FUNDAMENTALS OF BOOKKEEPING-SINGLE ENTRY 1. Importance of bookkeeping.—liookkeeping, al tho it may be the least important of all the branches of accounting, is nevertheless a prerequisite to the work of inspective and interpretive accounting. Therefore, a knowledge of bookkeeping principles is essential to success in any field of accounting.
It is apparent that bookkeeping is the making of a record. This record should be so explicit and de tailed, that at any time the nature and character of any transaction may be readily perceived. The main activity of bookkeeping is classification. By this we mean that, as the story of every transaction comes to the bookkeeper, he must analyze it, determine and classify its effects and express them in the terms of his accounting system.
2. Development of the form of record.—A record of business transactions became a necessity when mer chants began selling on credit. The first bookkeep ing methods were extremely crude. It has been noted in Chapter I that in medieval times the first rec ords were made by cutting notches on a stick, which was then split into two parts. These parts, of which the merchant retained one and the customer the other, showed the complete history of the transaction. Neither the merchant nor the customer could change the notches without such alteration being discovered when the accounting was done, i.e., when the sticks were put together again.
If the shopkeeper was able to write, he naturally made a written memorandum of the indebtedness or the credit of each customer. The book in which these memoranda were written was the shopkeeper's "diary,"—a record of daily events—or "journal" (daily). A book very similar in nature is found in our modern accounting systems. Some of the old journals that have been preserved contain a descrip tion of the various business transactions in paragraph form; the quantities, prices and amounts are buried in the paragraph.
Later, probably as a result of the inconvenience ex perienced in hunting thru paragraphs for amounts of indebtedness, these amounts were set out in the mar gin of the page to the right of the paragraph, where they were more prominent. Later still, ruled money columns came into use, so that the amounts followed one under the other in regular order and could be easily found.
3. Ledger accounts.—This diary or journal prob ably constituted the sole record of personal indebted ness at first, but further records were soon needed.
Several customers, perhaps, made various purchases and payments before they had entirely paid up their previous indebtedness. The details of one customer's purchases were scattered thru the whole record, so that when A, for &le, came in to settle, it was necessary for the merchant to search thru his diary and make up a list of all of A's purchases and of his previous payments—in other words, to make out A's "account." While this was being done, A had to wait. In consequence often the shopkeeper, in his hurry, would overlook some items, with the result that he himself would suffer loss, or A would be dissatis fied.
The next step, then, was to prepare these separate statements of sales and payments beforehand, per haps day by day, and to have them ready when re quired. This method not only saved the customer's time but made it possible for some one to make the compilation when he was not needed for other pur poses. At the same time the work could be done more carefully, and thus loss and dissatisfaction could be avoided. Such a compilation of a customer's indebt edness became his "account stated," "account" or "statement." If the customer agreed that the ac count was correct, but did not pay at the time it be came his "account settled" (upon) . Eventually, in order that these accounts might be in a form con venient for reference, they were combined in a bound book, which was the origin of our modern "ledger." 4. Forms of accounts.—Thus, an account became a record of the indebtedness of a person to the busi ness, or of the business to the person. Some of these accounts involved a series both of credit purchases and of payments. At first the accounts were prob ably drawn up in many different forms. But it fi nally became customary to use a sheet divided into a left-hand and a right-hand half, each with a separate column for the amount, the dates, the explanation and the checking. Thus, this account form is still com monly used by many firms. It should be noted that when the merchant wishes to know how much John Jones owes he must add up the two "amount" col umns and subtract the payments from the purchases. If frequent reference is made to the accounts this is an annoying proceeding, especially if it must be repeated several times before the account is fully paid up.