Domestic Encyclopædia (1802)/Book-Keeping

BOOK-KEEPING, is the art of recording mercantile transactions in a systematic manner.

A merchant's books should contain every particular which relates to his affairs; and exhibit the state of his business, the connection of the different parts, with the amount and success of the whole. Accordingly, they should be so full and regular, as to afford information in every point for which they may be consulted.

Book-keeping comprehends the following heads: the debts owing to a merchant, and those due by him to others; the goods which belonged to him, with the quantity and value sold, and those which remain in his possession; also the amount of his stock when the books were opened, together with his profits and losses, and the extent of his property at present.

The Italian method of book-keeping by double-entry, is founded on the most universal principles, and is therefore the best in extensive and complicated mercantile transactions. Indeed the accountant who thoroughly understands it, can with facility either adopt or invent any other form better suited to any particular business.

According to the Italian method, three principal books, namely, the waste-book, journal, and ledger, are used. The waste-book, or day-book, begins with an inventory of the owner's goods, a list of debts due to him, and of the debts he owes to others; and it is continued with a clear statement of the money received or paid, and the goods bought or sold by him, &c. The accountant's first care should be, to have nothing defective; and his second, to insert nothing superfluous in the waste-book.

The journal is a concise record of transactions compiled from the waste-book, in the same order as they stand there, but expressed in a technical style. The whole art of writing the journal depends upon the proper choice of the D^rs. and C^rs. Every thing received, or person accountable to us, is D^r.; and every thing delivered, or person to whom we are accountable, is C^r. On these two comprehensive rules, and their various modifications, depends the regularity of accounts. As for the more particular rules, they will readily be suggested by the judgment of the accountant.

From the journal, the different transactions are posted in the ledger. Each account is distinguished by a proper title, and articles of the same kind received and delivered, are entered on opposite sides of the same folio. For instance, money received is entered on the one side, and money paid on the other; or goods bought on the one side, and goods sold on the other. The left hand page is called the D^r. side; the right hand page the C^r. side of the account; and the difference between the sums of the D^r. and C^r. sides is denominated the balance.

Accounts, in the ledger, are of three kinds, personal, real, and fictitious. Personal accounts are those opened for every person or company with whom the merchant has any dealings or credit; real accounts are those of property, such as ready money, goods, ships, houses, &c.; and fictitious accounts are stock, together with profit and loss, and its subsidiary accounts.

The stock account contains, on the D^r. side, the amounts of the debts due by the merchant when the books were opened; and on the C^r. the amount of money, goods, &c. belonging to him; consequently the balance shews the amount of his nett stock. Profit and loss account contains every article of gain on the C^r. and of loss on the D^r. side; therefore the balance is the nett gain or loss, which is posted on the proper side of the stock account above-mentioned.

Several subsidiary accounts are opened, to shorten and methodize that of profit and loss, such as interest account, proper expences, &c. These are used, or others invented, according to the nature and purposes of the business.

Accounts may be opened in the ledger, in the same order as they occur in the journal; or those of a similar kind may be placed together; the personal accounts in one part of the book, and the real accounts in another.

Besides the three principal, there are subsidiary books used by merchants of extensive connections and business. These are, the cash-book, book of charges of merchandize, book of house-expences, invoice-book, sales-book, bill-book, receipt-book, letter-book, and pocket-book. Some merchants also keep a memorandum-book; but the man of business cannot be restricted to these, as he will either use them, or invent others more conformable to the nature of his business.

In the year 1796, a patent was granted to Mr. Edward Thomas Jones, of Bristol, for his method or plan of detecting errors in accounts of all kinds, by which they may be adjusted in a regular and concise manner. This work is entitled, The English System of Book-keeping, which requires a day-book, or journal, an alphabet, and a ledger, ruled in the following manner: namely, the day-book has three columns on each page, for receiving the amount of the transactions; one column of which to receive the amount of the debits and credits, one column to receive the debits only, and another to receive the credits only; or it may be ruled with only two columns on each page, one to receive the amount of the debits, and the other the amount of the credits. There must also be on each page of the day-book, four other columns ruled, two on the left side, next the amount of the debits, and two on the right side next the amount of the credits, for receiving the letter or mark of posting, and the page of the ledger to which each amount is to be posted. The alphabet need not be ruled at all, but must contain the name of every account in the ledger, the letter that is annexed to it as a mark of posting, and the page of the ledger. The ledger must be ruled with three, four, five, or seven columns on each page, as may be most agreeable, for receiving the amounts of the different transactions entered in the day-book.

But in order to prevent any mistakes that may happen from the hurry of business in a counting-house, Mr. Jones has given only one column for receiving the amount of every transaction, whether debits or credits, at the instant of making the entry: and, for the convenience of separating the debits from the credits, previous to posting, which is necessary to prevent confusion and perplexity, he has two other columns on the same page; that on the left side, into which the amount of every debit must be carefully entered, and that on the right for the amount of the credits; which columns must be cast up once a month. The column of debits and credits of itself forms one amount; the column for the debits produces a second amount; and the column of credits a third amount; which second and third amounts, added together, must exactly agree with the first amount, or the work is not done right. By this means, the man of business may obtain monthly such a statement of his affairs, as will shew how much he owes for that month, and how much is owing to him; and the debits being added together for any given time, with the value of the stock of goods on hand, will, when the amount of the credits is subtracted therefrom, shew the profits of the trade.

The patentee's manner of examining the books kept by this method, also professedly differs from that hitherto practised, as well in expedition as in the certain accuracy which attends the process; it being only necessary to cast up the columns through the ledger debits and credits, according to the examples given, and the amount of those columns, if right, must agree with the columns in the day-book for the same corresponding space of time. These castings should take place once a month, and if the amounts do not agree, the posting must then, but not else, be called over; and when the time, whether it be one, two, three, or four months, that is allotted to each column of the ledger, is expired, the amount of each column should be put at the bottom of the first page, and carried forward to the bottom of the next, and so on to the end of the accounts; taking care that the amount in the day-book, of each month's transactions, be brought into one gross amount for the same time.

Having already enlarged upon this subject, we shall only observe, that this new system of book-keeping, however ingeniously contrived, has not met with that general approbation to which it is apparently entitled. To enforce his claim to public patronage, Mr. Jones concludes the specification of his patent by asserting, that upon his plan every page will be proved in the progress of calculation, and "the balances of ten thousand ledgers could not unobservedly be taken off wrong."—We give him full credit for this assertion; though it has, perhaps by invidious rivals, been objected that his method is more complicated than the old Italian system of book-keeping; which has, by experience, been found fully adequate to the purpose of mercantile accuracy.