BOOKS OF ACCOUNT 1. Why entries cannot be made directly in ledger accounts.—The debits and credits connected with each business operation might, of course, be recorded di rectly in the accounts affected, but such a system would entail certain dangers that should be noted.
The first main objection to the adoption of this sys tem is, that in assigning the debits and credits for a sale of wheat, for example, amounting to $100 to a customer, Smith, the merchant might assign to Smith's account, and record in it, the debit of $100, but he might forget to record the credit of $100 in the account representing "sale of wheat." Again the seller might make the entry on the debit instead of on the credit side of this account. A test of the ledger debits and credits, in the form of a trial balance (see Chapter IX) , would reveal the fact that an error had been committed, but it would not help find it. In a mo ment of carelessness or mental confusion the merchant might enter the debit in Greene's account instead of in Smith's, or in A. B. Smith's account instead of in that of W. M. Smith. Even if the seller made all these entries on the correct side of the proper accounts, he might enter $100 in one account and $110 in the other.
It is essential to have a system which will tend to reduce such errors to a minimum, and which will assist us as much as possible in locating errors when they have been committed.
The second objection to the system is, that if book keepers are permitted to make entries directly in the accounts without giving properly authorized support ing explanations, a dishonest cashier who had access to the books might appropriate $100 and cover his theft by the insertion of a credit of $100 in the cash account and a debit of $100 in some expense account. Or, he might make any number of arbitrary transfers from one account to another. There is need of a mechanical routine that will make it as difficult as pos sible for a dishonest person to conceal theft by manip ulating the accounts.
2. Necessity for detailed records.—In order that these difficulties may be obviated, books are used in which a record of each transaction is made at the time it occurs. Such a book was formerly known as the day-book (diary) . The entries in this book were simply descriptive histories of the transactions, set down before the details were forgotten. From this
book the entries were made in technical form in the journal.
In the journal the debits and credits were sys tematically assigned to the proper accounts and in the double-entry form of record. At present, however, the day-book, as constituting a story of the transac tions, has been practically abandoned. The entries are now generally made directly in the journal, where all the necessary history is given. From the journal the debits and credits are compiled in the various ac counts in the ledger.
3. Books of preparatory entry.—The books in which these preparatory assignments of debits and credits are made are called "books of original entry," an expression which is applied to the original records of business transactions which are the only ones ac ceptable as evidence in court. The reason why the expression, "books of original entry," is a misnomer, is that usually the explanations written in these books are only copied or condensed from a previous record of the transaction. Bills, invoices, check-stubs, vouchers and the like constitute the true original records. Bet ter names for these books are "books of preparatory entry" or "posting media." The day-book, as it was originally used, was a true book of original entry.
In the journal the arrangement of debits and credits is somewhat as is shown on the next page. Several different entries are journalized ; the examples are taken from the transactions given in Chapter III. The illustration also shows a standard form of the simple double-columned journal ordinarily used.
4. Form of journal.—In the illustration given above it is shown, in the first transaction, that the grain account is to be debited, first, by writing the name of that account in the left-hand (or debit) half of the wide column used for account names ; and secondly, by writing the amount in the left-hand or debit money column. Similarly it is shown that the cash account is to be credited, first, by writing the name in the right-hand or credit half of the account column, and secondly, by entering the amount in the right-hand or credit money column. These are the conventional methods of indicating the accounts to be debited or credited.