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EXPLANATION OF THE LEDGER

The grand business of bookkeeping is to dispose of the matter of the Day-book in the form of accounts, which accounts collectively constitute a Ledger.

The ledger is designed to show the financial position of the owner, either as regards his whole business or its several parts, each part having its own particular account.

Accounts are of two kinds, having two distinct objects; the one kind we denominate Primary, the other Secondary accounts.

The primary accounts constitute a single-entry Ledger.

The primary and secondary together constitute a double-entry ledger. So if we had arranged the preceding day-book by single-entry, you would have had none of the secondary accounts in the ledger. Each account in the ledger may occupy a distinct folio; but we have arranged those of the same kind under each other, in order that you may see their analogy and be careful not to confound the two kinds, for you will soon see that secondary accounts are duplicates of the primary, only the items are not placed in the same order of succession; so if you confound the two together, you may as well make two accounts against one person, and charge him with both.

The primary accounts are the Cash Account, Bills Receivable, Bills Payable, and the accounts of individuals.

All other accounts are secondary. This distinction is very easily remembered, therefore let it be carefully noticed.

Now before we proceed to describe the operations in the preceding ledger, let us consider what it is we desire to accomplish.

We have in the day-book a correct history of every transaction that has made the minutest change in the property or financial position of the concern, and we now wish to find out, after all these changes have taken place, what is our present worth.

A very little reflection will enable you to see that this can be accomplished in two different ways:

1st. If we can find out what are our Resources and what our Liabilities, our present worth must be the difference between the two.

The primary accounts enable us to find out our Resources and Liabilities. 2d. If we can ascertain what we were worth when we commenced, and what we gained since, the sum will be our present worth, or if we lost, their difference.

The secondary accounts enable us to fulfil these latter conditions; and having our present worth derived from two distinct sources, we have presumptive evidence that all is right, and our books are said to balance. We now proceed to show how we obtained the requisite results by the primary accounts.

In the debit or left hand column of the Cash account, you will find that we have set down every sum of cash received from the beginning. And in the right hand or credit column, we have set down every payment since that time.

We find the whole amount received, to be...
And the whole amount paid.....

7,885

5,727

Hence we must now have on hand as RESOURCES.....

$2,158

In the debit column of the Bills Receivable account we have entered, as you will find by referring to the respective dates in the day-book, every note we received from the beginning, and in the credit column we have placed every one we disposed of.

The amount of notes we received, is......
And the amount disposed of...

..

7,300
4,000

Consequently we must have on hand as RESOURCES... $3,300

In the credit column of the Bills Payable account we have entered the amount of every note we issued from the beginning, and in the debit column we entered the amount of every one we redeemed or took up.

We find the total amount issued, to be.
And the total amount redeemed...

....

Consequently we still have to redeem, which is an item

of our LIABILITIES....

10,050
2,500

$7,550

In the debit column of John Thompson's account we have entered every sum for which he became accountable to us, and in the credit column every sum for which we became accountable to him.

We find we are now accountable to him.....
And he is accountable to us..

4,600

4,100

Consequently we owe him, which is another item of our
LIABILITIES.

$0,500

$1,000

James Brown's account, being arranged on the same principle, shows that he is accountable to us, which is an item of our RESOURCES.

But the primary accounts do not show our whole Resources, unless all our property be sold; now, in this case, we find we have a ship and merchandise, which we set down as Resources according to present valuation.

Here, then, we have shown how you may under any circumstances get at your Resources and Liabilities by making these few accounts according to the above principles. Is there any difficulty to apprehend? Look at each account singly, and see if it is not the plainest way of telling the story that could be devised. Be assured that when the plan of these four accounts is familiar to you, there is no difficulty whatever; but if you attempt to make them before you know how they ought to be made, or for what purpose you are making them, you deserve to be defeated, and that you most undoubtedly will be.

THE LEDGER.

Secondary Accounts.-Having proceeded so far with our subject, without encountering any difficulty to discourage the student, let us examine the remaining part.

The secondary accounts, it will be remembered, were to show what we were worth at the outset, and how much we gained or lost since.

In the credit column of the Stock account you will see that we have recorded what we were worth at the outset.

The remaining secondary accounts are titles we have fixed upon to describe the different portions of our business.

In the debit columns we have put all we laid out under each head, and if we expended any sum for which we had provided no particular head, we entered it under Profit and Loss. Thus we had no head for discount, and we entered it as loss. Hence the secondary accounts are made to show on the debit side all we expended or lost in the business or its parts, and the credit column shows the whole returns of the business or its parts; and after all the transactions have been recorded, we enter, as returns, the valuations of each part unsold, (see Merchandise and Ship ;) we then take the gain or loss on each account, separately, and place all gain on the credit side of Profit and Loss, and all losses on the debit side.

Here then we find the total gain......
And the total losses....

The net gain is therefore.....

Which added to original capital....

Makes our present worth.....

3,365

0,157

3,208

8,000

.. 11,208

We have now shown all the accounts that are necessary to enable us to elicit from any transactions a statement of Resources and Liabilities, and also of the Gains, Losses, and Original Capital; hence in assigning debits and credits to the different accounts, that is, in forming a journal, we have only to consider what accounts are affected by a transaction: for example, Bought merchandise amounting to $2,000; for which we paid in cash." Required the journal entry.

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Now look at the Merchandise account and you will see that the debit side must contain all it cost you, and therefore you will debit Merchandise. And if you turn to the Cash account you will be reminded of the necessity of entering all payments in the credit column of cash account; hence your entry will be to debit Merchandise and credit Cash.

It would be useless to multiply examples. It is easy to see that you are to be guided entirely in your journal entries by your knowledge of the ledger accounts; and therefore, if you would avoid continued reference, you must, as soon as possible, get the whole plan of the ledger accounts well impressed on your mind. Its outline may be thus briefly stated.

We have shown that all financial transactions whatever, are to be separated into Cash receipts-Cash payments-Other men's notes received-Other men's notes disposed of Our own notes issued-Our own notes redeemed-What we are indebted to others-What others are indebted to us-Expenditures in the business, or losses-Returns of the business, or Gains. There is a proper place in the ledger provided for each of these classes, and you have only to inform yourself of these places and enter accordingly.

The double entries that you perceive each single transaction requires is only a necessary consequence of your double set of accounts, the debit side of one set being the credit side of the other set: thus what sums you enter in the debit side of the secondary accounts, as expenditures or outlay, you are also required to enter in the credit columns of some of the primary accounts, to show how you made your payments or to whom you are indebted, for you could not make any investment in your business or its parts, but you must either pay cash, give notes, or become indebted to some one; and any of these cases require credits in your primary ac

counts. And all you enter as returns of the business or its parts, must either be received in cash or notes, or be owing by some one, any of which must be debits of the primary accounts; consequently every thing is recorded twice in double-entry, and you cannot make a debit without being required to enter a corresponding credit.

We now arrive at the most important point in the position we proposed to sustain. We have pointed out certain features as characteristic of, and inseparable from, double-entry, under every form in which it ever has been or can be practised. We also insist that no matter what plan of teaching may be pursued, unless it result in giving all the separate ideas of the several accounts we have adverted to, the subject cannot be understood with sufficient clearness for any practical purpose; which is no more than saying you cannot practise bookkeeping until you understand its principles: for that the features we have adverted to, are the only principles that logically explain the subject, we hold to be indisputable; they have existed in the subject unchanged and unchangeable from its first promulgation; they have constituted the guidance of all who ever mastered double-entry, they afford the exact picture the subject presents to every experienced practical accountant, with the exception, that he has not been at the pains to arrange his ideas in the logical order that is necessary for elementary instruction. Unfortunately for learners, no attempt has until recently been made to fix their attention on these principles as the ground-work of the study. If we had no written grammars in which language was analyzed, and the several parts of speech defined and carefully urged on the attention of the student, could we reasonably expect to make grammarians by requiring each pupil to take a paragraph and separate the words into different classes for himself? Why then should we expect a student to begin for himself the analysis of transactions in business-to distinguish the several collections that will be required in a ledger, when he is entirely uninformed of any ultimate purpose? We marvel why bookkeeping has been so imperfectly taught; but the true marvel is, that we should have continued so long in the attempt to convey practical knowledge without affording even a glimpse of its elementary principles.

Having defined what constitutes the governing features or principles of the subject, we proceed to give an example of the kind of exercise by which these principles will be most speedily appreciated.

We first lay down the following as the governing rules for the primary accounts, viz.: The Cash Account, Bills Receivable, Bills Payable, and the accounts of persons. (See ledger.)

1st. Debit Cash account with all cash on hand commencing, and subsequent receipts of cash.

2d. Credit Cash account with all payments of cash.

3d. Debit Bills Receivable account with all other men's notes you held commencing, and all subsequently received.

4th. Credit Bills Receivable account with all other men's notes you dispose of.

5th. Credit Bills Payable account with all your own notes outstanding when you commence, and all you subsequently issue.

6th. Debit Bills Payable account with all your own notes you redeem or take up.

7th. Debit each person's account with all he has become indebted to you.

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