The Accounting & Bookkeeping in Ancient India

Kautilya’s Arthashastra mentioned the way to maintain the accounting records. During Sangam age, merchant class were involved in prosperous trades and demand for accountants were more. During the reign of Guptas, accountants were involved from village level of administration. The South India inscriptions mentioned the importance of proper accounting and debarred the defaulters, in furnishing account, from contesting for various village committees.

Let us have a look at the various dynasties, their times in the Indian History and their contribution towards accounting system in India in Table 1.

Now, let us have a focused discussion about the following:

Kautilya and his Arthashastra

Kautilya, also known as Chanakya, was a great Indian teacher during 3rd Century B.C. He had written the famous book, “Arthashastra”. In this book, he had discussed the accounting procedures to be followed by Mauryan state among several other administrative, economic and social aspects.

Here, Kautilya mentioned various accounting concepts and terminologies. He said that the profit should be distributed. It shows us that people of those times were familiar with the appropriation of profit concept.

He discussed that interest on capital outlay should be considered before estimating the cost of the goods. This reflects maturity of ‘interest on capital concept’ along with costing concept where the cost of goods includes the interest portion on deployed fund.

At those times, Gopa was the accountant for a group of villages. He had to keep records of tax collected in cash or kind, fines and tolls. He also had to keep records of gift, sales and charities along with remission of taxes relating to the agriculture land. He was also required to keep accounts of income and expenditure of inhabitants of villages among other records. So, here we see that there was an accountant available at parishad level with definite duty. The concept of book-keeping was there and so was the maintenance of individual’s income statements.

Kautilya mentioned the term Income and expenditure in his books along with their classification. The income was divided into three types: Current Income (Vartamana), Income of previous period received in current period (puryushita) and other income (anyajatah) which included interest on deposits, recovery of bad debts, damage recovery (parihinikam), gift and booty. A special income was also mentioned which was in nature of saving in expenditure called as “Vyaya Pratyayah”. It was the amount which remained unexpended out of the specific fund (for example, medical treatment of sick) or amount remaining after construction of forts or building out of sanctioned amount. Hence, we find that there was knowledge of accrual concept. The revenue is recognised in way similar to today’s revenue recognition principle. Accounting of bad debt was not unknown at those times. Moreover, reserve fund is separated from revenue generated. So, we can say that there was familiarity about ‘Capital’ and ‘Revenue’ nature of items.

Expenditure was said to be of two types – daily expenditure (of daily nature) and profitable expenditure (once in a month or year or so). Here, Kautilya might have tried to differentiate ‘the variable expenses from fixed expenses’ or ‘revenue expenditure from capital expenditure’. In fact, this classification of expenditures into daily and monthly nature throw us light about cost control aspect which Kautilya must have tried at those times. He might have wanted to know the regular expenses and the developmental expenses of state separately.

He said that a wise collector should look for increase in income and decrease in expenditure. So this makes clear that there was proper understanding of profit and loss concept. Moreover, the scrutiny systems are found to be present at those times.

He said that accountant and other clerks should be spied by honest military officials. This shows the importance that the accounting system had in state administration in ancient India.

He wrote that the Superintendent of Accounts shall have office with separate seat for clerks and with shelves of accounts-books properly arranged. The department had to maintain the register regularly keeping details of amount of profit, loss, expenditure, delayed earnings for manufacturing units (karmanta). The accounting period was for 354 days. The accounting year ended around June-July (Ashadha month). There was probably separate account for intercalary month (Adhik Maas). Accounts were required to be submitted by time (in the month of Ashadha). There was fine for delay in presentation on accounts. This all shows the glory of the developed accounting department that used to be there is those times. Fines for delay shows the discipline that this organisation was required to maintain.

The accounts so submitted were required to be audited. Kautilya wrote that the receipt should be verified with reference to time and place, person who had paid, officer who received the amount, etc. Similarly, expenditures were verified with reference to time and place, person who remitted the same, person who delivered it and person who finally received it. There was fine for violation of prescribed format of accounts, for unknown entry or double or triple entry. There was double fine for removing the total figure from books and eight times fine for destroying the books.

The Gupta Age

There was local record-keeper called Pustapalas. Generally, to prevent corruption, there was a committee of three members in Pustapalas. Recommendations of Pustapalas were required for land transactions. They had to confirm that the transfer of land would not lead to loss of revenue to the crown rather there would be some gain from it in the shape of dharma (generally fallow land were given for charity). So we find that book-keeping was done at village/local level, where record-keepers had recommendatory power. We find the presence of proprietary and efficiency concept. The concept of separation of work was also there. This separation might be of the maker-checker type.

The banking function was prevalent during Gupta Age. Bankers (Shrenis or guild of bankers) acted as permanent custodian of gift (as a trust-property) of private philanthropists. They paid interest on these deposit and discharged the interest portion on the objects specified by donors.

As the payment of interest was available on principal deposit, there must be use of those deposits in business activities. So, the concept of rate of interest was there and which should be less than the rate of profit earned on use of such deposits in business. Moreover, the whole deposits and its accounting must had been trustworthy at those times as depositors would have security against loss, fraud, embezzlement or misappropriation. The deposits in general moved from one merchant to another, based on their requirements. Even that system posed no serious threat to the security of money.

So, we can conclude that the banking system along with hundi system, the profit calculation concept and their accounting system were effective and efficient one at those times.

The Jataka Story

The Buddhist Jataka story describes the prevalent condition during 300 B.C to 400 A.D. In several stories there are mentions of Joint stock principles for trade. This form of trade is ancient one.

One of the Jataka story (Chullakasetthi Jataka) mentions 100 merchants from Benares came to purchase the contents of a ship, were required first to pay a thousand each to get share of the merchandise along with initial owner and later paid another thousand each to the owner to get whole merchandise (and initial owner settled).

This story tells us the about the development of concept of partnership at those times, the conversion of sole proprietorship to partnership, the admission and retirement of partner(s) and payment to retiring partner.

Another story of Jataka (Kuta Vanija Jataka) refers to partnership between two merchants named ‘wise’ and ‘wisest’, who got involved in fighting for distribution of joint earnings of the firm on basis of skills.

So this story tells us that recognition of skill as capital in the firm was not truly unknown at that time, which is today considered as modern concept in partnership.

Others

During Chola period (around 900 A.D.), temples became the important unit and several temple cities were developed (for example Tanjore temple by Rajaraja I). The temples were generally granted several villages around as gift. Kings might also grant money to village council to be used for certain temple activities. In either case, the share of revenue earned from village or interest portion on granted money was used to pay temple expenses. Here, the accounts were maintained at temple level by the accountant employed at temple.

So, we find the concept of accounting for Not-for-profit organisation in the above example.

Endnote

We can deduce the following about the accounting knowledge in ancient India from above discussion:

• Various accounting terminologies like Expenses and Incomes, Interest, Profit and Loss, Debtors and Creditors are found to be well understood at those times.
• The modern basic ‘concepts of accounting’ are found to be present in those times like the ‘concept of periodicity’, the ‘concept of revenue recognition’ and ‘matching concept’.
• It has been found that there was clarity regarding the ‘Cash’ and ‘Accrual’ basis of accounting.
• The concept of ‘Appropriation of profit’ is well found in Arthashastra.
• Moreover, there was proper auditing procedure which involved the system of ‘third party confirmation’ and verification.
• From Gupta Age, we can conclude that there was developed accounting system which had acted as backbone to the prevalent banking system.
• From Jataka story, we can conclude that accounting for partnership firm and their admission, retirement and goodwill concepts were not unknown to the merchants of those times.
• From Chola period, we can conclude that accounting as a system of record and source of information was used at the temple level. This supports the assumption that ‘Accounting for Not-for-profit organisation’ was developed at those times.

Also, we already found that several moral and disciplinary actions were prevalent at those times which show us the importance of accounting and book-keeping. We can conclude the same as below:

• There was fine for delay in presentation of accounts.
• There was fine for unknown, double or triple entry or error in totalling.
• In village council nomination, non-presentation of accounts amounts to disqualification.

So, we can say that accounting as discipline of identifying, measuring, recording, summarising and communicating the information of an organisation or country were found to be flourishing one in ancient India. ∎∎∎