Accounting originated in Venice in the late 1400s, with the development of double-entry bookkeeping by Luca Patroley, a mathematician and monk.
The invention of the electronic spreadsheet, starting with VisiCalc, revolutionized accounting and business operations, enabling quick and accurate calculations and modeling.
Deep dives
The Birth of Accounting: Luca Patroley and Double-Entry Bookkeeping
The episode explores the historical origins of accounting in Venice in the late 1400s, where double-entry bookkeeping was developed. This revolutionary method involved separating different aspects of a business into categories on a big sheet of paper – assets, liabilities, and equity. Luca Patroley, a mathematician and monk, played a significant role by documenting this method in his book, buried within an encyclopedia of math. The book became popular and spread across the world, becoming the basis of modern accounting by 1900.
The Rise of the Electronic Spreadsheet
The episode delves into the invention of the electronic spreadsheet, which transformed accounting and business operations. Dan Bricklin, inspired by his boredom during a lecture at Harvard Business School, developed the first electronic spreadsheet for the Apple II computer. The spreadsheet software, known as VisiCalc, allowed accountants and business professionals to perform complex calculations and modeling quickly and accurately. The electronic spreadsheet became a vital tool not only for accountants but also for businesses in various industries, including finance, where it transformed Wall Street and financial decision-making.
The Power and Pitfalls of Accounting Superpowers
The episode discusses the power of accounting in making informed business decisions and evaluating the financial health of a company. Accounting provides the ability to ask 'what if' questions and forecast the impact of various variables on a business. However, the episode also highlights the potential for fraud and misuse of accounting. Fraudulent practices can involve manipulating expenses, misrepresenting revenue, or creating fictitious customers to make the business appear more profitable. Enron serves as an example of the devastating consequences of accounting fraud. The episode emphasizes the importance of using accounting superpowers responsibly and ethically.
The Importance of Judgment Calls and Discretion in Accounting
The episode emphasizes that accounting involves making judgment calls and exercising discretion. Accountants use their expertise to interpret and assess business performance, considering various factors and assumptions. While accounting offers valuable insights, it is crucial to recognize that financial models and spreadsheets are only representations of reality, not absolute truth. The episode warns against overreliance on spreadsheets and emphasizes the need for critical thinking and understanding the limitations of accounting models. The power of accounting lies in its ability to provide information for decision-making, but wisdom is required to use it effectively.
Usually, the first class that an MBA student takes is accounting. That involves, yes, equations and counting widgets...but it's more than that. Inside the simple act of accounting is a revolutionary way of thinking not just about a business, but about the world. A universe where all the forces are in balance. Accounting gives you a sixth sense–one that can help you determine whether your business will survive or fail.
In this class, you'll learn the basics of accounting, and uncover its origins. We'll introduce you to the man who helped it spread around the world. He was a monk, a magician, and possibly the boyfriend of Leonardo da Vinci.
Is accounting... sexy?
Yes. Yes it is.
Find all episodes of Planet Money Summer School here. This series is hosted by Robert Smith, and produced by Max Freedman. Our project manager is Julia Carney. This episode was edited by Sally Helm and engineered by Robert Rodriguez. The show is fact-checked by Sierra Juarez. Planet Money's executive producer is Alex Goldmark.