In the foregoing example the customary method has been followed of deducting withdrawals of capital from the capital account and of adding profits thereto. Sometimes, however, the balance of the capital account remains constant, and the drawings and net profits are transferred to a separate account called current account. This plan is but rarely observed in the case of undertakings owned by individuals, or private firms, but is invariably adopted in connexion with joint-stock companies, although in such cases the name appropriation of profit account is generally employed.
Although it is now usual to employ several books of first-entry, in the case of comparatively small businesses one such book is sufficient for all purposes, in that it is practicable for one person to record all the transactions that take place as and when they occur. A book of this description is Journal. called the journal, and for many years represented the only book of first-entry employed in book-keeping. An example of the journal is given below. The entries appearing therein are such as would be necessary to prepare the trading and profit and loss accounts from the trial balance shown above, and to bring the capital account up to date.
In modern times, however, with the growth of business, it was soon found impracticable to keep one book of first-entry for all transactions, and accordingly it became necessary either to treat the journal as an intermediate book, in which the transactions might be brought together and focused as a preliminary to being recorded in the ledger, or else to split up the journal into numerous books of first-entry, each of which might in that case be employed for the record of a particular class of transaction. The first method has been generally adopted in the continental countries of Europe, as will be shown later on, whereas in Great Britain and in North America the latter method more generally obtains; that is, instead of having one journal in which all classes of transactions are recorded in the first instance, it is usual to employ several journals, as follows:—a sales journal, sales book or day book, to record particulars of goods sold; a bought journal, invoice book or purchases book, to record particulars of goods purchased; a returns inwards book, to record particulars of goods sold but subsequently returned by customers; a returns outwards book, to record the like particulars with regard to goods purchased and subsequently returned; a bills receivable book, to record particulars of bills of exchange received from debtors; and a bills payable book, to record particulars of bills of exchange given to creditors.
Journal 1906
| Dr. | Cr. | |||||||
| Dec. 31 | Trading account | 110 | £48,809 | 19 | 2 | |||
| To Stock account | 44 | £4,078 | 16 | 4 | ||||
| ” Purchases account | 97 | 44,731 | 2 | 10 | ||||
| ” | Sales account | 100 | 48,732 | 4 | 9 | |||
| Stock account | 44 | 5,751 | 3 | 10 | ||||
| To Trading account | 110 | 54,483 | 8 | 7 | ||||
| ” | Trading account | 110 | 5,673 | 9 | 5 | |||
| To Profit and Loss account | 120 | 5,673 | 9 | 5 | ||||
| ” | Profit and Loss account | 120 | 5,383 | 1 | 6 | |||
| To Rent, rates and taxes | 78 | 1,242 | 13 | 8 | ||||
| ” Salaries and wages | 65 | 1,865 | 12 | 0 | ||||
| ” General expenses | 82 | 1,087 | 8 | 0 | ||||
| ” Discounts allowed | 50 | 975 | 3 | 3 | ||||
| ” Bad debts | 40 | 71 | 4 | 2 | ||||
| ” Depreciation | 75 | 141 | 0 | 5 | ||||
| ” | Discounts received | 60 | 1,117 | 17 | 8 | |||
| To Profit and Loss account | 120 | 1,117 | 17 | 8 | ||||
| ” | Profit and Loss account | 120 | 1,408 | 5 | 7 | |||
| To A.B., Capital account | 1 | 1,408 | 5 | 7 | ||||
| A.B., Captial account | 1 | 1,500 | 0 | 0 | ||||
| To Drawings account | 5 | 1,500 | 0 | 0 | ||||
| £118,376 | 1 | 11 | £118,376 | 1 | 11 | |||
Day Book 1906
| 471 | Forward | £3761 | 7 | 8 | ||||
| 27th December. | ||||||||
| A. Brown, | ||||||||
| 492 New Street, Walworth— | ||||||||
| 2 doz. V.C. port | 31/- | £3 | 2 | 0 | ||||
| 1 ” A.C. pale brandy | 49/- | 2 | 9 | 0 | ||||
| 216 | 28th December. | 5 | 11 | 0 | ||||
| Fredk. Newton, | ||||||||
| Farleigh House, Epsom— | ||||||||
| 1 gall. E. Pale sherry | 13/6 | £0 | 13 | 6 | ||||
| 2 doz. O. B. Heidsieck 1892 | 160/- | 16 | 0 | 0 | ||||
| 2 gall. P. Scotch | 21/- | 2 | 2 | 0 | ||||
| 408 | 18 | 15 | 6 | |||||
| Robert French, | ||||||||
| 214 High Road, Sutton— | ||||||||
| 6 doz. F. D. Pommard, 1899 | 30/- | £9 | 0 | 0 | ||||
| 1 ” M. F. Margaux, 1893 | 66/- | 3 | 6 | 0 | ||||
| 2 ” A. Niersteiner | 24/- | 2 | 8 | 0 | ||||
| 14 | 14 | 0 | ||||||
| £3800 | 8 | 2 | ||||||
| 100 | ||||||||
With a view still further to split up the work, thus enabling a large staff to be simultaneously engaged, the ledger itself is now generally kept in sections. Thus the cash account and the bank account are frequently bound together in one separate book called the cash book, showing in parallel columns the movements of office cash and of cash at the bank, and by the addition of a third column for discounts the necessity of keeping an additional book of first entry as a discount journal may also be avoided. Of late years, however, most businesses pay all moneys received into their bankers without deduction, and pay all accounts by cheque; the necessity of an account for office cash thus no longer exists, save in connexion with petty payments, which are recorded in a separate book called the petty cash book. With regard to the remaining ledger accounts, personal accounts—which are the most numerous—are frequently separated from the real and nominal accounts, and are further subdivided so that customers’ accounts are kept separate from the accounts of trade creditors. The customers’ accounts are kept in a ledger (or, if need be, in several ledgers) called sales ledgers, or sold ledgers; while the accounts of trade creditors are similarly kept in purchases ledgers or bought ledgers. The nominal and real accounts, if together, are kept in what is called the general ledger; but this may be further subdivided into a nominal ledger and a private ledger. This last subdivision is, however, rarely made upon a scientific basis, for such accounts as the profit and loss account and trading account are generally kept in the private ledger although strictly speaking nominal accounts; while the bills receivable account and the bills payable account are generally kept in the nominal ledger, so as to reduce to a minimum the amount of clerical work in connexion with the private ledger, which is kept either by the principal himself or by his confidential employee. By the employment of adjustment accounts, which complete the double-entry record in each ledger, these various ledgers may readily be made self-balancing, thus enabling clerical errors to be localized and responsibility enforced.
Of recent years considerable attention has been devoted to further modifications of book-keeping methods with a view to reducing clerical work, increasing the speed with which results are available, and enabling them to be handled more quickly
