Paciolan Methods - The Method of Debits & Credits - The Method of Venice - Italian Accounting - Double-Entry Book Keeping - GAAP

Accounting is key to business and a knowledge of accounting is one of the objectives for INFO465. Another objective is an understanding of order entry and fulfillment systems and how they're integrated with accounting. The PAYGO app used for the exercises in the course is certainly not ready for enterprise accounting, but is an example of a system haphazardly developed by students and a teacher over time that simulates business and accounts for it.

I like to review accounting from the point of view of Luca Pacioli's text book that included chapters on accounting, published 500+ years ago. The media have changed, and much of the work has been automated, but modern accounting systems use Pacioli's 'method of debits and credits' pretty much the same as the counting houses of the past several hundred years.

Brother Luca, Fra Luca, is regarded as the Father of Double Entry Accounting. His math textbook, 500+ years ago, has the first known lessons on The Method of Venice, aka The Method of Debits & Credits, Italian Accounting, and today as GAAP. Pacioli said the method had been in use for some time before he included it in a chapter of his Summa. It was a blending of Arabic numbers, a great improvement over Roman Numberals or other notations of the time, and accounting methods.

Pacioli's 37 chapters on accounting are outline of the Brief page of this website, which is used as sample code for INFO300's web projects:

In Pacioli's day, all the way up to the 1890's when punched cards and tabulators were introduced, these three sets of documents for accounting were kept on parchment or vellum . As paper and cardstock emerged they replaced the parchment:

In Pacioli's times these were mostly kept on parchment and hand-written and calculated by hand by book-keepers good with numbers. Mechanical calculators were used as they arrived on the scene without changing the records kept. As Punched Cards and Tabulators came to business in the 1890s the methods for recording the Memoranda's Details changed, putting each Detail on a punched card coded with the event, the amount of debit or credit, and the Ledger Account. After the Details are captured on a punched card, the Jounnal and Ledger can be produced automatically.

In Pacioli's times, the advice was to keep the three documents in separate locations to avoid loss or corruption of the records of business. If one set was lost, the records of business could be reconstructed using the remaining documents, affording a degree of 'fault tolerance' or 'backup & recovery' for these important records.

As punched cards came along, it was easy to make another copy of the cards with the day's Details using a Duplicating Punch, so a backup deck of cards could be taken to another place.

Today, the Details are usually kept on HDD or SSD and Transaction Logs of Details as they occur are kept at another location, and the contents of the disk are backed up periodically on another media, often magnetic tape, and kept off site.

The handwritten simulations of ink on parchment below will pop up in a separate tab so you can pull them out while the video's running...

A Venture Like a Limited Partnership is the Classic Example

For your shop or hustle under the PAYGO umbrella we're simulating a limited partnership set up to market some items. You're welcome to make it simple like candy bars or watches, but this one involves some shipping and a couple of 3D printers so you can see how some things other than items purchased for resale are booked...

Video: The Venture

Employees and Partners Capture the Details on Memoranda as they Occur

Systematic record keeping was key to Pacioli's methods, usually ink on parchment or vellum finely skived from sheep, goats, or cattle. Papyrus was catching on in Pacioli's times, and some hand-crafted paper was also produced where there was plenty of clear water. Inexpensive, durable paper and card-stock didn't come along until the industrial revolution mechanized paper production.

Pacioli referred to these real-time records of commerce as Memoranda, as do lots of integrated systems in these modern times. He suggested that they be kept for the duration of the partnership and after the venture was closed, the ink was scraped off and the parchment or vellum used to record the next venture.

The Memos include Details to clearly descibe every transaction of equity, goods, or services exchanged and the Tender that offsets it.

The app for the PAYGO calls Pacioli's Memos Orders, and calls the Details, Details. Other apps refer to the Memos as Folios, or Vouchers, or other records that serve the same as Pacioli's Memoranda...

Video: Memoranda and Details

The Owner or Counting House Journalizes the Activity using the Method of Debits and Credits

Journals are daily summaries of the Details of the Memoranda, coded as debits and credits against ledger accounts. A partner, or a book keeper like Pacioli's crew reviews the Memos and 'journalizes' them by marking the memos up by ledger account, drawing a line through the quantity or value of the detail, and faithfully inking the summary onto the Journal for that date.

The word 'Journal' has the same root as 'buon giourno', or 'good day'. A journal has pages, or sections on a parchment sheet, that summarize each day's business according to ledger accounts.

Lecture: Journals

Periodically Journal Entries are Posted to the Ledger

The Ledger, aka General Ledger, consists of pages with Journal entries organized by ledger account and date. Traditionally, ledger accounts are arranged in order of Assets, Liabilities, Equity, Income and Expense. When kept this way, a 'Trial Balance' totaling the debits and credits will show that the debits equal the credits. Many systems today treat the credits as negative values and debits are positive. A modern Trial Balance will 'net zero' when the debits and credits are added together.

The PAYGO application uses a negative quantity to indicate a credit and positive quantity to represent debits. Multiplying the quantity times the cost or price of each item on a detail renders the amount of the debit or credit.

Video: Ledger


Pacioli recommended keeping the three documents in different locations. The Minister of Commerce or other authority may certify the Journals or the Ledger as a True Record, and extract a fee for that, and collect taxes. Pacioli suggested 2% of the Net for the counting house.

It was Paciolan methods Machiavelli had in mind when he wrote: There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new system. The leader will have for his enemies all those who are well off under the existing system, and only lukewarm supporters in those who might be better off under the new.

G Saunders,
Dept of Information Systems
VCU School of Business

G Saunders Wings

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By G Saunders
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