273 



BOOK-KEEPING. 



BOOK-KEEPING. 



that it is a complex and arbitrary system without any fixed principles 

 or any intelligible rules. Nothing, however, could be more erroneous. 

 Book-keeping is a system of aa great perfection and beauty as any 

 thing human can be, and it is based upon principles which are simple, 

 unalterable, and capable of universal application. 



When its importance and true character shall come to be properly 

 understood, book-keeping will undoubtedly be recognised as a neces- 

 sary branch of general education ; and to be ignorant of the science 

 of accounts will be held to be scandalous, not only in the trader, 

 who should be the guardian of his own interests, but also in 

 directors of companies and guardians of charities, to whom are 

 entrusted the interests of others. There are but few persons who 

 have any adequate conception of the number of bankruptcies which 

 have resulted from irregular accounts alone, or of the extent of the 

 waste, peculation, and frauds which the absence of an intelligent 

 scrutiny of accounts has first encouraged, and afterwards concealed. 



It is deserving of notice that of late years the executive govern 

 ment has done much to promote the study of book-keeping in this 

 country. The Lords of Her Majesty's Treasury have made a com- 

 petent knowledge of the art an indispensable qualification, in candi- 

 dates for certain branches of the civil service; and the Poor Law 

 Commissioners for England and Wales, in the year 1847, issued an 

 able order prescribing the accounts to be kept in all the Poor Law 

 Unions under their control. 



Book-keeping by double entry is alike applicable to the accounts of 

 merchants, manufacturers, traders, public companies and bodies, and 

 private individuals ; but for the sake of brevity, we shall confine our 

 remarks to accounts of the first-mentioned class. 



The jtnt necessity is that the merchant should secure a record of every 

 fact and transaction affecting his property. 



Formerly this record was kept in a book known as the Waste-Book, 

 but experience having shown the inconvenience of a register in which 

 no regard was paid to the classification of the entries (purchases and 

 sales, payments and receipts, being jumbled together), the Waste-Book 

 is now subdivided by every merchant according to the nature of his 

 business. A common division of that book is the following : 



I. THE DAY-BOOK, or INVOICE-BOOK OUTWARDS, in which the 



merchant records his sales on credit. Should he sell any of 

 his goods for cash, he must enter those sales separately in a 

 CASH SALES-BOOK. 



II. THE INVOICE-BOOK INWARDS, in which he records his pur- 



chases on credit. A common mode of keeping this book is to 

 paste into it the invoices in the order in which they are 

 received. 



III. THE CASH-BOOK, on the left-hand side of which he enters all 

 cash received, and on the right-hand side all cash paid. Dis- 

 count received and allowed is sometimes shown in inner 

 columns of this book. 



IV. THE BILL-BOOK, in one part of which he records all the bills 

 receivable, and in another part all the bills payable. 



V. THK STOCK-BOOK, or INVENTORY, in which he enters an 



account of his stock on hand at the time of the balancing of 

 his books. 



All the books of this class are perfectly simple in their character, 

 and when properly kept contain all the necessary data for the correct 

 statement of the accounts in the Ledger a book of which we shall 

 speak presently hence they are called subsidiary books. 



Too much care cannot be bestowed on the selection and preparation 

 of the subsidiary books, so as to adapt them to the particular business 

 in which the merchant is engaged. The subsidiary books of a trader 

 will ilifler from those of a merchant, and these again will differ from 

 the subsidiary books of a broker. The object, however, of the sub- 

 sidiary books is in all cases the same, namely, to obtain a classified 

 record of every fact affecting the property of the individual. 



Now, double entry addresses itself to the collection into a book 

 called the LEDGER, of all the facts scattered through the subsidiary 

 books, and to the arrangement of those facts in that book with such 

 accuracy and conciseness as to show at a glance the precise state of the 

 merchant's affairs. The supreme importance of this book in which 

 the accounts take their ultimate and scientific character will be 

 readily perceived. 



The accounts in the Ledger are divided into 



I. Personal accounts. 

 II. Real accounts. 

 III. Fictitious accounts. 



I. The Personal accounts are those opened with the persons with 

 whom the merchant has dealings on credit. These accounts show him 

 whether those persons owe him anything, and if so how much, or 

 whether he owes them anything, and if so how much. See Ledger 

 accounts, 9, 10, 11, and 12. 



II. The Real accounts are the accounts of his property, and show 

 how, where, and in what proportions it is invested. It is in the 

 nature of a merchant's transactions that his property should be in a 

 state of constant change. His cash of to-day may be merchandise 



AKT9 AND SCI. DIV. VOL. II. 



to-morrow, and the bills receivable of to-morrow may be cash on the 

 third day. The Real accounts show these changes in his property. 

 See Ledger accounts, 2, 3, 4, 5, 7, and 8. 



III. The Fictitious accounts are those showing his gains and losses ; 

 but why these accounts should be called fictitious it would puzzle any 

 one and we therefore will not attempt to say. See Ledger accounts, 

 1, 13, 14, and 15. 



Double entry takes its stand upon the scientific axiom, that " tha 

 whole is equal to the sum of all its parts ; " or, conversely, that " all the 

 parts taken together are equal to the whole." An examination of the 

 following Stock account will show that that account exhibits "the 

 whole " of the merchant's property, taken collectively ; and an exami- 

 nation of the remaining accounts will show that they exhibit " all the 

 parts " of his property taken separately. It follows therefore that all 

 the parti as represented by such remaining accounts must in all cases 

 be equal to the whole, as represented by the Stock account. This is 

 the distinguishing feature of double entry ; it records all its facts, and 

 arrives at all its conclusions by a double process, the one process 

 operating as a check upon the other. 



This brings us to the fundamental principle of double entry, which is 

 that every fact carried to the Ledger must be entered ttrice, that is, on the 

 Dr., or lefthand side of one account, and on the Cr., or righthand side 

 of another account. The account giviny out the item is always the Cr., 

 and the account receiving it is always the Dr. By this means the aggre- 

 gate amount of all the debtors in the Ledger is at all times equal to the 

 aggregate amount of all the creditors. The accounts are thus kept in 

 a state of constant equilibrium. An illustration of this truth is given 

 in the Journal. 



It is the practice of book-keepers, before closing their accounts at 

 any given period, to ascertain by adding up both sides of their Ledger, 

 whether an equilibrium of debtors and creditors has been duly pre- 

 served, and this is called making a trial baknce. If an equilibrium 

 has not been preserved at every stage of the posting of that book, the 

 accounts cannot be correct. 



We will now give a concise exemplification of the foregoing 

 principles. 



For this purpose let us suppose that we want to know the state of a 

 merchant's affairs on a given day, say the 31st of January. We turn 

 to his subsidiary books and find that when his position was last ascer- 

 tained (say on the 1st of January), it was as follows : 



ASSETS. 



Cash 



Wine (50 pipes, valued at 70?. per pipe) . 

 Merchandise (exclusive of wine) valued at 



Bills receivable 



M. Moythau owes .... 

 Sugar in Co. valued at . 



LIABILITIES. 



Bills payable 



J. Jenks, due to him 







500 



. 3,500 



. 10,000 



100 



100 



300 



14,500 







150 

 50 



200 



By his Day-Book we find that he has since sold 500?. worth of 

 goods and 2000?. worth of wine to M. Moythan, and 1500?. worth 

 of goods to J. Jenks ; and that he has sent 2001. worth of goods 

 to Hull on speculation, the charges on which amounted to 10?. 



By his Invoice-Book we find that he has purchased 200?. worth of 

 goods from R. Lloyd, and 400?. worth from T. Nott. 



By his Cash-Book we find that he has received 2600/. from M. Moy- 

 than ; 1200/. from J. Jenks ; 190?. from his adventure to Hull ; 50?. in 

 payment of one of his bills receivable; and 350?. for the sugar in 

 company; and that he has paid 100?. in discharge of one of his bills 

 payable, and 80?. for rent and wages. On turning to his Bill-Book we 

 do not find that he has either issued or received any bill during the 

 month. 



To facilitate the posting of the Ledger from the subsidiary books, 

 an intermediate book is used called the Journal, the object of which is 

 to indicate to what accounts, and to which side of each account, the 

 transactions recorded in the subsidiary books are to be carried. In 

 the infancy of the art it was customary to post and journalise each 

 transaction separately, but experience having shown the inconvenience 

 of that practice, it has long been discontinued. The practice which 

 now obtains is to journalise the transactions monthly instead of daily 

 and to include in one entry all the transactions of the month be- 

 longing to the same class. Thus, instead of journalising each item 

 appearing on the Dr. side of the Cash-Book separately, all the cash 

 receipts of the month are entered together as Caih Dr. to Sundries, 

 the word Sundries always meaning in book-keeping not sundry or 

 several articles but sundry or several accounts. By this contrivance 

 there never can be more entries in the Ledger account than ticcln on 

 each side, namely one for each month in the year. 



T 



