Bookkeeping

Book-keeping is the art of keeping a series of accounts relating to commercial transactions arranged in a systematic manner. The most rudimentary form of such an arrangement is to put the receipts on one of the pages of the book as it lies open, and the payments on the opposite page, so that they may run on side by side. The receipt side is called the "debtor," and the payment the "creditor" side; and the account is said to be "debited" with what the person, to whose affairs it relates, receives, and "credited" with what he owes. Even in small businesses, however, it is usually found necessary to have a rough "waste-book," containing receipts and payments as they occur, and a "journal," in which they are more or less classified; and generally the classification is carried further by the entry of various items in other books. But, of course, the complicated accounts of a large business comprise many classes of receipts and payments. There will be receipts from sales to customers: capital may be advanced by a bank; in some cases loans may be repaid, or there will be payments for rent, for rates, for goods purchased, for law expenses, for wages, etc.; there may be interest from investments: and the payments may be made in very different ways - by cheques, by drawing bills, in cash, and so on. Much more elaborate classification is, therefore, requisite, and a system has been worked out - first invented, it would seem, in the commercial cities of Italy, in the 15th century - of checking the possible errors in such complicated accounts by so keeping them that the general account can be checked by the various classified accounts, and vice versa. This is called "book-keeping by double entry," and proceeds on the principle, that as every payment of money or transfer of goods is a transaction involving two parties, accounts shall be kept from the point of view of both, and each transaction shall be recorded in two accounts. And it is further simplified by personifying, as it were, the various sellers of goods to the firm, or the modes in which payment is made under single heads - thus "Goods purchased," "Cash," "Bank," "Bill," etc., and having a separate account for each. Each of these persons, real or imaginary, is treated as a creditor for his outgoings, and a debtor for his receipts. Thus if a merchant purchases iron for £1,000, "Iron" is debited with £1,000, and is expected to meet it when the metal is disposed of, while the general account is credited with £1,000; and, should the payment be made by a bill of exchange, "Bills" will be credited, and the general account debited with the sum paid for the bill. At any time then the state of the firm's affairs can be ascertained by balancing all these accounts, and the correctness of the result tested by comparing it with the result of balancing the general account.