The Evolution and Acceptance of the Loose-leaf Accounting System, 1885-1935

"No improvement in financial accounting since the introduction of double-entry bookkeeping has been of such importance as the introduction of removable-leaf systems to accounting books." ¹ From the publication of Luca Pacioli's description of the double-entry accounting method in 1494 to the end of the nineteenth century, all accounting transactions were recorded in bound record books. ² Pages could not be removed from or added to these volumes without destroying their structural integrity, and businesses accepted the inconvenience and inefficiency without question for over four hundred years. In the late 1800s, however, loose-leaf accounting began to fundamentally change the way that accounting information was recorded and processed. ³ More important, loose-leaf accounting provided a system capable of coping with a nascent demand for increased internal and external financial information. In less than fifty years this approach had been accepted around the world.

The evolution of the loose-leaf system makes most sense when seen in context with the vast changes occurring in the business world at the time. The growth of the corporate entity, the creation of the modern office, the development of new means of communication and information processing--all requiring more information--ultimately drove the acceptance of loose-leaf accounting. Before these changes, there was little need for the loose-leaf system; after them, it was impossible not to have such a system.

The term "loose-leaf" has been used in two ways. Most simply, it describes a book with removable pages: as the 1917 Cyclopedia of Practical Accounting put it, "the sheets being bound in solid book form, each leaf is a separate sheet ruled for one ledger account. The sheets are filed or bound in what is known as the binder, being securely held in place by a mechanical device." ⁴ More broadly, it was used to denote several different removable-leaf systems, as in this 1901 definition: "As the expression Loose Leaf is here used by me it is intended to cover order and billing systems, indexes, ledgers, or any form of original or final record where a loose leaf, or detached, or detachable documents are used in lieu of the same information in a bound book." ⁵ For the purposes of this article we will adopt this latter definition, and will set our study of the changes leading to the loose-leaf format against the background of its long-standing predecessor, the system of bound records. With the help of the long-term and immediate contexts, we will be in a better position to interpret the tensions and innovative strategies that mark the loose-leaf story. ⁶

Prior to the nineteenth century, most manufacturing firms were small, and most were managed by owners directly involved in day-to-day operations. ⁷ Since the owner had direct knowledge of the financial condition of the firm, informational needs from the bookkeeping system were minimal. Records primarily tracked cash receipts and disbursements, and were not generally used as a basis for financial analysis or control. ⁸ Although the inefficiencies of the bound record system had been recognized throughout most of its history, there was general agreement that the advantages of the system outweighed the disadvantages. Most bookkeepers and business owners felt that retaining the bound volumes was the only way to insure the integrity of their records. If pages could not be added or deleted, then all information relating to changes in the accounts would be included in the system. The ability to delete or insert information through removable pages opened the door to all manner of fraud and improper manipulation of the record-keeping system. As long as business entities remained small and information needs minimal, most users accepted the disadvantages as the price of a permanent, secure record.

As businesses began to grow in size...