Genesis of the Double Account System: A Case Study of a UK Gas Company at the Beginning of the 19th Century

Abstract

The objective of this paper is to investigate the double account system employed in a UK gas company at the beginning of the 19th century. The double account system refers to a form of preparing accounts that emphasises an approach of distinguishing capital expenditure from revenue expenditure. The previous research on this system included the study of Edwards (1985), which focused on UK railway companies, in which he states that the accounts prepared for the first half of 1838 by the London and Birmingham Railway Company (LBR) is the earliest example of the adoption of the double account system. However, the Independent Gas Light and Coke Company (IGLC) prepared accounts using the double account system in 1824. This is more than 10 years before the example cited by Edwards. The accounts of the IGLC at that time can be seen as an attempt to distinguish capital expenditure from revenue expenditure. In addition, Edwards (1985) argued that the introduction of accrual basis accounting was essential to the establishment of the double account system, but a transition from cash basis accounting to accrual basis accounting is observed in the IGLC’s accounts.

Keywords: double account system, gas company, classification of expenditure into capital and revenue, accrual basis

JEL Classification: M41, M42, N63, N83