The Institute of Bankers. FEBRUARY, 1891. H. F. BILLINGHURST, Esq., in the Chair. GENERAL BOOKKEEPING. PART I: IN CONNECTION WITH THE THREE PRIMARY BOOKS OF ACCOUNTS-JOURNAL, CASH BOOK, AND LEDGER, LEADING UP TO TRIAL BALANCES. [Read at the London Institution, 7 January, 1891,] BY GÉRARD VAN DE LINDE, F.C.A., F.S.S. (Fellow and Joint Auditor of the Institute of Chartered Accountants in England and Wales). “Precept must be upon precept—precept upon precept. Line upon line—line upon line." Introduction. 1. Bookkeeping is a science, perfect in itself, simple and intelligible to those who take the trouble to master it from its foundation, and then to carry out in their strict integrity the fundamental principles which form the keystone to the whole structure. The funda 2. These fundamental principles are embodied in mental the well-known axiom that "Every debit requires a principles. credit," and vice versâ once grasp and apply to every transaction and entry this all important fact, and the rest is as simple and easy as A B C. You must be good enough, however, to bear with me if I appear to reiterate this fact over and over again. My object is to impress upon you its vital importance, and to satisfy you, once and for all, that it is indeed the keystone to the structure, and that B I, at all events, after many years' experience in such matters, find I cannot do without it. If, therefore, any of you find that you can, I shall be glad to change places with you and learn from you have to teach me on this important subject. Principle involved. all you 3. The principle involved consists in the fact that Bookkeeping creates nothing, it merely records transactions as between a giver and a receiver, the giver (as an individual or an aggregate) being credited with what he gives, while at the same time the receiver (as an individual or an aggregate) is debited with what he receives, and thus the balance is always kept equal. Bookkeeping by Double Entry. 4. This system of Bookkeeping, and it is the only scientific and reliable one, is styled BOOKKEEPING BY DOUBLE ENTRY. We will therefore concentrate our attention upon this system and this one alone. Its comprehensiveness and universality. 5. Its comprehensiveness and universality are unbounded; it is adapted to every class of business I know of, and is to be met with in every portion of the globe, for however much the method and form in Bookkeeping and Accounts may vary according to circumstances, the fundamental principles ever remain the same and cannot change one iota. I particularly desire to impress this very important fact upon you gentlemen, my present audience, this evening, because from the very special nature of Bank Bookkeeping you might otherwise probably think that in speaking to you this evening upon "Bookkeeping by Double Entry " I am speaking to a special class of gentlemen whom it in no ways interests or affects, whereas it is quite the opposite. I trust, therefore, that before we part company we shall be at one upon this point, as I trust upon every other point that we may have to consider together. Debits and 6. It often happens (and this is not confined in any way to Bank Bookkeeping) that the one who records and posts the debit entries is quite distinct and separate from the one who records and posts the corresponding credit entries. This, however, makes no difference whatever; these two gentlemen— or it may be army of gentlemen, it is all the same-have ever to bear in mind that they are the integral factors who build up the structure; that each one of them has his own allotted task to perform, in full harmony and accord with the whole; and that ultimate success depends entirely upon each individual member loyally filling his part in strict compliance with the duties thereto attaching-just exactly in the same way as that stupendous work, the St. Gothard Tunnel, was achieved, the Italian workmen working one end of it, the Swiss the other, and for seven and a-half long weary years the one section never once coming into working contact with the other, until at length, on 29 February, 1880, they finished the final bore and shook hands in the middle, after piercing through 16,309 yards (9 miles) of that rocky mountain; and yet really how complete must have been the system and harmony between them, and how loyally carried out by all concerned. One hair-breadth's deviation would have been fatal, whereas with such precision was everything carried out that they on either side hit it exactly at the right spot. Well, gentlemen, that is my idea of what you can and do accomplish by double entry. You deal with millions of pounds sterling, and balance your books to one penny exactly, and I congratulate you upon your accuracy, and urge you never to be satisfied with anything short of this (absolute accuracy); for remember, that what is worth doing at all is worth doing thoroughly. So now, after this preliminary drilling-or boring, if you prefer it-let us pass on to our main subject. Primary 7. The heading of this Paper gives the primary books of accounts as being 1. The Journal (or Journals). 2. The Cash Book (or Cash Books). 3. The Ledger (or Ledgers). Every book of accounts forming part of the system of bookkeeping by double entry will be found to resolve itself into one or another of the above three books. The Journal. The use of the Journal. 8. I begin with the JOURNAL, as I require that book to make my opening entries in starting a set of books. 9. I have already endeavoured to impress upon you, at paragraph 2, that "every debit requires a credit," and vice versa, therefore in the case where no other intermediary book is available, the JOURNAL becomes the link of union to record on the one side the debit or debits, and on the other side the equivalent credit or credits, in such a way that these transactions thus get to be posted intelligibly and in proper order to their respective ledger folios. Let me here impress upon you never to attempt a cross or adjusting entry of any kind whatever, either from one Ledger to another or from one folio of a Ledger to another folio of the same Ledger, without first passing the entry clearly and fully in the Journal or some other similar intermediary book, which after all, as I am about to explain, is nothing but a special Journal under another name. If you attempt any short cut you not only lose direct record of the transaction (which is often most important), but you also run a great risk of making the entry imperfectly, and in such a case detection and correction become most difficult, for you do not know where to look for the mistake. The Journal is the book especially adapted for all such cross and adjusting entries, besides playing the all-important part of being the medium for recording all opening and closing entries. Those, therefore, who avail themselves of it will find it a real friend in need, equal to every emergency, as also a credit to themselves. There is nothing so refreshing and interesting in Book-keeping as the Journal thus properly kept, recording at regular intervals and in chronological order, in clear and unmistakable language and method, those very transactions which it is all important should thus be recorded. In this way one can see at a glance if any regular entry has at any period been omitted, and it can thus be made in its proper place and order before it is too late, and so preserve the symmetry of the whole, not only for that but for all other occasions, past, present, and future. The use of the Journal rendered imperative under the Code Napoleon, and in other 10. On the Continent, and elsewhere, where the Code Napoleon prevails, the use of the Journal is imperative, and the law lays down stringent and precise rules as to its issue, &c. Similar regulations apply to "Le livre des Inventaires " (the Book of Balances, including Stocks, &c.), with this invariable safeguard, the authenticity of these two important books, the Alpha and Omega of the trading, is thus ensured, heavy penalties attaching to non-compliance or infraction of the rules laid down. In Russia and Poland, also, the use of the Journal and correct bookkeeping are strictly enforced by the Legislature, under very heavy penalties. countries also. England is a free country, and it is questionable how far such continuous legislative supervision would be acceptable with us. I cannot but think that if it were carried on in an inoffensive and unofficious manner, some such supervision would be productive of much good; it would certainly go far to check fraudulent and subsequently improper entries, and the substitution of bogus and posthumous books in place of the original ones destroyed or withheld. I merely throw this out as a suggestion for what it is worth, and again pass on to my subject on the main issue. The Journal and its offshoots. 11. A JOURNAL is not necessarily confined to one book, it may consist, and often does, of many books; for instance, the following books, inter alia, perform in every respect the functions of the Journal, being in fact undoubtedly Journals, though under another name: they are 1. Sales Day Book or Sales Journal. 2. Returns Book Inwards. 3. Bought Day Book or Invoice Book. 4. Returns Book Outwards. And there are other similar ones, but these four will answer present purposes. You will doubtless remember that Mons. Jourdain, in Le Bourgeois Gentilhomme, one morning suddenly discovered the startling but welcome fact that when he said to his servant, "Nicholas, bring me my slippers, and give me my nightcap," it was prose that he was talking, and that, in fact, he had been talking prose for over 40 years without, for one moment, even suspecting the interesting fact. Well, gentlemen, just as in the same way it is an undoubted fact, which none of you will question, that I am talking prose to you to-night; so do I hope to convince you that these four books I have just enumerated are simply Journals under another name, and that you have thus been using the JOURNAL these many long years without suspecting it, just as Mons. Jourdain found he had been similarly talking prose. I sincerely hope the discovery will be as agreeable to you as it was to him. I write this last sentence advisedly and in all seriousness, for I am sorry to say that the Journal has its detractors and maligners, although, happily, they are an insignificant minority who wilfully close their eyes to its superlative advantages. I sincerely trust that in time they, too, will be enlightened as was our estimable friend Mons. Jourdain. 1. Sales Day Book or Sales Journal. 12. THE SALES DAY BOOK or SALES JOURNAL. This book is used by the manufacturer and general trader, and answers in a measure to the ACCOUNT SALES BOOK in a merchant's office, with this distinction, that, instead of being first journalised, the entries it records are at once posted from it direct to the debit of the personal account in the SALES LEDGER of the individual purchasers, and the total, or totals, to the credit in the PRIVATE LEDGER of the impersonal account of sales either en bloc or under the various subheads of the respective articles sold, should it be decided to keep these respective accounts distinct. In the one case one money column answers the purpose; in the other the book is ruled with various columns, headed accordingly, the total cross casts of which agree with the total of debits charged out to the respective customers, e.g. :— |