practice suggested by the rhythm of seasons. It is therefore quite natural that the same arrangements were followed for the recording of public finance, where income, expenses and interest were reassessed every year. Bear in mind too that the state has a life over the long term and that any government employee must be able to take a global view over a period of several financial years and to trace the roots or activities of the state in the distant past. The necessity of control, the rhythm of public finance and the permanent need for documentary evidence to support every transaction: here are, in a nutshell, the reasons which led city-states towards a new, objective and unambiguous accounting system.
Ii is likely that a society based on a regular alternation of public office (where personal activities, public sector and private sector experiences strenghtened each other) led to the adoption of double entry as the most efficient accounting method. Exactly how long the process of change took and the phases it went through are as yet unknown. There are examples of accounts documents for private businesses featuring the basic elements of a double entry system. The oldest examples seem to date back to the beginning of the XIV century and come from both the Tuscan region and Genoa. It has never been agreed which region adopted the new system first, but given the findings at random of documents it is hardly sensible to make assumptions, at least for that which concerns the private sector.Local government accounts are a different matter entirely. The ledgers of the city of Siena, which start in 1226, show no trace of double entry up until at least 1355; the same goes for other cities such as Venice, Florence and Milan. In Genoa however, double entry (as can be seen from the aforementioned document) is used from 1340 if not earlier. During the riots of 1339 all preceding public debt and finance ledgers of the municipality were burned but it is believed that from about fifteen years earlier they were kept “in the manner of the ledgers of banks”, i.e. probably with a double entry system 25. Unless proved to the contrary it is, then, the local government of Genoa which was the first to adopt a modern technical method (later to be adopted by much bigger states).
Notes:
23 Riots by citizens in 1339 led to the burning, in the main square, of local government papers. The earliest ledger to survive is only dated 1340 (Giustiniani, Annali di Genova, 1834-35, vol. II, p. 65). However the introduction of double entry bookkeeping to the state’s accounts would seem to date back to 1327, when the municipality of Genoa decided to adopt the system already being used by private bankers. ^
24 A.S.G., Antico Comune, n° 1. ^
25 H.Sieveking, Studio sulle finanze genovesi … cit., p.104. ^
