A short history of Chinese accounting

From the Chinese Academy of Social Sciences and the London School of Economics via FTAlphaville:

In the West it took several hundred years for the speed of the abacus to be supplanted by the arithmetic calculations that could be performed ‘on the page’ using Arabic numerals (i.e. ‘algorism’) and this change was an inherent part of the development of the self-contained ‘closed’ set of books and financial reports represented by the [double-entry bookkeeping] system. Importantly, the abacus allows most of the accounting computations to remain outside the books themselves, with calculation and recalculation performed as needed.

The Sūzhōu măzì [苏州码字] characters used in the TTS books have place value, unlike the standard Chinese characters, but this does not so much provide the advantage of being able to add, subtract, multiply and divide ‘on the page’ (as with Arabic numerals), but rather their conformity with the layout of the abacus assists its use to perform these calculations at very high speed.

One needs therefore to think of a ‘set’ of Chinese accounts as comprisingboth the written books and the ‘off-book’ abacus calculations. So the discipline of the DEB system that ringfences what has been admitted into the books and then visibly processes every transaction through all the stages from prime entry to final profit and loss account and balance sheet, with fullcross-referencing and ‘audit trail’, and with the built-in redundancy of the duplicated information that facilitates internal control and checking, is probably unnecessary in an abacus-based system like that of TTS and other Chinese businesses. However to Western eyes, accustomed to seeing everything in the books, it would inevitably appear as a deficiency and that prima facie much of the accounting was ‘missing’.

…In the account book, each (vertical) line is divided into upper and lower halves, with dates respectively. The upper half normally records only the incoming receipts of money (silver or copper) and some physical details of goods from clients; the lower half keeps the outgoing payments only. The upper and lower halves are kept strictly separate, presumably to aid internal checking. When recording silver transactions, píngsè ([平色] weight and purity of a silver ingot) as well as the daily exchange rate (between silver and copper) is also recorded, so that silver can be converted in terms of copper cash.

When it comes to the bookkeeping of transactions of goods, the goods categories, number of units and (in the early stages) unit price are recorded as well. For example, ‘receipts from Tài Lái Hào ([泰来号] = Tài Lái grocery): wine one unit, short of 1.5 jīn [斤], 33 wén [文]’, to assist internal checking and auditing. For silver-goods transactions, in the case of a cash transaction which is immediately cleared, the entry only keeps the incoming of the amount of silver (or copper), or the outgoing of goods in terms of money; the name of the trade partner is not recorded.

If, however, the silver-goods transaction is on credit, detailed records will be made such as the trading partner (name of the person or the business house)―these records can therefore be easily transferred into the next stage account books, the wănglái ([往来] = customers’ individual accounts) for instance.

In a liúshuǐ account book, transactions that need to be transferred to the wănglái will be marked by guò ([过] = ‘transfer’) or zhi ([之] = ‘go’) by the end of the item detail. Transactions that have already been cleared will be marked qīng ([清] = ‘cleared’) or liăngqì ([两讫] = ‘ceased at both ends’), indicating that the credit item has been cleared, and there is no longer any need for transferring the entry to other specialised account books. When the liúshuǐ accounts were balanced (e.g. every five days or at the end of other periods), the balance stated the total sum of outgoing money and incoming money, and the current assets of copper cash and silver.

…in the TTS archive there is an extant series of the zǒngqīng zhàngbù ([总清账簿] = ‘general account book of clearing’), also the so-called ‘hóng zhàng’ ([红账] = ‘red book’), or ‘yìběnwànlìzhàng’ ([一本万利账] = ‘account that makes big profits with a small capital’). This generally refers to the shop’s record of shareholders’ capital shares and deposits. This book contains information like the profit or loss of year-end financial assessment; shares of capital shareholders as well as for shēngŭ ([身股] = ‘expertise shareholders’); total amount of annual bonus; and the allocation of dividend per share, etc. These important contents reflect the business condition of the shop over a financial year. There are two yìběnwànlìzhàng in the existing TTS account books, and they cover a time span of thirty years (1801-1830).

…The day books and customer/supplier accounts (for trading and for lending activities) report transactions but they are incomplete: for example there appear to be no records of wages paid to employees or of other assets. The accounting basis was primarily cash accounting but with additional memorandum recording of the details of credit transactions (but not their full monetary value) so there is not monetary ‘doubled-entry’ and it is the record of the cash subsequently received in the ‘strung-coins’ accounts that provides the basis for our (and possibly their) estimating the trading results for a period. Moreover there is no surviving evidence of any ‘continuous inventory’ accounts for the goods and only one stock-taking’ sheet survives.

This primary focus on keeping track of the cash was perhaps particularly important in the Chinese business context where there are many clerks, family members and other people with the opportunity to divert cash to their own use.

The more things change, the more they stay the same…


  1. Interesting.

    As an aside, I tend to find in all cultures that an accountant’s answer to the question “What is 2+2?” is “What do you want it to be?”. As to how that is expressed in the accounts, I guess that depends upon whether you are using DEB or TTS (or some other such system).

      • I have no idea

        Bronte Capital has nailed a few outright frauds.

        Putting private investigators outside fertilizer distribution centres to count trucks to try and verify volumes of companies ‘reporting’ 40% or some other strangely high level of margins in very low margin industries for example.

        The auditors obviously don’t have the same skin in the game to care.