BOOKKEEPING 



815 



BOOKKEEPING 



Debit and credit are the two words which 

 designate the opposite sides of each trans- 

 action. Debit in Latin means he owes. In 

 the sale of the camera it is plain that Harry 

 owes, so our entry in Harry's account is called 

 a debit entry or just a debit, and in making 

 it we are said to debit him. Credit is Latin 

 for he entrusts. If Harry were to lend us 

 money we should credit him, for he would be 

 entrusting us with it. In these two instances 

 we have shown the words in their original 

 meanings; in actual practice, since they cover 

 transactions of every description, both debit 

 and credit have a much wider significance. 

 For the present we shall just note that as we 

 debit Harry for the camera the opposite half 

 of the entry is a credit to the list of goods in 

 which the camera was included, and that as 

 we credit Harry when he lends us money we 

 must debit some other account at the same 

 time. Farther on in this article will be found 

 thorough instructions what to debit and what 

 to credit in any instance. The main thing to 

 be remembered at this stage is that the vital 

 point of double-entry bookkeeping is that 

 there must be both a debit and a credit in 

 every entry, or for every transaction. 



The Day Book, The Journal and The Ledger. 

 These are the three books used in the old- 

 fashioned system of double-entry bookkeeping. 

 To-day the day book is almost never seen, 

 the journal often receives only a few of the 

 entries, and there is a multitude of different 

 ledgers and auxiliary books, but an under- 

 standing of the three original types is the 

 easiest and surest road to success with the 

 newer ones. 



The day book, as in single-entry, is a sort 

 of diary. But transactions can be recorded 

 in a simpler fashion than in single-entry, 

 because the journal later separates the debits 

 from the credits. The day book of a country 

 storekeeper might read something like this: 



Feb. 27 

 Sold Mrs. Ericsson on account 3 sacks of flour 



at $3.20. 



Hiram Watts paid $10.00 on account. 

 George Henderson brought In 10 dozen eggs at 



24. Sold him a pair of shoes for $3.00 on 



account. 



Bought 2 tons of coal for cash, $17.00. 

 Alex. McKenzle brought In 20 Ibs. butter at 30tf. 



and paid $5.00, both on account. 



The journal is the book in which the debit 

 items of each transaction are separated from 

 the credits. If they were copied into the 

 ledger directly from such a number of facts 



as the day book contains, many mistakes 

 would be made. So they are first entered in 

 the journal in an orderly manner, and are 

 said to be journalized. 



The ledger -has a page, or part of one, for 

 accounts with each person and of each impor- 

 tant class of asset, liability, expense or source 

 of profit. Entries in it are all posted from the 

 journal. 



Journalizing. Let us see how, if we were 

 keeping books for the storekeeper, we should 

 enter in the journal the items shown above in 

 the day book. 



The first transaction was a sale. It is 

 marked on account, which means that Mrs. 

 Ericsson did not pay for the flour, and it is 

 to be charged to her account in the ledger. 

 Plainly we shall debit her. But whom or 

 what shall we credit? 



In answer let us suppose for a moment that 

 we did not own the flour, but it was entrusted 

 to us by the person who did. In such a case 

 we should certainly credit him. In double- 

 entry bookkeeping every source of loss or 

 gain, every asset or liability, is treated as 

 though it were owned by a person or as 

 though it were itself a person. So in the 

 present instance we credit flour. To put this 

 matter in another way, let us assume that the 

 storekeeper hires several boys and makes one 

 responsible for all the flour, another for all the 

 dry goods, a third for all the shoes, and so on. 

 To make sure that they are not careless with 

 their trusts he charges them with the value 

 of the goods, and makes them pay him if they 

 lose any of them. When he buys the mer- 

 chandise and they assume responsibility for it, 

 he debits them. Now since a credit is the 

 opposite of a debit, if he debits them when 

 they assume responsibility, he must credit 

 them when they cease to be responsible for any 

 part of the goods. So the flour account in the 

 ledger may be imagined to represent an imag- 

 inary person who accepts responsibility for all 

 flour; when we buy flour we debit flour 

 account, and when we sell flour we credit flour 

 account. 



But if a country merchant kept a special ac- 

 count in his ledger for every kind of article in 

 his store from pins to paint and from calico to 

 cocoanut he would need so many pages that 

 it would take more time to keep his books 

 than to run his business. So he generally 

 includes all his stock under the heading 

 Merchandise. If there is any one article or 

 class of goods that forms a large part of his 



