SETTING UP AN INDUSTRIAL ACCOUNTING SYSTEM AT SAINT-GOBAIN (1820–1880)

1990 ◽  
Vol 17 (2) ◽  
pp. 73-93 ◽  
Author(s):  
Marc Nikitin
Keyword(s):  
Board Of Directors ◽  
Industrial Revolution ◽  
Cost Accounting ◽  
Accounting System ◽  
Full Cost ◽  
The Board Of Directors ◽  
Double Entry

In 1820, the Manufacture Royale des Glaces, founded in 1665 and also named Compagnie de Saint-Gobain, opted for double entry bookkeeping and cost accounting. At that time, both economic (industrial revolution) and juridical (abolition of the privileges and emergence of competition) events explain that change of accounting methods. From 1820 to 1880, the accounting system was progressively improved; most of today's cost accounting problems were discussed by the Board of Directors and in 1880 the accounting system was already very similar to today's full cost method.

of the information given to the shareholders, precautions to take for upward appraisal of capital assets, choice of an investment, and dividend policy. In order to raise enough capital for its business, the Company had to inform a growing number of shareholders, which soon became inconsistent with the managers’ freedom to deal with ac­ counting information according to their own needs. The resoultion of this problem led to the distinction between standard­ ized financial accounting for external and management account­ ing for internal use. As it became more and more efficient and advanced, the accounting system led to its own splitting. CONCLUSION Compared to most of the firms, Saint-Gobain had to face very early (in the first half of the 19th century) the problems raised by the setting up of a management accounting system. However, it was not until 1820, 155 years after its creation, that it adopted double entry bookkeeping which included the calculation of costs. This evolution is mainly due to the spreading of the Industrial Revolution in France, which was responsible for the abolition of privileges and the growth of competition in the field of glass pro­ duction. During the period 1820-1880, the cost accounting system had been gradually improved, without any regular outside coercion, according to the needs of the management alone. This leads to two conclusions and two research questions. In 1880, the accounting system facilitated the reckoning of full costs with methods and procedures that are still in use (alloca­ tion of the overhead with the use of activity center accounts, up-to-date transfer pricing methods, analysis of the relationship be­ tween depreciation, dividends and investments, etc ). This full cost method is now over one hundred years old. The development and the mastering of that cost accounting system were absolutely necessary to start the next stage, that is to say the use of those costs to prepare estimates of costs and investments. That stage took place over four decades (1890 to 1930) and led to real budget control towards the end of the Second World War. It should be recognized that the accounting systems of a given period can be very different from one another, which is particu­ larly true in the 19th century, therefore research should look at the variables on which the accounting system of each firm depends. Among the internal ones, the size of the firm, the culture of its

2014 ◽  
pp. 267-267
Keyword(s):  
19Th Century ◽  
Industrial Revolution ◽  
Transfer Pricing ◽  
Cost Accounting ◽  
Accounting System ◽  
Accounting Systems ◽  
Cost Accounting System ◽  
The Cost ◽  
Double Entry ◽  
The 19Th Century

information. How do produced quantities influence the costs per unit? How can costs, calculated at different times, be compared? What is the best way to distribute the overheads? etc.. .. After the setting up of the accounting system, a long process of maturation began. This is evident, on the one hand, from the discussions of the Board of Directors and, on the other hand from the differences between the two sets of accounts approved by the Board of Directors in 1832 and 1872. The structure of the Com­ pany evolved considerably between 1832 and 1880: two mergers occurred, the first one in 1858 with Saint-Quirin, a glass manufac­ turer, and the second one in 1872 with Perret-Olivier, whose fields of activity were mining and chemistry. After the second merger, the sales figures for chemistry outstripped the sales of glass and mirrors and during this time the Company had grown to include 16 branches in France and Germany. DISCUSSIONS ON INDUSTRIAL ACCOUNTING All the questions dealing with the setting up of a management accounting system were discussed by the Boards of Directors. In most cases, the solutions were only practical ones. There never seemed any intent or desire by the Company to make any theory or any generalization of those practical solutions. Direct and indirect costs. The distinction between direct and indirect cost was made first in 1829 with regards to labor charges.9 Salaries, of which a comprehensive list is given above, will be separated into two groups: 1) Those concerning directly and specially with the manufacturing process. 2) Those concerning administration. At the end of the year, the former will be divided and included in the suitable items of expenses; then the latter will be included in the overheads. However, direct labor is likely to have included only the wages of workers having a permanent job, and excluded those of the day laborer, which are by their very nature fluctuating. In the soda factory, the majority of workers were day laborers, thus making it difficult to estimate precisely the ratio between direct and indirect labor charges. Production level and cost per unit. In the previously quoted chief accountant’s report concerning the financial year 1827-1828,

2014 ◽  
pp. 259-259
Keyword(s):  
Board Of Directors ◽  
Boards Of Directors ◽  
Indirect Costs ◽  
The Other ◽  
Production Level ◽  
Accounting System ◽  
Direct And Indirect Costs ◽  
System A ◽  
The Board Of Directors ◽  
The One

Everything is included in such a calculation, everything can be summed up to that result; we find in it the effects of the chemical, mechanical, physical process, the advan­ tages of activity and workforce discipline, and finally the effect of every resource, of all sorts of economic means, particularly that of a lower capital producing as much or more. The evaluation of each Company, that is to say its contribution to the association, will result from that cost, or return, combined with the number of squarefoot pro­ duced, and with the effective selling price, including of course the quality or the degree of perfection of products. What happened meanwhile in the economic field? Which fac­ tors were strong enough to lead to such a systematic calculation? The conditions of production had slightly evolved in that period, but the main change came from outside the firm. Between 1793 and 1829, the dates of the two preceding quotations, the Company's Privilege disappeared and something new emerged: competition. The upheavals resulting from the Industrial Revolution seemed to have led to the widespread acceptance of cost calcula­ tions as the only efficient means to compare the activities of com­ peting firms. This is particularly true for firms that did not have any competition before 1790. Moreover, one can observe that in­ dustrial accounting and cost accounting books appeared in France from 1817 onwards, and can find several authors of that period saying: “I am the very first to find a new approach to the prob­ lem."6 THE SETTING UP OF THE NEW ACCOUNTING SYSTEM (1820-1834) The proceedings of the Board of Director’s meetings have been preserved; from these it is apparent that a new accounting system began in 1820. However, the actual accounting records from before 1825 have not survived. From the 1825 accounting records, it is clear that there is a new system of reporting which was long in being developed; a Profit and Loss Account was pre-

2014 ◽  
pp. 254-254
Keyword(s):  
Physical Process ◽  
Industrial Revolution ◽  
Cost Accounting ◽  
Selling Price ◽  
Accounting System ◽  
New Approach ◽  
Systematic Calculation ◽  
Widespread Acceptance ◽  
New System ◽  
Main Change

EARLY COST ACCOUNTING PRACTICES AND PRIVATE OWNERSHIP: THE SILK FACTORY COMPANY OF PORTUGAL, 1745–1747

2007 ◽  
Vol 34 (1) ◽  
pp. 57-89 ◽  
Author(s):  
José Matos Carvalho ◽  
Lúcia Lima Rodrigues ◽  
Russell Craig
Keyword(s):  
Industrial Revolution ◽  
Production Control ◽  
18Th Century ◽  
Cost Accounting ◽  
Management Control ◽  
Financial Accounting ◽  
Accounting Systems ◽  
Product Costing ◽  
Double Entry ◽  
Political Economic

This paper contributes to an understanding of the historical development of management accounting by presenting an example of cost accounting practice in Portugal in the first half of the 18th century. It explores the integration of cost and financial accounting systems within a double-entry accounting framework by the Silk Factory Company (SFC) between 1745 and 1747. The SFC's methods of product costing, pricing, inventory accounting, expense recognition, and production control are reviewed within the political, economic, and social context of Portugal at the time. The SFC is revealed to have used job-order product costing, with allocations of overhead costs, allowances for wastage and shrinkage, and elements of rudimentary standard costing. Our findings provide evidence of the existence of cost accounting and management control techniques at a private rather than a state-owned enterprise prior to the industrial revolution.

management, and its type of production seem important. Among the external ones, the legal environment, the level of technology used, the scarcity (or abundance) of capital, etc.. . . For future research in this area, there remains plenty of work on hand and the firms’ archives have not divulged all of their secrets. The double entry bookkeeping system has been established since the time (14th and 15th century) when it was indispensable to the merchants; the industrial cost accounting system became established at the same time as the Industrial Revolution, the be­ ginning of the 19th century in France. The regulation of account­ ing standards developed gradually with the growing intervention of governments in the capital accumulation process (between the two World Wars). Future research should consider the relation­ ship between the dominating capital accumulation procedures (commercial, industrial or social) and the dominating accounting systems of a period. Perhaps dominating capital accumulation procedures determine the way firms compete, which in turn deter­ mines their need for information, and therefore their accounting system.

2014 ◽  
pp. 268-335
Keyword(s):  
Capital Accumulation ◽  
Industrial Revolution ◽  
Future Research ◽  
Accounting System ◽  
Accumulation Process ◽  
Accounting Systems ◽  
15Th Century ◽  
Cost Accounting System ◽  
Double Entry ◽  
The 19Th Century

that the expected results of such a system determined the amount of bonuses. In June 1833, the Board of Directors approved the incentive plan which had already been started the previous Febru­ ary. The criteria governing the allocation of bonuses were dis­ cussed before the final plan was adopted. The Board of Directors first rejected a system that based the bonuses only on the amount of scrap produced. The Board found this criterion too quantitative and added a second criterion which assessed the quality of glass produced. In January 1834, a first evaluation was presented to the Board of Directors, according to which, the system "succeeded in lowering cost prices.” Along with the decrease of cost amounts, the plan aimed at "ensuring the commitment of the workers and the lower supervisory staff to a good quality of glass.” According to Daviet the bonus system, created by Clement DESORMES in the soda factory, eventually introduced in the wage a variable part of 20 to 30% of the total, which is rather a large amount, and explains the workers’ distrust at the begin­ ning. The system was then extended to the glass factory' of Saint-Gobain. From this, it can be concluded that the institution of a new system of remuneration which had been started in 1820 came to fruition in 1834. This occurred at the same time that a cost accounting system was developed. This adds weight to the thesis of a causal link between the emergence of competition and the calculation of costs. In fact, the aim of the new system of remu­ neration was clearly linked to the desire to reduce costs. Accounting for Depreciation. As previously pointed out, depre­ ciation had long been calculated. In the 18th century, such a cal­ culation was only used to estimate the actual value of buildings and machinery and draw up the inventory. In his report to, the Board of Directors meeting on September 4, 1834 the chief ac­ countant writes: COST PRICES OF OUR PRODUCTS. A decision of the administration determined the way depreciation of build­ ings and machinery would be settled: buildings bear a yearly depreciation of 1/20 and machinery 1/15. When that decision was taken, the consumption of sulfur and the decomposition of sea salt were in a very usual propor­ tion; but now the soda factory has almost doubled its production; so, do you think, dear Sirs, that we must maintain that depreciation rate? I am all the more con­

2014 ◽  
pp. 263-263
Keyword(s):  
Board Of Directors ◽  
18Th Century ◽  
Causal Link ◽  
Sea Salt ◽  
Accounting System ◽  
The Board Of Directors ◽  
Supervisory Staff ◽  
Cost Accounting System ◽  
New System

ners were asked for contribution every time there was a need for cash, then “interests” paid to partners on their capital balances are comparable to today’s interest expense. The Profit and Loss Account first recorded the gross profit of production. Then came the application of overhead costs of Paris and some unusual expenses, such as bad debts or differences in the calculation of costs due to fictitious expenses. It includes also an equivalent of the modem French “Appropriation Accounts,” showing the profit distributions paid to partners. The Financial Statement of June 30, 1828 shows, on the one hand, the current assets (cash, checks to be cashed, investment loans and receivables) and, on the other hand, the short-term debts (to partners, to suppliers, to various debtors, to the branches of the Company). The difference (working capital) is a respectable amount, due to the prudent financial policy: Current assets (Actif realisable et disponible) ................. 2 875 000 Short-term debts (Passif exigible)....................................... 237200 Net current assets (Net de I’actif financier)..................... 2 637 800 In 1820 when choosing an information system adapted to the requirements of a modem industrial firm, the Manufacture of Glass developed a set of accounts which ultimately were approved for the Company by a vote of the Board of Directors on October 30, 1832. Meanwhile, in 1830, the Company had become a Lim­ ited Company with new statutes. According to the historians of the Company, that date marks the irreversible passage of the firm into the industrial era. This new set of accounts required that the warehouse keepers had to maintain the accounts for raw materials and finished goods, while the branches' cashiers, in addition to maintaining manufacturing accounts and assets accounts, kept a cash book in which expenses (wages and others) and receipts (payments from the Paris Headquarters for the finished goods) were carefully re­ corded. The Directors of every branch also were required to send an inventory which listed buildings and machinery to Paris. Then, the central accounting office saw to it that the calculation of de­ preciation was done. THE NEW INFORMATION SYSTEM COMES TO MATURITY The new double entry accounting system allowed the calcula­ tion of cost amounts. However, bringing to light new information gives rise to new questions about the quality and relevance of this

2014 ◽  
pp. 258-258
Keyword(s):  
Information System ◽  
Raw Materials ◽  
Financial Policy ◽  
Accounting System ◽  
Short Term ◽  
New Information ◽  
The Board Of Directors ◽  
The Difference ◽  
The One ◽  
Double Entry
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