Debtor and creditor are correlative terms; the one implies and involves the other. Wherever there is a debit there must be a credit for an equal amount, and wherever there is a creditor there must be a debtor. The same general results may be shown by either single or double entry, but the latter is superior in this respect;-that it not only shows one's standing with the persons with whom he is dealing, but it also shows the particular kinds of property possessed, and the profit on each kind, thereby furnishing a guide for the management of business. The principal books used in business are the Day Book, Journal, Ledger, and Cash Book. The Day Book should contain a concise and comprehensive history of the merchant's business transactions. It being one of the few books allowed in cases of litigation care must be taken in making the records so that an entire stranger, by reading them, would understand fully the nature of the transactions. No erasures are allowable in this book. If a mistake is made, either in words or figures, draw a line through it with red ink, and place the correction above. Do not remove the error; only cancel its effect. The Journal is a book in which the transactions recorded in the day book are prepared for the ledger, by determining the proper debits and credits and their names. This process is called journalizing, and is, in fact, the science of double entry book-keeping. The Ledger is the general register in abstract of all the debits and credits, arranged in systematic order under their appropriate heads. From this book the merchant can readily ascertain the state of his business affairs, as well as his relations to persons with whom he is doing business. The Cash Book, in which is entered all cash received or paid out at the time of occurrence. Be careful to give the date, the account to be debited or credited, the explanations, and the amount of each entry. In actual business it is usually balanced every night, the balance agreeing with the amount of cash on hand, added to the bank balance, if a bank account is kept. There are four distinct classes of accounts, viz., Individual, Non-speculative Representative, Speculative Representative, and Loss and Gain Accounts. Individual accounts are those accounts clothed with the authority to maintain a suit at law; they include accounts with persons, banks, and all corporate companies. Loss and Gain accounts are such as show losses and gains only, and do not in themselves represent any value. To this class belong Profit and Loss, Interest, Commission, Insurance, Expenses, etc. Representative Non-speculative accounts are those that represent assets or liabilities, on which there can be no increase or diminution of value, as Cash, Bills Receivable, Bills Payable, etc. Representative Speculative accounts are those which represent value, but on which you may gain or lose as Merchandise, Real Estate, Personal Property, Shipments, Shipment Companies, Merchandise Companies, and all kinds of Corporation stocks. MERCANTILE DEFINITIONS. See "Practical Rules," below. The principal kinds of business paper in general use are Bills of Exchange (Foreign and Inland), Notes, Checks, and Receipts. An Account Current is a statement of the mercantile transactions of one person with another, drawn out in the form of Dr. and Cr., dealing only with gross sums, and is an exact copy of the personal account found in the ledger. An Account Sales is a statement of all the details concerning an individual lot of goods. It is distinguished from an account current by these three particulars: 1. The account current is with an individual. The account sales is of a particular lot of goods. 2. The account current involves net sums. The account sales presents items in detail. 3. The account current may involve the proceeds of many account sales, and all transactions with an individual, whether arising from the sale of his goods or not. The account sales is limited to an account of the transactions arising from the sale of one lot of goods. A Bill of Exchange is a written order or request from one person to another, desiring the latter to pay to some person designated a certain sum of money therein named. When drawn in one country (or State) and payable in another, it is called a foreign bill. When drawn and payable in the same country (or State) it is called an inland bill, or more frequently a draft. It generally is, and to be negotiable, it must be made payable to "order" or "bearer." The person who draws the bill is called the drawer; the person on whom it is drawn is, before acceptance, called the drawee; after acceptance, the acceptor. The person to whom the money is directed to be paid is called the payee. A Bill of Goods is an account of goods sold, given by the seller to the buyer, containing the quantity and prices of the articles, with a statement of the date and terms of credit. A Check is an order for money drawn on a bank, or persons doing banking business, hav ing money in their hands, payable at sight. To Close an Account is to make both sides equal. An Invoice is an account of goods sent by a merchant to his consignee, containing the particular marks, value, charges, and other particulars of the goods. A Ledger Account is a space in the ledger set apart for the debits and credits of a particular kind, with the name of that kind written at the top. Posting is transferring the journal debits and credits to their proper place in the ledger. A Promissory Note is a promise, in writing, to pay a specified sum at a time therein limited, or on demand, or at sight, to a person therein named, or to his order, or to the bearer. A Receipt is a writing acknowledging the receipt of money or any other kind of property. A Trial Balance is a systematic arrangement of the ledger accounts, with their proper debit and credit totals, made for the purpose of ascertaining if the debits and credits of the ledger are equal or balance. PRACTICAL RULES. See "Mercantile Definitions," above. Bank. The debtor side shows the amount deposited. The credit side the amount drawn It usually closes "By balance." out. A Bills Payable is a written obligation for the unconditional payment of a certain sum of money, at a certain time to a certain person, his order or bearer, without interest, issued by yourself, and payable by you by virtue of your written promise contained in it. At the time of commencing business, bills payable account will be credited for all notes and acceptances outstanding, and during the business for all notes and acceptances issued by the merchant. It is debited for all redeemed. The difference shows the amount still outstanding. It always closes "To balance." A Bills Receivable is a written obligation for the unconditional payment of a certain sum of money, at a certain time to a certain person, his order or bearer, without interest, issued by any one but yourself, and payable to you by virtue of the written promise contained in it. Bills receivable account is debited for all notes and drafts on hand at commencing business, and for all received during the business. It is credited for all parted with. The difference is the amount still held. It always closes "By alance." Cash is a non-speculative representative account. The debtor side shows the amount received; the credit side the amount paid out; and the difference is the amount on hand. It always closes "By balance." A Consignment is a name given to goods received, to be sold on account of the shipper, and at his risk. It is debited for all charges when received, and credited for all sales. When an account sales is rendered, it is debited for all unposted charges, and for the shipper's net proceeds. The person who receives a consignment is called the consignee. Expense account is debited with all moneys paid or liabilities incurred, from which no direct return is expected, such as clerk hire, store rent, etc. It is closed" By profit and loss." Merchandise is a speculative representative account. It is debited for the cost of merchandise on hand at commencing, and for all purchased during business, and credited for all sales; and when the merchandise has all been sold, the difference between the sides will be 6 gain or loss-gain when the production or credit side exceeds the cost, and loss when the cost or debtor side exceeds the production. To find the gain when the merchandise has not all been sold, add the inventory to the sales or credit side, and from this sum substract the cost or debtor side; the remainder will be gain. It is closed "To" or "By profit and loss." Should the debtor side be greater than the creditor, the difference between them will be loss. Real estate, personal property, corporation stocks, and all speculative accounts are treated precisely as merchandise. Merchandise Company is a name given to goods received to be sold on joint account and risk. When received, it is made debtor for the consignee's interest and all charges. It is credited for all sales, and at the time of rendering an account sales, is debited for all unposted charges and the shipper's net proceeds. Profit and Loss account is debited with all losses and credited with all gains. The difference is the net gain or loss. It is closed "To" or "By stock." A Shipment is a name given to goods shipped to be sold on account of the shipper, and at his risk. It is made debtor for the cost of the merchandise sent, and all expenses incurred at the time of shipping. It is credited for the net proceeds when an account sales is received. It is closed "To" or "By profit and loss," if an account sales has been received, but if not, it is credited for its full cost. The person shipping the goods is called the shipper or consignor. Shipment Company represents the shipper's interest in goods shipped to be sold on joint account and risk. It is made debtor for his interest at the time of shipping, and creditor for his net proceeds when an account sales is received. It is closed the same as a shipment. Stock represents the merchant or stockholder, and is made debtor for what the business man owes on commencing business, for all sums withdrawn, and at the time of closing, for all losses that have occurred during the business. It is credited for all sums invested, and for all gains. It is closed "To" or "By balance;" "To balance" showing the net capital, and "By balance" the net insolvency. JOURNALIZING. Journalizing may be, and often is, done without a journal. One journalizes when on hear ing of or reading a business transaction he determines that entries should be made on certain sides of certain ledger accounts. The fundamental law of journalizing is that exactly as much shall be placed on the Dr. side of the ledger as goes on the Cr. side, and exactly as much must be placed on the Cr. side as goes on the Dr. side. And no business transaction can be invented in which each of the parties to it does not either receive something, or some. body or thing has cost him value, and at the same time each of the parties to the transaction has parted with something, or somebody or thing has produced him value. Rules. DEBIT THE THING RECEIVED OR WHATEVER COSTS VALUE. CREDIT THE THING PARTED WITH OR WHATEVER PRODUCES VALUE. cess, CLOSING A LEDGER. Closing the ledger is ending the current condition of all the Ledger accounts. In the proall the gains and losses that have occurred in the business are gathered together in the Profit and Loss" account and there compared. The gains are placed upon the credit side; the losses on the debit side. When the credit side is the greater the account is closed "To stock," and shows a net gain. The opposite entry "By profit and loss" is made in the Stock account, and increases the capital. When the debtor side is the greater the account is closed" By stock," and shows a net loss. The opposite entry "To profit and loss" is made in the Stock account, and decreases the capital. A balance sheet is a systematic arrangement of the resources and liabilities of a business. Rules. 1. Take a trial balance; if it shows the total of the ledger debits equal to the total of the ledger credits, proceed as directed below. If the totals referred to above are not equal, re-add each journal column to see if the debits and credits are equal there; if the mistake be undiscovered yet, re-add the ledger debits and credits, and if this does not reveal the mistake, examine each individual post from the journal, and check it where correct. The mistake in your trial balance must arise from faulty work in one of these three items, in every case where the ledger contains no matter excepting what was posted from the journal. Any one can find the mistake who can perform such work (adding and transferring) correctly, and he who finds the mistake will find it in one of these three places. 2. Take an inventory, and credit the Speculative Representative accounts for their respective amounts " By balance," and make the opposite or debit entries in a Balance account, which open. 3. Close all Speculative Representative accounts "To or by profit and loss," making opposite entries in Profit and Loss account. 4. Close Profit and Loss account "To or by stock," making an opposite entry in Stock account. 5. Commence with the first account now unclosed and close it, and all others unclosed, "To or by balance," making the opposite entries in Balance account. All closing entries must be made in red ink. The entries subsequent, opposite and corresponding to the closing ones, together with footings, write in black ink. Accounts closing "To balance" show liabilities, those closing By balance" assets or resources, hence Balance account will show resources on the Dr. side and liabilities on the Cr. side. Accounts closing "To profit and loss," show gains, those closing "By profit and loss," losses, hence Profit and Loss account will show losses on the Dr. side, and gains on the Cr. side. When the direction given requires an account closed "To or by another," close it To the other" if the debit side is the least, and By the other" when the Cr. side is the least. There are but three general ways of closing accounts: "To or by profit and loss," by which all the gains and losses are collected in Profit and Loss account; "To or by stock," by which the net gain or loss is taken to the Capital account; and "To or by balance," by which all the resources and liabilities are gathered together in the Balance account. If no mistake is made in closing the ledger the two sides of Balance account will be equal, for in prosperity the Dr. side comprises all the resources of the business man, and the Cr. side all his liabilities and his net capital-the net capital being the excess of resources over liabilities. And the net capital properly appears among the liabilities, as the books are of the business, and show that the business owes the merchant whatever he has invested in it. So in adversity the Dr. side of Balance account consists of the resources and the net insolvency, and the Cr. side of the liabilities-the net insolvency being the excess of the liabilities over resources. And the net insolvency properly appears among the resources, as the merchant needs to pay or provide the business with what it owes beyond its ability to discharge. Book-Keeping-Ledger Entries. The ledger is the principal account book, and as all other books are subservient to it, it seems proper that this should be the first book considered. It is extremely difficult for a person who has no previous knowledge of the subject to understand the use or language of the journal or day-book until he is made acquainted with the nature and use of the ledger. The ledger is the book of accounts. Into it are gathered, in a condensed form, the entries contained in all the other books. Every transaction must come to this book for final adjustment; in fact, were it not for the great difficulty experienced to avoid errors and the lack of time to neatly make the entries, all the other books might be dispensed with, and the transactions, as they occur, entered under their appropriate headings in this book directly. All other books used in business are merely aids to the book-keeper in preparing the transactions for the ledger. For each person who becomes indebted to us, or to whom we become indebted, an account is opened in this book, and the date and amount of such indebtedness therein recorded, so that however numerous the transactions that we have with an individual may be, or however widely separated as to time, they are all brought together within a very small space under his account in the ledger, where the amounts can be readily seen, and whether we owe him, or he owes us, and how much, easily determined. By thus bringing compactly together all the transactions which we may have with an individual, spread over, it may be, many months, and arranging upon one side of his account all items for which he becomes indebted to us (that is, for which he owes us), and upon the other side all items for which we become indebted to him (that is, for which he trusts us), we make it an easy matter to quickly determine at any time the difference, or balance as it is termed, and whether it be in our favor or against us. The balance is in our favor when the Dr. side exceeds the Cr., that is, when he owes us more than he trusts us; and against us when the Cr. side exceeds the Dr., that is, when he trusts us mor than he owes us. By double entry book-keeping we not only keep accounts with individuals but with every kind of property which we own or deal in, such as Merchandise, Real Estate, Cash, Notes, etc. Each kind of property has a separate account in the ledger, the same as individuals. and is made Dr. for what it costs us when we buy, and Cr. for what it brings us when we sell or part with it. It will be seen by the following ledger accounts with Merchandise, R. Evans, John Jones, William Smith, and Cash, that each account has two sides, being divided in the centre by a triple line. The left-hand side is the debit (abbreviated Dr.) side, and the right-hand side the credit (abbreviated Cr.) side. The term debit comes from the Latin word debet, and means he owes, and the term credit comes from the Latin word credit, and means he trusts. When an individual becomes indebted to us for goods sold to him on credit, or for payments made by us to liquidate our indebtedness to him, such sales or payments must be entered upon the Dr. side of his account because he owes us for them, and vice versa, when we become indebted to an individual for goods bought from him on credit, or for payments received from him to liquidate his indebtedness to us, such purchases or payments must be entered upon the Cr. side of his account, because he trusts us for them. The following rule must always be borne in mind, viz. That whoever or whatever causes us to part with value or to run into debt must be debited in the ledger; and whoever or whatever brings us in value or gets us out of debt, or causes persons to owe us, must be credited in the ledger. The following examples will serve to illustrate the foregoing remarks. Carefully consider each example and follow it to its proper accounts in the ledger. Each example affects equally two accounts, the Dr. side of one and the Cr. side of another. January 4, 1876. We bought of R. Evans on account, merchandise to the value of $1,500. In this example or transaction we buy a certain kind of property called merchandise, for which we run in debt to R. Evans, and following out what has already been said, we turn to the Merchandise account in the ledger, and upon the Dr. side we enter the date, To whom we owe for the merchandise, viz., R. Evans, and the amount $1,500, and then upon the Cr. side of R. Evans' account we enter the date, By what he trusts us, viz., Mdse., and the amount $1,500. The amounts upon the Dr. and Cr. sides of the ledger, after the above transac tion is posted, are equal; it is essential that such should be the case after each transaction is posted. January 7. We sold to John Jones on account, 10 yds. fancy cassimere (Mdse.), @ $2.25 $22.50. In this transaction we enter upon the Dr. side of John Jones' account, because he owes us, the date, To what he owes us for, viz., Mdse., and the amount; and upon the Cr. side of the Merchandise account, because it was merchandise, that produced us the amount that John Jones owes us, we enter the date, By the person who owes us for the goods, viz., John Jones, and the amount. January 10. Sold to William Smith on account, 121⁄2 yds. bl'k br'd cloth, @ $6; $75. January 15. Sold John Jones on account, 5 yds. bl'k February 5. Paid R. Evans on account, $500. By looking at R. Evans' account it will be seen that at this date we owe him, or rather he trusts us for goods bought of him January 4th and 28th, $1,850. By this payment of $500, he in reality trusts us from this time until we make another payment or purchase but $1,350. Now, as we cannot erase the $1,850 and insert $1,350 in its place, we enter the $500 upon the Dr. side of his account, thus making his account to show that he still trusts us $1,850, but owes us $500. The question is now, what account to credit? R. Evans has been debited $500, and some account must be credited the same amount. According to what has already been said it must be that which we parted with or enabled us to decrease our indebtedness. In this case it was a kind of property called money with which we parted; it was the money which we paid over to R. Evans that decreased our indebtedness to him, therefore money deserves credit. The money received and paid out is entered in the ledger under an account called Cash, we therefore turn to the Cash account and upon the credit side enter the date, By R. Evans, and the amount, February 12. Received from John Jones on account, $15. In this example we receive property called money, and as all property when received is debited, we turn to the account in the ledger representing money, viz., Cash, and enter upon the Dr. side the date, To John Jones, and the amount, $15, and as John Jones trusts us for the $15 until he settles in full for the goods sold to him January 7th and 15th, we give his account Cr. for that amount. His account will now show that he owes us $60, but that he trusts us $15. February 21. Received from Wm. Smith on account, $25. March 2. Paid R. Evans on account, $100. March 20. Sold Wm. Smith on account, 30 yds. fancy cassimere, @ $2; $60. April 8. Sold John Jones on account, 20 yds. bl'k br'd cloth, @ $6; $120. April 13. Sold Wm. Smith on account, 10 yds. bl'k cassimere, @ $3.75: $37.50. April 27. Paid R. Evans on account, $500. May 15. Rec'd from John Jones to balance bills of January 7th and 15th, $45. June 3. Sold Wm. Smith on account, 21⁄2 yds. fancy cass. @ $7.50; $18.75. June 18. Paid R. Evans on account, $200. June 30. Rec'd from Wm. Smith to balance his account to date, $166.25. In this last example, when Wm. Smith receives credit for the $166.25, the two sides of his account will be even. In all cases where a settlement in full is made or a statement sent to a customer, his ledger account should be balanced and ruled off. This will save much time and perplexity in future settlements, as all transactions up to the time the account is balanced or closed are supposed to be correct and adjusted, and in future settlements only transactions after the date of balancing are to be taken into consideration. The ruling off of an account divides the adjusted or settled transactions from the new or unadjusted ones. Journal Entries-Double Entry. The Journal. The journal is an intermediate book between the day book and ledger. Its use is to determine the proper accounts in the ledger to be debited and credited from each day book transaction, and to arrange the debits and credits in a convenient and easy form for posting We could dispense with the use of this book with much less inconvenience than that of the day book, but as it serves an excellent purpose in systematically arranging the day book matter for the ledger, and greatly facilitates the detection of an error in the posting, its use is very general. In many cases the day book and journal are combined in one book under the name of journal day book. This form shortens the work considerably, and is well adapted to many kinds of business. There are four forms of journal entries, as shown in the following diagrams: Dr. Cr. 500 00 500,00 750,00 200,00 550 00 500 00 300 00 200,00 700 00 5,500,00 2,000 co 4,200 00 The following are the journal entries for a few of the day book transactions hereafter given. It will be seen that the account which we wish to debit in the ledger is named first and the amount carried out into the inner of the two right-hand columns, and then upon the next line below, a little to the right, say about three-quarters of an inch, we write the name of the account we wish to credit in the ledger and carry the amount out into the outer of the two right-hand columns. Philadelphia, January 4, 1876. Dr. Cr. Mdse.,. To R. Evans, 7 The book for this purpose is called the day book; by some it is called the blotter, and by others a waste book. In it are entered, in the order of their occurrence, every transaction, bargain, and agreement which we make, and as it is the only book allowed to be produced as evidence in a suit at law (that is, when the transactions are not divided between several books), pains should be taken to record correctly everything pertaining to the transaction, such as the date, articles, price, amount, and anything else essential to the proper understanding of the transaction in the future. Many bitter contentions resulting in the loss of money, reputation, and friends would be avoided if all bargains and agreements, as well as purchases and sales, were recorded in writing by each interested party as soon as made. This, of course, can be done in the day book. The aim should be to enter each transaction in as concise or terse a manner as possible, and yet to have everything recorded essential to a right reading, without the aid of the memory, in case you were in the future forced to law upon the matter. No erasure or scratching out is allowed in this book, as that would look suspicious and at once destroy its strength as evidence, but if it be discovered that a transaction has been entered incorrectly, the error should be explained in a separate entry so soon as discovered. The following are a few of the first examples given in remarks upon the ledger, and are now used here to illustrate the form, etc., of this book. It will be observed that the last entry differs from the others in that it has several kinds of articles recorded. When this is the case, the inner column of the two right-hand columns is used for the sum of each separate item, and the sum total of all the items then carried to the outer columns. When there is but one item in the transaction, the amount is entered only in the outer columns as in all the entries before the last. 45 @3.50 17 50 To mdse., 22 50 2 yds. Scotch tweed, $6.00 " 151 77 50 30,000 10,000 day with the following resources and liabilities. -Resources. Store and lot valued at. Cash on hand, Mdse., 5,000 2,460 1,741 35 864 42 943 81 51,009 58 3,215 50 1,318 40|| |