UC-NRLF ^C 53 27M FOSTKR'S KK'CIimTKI). ) • I Digitized by the Internet Archive in 2008 with funding from IVIicrosoft Corporation http://www.archive.org/details/doubleentryeluciOObfforich DOUBLE ENTEY ELUCIDATED. t •■• .», BY B. F. FOSTER, TEACHEB OP WEITINa AND BOOK-KEEPING ; AIJTHOE OF " PBIZE ESSAY ON PENMANSHIP,' " PENCILI^S COPT-BOOKS," " THE OBIGIN AND PBOGEESS OF BOOK-KEEPING FBOM 1543 TO 1852," etc. etc. SEVENTH EDITION. " From the most elementary knowledge to the highest speculations, one method of instruction is universally applicable. This consists, first, in carefully examining the constituent parts of any object, that is, in A naltsiso it ; secondly, in classifying, and separately considering these component parts ; thirdly, in reconstructing the object, that is, in operating by Stkthbsis." LONDON: PRINTED FOR JOHN SOUTER : PUBLISHED BY W. AYLOTT & CO., 8, PATERNOSTER ROWj BELL & DALDY, 186, FLEET STREET. 1857. LONDON : PRINTED BY C. F. HODGSON, aoUOB BQUAHE. X.C. PREFACE TO THE FIFTH EDITION. The design of this work is three-fold : — • I. To elucidate the immutable principles of double entry, and to disentangle them from forms with which they have too long been confounded. II. To point out radical defects in the prevalent modes of TEACHING book- keeping, and to suggest the means whereby those defects may be removed. III. To exemplify the modem improvements in the arrangement of accounts, and to exhibit the art as it is actually practised by the most intelligent merchants at home and abroad. In 1732, John Clark published in London a work, entitled "Lectures on Accompts," &c., which contains the following novel exposition of the theory of double entry : — " Let it be supposed," says Clark, " that the account of Stock is a real person employed to take care of my estate, and to render an account of the improvement he has made of it. In a like manner, Cash, and all other accounts which I may have occasion to keep, may be considered as persons employed by Stock to take care of that part of my estate with which they are entrusted, and to render an account thereof to Stock. Then Cash, or the person entrusted with the care of my money, owes to Stock so much as he is entrusted with. Upon ihis hypothesis every transaction must be considered as though it had been transacted between persons who managed my affairs ; for there can be no business transacted but between two or more persons ; and as there is no such thing as a person being debtor, but that he must owe some other person, and for that reason the person whom he oweth is called creditor : hence, if the ledger is to contain an exact register of all my transactions, they must be doubly or twice entered ; that is, the sum that any person oweth must be entered in his account that oweth, and also in the person's account he oweth it to. " From the supposition that all the accounts are to be considered as persons, and from the nature of debtor and creditor, the following general rules may be deduced : — " 1. He that receives and is accountable for what he receives, is Debtor. " 2. He that delivers, or to whom any person is accountable, is - - . Creditor. 9^9621 iv PREFACE. " There is no knowing how to make an entry in the journal without rightly understanding the nature and design of the ledger. I shall therefore explain a few of the most difficult accounts, and leave those which are easy to be considered after the same manner. "PROFIT AND LOSS. — This account may be considered as a person who is to take all the profits arising from the business and make good all the losses : hence, every account which exhibits gain or loss is to adjust with Profit and Loss, and Profit and Loss is to adjust with Stock, or the person whom I employ to take care of my estate. " BALANCE. — This account may be considered as a person who is to take posses- sion of all my effects and debts, and whatever is owing to me by other persons on adjusting their accounts; and therefore 'Balance' is debtor to every account it takes anything from ; and balance, or the person supposed, is also to make good all the demands against my estate. Then the balance account will contain the particulars of my effects and debts; the difference between the two sides, being my net capital or deficiency, must be adjusted with Stock ; and if the difference of Stock and Balance agree, all is right ; — this is the touchstone of the accounts. Thus the value of my estate is ascertained in two different ways ;— one is by the Stock account, which contains the value at first setting out, with the profits added to it, which gives its improved value ; the other is by collecting my effects and debts into one total, and taking from thence the total of the debts I owe, which also gives the present value of my estate." Somewhat similar to the above, is Isler's exposition of double entry, which I translate from his work published at Brussels in 1810 : — " Suppose that the Italian method was unknown, and that a merchant named Masner conceived the idea of that method. He divides the objects of his trade into five general classes, with the management of which he charges five of his clerks. These five clerks represent him in their respective departments. But the better to distinguish his fieri-, s from other persons who are merely his correspondents, he opens an account for each clerk under the denomination of the branch confided to him, thus : — 1 . A's account is called ' Cash.' 2. B's „ 'Merchandise. 3. C's „ 'Bills Receivable.* 4. D's „ ' Bills Payable.' 5. E's „ ' Profit and Loss.' The merchant is represented by ' Stock.* " In the commencement, the merchant's estate or capital is divided between these five clerks ; and as double entry requires that that which receives shall be debited, and that PREFACE. V which gives shall be credited, he debits each clerk, under his imaginary name, for what he the clerk, receives ; and credits himself, that is, ' Stock,' for what he entrusts to them, because they must render an account of the manner in which the property is employed. He sells goods on credit to a merchant named X, who receives them from the clerk B. Masner debits X to ' Merchandise' (the clerk B), because B has given up the goods for which he was debited at the time he received them. At the expiration of the term of credit, X pays the sum which he owes to A, the cashier, who thereby becomes debtor to the merchant Masner. At the time of balancing, Masner charges his book-keeper, F, to close the accounts for him. He, F, opens a general account entitled ' Balance,' to which the debit and credit balances of the respec- tive accounts are to be transferred. Masner orders his representatives A, B, C, and D to return to F all that remains in their hands, and discharges them accordingly. He then examines thei^ accounts, and finds that A's is closed by the payments being equal to the receipts ; that B has gained by the sale of merchandise ; that C has four bills on hand ; that D must pay three bills for which he, Masner, is liable. He orders B to transfer the gains to E, who must, in like manner, account to capital, that is, Masner, for the net gain or loss. He transfers the lia- bility for the bills outstanding from D to F. To close the personal accounts, F supposes that all who owe have paid over their amounts to Balance, and that he has paid, per contra, all the creditors, or, in other words, that Balance is accountable, ' ad interim,' for all the debts, active and passive. These accounts are therefore closed to or by Balance, which represents the book-keeper. Thus all the accounts except ' Stock ' are closed, and the book-keeper can say to the merchant, — ' Such is your position, supposing you retire from business this day, and are able to sell your goods at their present valuation, and to collect all that is owing to you, and to pay all you owe. Look at the Balance Sheet : it shews a surplus of so much, which it returns to your Capital account. Here is your Capital account ; the credit side of which shews all that you possess, and the debit side all that you owe : the difference is your Net Capital, of which the Balance Sheet gives the particulars. In re-opening the books, Masner orders his clerks to resume their functions, and makes each personal account debtor for that which it owed before the balance, and thus re-establishes his original position with respect to his correspondents and his representatives." My next extract is from De Grange, the most popular of the elementary writers on book-keeping in France : — "The ledger contains five general accounts, which represent the merchant himself, viz., — • 1. Merchandise 2. Cash. 3. Bills Receivable 4. Bills Payable. 5. Profit and Loss. Vi PREFACE. Under some one of these titles he is debited or credited for the effects which he receives, and disposes of, as well as for his gains and losses ; and since he keeps, moreover, an account for each person with whom he transacts business on credit, it follows that the scheme of double entry establishes accounts for all the subjects of commercial operations that one peforms. Accordingly, we cannot debit a person, or one of the general accounts, without crediting another person, or one of the general accounts } for it is impossible that a person or a general account can receive any value without its being furnished by another person, or some one or more of the general accounts, and vice versa : hence ' there cannot be a debtor without a creditor.' " Jaclot, another French author, copies De Grange very closely. His exposition of the ledger is substantially as follows : — " The ledger is simply a collection of facts, which the merchant sets down in order that he may readily ascertain who owes him, and whom he owes. He writes at the top of each of these statements the name of the person to whose business it relates. For the purpose of being clear, he enters on the left-hand column all sums due to him by those persor)5 for whom he opens an account : this he calls the debtor side of the account, and he writes on the top, and before the name of the person, the word Dr. He then carries to the right-hand column whatever he owes to this person : this he calls the creditor side of the account, at the top of which, and at the extreme right, he puts the word Cr. If the total of one column is more than that of another, he adds the difference to the lesser side, and this will be what he owes, or what is due to him on this account. The merchant thus sees at a glance how he stands with each particular person with whom he has dealings. In the same way he opens an account with Cash, and carries to the debtor side all the sums that he receives, and to the creditor side all the sums that he pays, and thus with various other accounts. He opens one likewise, under the term of Bills Payable, for promissory notes, bonds, &c. which he passes to others, and for such drafts upon him as he accepts, and thus obliges himself to pay. The debtor side of this account shews the amount of such obligations retired from circulation ; the creditor side the amount originally issued ; and the difference, if any, the amount outstanding. He opens another account under the title of Bills Receivable, which comprehends promissory notes, and drafts, and the like, payable to him. The debtor side of this account shews what bills have come into his possession ; the creditor side those bills which he has disposed of; and the difference, if any, the bills in hand. In hke manner he opens an account for any other description of property he may acquire ; as goods, ships, houses, lands, bank stocks, pubUc securities, furniture, &c. ; observing that the debtor side of all such accounts shews the cost and expenses they may have exposed him to ; and the creditor side the price he may have obtained upon the disposal of them, or such returns as they may bring him for freights, rents, &c. He also opens accounts for his rains and PREFACE. VU losses under the title of ' Profit and Loss ;' and an account of his capital under the title of • Stock.' "These five general accounts represent the merchant himself; so that when any of them is said to he debited or credited, it is the merchant that is really debited or credited. Hence, if he purchase merchandise upon credit, he does not say, ' I owe such a person for merchan- dise bought of him ;' he says, ' Merchandise Dr. to such a one ;' if he lend money to A. B. he does not say, * B. A. owes me for cash lent him ;' he says, ' A. B. Dr. to Cash.' It i« evident that as to setting the contracting parties in their proper places as debtors and creditors, when the merchant says in one case ' Merchandize Dr. to such a one,' and in the other ' A. B. Dr. to Cash,' it is the same as if he had said, * I owe such a one,' or ' A. B. owes me.' " " Numerous are the bankruptcies," says Mr. Booth, " that happen in trade from irre- gular accounts only ; and this is not to be wondered at, when persons are employed as pro- fessed book-keepers, who, having got a little more than the theory of the art from some obsolete treatise, soon lead their too credulous employers into a labyrinth from which it it often impossible to extricate them." — Speaking of partnership accounts, he adds, " On review- ing what has been said, it occurred to me that some objections might possibly be raised upon a mistaken idea of my having treated this part of book-keeping with too much brevity ; but I do aver that, after a long and intimate acquaintance with this subject ; after investigating accounts under every form, and viewing them in every light that folly and ignorance could well have placed them, I never saw any difficulty in stating the joint concerns of a Company, but what originated in the crude notions of the parties themselves. If merchants will not be careful to keep a plain, simple narrative of their daily transactions, it can be no wonder that they so frequently get bewildered. Sometimes, indeed, their affairs are thrown into confusion by an ostentatious display of ability in their clerks ; or, rather, by means of an unhappy knack which some people have got of rendering the plainest things unintelligible, and, from an habitual crookedness in their ideas, are always puzzling themselves and others with diffi- culties of their own raising. To attempt to prescribe rules for such persons would be just the same as to instruct those unhappy objects to look straight forward who have unfortunately contracted a habit of squinting. I shall, therefore, take a final leave of this subject after recommending the following maxims to the attention of all persons trading in company, con- scious to myself that I can add nothing further, either by way of precept or example, but what would rather tend to perplex the reader, than convey any useful information : — 1. Let every partnership commence with a new set of books. 2. Never suffer the outstanding debts of a former connection, on any pretence whatever, to be entered in the new books, or reckoned as a part of the joint stock. 3. If the house branches itself ont into several concerns, let a distinct set of books be kept for each, confining them solely to their separate transactions." VIU FBEFACE. " One of the greatest errors in business is the suffering accounts to sleep too long ; they, cannot be too often inspected, nor too frequently balanced and compared. Twelve months is too long an interval for the transmission of accounts-current, — especially where parties reside abroad ; those who owe money in remote places are apt to think that you are dead, or have forgotten them, if you are not frequently quickening their memories with a state of their accounts. Those who object to balancing their books every six months, as being attended with too much trouble, must excuse me if I compare them to the clown, who made a similar objection, though upon a very different occasion : * I wonder,' said he, ' how those people do who comb their heads every day ; for my part, I find it troublesome enough to comb mine once a week.' " June, 1852. AUTHOES ON BOOK-KEEPING. The following List comprises the names of 159 authors and compilers of works on book-keeping, published in the English language since 1543, of which 156 are in the winter's possession. Names of Authors. h Hugh Oldcastle James Peele John Mellis W. P Richard Dafforne . . John Collins Stephen Monteage . . Edward Hatton .... R. and John Dafforne Charles Snell Thomas Dilworth . . A Person of Honour Alexr. Magghie .... Alexr. Malcom .... Ellis Webster John Vernon x\lexr. Brodie John Clark Hustcraft Stephens John Mair Richard Hayes . . . . , Thomas Crosby . . . . , James Dodson .... Anonymous M. Clare William "Weston. . . . , John Shortland . . . . , John London S. Dunn Richard Reuse . . . . , Anonymous , W. Everard John Cooke William Gordon A Merchant Anonymous William Kelly William Perry Matthew Quin W. Wood Benjamin Donn Chas. Hutton Place and Date. London . .. 1543 London . .. 1569 London . .. 1588 London . .. 1596 London . .. 1634 London . .. 1652 London . .. 1675 London . .. 1695 London . .. 1700 London . .. 1701 London . . . 1702 London . .. 1714 Edinburgh .. 1715 Edinburgh .. 1718 London . ... 1719 Dublin. . . ... 1719 Edinburgh .. 1722 London . .. 1732 London . .. 1735 Edinburgh .. 1741 London . .. 1741 London . .. 1749 London . .. 1750 London . .. 1750 London . .. 1751 London . .. 1754 London . .. 1754 London . .. 1758 London . .. 1760 London . .. 1760 London . ..1760 London . . .. 1764 London . . .. 1764 Edinburgh .. 1764 London . . .. 1769 London . . .. 1770 Cork .... .. 1774 Edinburgh .. 1774 London . . . 1776 London . . .. 1778 London . . .. 1778 London , . ..1778 Names of Authors. Robert Hamilton . John Sedger Samuel Edwards . Benjamin Booth. . . Robert Shaw Edward T. Jones . James Mill Joshua Collier . . . Thos. K. Gosnell . J. H. Wicks John Matthews . . John Shires John W. Fulton. . . P. Kelly, LL.D . . . V\illiam Jennings . W. Board man . . . Philip PuUen Daniel M' Sweeny . James Luckocke. . . Thomas Turner . . . C. Buchanan P. Deighan R, Hall WiUiam Tate Thomas Carpenter. Robert Goodacre Alexr. Farquharson John Lambert . . . Anonymous Michael Power . . . James Morrison. . . Charles Morrison . P. Comins James Bennett . . . M. Thomas Rev. R. Turner . . . P. Thoreau. . Chas. Gerrisher . . . F. W. Cronhelm . John Matheson . . . B. Sheys D. Roscoe Place and Date. Edinburgh London Dublin. . London Leeds . . Bristol. . London London Loudon Egham Bristol. . London Calcutta London Dublin. . London London Cork .. London Portland. U. Edinburgh Dublin. . . . Wakefield London London London Edinburgh London . London . Gibraltar. London . Glasgow . Dublin. . . New York London . London . London . New York London . London . New York Hagerstown 1779 1779 1781 1789 1794 1796 1796 1796 1796 1797 1797 1799 1799 1801 1802 1802 1803 1804 1804 1804 1806 1807 1810 1810 1810 1810 1811 1812 1812 1812 1813 1814 1814 1814 1814 I 1814 ! 1815 I 1817 I 1818 j 1818 [ 1818 1818 • Names of Authjrs. Place and Date. Names of Authors. Place aud Date, | 1 Thomas Papps London . . . 1818 Isaac P. Cory London .... 1839 1 James Morrison Leeds .... . 1820 Theo. Jones London .... 1840 Elias Johnston Edinburgh . 1820 B. F. Foster L'lndou .... 1840 J. Alger, jun.. . Boston, U. i 5. 1820 Thomas Smith Birmingham 1810 R. Wisains New York London . . . 1822 . 1823 J. Antroi)us Thomas Jones London .... New York . 1840 George Wilson 1841 1 Richard Langforu .... Richard Roe London . . Loudon . . . 1823 . 1825 J. H. Shea BaltimoreU.S.1841 Birmingham .1841 Smith and Jones W, Auchinleck Belfast . . . 1826 A. G. Henderson .... Manchester . 1841 Wdham Jackson Dublin . . . 1827 Anonymous London . . . 1841 J. T. Goddard New York . 1827 John Howatt Glasiiow . . . 1842 Jolin Gibson Philadeiphi? I. 1827 Joseph Dando Philadelphia . 1842 Edward Lavves London . . . 1827 Henry Chatteris London . . . 1843 P. C. L. Vautro London . . 1828 Anonymous London . . . 1843 James Morrison Beecher Loudon . . Loudon . , . 1829 . 1829 H. Tuck Loudon . . . Manchester. 1843 1843 Duncan M'Dougal .... John D. Price London . . . 1839 W. Scott Burn Toronto . . . 1844 George Reynolds .... Loudon . . . 1839 William Tate London . . . 1845 George Jackson London . . . 1830 J. Comer Boston, U. S 1846 J. Hitchcock Philadelphia Philadelphia L. 1830 Dr. Brewer Norwich . . . 1846 B. Morison . 1831 Alexr. Pulling London . . . 1846 C. C. Marsh Baltimore . 1831 J. Batchelder Boston . 1847 Edward T. Jones .... London . . . 1831 W. P. M. Ross Philadelphia . 1847 Michael Walsh J T. Bucklin Boston, U. i Troy, U.S. 3. 1832 . 1833 P. Duff New York . Philadelphia 1848 .1848 C. A. Wilson R Percival London . . London . . Dubliu. .. . 1834 . 1834 . 1835 Adams W. Inelis Boston Edinburgh . London . . . . 1849 . 1849 1849 John West Anonymous James William Gilbart Lvmau Preston New York . 1836 J. H. Freese London . . . . 1849 B. Edwards New York . 1836 George C. Oke London . . . 1849 J. H. Coffin GreeufieldU .S.1836 F. Wood London . . . 1850 E. S. Winslow Woodstock . 1836 J H. Chauvier Loudon . . . IH.-Q James Trotter Edinburgh . 1837 Edmund Tayler Loudon . . . 1850 Donald Taylor Glasgow . . . 1.S3S J. H. Huntington .... London . . . . 1.S50 J. C. Colt New York . 1838 Fulton and Eastman , . New York . 1851 Nicholas Harris New York . 1839 J. Caldecott Loudon . . . . 1S51 Joseph Guy London . . . 1839 B. F. Foster Loudon . . . . 1852 Robert Wallace • Glasgow . . . . 1839 DOUBLE ENTRY ELUCIDATED. INTRODUCTION. " To the mercantile system of accounts we attach the highest value. As a science it comes to us with the powerfol recommeftdation not only of long experience, but of high authority, — of those engaged in the active pursuits of lifie, and ot those who have surveyed its concerns with the eye of philosophy. The Italian method of hook-keeping affords unquestionably valuable facilities for unravelling and elucidating complex accounts ; and we are satisfied that no person without a knowledge of it can be a perfect accountant." — ^Rkpobt on the Public Accodhts. "The connting-house of an accomplished merchant is a school of method, where the science may be learned of arranging particulars under generals, of bringing the different parts of a transaction together, and of shewing at one view a long series of dealings and exchanges. Let no one venture into business while he is ignorant of the method of regulating books ; never let him Imagine that any deg^ree of natural ability will enable him to supply this deficiency." — Db. Johnson. In England, where wealth is a passport to honour, and commerce the surest road to wealth, it is natural that an introduction to a mercantile career should be eagerly sought after, and that a large portion of our youth should be destined to an employment which requires but moderate attainments, and yet holds out a hope of ultimate competence. The qualifications of a clerk are so simple, that, at first sight, it is not easy to account for the reluctance which a merchant feels in receiving a tyro into his counting-house. The problem, however, is readily solved. The diffi- culty in procuring an eligible appointment arises, nine times out of ten, from the in- competency of the applicants for it. This is a truth universally recognized among men of business: and, from the nature of the so-called commercial education, it is impossible it should be otherwise. To write a rapid, legible hand ; to be expert at arithmetical calculation ; and to possess a thorough knowledge of book-keeping, are indispensable requisites in a clerk. But a youth who possesses these requisites in any degree of perfection is rarely found. His hand-writing, cramped, stiff, and in- elegant — ^is utterly unfit for the ledger, the day-book, or even a common bill oJ XU INTRODUCTION. parcels ; he cannot be trusted to extend an invoice, or too add a column of figures, without revision ; and of the science of book-keeping, — i. e., the fixed and immu- table principles upon which every system of accounts is based — he has no notion. Yet these qualifications are as indispensable to the official as they are to the mercantile clerk. By a Minute of the Treasury Board, dated May 7, 1841, the candidate for a clerkship in the Commissariat Department " is required to write a fair, legible hand ; to give satisfactory proof that he is practically acquainted with the ordinary rules of arithmetic ; and that he is familiar with the principles and practice of book-keeping by double entry." Few things are more readily admitted or more generally experienced than the importance of book-keeping. In a commercial community the assistance of the accountant is in constant demand ; and it is worthy of consideration, that a masterly knowledge of this art, with its accompaniments, is a sure resource to the individual who has to depend upon his own exertions for the means of a livelihood. " Those who raise themselves from the condition of daily labour," says the biographer of Burns, " are usually men who excel in the practice of some useful art, or who join habits of industry and sobriety to a practical acquaintance with some of the most common branches of knowledge. The penmanship of a Butterworth and the arith- metic of a Cocker may be studied in the humblest walks of life, and they will assist the peasant more in the pursuit of independence than the study of Homer or Shake- speare, though he could comprehend, or even imitate, the beauties of those immortal bards." As a branch of general education, book-keeping has hitherto been strangely neglected. It is commonly supposed that no two merchants keep their books alike , that all attempts to master the subject by study will prove futile ; and that a knowledge of accounts is only to be obtained by dint of long practice. That the details of any peculiar plan of keeping books can be made familiar to the uninitiated by practice only, is, to a certain extent, true; but that a comprehensive knowledge of the principles upon which every system of book-keeping is based, cannot be attained in INTRODUCTION. xHi the school- room, w certainly not true. On the contrary, a skilful teacher could im- part more knowledge of double entry in a month, than is obtained by the majority of clerks in the course of a seven years^ apprenticeship in the counting-house. The teacher, it is true, cannot transform the school-boy into a merchant, but he can enable him to comprehend the nature and arrangement of accounts — he cannot impart a knowledge of the qualities and prices of merchandise, but he can unfold the prin- ciples and exemplify the practice of book-keeping. Book-keeping is not merely an art, it is also a science, and, like all other sciences, founded on immutable principles. While, therefore, experience — that sort of experience which can only be acquired amidst the every-day realities of life — is undeniably necessary to the swift and accurate performance of this art; the science of book-keeping not only can, but unquestionably ought to be learned as the first step in every book-keeper's education, and apart from business altogether; for he who clearly comprehends its principles, will experience no difficulty whatever in their practical application.* Is there any sound reason why the art and science of book-keeping should not be efficiently taught J Geometry, Navigation, Surveying, and the like, require far greater powers of mind and thought on the part of the learner, and a much greater exertion of those powers ; and yet boys obtain a knowledge of these branches at school. How then is it that book-keeping cannot be taught? I answer, because * "The first introduction of a young man to a merchant's counting-house, is a very important cir- cumstance in his life. It is to him an unknown world —a perfect terra incognita. Everything about him is painfully new. He sees books and papers with the nature and object of which he is totally unacquainted ; and he is surrounded by companions who, for the most part, are unwilling to instruct him in their use ; few of them, indeed, being capable of doing so with perspicuity. Clerks who have made their way to the knowledge they possess by gradual and slow steps, are anything but anxious to impart information to a new comer. Business with them is sheer habit. Drilled by time and ex- perience into mechanical precision, their opinion is that every raw recruit should undergo the same discipline ; and thus, instead o{ preliminarily understanding the principle, the why and wherefore, of all be does, the young book-keeper gets into the way of fulfilling the duties assigned him by dins of repetition only." — Percival. XIV INTRODUCTION. the subject is not understood ; rules are substituted for reasons ; particular forms are confounded with general principles ; and the memory is burthened at the expense of the understanding. True, most youth bring from school a fairly written, finely flou- rished set of books ; and these are exhibited as a proof of proficiency ; but, as the fox said of the mask, " quanta species, sed cerebrum non habet," — it is a fine head to look at, but there are no brains within — the boy's hands may have learned book keeping, but his understanding is perfectly guiltless of it ! The usual mode of proceeding is to commence this study by copying a series of mercantile transactions, comprising receipts, payments, purchases, sales, and the like : after being wearied, secundum artem, with this sort of work, the learner is re- quired to construct a journal ; the substance of his instruction being, that " the thing received is debtor to the thing delivered." But as to the object of making one thing debtor to another thing, he is totally ignorant ; for every entry in the journal has reference to the ledger, which is a sealed book to him. His whole progress through the journal is, therefore, no better than a blind process of guessing; and when ulti- mately required to balance his books, he does so more like an automaton than a ra- tional being. Now this mode of tuition, if not erroneous ab initio, is at least defec- tive in purpose, and imperfect in its nature. It is an attempt to teach a science by way of synthesis ; a hopeless as well as an impossible task. Synthesis — or, literally, putting together — is the method of self-instruction ; but it never can be the method whereby a scientific teacher would develop the stores of his own mind to his pupils. The terms Dr. and Cr. have proved a stumbling-block to every person who has undertaken to explain the system of double entry. These terms are used merely to distinguish the left from the right-hand side of an account in the ledger ; whilst authors and teachers attempt to preserve their ordinary meaning by shewing that all items in the Dr. columns are in some way indebted to the concern, and vice versa. Now the debit items of one account are a collection of purchases ; of another, losses; of another, receipts; of another', bills redeemed ; of another, liabilities. The X>r. side of Stock shows the merchant's liabilities at the time of opening the books; on the contrary, the X)r. side of a personal account shows what that person owes to the concern. The Cr. side ol INTRODUCTION. XV Bills Payable shows liabil ties in the shape of bills ; but the Cr. side of Bills Receiv- able shows the amount of bills disposed of. The Dr. side of Cash shows the amount of cash received, but the Dr. side of Profit and Loss shows losses. In each class of accounts the debit items are different in their nature ; and one debit is like another no farther than as it belongs to the left-hand column of the account. But even if we could point out some hidden relation of owing in each debit entry, we should only be luring the learner from the investigation of principles, by employing his ingenuity on a series of conundrums, not one of which can throw light on the next, the whole being dependent upon an arbitrary use of words. The explanation which some writers are obliged to give, in order to reduce all Dr. items to things owing, is highly amusing. The following is an example from a recent work. " Day-book entry. — Accepted Henry Austin's bill for ^1,000." "Journal entry.— Renry Austin Dr. to Bills Payable <£1, 000." " Elucidation. — Austin is Dr., because he owes us, we having paid him the amount we owed him. Bills Payable is creditor, because the bill has paid Austin for us, therefore we owe it. Before we paid Austin we owed him ,€1,000; after we paid him he owes us j£?l,000; if not, then we still owe him ; and as we do not still owe him he must owe us that amount, and by his owing us the JJI,000 which we owed him, he and we are upon an equality, or the account between us is balanced !" How enlightened a learner must be by this very intelligible explanation ! The rule which the author puts forth as an infallible guide is as follows : " Whatever owes us is debtor, — Whatever we owe is creditor ;" which is equivalent to saying, "Whatever owes us, owes us; and whatever we owe, we owe"! It is difficult to attach any other meaning to the words.* As a further illustration of this sort of mystification, let us suppose that the first * It may be said that an unfair specimen has been chosen. — That the objections advanced against this work apply to many others in a less degree, is admitted : this was selected as an example of the extreme absurdity to which such a principle will carry a man whose intellect is too dull to be alarmo*! by the extravagance of his folly ; and if other authors have forborne to put such folly in print, thaj have left the learner the task of committing it on his own account. xvr INTRODUCTION. entry the tyro has to journalize is as follows : — " Commenced business with a cash capital of £10,000." He refers to his rule, which says, "the thing received is debtor to the thing delivered;" but here he is completely puzzled, for he cannot perceive that anything was received or delivered. In view of this particular case he may have been required to commit to memory the following rules : — " By journal laws, what I receive, is debtor made to what I give ; Stock for my debts must debtor be, and creditor by property ; Profit and loss accounts are plain, I debit loss and credit gain." But how is the student to obtain a knowledge of the principles which are in- dispensable to correct practice ? He goes patiently through his task, vainly endea- vouring to apply his rule first to this transaction and then to that ; and, without inquiring whether he has gained any real information, good-naturedly places all the difficulties he has to surmount to the debit of his own capacity ! Having journalized many receipts of cash, he becomes familiar with the principle of the cash account ; but not till he has first determined that he must debit it when he receives cash for goods ; and next, when he receives cash from a person ; and then, when he receives cash for a bill ; until at last, omitting all other circumstances, he finds he must debit the cash account whenever he receives cash, no matter for what. He thus accumulates a few principles, slowly and imperfectly ; but to master the science in this way occupies years instead of weeks. It is so in the counting-house, and must be so in the school- room, unless the teacher unfolds the principles which are in reality the object of pursuit. The evils which result from this mechanical mode of teaching, are not limited to its mere negative character. The learner, from the outset, is impressed with false notions. He says to himself, "All things received are debtor, and all things deli- vered are creditor, and consequently the difference must show how I stand." Great is his perplexity when he discovers that the Drs. and Crs. in the ledger are always equal ! It seems unaccountable that a process of instruction so inadequate, so unscien- tific, so entirely dogmatical, should have been permitted to pass so long unnoticed. INTRODUCTION. XVII In the whole range of education there is not a similar example of such a loose appli- cation of language; such an utter disregard of everything like rational investigation. Book-keeping has indeed been called a science ; but it is impossible to conceive that the term could be seriously applied to mere exemplifications, without theory or principle. In thus denouncing the practice of my predecessors, it would be improper to rest satisfied with mere assertion ; T will therefore endeavour to prove, that the theory of every art must be clearly unfolded before the practice of it can be eflBciently taught. By efficiently taught, I mean really, not technically or mechani- cally taught. A good deal of confusion prevails respecting the terms Science and Art. It is too often imagined that they may be used indiscriminately ; but these terms are as distinct as theory and practice, of which they are respectively synonymous. Science is theory, art is practice. They result from the constituent parts of man himself, namely, mind and body. It is not always necessary that science should be reduced to practice, or become art ; yet every art is dependent upon science for its truth and certainty. Now to the proof of this. Man is essentially a reasoning being. If required to do a thing — unless biassed by prejudice, or overruled by authority — he naturally asks why he should do it. If told to believe any pro- position, he asks why he should believe it. He has an instinctive desire to know the why and wherefore of things. He has also implanted in his mind certain first truths, or self-evident principles ; and his whole existence as a reasoning being con- sists in comparing the ideas he receives through the medium of the senses with these first truths and with each other ; and from thence deducing inferences or conse- quences. As these truths accumulate in his mind, he is led to arrange them into classes, according to their relations or resemblances. Now this process of compari- son or reasoning, constitutes what we term Science ; and from this process of classi- fication and arrangement arises what are called the Sciences. Thus our ideas re- specting the nature and operations of the human mind, having undergone the process of comparison, are classed together into the science called Metaphysics ; the truths XVUl INTRODUCTION. we have discovered respecting bodies and external nature, into Physics, and its va- rious sub-sciences ; the truths we have discovered respecting quantity and number, into that group of sciences called the Mathematics. Now, if we suppose man to consist of mind alone, and consequently not to advance farther than this reasoning and classifying process, we should have nothing but pure, abstract science ; but having a body and its wants to provide for, he proceeds to apply these truths to practical purposes. Science then, and then only, becomes art. Thus when from the Mathe- matics we deduce certain rules, and apply them to the guidance of ships over the pathless ocean, to the measurement of land, or to the construction of bridges ; we then have the art of Navigation, the art of Surveying, the art of Engineering, and the like. But the certainty and success of these arts depend upon the truth of the rules whereby the several operations are performed ; and the truth of the rules depends upon the previous reasoning : these truths constitute what are called the principles of the science. Hence, from the absolute dependence of all rules upon principles, it must be evident that, if we wish to make a learner understand, clearly and fully, any rule or set of rules, and to fix firmly in his mind the nature and operation of any art, we must begin by unfolding the principles upon which these rules are founded, — the truths from which they are deduced.* Here it may not be irrelevant to notice the common notion that practice is superior to theory. The source of this fallacy will be found, I apprehend, in sup- posing that science and art are distinct things — two opposite existences ; for this is * " In all studies the mind must begin by learning principles, without a knowledge of which it will be constantly falling into errors, in spite of its quickness or its diligence ; but principles being fully understood and accurately remembered, will be as useful to the mind as the magnet and chart are to the mariner. For this reason it ought to be the first object of education to give a clear knowledge and ready application of principles, rather than to fill the memory with a variety of unconnected de- tails. For these latter, however important as facts, can never impart a power or habit of accurate analysing on the one hand, or of careful laying together on the other, which alone can produce sound judgment and good round-about sense. Moreover, when we teach the principles of any science, we are, as it were, raising a wide floodgate through which knowledge may rush in a full and copious flood. When we teach unconnected facts, we are opening little rills through which knowledge will trickle only in scanty streams." INTRODUCTION. xix a necessary supposition, when we talk of one thing being superior to another. It has been shown that theory is science ; that practice is art ; and that art is science re- duced to practice. It is absurd, therefore, to talk of art being superior to science, when in fact there can be no art without science. It is true that a man who is ex- perienced in the mechanical operations of an art may be more generally useful at any particular moment, than one who is merely acquainted with its scientific principles ; but this facility of manipulation does not prove the superiority of art over science ; because the mere practician must have been indebted for his power to exercise the art, to rules deduced by others from the truths of the science : or he must have been at the pains of elaborating those rules for himself. I shall be told, that the instances are numerous in which the most useful disco- veries have been made by practical men ; but if what are termed practical men do not make a discovery by an a priori train of reasoning — i. e. deduce it from some- thing known before, some established truth — they must have fallen upon it by acci- dent. Even those accidents that lead to brilliant results — that give the first germ to improvement — would be totally unfruitful did not they fall upon a soil capable of fructifying them ; and this is necessarily a mind which, to close observation, unites a habit of reasoning and generalizing, — a habit which in fact constitutes a scientific, in contradistinction to a mere practical man. Thousands had bathed before the time of Archimedes ; but it required the scientific mind of an Archimedes to deduce, from the simple fact of displacing the water from the bath, the celebrated discovery that forms one of the laws of Hydrostatics. The accidental bursting of an empty flask may have given the first rude idea of the power of steam ; but it required the com- bined efforts of many scientific minds to bring it to its present state of perfection. Many an apple had fallen from the tree on which it grew ; but it required the scien- tific mind of a Newton to deduce from that simple occurrence the laws that have held the planetary worlds in their course since the dawn of creation, — to develof with mathematical certainty the system ofthe universe. Millionshad seen theswinging of a lamp to and fro when suspended; but it required the scientific mind of a Gali- leo to deduce from this circumstance the only correct measure we have of time. I might refer to many other discoveries said to have been the result of accident, and show that it was owing to the scientific habits and mental sagacity of those who ob 30C INTRODUCTION. served such occurrences, that the world is indebted for their application to useful purposes, and that otherwise they would have slumbered in the womb of time amid a thousand others ; glimmerings of which may have been seen, but were suffered to sink into obscurity, and are lost to the world. No one can say what might have been done had every opportunity been improved ; every suggestion sagaciously caught up and followed out. No one can tell how often the uneducated mind has approached to the very verge of a great discovery — ^has had some wonderful invention almost thrust upon it ; but without effect ; and hence the importance of training youth to habits of close reasoning and scientific investigation. There is no royal road to art, science, or learning. He who would become a clever and expert accountant, must pursue the study with diligence, industry, and perseverance. He must observe attentively, think deeply, reason logically ; his mind as well as his fingers must be active. Science is attained by study, art by practice ; and without a combination of both, the student^s attainments must be superficial. Many expedients have been devised whereby the toil of study might be saved. But let no one be seduced to idleness by specious promises. Excellence is only to be attained by labour. " Those who are perpetually in search of short and easy roads to knowledge," says Bailey, " forget that, from the very nature of the case, science cannot be at- tained without labour ; that ideas must be frequently presented to the mind before they can become familiar to it ; that the faculties must be vigorously exerted, to possess much efficiency ; that skill is the effect of habit, and that habit is acquired by the frequent repetition of the same act. Application is the only means of secur- ing the end at which they aim ; and they may rest assured that all schemes to put them in possession of intellectual treasures without any regular and strenuous effbrts on their part, all promises to insinuate learning into their minds at so small an ex- pense of time and labour that they shall scarcely be sensible of the process, are mere delusions which can terminate in nothing but disappointment and mortification. It cannot be too deeply impressed on the mind, that application is the price to be oaidfor mental acquisitions, and that it is as absurd to expect them without it, as to hope for a harvest where we have not sown the seed." DOUBLE ENTRY ELUCIDATED. ' PART L SECTION I. DEFINITIONS AND GENERAL PRINCIPLES. 1. The end and aim of book-keeping is to exhibit, in a clear, concise, intelli- gible manner, the primary, progressive, and present state of a man's pecuniary affairs. 2. The essentials or this art consist in the classification and arrangement of financial facts in a book called the ledger. Each collection of facts in the ledger is called on account. 3. An account, whether of persons or things, in the book-keeping sense of the term, is a detailed or summary statement of all the transactions and events whereby the property of a concern has been affected by the persons or things in question. 4. The most important preliminary to the final adjustment of accounts is the registration of all the facts of which they are composed in chronological order, aad in language as clear and concise as possible. 5. These primary records are the elements of the accounts ; and the business of the book-keeper is to classify and arrange them in such a manner as to afford, with promptitude and facility, a condensed and accurate statement of the result. 6. It is obvious that no result can be satisfactory if facts of a similar character are classed under different heads, or facts of a different character under the same head. In the one case there would be confusion ; in the other, diffuseness ; and in B .*>•>' > 5 J hotlt., lia^vlitv to error : hence receipts should not be blended with payments, pnr- 5 >i 'j^'Thases with saten, or gains with losses; they are distinct circumstances, and must "oiecupy distinct positions. 7. Each account is designated by its appropriate title, and articles of opposite kinds are placed in opposite columns. For instance, monev received in the left, and money paid in the right hand column. To open an account signifies to enter its title, for the first time, in the ledger ; the items belonging to it are then trans- ferred from the subordinate books daily, weekly, or monthly, as may be convenient. This process is called posting. 8. The two sides of an account, when added, will be equal, or they may be made equal by adding the difl'erence to the lesser side.* Tn the former case the account is closed ; in the latter, it is merely equilibrated : the balance being transposed, or carried to the opposite side, the account is continued as before. This process is called balancing. 9. The receipts and payments of money are recorded under the title of " Cash,'* and a distinct account must be opened for each person or firm with whom you have dealings on trust, under their respective names, or the name of the firm with whom they are connected. 10. Written securities, such as promissory notes, drafts, and acceptances, are, • n mercantile language, called Bills: those received by you, and for the payment of which other parties are responsible, are recorded under the title of " Bills Re- ceivable ;" those issued or accepted by you, for the payment of which you are re- soonsible, are recorded under the title of " Bills Payable. '^ 11. Purchases and sales are recorded under the name of the property bought and sold ; as Cotton, Sugar, Tea, Coffee, and the like ; but when the articles are numerous, the general title of Merchandise is substituted. The capital, or surplus property, is recorded under the title of Stock; and the gains * The mode of adjusting an account maybe more concisely shewn in an algebraic form. Thus: let a. h c represent the positive parts or debit items ; I m n the negative parts or credit items; and jrthe balance. Tlten a +6 -f-c — (/ + »i + «) = + o^. Therefore, a -\- h-\- c — I -\- m -\- n^ x. and losses, under the double title of" Profit and Loss." " Commission/' " Charoes/' " Interest," " Rent and Taxes/' &c., are merely subdivisions of the Profit and Loss account, and the latter is simply a branch of " Stock." 12. The accounts of goods, houses, ships, land, bank stock, shares in public or private companies, and the like, contain on the left-hand side the value of the property at the time of opening the books ; the cost of what is subsequently purchased, and all incidental charges ; and on the right-hand side the value of what is sold or otherwise disposed of, and all other returns, such as rents, freights, divi- dends, &c., together with the value of what is unsold at the time the accounts are adjusted. 13. When goodsare consigned to a factor, orintrusted to an agent to sell on vourac- count, you cannot consistently debit him with the cost ; but the fact must be recorded in such a manner as to shew the value of the property, and the circumstances under which it is placed. It is usual, in such cases, to open an account for each consign- ment, under some appropriate title, which is debited for the cost, and credited for the net proceeds. 14. When goods are consigned to you for sale, you cannot consistently credit the consignor with the cost or invoice price ; for you are only liable for the net proceeds. It is usual, in such cases, to open an account for each consignment under some appropriate title, which is credited for the sales, and debited for the charges, including duty, freight, insurance, commission, &c. The difference, when the sales are complete, is the net proceeds, which is transferred to the credit of the consignor. 15. The whole scheme of book-keeping is but the means of collecting, arranging, and classifying the particular facts which are scattered through the primary books : the ledger, therefore, invariably represents concentrated, and not diffuse, accounts ; it is a book of results, and not of details ; it is, in short, the tabular centralization of the subordinate books, and the final instrument of the balance-sheet. 16. It is a primary axiom of the exact sciences that the whole is equal to the sum of its parts ; and on this foundation rests the entire superstructure of book- kcepir)g. It considers property as a whole, composed of various parts. The Stock account exhibits the capital collectively ; the remaiaing accounts exhibit its compo- nent parts : hence the whole and its parts mutually check and verify each other. 17. The component parts of property are distributed into debtors and creditors ; the positive parts constituting the former, and the negative parts the latter. The Stock, or net capital, must also come under one of these classes ; for when the assets exceed the debts. Stock or the proprietor is a creditor for the surplus, or, in the event of insolvency, debtor for the deficiency. The direct inference from which is the equilibrium of debtors and creditors throughout the books. 18. But without thus deducing it from the connection of the accounts, this equality is evident from the very signification of the terms debtor and creditor, which being correlative, the one always implies the other, and cannot exist without it. If, therefore, for every debtor there must be an equal creditor, and for every creditor a corresponding debtor, the respective sums of these equalities must also be eqiial. 19. At the time of opening and closing the books, the equilibrium of debtors and creditors exists in the concern, considered in a state of rest ; but from the axioms, that if equals be added to equals, the sums will be equal, or if equals be taken from equals, the remainders will be equal, it is evident that the same equilibrium must exist in all the intermediate occurrences. 20. The component parts of property are in a state of continual transformation and change ; but whatever variations they undergo, and whether the whole capital increase, diminish, or remain stationary, it must constantly be equal to the sum of its parts. Gains increase and losses decrease the capital ; they also increase or decrease the assets in the same ratio, so that an equilibrium is maintained between the whole and its parts under every variation that can occur. 21. In further elucidation of the principle under consideration, let us suppose two equal lines, A B and C D, to represent the debtors and creditors of any set of accounts : thus. Let A "^ I 3,000 = 3.500 E represent the debtors, and C •( '•"^ = "'"^ D represent the creditors. Let the debtors be divided at e, the creditors aty"; and let A e and C/ represent respec- tively the debit and credit sides of Stock ; whilst e B and/ D represent the debtor and creditor sides ofall the remaining accounts. It is evident that the difference between A e and Cy is equal to the difference between e B andy D, and must be equal to it ; let the division be placed at any part of the lines at pleasure ; or if one of the marks be taken away, say /, it must still be evident that A e is equal to the difference between C D and e B. Hence it follows that the balance of the Stock account must always be equal to the collective result ofall the other accounts. 22. But this comparative equality is not, as has commonly been supposed, restricted to " Stock :" the same reasoning holds good with regard to every other account, or to any portion of the accounts. For example, let A e and C /represent the debtor and creditor sides of " Cash," and it follows that the balance of " Cash" is equal to the net balance of all the other accounts, and that the balance of any proportion of the accounts is equal to the net balance of the remaining proportion. 23. The reader may perhaps conceive, that notwithstanding the lines A B and C D are equal at the time of opening the books, yet, as transactions must occur to alter their extent, it is possible for such an alteration to take place as shall operate to the unequal extension or diminution of one line or the other, and of course to the subversion of the whole reasoning founded upon their equality. But such a circum- stance can never happen ; for, in every transaction or adjustment, an equal amount of debtors and creditors must be affected, so that the extension or diminution of the two lines in question must always be equal in regard to each other. 24. The equilibrium of debtors and creditors having been demonstrated, as well from the nature of these relations as from the axiom that the whole is equal to the sum of its parts, and having been shewn to exist essentially in property in every state, whether of motion or of rest, we may justly lay it down as the fundamental principle of book-keeping, — a principle not of mere expediency, but of absolute necessity, and inseparable from the nature of accounts. 25. Accounts, however numerous, diversified, or involved, may be divided into TWO classes,— PERSONAL and IMPERSONAL. The Personal Accounts invariably represent debts receivable and payable ; the Impersonal Accounts consist 6 of outlay and returns. The importance of this classification cannot be too strongly insisted upon ; for without it, it is impossible to attain a comprehensive, well-grounded knowledge of the science of double entry. 26. The first general division of the ledger is limited to the accounts of cash, bills, and persons, which are distinguished by the collective term Personal Accounts. That the accounts of cash and bills are analogous to those of persons will appear from the following considerations : — 1. The account entitled " Cash " represents the cashier, who debits him- self or cash for all monies received, and credits himself or cash for all monies paid. The balance is cash in hand, for which the cashier is responsible to the concern : hence this is substantially a personal account. 2. The account entitled "Bills Receivable" represents the persons who are liable for the payment of the bills : the debit side consists of other men's bills which you receive ; the credit side consists of all such bills as are dis- posed of, and the balance shews what is owing to you in the shape of bills : hence this is substantially a personal account. 3. The account entitled " Bills Payable" represents the persons to whom you are liable in the shape of bills. The credit side consists of the bills issued or accepted by you ; the debit side consists of all such bills as are redeemed or withdrawn from circulation ; and the balance is what you owe in the shape of bills : hence this is substantially a personal account. 27. The second grand division of the ledger includes the accounts of goods, ships, houses, land, shares in public or private companies, profit and loss, commission, stock, &c., which are distinguished by the collective term Imper- sonal Accounts. The nature and design of this class of accounts may be inferred from the following considerations : — 1. The cost or value of goods, ships, houses, land, shares in public or pri vate companies, the disbursements for fixtures, tools, raw materials, wages, clerks' salaries, rent and taxes, and every other expenditure consequent upon a man's trade, business, or profession, is comprised under the general term Outlay. 2. The sums received or receivable for the sale of goods or any other pro- perty, for rents, freight, dividends, interest, commission, work done, profes- sional advice, or from any other source consequent upon a man's trade, business, or profession, is comprised under the general head of Returns. 3 The gain or loss resulting from any particular investment or speculation is obviously the difference between the prices at which we buy and the prices at which we sell. In like manner, the gain or loss accruing from any trade, business, or profession is the difference between the total outlay and the total returns consequent upon such trade, business, or profession. 28. A little further consideration will shew that purchases and sales affect both classes of the accounts equally. For instance, goods bought for cash, on credit, or for a bill, must be entered in the debit or left-hand column of the impersonal, and also in the credit or right-hand column of the personal accounts : on the contrary, goods sold for cash, on credit, or for a bill, must be entered in the debit or left-hand column of the personal, and in the credit or right-hand column of the impersonal accounts. 29. Purchases create impersonal debtors, and personal creditors ; sales create personal debtors, and impersonal creditors, receipts convert personal debtors into cash, whilst payments decrease cash and personal creditors in the same ratio. Hence it follows that (with the exception of transfers) the debit items in one class of accounts are credits in the other, and vice versa.* 30. Receipts and payments, so far as the personal accounts are concerned, are merely changes of value, or transfers from one account to another of a similar character, which neither increase nor decrease the capital. When, for instance, a merchant pays a debt, he decreases his cash and decreases his liabilities to the same extent ; when he receives payment of a debt, he increases cash, or some analogous account, and decreases his debts receivable to the same extent. 31. A sum posted to a wrong personal account will not affect the general result in the least. Thus, if A is debited £100 instead of B, and if neither A nor B object to the error, no loss is sustained by the proprietor ; but if £100 is posted to the debit of an impersonal, which should have been placed to the debit of a personal account, the error will increase the losses, and decrease the assets, to that extent. In like manner an item entered in one of the impersonal accounts which belongs to another, will in no way alter the general result ; the account im- properly charged will exhibit less and the other more profit, but the capital will not be increased or diminished in consequence of such errors. * See illustrations, pp. 108, log. 8 32. The ledger contains a synopsis or condensed history of a man's pecuniary transactions, arranged in systematic order, so that the state of any particular account, as well as the general result of the business, may be readily ascertained. 33. Each account consists of two parts, directly opposite in their nature : the space or folio which it occupies being vertically divided, the left-hand side is deno- minated Debtor, and the right. Creditor. The positive parts, or debit items, are entered in the left, and the negative parts, or credit items, in the right-hand money column. The preposition To is prefixed to the several entries on the left, and the preposition By to those on the right-hand side, thus : — -Dr. WILLIAM WATSON. Cr. 18.32. Jan. 1. 10, 15, 31. To Merchandise To do. To do. To do. To Balance. 1000 1852. Jan. 10. 2000 17. 500 21. 1500 5000 1200 By Cash . By do. . By do. . Bulance 3000 500 300 1200 5000 The above is a statement of what Watson owes you, and what you owe him ; the balance, or difference between the two sides, indicates that he is still liable to you for the sum of £1200. 34. The Cash account is simply a statement of the receipts and payments of money. All receipts are entered in the left, and all payments in the right-hand money column. The balance represents the cash in hand, for which the cashier is responsible. 35. The account entitled " Bills Receivable" is simply a statement of the bills received and disposed of. It is debited for all bills, notes, or acceptances which come into your possession, and credited for all such bills as are paid or otherwise disposed of. The balance of this account invariably represents Assets in the shape of written securities. 9 30. The account entitled "Bills Payable" is simply a statement of the bills issued and redeemed. It is credited for all bills issued by you, and debited for the Hime when redeemed. The balance of this account invariably represents liabiities \n the shape of bills. 37. The design of all property accounts, such as Goods, Ships, Houses, Land, Shares in public Companies, and the like, is to shew the gain or loss resulting from each investment or speculation. The outlay or cost is entered on the left, and the sales or returns on the right-hand side ; and the result, when the returns are com- plete, is gain or loss, as the case may be. 38. The Stock or capital account is simply a statement of the surplus property. It represents the merchant's present worth, or, in case of insolvency, his net de- ficiency. The net capital, together with the net gain, is entered on the credit side ; and in the event of insolvency, the net loss is transferred to the debit side. Profit and Loss, and its ramifications, are simply branches of the Stock account. 39. It is customary, on opening a set of books, to enter the gross assets to the credit, and the liabilities to the debit of Stock ; — but the grand principle whereby the equality of debtors and creditors is at first established, would be more clearly exhibited by entering the net Capital only to the credit of '* Stock." In order to illustrate this view of the subject, let us suppose a merchant's assess and debts, at a given period, to be as follow : — fCash ^eoOOO Assets < Bills Receivable 8000 (^Merchandise 7000 T ..„,,,^,=.c /Bills Payable ^^6000 Liabilities- <* •' 20,000 l_JohnSmith 4000—10000 NetCapital £10,000 In this case the assets amount to £20,000 ; the liabilities to £10,000, which leaves a surplus of £10,000 ; in other words, the net capital and debts equal the gross assets. The usual mode of entering these facts in the ledger is to make " Sundries Dr. to Stock" for the assets ; and " Stock Dr. to Sundries" for the liabilities : but c 10 the better and more scientific plan is to credit Stock, or the proprietor, for the n^t capital only. A ledger kept upon the principles of double entry is neither more nor less than an account-current, exhibiting, as it does, the state of the accounts, not only individually, but collectively : the net capital or deficiency — which is the balance in favour or against the proprietor — being added to the deficient credits or debits, makes both equal.* For example : — Dr. Stock. Cr. 10,000 Dr. Bills Payable. Cr. 6000 Dr. John Smith. Cr. 4000 1 Dr. Cash. Cr. 6000 1 Dr. Bills Receivabli 3. Cr. ! 8000 1 1 Dr. Merchandise. Cr. (Drs. ^20,000.) 7000 (Crs. £20,000.) * Let ah c represent the assets, I m the debts, and x the net capital or net deficiency. Then a + b + c- (l + m) = X. Therefore, a + h+c = l+m + x. 11 GENERAL PRINCIPLES. I. The terms debtor and creditor are correlative ; the one implies and involves the other: wherever there is a debtor there must be a corresponding creditor; on the contrary, a creditor pre-supposes a debtor. II. All pecuniary or accountable transactions may be virtually considered under the single denomination of barter, or the exchanging of one thing for another. III. In bartering, whatever is received is debited for its value in exchange, and whatever is given or disposed of is credited for its value. In other words, the thing received is debtor to the thing delivered. IV. Debtors and creditors are opposed to each other ; that is, the debit items in one account are credit items in some other account or accounts, and vice versa: hence the debtors in any set of accounts are equal to the creditors. (See article 18) V. The balance or net result of any one account, or of any proportion of the accounts, is equal to the collective result of all the remaining accounts, (See art. 22.) VI. The original capital joZms the gain, or minus the loss, is equal to the present assets minus the debts ; and in case of insolvency, the debts or liabilities minus the assets are equal to the net deficiency.* * Let A represent the original capital. f B ,, the net gain or loss. ) C ,, the present net capital or deficiency. D ,, the gross assets ; and } £ „ the debts or liabilities. 3 Tbco A + B = C, and C = D — K. Therefore D = C E. SECTION I St'BSIDlARY BOORS— MONTHLY JOURNAL. The Subsidiary Books required by the General Merchant are — T. The Cash-book, comprising cash transactions only. On the left-hand folio are entered, daily, all sums of money received ; and on the right-hand, all sums dis- bursed, or paid out. II. The Bill-book, in one part of which are entered all biUs receivable, and in the other all bills payable by the concern. III. The Invoice-book, containing the particulars of goods purchased, whether for exportation or otherwise. IV. The Book op Shipments, containing the particulars of goods sent abroad, either m consequence of orders or on consignment. V. The Sales-book, which contains the particulars of goods sold on commission. The charges incurred upon such goods, including factorage, are entered on the left- hand, and the sales on the right-hand, page. The Cash-book is perfectly simple in form and arrangement. Each folio consists of two pages. The left-hand page exhibits a statement of the money on hand at the beginning of each month, and all sums subsequently received ; and the right-hand page exhibits a statement of aU disbursements of money for the same period. The difference between the totals of the two sides is the balance, or cash in hand. For example — 13 Dr. 1840 1 Jan . 1 * 5 1 10 15 25 30 31 Balance from Dec. . To James Kent on ac't,. To Bills Receivable, . .No. 77, . To Merchandise Sales, . To James Kent, in full, . To Bills Receivable, . .No. 78, . To Merchandise Sales, . Cash. 1840 10,000 Jan. 2 1,500 . 4 1,750 « 8 l,250l » 10 3,500 . 20 1,000 . 26 1,800 20,800 By Bills Payable,.. No. 40, .. By Henry Pope, ..paid him, By Robert Hall, . .paid him, By Bills Payable,. .No. 41. . . By Henry Pope, ..paid him. By Robert Hall, ..paid him. Balance to Feb Cr. 8,000 1,300 1,575 1,425 1,000 1,500 6,000 20,800 In journalizing the Cash-book, the receipts and payments for each account are com- bined, so as to require but one posting for the month ; thus — January, 1840. —Drs.~ 1 i 1 3 Cash Dr. to Sundries, Received this month '^ Cash-book, fol. 1, To James Kent, 5th, 25th, To Bills Receivable, 10th, 30th, To Merchandise, 15th, 31st, . . . 1,500 . . . 3,500 10,800 6,000 2,750 3,050 14,800 1 ...1,750 . . . 1,000 . . . 1,250 . . . 1,800 ! 1 Sundries Dr. to Cash, Paid this month '^ Cash-book, fol. 1, Bills Payable, 2nd, 10th, Henrv Pope, 4th, 20th, Robert Hall, 8th, 26th, . . 8,000 . . . 1,425 .. 1,300 1 . . 1,000 1 9,425 2,300 3,075 1 1 i o' 1 . . 1,575 . . 1,500 L _ ' 25,600 « 25,600 14 The Bill-book is ruled with columns for the clifFerent details, such as the number, when received, on whose account, the date and term, on whom drawn or to whom granted, when due, the amount, and how disposed of; thus — Bills Receivable. 1 No. When rec'd. On acc't of. Drawn by. Date. Term. Drawn on. When due. Amount . When and how di«)io»«t of. 25 26 27 1840 Jan. 1 » 15 « 20 J. Brown T. Ware J. Brown W. Allen J. Hill 11. James 1840 Jan. 1 » 10 « 15 30 days 60 « 90 1/ J. Jones C. Payne F Hope 1840 Fel). 1-4 Mar. 16-19 Apr. 15-18 1,000.0.0 1,200.0.0 3.800.0.0 1840 Feb. 3 In cash. Mar. 19 « do. Apr. 18 « do. Bills Payable. No. Date. Drawn by. To order of. Acc't of. Term. When accept'd. When due. Amount. When and to whom paid. 36 37 38 1840 Jan. 1 ir 10 » 12 H. Penn C. Fox G. Kurd B. Hill H. Burr C. Clay H. Penn C. Pox G. Ilurd 1 month 2 » 3 » 1840 Jan. 3 « 15 » 20 1840 Feb. 3-6 Mar. 15-18 Apr. 20-23 1,780.0,0 1,220.0.0 1,000.0.0 1840 Feb. 6 Lloyd & Co. Mar. 18 Payne & Co. Apr. 23 Lloyd & Co. 1 It is customary to keep a register of both bills receivable and payable in the same book. The journal entries for the above bill transactions are as foUows : — January, 1840. Bills Receivable Dr. to Sundries, Received this month "^ bill-book, fol. 1, To J. Brown, 1st, 20th, To T. Ware, 15th, 1,000 3,800 Sundries Dr. to Bills Payable, Accepted this month '^ bill-book, fol. 1, . . . , H. Penn, Jrd, C. Fox, 15th, G. Hurd, 20th.. I ._ -Drs. — 6,000 1,780 1,2201 1,000 ' 10,000 —Crs. 4,800 1,200 4,000 10,000 0| 1 I 15 The Invoice or Bought-book is generally composed of the original invoices or bills of parcels, pasted into a blank book made of cartridge paper. This book should have its pages numbered, and an index, so that any invoice may be easily referred to. The several purchases are arranged 'one under the other in regular order, and the totals are placed in a money column, ruled for the purpose each amount being ex- tended opposite to its respective bill ; thus — Messrs. Brown, Brothers, & Co. Bought of Johnson 5f Co, 25 pieces Black Cloth, 700 yds. @ 20/ 700.0.0 25 . Blue do. 660 yds. @ 15/ 420.0.0 ._ 1,120.0.0 Messrs. Brqwn, Brothers, & Co. BoJo/ht of Fraser ^ Son, 38 pieces Toilinette, . . 570 yds. @ 6/ 142.10.0 50 , Cassimere, 1,100 . @ 10/ 550.0.0 692.10.0 Messrs. Brown, Brothers, & Co. Bought of James Smith 6f Co, 20 pieces Broadcloth, 500 vds. @ 25/ 625.0.0 20 . do. 520 " , @ 21/ 546.0.0 1,171.0.0 1,120 692 1,171 10 2,983 10 The above purchases are journalized as follows — January, 1840. —Drs.— — Cw.— Merchandisk Dr. to Sundries, Purchased this month W Invoice-book, 2,983 10 1,130 692 1,171 10 1^ To Johnson & Co 15th To Fraser & Son 16th, To James Smith & Co., eSth, 2,9«3 :n "o 2,983 IC The Book of Shipments, or invoice-book outwards, contains copies of all in- voices of goods sent abroad. Some accountants ep.ter the particulars of the ship- ments in the day-book ; but the more common practice is to record transactions of this nature in a separate book, which is journfllized monthly. The following is an exemplification of the general form of invoices — Invoice of Goods shipped by Brown, Brothers, ^ Co., on board the Gladiator, Britton master, for New York, by order of R. Johnson, merchant there, for his account and risk, and to him consigned. 11. .T. No. 1 . 3 1 Trunk, containing 50 pieces Cambric Check, amounting as f- B. P. inclosed to 150. 0.0 Trunk, and packing, 1.10.0 1 Trunk, containing 50 pieces Calico Check, amounting as It B. P. inclosed to 160. 5.0 Trunk, and packing, 1.10.0 1 Bale, containing 50 pieces Broadcloth, amounting ^ as f- B. P. inclosed to 1,120. 0.0 Canvass, ropes, and packing, 3.10.0 CHARGES. Cartage, wharfage, and shipping, Custom-house entry and fees Bills of lading, and agency, Commission, 2j f- cent on .£1,443.5.0, Insurance on .£1,500 at 30s. Y' cent, and Policy ^4.2.6, . Commission on Insurance, J ^ cent, LoNDO.N, Feb. 4, 1840. 1.10.0 3. 5.0 2.15.0 26.12.6 7.10.0 151 161 1,123 1,514 10 15 The journal entry for this invoice is as foUows- February, 18aO. To Merchandisp, To Cliarges,. ., . To Commission, To Insurance, . . Robert John.son Dr. to Sundries, For Goods 4f Gladiator ^ book of sliipiTicuts, —Drs.— 1,514 1,514 9 1 1,43015 7 10 43I1I 2612 1,514 9 17 Sales-book. — The arrangement of sales on commission is similar to the Cash-book. The particulars are recorded upon opposite pages in the form of Dr. and Cr., with a preamble over both setting forth the description of the goods, from whom received, &c. The charges are entered on the left, "and the sales on the right-hand page; thus — Dr. Sales 100 Bales Cotton, '^ St. James from New York, acc't Rons ^ Sons. Cr. 1840 Jan. 1 . 3 « 31 Freight 38,180 lbs, ® |d. ^ lb. and Primage 5 ^ cent, . . Weighing, and delivery Landing, wharfage, housing, .... Sampling, mending, &c., Rent. 4 weeks, at Id. W Bale,. . 83 2 5 6 1 1 61 1.368 10 10 5 5 13 10 4 2 4 8 1840 Jan. 31 Sold West & Co., at 1 month, iOO Bales, weighing, cwt. qiB. lbs. Gross, 340 . 3 . 16 Draft, 3. 16® lib V bale. 1,530 340. . Tare, 12 . . 16®41bsVcwt. Commision, and guarantee, 4 ^ cent, Net, 327 . 3 . 12, or 36,7201bs at lOd. ^ lb, in bond London, Jan. 31, 1840. Brown, Brothers, & Co. To Hone & Sons, net proceeds. 1,530 1,530 In the Sales-book the different articles are necessaiily entered as they occur, but in rendering the account of sales, they are arranged in any way that perspicuity or custom may dictate. The entries which arise from adjusting the above sales are jour- nalized as follows: — January, 1840. West & Co. Dr. to Cotton 1^ St. James, For 100 Bales, account of Hone 85 Sons, at 1 month. Cotton "^ St. James Dr. to Sundries, For adjustment of Sales, 100 Bales W S. B. To Charges. freight, &c To Commission, on sales, &c To Hone & Sons, net proceeds —Drs.~ 1.530 1,530 3,060 0; — Crs. 1,530 ! 100I13 61 4 1,368 3.060 18 The Day-book contains such occasional entries as do not properly belong to either of the other subsidiary books, such as insurances, discounts allowed, and the like. The books here described are the authorities from which it is now customary, in extensive concerns, to compose the Journal. It must not be supposed, however, that all these books are requisite in every estabhshment. In domestic or inland trade, where the transactions are confined chiefly to purchases and sales, receipts and payments, the principal subsidiary books are the Cash-book, Bill-book, and Day-book. There are also several books which do not form any part of the materials or vouchers for the journal ; namely — 1. The Account-cubrent-book, containing dupUcates of the accounts fur- nished to correspondents. 2. The Letter-book, containing copies of aU important letters, dispatched. 3. The Order-book, containing copies of all orders received. 4. The Petty Cash-book, or account of petty disbursements. 5. The Cash Sales-book, containing cash sales of merchandise. The old method of journalizmg and. posting each transaction separately unneces- sarily swells the accounts in the ledger with a multiplicity of figures, which greatly increases the difficulties of balancing ; and — to say nothing of extra labour and loss of time — the liability to error is always in proportion to the number of entries, and vice versa. If a hundred sums are posted when one would answer, then a hundred chances of error are incurred where only one was necessary ; and in the event of an error in adjusting the accounts, a hundred entries must be called over and examined instead of one. SECTION in. iOURNALISINQ AND POSTING ELUCIDATED. The design of the journal is to facilitate) the process of posting ; in other words, to designate on which side of each account in the ledger the respective values are to be placed. The accounts to be debited and crtclited* are indicated by writing their titles ; and the side of the account is designated by placing the abbreviation Dr. after the title of that which is to be debited, and the preposition to before the title of that which is to be credited: then follows a brief statement of the transaction; In the modem practice of this art several books are used for the primary entries, each appropriated to a distinct class of affairs. In consequence of this subdivision of the waste-book, the form of the journal is changed from a daily record to a monthly abstract of the subsidiary books ; and the entries are classified so as to comprise under one head a number of transactions oc- curring at different dates. Thus the collective entry of Cash Dr. to Sundries, exhibits, successively, all the receipts of money during the month, the tota sum of which is car- ried to the debit of 'Cash;' and the collective entry. Sundries Dr. to Cash, exhibits, in hke manner, all the payments of money, the aggregate alone being posted to the credit of ' Cash.^ The same combination of entries is made in every department of business : all similar items relating to each account are classed together, and posted in one sum to the ledger. * To debit an account, means to enter a sum on the left-hand side of the ledger ; and to credit an accouut, means to enter a sum on the right-hand side. Although the abbreviation Cr. is never expressed m the journal, yet it is always understood to follow the word, to. d2 20 The chief requisite in forming a journal entry is to know at once, fh)m the nature of the transaction, not only what particular account is to be debited and credited, but also on which side of the account each item should be placed. The following illustrations exhibit the technicalities of the journal : — 1. — Bought of Thomas Brown & Co. a quantity of hardware, at 90 da)'s' credit, amounting, as "^ invoice, to ,^1,000 In journalizing this transaction first consider under what heads this sum must be placed, both on the debtor and creditor sides of the ledger. Tt is obvious that the concern is indebted to Brown & Co. for the amount, £1,000 ; for which value has been received In hardware. All purchases of goods may be entered on the debtor side of ' Merchandise,' and all sums for which we are accountable to individuals or firms are entered on the creditor side of their respective accounts : thei'efore, the journal entry is — Merchandise Dr. to Thomas Brown S^ Co., For hardware, f- invoice, .€1,000 In posting this entry we turn, by the help of an index, to the merchandise account, and on the left hand, or debtor side, write 'To Thomas Brown & Co., £1,000.' We next turn to Brown & Co.'s account, and on the right hand, or creditor side, enter 'By Merchandise, £1,000:' prefixing dates, &c., &c. 2. — Sold for cash, a quantity of hardware, as '^ sales-book, amounting to ^'800 Here, again, let us consider the nature of the transaction in reference to the classifica- tion and arrangement of the ledger, and no difficulty can occur in making the journal entry. We have increased the amount of cash in our possession, and diminished the quantity of goods in our warehouse, and as all moneys received are entered on the 21 debtor side of * Cash,' and all goods disposed of on the creditor side of ' Merchandise,' we say — Cash Dr. to Merchandise, For sales this day, "^ S. b., . jggOO In posting this entry first turn to the cash account, and on the debtor side write * To Merchandise, j6800/ We next turn to the merchandise account, and on the creditor side write * By Cash, £800/ See II. General Principle. 3. — Paid Thomas Brown & Co. as "^ receipt, cash in fiiU, j€l,000 This debt, when contracted, was entered to the credit of Brown & Co., and formed a part of oiu* habilities. The debt is now discharged ; but, in the operation, we have diminished our cash : and both of these facts must be recorded. AH sums for which an individual is responsible to us are entered on the debtor side of his account; and all disbursements of money are entered on the creditor side of ' Cash :' hence we say — Thomas Brown & Co, Dr. ^o Cdsh, Paid them in ftdl, .£1,000 In posting this entry turn to Brown & Co.'s account, and on the debtor side write *To Cash, iB 1,000.^ Next turn to the cash account, and on the creditor side write ' By T. Brown & Co., £1,000.' See II. General Principle. 4. — Accepted Jones, Lloyd, and Co.'s draft, in favour of H, Felt, at 30 days' sight. No. 1, ^5,000 All bills for the payment of which, at maturity we are responsible are entered, when issued or accepted, on the creditor side of ' Bills Payable,' and to the debit of the drawer, or payee ; hence the journal form of this entry is — Jones, Lloyd, & Co. Dr. to Bills Payable, For onr acceptance at 30 days' sight. No. 1, .£5,0CC Entries of this description are not readily comprehended by learners, owing Xx% the 22 confused notion which they have of the nature of bills or acceptances. A little reflection, however, will show that the concern is still hable ; but not to Lloyd & Co. In fact, this transaction is nnerely a transfer of a debt from the party with whom it ^as originally contracted to the holder of our acceptance. We therefore debit Lloy6 & Co., and also enter the value of the bill on the credit side of a general accoimt which is opened for suca obhgations, under the title of ' Bills Payable. 6. — Sold goods to Thomas Brown & Co. as "^ sales-book, and received their bill at 90 days' date. No. 4, ^1,600 A bin represents value, and is a negotiable document. We do not, in this case, debit Brown & Co. for the goods, because we have received a bill in settlement, and they are responsible only to the party who is the holder of the bill at maturity. As the value of all bills which we receive are entered on the debtor side of an account entitled ^Bills Receivable,' and all goods disposed of on the creditor side of ^ Merchandise,' the journal form of the entry is — Bills Receivable Dr. to Merchandtse, For Brown & Go's acceptance. No. 4, ^1,500 In posting this entry turn to ' Bills Receivable,' and on the debtor side write * To Mer- chandise, £1,500;' and next to * Merchandise,' and on the creditor side write ^By Bills Receivable, £1,500.' See II. General Principle. 6. — Paid our acceptance. No. 1, in favour of H. Felt, i^5,000 When a debt or obUgation is entered on the creditor side of any particular account, the value must be entered on the debtor side of the same account, if it be paid or otherwise discharged ; and vice versa. This acceptance when issued was entered on the creditor side of ' Bills Payable' and formed a part of our liabilities. It is now 23 redeemed. We are therefore no longer liable for the amount, but our cash has been diminished by the operation. In journalizing the transaction, we say — Bills Payable Dr. to Cash, Paid our acceptance. No. 1, iSJS.OOO As this is simply a transfer between two accounts, the sum must be inserted on the debit side of the one and on the credit side of the other. See Hr. General Principle. 7. — ^Received payment of Brown 8s Co.'s acceptance. No. 4, j£l,500 This, like the sixth example, is merely a transfer between two accounts, namely, the receipt of money and the disposal of a biU. The journal entry is — Cash Dr. to Bills Receivable, Received payment cf bill. No. 4, , .^1,500 In this transaction *Cash' is increased, and the bills in our possession equally diminished; and therefore the cash account must be debited, and ' Bills Receivable' credited for the amount. The foregoing are illustrations of what may be termed simple journal entries. A complex entry is one in which there is two or more debtors to the same creditor, or, two or more creditors to the same debtor, as is often the case when several sales are made to different persons, or when a number of purchases, payments, &c. occur at one date, or even at different dates. The foUowirg are examples : — 8. — Sold goods this day at 3 months' credit, as ^ sales-book, namely Walter Holmes, amount of invoice, 600 Henry Brown, « .... « 700 JohnSmith, . .... . 800 ^2,000 ■ Merchandise ' is credited for the total sales, £2,000, and each person debited for his 24 respective share. See V. General Principle. The form of the entry is — Sundries Dr. to Merchandise, For sales this day, f- S. B. Walter Holmes, 500 Henry Brown, 700 John Smith, 800 ^2,000 The term Sundries is used in such cases merely to avoid recapitulating the same cre- ditor. Thus, instead of saying, ' Walter Holmes Dr. to Merchandise/ ' Henry Brown Dr. to Merchandise/ and ^ John Smith Dr. to Merchandise/ we avoid this repetition by using the word sundries. 9. — Received cash this day of the following persons, as 1^ cash-book; namely — Stephen Hunter, 1,000 Charles Brewer, 3,000 WiUiam Watson, 2,000 ^6,000 As we are supposed, in this case, to have open accounts with the parties, each person must be credited for his payment, and the cash account is debited for the whole sum, in one mass. See V. General Principle. In the journal we use the term sundries as before; thus — Cash Dr. to Sundries, Received f- C. B, To Stephen Hunter, l,00O To Charles Brewer, 8,000 To WUliara Watson, 2,000 ^6,000 In journalizing it is often found expedient to class several debit items against se- veral credit items — even when the respective amounts are various — by prefacing the entry with the phrase 'Sundries Dr. to Sundries,' "^ and then describing two * This IS an abbreviation for ' Sundry Accounts Dr. to Sundry Accounts.' It is used when there are several Drs. as well as several Crs, in the same entry. 25 or more debtors against two or more creditors. For example — 10. — Shipped '<^ Neptune, for Havanna, by order, and on account and risk, of the following persons, goods as '^ Book of Shipments, namely — For Thomas Trueman, Goods, amounting to, 1,600 Charges, paid at shipping, 120 Commission, on goods, &c 48 Insurance, and policy, 42 — 1,810 For Henry Jones, Goods, amounting to, 3,000 Charges, paid at shipping, 150 Commission, on goods, &c 93 Insurance, and poUcy, 82 — 3,325 ^5,135 This shipment might be journalized similar to the ninth example, by making Truenian and Jones, respectively, Dr. to Sundries, each for the amount of his invoice, but se- veral postings to the ledger are avoided by arranging the items in the foUov^ing manner: — • Sundries Dr. to Sundries, For shipment, "^ Neptune, for Havanna, f- order. 1,810 3,325 5,135 i i ^Drs.— Thomas Trueman, Charget. CommUiion. IninnnM. 1,600.0.0 3,000.0.0 120.0.0 150.0.0 48.0.0 93.0.0 42.0.0 82.0.0 Henry Jones, —Crs.— To Merchandise, 4,600.0.0 To Charges, 270.0.0 To Commission, 141.0.0 To Insurance, 124.0.0 1 1 0^ 26 SECTION IV. POSTING— TRIAL BALANCE— BALANCE. The process of transferring the items to their respective accounts is called postinff; and the Journal has been contrived to facilitate this operation— In posting proceed as follows: 1. When the journal entry contains only one debit and one credit item. For example — Richard Simonds Dr. *o Cash. Paid him in full, f- C. B , 1,000 In this case turn, by the help of the index, to R. Simonds' account, and on the Dr. side write 'To Cash, . . . £1,000.' Place the date, page of the journal, &c., in the proper columns. Then for the second entry or counterpart, turn to the Cash ac- count, and on the O. side write 'By R. Simonds, . . . £1,000,' prefixing the date and reference as before : thus — 1 Dr. R. Simonds. Cr, 1840 Jan. 1 To Cash, 1 1,000 2 Ih-. Cash. Cr. 1840 Jan. 1 By R. Simonds, .... 1 1,000 27 2. When the journal entry contains one debit and two or more credit items. See example, page 13, Cash Dr. to Sundries. In this case turn to the Cash account, and on the Dr. side write * To Sundries, £10,800;' then turn to the accounts of James Kent, Bills Receivable, and Merchandise, and on the Cr. side write ' Bi/ Cash/ each for its respective sum, prefixing dates and references as before. 3. When the journal entry consists of two or more debit items and but one credit item. See example, page 13, Sundries Dr. to Cash. In this case turn to the Cash account, and on the Cr. side write 'By Sundries, £14,800;' then turn to the accounts of BiUs Payable, Henry Pope, and Robert Hall, and on the Dr. side write ' To Cash,' each for its respective sum, prefixing dates, &c. 4. When the journal entry is composed of several debit and several credit items. See example, page 25, Sundries Dr. to Sundries. In this case turn to each account which is to be debited, and on the left-hand side write * To Sundries;' and then turn to the accounts which are to be credited, and on the right-hand side say ' By Sundries,' for their respective sums When the space allotted for an account is filled up it must be re-opened in another lolio of the ledger. For this purpose add both sides, and opposite to the totals write, ' Transferred to fol. — .' Then open the account anew, enter the foho in the index, and on the Dr. side of the new account say ' To am't from fol. — ' and on the Cr. side ^ By am't from fol. — ' insert the foho of the old account, and place the sums thus transferred in the proper money columns. e2 M8 'ITie first thing to be done in balancing the books, after taking an inventory of the goods on hand at their market prices, is to prove the accuracy of the ledger entries, by forming what is called a Trial Balance, the design of which is to ascertain if any errors have been committed in posting, in other words if the aggregate amounts of the debtor and creditor sides of the ledger correspond. For this purpose prepare a sheet of paper as follows : — —Dr$.— Trial Balance. —Crt.— 1 (Titles of the Arcimnts. i i ! Write the titles in the centre, and place the total sum of the debtor side of each account in the left, and the total sum of the creditor side in the right-hand money column ; add the two columns, and if no mistake has been committed in posting, the amounts will correspond. See V. General Principle. When all the accounts are adjusted, the ledger is said to be balanced. Thi^ operation is simply the collection of the scattered balances into one genf-ral result called the ' Balance Sheet.' The object in balancing is to ascertain, 1st. The present amount of assets and lia- bilities ; and 2nd. The gains and losses for the given period. The assets, or balances in favour of the concern, are placed on the Dr. or left-hand side of the ^Balance Sheet,' and the liabilities on the Cr. or right hand side: the dif- ference is the net capital or present worth. 29 The gains and losses are collected on a separate sheet called the * Profit & Loss Sheet;' every item of loss being placed on the Dr. side, and every item of gain on the Cr. side : the difference is the net gain or loss, as the case may be. Having ascertained the exact state of the business, proceed to close the books. The items of gain and loss are to be transferred, fi*om the particular accoimts in which they appear, to ' Profit & Loss ;' and then the difierence between the two sides shows the net gain or loss; and to close 'Profit & Loss' transfer f this difference to 'Stock.' In order to preserve the equilibrium of debtors and creditors in closing the re- maining accounts it is necessary to open another account in the ledger under the title of ' Balance,' to which the balances of the several accounts forming the assets and habilities of the concern are to be transferred, and entered in the same manner as in the Balance Sheet. The difference between the two sides of the ' Balance' account is transferred to * Stock' and then aU the accounts will be equilibrated, and they are closed by setting down the equal sums opposite to each other. The accounts opened under the titles of Stock and Balance are used merely on opening and closing the books. They are in fact both statements of the merchant's affairs, the one being the converse of the other. The Stock account exhibits his whole capital abstractedly considered, and the Balance account exhibits its component parts^ that is, the specific items of which the capital is composed. When the two results, ootained by methods so totally mdependent of each other, agree, it affords the strongest proof of the accm^cy of the books. If they do not agree, it shows that some error has been committed ; and the accounts must be re- examined in order to discover it. t In these transfers the recipient account is always made Dr. to the imparting account. For instance 'Balance' is debited 'To Cash,' and 'Cash' is credited 'By Balance' for the money in hand when the accounts are closed. * Bills Payable' is debited ' To Balance,' and ' Balance' is credited 'By Bills Pay- nhle,' for the amount of bills outstanding. ' Commission is debited * To Profit 8f Loss,' and * Profit & Loss' is credited 'By Commission,' for the gains by commission, &c. 30 The general form and arrangement of the Profit & Loss, and the Balance Sheets are as follows ; namely — Profit & Loss Sheet. — Losses. — —Profits.— 1 Balance Sheet. 1 — Assets. — — Liabilities. — 1 J • 1 i 1 DOUBLE ENTRY ELUCIDATED. PART II. PROCESS OF INSTRUCTION. The subject taught is of less consequence to the learner than the manner of teaching it ; that is, in teaching it so as to make the process of instruction the means of inducing correct habits of thinking and reasoning. That method of teaching, therefore, which forms habits of order, regularity, and industry, giving at the same time vigour and promptitude to the mental powers, is the only method worthy of attention ; all others are futile and illusory. Education embraces many arts ; but the art which is of the most importance in the business of life it utterly neglects ; — the art I mean, is the art of flunking. The method of instruction developed in Part II. differs from the blind guess- work of the school-room on the one hand, and the mechanical routine of the counting- house on the other. Instead of perplexing the student with the details of the subor- dinate books, and resorting for aid to arbitrary rules, the construction of the journal and ledger is postponed until he has investigated the principles of the science, and is enabled to grasp the subject in his mind as a connected whole. The accounts are first considered abstractedly ; that is, merely as collections of financial facts ; they are next combined in the form of ledgers — the titles and amounts only being given. Th nts are now put to the test, for he is required to analyze each 32 account, to distinguish one class of accounts from the other, and to produce a sys- tematic, self-verifying statement of the assets, liabilities, gains, losses, and present net capital. He cannot do this unless he comprehends the means and the end — the process and the result — the whole and its parts. The great defect in the ordinary mode of teaching book-keeping is, that the instruction consists of rules, and nothing else. It would appear that the mere mechanism thus applied is looked upon as the beginning and end of the science ; no provision is made whereby a student may be enabled to go alone ; the little that is acquired, therefore, becomes practically useless. The following hints may prove useful to the learner. In double entry there can be no debtor without a corresponding creditor ; and hence every transaction must be entered twice IN THE ledger. The thing received is always Dr. ; and the thing delivered is always Cr. All this is intelligible enough so far as it relates to tangible things ; but it frequently happens in buying and selling that there is nothing received, and vice versa, nothing delivered. In such cases the names of the parties to whom we are responsible, or who are responsible to us, are sub- stituted: thus, if you buy goods of A. B. on credit, you receive the goods, bui deliver nothing. The journal entry is — *' Goods Dr. to A. B." If you sell goods to C. D. on credit, you deliver the goods, but receive nothing. The entry is — " C. D. Dr. to Goods." The first object to be accomplished by the student, is to obtain a clear and dis- tinct notion of the nature and arrangement of the ledger, and the relation which one class of accounts bears to the other. To effect this object is the design of the following exercises. In constructing the accounts, the learner is simply to place each sum in its proper column, and to exhibit the result agreeably to the explanation. Details may be omitted ; all that is essential being the dates and amounts. .^3 CASH. The object of this account is to show the Cash in hand. The cash in hand and all receipts of money are I All disbursements or payments of cash are entered on the Dr. side. I entered on the Cr. side. *4:* The balance, or difference between the two sides, shows the cash in hand. January 1. 1840. The amount of cash in hand at this date is j£lO,000. — 2. Paid for merchandise, ^3,600.-^3. Received for J. Smith's bill, ^600.-8. Paid for repairs of ship Hope, .^900.-9. Paid Harrison & Co. ^1,600.-10. Received for goods sold this day, ^300.-11. Paid my bill in favour of Hunter, i^l,700. — 12. Received payment of Arnold and Co.'s acceptance, ^£500. — 15. Paid my accept- ance in favour of Thompson, ^3,000; received for freight of ship Hope, .^1,800; received for sales this day, ^200.-19. Lent Henry James, ^750.-23. Received the amount of Hill's acceptance, ^2,000.— 31. Borrowed of James Ford, .^190. — Required the balance. Arts. .^£4,140. Dr. Cash. Cr. 1840 Jan. 1 1840 Jan. 2 34 BILLS RECEIVABLE. The object of this account is to show the bills on hand. T^e amount in hand at commencing, and all bills subsequently received, are entered on the Dr. side; and ITie amount of every bill disposed of, or for which payment is received, is entered on the Cr. side. *^* The balance is the amount of bills unpaid or owing to the concern. January 1. 1840. The bills in hand "^ inventoiy is .£8000. — 3. Received Charles Boyd's acceptance at 30 days' date, .£3000. — 3. James Smith has paid his bill in my favour, ^600. — 10. Received from George Dean, Hill's acceptance, at 10 days' date, ^2000. — 12. Arnold & Co. have paid their bill, due this day, .£500. — 15, Received Barclay & Co.'s acceptance, at 90 days date, £1500. — 18. Received from Henry Brown, three promissory notes : the 1st. for ^^125, at 3 months' date ; the 2nd. for ^^500, at 6 months' date, and the 3rd. for ^175, at 9 months' date. — Received payment of Hill's acceptance, £2000.— Required the balance. ' Ans. J?12,200. Dr. Bills Receivable. Cr. 1840 Jan. 1 1840 Jan. 3 35 BILLS PAYABLE. The object of this account is to show the liabilities in the shape of bills. The amount of all such bills, when paid or I The amount of all bills or acceptances issued otherwise redeemed, is entered on the Dr. side. I by the concern is entered on the Cr. side. *^* The balance shows what the concern owes in bills or acceptances. January 1, 1840. — I owe at this date in the form of bills, jC5,000. — 5. Accepted Henry Bell's draft at 30 days' sight, .5^300. — 6. Bought goods this day for which I gave my promissory note at one month's date, ^800. — 11. Paid my acceptance in favour of Hunter, .£1,700. — 13. Accepted three drafts drawn by Harrison & Co. : the first at 20 days' date, jf 160 ; the second at 30 days' date, .£250 ; and the third at 90 days' date, ^600.-16. Paid my bill in favour of Thompson, due this day, £3,000.— Sold goods to Hemy Bell, and received in pa3^ent my own acceptance in his favour, dated the 6th instant, £300. — Required the balance. Ans. £2,100. Dr, Bills Payable. Cr. 1 1 1 « ■ \ . 36 PERSONAL ACCOUNTS. The object of this class of accounts is to show what is owing either to or by the party. ill sums for which the person is indebted to All sums for which the concern is indebted the concern are entered on the Dr. side ; and to the person are entered on the Cr. side. *** The result, or difference, is the sum due to or by the merchant, as the case may be. January 1, 1840. The balance due to Harrison & Co., at this date, is igl,500. — 3. Sold them a par- cel of sugars amounting to ^1,000. — 4. Bought of H. & Co. a quantity of merchandise, as f- invoice, ^800. — 8. Granted them my promissory note, at one month's date, ,€800. — 9. Paid H. & Co. cash, sgl,500. — 12. Bought of them cotton amounting to ^9,000. — 13. Accepted their three drafts, amounting to ^1,000. — 25. Allowed H. & Co. an abatement of £bO on sugars. — 29. Gave them my draft on Henry Jones, at sight, for .£2,050. — Required the balance. Ans. i€5,000. Dr. Harbison & Co. Cr. 1840 Jan. 3 1840 Jan. 1 37 MERCHANDISE. The object of this account is to show the gain or loss on merchandise.* The cost, or outlay, is entered on the Dr. side ; and I The sales, or returns, are entered on the Cr. mde. *,(:* The diflference between the two sides, when the returns are complete, shows the gain or loss. * The design of all property accounts, sucb as ships, houses, lands, adventures, &c., &c., is similar to the above. The cost or value is entered on the left, and the sales or returns on the right, hand side. The estimated value of the property unsold is, in all such cases, the balance of the account. January 1, 1840. Bought goods amounting to .€8,500. — 2. Bought goods this day f- invoice^ .£3,600.-5. Sold linen to A. B., .=^3,000.— 7. Shipped merchandise to Jamaica, f- invoice, .€8,000.— 10. Sold goods for cash, as f- S. B., .€300.-12. Purchased goods at auction, as "^ bill parcels, ^6,300. —15. Sold goods for cash, as f- S. B., j^200. Sold the remainder of the goods on hand for .€8,400.— Required the gain or loss. Arts. ^1,500 gain. Dr. Merchandise. Cr. 1840 Jan. 1 1840 Jan. 5 da KEY TO PART II. The learner will bear in mind that the terms Dr. and Cr. refer only to the Ledger, and are used merely to distinguish one side of an account from the other. The exercises, pages 33 to 37, Part II., are designed to unfold the principles of the science, and to impress upon the mind the plan and object of the accounts, considered abstractedly, i. e. simply as a collection of financial facts. The questions should be worked upon a slate, and, when correct, transcribed into the printed book, in the following manner. — Receipts. — — Payments. — Jan. 1 10,000 Jan. 2 3,600 3 600 8 900 10 300 9 1,500 12 600 11 1,700 16 1,800 15 3,000 15 200 15 750 23 2,000 u,^i(^- 31 190 Balance 4,140 16,590 15,590 39 Dr. -BILLS RECEIVABLE. — Received. — Jan. 1 8,000 3 3,000 10. 15. 18. 18. 18. 2,000 1,500 125 500 175 15,300 Jan. 3. 12.. 18.. — Disposed of. — Cr Balance 600 500 2,000 12,200 15,300 Dr. BILLS PAYABLE. — Redeemed. — Jan. 11 1,700 Jan. 1 15 3,000 5. 15 300 6, / 5,000— 13 13 Balance 2,100 13, 7,100 7,100 Dr. HARRISON & CO. Cr. Jan. 3 1,000 8 800 9 1,500 13 1,000 29 2,050 Balance 5,000 Jan. 1 1,500 4.- 800 12 9,000 26.. ..c 50 11,350 11,350 40 Dr MERCHANDISE Cr. — Outlau. — — Returns, — Jan. 1 8,500 Jan. 6 3,000 2. 3,600 7 8,000 12 6,300 10. 300 18,400- 15 200 Gain 1,500 16 8,400 19,900 19,900 ELUCIDATION. In the left hand or debit column of the Cash account, we enter every sum of money received ; and in the right hand, or credit column, every sum of money paid. We find the cash received amounts to 15,590 And the cash paid, or disbursed, to 11,450 Consequently the cash in hand is 4,140 In the left hand, or debit column of the Bills Receivable account, we enter the amount of every bill received ; and in the right hand, or credit column, the amount of every bill disposed of. In this case we find that the Amount of bills received is 16,300 Amount of bills disposed of is 3,100 Consequently the amount of bills in hand is 12,200 In the right hand, or credit column of BiUs Payable account, we enter the 41 amount of every bill issued ; and in the left hand, or debit column, the amount of every bill redeemed, or retired from circulation. "We find the amount of bills issued is 7»100 And the amount of the bills redeemed is .... 6,01)0 Consequently the bills outstanding amount to 2,100 In the debit column of Harrison & Co.^s account we have entered every sum for which they are accountable to us ; and in the credit column, every sum for which we are accountable to them. We find that we owe H. & Co 11,350 And they owe us 6,350 Consequently the balance due to H. & Co. is 5,000 ,In the left hand column of the Merchandise account, we enter every sum expended in the purchase of goods ; and in the right hand, or credit column, all the returns or sales. The returns amount to 19,900 The outlay or cost is 18,400 Consequently the result is a gain of 1,500 All financial transactions whatever, are comprised in cash receipts and pay- ments, — bills received and disposed of, — bills issued and redeemed, — debts re- ceivable and payable, i. e. debts due to and by our correspondents, — outlay and returns. There are appropriate headings in the Ledger, termed accounts, under which to place the respective items relating to each department of the business ; and when the design of these accounts is once familiar to the learner, the details and technicalities of book-keeping will be readily comprehended. 42 Asa general rule, every account of Merchandise mu&t contain on .he Dr. side, \st, the value of the article on hand at the time of opening the books ; 2dly, the value of all that is purchased from time to time ; ^dly, all charges connected with its cost: — and, on the Cr. side, 1*/, the value of what is sold; 2dhj, the value of what is unsold, or on hand, at balancing ; and Mly, all other returns, such as drawbacks, bounties, and the like. Accounts of houses, lands, &c., contain on the Dr. side the value of the property at the time of opening the books, together with the amount paid for repairs, taxes, and improTrr. Merchandise. Cr. 1 18,000— 6,000 3,000 8,000 2,000 20.500— 6,000 4,000 9,000 1,500 Dr. Cash. Cr. I ss.ooo— 6,000 6,000 9,000 2,000 11,000— 8,000 1,000 1,600 500 ; Dr. Ja ME S ]> TlCHOL s. Cr. U.500— 4,000 1,000 1,600 7,000 12,000— 3,000 2,000 4,000 3,000 50 EXPLANATORY REMARKS. We have shown in P A k t L, that, by the scheme of double entry, the ledger contains two distinct histories of the merchant's assets and Habilities: namely, 1. A record of the whole capital collectively; 2. A record of each of its constituent parts. In the progress of business the transactions are classified and arranged con- formably to the above scheme, each item being entered under the respective head to which it belongs. Hence the state of any particular accoiuit as well as the general result may, at any given period, be readily ascertained. The following is an analysis of ledger I. — 1. Merchandise. 2. Cash. 3. J. Nichols. Returns, 20,600 Receipts, 22,000 Owes me, 13,500 Outlay, 18,000 Payments, 11,000 I owe him, 12,000 Gain, 2,500 In hand, 11,000 Balance, 1,500 The assets, deducting the habilities, can be nothing more or less than a substitute for the original capital, increased by the gains, or decreased by the losses; thus — I. Assets. Cash, in hand, 11,000 J. Nichols, owes me, 1,500 Net Capital, 12,500 II. Stock. Capital, Commencing, 10,000 Uain, by Merchandise, 2,500 Net Capital, as before . 12,500 51 LEDGER 11. 1 Dr. Stock. Cr. 1 ; 1 1 1 1 10,000 50,000 Dr. Dr. Dr. Profit & Loss. 600—1 300 180 120 Cotton. 19,000- 10,000 7,600 1.600 Cr. Cr. 17,000— 8,000 3,000 6,000 Sugar. Cr, l_. 18.000— 12,000 6,300 700 15.000— The sugar tintold is valued at £%800. 9,000 2,600 3,600 52 LEDGER 11.— Continued Dr. Cash. Cr. 1 1 1 i 41.400— 15,000 6,000 17,000 4,400 (' 13,000— 1 8,600 1,800 1,600 1,000 Dr. Bills Receivable. Cr. 1 18,000^ 9,000 6,000 4,000 9,000— 5,000 1,600 2,600 1 1 Dr. Bills Payable. Cr. 1 1 11,000— 8,000 '1,700 1,300 IS.OOO- 10,000 1,000 2,000 Dr. i William Thomson. Cr. 6,000— 4,000 160 1,860 7,000— 3,000 2,000 2,000 53 ANALYSIS OF LEDGER IL 1. Cash. Receipts 41,400 Payments 13,000 Cash in hand. 28,400 4. William Thompson. 1 owe him 7,000 He owes me 6 000 Balance due W T. 1,000 2. Bills Receivable. 3. BUls Payable Issued 13,000 9,000 Redeemed ••••••••• 11,000 Bills unpaid 6. Sugar. Amount of sales . . . Sugar on hand* . . . Cost Loss by Sugar Bills in hand 9,000 . 2,000 5. Cotton. Amount of sales . . . , Cotton on hand* . . . , . 17,000 , 4,000 . 16,000 . 2,800 Deduct cost 21,000 , 19,000 . 2.000 17,800 . 18,000 Gain by Cotton 200 —Assets. — Cash 28,400 Bills Receivable 9,000 Cotton 4.000 Sugar 2,800 — Liabilities. — Bills Payable 2,000 W.Thompson 1,000 Present worth 41,200 Totalassets 44,200 Equilibrium 44,200 — Losses. — On Sugar 200 Posted to P. & L 600 Total loss 800 — Gains. — By Cotton 2,000 Deduct loss 800 Net gain. 1,200 Net capital commencing , 40,000 Add subsequent gain 1 ,200 Present worth, as before 41,200 * The value of the property unsold must in all cases of this nature be added to the sales ; the diflFereno* between the two sides of the account will then shew the gain or loss on the investment. 54 LEDGER 111. Dr. Stock. Cr. 9,000 » 50,000 Dr. Profit & Loss. Cr. 376 400 125 200 250 150 1,250— 600 875— 126 Dr. Merchandise, Cr. 1 7,000 10,000 8,000 1,600 1,000 1,260 4,000 2,160 22,000— 2,000 16.000— Th« Goods unsold are valued at £8,375. 1,100 Dr. Ship Nelson. Cr, 15,000 3,000 1,200 1,500 17,500— 1,300 6.500— The Ship Nelson is unsold and 1,000 valued at £16, mm. 55 LEDGER in.— Continued. Dr. Cash. 34.000— 18,(XX) 6,000 6,000 1,250 3,760 Cr. 19.375— 7,000 6,376 1,000 2,500 2,600 Dr. BiiiLs Receivable. Or. 28,600— 5,000 10,000 6,600 3,400 4,600 18,000- 8,000 2,000 1,100 6,900 1,000 Dr. Bills Payable. Cr. 11,000- 6,000 2,600 1,600 1,000 15.600— 1,000 9,000 2,000 3,600 Dr. James Harvey. Cr. 7.000— 1,000 600 1,500 2,600 1,400 1 8,000— 500 1,600 1,600 1,400 3,000 56 LEDGER III.— Cnntimied. Dr. William Brown. Cr. — ! 3,000 1,600, . 1,600 5001 900 1,000 700 1,800 6,400— 300 5,000— ] 200 Dr. Thomas Jones. Cr. 2,000 1,600 1,600 1.400 1,400 2,500 1,600 1,500 8.000— 1,500 8,400— 1 1,-100 Dr. Robert Morris. Cr. ' 4,600 3,000 1,400 1,000 3,250 4,(i00 11,000— 1,750 9,000 — 400 ' *^* Required a statement of the assets and liabilities, the gain or loss, and the present net capital. Ms. Assets, £53,000; Liabilities, JeG.OOO; Net gain, je6,000; Present worth, or net capital, £47,000. 57 ANALYSIS OF LEDGER J II. 1. Cash. Received 34,000 Paid 19,375 In hand 14,625 2. Bills Receivable. Received 28,600 Disposed of 18,000 In hand 10,600 3. Bills Payable. Issued 15,600 Redeemed 11,000 Outstanding 4,600 4. Jamrs Harvey. I owe him 8,000 He owes me 7,000 Due to J. H. 1,000 5. William Brown, He owes me 6,400 I owe him 5,000 DuebyW. B 1,400 6. Thomas Jones. I owe him 8,400 He owes me 8,000 Due by T. J 400 8. Robert Mortis He owes me 1 1,000 I owe him 9,000 DuebyR.M 2,000 Memorandum. Goods unsold, value d at 8 .S',b Ship, unsold, valued at 16,00€ 58 The results of foregoing accounts, together with the property unsold, consti- tute the assets and liabilities at the time of balancing. The surplus is the present net capital ; thus : — Assets. — Cash in hand 14,625 Bills in hand 10,600 W. Brown . . owes 1,400 R. Morns . . owes . 2,000 Goods unsold* 8,375 Ship unsold* 16,000 — Liabilities. — Bills outstanding 4,600 J. Harvey due to 1,000 T. Jones due to 400 Total liabilities 6,000 Net capital 47,000 Total assets 53,000 EquiUbrium 53,000 In order to prove the accuracy of this statement, we next proceed to analyse the other class of accounts ; the design of which is to show the gains and losses on the business, and by adding the net gain to the original capital, we ascertain the present net capital as before. (See page 7? Part I.) The result of all accounts which consist of outlay and returns, must be either gain or loss. 8. Merchandise. Returns 16,000 Unsold, and valued at* 8,375 24,375 Outlay, or cost 22,000 Gam 2,376 9. Ship Nelson. Returns 5,500 Unsold, and valued at* 16,000 21,500 Outlay, or cost 17,500 Gain 4,000 * These items iWay be considered as anticipated returns, and in all such cases they constitute the balance of the account. 59 When the gains or losses are collected, the result is as follows : — — Losses. — — Uums. — A.m'. posted to P. & L 1^50 Am', posted to P. & L 875 By Merchandise 2,375 et gain 6,000 By Ship Nelson 4,000 7,250 7,250 Capital commencing* 41,000 N(,tgaint .- 6,000 Piesent worth, or net capital, as bef( le c 47,000 • 50,000 — 9,000 = 41.«*a t 7,250— U'5'J = 6,000. 60 LEDGER IV. Dr. Stock. Or. 25,000 76,000 Dr. Profit & Loss. Cr. ».900— 1,300 1,500 1,100 600— 1,000 600 2,000 Dr. Commission. Cr. 637- 237 100 300 Dr. Charges. Cr. 6.575— 1,300 1,167 1,143 1,375 1,600 5,225- 1,100 1,150 600 1,270 1,106 61 LEDGER lY.— Continued. Dr. 1 Merchandise. Cr. 1 8,600 1,700 1 1 1,260 1,800 > i 9,750 8,300 500 1,200 1,000 6,000 1,600 4,600 30,600— 8,000 32,600— 10,000 Dr. Ship Nero. Cr. 16,000 6,000 16,450— 1,460 8,000— The thlp !• nntold. and Talaed at £15.000. 3,000 Dr. Adventure to Halifax. Cr. 6,300 As no returns hare been rec'd from this adventure, it ii valued at coet. Dr. Sales op Consignments. Cr. 1,260 2,000 8,260 7,600 600 1,600 1,600 1,140 13.500— 1,900 13,500— 1,360 62 LEDGER lY. -^Continued. Dr. Cash. Or, 1 i 30,000 4,000 2,600 3,000 1 8,000 6,100 ( 1,200 6,000 50,000— 8,300 41,000- 2,900 Dr. Bills Receivable. Cr. 3,700 i 3,600 6,000 i 4,000 1 2,900 1 1,700 1,700 200 17.800— 3,900 10.400— 1,000 Dr. Bills Payable. Cr. 4,000 8,000 3,600 3,600 1,600 8,013 2,600 7,500 ■ 19,513— 8,013 31,586— 4,613 Dr. Brown & Brothers. Cr. 6,000 5,000 1,300 4,500 4,000 1,000 2,700 4,000 2,500 6,000 17.500— 1,000 21,000— 1,500 63 LEDGER IV.— Continued. Dr. John Taylor. Or. 1,800 7,000 i 3,900 1,800 : 2,300 900 13,700— ' 6,700 12.700— 3,000 Dr. Samuel Johnson. Cr. 1 1 3,000 5,000 4,000 3,000 7,000 4,000 1,650 1,250 16.550— 1,000 14.550— 1,300 Br. Peterson & Co. Cr. 4,000 1,900 5,000 4,000 5,900 3,500 1,100 1,600 18,550— 2,550 12.450— 1,650 Dr. Thomas Fyfe. Cr. 1,000 1 1,500 1,950 i,460 1,150 3,000 6.100— 1 2,000 7,050— 1,100 1 64 LEDGER lY.— Continued. 1 1 Edward Russell. Cr. — 6,000 4,000 4,000 3,000 6,300 2,300 15.300— 1,000 ! 15.600— 6,300 Dr. Jackson & Homer. Cr. 1 4,000 1,000 4,200 1,100 1,000 4,000 6,000 3,760 20.450— 6,260 12,350— 2,500 1 The assets, as exhibited in Ledger IV., amount to £74,300; the debts or liabilities to £16,763; — the difference, £57,537, is the net capital. The gains, including the total sum posted to 'Profit & Loss,^ amount to £12,787 ; and the losses, including the total posted as before, amount to £5,250. I'lie dif- ference, £7,537, is the net gain, which must be transferred to 'Stock.' In analysing the accounts which compose ledger IV. we have supposed the gootfs to have been all sold or otherwise disposed ofj consequently the difference between the two sides of 'Merchandise,' shows the gain or loss resulting from the transactions which are classed under this head. The ship is unsold, and valued at cost, £15,000, which sum must therefore be added to the Cr. side of the account, and also placed with the assets 65 ANALYSIS OF LEDGER IV. [Pages 60_C-4, Part II. ] [n the present instance we commence our analysis with that class of accounts which consists of outlay and returns, and thus ascertain the net capital abstractedly ^ tliat is, without reference to its constituent parts. 1. Charges. Outlay 6,575 Returns 5,225 Result, loss 1,350 3. Ship Nero. Returns 8,000 Present value 15,000 23,000 Outlay 16,450 ResiUt, gain 6,550 2. Merchandise. Returns 32,600 Outlay 30,600 Result, gain 2,000 4. Commission. Result, gain 637 Gross capital at the outset 75,000 Less, liabilities 25,000 Net capital, commencing 60,000 The Stock account is a mere abstract record of the state of the concern on opening and closing the books ; and exhibits neither outlay nor returns. 66 The result, then, of this division* of the accounts is as follows : — — Losses. — Am«. posted to P. & L 3,900 Charges 1,350 6,250 Net gaint 7,637 12,787 — Gains. — Am', posted to P. & L 3,600 By Merchandise 2,000 By Ship Nero 6,550 By Commission 637 12,787 Capital commencingj 60,000 Add net gain, as above 7j637 Present net capital 67,537 The next step in our investigation is to analyse that class of the accounts which exhibits assets and liabilities ; that is, tlie component parts of the capital. 1. Cask. Recei\ ed 60,000 Paid 21,000 In hand 29,000 3. Bills Payable. Issued 31,626 Redeemed ... 19,613 Outstanding 12,013 2. Bills Receivable. Received 17,200 Disposed of 10,400 In hand 6,800 4. Brown ^ Brothers. I owe them 21,000 They owe me 17,600 Due to B. & B 3,600 * The Ledger, in fact, contains a double set of accounts. Each set is composed of the very same items; but they are differently arranged : thus, one set consists of outlay and returns, and the result is either gain .rJoss. The other set exhibits assets and liabilities. The Dr. side of one class of the accounts is composed ol the same items as the Cr. side of the other, and vice versa. t 75,000 — ^5,000 = 50,000. + 12,787 — 5,250 = 7,537. 5. John Taylor, He owes me 13,700 I oyi^ him 12,700 6. SamueUohnson. He owes me 1(5,550 I owe him 14,650 DuebyJ.T 1,000 Due by S. J 2,000 7. Peterson 4" Co. They owe me 18,550 I owe them 12,450 Due by P. & Co 6,100 8. Thomas Fyfe. I owe him 7,050 He owes me 6,100 DuetoT. F 950 9. Edward Russell. I owe him 15,600 He owes me 15,300 Due to E. R. 300 10. Jackson Sf Homer. They owe me 20,450 I owe them 12,350 Due by J. & H. 8,100 —Assets. — 1. Cash in hand 29,000 2. Bill's in hand 6,800 5. J. Taylor owes 1,000 6. S. Johnson owes 2,000 7- Peterson & Co owe 6,100 10. Jackson & Homer . . owe 8,100 Advr. to Halifax cost of 6,300 Ship Nero value of .... 15,000 74,300 — Liabilities. — 3. Bills outstanding 12,013 4. Brown & Brother. . due to 3,500 8. Thomas Fyfe ... due to 950 9. Edward Russell . . due to 300 74,300 16,763 vjar Net capital 16,763 57,537 74,30n 68 EXERCISES FOR PRACTICE. The following questions are designed to exercise the learner still further in ana- lysing and investigating accounts, preparatory to his commencing with the details and arrangement of the subsidiary books. It is not necessary for him to arrange the items in the ledger form; but merely to ascertain the result upon a slate, in the same manner that questions in ai'ithmetic are performed. 1. A merchant commences business with a capital of £10,000. His purchases of merchandise amount to £18,000; and the sales to £20,500. The receipts of cash amount to £22,000; and the payments to £11,000. J. Nichols owes him £13,500; and he owes J. Nichols £12,000. — Required a statement of his assets, his gains and losses, and his present net capital. 2. A merchant's assets on commencing business amount to £50,000 ; and his lia- bilities to £10,000. His purchases of cotton amount to £19,000; and the sales to £17,000 ; and the cotton unsold is valued at £4,000. His purchases of sugar amount to £1S,000; and the sales to £15,000; and the sugar unsold is valued at £2,800. His outlay for charges, salaries, and the like, is £600. The receipts of cash amount to £41,400; and the payments to £13,000. The bills received amount to £18,000; and those disposed of to £9,000. The bills issued by him amount to £13,000; and he has redeemed bills to the amount of £11,000. He owes W. Thomson £7,000; and Thomson owes him £6,000. — Required his present worth. 3. The D7\ side of Stock in a merchant's ledger, on commencing busuiess, amounts to £9,000 ; and the Cr. side to £50,000. The Dr. side of Profit & Loss, at the time of adjusting his books, amounts to £1,250; and the Cr. side to £875. The Dr. side 69 of Merchandise amounts to £22^000; and the Cr. side to £16,000; the goods on hand are valued at £8,375. The Dr. side of Ship Nelson's account is £l 7,500; and the Cr. side £5,500 ; the Ship Nelson is unsold and valued at £16,000. The Dr. side of Cash amounts to £34,000; and the Cr. side to £19,375. The Dr. side of Bills Receivable amounts to £28,600; and the Cr. side to £18,000. The Dr. side of Bills Payable amounts to £11,000; and the Cr. side to £15,600. The Dr. side of J. Harvey's account is £7,000 ; and the Cr. side £8,000. The Dr. side of W. Brown's account is £6,400 ; and the Cr. side £5,000. The Dr. side of T. Jones's account is £8,000 ; and the Cr. side is £8,400. The Dr. side of R. Morris's account is £11,000; and the Cr. side £9,000. — Required a statement of the assets and liabilitieSf the gains and losses, and the merchants present net capital. 4. A merchant's property on commencing business amounts to £75,000 ; and his debts to £25,000. The result of his several transactions is as follows : namely, his purchases of merchandise amount to £30,000 ; and the sales to £32,000. The cost and outlay for ship Nero is £16,450; and the returns £8,000; the ship is unsold and valued at cost, £15,000. He ships goods as an adventure to Halifax, the cost and charges amounting to £6,300. His receipts of cash amount to £50,000 ; and the dis- bursements to £21,000. The bills received from his correspondents amount to £]7..200; and those disposed of to £10,400. He has issued or accepted bills to the amount of £31,526; and the amount of such bills as have been redeemed or retired from circulation, is £19,513. Brown & Co. owe him £17,500; and he owes them £21,000. J. Taylor is indebted to him £3,000; and he owes Taylor £2,000. S. Johnson owes him £6,000; and he is indebted to Johnson £4,000. Peterson & Co. owe him £8,500 ; and he owes them £2,400. He owes T. Fyfe £950. Jackson & Co. owe him £8,100; and he owes E. Russell £300. His gains as a factor amount to £637 ; and his outlay for rents, clerks' salaries, postages, &c. amounts to £1,650. — Required the present amount of his assets and liabilities, his gains and losses, and his net capital. For answers to these questions, see pages 50, 53, 57, and 67' In the last example the totals are different from the accounts in ledger IV.; but the result is the same. ^0 5. A merchant commences business with a capital of £10,000. His purchases of merchandise amount to £24,844.10.0; and the sales to £16,130.7.0. The receipts of cash amount to £19,127-0.0; and the disbursements to £16,197-18.9. The bills re- ceived amount to £6,302.0.0; and the bills disposed of to £4,552.0.0. The bills issued or accepted amount to £9,890.0.0; and the bills redeemed to £5,890.0.0. J. Andrews & Co. owe him £7,575.0.0; and he owes them £7,662.0.0. W. Smith owes him £1,500.0.0; and he owes Smith £2,135.0.0. Bird & Beardsley owe him £890.0.0 ; and he owes them £3,090.0.0. B. Canfield owes him £1,509.2.0 ; and he owes Canfield £745.0.0. J. Harris owes him £1,885.0.0; and he owes Hanis £1,220.0.0. C. Drummond owes him £1,338.0.0 ; and he owes Drummond £1,052.0.0- E. Ford owes him £805.15.0; and he owes Ford £650.0.0. J. Thomson & Son owe him £1,566.10.0 ; and he owes them £204.0.0. His outlay for rent, postages, salaries, &c., is £295.8.9. The merchandise unsold is valued, at the time of balancing the books, at £11,714.3.0. — Required a statement of his assets and liabilities, his gains and losses, and his present worth. — Ans. Assets, £19,626.11.3 ; liabilities, £6,922 : gains, £3,000 ; losses, £295.8.9: present worth, £12,704.11.3. 6. A merchant's net capital, on commencing business, is £15,000. On balancing his books, 31st January, he finds that his purchases of goods amount to £14,036.12.0 ; and the sales to £11,073.9.0. The receipts of cash amount to £17,663.6.3; and the disbursements to £9,465.5.1. The bills received amount to £6,128.14.0 ; and the bills disposed of to £2,572.3.7. The bills which he has issued amount to £5,884.8.9 ; and of those bills he has paid, or retired from circulation, to the amount of £884.8.9. C. Hammond owes him £8,936.7.5 ; and he owes Hammond £9,122.0.2. Bruce & Co. owe him £3,526.10.0 ; and he owes them £1,978.4.5- James Peters owes him £1,246.9.7 ; and he owes Peters £350.2.2. Buchanan & Co. owe him £3,438.5.0 ; and he owes them £78.2.5. G. Smith owes him £2,853.3.6 ; and he owes Smith £3,820.6.7. The merchandise on hand amounts, as ^ inventory, to £5,786. He has expended for clerks' salaries, rents, and the like, £1,267-12.9 ; and he has received for factorage, £637. 7-1' — Required his present worth. Ans. £l75l92.11.4. The assets, in example 6, amount to £23,345.7-2 ; and the habilities to £6,152.15.10. The gains amount to £3,460.4.1 ; and the losses to £1,267.12.9. 71 7. The Dr. side of Stock account^ in a merchant's books on commencing busmess, is £12,000 J and the Cr. side £42,000. In adjusting his affairs at the end of the year the result of his transactions is as follows : — ^The I>r. side of Csish account is £34,474; and the Cr. side £22,860.5.0. The Dr. side of Bills Receivable is £18,537.19.9; and the Cr. side £13,000. The Dr. side of BiUs Payable is £5,900; and the Cr. side £8,400. The Dr. side of AUen & Co.'s account is £1,443.10.0; and the Cr. side £l,000. The Dr. side of Henry & Son's account is £1,500; and the Cr. side £1,441.6.6. The Dr. side of S. Homer's account is £2,073.12.0; and the Cr. side is £1,200. The Dr. side of W. Watson's account is £2,373.18.0; and the Cr. side £,1500. The Dr. side of J. Robert's account is £4,218.15.0; and the Cr. side £3,500. The Dr. side of W. James' account is £4,047.10.0 ; and the Cr. side £4,000. The Dr. side of T. Brown's accoimt is £2,647.10.0 ; and the Cr. side £1,900. The Dr. side of WiUiams & Co.'s account is £2,531.5.0; and the Cr. side of E. Smith's account is £131.6.0. The Dr. side of Hope & Son's accoimt is £4,503.2.0; and the Cr. side is £2,114.11.8. The Cr. side of Brown & Go's account is £291.3.9. The Dr. side of Ship Hector's account is £9,250 ; the Cr. side £2,000 ; and the ship is unsold, and valued at £9,000. The Dr. side of Merchandise account is £10,114.11.8; the Cr. side £9,630.1.9; and the Merchandise unsold is valued at £1,500. The Dr. side of Three f- cent Consols is £9,012 ; and the Cr. side £9,437. The Dr. side of the Profit & Loss account is £2,787.16.6 ; and the Cr. side is £2,529.15.3. The Dr. side of Adventure to New York is £1,520; and the Or. side £2,000. — Required a state- ment of his assets and liabilities, his gains and losses, and his present net capital, or real worth. Ans. Total amount of assets, £36,334.18.7 J amount of liabilities, £2,922.9.9. Total amount of losses, £2,787.16.6; and gains, £6,200.5.4. Net capital, or present worth, £33,412.8.10. 72 The theory and practice of book-keeping have been fully discussed m the preceding pages. The following recapitulation, however, may assist the learner, and serve to fix the principles of the science more firmly in the mind. It is but a repetition, in a more concise form, of the reasoning contained in Part I. The original capital, plus the gain or minus the loss, is equal to the present capital, which present capital consists of the excess of assets over the liabilities. This may be demonstrated as follows : — Let A = the original Capital, B = the Gain or Loss, C = the present Capital D = the gross Assets, E = the Liabilities. Then A + B = C, which equals D — E, therefore D = C + E. It is self-evident that the surplus property, at the time of closing the books, is equal to the original capital, increased by the gain, or decreased by the loss ; and this can be neither more nor less than the difference between the assets and liabilities. For whether the capital increase, diminish, or remain stationary, it must always be equal to the sum of its parts. Gains increase, and losses decrease, the capital ; they also increase or decrease the assets in the same proportion ; so that an equilibrium is maintained between the whole and its parts, under every variation or transformation that can occur. The accounts in the Ledger, denominated " Stock," and " Balance," are but different views of the same thing — one being the converse of the other. The first exhibits the value of the whole capital collectively ; the second its component parts. If, therefore, an extract be made of the latter, the two results must agree : in this equality consists the great proof of book-keeping. DOUBLE ENTRY ELUCIDATED. PART III. PRACTICAL EXEMPLIFICATIONS MEMORANDUMS OF TRANSACTIONS, INLAND AND FOREIGN TRADE. For the purpose of instruction it has been found expedient to arrange the transactions promiscuously in the order of dates, in what may be termed a waste- book. It would be a useful exercise for the learner to construct the subsidiary- books from these materials, agreeably to the exemplifications in Section II. page 12, by entering the receipts and payments in a cash-book; the bill transactions in a bill-book; the purchases and sales in a day-book; and then journalize monthly from these subordinate books. This, however, is not very important, as the journal may easily be composed from the memorandums of transactions as they stand in the printed work. It must be borne in mind that while the plan and arrangement of accounts in the ledger are the same throughout the commercial world, the form and details of the primary books, as well as the journal, are varied in every instance to suit the particular business in which the merchant is engaged. "The mcst difficult task in introducing the system of double entry," says Sir Henry Parnell, "consists in arranging the number and form of the subsidiary-books, and in I. 74 making a proper condensation of details so as to avoid repetition, and the over- loading the journal and ledger. Although the business of keeping books is extremely easy, when once the accounts are properly arranged, yet the adaptation of the principles of double entry to extensive and complicated transactions, so as to secure the full benefit of the system, is a process which requires the most com- plete knowledge, not only of the practice, but of the science, of book-keeping. In point of fact, among the great number of persons who have acquired the reputation of being good accountants, there are very few who possess that peculiar skill, and those general and enlarged views of the subject, which are indispensably necessary for so dividing, classifying, and arranging a multitude of transactions, as to frame a complete system of accounts." "Too much care cannot be bestowed in the preparation of the subsidiary books. This first step is an indispensable auxiliary not only to the system of double entry, but also to the proper working of the business of any office. It is particularly important that this point should be well understood, because most of the prejudices of those who are unfavourable to double entry, rest upon a very superficial study of this part of the system. They fancy that double entry cannot exist without invoice-books, sales-books, books of shipments, and the like, for- getting that the same subsidiary books are scarcely applicable to two diflferent branches of trade. The subsidiary books of a broker are different from those of a wine merchant, and these again differ from the subsidiary books of a general trader ; every merchant adapting them to his own particular wants, or the nature of the business to be transacted, without affecting the general principles. It is impossible to give specific instructions as to the number and classification of the subsidiary-books, but a few general rules may be enumerated as essential to be attended to in conducting this part of the undertaking. They should be framed in the first place in reference to the bulk of the details to be recorded, and to the sub-division of the business in the department ; a second object should be to secure as far as practicable a classification of entries, so that the monthly totals only may be carried to the ledger ; and a third, to frame them in harmony with the principal ')ooks/' — Report on the Public Accounts. 75 In Set I. the merchant is supposed to commence business with a cash capital of £10,000, and the books are opened by simply debiting Cash to Stock for that amount. The transactions in this Set are of a simple nature, being chiefly confined to purchases, sales, receipts, payments, drawing and accepting bills and the like. The entries in the ledger relate, 1st, To the state of the concern at the time of opening the books ; 2nd, To the things received and delivered ; 3rd, To the persons from whom they are received or to whom delivered ; and 4th, To the things unsold at the time the accounts are adjusted. Hence the following general rule for journalizing : — The RECIPIENT Account is always debtor to the imparting Account ; in other words, the thing received is debtor to the thing delivered. The Stock Account is simply a statement of the original capital. It is credited on opening the books for the total amount of the merchant's property, and debited for what he owes. The Cash Account is simply a statement of the receipts and payments of money. It is debited for all cash received, and credited for all disbursements of money. The Bills Receivable Account is simply a statement of the bills received and disposed of. It is debited for the amount of other men's bills that come into your possession, and credited for the same when disposed of. The Bills Payable Account is simply a statement of the bills issued and 76 redeemed. It is credited for the amount of all bills for the payment of which vou are liable, and debited for the same when redeemed or retired from circulation. An Account of Property is simply a statement of its cost and returns. It is debited for the original cost and all charges connected with its cost, and credited for the sales or other returns. An Account of a Person is simply a statement of what he owes you and what you owe him. It is debited when he is accountable to you, and credited when you are accountable to him. When a clear, definite knowledge of the principles of accounts, as developed in tlie ledger, is attained, the details of the journal and the subordinate books will be r(>adily comprehended. Book-keeping, like all other arts, can only be mastered by industry, perseverance, and attention. The learner must think for himself, and endeavour to understand the why and wherefore of all that he does, instead of resting satisfied with vague notions and words devoid of sense. The study of book-keeping aflfbrds an excellent means of intellectual discipline : that is, when its principles are exhibited, as well as their application — when the reasoning powers are called into exercise, as well as the memory. The student who has carefully attended to the instructions, and who is the master and hot the slave of rules, will experience no difficulty in unravelling or adjusting any set of accounts, however complicated or diversified. The following directions for monthly journalizing will enable the learner to classify and arrange the entries in a proper manner : — 11 Cash is debited for all moneys received, and credited for all moneys [)aiJ, therefore, to journalize the cash transactions for the month, say — CASH Dr. to SUNDRIES, For the receipts ; SUNt)RIES Dr. to CASH, For the disbursements.* The general account of Merchandise is debited for the cost of goods purchased, and credited for the sales or returns : therefore, say — MERCHANDISE Dr. to SUNDRIES, For the purchases ; SUNDRIES Dr. to MERCHANDISE For the sales or returns. The account entitled Bills Receivable is debited for all bills received, and Bills Payable is credited for all bills issued or accepted by yourself; therefore, say — BILLS RECEIVABLE Dr. to SUNDRIES, For the bills received ; SUNDRIES Dr. to BILLS PAYABLE, For the bills accepted. • See pages 13 to 15, for illustrations of monthly journalizing. 78 When cash has been received or paid more than once upon the same account during the month, the sums are short-extended in the journal, the total only being posted to the ledger. The same rule applies to purchases, sales, acceptances, &c. See illustrations, pages 13—17. To facilitate the process of journalizing, fold a sheet of paper, and after writing the several heads as under, commence with the first transaction in the month, and arrange the items by means of the dates .: thus — Cash Dr. to Sundries. To Stock 1st. To J. Harris 14th. To E.Ford 24th. To B. Canfield 2gth. To Merchandise 31st. January, 1847- Merchandise Dr. to Sundries. To Andrews & Co 1st, 21st. To William Smith 4th, 24th. To Bird & Beardsley 8th, 17th. To Bills Payable 30th. Sundries Dr. to Cash. Merchandise 3rd. Charges 11th. Andrews & Co 14th. W. Smith 28th. Sundries Dr. to Merchandise. Thomas Hams lith, 16th, 19th. B. Canfield 10th, 15th, 22nd. Edward Ford . . 12th, 18th, 23rd, 31st. C. Drummond 25th. Bills Receivable 29th. A similar index should be prepared at the end of each month, by means of which the book-keeper is enabled to combine and classify the entries with facility. The title to a journal entry always has reference to the manner of entering the items in the ledger. For example, in posting the cash entries we turn to the cash account, and write on the debtor side, * To Sundries, for the total sum received during the month.' We next turn to the accounts of Stock, Harris, &c. which are to be credited, and write ' By Cash,' each for its respective sum. SET I. MEMORANDUMS OF TRANSACTIONS, INLAND TRADE. Jitf ABBREVIATIONS. The following abbreviations are used in Merchant's accounts : — B. P. for bill of parcels ; C. B, cash-book ; B. B. bill-book ; T. B. invoice-book ; [). B. day-book ; S. B. sales- book ; P. C. B. petty-cash-book ; — Bot. for bought ; 1/ds. for yards ; pes. for pieces ; — Hhds. for hogsheads ; Bbls. for barrels ; — Gns. for gallons ; qts. for quarts ; pts. for pints ; gro. for grpss ; ea. for each ; @ for at ; •^ for per; fol. for folio; cv}t. qrs. lb. oz. for hundred weight, quarters, pounds, and ounces. N/P. for net-proceeds ; A/S. for account-sales ; J/A. for joint account. Shillings are expressed by an oblique line, thus 10/, and per cent, thus ^Vq. In bill transactions djd is used for days-date, and mo. for months. \ 81 SET I.— INLAND TRADE. MEMORANDUMS OF TRANSACTIONS. January 1, iS47. I Commenced business this day, with a cash Capital of, | 10,000 Bought of James Andrews & Co. Goods amounting, 1^ B. P. to. Paid for Goods bought this day. Cash, as ^ C. B., '.. Bought of William Smith, Goods amounting, "^ B. P. to. Bought of Bird & Beardsley, 25 pieces Cassimere, as ^ B. P., 10 Sold Benjamin Canfield, 1 piece Cassimere, 29 yds. 10/, 11 Sold Thomas Harris, 2 pieces Blue Cloth, 66 yds @ 20/ , Paid for Shop Fixtures, &c. In Cash, f- C. B. . . 3,600 1,760 1,500 850 14 56 50 10 82 January 12, 1847. Sold Edward Ford, 3 pieces Cassimere, 80 yds @ 10/ , 14 40 Paid James Andrews & Co., Cash, ^ C. B 1,500 Received from Thomas Harris, (3ash, on account, ^ C. B. 15 Sold Benjamin Canfield, 2 pieces Casssimere, 66 yds @ 10/ , 16 Sold Thomas Harris, 8 pieces Cassimere, 200 yds (2), 15/ . 17 Bought of Bird & Beard sley, 1 Bale Cotton Sheetings, as f- B. P. 50 28 150 40 18- Sold Edward Ford, 2 pieces Cassimere, 58 yds @ 10/ , 2 . Blue Cloth, 48 yds @20/, . 29.0.0 , 48.0.0 19 Sold Thomas Harris, 20 pieces Black Cloth, 500 yds @ 30/ , 20 « Blue do. 480 yds @ 20/ , 750.0.0 480.0.0 1,230 21 Bought of James Andrews & Co., Goods amounting, as 1^ Invoice, to, 2,500 S3 January 22, 1847. Sold Benjamin Canfield, 60 pieces Cotton Sheetings, @ 20/. 23 Sold Edward Ford, 5 pieces Black Cloth, 140 yds @ 10/ 70.0.0 5 . Blue do. 125 » @ 8/ 60.0.0 5 . Brown do. 105 « @ 5/ 26.5.0 5 . Cassimere, 130 . @ 4/ 26.0.0 Bought of William Smith, Goods, as ^ Invoice, ■24 Received from Edward Ford, Cash, on account, "^ C. B. 26 Sold Charles Drummond, 6 pieces Black Cloth, 168 yds @ 24/ 201.12.0 8 , Blue do. 220 « @ 20/ 220. 0.0 8 . Brown do. 420 . @ 30/ 630. 0.0 Canvass, and racking, 8.0 ■28- Received from Benjamin Canfield, Cash, on account, "^ C. B. . . Paid William Smith, Cash, ^ C. B. •29- Sold James Robinson, a quantity of Goods, and received in payment his promissory note, at 90 days' date 60 172 560 150 1,052 20 500 1,350 84 January 30, 1847. Bought at public sale t lis day, 3 bales Broadcloth, for which I gave my acceptance, at 30 days' date 3,000 ■31 Sold Edward Ford, 12 pieces Black Cloth, 318 yd« @ 16/ 238.10.0 3 « Blue do. 126 @ 20/ 126. 0.0 364 10 31 Received for Goods, sold this day. Cash, ^ C. B 1,600 -February 1, 1847- Discounted bill No. 1, drawn bv James Bobinson, and received in Cash, 1,350 Paid discount on bill No. 1, as above. Sold J. Thomson & Son, 4 pieces Cassimere, 108 yds ® 10/. 64 Sold Benjamin Canfield, 6 pieces Black Cloth, 168 yds. 8 a Cassimere, 140 « ,20/ 168.0.0 , 10/ 70.0.0 238 Received from J. Thomson & Son, Cash in full, to date, 54 Accepted a bill, drawn by J. Andrews & Co., at 30 day's date 2,000 L_ 8S February 5, 1847. Sold for Cash, a quantity of merchandise, "^ S. B. 7 Sold J. Thomson & Son, 6 pieces Blue Cloth, 160 yds @ 24/. Received from Thomas Harris his acceptance in my favour, at 90 davs' date. No. 2, Allowed T. Harris in settlement this day, an abatement of 10 Bought of James Brown & Co., 20 pieces Black Cloth, 480 yds. @ 6/ i . . 120. 0.0 20 . Blue do. 600 • @ 10/ 250. 0.0 20 « Brown do. 460 , @ 16/ 337.10.0 Received from J. Thomson & Son, Cash, f- draft on Hill, 11 1,260 192 1,000 20 Discounted bill No. 2, Thomas Harris, and received in Cash, 707 150 1,000 10 Paid discount on bill No. 2, f- C. B., 12.0.0 « Sundry charges, f^ P. C. B., 13.0.0 25 14 Accepted Brown & Co.'s draft, payable 90 days from this date, in favour of Walter Johnson 500 86 February 15, 1847. Accepted William Smith's draft, in favour of T. Jones, at 60 days' date 16 Sold Benjamin Canfield, 15 pieces Blue Cloth, 420 yds @ 16/ 315.0.0 10 . Black do. 300 . @ 10/ 150.0.0 1,000 465 17- Received B. Canfield's acceptance, at 30 days' date 18 Sold John Thomson & Son, 10 pieces Black Cloth, 280 yds @ 20/ 280. 0.0 6 . Blue do. 160 . @ 30/ 240. 0.0 8 . Cassimere, 230 • @ 10/ 115.0.0 Canvass, and Packing, 10.0 150 635 10 Paid sundry charges, f- P. C. B. 19 Received from Edward Ford, his promissory note, payable 1 month from date ■24 Accepted Bird & Beardsley's draft, favour of H. Smith, payable 10 days from date Paid for goods bought this day. Cash, as f- C. B .25- ■26- Sold at pubUc sale, 10 bales Cloths and Cassimere, and received for the net proceeds, Brown & Sen's acceptance, at 3 months' date 15 500 890 1,600 1,750 87 Fbbruaky 27, 1847. Sold Benjamin Canfield, 2 pieces Brown Cloth, 56 yds @ 30/ 84.0.0 2 . Blue do. 55 . @ 20/ 55.0.0 ■28- Paid James Brown & Co. Cash, in full, Received fur Groods sold this day. Cash, as ^ C. B., Sold Edward Ford, 4 pieces Black Cloth, 110 yds @ 20/. Accepted a bill, drawn by J. Andrews & Co. in favour of themselves, at 30 days' date , Bought of Bird & Beardsley, Goods f- B. P., amounting to. March 1, 1847- Sold Thomas Harris, 2 pieces Broadcloth, 62 yds @ 30/ 52.0.0 2 . Cassimere, 56 • ©10/ 28.0.0 4 . Sheeting, @25/. 6.0.0 Received Charles Drummond's promissory note, at 60 days' date , Paid my acceptance. No. 1, due this day, 139 207 10 600 110 2,600 1,700 86 1,062 3,0OJ March 4, 1847. Received for bill No. 6, discounted. Cash, as If- C. B Paid discount on bill No. 6, f- C. B., Sold Thomas Harris, 2 pieces Cotton Sheeting, @ 25/ 2.10.0 6 , Black Broadcloth, 168 yds.. . @ 30/ 262. 0.0 4 . , Cassimere, 110 . ..©10/ 65.0.0 Bought of Bird & Beardsley, Goods as 1^ B. P., amounting to Received from Thomas Harris, • Cash, on account, 1^ C. B. Received from B. Canfield a draft at 10 days' sight, on Brown & Co., 8 1,062 Bought of James Andrevi's & Co. Goods as "^ B. P., amounting to Sold Benjamin Canfield, 6 pieces Blue Cloth, 158 yds @ 30/ 237.0.0 4 . Black do. 160 . @ 30/ 240.0.0 10 . Cotton Sheeting, @ 30/ 15.0.0 309 10 600 150 500 1,200 492 Sold Walter Jones a quantity of Cassimeres, and received in payment my acceptance in favour of J. Andrews & Co., 2,000 89 March 9, 1847. Paid James Andrews & Co., Cash, on account, "^ C. B., Paid my acceptance. No. 6, favour H. Smith, due this day, "^ C. B,, , — . 12 ' Bought of William Smith, 2 bales Cotton Sheeting, f- B. P., 13 Received for Goods sold. Cash, as "^ C. B., 15 Sold Benjamin Canfield, 10 pieces Cotton Sheeting, @ 20/ 10. 0.0 4 . Cassimere, 118 yds., @ 10/ 69.0.0 6 doz. Cotton Hose, @ 12/. 3.12.0 Paid sundry Charges, "^ Petty Cash-hook,. 18 — Received from B. Canfield, Cash, on account, '^ C. B., Bought of J. Andrews & Co., 1 bale Broadcloth, '^ B. P., 19 Paid for Goods purchased this day. Cash, as "^ C. B., 20 Received for bill No. 7, due this day. Cash, as 'i^ C. B., 21 600 890 75 176 72 25 75 462 5,000 600 12 Sold Charles Drummond, 8 pieces Cotton Sheeting, @ 25/ 10.0.0 6 « Broadcloth, 84 yds., @ 30/ 126.0.0 8 « Cassimere, 220 yds., @ 10/ 110.0.0 246 90 March 22, 1847. Received payment of the following bills in Cash, as "^ C. B., viz., No. 3, 150.0.0 No. 4, 600.0.0 25- Sold J Thomson & Son, 4 pieces Black Cloth, 112 yds., .... @ 30/ 168.0.0 8 . Blue do. 235 . ....@25/ 293.0.0 Paid J. Andrews & Co., Cash, on account, f- C. B., . 26 Sold Edward Ford, 3 pieces Black Cassimere, 84 vds-. @ 10/. 2V Sold Thomas Harris, 1 piece Blue Cloth, 28 yds., @ 30/ 42. 0.0 1 . Cassimere, 25 yds., @ 10/ 12.10.0 ■28- Sold Charles Drummond, 3 pieces Cassimere, 80 yds., @ 10/. _ 29 Sold J. Thomson & Son, 4 pieces Blue Cloth, 112 yds., @ 40/. Paid clerks' salaries, &c., as f- C. B., . Sold for Cash, Goods, f- P. C. B., 650 461 1,076 42 54 40 224 160 600 10 Jl^. 6. The Oooda on hand. Slst March, as ^Inventor}:, are valued at £11,714.3.0; which sam constitute* the balance of the Merchandise aeooont. >. JOURNAL.— SET I. REMARKS. Tub titles to the Journal entries, admit of but four varieties; as follows:— 1. When one account in the Ledger is to be debited, and another credited ; as. Cash Dr. to Merchandise. 2. "When one account is to be debited, and two or more accounts are to be credited ; as. Cash Dr. to Sundries 3. When two or more accounts are to be debited, and one account credited ; as, Sundries Dr. to Cash. 4- When two or more accoimts are to be debited, and two or more accounts credited ; jts. Sundries Dr. to Sundrtvs. 93 LONDON, JANUARY, 1847. Cash Dr. to Sundries To Stock 1st,. To Thomas Harris 14th,. To Edward Ford 24th,. To B. Canfield 28th,. To Merchandize 3 1st, . Sundries Dr. to Cash Merchandise 3rd,. Profit and Loss 1 1th,. J. Andrews and Co 14th,. WiUiam Smith 28th,. Sundries Dr. to Merchandise B. Canfield 10th,. . 15t.h,. . 22d,. . Thomas Harris. Edward Ford C. Drummond 25th,. Bills Receivable 29th,. 14 10 28 60 11th, 56 16th, 150 19th, 1,230 12th, 40 18th, 77 23rd, 172 5 31st, 364 10 Forward. —Drs.— 11,720 1,750 50 1,500 500 102 1,436 653 1,052 1,350 20,114 10 1 -Crg.— 10,000 50 150 20 1,500 3,800 4,594 20,114 5i 94 I 2 LONDON, JANUARY, 1847. 'Dra.- —Crs, Brot. forward. . Merchandise Dr. to Sundries. 20,114 11,950 To J. Andrews and Co 1st, 3,500 21st, 2,500 51 To William Smith 4th, 1,500 24th, 560 8th,. 17th,. To Bird and Beardsley . To Bills Payable 30th, 850 40 FEBRUARY, 1847. Cash D/. to Sundries To Bills Receivable 1st, 1,350 11th, 1,000 To J. Thompson and Son . . 2nd,. nth,. 54 150 To Merchandise 5th, 1,250 28th, 500 32,064 4,304 Sundries Dr. to Cash Profit and Loss 1st,. 11th,. 17th,. 1 7 3 25 15 Merchandise 25th,. J. Brown and Co 28th,. Forward. 41 1,500 207 20,114 6,000 2,060 890 3,000 32,064 6,052 17 3 6,05217 2,350 204 1,750 1,748 17 95 LONDON, FEBRUARY, 1847. Brot. forward. Merchandise Br. to Brown & Co For Invoice of Broadcloth 10th, Sundries Br. to Merchandise Thompson & Son 1st, 54 7th, 192 18th, 635 10 B. Canfield 2nd, 16th, 27th, Edward Ford 28th, 238 465 139 Sundries Br. to Bills Payable Andrews & Co 5th,. 28th,. 2,000 2,500 Brown & Co 14th,. William Smith 15th,. Bird & Beardsley 24th,. Profit & Loss Br. to Thomas Harris For ahatement allowed him . . 9th, —Brs.— 6,052 707 881 842 110 4,500 500 1,000 890 20 Forward i 15,503 10 —Crs. 6,052 707 1,833 17 10 10 6,890 17 20 15,503 0, 171 3 96 LONDON, FEBRUARY, 1847. Brot. forward. Bills Receivable Dr. to Sundries To Thomas Harris 9tb,. To B. Canfield I7thy. To Edward Ford 19th,. To Merchandise 26th,. MARCH, 1847. Cash Dr. to Sundries. To Bills Receivable 4th, 1,052 20th, 500 22nd, 650 To Thomas Harris 6th,. To Merchandise 13th,. 29th,. To B. Canfield 18th,. 176 500 Sundries Dr. to Cash. Bills Payable 4th,. 9th,. Profit & Loss 4th, 15th, 29th, Andrews & Co 9th, 25th, Merchandise 19th, 3,000 890 —Drs.- 15,503 3,400 17' 3 18,903 3,103 9 25 150 1 6 500 1,075 Forward. 3,890 184 1,575 5,000 13,752 17 -Crs.— 15,503 1,000 150 500 1,750 18,903 2,202 150 676 75 10,649 17 17 3 13,752 97 LONDON, MARCH, 1847. Brot. forward. Merchandise Dr. to Sundries. To Bird & Beardsley 1st, l,/00 6th, 500 To Andrews & Co 8tli, 1,200 18th, 462 To William Smith 12th,. Sundries Dr. to Mfrchandise. Thomas Harris 2nd, 5th, 27th, Bills Payable 9th,. B. Caufield 9th,. 15th,. Thomson & Son 25th,. 29th,. Edward Ford 26th,. C. Drummond 21st,. 28th,. 85 309 10 54 10 492 72 12 461 224 246 40 Bills Receivable Dr. to Sundries. To C. Drummond 3rd,. To B. Canfield 7th, I .. —Drs.— 13,752 3,937 449 2,000 564 12 685 42 286 1,552 23,267 13 —Crs, Tl 13,752 2,200 1,662 75 4,026 1,052 500 23,267 12 LEDGEK~SET L INDEX, A. H. Andrews & Co 3 Harris, Thomas B. M. Bills Receivable 2 Bills Payable 2 Merchandise Bird & Beardsley 3 Brown Sc Co 5 Balance 106 _, Profit & Loss 1 Cash 2 Canfield, B 4 S. D. Stock • • • I Smith, William 3 Drummond, C o F. T. Ford, Edward. 4 Thomson & Son 101 Br. Stock. Cr. 1847. Mar. 31 To Balance 12,704 12,704 11 11 1847. Jan. 1 Mar. 31 By Cash By Profit & Loss. 10,000 2,704 12,704 11 Dr. Profit & Loss. Cr. 1847. Jan. 11 Feb. 8 9 Mar. 29 31 To Cash ... To Cash ... To T. Harris To Cash ... To Stock . . . 50 41 20 184 2,704 3,000 1847. Mar. 31 By Merchandise 3,000; 3,000 Dr. Merchandise. Cr. 1847. Jan. 3 30 Feb. 25 10 Mar 19 18 31 To Cash To Suntlries To Cash , To Brown & Co. , To Cash To Sundries . . . . , To Profit & Ix)8s . 1847. 1 1,750 Jan. 31 1 11,950 31 2 1,500 C Feb. 28 3 70710 28 4 5,000 26 6 3,937 C Mar. 13 3,000 29 31 27,84410 By Cash By Sundries By Cash By Sundries By Bills Receivable By Cash By Sundries By Balance 1 ) 1 1,500, 1 4,594 5 2 1,750 3 1,83310 4 1,7501 4 676 6 4,026 12 11,714 3 27,844 H 102 r'^ Dr. Cash. Cr, 1847. Jan. 31 Feb. 28 Mar. 29 To Sundries 1 To Sundries 2 To Sundries 4 11,720 4,304 3,103 19,127 1847. Jan. 28 Feb. 28 Mar. 29 31 By Sundries By Sundries By Sundries By Balance 3,800 1,748 10,649 2,929 19,127 Dr. Bills Receivable. Cr. 1847. Jan. 29 Feb. 26 Mar. 7 To Merchandise To Sundries . . . . To Sundries . . . . 1,350 3,400 1,552 1847. Feb. 11 Mar. 22 31 By Cash . By Cash . By Balance 2,350 2,202 1,750 6,302 Dr. Bills Payable. Cr. 1847. Mar. 9 9 31 To Cash To Merchandise To Balance . . . , 3,890 2,000 4,000 9,890 1847. Jan. 30 Feb. 28 By Merchandise By Sundries . . . . 3,000 6,890 9,890 103 3 Br. Andrews & Co. Cr. 1847. Jan. 14 Feb. 28 Mar. 26 31 To Cash To Bills Payable ToCash To Balance 1 3 4 1,500 4,500 1,575 87 1847. Jan. 21 Mar. 18 By Merchandise .... By Merchandise .... 2 5 6,000 1,662 7,662 7,662 Br William Smith. Cr. 1847. Jan. 28 Feb. 15 28 ToCash To Bills Payable To Balance 1 3 600 1,000 635 1847. Jan. 24 Mar. 12 By Merchandise .... By Merchandise .... 2 6 2,060 75 2,135 2,135 1 Br. Bird & Beardsley. Cr* 1847. Jan. 24 31 To Bills Payable .... To Balance . . 3 890 2,200 1847. Jan. 17 Mar. 6 By Merchandise .... By Merchandise .... 2 6 890, 2,2001 3,090 3,0901 1 104 Dr. Thomas Harris. Cr. 1847. Jan. 19 Mar. 27 To Merchandise To Merchandise 1,436 449 1,885 1847. Jan. 14 Feb. 9 9 Mar. 6 31 By Cash By Profit & Less. . By Bills Receivable By Cash By Balance 1 50 3 20 4 1,000 4 150 665 1,885 Dr. Benjamin Canfield. Cr. 1847. Jan. 22 Feb. 27 Mar. 15 To Merchandise To Merchandise To Merchandise 102 842 564 1,509 10 li' Ol 1847. Jan. 28 Feb. 17 Mar. 18 7 31 By Cash By BiUs Receivable By Cash By Bills Receivable By Balance 20 150 75 500 764 1,509 Dr. Edward Ford. Cr. ^ 1847. Jan. 31 Feb. 28 Mar. 26 To Merchandise To Merchandise To Merchandise 653 110 42 805 1847. Jan. 24 Feb. 19 Mar. 31 By Cash By Bills Receivable. By Balance 150 500 155 805 15 105 5 Dr. Charles Drtjmmond. Cr. 1847. Jan. 25 1 Mar. 28 1 To Merchandise To Merchandise .... 1 5 1 1,052 286 1847. Mar. 3 31 By Bills Receivable. . 5 By Balance 1,052 286 6 1 1 1,338 1,338 oo! ] , i 1 ! 1 I Dr. Thomson & Son. Cr. I 1847. Feb. 18 To Merchandise .... To Merchandise .... 1 3 5 881 685 10 1847, Feb. 11 Mar. 31 By Cash 2 204 1,362 10 Mar. 29 By Balance . . 1,566 10 1,566 10 Dr. Brown & Co. Cr. 1847. Feb. 28 14 1 1 i To Cash To Bills Payable .... 2 3 207 500 10 1847. Feb. 10 By Merchandise . ... c 5 707 10 707 10 707 10 1<»6 TRIAL BALANCE AND BALANCE SHEET.— SET L —Dr».— 295 24,844 19,127 6,302 6,890 7,575 1,600 890 1,509 1,885 1,338 805 1,666 73,528 Trial BAiiANCE. , Stock . Profit & Loss,. . . , Merchandise, . . . , Cash, , Bills Receivable, , , Bills Payable, . . . , J. Andrews & Co. , WiUiam Smith, . , Bird & Beardsley, . B. Canfield, . Thomas Harris, . , C. Drummond, . , Edward Ford, . . . . Thomson & Son, . T. Brown & Co.,. . Equilibrium, , . . —Crs.— 10,000 16,130 16,197 4,652 9,890 7,662 2,135 3,090 745 1,220 1,052 650 204 73,628 •,• When the two sides of an account are equal it is unnecessary to enter the amounts in the Trial Balance. The Goods unsold are valued at £11,714.3.0. Balance Sheet. 1810 Mar. 31 ^Assets. — To Cash To Bills Receivable, To Merchandise, . . To B. Canfield To T. HarrU To C. Drummond, To Edward Ford, . . To J. Thomson, . . 1840 a,929 1 3 Mar. 31 1,750 11,714 3 764 2 663 286 155 15 1,362 10 11 3 19,626 — Liabilitiei,- By Bills Payable, . . . By J. Andrews & Co By W. Smith By Bird & Beardsley, By Stock 4.000 87 635 2.200 6.922 12,704 19,626 107 FOSTER'S IMPROVED JOURNAL. Mercantile accounts, however multifarious or involved, may be divided into two general classes ; and, by devoting separate columns in the day-book or journal to these great divisions, the net capital may be ascertained at any moment without reference to the ledger. It is obvious that the increase or diminution of the capital in any concern must keep pace with the gain or loss ; and that the difference between the assets and liabilities must always be equal to the present net capital. Hence the follow- ing general principles : — I. When the returns, including the original capital, exceed the outlay ; and the assets exceed the liabilities, the difference, in each case, exhibits the pre- sent net capital.* n. When the outlay exceeds the returns, including the original capital, and the liabilities exceed the assets, the merchant is insolvent ; and the difference, in each case, shows his deficiency. The Monthly Abstract not only enables the merchant to detect any error or omission in the ledger, but it also exhibits, in a generalized form, the exact state of his affairs without the toil and delay of balancing the books. To facilitate the construction of the Monthly Abstract, the left-hand folio of the cash-book should be ruled with three money-columns, — headed, respectively, " Returns," " Bills and Persons," " Totals ;" and the right-hand folio with three money-columns, — headed "Outlay," "Bills and Persons," "Totals." The monthly totals of the primary books being transferred to the column of the journal according to the principles laid down, the desired information may be obtained at a glance. Various other modifications will occur to the ingenious book-keeper, which it is needless to enumerate, as these remarks are not addressed to the uninitiated. * See "Monthly Abstract," p. 108; and "Generalized Ledger," p. 109. 108 SUMMARY JOURNAL, OR MONTHLY ABSTRACT. — DRS.— 1,800 11,950 1,541 707 20 5,184 3,937 25,139 12,704 37,844 18 9 11 3 Cash, Bills, and l^ersons. 11,500 4,594 1,750 3,583 676 4,026 11,714 37,844 37,844 5 TRANS- FERS. 220 2,000 2,554 207 1,650 6,890 2,427 5,465 1,552 22,965 LONDON, JAN. 31, 1848, Cash. . . Sundries i Goods . Sundrir's Dr. to Sundries Dr. to Cash . . Dr. to Sundries Dr. to Goods . -FEB. 28. Cash . . . Dr. to Sundries . . Sundries . Dr. to Cash .... Goods . . Dr. to Sundries . . P. & Loss . Dr. to J. Harris . . Sundries . Dr. to Goods . . . Bills Rec'"''^- Dr. to Sundries . . Sundiies . Dr. to Bills Payable MAR. 31. — CRS.— TRANS- FERS. 220 2,000 2,554 207 Cash , . . Sundries . Goods . . Sundries . Bills Rec'''« Dr. to Sundries Dr. to Cash . . Dr. to Sundries Dr. to Goods . Dr. to Sundries Goods unsold Cash, Bills, and Persons. 1,800 11,950 1,541 707 20 1,650 0| 6,890 2,427 5,465 1,552 Net Capital 22,965 Proof . 11,500 4,594 1,750 3,583 5,184 3,937 25,139 12,704 37,844 676 4,026 11,714 37,844 37,844 Explanation.. 1. llie two outer columns represent the accounts of Stock, Profit and Loss, Merchandize, and the like. The debit column contains the totai Outlay ; the credit column the total Returns, including the original Capital, and the value of the goods unsold. 2. The two middle columns represent the accounts of Cash, BUls, and Persons only. The debit column contains the receipts of money, the debts receivable, arising from j-eturns, and the value of the goods unsold, as before ; the credit column contains the amount of cash disbursed, and the demands payable, consequent upon the outlay. 3. The items in the inner columns are simply transfers from one account to another of a similar nature, which can in no way affect the general result. Now every description of Outlay consists of cash paid, bills disposed of, or debts payable ; and the Re- turns consist of cash received, or demands receivable ; hence the debit items in one class of the accounts are credits in the other, and vice versa. The balance or difference, in each case, is the net capital or present worth. 109 GENERALIZED LEDGER. — DR.— OUTLAY & RETURNS. -CR. 1848. Jan. 31. Feb. 28. Mar. 31. To Cash . To Sundries To Cash . To Sundries To Cash . To Sundries Net Capital 1,800 11,950 1,541 7 3 727 10 5,184 1 6 3,937 12,704 11 3 37,844 10 1848. Jan. 31, Feb. 28. Mar. 31. By Cash . By Sundries By Cash . By Sundries By Cash . By Sundries Goods Unsold 11,500 4,594 1,750 3,583 676 4,026 11,714 37,844 —DR.— CASH, BILLS, & PERSONS — CR.— 1848. Jan. 31. Feb. 28. Mar. 31. To Returns To do. To do. To do. To do. To do. Goods Unsold 11,500 4,594 5 1,750 3,583 10 676 4,026 12 11,714 3 37,844 10 1848. Jan. 31. Feb. 28. Mar, 31. By Outlay By do. By do. By do. By do. By do. Net Capital 1,800 11,950 1,541 727 5,184 3,937 12,704 37,844 It will be observed, that the above statements are composed of the very same items : the debits in one being credits in the other, and vice versa. The value of the goods on hand is treated as " Returns " in the first, and as an asset in the second case. In short, Double-Entry is a two-fold or double record of the same facts. — See Section I., Part I. 110 GENERAL OBSERVATIONS. The purchases and sales of merchandise require accounts of two different descrip- tions; — 1. Accounts of its value, and 2. Accounts of its quantity. In all cases where the commodities are of a bulky description as cotton, hemp, tobacco, sugars, and the like, the record of their quantity is very simple and easy ; but in many hues of business there is less facihty in recording the quantities of merchandise ; and, in retail concerns, it is impractical from the minuteness of the sales. " It may be ob- jected," says Mr. Booth, "that the keeping of only one account for all kinds of mer chandise is too concise a method for general practice ; but every attempt beyond this, I know from experience, will prove fallacious, and so far from adding to that clearness and perspicuity which should ever be the principal objects of book-keeping, it will create unnecessary trouble and confusion. It is impossible for any person in extensive business, to keep distinct accounts in the ledger for every article he deals in. I am sensible that a merchant should be able to ascertain from his books the gain or loss upon particular commodities, as well as upon the whole of his transactions ; but the LEDGER is not the proper place for details of this sort. It is owing to the introduction of so great a number of nominal accounts, and to join-nalizing the entries singly, that most treatises on book-keeping are rendered useless : — tradesmen being induced to reject all such fine-spun theories as are not reducible to practice, and to prefer the plain simple method of single entry." All well-regulated establishments keep what is called a ' Stock-book," or " Ware- nouse ledger," which is used for the purpose of recording the kinds and quantities of the different commodities purchased and sold, received and delivered ; so that the exact quantity of any article on hand can by this means be easily ascertained : but at every general balance an inventory of the goods unsold should be taken as a check upon the Stock-book. This operation is called ^taking stock,' and must be performed as often fts the tradesman wishes to know the true and exact state of his affairs. SET II. MEMORANDUMS OF TRANSACTIONS. FOREIGN TRADE. 112 HINTS TO THE LEARNER. The insurance transactions Set II. are divided into two distinct parts and are to be journalized ac- cordingly. It is usual in these cases to open an account in the ledger under the title of ' Insurance ;' which is debited when an insurance is eflfected for the amount of premium and policy, and credited for the same when the cost of insurance is charged to the respective parties for whom the goods were shipped. The charges paid on shipments, consignments, and the like, are recorded in a similar manner. Thus the general accoimt of 'Charges' is, in the first instance, debited iot all disbursements of this nature and ia credited for the same when the invoices are made up or the account-sales adjusted.- The shipment of broadcloths, Feb. 6, is not made to order ; and, therefore, instead of debiting Hope & Sons, to whom the goods are consigned, for this amoimt, it must be entered to the debit of an account created for tie purpose under the title of * Adventure to New York.' The produce sold to W. James, S. Homer, and W. "Watson, Feb. 8 and 15, consists of sugar con- signed to you "^ Mary; and the consignment, under its appropriate title, must be credited, and not the general account of * Merchandise.' The funded property, purchased Feb. 26, may be recorded under the title of ' Three "^ cent Consols,' and the ashes, purchased March 2, on joint account with Smith, under the title of ' Ashes in Co.' The speculation in cotton, March 18, is kept distinct from the general account of ' Merchandise,' aac the cost and returns are to be classed xmder the title of ' Cotton.' 113 SET II.— FOREIGN TRADE. MEMORANDUMS OF TRANSACTIONS. January 1, 1847. Inventory of the assets and liabilities of Reed, Jones, &Co., General Merchants, London, as "^ balance sheet, 30th ult. VIZ. — Assets. Cash, balance, f- C. B.,. Bills Receivable, do. "^ B. B.,. Ship Hector, valued at Merchandise, do. do Stephen Homer, due by him, William Watson, do. do Liabilities. Bills Payable, outstanding, 1^ B. B., John Roberts, due to him, William James, do. do Thomas Brown, do. do Effected insurance with the London Insurance Co. on ,^2,000, at 50/ "^ cent, on 100 hhds. Sugar, consigned to us by J. Henry & Sons, of Jamaica, 1^ the Mary. Paid premium and policy duty, in cash, 10,000 13,000 9,000 8,000 1,200 1,500 42,700 5,000 3,500 2,300 1,900 12,700 01 55 114 January 3, 1847. Paid bill No. 160, J, Harrison, due this day, 4 Received from Stephen Homer, Cash on account, "^ C. B., 5 Insured with the London Insurance Co., i€300, at 40/ per cent, on 10 tierces Coffee, consigned to us by W. Brown & Co., '^ the Jane, from Jamaica. Paid premium and policy duty, in cash, • 7 Indorsed to William Ja? es the foUowinsr biUs. viz. — No. 230, on Lloyd & Co., 1,100.0.0 « 231, on Brown & Co., 900.0.0 __ 9 Paid the balance due W. James, in cash, "^ C. B., _ 12 Received payment of the following bills, in cash, viz. — No. 232, on Masterraan & Co., 1,600.0.0 « 233, on Drummond & Co., 6,700.0.0 15 Insured with the London Insurance Co. <^4,260, on goods shipped 1^ St. James, for New York, as f- Invoice-book. Paid premium and policy duty, in cash, _ 24 Paid John Roberts, Cash in full, '^ C. B., 28 Paid petty cliarges this month, f- P. C. B , 1,000 600 16 2,000 300 8,200 100 3 9 3,500 150 115 January 30, 1847. Shipped on board the St. James, for New York, sundry Goods, by order and on account and risk of the following persons, as "^ invoices dated this day : viz. — For James Allen 8f Co., Goods, amounting to 1,284.18.3 Charges, at shipping, 50. 8.0 Insurance, on £\,bQO, and policy, 33.18.9 Commission, .... on ,^1,335, @ 5 "^ cent, 66.16.0 on J? 1,600, insured at if- cent, .. 7.10.0— 74.6.0 For Thomas Hope 8f Sons, Goods, amounting to 2,352.10.0 Charges, at shipping, 21 . 0.0 Insurance, on ^2,550, and policy, 67.10.0 Commission, on ^^2,374, @ 2^ f- cent, 69. 7-0 on J?2,650, insured at i f- cent, . . 12.16.0— 72. 2.0 For Homer 8f Patterson, Goods, amounting to 431. 8.6 Charges, at shipping, 11. 3.0 Insurance, on .£600, and policy, 8.15.0 Commission, on ^-143, @ 6 f cent, 22. 3.0 on ^500, insured at i-f- cent, .. 2.10.0— 24.13.0 •31 Paid charges on shipments, &c., "^ C. B., -February 1, 1847- Received for Freight, &c., "^ ship Hector, . — 3 _ Paid charges on Consignments, viz. — i Freight, primage, entrj', &c., on Coffee, "^ Jane, 28. 9.9 i Duty, freight, primage, &c., on Sugar, '^ Mary, .867.14.4 1,443 10 2,503 2 476 19 4,422,11 82111 1,600 1,896 116 February 4, 1847. Received payment of bill No. 234, J. Brown,. 5 Insured with the London Assurance Co. ^1,575, on goods shipped this day, '^ the Hero, & paid premium and poUey duty, in Cash, 500 36 18 Shipped on board the Hero, for New York, consigned to Hope & Sons, for sale on our account and risk, 10 bales Broadcloth, as '^ luvoice-book, fol. 3. Goods, cost of 10 bales Cloth, 1,430. 0.0 Charges, at shipping, 54. 2.0 Insurance, on ^1,575, and policy, 35.18.0 1,520 i Sold William James, 50 hhds. Sugar, consigned "^ Mary, Net 624 cwt. qrs. 12 ft)., @ bd/ "^ cwt. 10 Received William Watson's acceptance, Ho. 237, at 90 days' date, 12 Paid for brokerage, rent, &c. on Sugar "^ Mary, "^ C. B. 15 : Sold Stcijheu Homer, 25 hhds. Sugar, consigned ^ Mary, Net 312 cwt @ 56/ f- cwt. Sold William Watson, 25 hhds. Sugar, consigned '^ Mary, Net 312cwt. Oqrs. 12ft @ 66/ ^ cwt. ■26 Paid bill No. 161, Stephen Price, due this day. 1,747 10 1,000 33 873 11 12 Oi 873 1 18 1,700 117 February 96, 1847. Paid cash for ^10,000 Stock in 3 f- cent Consols, at 90 f- cent, and ^ "^ cent for brokerage, Received from Stephen Homer, Cash, in full, l»- C. B.,. . . ■27- Accepted Thomas Brown's draft, at 16 days' sight. No. 154, due March 14 — 17, 28- Received from W. Watson, Cash, in full, as ^ C. B., Paid for repairs of Ship Hector, It C B. -March 1, 1847 — Closed the account of Sugar consigned to us, "^ Mary, and rendered Henry & Sons a statement of charges and net proceeds, as "^ S. B. fol. 1.— Total sales being ^3,496. Insurance, premium, and poHcy, 55.0.0 Charges, duty, freight, primage, &c 1,901.6.0 Commission, on sales, and insurance, 97-7.6 J. Henry & Sons,. ... for net proceeds, 1,441.6.6 Piu-chased on joint account with Edwaid Smith, each one half concerned, 250 bbls. Pot and Pearl Ashes, weighing, net 1,150 cwt. @ 20/ '^ cwt. as f- I. B., fol. 2.— Paid in Cash, Received from William James the following bills, as ^ B. B. viz. — No. 238, dated Feb. 8, on J. Lloyd, @ 3 months, 1,000.0.0 No. 239, « , 28, on T. Jones, @ 2 months, 700.0.0 9,012 700 1,900 500 250 10 3,495 1,160 1,700 118 March 4, 1847. Sold J. Hill, a quantity of our goods as '^ I. B., and received his promissory note, at 6 months' date. No, 240, 1,600 Received for Freight, 1^ ship Hector, 1^ C. B. 6 Paid hill No. 152, Clark & Sons, f^ C. B. 7_ Received payment of the following bills : viz. — No. 236, on Barings & Co 1,500.0.0 » 236, on W. Smith, 800.0.0 600 1,300 2,300 Sold for cash J^5,0(K) Stock, in 3 "^ cent Consols, at 94 f- cent, less brokerage, | "f- cent, 10- Sold at public sale 10 tierces Coffee, consigned ^ Jane, weighing net 62 cwt. @ 110/ "^ cwt., less brokerage and petty expenses, as "^ S. B. Received in Cash, , 11 Accepted a bill drawn by J. Henry & Sons of Jamaica, No. 165, payable to Drummond & Co. London, at 10 days' sight, 12 Closed the account of Coffee '^ the Jane, and rendered W. Brown & Co. a statement of charges and net-proceeds, as "^ S. B. fol. 2. — Total sales being ^336.10.0. Insurance, premium, and policy, 6.16.6 Charges, freight, primage, &c 28. 9.9 Commission, on sales, and insm-ance, 10. 0.0 W. Brown, for net-proceeds, 291. 3.9 15 4,693 336 1,600 16 10 Paid petty charges this month, "^ P. C. B.,. 336 87 10 10 119 March 16, 1S47. Sold John Roberts, 125 bbls. Pot & Pearl Ashes, weighing net 575 cwt. at 25/ '^ cwt., as f- S. B. fol. 4 i; Received from James Allen & Co. a bill on R. & J. Black, dated Feb. 1, at 3 months. No. 240, 718 15 1,000 Paid our acceptance. No. 164, J. Brovra, 18- 1,900 Ordered from Thomas Hope & Sons, New York, 200 bales Georgia Cotton, which they adnse having shipped "f- Ontario for Livei-pool; amounting, with charges, &c. as ^ invoice, to =8^10,150, Exchange at 50d. "^ dollar, , 20 Sold for Cash, ^5,000 Stock in 3 -^ cent Consols, at 95 '^ cent, less brokerage \ '^ cent, 21 Sold Thomas Brown, 125 bbls. Pot & Pearl Ashes, weighing net bib cwt. at 26/ "^ cwt., as -^ S. B. fol. 4 -28- Received from T. Hope & Sons, New York, an Account-sales of 10 bales Broadcloth, consigned to them "^ the Hero, net-proceeds being -8^9,600, at 50d. 'f- dollar, 29 Closed the accoimt of Ashes in Co. and credited as follows. Interest, on cost till in cash, 17. 0.0 Commission, 2i "^ cent on sales, 36.13.0 Edward Smith's, J net gain is, 131. 6.0 Profit & Loss, for our ^ net gain, 131. 6.0 2,114 4,743 747 2,000 11 15 10 316 L. 120 March 30, 1847. Homer & Paterson having become insolvent, we agree to accept 10/ '^ pound on the amount they owe us, being j€475.19.6, our loss is, Received a bill at 60 days' sight, on Barings & Co., No. 241, for the balance, . . 31 John Williams & Co., brokers, Liverpool, advise us that they have sold our 200 bales Cotton, received f- Ontario, the net proceeds amounting, as •^ account-sales, to, • If Paid sundry charges for salaries, postages, rent, &c., as "^ P. C. B 237,19 237 19 2,531 300 N. li. The Goods unsold are valued at £1.500 ; and the Ship Hector at £9,000 1 liese two items are to be iilM?e . Cr. 1847. Jan. 1 Feb. 15 To retook To Sugar ^ Mary . . 1 2 1,500 873 1847. Feb. 28 10 Mar. 31 By Cash 3 3 7 500 1,000 873 18 (1 18 By Bills Receivable. . By Balance 2,373 18 2,373 18 Dr. John R OBERTS. Cr. 1847. Jan. 24 Mar. 16 To Cash To Ashes in Co 1 5 3,600 718 15 1847. Jan. 1 Mar. 31 By Stock By Balance 1 3,500 718 16 4,218 16 4,218 15 1 1 ) 5 Hr. William James, Cr. 1847. Jan. 9 7 Feb. 8 To Cash To Bills Receivable. . To Sugar Iff Mary . . 1 2 2 30C 2,000 1.747 10 1847. Jan. 1 Mar. 3 31 By Stock By Bills Receivable. . ' By Balance I 2,300 } 1,700 1 47 10 4,047 10 4,047 10 Br. Thomas Brown. Cr. 1847. Feb. 27 Mar. 21 To Bills Payable .... To Ashes in Co 3 5 1,900 u 1847. Jan. 1 Mar. 31 By Stock ] I 1,900 1 747 10 747 10 By Balance \ 2,647 10 2,647 10 Br. Edwart> Smith. Cr. 1847. Mar. 31 To Balance 7 131 6 1847. Mar. 29 By Ashes in Co 5 131 6 Br. Allen & Co. Cr. 1847. Jan. 30 To Sundries 2 1,443 10 1847. Mar. 17 31 By Bills Receivable. . 4 By Balance 7 1,000 i 443 10 1 1 1,443 10 1,443 10 1 1 _!_ 138 6 Br. Henry & Sons. Cr. 1847. Mar. 11 1 To Bills Payable 6 1,500 1847. Mar. 1 31 By Sugar ^ Mary . . By Balance 4 7 1,441 58 6 13 6 6 1,500 1,500 — \ Dr. Williams & Co. Cr. 1847. Mar. 30 To Cotton 6 2,531 5 1847. Mar. 31 By Balance 7 2,531 5 Dr. Hope & Sons. Cr. 1847. Jan. 30 Mar. 28 To Sundries To Adv'. to New York 2 6 2,503 2,000 2 I 1847. Mar. 18 31 By Cotton By Balance 5 7 2,114 2,388 11 10 8 4 4,503 2 4,503 2 1 Dr. Homer & Patterson. Cr. 1847 : Jan. 30 1 To Sundries 2 476 19 6 1847. Jan. 30 By Sundries 2 475 19 6 i 139 Dr. Sugar i^ Mary. Cr. 7 1847. Mar. 1 To Sundries 4 3,495 1847. Feb. 16 By Sundries 2 3,495 1 Dr. Coffee ^ Jane. Cr. 1847. Mar. 12 To Sundries 5 336 10 1847. Mar. 10 By Cash 4 336 10 1 Dr. Ashes in Co. Cr. 1 1 1847. Mar. 2 29 To Cash 4 5 1,150 316 5j 1847. Mar. 21 By Sundries 5 1,466 5 To Sundries 1,466 5|0 1,446 5 Dr. \V. Brown. Cr. 1847. Mar. 31 i To Balance 7I 291 3 9 1847. Mar. 12 By Coffee ^ Jane . . 5 291 3 9 .J 140 Balance. CV. 1847. Mar. 31 To Sundries , 36,334 18 1847. Mar. 31 By Sundries , 36,334 18 141 TRIAL BALANCE.— SET IL —Drs.— Trial Balance. 12,700 237 2,649 8,000 2,114 9,012 1,520 9,250 34,474 18,537 5,900 1,443 1,500 2,073 2,373 4,218 4,047 2,647 2,531 4,503 19 16 11 10 19 10 12 18 16 10 10 • 6 2 129,636 19 11 .Stock . Profit & liosa, . Commission, . Charges, . Merchandise,* . Cotton, . Three '^ cent Consols, . . . Adventure to New York, . Ship Hector,* , . Cash, . Bills Receivable, . Bills Payable, .J. AUen&Co., , . J. Henry & Sons, , , S. Homer, , . W. Watson, . J. Roberts, . W. James, , . Thomas Brown, , E. Smith, , J. WiUiams & Co . J. Hope & Sons, , W. Brown , , Equilibrium, * The Merchandise unsold is valued at £1,500 ; and the Ship Hector ia valued at £9,000. See remarks, p. 42. —Crs.— 42,700 148 315 2,066 7,098 2,531 9,437 2,000 2,000 22,860 13,000 8,400 1,000 1,441 1,200 1,500 3,500 4,000 1,900 131 2,'ll4 291 129,635 19 11 142 ANALYSIS OF LEDGER— SET IL 1. Charges. Outlay 2,549 16 9 Returns 2,066 8 9 Loss 483 8 3. Merchandise, Returns 7,098 16 9 Unsold . . 1,500 8,598 16 9 Cost 8,000 Gain 598 16 9 5. Three T^ Cent. Consols, Returns 9,437 10 Cost 9,012 10 Gain 425 2. Cotton. Returns 2,631 5 Cost 2,114 11 8 Gain 416 13 4 4. Ship Hector. Returns 2,000 Valued at 9,000 11,000 Cost 9,250 Gain 1,750 6. Adventure to New York. Returns 2,000 Cost 1,520 Gain 480 The gains and losses are transferred from the several accounts, at the time of balancing, and entered on the proper side of Profit and Loss ; the result is then transferred to the Stock account. These items are first arranged on a sepa- rate sheet, called the Profit and Loss sheet. See page 145. The net 143 capital, or present worth, is as follows : — Capital commencing 30,000 Subsequent gain 3,412 8 10 Present net capital 33,412 8 10 1. Cash. Received 34,474 Paid 22,860 5 2. Bills Receivable. Received 18,637 19 9 Disposed of 13,000 In hand 11,613 15 In hand 6,637 19 9 3. Bills Payable. Issued 8,400 Redeemed 5,900 2,600 4. Allen <$• Co. They owe us 1,443 10 We owe them 1,000 443 10 6. Henry Sf Sons. They owe us 1,500 We owe them 1,441 6 6 Due by H. & Sons 68 13 6 7. W. Watson. Heowesus 2,373 18 We owe him 1,500 DuebyW.W. 873 18 6. S. Homer. Heowesus 2,073 12 We owe him 1,200 DuebyS.H 873 12 8. J. Roberts. He owes us 4,218 15 Weowehim 3,600 DuebyJ. R 718 15 144 9. W. James. He owe us 4,047 10 We owe him 4,000 DuebvW.J 47 10 11. Hope Sf Sons. They owe us 4,503 2 We owe them 2,114 11 8 Due by H. & Sons 2,388 10 4 10. Tliomas Brown. He owes us 2,647 10 We owe him 1,900 DuebrT. B 747 10 Williams & Co. owe us 2,531 We owe E.Smith 131 6 W.Brown 291 3 9 *;jc* The Assets and Liabilities constitute what in technical language is called the Balance Sheet. — See next page. The property unsold being obviously an Asset, its value must be entered accordingly. The result of the Merchandise accounts is the difference between the two sides, after the value of the goods, sold or unsold, has been entered on the Credit side. The Cash, Bills Receivable, Bills Payable, and Personal accounts exhibit Assets or Liabilities ; all other accounts consist of Outlay and Returns, and the result of them is either Gain or Loss. If property be sold for cash, then the Cash account contains the representation of its value ; if sold on credit, then the Purchaser's account ; but whether sold on credit or for cash, there must be a result of profit or loss, and it is this result which connects the Property accounts with the Stock account. 145 PROFIT & LOSS AND BALANCE SHEET.-SET IL Profit & Loss Sheet. Mar. 31 — Losses.— Am't posted To Charges, To Stock • {net gain) 237 483 721 3,412 4,133 16 10 Mar. 31 — Gains. — Am't posted ^ By Ship Hector, By Merchandise By Cotton By Commissiua, By Three W Cents, By Adventure to New York 148 1,750 598 416 315 425 480 4,133 16 Balance Sheet. Mar. 31 — .Assets. To Cash, To Bills Receivable, To Ship Hector, . . To Merchandise, . . To J. Allen & Co., To J. Henry & Son, To S. Homer, .... To W. Watson To John Roberta, . . To W. James, . . . . To Thomas Brown, To Williams & Co.. To Hope & Sons, . . 11,613 15 Mar. 31 5,537 19 9 9.000 1,500 443 10 58 13 6 873 12 873 18 718 15 47 10 747 10 2,531 5 2,388 10 4 36,334 18 7 1 i — Liabilities. By BUls Payable, . . . By E. Smith By W. Brown By Stock .500 131 291 2,922 33,412 36,334 18 APPENDIX. I. EXAMINATION OF GOVERNMENT CLERKS. The following regulation applies to the Admiralty ; the Audit ofl&ce ; Excise ; Stamps and Taxes; and all other departments of Government where accounts are kept : — " My Lords considering that, in addition to the other qualifications now required of the " clerks who are admitted into this office, it is very important that they should possess a com- " petent knowledge of book-keeping by double-entry, are pleased to direct that before the " appointment of any clerk shall be confirmed, an examination, in such manner and form as " one of the secretaries of this board shall think best calculated for the purpose, shall take " place, and the result be reported to My Lords." — Treasury Minute, 14 Jan. 1840. The questions proposed at the examination of candidates for a clerkship in the Commissariat Department, are as follows : — 1. — Define the terms double-entry, debit, and credit, and explain why two entries are required in every transaction under this system. 2. — Describe what is usually understood by "real accounts ;" "personal accounts;" and " fictitious accounts." 3. — Describe the books of account which are necessary in the most simple form of double-entry. 4. — Prepare specimens of such books^ and state the purposes which each book is intended to answer. 5. — State the difference between the mode of entering a transaction in the waste- book, and in the journal. U 2 148 5. — What are the two first entries made in the journal bj' a merchant or tradesniau on commencing business ? 7. — In "real accounts,"* on which side of the ledger are articles received and delivered to be entered ? £. — If a merchant wishes to ascertain the profit or loss on any description of mer- chandise, how must he set about it ? 9. — How is the ledger balanced and closed ; and what accounts exhibit a statement of the gains and losses ; assets and liabilities ; and present net capital ? 10. — If a real account closes with a loss, to which side of the profit and loss account should the result be carried? 11. — What object is the balancing of the accounts in the ledger intended to accomplish ? 12. — If the result of a merchant's business be a loss, from what account is the information obtained ? 13. — If a merchant, banker, or trader becomes insolvent, in what account would that result appear ? * What is usually uuderstood by "real accounts" are the accounts of property, such as " merchandise," " ships," " houses," and the like. " The division of accounts into real, personal, and fictitious, is one of the most ludicrous that ever enlivened the gravity of the scientific page. Are the personal accounts unreal ? or rather art; they neither real nor fictitious? Is the stock account a mere fiction? Is the profit and loss account of the same romantic nature? In cases of loss it would be some consolation to con- sider it in this poetical light ; but when a profit occurs, the pleasure would not be heightened by this view of the subject. The merchant reasonably expects to find something substantial in his stock account ; but the professors of book-keeping, faithful to the Berkleian theory, gravely assure him that it is fictitious or imaginary !" — Cronhelm. 149 II. EXERCISES IN JOURNALIZING. The student who can journalize the following transactions with promptness and accuracy, must necessarily possess a thorough knowledge of the fundamental prin- ciples of double entry. 1, — Sold Baring, Brothers, and Co., ^ of my ship Nero, for the sum of £8,000; and received in payment as follows, namely, Cash, in part, £1,500 ; a bill drawn by John Smith, in favour of Thompson, for £1,000; my own acceptance in favour of Jones for £.3,000; 10 pipes of wine valued at £500; and 15 hhds. sugar valued at £600. The balance, £1,400, is to be paid in three months. Required, my journal entry, and also Baring, Brothers, and Co.'s journal entry. 2. — Bought of Stephen Simpson, 100 pipes of Wine, amounting, as per in- voice, to £4,000, and paid for the same as follows, namely : — Cash, in part, £300 ; 20 bales cotton, valued at £500 ; my draft at 10 days' sight on William Brown and Co. for £1,000 ; my own acceptance at 3 months' date for £1,500. The balance is to be paid in 4 months. Required my journal entry, and also that of S. Simpson. 3. — A. B, and C. are not partners, but in the course of business they — i. e. the three — jointly and severally accept bills to the amount of £15,000. These bills are discounted at the Bank of England, and A., who managed the transaction, paid over to B. and C. each ^ of the proceeds, being £10,000, — less the discount. The whole discount was £187. 10s., of which each party paid ^. Required the respective journal entries of A., B., and C, supposing yourself to be the manager. 4. — In pursuance of an agreement between Henry Jones and myself, to spe- culate in company, the gain or loss to be shared equally, and the business to be superintended by me, I have purchased a quantity of corn, amounting to £5,000, and gave in payment as follows, namely : — Cash, in part, £2,000 ; my draft on 150 Brown, Brothers, and Co., for £1,000 ; a bill drawn by John Thompson and Sons, for £1,500 ; and my own acceptance at 3 months' date, for the balance. Required the journal entry in my books, and also that of H. Jones. 5. -^Shipped per the Venus, for New York, and consigned to S. Smith, merchant there, for sale on account and risk of William Hunter, John Harris, and myself, each ^ concerned, 100 bales of broadcloth, amounting to £3,000. Paid shipping charges in cash, £45 ; the insurance amounts to £32 ; and my commission to £77- Required each partner's journal entry, supposing yourself to be the manager. In due course I received S. Smith's account-sales of the above consignment, the net proceeds to his debit being £4,200. Required an adjustment of the trans- action, and also the requisite journal entries in each partner's books. III. PARTNERSHIP SETTLEMENTS. The science of book-keeping is thought by many to be of easy attainment, and that little study or experience is requisite to give any one a competent knowledge of it. This, however, is so far from being true, that in complicated transactions, and more particularly in the adjustment of partnership accounts, questions daily arise which puzzle the clearest head, and to solve which requires the most intense effort of a sagacious and profound mind. The following questions will serve to test the student's skill in accountantship. 1. — A. and B. constitute a firm. In the investigation of their books, prior to a dissolution of partnership, it is found that A. has withdrawn from the concern £780, and paid in £2,860; B. has withdrawn £1,200, and paid into the concern £50 ; A. owes to B. on an old account £4,300. They, i. e. the firm, bought goods which cost £1,590, and sold the same for £1,200. The profit and loss they are to share equally, and no interest is to be charged or allowed for moneys withdrawn or 151 advanced. Required, the amount payable by one partner to the other, in order to close the accounts equitably. — A. must pay to B. j62,415. 3. — C. and D. were partners in trade for nine years : a dissolution of the firm then took place. C. put into the concern during that period £47,000, and drew out £50,000. D. put into the concern £65,000, and drew out £35,000. The interest on the respective personal accounts of each partner was duly paid up to the end of the eighth year. The conditions of the co-partnership are that C. is to share |- and D. |^ of the gain or loss ; but there was to be no fixed capital. After paying all demands against the concern, their assets, consisting of money, goods, and debts receivable, amount to £55,000. Required, an equitable adjust- ment of their affairs, not only with regard to the interest on all moneys advanced or withdrawn, but also as to each partner's share of the assets. — C.'s share is £7,510; D.'s share is £47,490. 3. — E. and F. were joint partners, and at the dissolution of the partnership the summary of their accounts was as follows: — E. put into the concern £25,500, and drew out £2,000. F. put in £20,200, and drew out of the concern £1,200. Their net gain was £21,780, which is to be shared equally. After paying all demands against the concern, their assets amount to £64,280. Required a settlement of the accounts, i. e. what each partner is to have of the property remaining.* — E.'s share is £34,502. 10*.— F.'s share is £29,777. 10*. IV. OFFICIAL BALANCE SHEETS. The balance sheet of a bankrupt or an insolvent diflFers from the ordinary balance sheet of the merchant inform and substance. Instead of being simply a statement of the assets and liabilities, the official balance sheet comprises, in sepa- rate schedules, particular statements of the bankrupt's debts, capital, and profits, * In questions 2 and 3, one year's interest, at 5 per cent, is to be charged on the balance of each partner's personal account. 15i on the one hand; and his credits, profit?^ losses, and expenses, on the other. The general form of a bankrupt's balance sheet is as follows : — BALANCE-SHEET OF A. B., BANKRUPT. ~..r,r.— £. 1 ■i' -Cr.— £. .v. 1 To Creditors. . per list A To CapiUl 10,000 5,000 3,000 J By debtors,. . . . per list B : — Good 2,000 0' 3,000 oi 7,ooo: 0, 500 1,500| 4,000j Doubtful Bad To Profits . . per list F By Property, . . per list C By Losses,. . . . pei list D By Expenses .. pet list E 18,000 18,000 The lists or statements referred to are to be annexed to the balance sheet, and must contain the following particulars ; 1st. The names and address of the bank- rupt's creditors, and the amount of their claims ; 2nd. The names and address of his debtors, the amount due from each, distinguished as good, doubtful, or bad, as the case may be, and also the amount of their counter claims, if any ; and the other schedules or lists must contain the particulars of the property coming to the assignees, and the bankrupt's actual losses and expenses. The firm of A. B. and C. was compelled to stop payment on the 1st of January, 1847. On investigating their affairs the re.sults were as follows: — The concern owed to sundry persons, £80,000; the surplus capital was £10,000, and the gross profits £30,000. The cash in hand was £11,000 : owing to the concern by sundry debtors, £34,000 ; of which £30,000 is good, £1,500 doubtful, and £2,500 bad; the doubtful debts are estimated to produce £500. They have bills of exchange to the amount of £9,000, and property valued at £12,000. The losses amount to £6,000, and the trade charges to £14,000. A. drew from the concern £8,000; B. 12,000; and C. £14,000. Arrange these items in form of an ofl&cial balance sheet, and also in the usual mercantile form. r. HODGSON PRINTER, 1 GOUGH SaUARE, FLEET STREET, LONDON. 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