In the public mind this purpose of protection has been considered the chief purpose of bookkeeping. It is without doubt an important function, frequently made use of, and has given rise to the modern systems in which the idea of an "internal check" occupies an important position. While important in itself, this service constitutes but one of many rendered by an adequate accounting system.
9. Establishment of financial and budgetary control. --In a private business operated for profit, expend itures of money are made with the view of obtaining a larger amount in return. They are an investment from which a profit is expected.
In governmental operations the relationship is re versed—money is obtained to enable the government to meet expenditures which will be necessitated in performing its functions. In all governmental bodies the authorizations to spend money for various neces sary purposes are given by legislative appropriations: The government officials have no legal right to make expenditures or to incur obligations in excess of these appropriations. Hence, there arises the need of keep ing records of these expenditures, contracts and or ders so as to avoid over-spending, and to insure that the limited appropriation will be applied to indispen sable purposes first.
In private enterprises, also, it is necessary to have a plan on which future efforts will be based. This working plan must be founded upon financial possi bilities, expenditures must not be planned which will exceed resources. If plans are to be successfully car ried out they must be based upon the records of the past. In order that the management may keep within the limits of their planned appropriation they must have records of their progress. The account ing system may be so devised as to furnish this data.
10. Bookkeeping and accounting.—Before dis cussing how accounting may be made to serve these various purposes it will be well to fix in our minds the relation which exists between accounting and book keeping. The art of using an accounting system to record the operations of an enterprise as they occur and to compile their effects in intelligible form is called bookkeeping. The latter has been defined as "the art of recording pecuniary transactions in a regu lar and systematic manner." Bookkeeping is not considered "accounting" by those who style themselves public accountants, tho as a matter of fact, it is really a division of the ac counting field. It is true that bookkeeping does not
require so extensive a professional training as is neces sary in constructive and inspective or interpretive ac counting. The bookkeeper uses a system which has already been defined for him. The methods of using the various books and report forms, have also been prescribed for him more or less carefully, and in his work the bookkeeper simply applies these methods to the individual operations and transactions of the enterprise.
Yet he must carefully analyze each transaction or operation, determine its effects, and then decide into which of his prescribed classes or accounts each of these particular effects falls. This is often no slight problem, and its difficulty is not appreciated by the public accountant. Without doubt the bookkeeper's task is worthy of higher esteem than it usually re ceives.
To revert now to the subject of accounting it will be found that as the term is now used the field is di vided into four parts—constructive accounting, book keeping, inspective accounting and interpretive ac counting—which must be discussed.
11. Constructive accounting.—Constructive ac counting comprises the construction of new account ing systems for enterprises and the improvement of existing systems. An accounting system consists of three parts; viz.: (1) a system of accounts, with their definitions, in which to classify and record the effects of business operations; (2) a system of books in which to compile these accounts, and to determine and re cord these effects preparatory to their compilation; (3) a system of forms to be used to record business operations at the time of their occurrence and bring this data to the books for compilation, together with the prescribed routine in using them.
The making of a system of accounts is a difficult work of scientific classification which cannot be ac complished successfully without a thoro understand ing of the purposes aimed at. The kinds of books and report forms may or may not lend themselves to efficient, accurate and economical use. Constructive accounting, therefore, requires a thorn professional training and a high order of intelligence.