Partnership accounting in a nineteenth century merchant banking house

              Edwin J. Perkins and
Sherry Levinson UNIVERSITY OF SOUTHERN CALIFORNIA
PARTNERSHIP ACCOUNTING IN A NINETEENTH CENTURY MERCHANT BANKING HOUSE
Abstract: This article focuses on the contents of two nineteenth-century letters which discuss the allocation of income among the partners of a leading Anglo-American merchant banking firm, the House of Brown. The writers debate alterna-tive methods of valuing assets and determining yearly income. In addition, the handling of doubtful accounts and their subsequent collection is examined. In both letters the writers argue for the development of clearly defined accounting princi-ples and consistency in applying them. These letters reveal that an unusually high degree of financial sophistication had emerged in the merchant banking field by the 1850s.
While much of the recent historical literature has been devoted to analyses of business and railroad operations in the nineteenth century, the accounting methods and contributions of banking firms have remained relatively unexplored.1 Now two previously unpub-lished letters written in the mid-nineteenth century by partners of the House of Brown, a leading Anglo-American merchant banking firm, offer new insight into the evolution of accounting methods and the emerging degree of sophistication in accounting thought. These letters indicate that some of the senior members of the firm were acutely aware of the problems associated with the develop-ment of principles and procedures for determining and allocating partnership profits in an equitable and consistent manner. The issues which stimulated discussion within the firm were con-troversies over, first, alternative methods of valuing assets and con-sequently the calculation of yearly income and, second, the collec-tion of funds on doubtful accounts which had been written off directly against the senior partners' capital accounts. In both letters the writers expressed very conservative attitudes about the valua-tion of assets and the measurement of income.
The firm was founded in 1800 by Alexander Brown, who emigrated to Baltimore from Ireland in the 1790s. Beginning as a linen mer-chant, Brown soon expanded his activities to include the merchan-