The story of the birth of accounting begins with numbers. In the 1400s, much of Europe was still using Roman numerals, and finding it really hard to easily add or subtract. (Try adding MCVI to XCIV.)
But fortunately, Arabic numerals (1, 2, 3, 4, etc.) started catching on, and with those numbers, merchants in Venice developed a revolutionary system we now call "double-entry" bookkeeping. This is how it works:
Every transaction gets entered twice in financial records. If one day you sold three gold coins' worth of pepper, you would write that the amount of cash you had went up by three gold coins. You would also write in that the amount of pepper you had went down by three gold coins' worth.
Before double-entry, people just kept diaries and counted their money at the end of the day. This innovation allowed merchants to see every aspect of their business in neat little rows.
Jane Gleeson-White wrote the new book Double Entry: How the Merchants of Venice Created Modern Finance. She explains how significant this new accounting was:
"You could itemize the profits in each account, so you knew which products you were doing well in and which you weren't. Then you could start to think about how you would change your business activities. It was just a whole revolution in the way of thinking about business and trade."
Luca Pacioli was a monk, magician and lover of numbers. He discovered this special bookkeeping in Venice and was intrigued by it. In 1494, he wrote a huge math encyclopedia and included an instructional section on double-entry bookkeeping.
Thanks to the newly invented printing press, his book was mass produced and became a big hit. One of the first readers was Leonardo da Vinci, who at the time was painting The Last Supper. Pacioli's encyclopedia had a section on the mathematics of perspective painting which fascinated da Vinci.
"They were hanging out together....I think they were probably lovers. They certainly spent a lot of time together, and definitely Luca Pacioli was there in the church when Leonardo da Vinci was there in the actual church when Leonardo da Vinci was painting The Last Supper," said Gleeson-White.
What Pacioli is known for today, though, is that tiny section of the book about accounting. Today, every country and every business uses double-entry bookkeeping.
Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.