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In contemporary society, it is generally acknowledged that there is a compact relationship between the process of accounting and successive stages of capitalism.

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1. Introduction
In contemporary society, it is generally acknowledged that there is a compact relationship between the process of accounting and successive stages of capitalism. Then, according to Sombart (1916), the notion of double entry bookkeeping has influence on the emergence of capitalism.

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Consequently, this viewpoint can arouse a great controversy. Some researchers agree Sombart’s argument and launch a deeper study between the accounting and capitalism. In addition, Chiapello (2007) also states that there is the association between the conception of capitalism and the angle of economy and society which is impact on accounting.

Moreover, it is argued that the capitalism revolution has deeply impact on the history of accounting. So, there is an interconnected relationship between the process of accounting and successive stages of capitalism.

This essay will elaborate the issue about the role of accounting plays in successive stages of capitalism. In the first section, it will give the conception of capitalism and state two stages of capitalism. Second part gives the conception and development of accounting. Then, the relationship between them is given in the next section. Finally, it can be conclude that the history of accounting has influence on capitalism through the case of canals and railways in UK.

2. A review of Capitalism

2.1 The conception of Capitalism

Initially, as Deschepper (1964) states, capitalism was first proposed by Louis Blanc in the second half of nineteenth century and it is required to separate from the capital. Afterwards, Chiapello (2007) argues that the word capitalism can be turned into the antonyms of socialism during the twentieth century. Then, Sombart (1930) gives a clear definition on the basis of social scholars: ‘Capitalism designates an economic system significantly characterized by the predominance of “capital” ’ (Sombart, 1930, p.4).

Secondly, according to Weber (1991), capitalism is defined that ‘the most universal condition for the existence of modern capitalism is, for all large lucrative businesses supplying our daily needs, the use of a rational capital account as standard’(Weber, 1991,p. 297).

From the angles above, it can be concluded that most scholars cannot clearly propose the word capitalism even though capitalism has its definition according to their own thoughts. For example, Marx just used the expression of ‘capital system’ or ‘capital production’ rather than the word capitalism.

2.2 Capitalism and two stages

It is witnessed that there is an energetic view about the capitalist revolution with the development of business history. Consequently, according to Wilson (1995), it is widely accepted that capitalism can be divided into two stages on the basis of different categories of management: the traditional form of capitalism and the managerial capitalism.

To begin with, Wilson (1995) claims that it is clear that early capitalism is described that an individual can play various roles in operating the company from the perspective of personal management. So, it is the traditional form of capitalism. For instance, according to Mantoux (1928), the manager tends to have various powers to operate the company and the powers contain the rights for businessman or salesman. From the perspective above, it is obvious that most the corporate affairs can usually be dominated by an individual or small management teams until management functions can be separated.

Moreover, as Wilson (1995) states, the managerial capitalism is viewed as the second stage, but there are two periods in the managerial capitalism: the entrepreneurial form of organization and the managerial form of organization.

Firstly, it is apparent that a company transforms from individual forms to form of enterprise because personal management form has itself internal and external limits and it seems that the development of organization can be restricted. So it is the entrepreneurial form. In this stage, the owner-manager tend to need to hire professionals and use external funding and it seems that ownership and control start to emerge a separation in order to improve management functions.

Finally, the managerial stage is regarded as the second period as Wilson (1995) asserts. It is well known that there is a complete separation between ownership and control. That is to say, professional manager should commit strategic, functional and operational management while investors can control most of stock equity which operates the company.

3. A review of Accounting

3.1 The conception of Accounting

Initially, according to Young (2006), American Institute of Accountants’ Committee can provide an official definition: ‘Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the results thereof ’ (cited in Grady, 1965, p. 2).

Secondly, as Bryer (2006) claims, accounting is defined that there is a kind of process which offer useful accounting information for investors and senior managers. Obviously, accounting is regarded as a kind of looking for the common economic purpose of the reasonable and dominant method (Bryer, 2006). Afterwards, it is obvious that all the accounting information can be made reasonable economic decisions for the future development of the organization as Bryer (2006) demonstrates.

Thirdly, McLaney and Atrill (2007) provide another conception of accounting: it is evident that it can collect many useful available financial data, use a certain method to analyse these information and report to managers in the form of financial statement. Then, managers can make full use of these data to make the right economic decisions for the progress of the company.

Therefore, from these angles, it tends to conclude that there are the common features in terms of the definition of accounting. In other words, it is well known that accounting is the process of collecting and analyzing the financial data for managers and managers can make use of these information to make economic decisions for the company.

3.2 The development of Accounting

Along with the progress of business, it is widely believed that accounting has been constantly developing. Therefore, as Edwards (1989) states, there are four stages in terms of the progress of accounting: the pre-capitalist period, the commercial capitalism, the industrial capitalism and the financial capitalism.

Firstly, according to Edwards (1989), the first stage is pre-capitalist period, which dates from Mesopotamian civilisation until the Greek civilisation (4000 BC -1000 AD). Then, the first form of accounting is a simple record keeping and it origins from the Mesopotamian trade. For instance, Edwards (1989) illustrates that the original method is that the knotted cord keeps records, but this record evolves into keeping the minute on the ceramics or paper with the development of society. Hence, it means that there appears an initial form of calculating profits in terms of recording the goods and cash in this stage.

Secondly, Edwards (1989) claims that commercial capitalism is regarded as the second stage. This stage begins from 1000 to 1750. It is defined that merchants use money to purchase raw materials rather than number of production equipment and finish the goods, and make a big profit to obtain more shares after selling the products in this period. Then, it is described as “circulating capital”. So, it is also called the original commercial form. Moreover, it is worth to point out that there appears a new way of record keeping which is called double entry booking from about 1300 and then this method becomes more and more prevalent after 1494.

Thirdly, as Edwards (1989) states, the third stage is known as industrial capitalism. This stage normally dates from 1760 to 1830 in Britain even though industrial revolution had different periods in various countries. Afterwards, it is commonly accepted that the progress of mass machinery and factory marked the birth of industrial capitalism due to the emergence of new energy in the mid-nineteenth century. In addition, it is obvious that rich labour resources also promote the capitalist industrialization because of low infant mortality and the enclosure movement and then textile industry with ceramic and transportation appear constantly. Hence, it can be seen that manufacturing is the main proceeds in this stage. On the other hand, it is of importance that single entry and double entry can be chosen at that time from the perspective of industrialists, however, double entry replaced eventually single record keeping due to the improvement of resource allocation even though single entry maintains the leading position in Britain until nineteenth century.

Finally, financial capitalism is viewed as the fourth stage according to Edwards (1989) and this period starts from 1830 until today. It is notable that public services, like railway building, tend to become the preliminary stress on capital rather than fixed capital in terms of financing at this stage. Furthermore, it seems that public services can be required abundant of money rather than carrying on activities on small scale. Obviously, accounting problems such as the division of capital costs and tax costs, calculating profits, the evaluation of fixed assets tend to be constantly emerged. At that time, there are same accounting problems between mechanical inventions and technological inventions because of financing. In the end, government has transformed the attitude about the rule of business activities and it means that financial data are required while managers tend to choose suitable methods in terms of financial reporting procedures.

4. The relationship between Capitalism and Accounting

According to Wilson (1995), it is witnessed that there is an energetic view about the capitalist revolution with the development of business history.

Furthermore, as Chiapello (2007) states, it is evident that to a large extent the emergence of accounting can lead to the notion of capitalism. Then, Chiapello (2007) also asserts that there is the association between the conception of capitalism and the angle of economy and society which is impact on accounting. At the same time, Sombart (1916) claims that as the record keeping method of accounting, the notion of double entry bookkeeping has influence on the emergence of capitalism.

In addition, Bryer (2000) suggests that there is the theory of Marx which emphasis on the history of accounting and the transformation of capitalism. So, it means that the history of accounting is closely associated with the transformation of capitalism.

Finally, according to Arnold and McCartney (2008), it is argued that series of developing capitalism has impact on the external form of accounting about financial statement during the industrial revolution in Britain.

Therefore, from these perspectives, it can be concluded that there is the common characteristics between the accounting and the capitalism. That is to say, firstly, it seems that along with the development of the business history, accounting can constantly emerge in the capitalist revolution and it also facilitates the notion of capitalism. Secondly, it is evident that the double entry bookkeeping also comes out with the progress of accounting and it is deeply connected with the appearance of capitalism.

Due to the development of capitalist revolution, there appears a new method of bookkeeping under the changing circumstance. Consequently, according to Edwards (1989), it is obvious that small businesses tend to use single entry to keep the trading activities in the eleventh century and this record keeping can make small businesses operating well. However, due to the increasing business activities and the growth of amount of trading, it seems that single entry may restrict the size of business. It is thus well known that double entry bookkeeping tend to come out from about fourteenth century and it would become increasingly popular in 1494. Then, double entry is widely used in UK in the seventeenth century because of the increase in the number of transaction.

To start with, as Sombart (1992) states, double entry bookkeeping is defined that there are two accounts in every entry. That is to say, one is the debit account and another is the credit account. It is also the basic rule of double entry. As is seen that double entry bookkeeping would closely together with the accounts of enterprise.

In addition, Sombart (1992) asserts that the capital account and the income account start to appear and it is the core of double entry bookkeeping. At the same time, DEB is given an objective: ‘keeping track of every movement throughout the company’s capital cycle, quantifying it and recording it in writing’ (Sombart, 1992, p.21). Chiapello (2007) claims that close annual account put forward for the first time from the textbook of Simon Stevin and the balance sheet was proposed according to double entry bookkeeping.

However, Yamey (1964) also gives another definition of double entry bookkeeping: initially, there is the sole standard about the balance of debit and credit accounts in terms of the balance system of bookkeeping. Secondly, this system adds the use of capital accounts and nominal accounts, but regular calculation of net income has not been enrolled.

As a result, from these perspectives it can be concluded that there is the development of double entry bookkeeping in early capitalism stage and the conception of double entry bookkeeping. That is to say, firstly, it is defined by Sombart and Yamey that double entry bookkeeping can be divided into two accounts. Secondly, double entry bookkeeping tend to be come out because of expanding increasingly the size of businesses.

5. Accounting changes during the Industrial Revolution in Britain

As Arnold and McCartney (2008) claim, financial statement which is an external form of accounting has formed in the successive stages of capitalism and it is obvious that financial reports have sort of changes in terms of railway and canal industry during the initial period of industrial revolution.

5.1 Railway

According to Arnold and McCartney (2008), it seems that the establishment of railway enterprise such as Liverpool and Manchester railway mark the appearance of financial capitalism from 1830. As an illustration, Edwards (1989) states that the requirement of public utilities tend to turn into the primary pressure of capital instead of fixed capital during the Industrial Revolution. So, for the sake of large scale financing, two railway buildings, Liverpool and Manchester railway, was found in 1830. The London Stock Exchange can place importance on corporation securities during the second half of nineteenth century and it can represent the importance of railway in terms of the capital market. At that time, as the railways were the major industry during the second half of nineteenth century according to Arnold and McCartney (2008), the construction of railway was required to invest amount of capital rather than a small scale. So, plenty of financial data can need to be reported in the financial statement. Then, these data can contribute to design the project, calculating costs in the period of construction and finally these information were reported after the completion of the railway line (Edwards, 1989).

5.2 Canal industry

The canal industry plays a significant role in the UK economy during the start of nineteenth century and it also has impact on the industrial revolution. According to Edwards (1989), the canal industry may mark the real commence of financial capitalism because it make use of surpluses from the employment of capital in trade and capital from the investors.

As Bagwell and Lyth (2002) states, the establishment of the canals can be miracle during the late eighteenth century and the early nineteenth century and civil engineering with pound locks, aqueducts, cuttings and tunnels tend to be performed in the canal buildings. Then, Arnold and McCartney (2008) assert that the age of canals dated from 1755, for the sake of enhancing navigation of Sankey Brook which is a tributary of the Mersey, Liverpool Company acquired a navigable Act and the coals can be transported to Liverpool from the St Helens. So, it can also facilitate the progress of the Bridgewater canal from Manchester to Worsley. However, according to Bagwell and Lyth (2002), the cost of coal sharply decreased in Manchester when canal was built at the July of 1761. Subsequently, a better alternative of Manchester Runcorn Canal can be facilitated by the Bridgewater canal in 1767 and recently the carriage levies started to drop as well. Simultaneously, it is accepted that new canals have not only the function of transporting the cargo, but they can also be regarded as the transportation of passengers due to the introduction of the Manchester passenger boats in the late of eighteenth century (Arnold and McCartney, 2008). In addition, as Hadfield (1981) mentions, it is witnessed that from the angle of canals, there is a growth of inland navigation system between England and Wales from 1,482 miles to 3,969 miles during the late eighteenth century and early nineteenth century. Hence, it is defined as the stage of industrial revolution.

However, as Arnold and McCartney (2008) claim, the Bubble Act can be proposed by an Act of Parliament and there are some limitations from the angle of joint stock company since the failure of South Sea company. Afterwards, the first corporation, which is named The Company of Proprietors of the River Dun, was established in 1733 by this Act and this company has the total ? 17,250 capital. Therefore, it means that the canal companies can be viewed as “statutory companies, for trading purposes” for the first time and there are limited liabilities in some corporations(Harries, 2000, pp.98-9). From these perspectives above, it can be concluded that the canal companies tend to make a financial foundation for future industrial process as a means of selling stocks and bonds (Bagwell and Lyth, 2002).

Although some canal companies have some certain data such as construction costs and dividends, it is clear that the periodic accounts or financial statements are used to search for understanding the profitability (Arnold and McCartney, 2008). Additionally, the Rochdale and Lancaster directors insist to keep “proper books of Accounts” while the directors of the Kennet and Avon adhere to use the cost of construction about “a true and particular Account”. Then, it is also mentioned that the data set of three companies such as Birmingham, Kennet and Avon, and Oxford Canal companies can totally use the DEB to keep accounting records.

In brief, according to Arnold and McCartney (2008), it is obvious that there are two financial statements in the Rochdale Canal, which are Statement of the Receipts and Disbursements and Statement of the debits and credits. Then, Arnold and McCartney (2008) also state that the Kennet and Avon’s general account is the initial form of General Balance Sheet even if it cannot include relevant information.

6. Conclusion

Based on the arguments offered above, the development of accounting has far-reaching effects on the successive stages of capitalism especially in the period of British Industrial Revolution. Sombart (1916) claims that the notion of DEB has influence on the emergence of capitalism. In addition, Chiapello (2007) also states that there is the association between the conception of capitalism and the angle of economy and society which is impact on accounting. As a result, it is clear that along with the development of the business history, accounting can constantly emerge in the capitalist revolution and facilitate the notion of capitalism. Then, it is evident that the double entry bookkeeping also comes out with the progress of accounting and it is deeply connected with the appearance of capitalism.

Therefore, based on the case of canals and railways in Britain, it is evident that the process of financial reporting has far-reaching effects on the stages of industrial revolution. Meanwhile, the history of accounting may pose an essential impact on the stages of capitalism.

References

Arnold, A.J. and S. McCartney (2008) ‘The transition to capitalism and its implications for financial reporting: evidence from the English canal companies’ Accounting, Auditing and Accountability Journal 21 (8): 1185-1209

Bagwell, P. and Lyth, P. (2002) Transport in Britain. London: Hambledon and London.

Bryer, R.A (2000) ‘The history of accounting and the transition to capitalism in England. Part one: theory’ Accounting, Organizations and Society 25:131-162

Bryer, R. (2006) ‘Accounting and control of the labour process’ Critical Perspectives on Accounting 17: 551-598

Chiapello, E. (2007) ‘Accounting and the birth of the notion of capitalism’ Critical Perspectives on Accounting 18: 263-296

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Sombart, W. (1916) Der moderne Kapitalismus. M? unchen, Leipzig: Duncker and Humbolt.

Sombart, W. (1930) Capitalism. In: Seligman ER, Johnson A, editors. Encyclopedia of the social sciences. New York: The Macmillan Company.

Sombart, W. (1992) Cahiers d’histoire de la comptabilit?e, Editions Ordre des experts comptableset Editions comptables Malesherbes, vol. 2

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Young, J. J. (2006) ‘Make up users’ Accounting, Organizations and Society 31 (6): 579-600

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