THE LEDGER 27 



formulate the principle that subtractions are never made in 

 ledger accounts in recording transactions. The effect of 

 subtraction is obtained by adding the amount in ques- 

 tion to the opposite side of the account. For that reason 

 we can recognize as correct, only the last form shown above 

 for the ledger accounts of cash and notes payable. In- 

 stead of deducting the $300 cash paid from the debit side 

 of the account it is added to the credit side, to show that 

 the amount of cash in the business has been decreased by 

 that amount. This is a type of one of the very essential 

 abbreviations used in bookkeeping. 



Reasoning Out Debits and Credits. Referring again to 

 the transactions of Mr. Arnold for March 30, shown on 

 page 14, there is seen to be one involving the payment of 

 interest. The $6 paid for the use of money, commonly 

 called interest, is placed on the credit side of Cash account 

 because it decreases the cash of the business. It does not 

 reduce the amount of any account showing a liability of 

 the business to outside parties, nor is it disbursed in ex- 

 change for some other form of property. It is a plain 

 case of a disbursement of cash that results in a decrease 

 of the capital of the business. Therefore, the other ac- 

 count affected by this transaction is Mr. Arnold's capital 

 account. On which side of the capital account will this 

 $6 be placed? We might* say that since every transaction 

 requires equal amounts to be placed on the debit and credit 

 sides of the ledger, and since Cash account is credited 

 in this case, then obviously the other account involved 

 should be debited. This is good logic and leads to the cor- 

 rect entry, but we should always be able to find a reason 

 for such an entry from another point of view. In this 

 case, we debit Mr. Arnold's Capital account with the $6 

 because, as previously stated, it is an item that reduces 

 his capital. If it reduces his capital it is the function 

 of bookkeeping to show his capital reduced in the ledger. 



