Page:The American Cyclopædia (1879) Volume III.djvu/86

 80 BOOKKEEPING and adapted in a superior degree to books in calf, is yet subject to rupture, and demands the binder's best attention. By securing the back always with muslin instead of paper, its strength will be greatly increased. India-rubber binding, by which the leaves are fastened together with a cement of caoutchouc, though admirably adapted for allowing engravings to be opened to their full extent, is a failure for want of strength. BOOKKEEPING, the method of exhibiting in a clear and concise manner the state of a man's pecuniary affairs. The system of bookkeeping in general use among men of business, called the "Italian method," from the country of its invention, and "double entry," from the con- struction of its ledger, is of great antiquity. The first treatise on the subject was written by Luca Pacioli, better known as Luca di Borgo (Venice, 1495). The first German treatise on bookkeeping was written by Johann Gottlieb (Nuremberg, 1531). In 1543 Hugh Oldcastle produced at London "A profitable Treatyce to learn to knowe the good order of the kepying of the famouse reconynge, called in Latin, Dare et kabere, and in Englyshe, Debitour and Credi- tour." In 1602 a work in French on double entry appeared at Leyden, followed in 1652 by Collins's "Introduction to Merchants' Ac- counts." Mair's "Bookkeeping Modernized," the most elaborate exposition of the old Italian school published, appeared the following cen- tury, and passed through many editions. In 1789 Benjamin Booth modified the system, in- troduced many valuable improvements, and gave to the world the first and best work ex- tant on the modern practice of monthly jour- nalizing, under the title of " A Complete Sys- tem of Bookkeeping," an improved mode of double entry, comprising a regular series of transactions, as they have occurred in actual business. The following are the fundamental principles upon which the science of double entry is based : The essentials of this art con- sist in the classification and arrangement of data in a book called the ledger. Each collec- tion of data is called an account. An account, whether of persons or things, is a statement of all the transactions whereby the property of the concern has been affected by the person or thing in question. The accounts are designated by distinct titles, and articles of opposite kinds are placed in opposite columns. The space which an account occupies in the ledger being vertically divided, the left-hand side is denomi- nated debtor and the right-hand side creditor. These terms, when applied to the personal ac- counts, are used in their ordinary sense; but when applied to an impersonal account, they have a more extended signification. All debit items are not sums owing to the concern, nor are all credit items sums owing by the con- cern; in short, the terms Dr. and Or. serve merely to distinguish the left from the right- hand side of an account, and the arithmetical signs plus and minus would equally answer this purpose. The nature and object of the principal accounts in a merchant's ledger are briefly as follows: 1. The receipts and pay- ments of money are recorded under the title of cash. All receipts are entered in the left or debtor money column, and all payments in the right-hand or creditor money column. The difference between the two sides, technically called the balance, represents the cash in hand. 2. Written securities, such as drafts, notes, or acceptances, received by the merchant, and for the payment of which other parties are responsible, are recorded under the title of bills receivable, and those issued or accepted by the merchant, for the payment of which he is responsible, are recorded under the title of bills payable; the former account in- variably represents assets, and the latter lia- bilities, in the shape of bills. 3. An account must be opened for each person or firm with whom the 'merchant has dealings on trust un- der their respective names, or the name of the firm with which they are connected. The design of a personal account is to show what is owing to or by the person in question. The terms debtor and creditor are here used in their ordinary sense ; since each person is made debtor for what he owes, and creditor for what is owing to him. 4. Purchases and sales are recorded under the name of the spe- cific property bought or sold; the cost or outlay being entered on the. debtor side, and the sales or returns, as well as the value nn- sold, at the time the accounts are adjusted, on the credit side. The result is gain or loss as the case may be. 5. The capital invested in business, in the outset, is recorded under the title of stock, or capital stock, and the gains and losses under the double title of profit and loss. Commission, charges, interest, and the like are merely subdivisions of the profit and loss, and the latter is simply a branch of the stock account. The stock account exhibits the capital collectively, that is, in one mass ; the other accounts exhibit its component parts. The fundamental law of double entry is this: every transaction which affects or modifies the capital, or its component parts, must be twice entered ; that is, to the debit of one or more accounts, and vice vena. When the accounts are completed, there remains the last process, which consists in balancing the books ; that is, in closing and equilibrating the several ac- counts, and in collecting the results, so as to exhibit in a concise form the gains and losses, the assets and debts, and the present capital. This is generally done at stated intervals on a balance sheet which contains every account of the ledger. Every transaction in business be- ing virtually a transfer between two accounts, it must bo entered to the debit of the one and to the credit of the other ; these two balan- cing entries are made in the ledger, and com- prise all that is scientific in the system of dou- ble entry. The entries in the primary books are merely preparatory arrangements, totally