Other methods known as statmography and logismography have existed at one time or another either in theory or practice but neither has come into continued practical use.
The merchant whose object in keeping books was to find what was owing to him by customers; what he was owing to creditors; and the amount of his capital investment had little need for an elaborate set of books. In theory it was probably never intended that single entry should embrace anything more than accounts with customers, creditors and proprietorship. That custom has altered what theory planned will be pointed out later but for the present may be ignored.
For the purpose of keeping his accounts he used only a ledger and a journal. In the journal he recorded the capital which he had invested at the time of beginning business, any amount which he had withdrawn therefrom, and amounts that he had added thereto. His journal consisted of a blotter or memorandum book, in which he made a single entry as to each of these transactions. As he purchased goods he recorded the fact, together with the amount, as constituting a credit to the individual from whom he had purchased the goods. As sales were made he recorded the appropriate facts and amounts, showing the names of the individuals to whom he had sold the goods, stating that such individuals were to be debited with the values involved. As cash was received he credited the customers. As cash was paid he charged the creditors receiving the cash.
In his ledger he maintained an account with the individual customers and creditors, charging and crediting them from his journal as the transaction indicated. He also maintained in the ledger an account with himcelf as proprietor, debiting and crediting such account whenever he added to or withdrew from his capital investment. At stated intervals he balanced and ruled off his accounts with customers and creditors and carried the excess in amount of customers’ accounts over creditors’ accounts to his account as proprietor.
At the end of a given period, all items having been posted, the most which the ledger would show, was what it was planned to show, namely, the balances of individual accounts with customers, creditors and the proprietor.
Such a showing was far from representative of the financial condition of the proprietor. Many important factors in the financial condition were entirely ignored. In order to ascertain the worth of the business it was necessary to search, outside of the books, for values affecting it. An inventory of assets and liabilities was necessary. The books were there, but they did not contain the accounts necessary to reveal the situation with regard to financial condition. Further than that, such accounts told the proprietor nothing of the profits of his business. For such information, he was obliged, first, to prepare a statement of assets and liabilities, taken in part from the books and in part from outside sources, determine his capital, and, second, compare such capital with that at the end of some preceding period. If the capital at the end of the current period was greater than at the end of the prior period, there had been a profit. If the reverse was true there had been a loss. The conclusion in either case, however, is based on the assumption that no capital had been added or withdrawn during the period. Additions of capital decreased the profit, because clearly in such cases the increase in capital was due to a contribution and not an earning. Withdrawals increased the profits, because of the fact, quite obviously, that if they had been allowed to remain, the increase would have been so much larger.
Single entry has been succeeded in part by a system which is neither single nor double entry. With the demand on the part of business conditions, and presumably through ignorance on the part of bookkeepers, as to what single entry originally provided for, there have been introduced into the ledger from time to time, accounts other than those of customers, creditors and the proprietor. Among these are, cash, notes receivable, notes payable, land and buildings, furniture and fixtures, etc. Such procedure has no particular bearing on single entry further than to make it somewhat easier to prepare a statement of assets and liabilities. Finding such accounts on the ledger obviates a search through miscellaneous records for the information.
Double entry is said to have been originated and made public in 1494 by an Italian named Luca Paciolo. He began his reasoning on the assumption, expressed in modern terminology:
The system is based on equilibrium. Every change in the value of goods brings about a change in the proprietorship. Every change in goods must be referred to a cause. Every cause is expressed in a complimentary account called a nominal account.
The purpose of the nominal accounts is to show the progress of the business or the manner in which the proprietor’s capital has increased or decreased. Their purpose is analysis, and their life limited to the period of operations. When the period comes to an end the nominal accounts are closed out to profit and loss, and the balance resulting through opposing debits against credits, is carried to the proprietor’s account. When customers are charged merchandise is credited. When goods are purchased, merchandise is charged, and the individuals from whom they are purchased are credited. As a result of opposing against the sales, the cost thereof, the proprietor is enabled to determine what his profit has been. Through the use of the double entry system, he is afforded an opportunity of seeing not only how much money he has made or lost, but the manner in which such gain or loss occurred. When the books are closed there remains thereon only such values as are owed him or due him; such values as he is liable for, and the capital which he possesses, which is represented by his equity in the assets shown by his books.
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