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Double-Entry Bookkeeping in Early-Twentieth-Century China

  • Pak K. Auyeung (a1), Lei Fu (a2) and Zhixiang Liu (a3)

Abstract

Rare materials recently released by the Zigong City Archives shed light on the accounting system that was created by saltmining businesses in Zigong. The materials include forty-seven accounting books prepared by eight firms in the industry from 1908 to 1930. In this study, the materials are used to reveal how the Zigong salt-mining firms used the double-entry system. The study draws on the archival documents to reveal how the firms' innovative reporting methods enabled them to calculate profit and loss, and it explores the ways in which improved accounting information guided the decisions of Chinese proprietors who were operating in a business environment characterized by inadequate financing, considerable risk, and long intervals between investment and return.

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1 Guo, Daoyang, Chinese Accounting History Draft, 2 vols. (Beijing, 1982, 1988).

2 One view suggests that the double-entry principle was invented during the Song dynasty (AD 960–1279). Another view argues that it was invented during the Ming dynasty (AD 1368–1644), while some believe that it did not exist until the middle of the Qing dynasty (AD 1644–1911).

3 Littleton, Ananias, Accounting Evolution to 1900 (New York, 1966).

4 A sample of the literature includes: Chen, Kui, Commercial Encyclopaedia (Shanghai, 1935); Sheng, Shu, “Antique but Scientific Bookkeeping Methods of Our Country,” China's Economic Issues 3 (1980): 1523; and Zhang, Xiliu, General Principles of Accounting (Guangzhou, 1937).

5 Ijiri, Yuji, Studies in Accounting Research, Momentum Accounting and Triple-Entry Bookkeeping: Exploring the Dynamic Structure of Accounting Measurements (Sarasota, Fla., 1989), 31.

6 Yamey, Basil S., “Scientific Bookkeeping and the Rise of Capitalism,” Economic History Review 1 (1949): 106.

7 Schumpeter, Joseph A., Capitalism, Socialism and Democracy (London, 1943), 123.

8 Weber, Max, General Economic History (New York, 1961), 275.

9 This is similar to Needham's extraordinary paradox that although printing, gunpowder, and the magnet, which had changed the face of the West, all reached Europe from China, they had not produced similarly profound effects on China. See Needham, Joseph, The Grand Titration: Science and Society in East and West (London, 1969).

10 Otte, Friedrich, “The Evolution of Bookkeeping and Accounting in China,” Annalen der Betriebswirtschaft 2 (1928): 166–80.

11 Aiken, Maxwell and Lu, Wei, “Perception, Culture and Research Method in Accounting History: Its Evolution in Modern China,” Accounting History 5 (1993): 1120; Aiken, Maxwell and Lu, Wei, “Chinese Government Accounting: Historical Perspective and Current Practice,” British Accounting Review 25 (1993): 109–29; Aiken, Maxwell and Lu, Wei, “Historical Instances of Innovative Accounting Practices in the Chinese Dynasties and Beyond,” Accounting Historians Journal 20 (1993): 163–86; Aiken, Maxwell and Lu, Wei, “The Evolution of Bookkeeping in China: Integrating Historical Trends With Western Influences,” Abacus 34 (1998): 220–42; Chen, Maosheng, “The History of Double-Entry Bookkeeping in China,” Shanghai Accounting 10 (1993): 30–1; Chen, Shimin, “The Rise and Fall of Debit-Credit Bookkeeping in China: History and Analysis,” Accounting Historians Journal 25 (1998): 7392; Fu, Jianmu, “An Outline of Popular Double-Entry Accounting in the Qing,” Chinese Economic History Research 3 (1989): 7377; Gardella, Robert, “Squaring Accounts: Commercial Bookkeeping Methods and Capitalist Rationalism in Late Qing and Republican China,” Journal of Asian Studies 51 (1992): 317–39; Gardella, Robert, “Perspectives on the Development of Accounting and China's Economic Transformation from the Late Ming to the Early Republic,” in Brown, Ampalavanar R., ed., Chinese Business Enterprise in Asia (New York, 1995); Lin, Jun Z., “Chinese Double-Entry Bookkeeping Before the Nineteenth Century,” Accounting Historians Journal 19 (1992): 103–22; Lin, Jun Z., “Chinese Bookkeeping Systems: A Study of Accounting Adaptation and Change,” Accounting, Business and Financial History 13 (2003): 8398; Lu, Wei, “Accounting Development in China During the Modern Era” (master's thesis, La Trobe University, 1992); Lu, Wei, “The Development of Chinese Accounting: Historical Perspective and Current Practice” (PhD thesis, La Trobe University, 1999); Zhao, Youliang, “A Brief History of Accounting and Auditing in China,” in a joint research study by the Shanghai University of Finance and Economics and the Centre for International Accounting Development, University of Texas, Accounting and Auditing in the People's Republic of China: A Review of its Practices, Systems, Education and Developments (Dallas, 1987); and Zhao, Youliang, Accounting and Auditing History of Ancient China (Shanghai, 1992).

12 Zigong is a municipality in the southwest section of Sichuan Province in central China, where salt mining has been an important economic activity for hundreds of years.

13 These methods are explained below.

14 Pollard, Sidney S., The Genesis of Modern Management: A Study of the Industrial Revolution in Great Britain (Cambridge, U.K., 1965), 248.

15 Fleischman, Richard K. and Parker, Lee D., “Managerial Accounting Early in the British Industrial Revolution: The Carron Company, a Case Study,” Accounting and Business Research 20 (1990): 211–21.

16 Auyeung, Pak K. and Ivory, Paul, “A Weberian Model Applied to the Study of Accounting Stagnation in Late Qing China,” Accounting, Business and Financial History 13 (2003): 526.

17 Wu, Wei, A History of the Sichuan Salt Administration (Nanjing, 1932); Zelin, Madeleine, “Capital Accumulation and Investment Strategies in Early Modern China: The Case of the Furong Salt Yard,” Late Imperial China 9 (1988): 79122; and Zigong Salt History Archives, A Discussion of Salt History in Sichuan (Sichuan, n.d.).

18 One Chinese foot = 33 centimeters = 1.094 feet.

19 Zigong grew plenty of thick, tough bamboos. A section of the bamboo trunk was cut across just below the joint, allowing the hollow stem to be used as a container. The sealed joint at the other end was the bottom.

20 Li, Yong, Literature Draft of the Thirteen Hill Library (Beijing, 1933).

21 Chan, Wellington K. K., “Sources of Capital for Modern Industrial Enterprises in Late Ch'ing China,” in Brown, Ampalavanar R., ed., Chinese Business Enterprise, vol. 2 (London, 1996).

22 Wu, History of Sichuan Salt Administration; Zigong Salt History Archives, A Discussion of Salt History; Zelin, “Capital Accumulation.”

23 Fleischman and Parker, “Managerial Accounting.”

24 Wu, History of Sichuan Salt Administration.

25 Zigong City Archives, Beijing Academy of Economics and Sichuan University, An Archival Collection of Salt Mining Agreements in Zigong (Beijing, 1985).

26 Zigong Salt History Archives, A Discussion of Salt History.

27 Some mining firms in Zigong did not keep a daybook. Instead, transactions were recorded directly in the journal and posted periodically in the ledger.

28 China had three kinds of numerals, namely caoma (the commercial form), hanti (the standard form), and kuaiji ti (the accounting form). The accounting form consisted of elaborate characters, which were used when a numeral had to be safeguarded from falsification, and the other two forms consisted of simplified characters.

29 Chen, Chaonan, Silver-Copper Exchange Rate Fluctuations During the Yongzheng-Qianlong Times (Taipei, 1966); Peng, Xunwei, A History of Chinese Currency (Shanghai, 1965); and People's Bank of China, Shanghai Branch, Historical Materials on Shanghai Chien-chuan (Shanghai, 1960).

30 In today's accounting terminology, capital expenditures bring future economic benefits to the business entity and are recorded in fixed asset accounts, whereas revenue expenditures are consumed in the current period and are expensed to match against revenue in order to measure profit.

31 1 tan = 50 kilograms = 110.23 pounds.

32 Zigong City Archives, ref. no. 45-1-98. The list of partners shows that a partner often held shares in the partnership under a company name. These companies were retailers and bankers in Sichuan Province.

33 Salt Mine Accounting Books in Zigong City Archives, ref. no. 45-1-91.

34 Under accrual-basis accounting, revenue is recognized when a sale takes place, and a purchase is expensed when the acquired benefit is consumed (not as money is received or paid). It thus recognizes the effect of a business event as it occurs and enables expenses incurred to be matched against the revenues earned during the same period in order to compute net profit or net loss.

35 Salt Mine Accounting Books in Zigong City Archives, ref. no. 45-1-86.

36 Zelin, “Capital Accumulation and Investment Strategies in Early Modern China.”

37 Fu Shan was from Tai Yuan, the capital of Shanxi Province in northeast China, where commercial banks flourished during the Ming and Qing dynasties. He was both a merchant and a scholar of philosophy, literature, and medicine.

38 Ran, Guangrong and Zhang, Xuejun, A Draft History of the Well Salt Industry in Sichuan During the Ming and Qing Period (Chengdu, 1984).

39 1 li = 0.5 kilometers = 0.33 miles

40 A “fireball” was a unit of gas. Each fireball was capable of evaporating at least 3.5 tan (1 tan = 50 kilograms = 110.23 pounds) of brine, depending on its strength. In the late Qing, the cost of leasing a fireball was about 5 liang (Chinese currency) per month.

41 Zigong Salt History Archives, A Discussion of Salt History in Sichuan.

42 The cost of woks is discussed in the section entitled “The Double-Entry System.”

43 For example, the price of brine was fixed at 5.76 liang of silver per tan in the late nineteenth century.

44 Salt Mine Accounting Books in the Zigong City Archives, ref. nos. 45-1-93 and 45-1-94.

45 Salt Mine Accounting Books in Zigong City Archives, ref. no. 45-1-86.

46 Zelin, “Capital Accumulation and Investment Strategies in Early Modern China.”

47 Zigong City Archives, An Archival Collection of Salt Mining Agreements.

49 Ibid.; Zelin, “Capital Accumulation and Investment Strategies in Early Modern China.”

50 Zigong City Archives, An Archival Collection of Salt Mining Agreements; Furong contracts 68 and 69.

51 Wu, A History of the Sichuan Salt Administration; Zelin, “Capital Accumulation and Investment Strategies in Early Modern China; and Zigong Salt History Archives, A Discussion of Salt History in Sichuan.

52 Zigong City Archives, An Archival Collection of Salt Mining Agreements. The Li and Wang families were active salt miners and landowners in Sichuan during the Qing dynasty.

53 Littleton, Accounting Evolution to 1900.

54 Yamey, “Scientific Bookkeeping.”

Double-Entry Bookkeeping in Early-Twentieth-Century China

  • Pak K. Auyeung (a1), Lei Fu (a2) and Zhixiang Liu (a3)

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