The Story of How Chinese Businesses Started Using Double-Entry Bookkeeping
Long before people in the West taught China about accounting, Chinese business owners came up with their own way of keeping track of money. This happened around the 1400s and 1500s. Experts like Z. Jun Lin, Guo Daoyang, and Eve Chiapello found that Chinese merchants created their own double-entry systems called "Longmen zhang" (Dragon Gate bookkeeping 龍門賬) and "Sijiao zhang" (Four-Foot bookkeeping 四腳賬). These were different from how Westerners did it, with different names and ways of writing things down, but they helped businesses understand their money in a similar way.
Before these smart systems, Chinese businesses just wrote down money coming in and money going out. This was okay for simple tracking, but it didn't help them really understand how their business was doing. Slowly, over time, they started using their own double-entry methods because they needed a better way to manage their growing businesses. This happened on its own, without copying Western ideas, which is a cool example of two different parts of the world figuring out similar solutions.
How Chinese Double-Entry Bookkeeping Started
Around the late 1400s and early 1500s, Chinese merchants and bankers started using double-entry bookkeeping on their own. Z. Jun Lin's research shows they didn't learn this from the West. This was happening around the same time that a similar system was spreading in Europe, but the Chinese came up with it themselves.
Research says that these Chinese double-entry systems, "Longmen" and "Four Feet" bookkeeping, were used for about 300 years before the First Opium War in 1840. This means they were around since about the 1540s. This shows that China didn't just learn accounting from the West; they had their own advanced system.
Old Ways of Chinese Accounting
Before they used double-entry, Chinese businesses mostly used a "receipt-payment method." This was all about tracking money coming in (receipts) and money going out (payments).
Everyone, from the government to small shops, used this method. It was a way of organizing their money that fit with Chinese ways of thinking about balance, even though it looked different from Western accounting.
How the Old System Worked
If a business got money, it was written down as a "receipt." If they spent money, it was a "payment." This simple idea was used everywhere.
Interestingly, the way they wrote it down was kind of like a mirror image of how Westerners do debits and credits. Chinese businesses wrote receipts on the top half of the page and payments on the bottom half. Westerners write debits on the left and credits on the right.
What the Old System Meant for Businesses
While the receipt-payment method helped track cash, it wasn't great for understanding the whole business. It mostly showed where the money went, not how well the business was actually doing.
This probably made it harder for businesses to grow and get investments because they couldn't easily show if they were making a profit.
How Chinese Double-Entry Systems Developed
China developed two main double-entry systems: "Longmen zhang" (Dragon Gate bookkeeping) and "Sijiao zhang" (Four-Foot bookkeeping). These were Chinese inventions that did the same job as Western double-entry, but with different words and layouts.
Guo Daoyang, a researcher, showed that these old Chinese bookkeeping methods were real double-entry systems. He proved that Chinese accountants figured out that every business deal affects at least two accounts, just like in Western double-entry, but they did it on their own.
The Longmen and Sijiao systems kept track of things like what the business owned, what it owed, the owner's money, and profits or losses. This is the same basic idea as Western double-entry, even though they used different terms and wrote things down differently.
How They Were Different from Western Methods
Western double-entry uses a basic equation: what you own = what you owe + the owner's money. They write this in a horizontal way, with "debits" on the left and "credits" on the right. Chinese systems used a vertical way of writing things, with receipts on top and payments on the bottom.
But as Hsu Tzu-fen pointed out, even though they looked different, they did the same thing. The Chinese system also made sure that the total money in the business always equaled everything the business owned. So, the basic idea of double-entry was there in both systems.
How China Started Using Double-Entry
It seems that Chinese businesses started using double-entry slowly, as they needed it, rather than it being a sudden change. Experts think that as businesses got bigger and more complicated, they needed a better way to keep track of things. Z. Jun Lin noted that there were different versions of Chinese double-entry that developed over time.
Eve Chiapello and Yuan Ding said that businesses changed their accounting because they needed to, not just because they wanted to copy someone else. This practical reason probably made it easier for businesses to start using these new methods.
How It Changed Chinese Businesses
Having double-entry bookkeeping gave Chinese businesses much better information. They could see more than just money coming in and going out. They could understand their profits, what they owned, and what they owed.
This likely helped them make better decisions. They could see which parts of their business were doing well and which weren't, and they could attract more investment because they could show how profitable they were.
The use of double-entry also happened at the same time that Chinese businesses were growing. These better accounting systems probably helped them manage more complex businesses and expand. For example, a company that exported seafood to different countries needed a good way to track everything, and double-entry helped with that.
Western Influence and What Happened Later
Z. Jun Lin's research shows that even though Chinese double-entry was similar to the Italian system, it developed separately. This is an interesting example of different cultures coming up with similar ideas on their own because they had similar needs.
This shows that the idea of double-entry isn't just a Western invention. It can arise in different places when businesses become complex enough.
Later on, in the 1800s and 1900s, as China started trading more with the rest of the world, Western accounting systems became more common. Treaties after the First Opium War opened up China to Western business practices, including their ways of accounting.
Eve Chiapello and Yuan Ding pointed out that Western-style accounting was introduced fairly early in China's move towards a market economy, showing how important it was for doing business internationally.
Important Researchers
Several experts have helped us understand the history of Chinese accounting:
- Z. Jun Lin showed that China developed its own double-entry bookkeeping before the West introduced it.
- Eve Chiapello and Yuan Ding studied how accounting changed as China's economy changed.
- Guo Daoyang discovered that old Chinese bookkeeping methods were real double-entry systems.
- Hsu Tzu-fen looked at real business records and showed how Chinese double-entry was used in practice.
These researchers have shown that Chinese double-entry was not just a theory but was actually used by businesses across China.
In Conclusion
The story of double-entry bookkeeping in China is a fascinating part of business history. The Chinese came up with their own sophisticated systems in the 1400s and 1500s, like the Longmen and Sijiao methods. These systems worked similarly to Western double-entry, even though they looked different.
The move from simpler accounting to double-entry happened gradually as businesses needed better ways to manage their money. This shows that when businesses become complex, they need good accounting, no matter where they are in the world.
The work of scholars like Z. Jun Lin and others has helped us understand that China had its own advanced accounting methods long before Western influence,
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