[ I am not an accountant, but some years ago I read a history of early accounting. If I remember rightly, the book ended before Luca Pacioli, the `Father of Accounting', published his famous work in 1494. Or maybe I did not read more. I cannot remember the title or author of the history, only that it was published a long time ago. ]
In the beginning, double entry book keeping had two purposes:
As an informational tool, double entry book keeping depended on the ability to compare apples and oranges. Put another way, a medieval trader exchanged gold coins for silk. The gold and silk were compared in one way, by their monetary value, but not in others. It is, for example, famously impossible to keep warm with gold, but you can make warm socks with silk.
Double entry book keeping records only the `internal costs' of a business. It does not record `external costs', such as pollution. Such costs are invisible to a business. The only way to make them visible is for a government to to force external costs inwards successfully.
When governments are weak, or when pollution is so limited it can be ignored, businesses do not pay for external costs. In effect, they receive a subsidy from the people who suffer.
As an agent-principal mechanism, accounting enabled a principal to check whether his agent was doing as previously agreed. In the Middle Ages, the principal was usually an older man or group of men who put up the money for a venture. The agent was usually a relative or a young man hoping to marry a daughter or niece. Because of the familial connection, or because of hope, no one expected the agent to act too corruptly; the goal was to keep his corruption or his stupidity in line.
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