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30th, B sells his entire stock of wool for £5,000 cash, and consequently makes a loss of £ 500.

To record this, £5,000 must be deducted from the Wool Account, and £ 5,000 must be added to the Cash Account.

This transaction, however, not only affects the two parts of B's property, but also his capital, or property as a whole, which is decreased by the loss of £ 500; the £ 500 remaining in the Wool Account being of no value.

Therefore, to record the loss, £ 500 must be deducted from the Wool Account, and £ 500 must also be deducted from the Capital, or total property, Account.

If B were to sell his wool at a profit, and not at a loss, the Wool Account, and the Capital, or total property, Account, would have to be increased, instead of decreased.

It follows, therefore, that every increase or decrease of any part of the property, unless compensated by the like decrease or increase of another part, involves a corresponding increase or decrease of the whole.

The method of adding or subtracting each transaction, as shown in the previous example, has long since given place to the more convenient plan, by which one side of an account is appropriated to all items of increase, and the other to all items of decrease.

The above-mentioned transactions would now appear in the following form. Dr. Capital Account.

Cr.

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The state of an account is ascertained, at any time, by adding each side and comparing the totals.

The sides of an account, thus divided, are technically called (6) " debit” and “credit” (usually written “ Dr.” and “ Cr.")

To debit an account is to enter on the left hand side, and to credit an account is to enter on the right hand side.

(6) In the succeeding pages of this book, the abbreviatious" Dr.” and “ Cr." are used instead of the words debit or debtor, and credit or creditor,

Each entry on the “ Dr.” side is usually prefaced by the word “ To," and each entry on the “Cr.” side by the word “ By”; implying that the person, or thing, represented by the heading of the account, is Dr. to, or Cr. by, the sum entered.

The expression “ Double-entry” aptly describes the governing principle of the system, which requires that every transaction shall be twice recorded ; to the Dr. of one account in the ledger, and to the Cr. of another.

Consequently, for every Dr. there must be a corresponding Cr.

The two-fold nature of mercantile dealings will be obvious to all; e.g. if a person becomes my debtor, it follows that I become his creditor, or vice versa (c). This duality exists in every kind of business transaction.

In double-entry book-keeping there are three distinct classes (d) of accounts, viz:(i.) Personal Accounts, i.e., accounts of persons dealing with the

firm. (ii.) Property Accounts, e.g., Machinery, Business Premises, &c. (ii.) Nominal Accounts, i.e., accounts of income, and expendi

ture, such as Sales Account, Purchases Account, Wages

Account, etc. All classes of accounts are governed by the same fundamnental principles. The subjects represented by both the Property Accounts (ii.), and the Nominal Accounts (iii.), are deemed to be personified, and are treated as persons; thus, I sell cloth, value £20, to B on credit; in my books B is debited with the price as the receiver, and Cloth, is credited as the giver. The entry would be as follows:-Dr. B Account.

Cr.

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(c) In my books the person is Dr, and the thing given to him is Cr.

(d) By different writers accounts have been described and classified in various ways.

PERSONAL, including (i.)
For instance

and
IMPERSONAL, including (ii.) and (iii.)
PERSONAL, including (i.)
REAL, including (ii.)
and
Nominal or Fictitious, including (iii.)
Real, including (i.) and (ii.)

and

| Fictitious, including (iii.) Some nice arguments, which it is not necessary to discuss, have been raised concerning both classification and nomenclature. The several views are given so that the reader may be acquainted with the various designations that are in common

use.

Cloth Account represents me, and it might be headed My (Cloth) Account, and thus personified.

All the accounts in the ledger may, therefore, be regarded as accounts of persons, that is, either accounts of the trader himself, on the one hand, or of persons with whom he has dealings, on the other.

If this principle be fully recognised, and clearly understood, much of the difficulty in determining whether any item is to be posted to the Dr. or Cr. of an account will be removed.

The account which receives is always Dr., and the account which gives out is always Cr.

Thus, in the above illustration, B received cloth, and is therefore Dr., Cloth Account gave out cloth, and is consequently, Cr.

CHAPTER II.
ELEMENTARY PRINCIPLES ILLUSTRATED.

The principles laid down in the foregoing pages, are applied and illustrated in the following specimen accounts.

A series of imaginary transactions, dissimilar in nature, is chosen to represent the most frequent and important classes of mercantile dealings. For the sake of brevity a few items only are selected as examples of each class, and all explanatory details are omitted.

Abraham Crosland, a manufacturer, is supposed to commence the year with capital amounting to £4,500, made up as follows:ASSETS. Stock of Goods.....

3,160 Plant and Machinery .....................

2,200 Cash in hand.......................................

220 Owing to him, by Thomas Allen ............ 3,000

Do. George Brownson ...... 2,100— 5,100

200

Less LIABILITIES, viz:-
Owing by him, to John Blamires ............ 3,450

Do. Albert Lodge ............ 730
Do.

West Yorkshire Bank... 2,000— 6,180

Leaving Surplus or Capital ............ £4,500
His transactions during six months are as follows:-
Purchased goods of John Blamires

3,200 2 Sold goods to George Brownson ........

....................

7,200 3 Returned goods (purchased) to Albert Lodge ..............

75 4 Received from George Brownson, cash ..

6,740 5 Received from Thomas Allen, acceptance due May ist, in part payment of his account.............

.... 2,100 6 Paid Albert Lodge, cash .......................... 7 Goods (sold) returned from Thomas Allen......... ......

320 8 Purchased goods of Ephraim Broadbent ........ ......... 2,950 9 Accepted John Blamires' draft, due June 17th .................. 4,500 10 Paid ready-money for purchase of five looms, at auction... 179 II Received from Thomas Allen, cash for his acceptance ... 2,100 12 Sold goods to Thomas Allen.....

2,800 13 Withdrew cash from the West Yorkshire Bank ............

3,100 14 Paid cash to the West Yorkshire Bank ...........

3,320 15 Paid cash in discharge of my acceptance, due June 17th, to John Blamires ...........

4,500 16 Paid cash for productive Wages ........

2,700 17 Paid cash for Trade Charges

500 18 Paid cash for Salaries.

240 19 Paid cash for Rent and Power....... 20 Paid out of cash for personal expenditure .......

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........

250

256

£47,230 On the principle of double-entry explained on page 6, Abraham Crosland opens in his ledger :1. An account of his property as a whole, entitled CAPITAL ACCOUNT.

This is really the personal account of Abraham Crosland, who provides the whole surplus capital, or, in other words, is the giver (see page 9), and is con

sequently Cr. for the amount, viz-£4,500 (e). 2. Accounts of the several parts of his property, viz :

STOCK OF Goods (£3,160), the first item, is posted to the Dr. of the Goods Account. PLANT AND MACHINERY ACCOUNT (£2,200) and Cash ACCOUNT (£220) are Drs. for their respective amounts. These three accounts are treated as though they were persons (see pages 8-9) entrusted with the things they represent, on behalf of Abraham Crosland. He is the giver, and therefore the Cr., as shown above, and they are the receivers, and therefore the Drs. THOMAS ALLEN (+ 3,000), and GEORGE BROWNSON (£2,100), as receivers are Drs. for

the amounts owing by them. Having posted all the assets to the Dr. of their respective accounts, we now deal with the liabilities, which are, in effect, claims upon, or deductions from, the parts of the trader's property.

John BLAMIRES (£3,450), ALBERT LODGE (£730), and the West YORKSHIRE BANK (£2,000) are Crs. for their respective amounts. They are the givers, and therefore Crs., and Abraham Crosland, is the receiver, and

therefore Dr. Before dealing with the list of transactions, it should be observed that, were a list of both Dr. and Cr. postings, up to this point, abstracted :

(i.) The summations of the two sides would be equal.
(ii.) There is a Dr. for every Cr.
(iii.) The whole (capital) is equal to the sum of the parts (i.e., the

Drs. less the Crs.)

(e) It will be observed that the Capital Account (Abraham Crosland) is not credited and debited with each item on page 10. As it is usual to prepare a statement of liabilities and assets, the surplus only appears in the Capital Account. That the effect is the same will be seen by comparing the following account with that on page 17. Dr.

CAPITAL ACCOUNT (ABRAHAM CROSLAND.)

Cr

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By Balance, the

amount shown on page 17 ......

4,500

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