Historical Influences on Modern Cost Accounting Practices
King, Darwin L., Premo, Kathleen M., Case, Carl J., Academy of Accounting and Financial Studies Journal
This paper reviews the significance of military cost accounting practices used during the U.S. Civil War. Many of our modern cost accounting practices were derived from those utilized by the U.S. Army from 1861 to 1865. Cost accounting practices were vitally important during this period in order to properly manage all expenses relating to "men and materials. " Army accounting clerks and quartermasters were taught comprehensive accounting principles and practices at West Point. These practices were also used in military institutions such as the Springfield Armory. The majority of these military cost accounting principles are still in use today. Historical practices such as cost identification, cost classification, and budgeting (cost management) continue to provide modern business managers with the ability to effectively and efficiently control and manage expenditures.
Modern business firms utilize a variety of cost accounting practices in an effort to manage expenditures and maximize profits. The origin of many of these can be traced to cost related principles taught by military institutions. This paper will first review the development of cost accounting prior to the Civil War. Cost accounting principles and practices developed rapidly during the early 1800s. Prior to that date, very little effort was made by business owners to classify and manage various costs. The bookkeeping principles introduced by Pacioli in 1494 were little changed until the turn of the nineteenth century.
The second portion of this paper contains the major theme of this paper. It is the importance of the cost accounting practices used by the U.S. Army during the Civil War. These practices were quite revolutionary for the period and allowed the army to accurately classify and manage expenditures . Instructors at West Point were some of the leaders in the analysis and management of expenditures. They developed an accounting system that identified and classified all costs related to "men and materials." Since the cost of the war was so enormous, the United States Government required adequate cost accounting from all military units of all expenditures for payroll, materials and supplies, food products, hired workers, and all other military costs. Without proper cost identification, classification, and management, the Union Army would not have succeeded in its war efforts. Seven cost related reports are included in the appendix and reviewed in this paper.
The final portion of this paper reviews the importance of Civil War era cost accounting practices on modern procedures. These early practices have continued to be beneficial today in the effort to identify, classify, and manage costs. The cost accounting contributions of the military during the early to mid-eighteenth century have provided a theoretical basis for the accounting systems of today. Modern business firms continue to refine these principles in an effort to operate in a more efficient manner.
EARLY COST ACCOUNTING HISTORY
Prior to 1800, there was minimal interest in the process of identifying and managing costs. Accounting texts published in the United States in the late 1700s utilized the concepts of double entry bookkeeping that were originally published by Pacioli in his "Summa" text of 1494 (Previts & Merino, 20). Later, English textbooks by Oldcastle in 1543 and Peele in 1553 were, in effect, restatements of the principles introduced by Pacioli more that fifty years earlier.
English accounting texts of the late eighteenth century were distributed in Colonial America and served to educate many notable Americans including George Washington. Washington kept personal ledgers that contained cash accounts with debits on the left pages and credits on the right side pages (Cloyd, 88). In addition, Washington regularly utilized a text called "Bookkeeping Methodiz'd" written by Scotland's John Mair in 1736 in an effort to maintain control over various farming cash receipts and expense accounts. …