This brief will serve to indicate that cost accounting is not a newly developed offspring from its parent, the accounting process. But it rather has been going through its “growing pains” for many decades. In view of its long and interesting evolution, cost accounting now occupies such a prominent place in the business community that is opportune and highly desirable for its principles and concepts to be stated in tentative form. Or, to express it differently, cost accounting has now “grown up” sufficiently to warrant the serious attention.
It has generally been believed that cost accounting had its origin in the rise of the factory system in the Industrial Revolution. While it undoubtedly received a major impetus from that source, some of the practices and theories of today are much older. In fact, they date back to about fourteenth century when, as a result of the growth of Italian, English, Flemish and German commerce, industrial enterprises began to be established by various individuals and partnerships to engage in the manufacture of woolen cloth, books, coins and other lines.
As several historians have pointed out, wherever capitalism began to show itself better accounting practicesfollowed within a short time. Cost accounting, being concerned with those specialized aspects of general accounting which have to do with the recording and analysis of factory expenditures, was no exception to the preceding tendency. It has been suggested, however, that the first definite development in cost accounting took place in the time of Henry VII of England (1485-1509), when a large number of small woolen manufacturers, being resentful of the many guild restrictions, moved to the country villages from the cities, and established industrial communities, hoping to be able to sell their finished products through other channels than the organized guilds. Cost had not been so essential among the group as long as all their factory and selling activities were regulated by the highly monopolistic guilds; but, as many firms have since learned, when the small factory owners found themselves competing now not only against the guilds, but also among themselves, more accurate records of costs became imperative and almost prerequisite for success. Incentives such as these undoubtedly gave impetus to cost accounting in those years of the middle Ages.
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