The computerization of bookkeeping – for small businesses at least – really began in the 1970s. Before that, transactions were recorded by hand in columnar journals like the one shown below:
Up until the 1950s or 1960s, the bookkeeper totaled the columns with a hand-cranked machine. The column totals were then posted to individual ledger cards, which collectively made up the “General Ledger”.
The ledger cards were totaled – with the same hand-cranked machine – at the end of a posting session. With any luck the total debits minus the total credits equaled zero. This was referred to as taking the bookkeeping to “trial balance”.
In the 1960s and early 1970s the introduction of the electronic adding machine – with a paper tape – revolutionized bookkeeping. With a paper tape, an experienced bookkeeper could now compare the balances on the ledger cards with the paper tape and locate the error – relatively easily.
Well it wasn’t really that easy. The bookkeeper needed to be someone with the right temperament. Generally employment advertisements required someone that was “detail-oriented”.
There were other competing technologies to the microcomputer. One popular system was called the “One-Write System“. This involved a system whereby carbon-loaded ledger cards were aligned with the columnar journal. When the bookkeeper entered the transaction on the card, the same entry was recorded in the related columnar journal.
In fact it is still possible to buy ledger cards and one-write systems today. While these manual systems may seem antiquated, public accountants were able to work quite effectively and efficiently with them for after-the-fact accounting work. Of course small business owners didn’t have access to a full set of accounting records available at the touch of a button.
Or at least that is what accounting software publishers would have you believe.
In the past small business owners recognized that they had to manage their business without reliable financial reporting – except at year end – or at least a few months after the end of the year, when their public accountant finished their financial statements. Instead they relied on some more readily available business metrics – typically only obliquely related to their accounting system.
In fact this sounds alot like what Eric Ries (“The Lean Startup“) when he speaks of re-imagining accounting.
Depending on the type of business this could be:
- daily sales figures (retail)
- time and billing systems (service)
- job order system (auto repair)
The sad truth is that bookkeepers still need to be detail-oriented. What’s more, these days they must be more knowledgeable, since recording transactions in journals and posting them to ledger cards is much less complex than being responsible to operate a complete, computer-based accounting system.