The Rise and Fall of Debit-Credit Bookkeeping in China: History and Analysis

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Abstract: This paper presents a century-long history of the debitcredit method of double-entry bookkeeping in China. Since introduced to China at the turn of this century, debit-credit bookkeeping has gone through many years of turbulence until 1992, when the Chinese government officially designated it as the standard bookkeeping method. Rather than taking a narrow technical perspective, this paper examines many historical events that shaped bookkeeping methods in China from a broad socioeconomic and political viewpoint. The story of debit-credit bookkeeping in China exemplifies how accounting is intertwined with the political and socioeconomic environment in which it exists.

INTRODUCTION

The history of accounting demonstrates complex relationships among accounting, organizations, and society. Not only does accounting evolve in response to the political and socioeconomic environment, it also plays an active role in shaping and influencing organizational and societal changes, which in turn create possibilities for its own transformation [Hopwood, 1987, p. 207]. As "a product of the Italian Renaissance, the forces that led to the renewal of the human spirit in Europe were the same forces that created accounting" [Hendriksen and Breda, 1992, p. 32]. The convergence of those forces - free expression, private property, credit growth, and capital accumulation in 14th century Italy -- created the precondition for the birth of modern accounting. The invention of modern accounting was believed to "provide a framework within which private capitalism could develop and generate the wealth which sustained the artist, the musician, the priest, and the writer" [Hendriksen and Breda, 1992, p. 32].

The industrial revolution in the l9th century represented a second milestone in accounting's history. To satisfy the needs of large industrial corporations, accounting was reshaped and changed to reflect the increasing importance of such concepts as depreciation, cost accounting, separation of the investor and the manager, multiple users of financial statements, and the distinction between return on and of investment [Hendriksen and Breda, 1992, p. 47]. These accounting developments helped facilitate the advancement of Western industrial capitalism and the formation of market economies dominated by large, multinational corporations.

The American stock market crash in 1929 and the subsequent depression led to the creation of the Securities and Exchange Commission in 1934, and the start of a regulated environment, which has significantly influenced the contemporary development of accounting in the U.S. With authority bestowed by the SEC, the accounting profession has tried diligently to make the self-regulation model a success. Although being criticized from time to time for not acting swiftly enough to meet the increasing needs of information users, there seems to be no doubt that accounting has contributed significantly to the thriving of "people's capitalism" in the U.S. [Hendriksen and Breda, 1992, p. 83]. As we are continuing to observe today, the stock market and changes in the market have in turn become primary mobilizing forces behind the current development of accounting.

While history suggests that accounting interacts with the political and socioeconomic environment within which it operates, studies of accounting change and history often take a rather technical perspective, viewing accounting as a set of techniques for collecting and processing useful information for organizational improvement [Hopwood, 1987, p. 207]. This narrow technical perspective was directly challenged by Loft [1986, p. 137] and Hopwood [1987, p. 207] in their respective studies of British accounting history. Through a detailed documentation of cost accounting in the U.K. between 1914 to 1925, Loft [1986, p. 138] showed "accounting not as merely a technical process, nor as a technical process with social and political consequences, but as an activity which is both social and political in itself. …