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Book-Keeping by Double-Entry
The system of book-keeping by Double-Entry is founded on the principle that every debtor must have a creditor, and every creditor a debtor. Hence what is entered on the debit side of one account must be entered on the credit side of another account, and vice versa. Thus if a bill of merchandise is sold to John Doe, he is made debtor to merchandise, and merchandise is made creditor by John Doe. If Cash is received from John Doe; cash is made debtor to John Doe, and John Doe creditor by Cash. In every case that which receives is made debtor to that which gives, and inversely. In Single-Entry every record is single and there its ends, whereas in Double- Entry every transaction has a debit and credit, and every account in which it is not so represented is inaccurate.
In Double-Entry Book-Keeping the accounts in a Merchant's Ledger are divided into three classes, viz: Real accounts, Personal accounts, and Representative or imaginary accounts, Real accounts are the accounts of effects or things which may be the merchant's property. Personal accounts are the accounts of persons with whom we deal. Representative, sometimes called Imaginary accounts, are fictitious titles invented to represent the merchant in recording such gains or losses as cannot with propriety be placed to Real or Personal accounts, such as Profit and Loss account, Expense, Commission, etc.
We have seen that by Single-Entry the items are posted from the Day-book, Bill-book and Cash-book into the Ledger. In Double-Entry another book called the Journal is necessarily used, in which the items of all the others are arranged in proper form, and therefrom posted into the Ledger. The form of Journal herein used is different from the old Italian method of keeping a Journal which has been so long in use. It does away with the crudities, useless repetition, and technical jargon so long employed in the older method. This Journal is divided into two parts, the right or creditor side, and the left or debtor side. On the debtor side must be entered uninterruptedly everything that is to be debited, and on the credit side everything that is to be credited; and the amounts entered on both sides must be equal if the journalizing has been correctly done. Apart from the simplicity of this arrangement there are other advantages that may not be overlooked. In the first place, all the entries on one side of the Journal are posted on the same side of the Ledger, a convenience which every book-keeper will know how to prize. Next, all the items for each account in a month are consolidated into one entry previous to posting, thus greatly reducing the labor and offering a Ledger wherein no account can have more than twelve entries on either side for one year. The totals of each month in the Journal added together must correspond with the amount of all the entries in the Ledger the same month. Let us now proceed to Journalize the entries of the preceding Day-book, Bill-book and Cash-book, impressing on the learner the necessity of attending to the following: