Home Business Software The Evolution of Accounting Software – From Abacus to AI
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The evolution of accounting software only spans some 70 years. However, accounting as a discipline is much older.

Accounting methodologies have evolved from manual recording on clay tablets to automated software over the course of 5,000 years.

Interestingly, accounting wasn’t always a specialized, technical, and highly regulated field. In ancient times, this was essential knowledge for every merchant, and no international standards or formal education existed.

However, while accounting methodologies, technology, and approaches have changed over the centuries, its fundamental objective has remained the same: to accurately record, analyze, and share financial information.

In this article, we explore accounting history throughout epochs. You’ll find out who invented accounting, how practices and technology changed over time, and what to expect in the future.

Accounting tools and software
Calculators didn’t always exist to help accountants

The Invention of Accounting – Historical Foundations

In the beginning, there was nothing. And then, there was the Big Bang. Jokes aside, accounting appeared much earlier than you’d think. Let’s explore the very origins of financial recording.

The Very First Records, 3500 BCE

Mesopotamia, an ancient region between the Tigris and Euphrates rivers in southwestern Asia, is often called the cradle of civilization.

But don’t be deceived by the word ‘ancient’ because Mesopotamia gifted us with numerous innovations, including writing, legal systems, and accounting.

Around 3500 BCE, Mesopotamians didn’t have a common currency and instead relied on barter or precious metals for economic transactions. Once a sale had been made, they recorded it.

Of course, accountants then didn’t record transactions in Excel spreadsheets. Instead, they used clay tokens that represented commodities like grain, livestock, and tools.

These tokens had different shapes and sizes to reflect the value and type of goods. The hierarchical structure allowed Mesopotamians to record complex transactions and set the stage for the development of more sophisticated accounting methods.

Modern-day abacus
The abacus is the predecessor of the contemporary calculator

Since Mesopotamians didn’t have calculators, they used an abacus, a tool with a rectangular frame and sliding beads on parallel rods.

Each rod represents a place value, such as units, tens, or hundreds.

For example, to represent 235, you’d slide two beads on the hundreds row, three beads on the tens row, and five beads on the units row to the side

Abacuses are still used today, making them one of humanity’s longest-used tools.

Transition to Cuneiform, 3000 BCE

Around 3000 BCE, Sumerians developed a method of writing (our entire team expresses heartfelt gratitude). But instead of writing tech reviews or poems, they mainly used it for record keeping.

Initially, Sumerians inscribed stylized drawings of goods on clay tablets instead of letters on paper. For example, a sheep symbol meant the transaction involved livestock.

Over time, these pictographs evolved into abstract characters representing syllables or entire words (cuneiform).

Sumerian pictographs representing a tree, hand, and more
Early Sumerian pictographs

Cuneiform was more adaptable and consistent than pictographs, so Sumerians were able to document transactions in greater detail. As well as the quantity of goods, they could now record the parties involved, taxes, and special conditions.

However, Mesopotamians weren’t the only ones to come up with this idea. Egyptians introduced a similar system around 3200 BCE, using hieroglyphics to document sales activities.

Early Ledger Books, 800 BCE

While Mesopotamians and Egyptians were the first to start recording transactions, we can thank the Ancient Romans for inventing the ledger book.

The Romans used wooden wax-coated tablets (tabulae) and styluses to create the first accounting books. The wax coating allowed them to erase and rewrite text, much like we can delete records on an iPad.

Roman accountant recording transactions
Romans used wax-coated tablets to record transactions

Although tabulae made accounting more efficient, the Romans still couldn’t maintain historical data.

Around the 1st century CE, they switched to codices – bound books made from papyrus. Roman accountants could now record transactions chronologically and access them anytime.

Evolution of Accounting in the Middle Ages

Double-entry bookkeeping is a common practice these days. But in the Middle Ages, it was an innovation. It emerged in Italy as transactions became increasingly complex and required a more systematic approach.

Pacioli’s Contribution

Famous Italian mathematician Luca Pacioli played an important role in popularizing this new system. In 1494, he published ‘Summa de Arithmetica, Geometria, Proportioni et Proportionalita,’ which laid the foundation for modern accounting practices.

Pacioli introduced the concepts of assets, liabilities, equity, income, and expenses. He also explained how to record transactions with debits and credits to maintain a balance.

Thanks to Pacioli, each transaction was now recorded in at least two different accounts. Since then, every accountant knows the fundamental equation of assets equals liabilities plus equity.

The Role of Merchants

Pacioli’s work wasn’t the only advancement in accounting during the Middle Ages. For example, merchant guilds established regulations, codes of conduct, and inspection systems to ensure fair trade practices.

They also introduced journals and account reconciliations. First, merchants recorded transactions in journals, along with the date and description. Then, they organized all entries in ledger books by account type.

Separate books for assets, liabilities, and other account types streamlined reconciliation. Merchants regularly compared their ledger entries with supporting documentation to identify errors.

Books from the Middle Ages
Merchants in the Middle Ages introduced journals

Modern accountants use receipts or bank statements to reconcile accounts. However, the banking system in Europe only emerged in the 11th century.

Instead of standardized electronic statements, accountants in the Middle Ages relied on written documentation, such as withdrawal slips and transaction logs.

However, the general concept of banking hasn’t changed much since then. Banks lent money, exchanged currencies, and kept deposits, charging a fee for every service.

Accounting Systems in the Modern Era

Between the 15th and 18th centuries, the world celebrated major discoveries in astronomy and physics. Spain and Britain colonized America, and accountants continued to use Pacioli’s double-entry system.

Cost and Managerial Accounting

Industrial Revolution Then, the Industrial Revolution began. It changed not only manufacturing and trade but also accounting. As the scale of businesses grew, so did the complexity of transactions and operations, so financial systems had to adapt.

Charles Babbage, an English mathematician, inventor, and mechanical engineer, developed cost accounting to track and allocate production expenses.

This granular approach allowed companies to spot bottlenecks and cost drivers to improve production efficiency.

Early accounting methods only calculated the overall cost per unit. Babbage’s method took into account variables like labor, utilities, and indirect expenses.

The early 20th century marked the rise of managerial accounting, which is still widely used today. Unlike traditional accounting, which focuses on external reporting, this method aims to support internal decision-making.

Accounting Becomes a Profession

Along with the introduction of new accounting disciplines, there was a spike in government regulations and taxation, so businesses had to maintain detailed financial reports.

These factors led to a shift in accounting from a practical skill to a recognized profession. Only in the 19th century did accounting acquire established standards, ethics, and qualifications.

Additionally, British accountants founded professional bodies, such as the Institute of Chartered Accountants in England and Wales. These organizations were meant to provide education and certification, and many exist to this day.

Computerized Accounting in Contemporary Times

The computerization of accounting may be the biggest milestone in its development since the introduction of the double-entry method.

The history of accounting software began in the 1950s when large corporations started using mainframe computers for basic operations.

From Mainframe to Microcomputers

Mainframe computers were very different from modern laptops. They occupied entire rooms yet were not nearly as powerful as the devices we use today.

Still, computerized accounting systems significantly reduced the time spent on ledger keeping, payroll processing, and calculations.

In the 1970s, computers became smaller and more accessible. For example, businesses and researchers widely adopted the Digital Equipment Corporation’s PDP series. This was also when Apple introduced its first mass-produced microcomputer.

1950s mainframe computers
20th-century accountants didn’t have the luxury to work on the go

As a result, in 1981, Peachtree Software developed its first accounting application for microcomputers. It was popular among small and medium businesses due to its ease of use, affordability, and comprehensive functionality.

Peachtree Accounting is known as Sage and remains one of the most widespread accounting software.

Another software you’ve likely heard of is QuickBooks, which was among the pioneers and is over 30 years old.

However, some of the first accounting software didn’t stand the test of time. For instance, Microsoft Money was released in 1991 but discontinued in 2009 because competition from QuickBooks and Sage was too intense.

The First Cloud-Based Software

Early version of NetSuite accounting software, NetLedger
Early version of NetSuite accounting software

The new millennium marked a real revolution in accounting. In 1999, NetLedger introduced the first cloud-based accounting software, currently NetSuite.

Old accounting software like QuickBooks only automated basic processes and required physical access to the device on which it was installed.

In contrast, users could access NetSuite from any device with an internet connection. Furthermore, NetSuite wasn’t limited to accounting.

It offered a comprehensive suite of business management tools, including CRM, HR, and inventory planning. Such solutions are called enterprise resource planning (ERP) software.

Contemporary Accounting Software

NetSuite is one of the best accounting software even today, 25 years later.

Contemporary accounting software like NetSuite goes beyond accounting calculations and reporting. It offers financial analytics to aid decision-making, supports multiple currencies, and helps comply with industry and tax regulations.

Not only that, it integrates with other business systems, such as e-commerce platforms, payment gateways, and project management tools to update data automatically in real time.

The best accounting software also integrates with banks to streamline account reconciliation.

Automation not only saves accountants time but also reduces errors that often occur with manual input. As a result, you have fewer mistakes to solve and bear liability for.

NetSuite accounting software
Modern version of NetSuite accounting software

Another advantage of contemporary accounting software is mobility. Most accounting tools now have dedicated mobile apps, so you can manage your finances on the go.

Mobile accounting apps came just in time, coinciding with the rising popularity of remote work. Plus, they simplify collaboration, as you can instantly share data with team members or external accountants from anywhere in the world.

Accounting and AI

The latest development in accounting software is the integration of AI.

Previously, automation relied on programmed instructions. However, AI can adjust its behavior according to the situation and tackle more complex tasks.

AI, cloud computing, and mobile apps all contribute to the flexibility and accessibility of accounting tools.

For example, bank reconciliation was too complex for traditional automation. Now, AI can analyze historical data, match transactions, identify discrepancies, and even suggest solutions. All you have to do is check and confirm the result.

AI also improves financial analytics, as it processes large amounts of data in no time to identify patterns and anomalies. This way, you can speed up fraud detection, make accurate forecasts, and spot bottlenecks in your financial processes.

Modern solutions are particularly handy for small and medium business owners who may not have the resources to hire an entire financial department.

How Will Accounting Software Evolve in the Future?

Accountants in the 1950s couldn’t have dreamed of cloud access from a smartphone and automation of routine tasks. Similarly, it’s hard for us to imagine how much more sophisticated accounting software will become in 70 years.

However, we can make predictions based on current trends. Accounting software of the future is likely to integrate even more emerging technologies than AI.

For instance, accounting software could use blockchain technology for greater security and transparency.

A decentralized, tamper-proof ledger prevents users from deleting or altering transaction data, which helps maintain a clear audit trail.

Furthermore, blockchain employs encryption to secure records, so it’s resistant to fraud and unauthorized access.

Blockchain advertisement New York
Blockchain makes transactions more secure

Blockchain also allows the use of smart contracts – automated agreements that launch predefined actions when specific conditions are met. Unlike traditional code or AI automation, smart contracts can’t be altered and don’t rely on intermediaries like banks.

For instance, you could program a smart contract to generate invoices when you deliver a service or add benefits to employee payrolls based on performance criteria.

Another trend that might affect the development of accounting software is big data. ‘Big data’ may seem like a complex technical term, but it actually has a simple meaning: huge amounts of data from various sources.

IoT Accounting

As businesses gather more and more data, future accounting software will have to provide more sophisticated analytics capabilities, including forecasting and fraud detection. It may even analyze unstructured texts like emails and contracts to extract financial data.

Furthermore, accounting software could use the Internet of Things to collect data. Point-of-sale systems and production equipment could send real-time information on transactions and expenses right into the software.

Tax forms
Accounting software will have to evolve to adapt to new regulations

Lastly, future accounting software will likely focus more on compliance. Today, many businesses operate globally and must adapt to constantly changing regulations across several jurisdictions.

Some accounting software, like NetSuite, already automates compliance with industry standards and tax laws, so you won’t have to worry about accidentally committing a financial crime.

This functionality is likely to become more widespread and increasingly sophisticated to adapt to new regulations and incorporate better security.

What is the Best Accounting Software in 2024

There’s a vast selection of ERP and accounting software on the market. Unfortunately, it’s easy to get lost comparing your options, particularly if you aren’t sure what to look for.

We tested numerous accounting tools, evaluating their features, ease of use, and pricing to save you time.

NetSuite, Freshbooks, and Zoho are among the best-rated accounting software. They automate tasks like invoicing, reporting, and bank reconciliation to reduce errors and increase efficiency.

Furthermore, they are cloud-based, so you can access them from any device. Cloud architecture also enables scalability. You can easily switch pricing plans and add extra users to accommodate changing business needs.

Most importantly, the best accounting software is easy to use even if you don’t have a degree in finance.

Here’s a closer look at our top accounting software for small businesses.

Best Small Business Accounting Software Top Choice For Starting Price (/month) Standout Features
NetSuite ERP Upon request – Comprehensive business suite
– Accurate real-time data
– Customization
– Supports over 190 currencies
Freshbooks Invoicing and client management $6 – Expense tracker
– Collaboration with your accountant
Zoho Small businesses $10, free version is available – Free plan
– Bank reconciliation
– Stock management

If you’d like to learn more, read our article on ERP for small business accounting and how to choose the right software for your needs.

Will the Evolution of Accounting Systems Ever Stop?

Accounting has been around for much longer than you’d think, and its development is ongoing. Technological advancements, regulations, and changing business needs are only some of the factors driving this process.

It’s unlikely that the evolution of accounting will ever come to a full stop. We’re excited to see what the future holds, yet grateful for the technology we already have.

We’re lucky to live in a time when, instead of counting clay tokens, we can rely on automation.

Modern accounting software takes the burden of reporting, tax compliance, and bank reconciliation off your shoulders so you can focus on more important tasks.

If you run a small business, we wholeheartedly recommend trying cloud-based accounting software. Tools like NetSuite can save you a lot of time and ensure your records are accurate.

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The Tech Report - Editorial ProcessOur Editorial Process

The Tech Report editorial policy is centered on providing helpful, accurate content that offers real value to our readers. We only work with experienced writers who have specific knowledge in the topics they cover, including latest developments in technology, online privacy, cryptocurrencies, software, and more. Our editorial policy ensures that each topic is researched and curated by our in-house editors. We maintain rigorous journalistic standards, and every article is 100% written by real authors.

Lora Pance Crypto & Tech Content Writer

Lora Pance Crypto & Tech Content Writer

Lora is a writer based in Ireland. Her background in finance and interest in technology helps her present complex concepts in an intelligible and fun way, which is especially useful when it comes to the world of cryptocurrency and blockchain technology.

Starting as an agency writer, she soon branched out to freelance and later launched a family-run digital marketing agency. 

In her spare time, Lora attends dance classes or immerses in reading, preferring technology news or postmodern literature.

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