If, on the one hand, a person owed money to the business, this fact was evidenced by the excess of debits over credits in his account on the books of the business. On the other hand, if the business owed money to a vendor, this was evidenced by the ex cess of credits in the account of the person to whom the money was owed. On the books of the customers and creditors the entries are reversed to express the reversed relationship.
8. Change in the account idea.—It is apparent that the accounts that have been described were kept only with individuals. An account was a record of the dealer's transactions with other persons. Soon, how ever, a new accounting need was felt. Whenever a shopkeeper wished to know how much money he had on hand, or how much of any other wealth he pos sessed, he was compelled to take an actual inventory, or count, of his possessions. Even then, he could tell only 11(4 'much he actually had on hand, and not how much have.
dilct miscounts in making change, on the B71 in I S TTfLi2 .;• part o employes, ana similar causes, operated to make the from the other. The proprietor not only in ascertaining the 4r TO 9.' , amount 9f money lie but in detecting and he soon began lee'pli`g A.' rgeTriiiitqhRianSaction that brought about changes in his wealth. He probably recorded these transactions at first in memorandum form in his diary; but, as the number increased, the details were difficult to pick out from the mass of other material there, so he soon opened an account in his ledger with these various classes of wealth. Since only accounts with persons were kept, it was at first necessary to make this a personal record. He, therefore, appointed one employe as custodian of all the money of the busi ness, and opened an account with him.
This was not only good bookkeeping but good man agement as well. Since one person was the sole cus todian of cash, he was responsible for all money re ceived, and no money could be paid out without first being obtained from him. By means of this method it was possible to locate the causes of leaks. The fol lowing illustration shows the method of operating this personal account.
9. Analysis of the account.—Whenever any of the money of the business is placed in the custody of Samuel Johnson, cashier, he is regarded as owing the busi ness the amount he received. Whenever a properly authorized person takes any of the money out of his custody, or when he pays out money, upon proper authorization, for any of the purposes of the business, it is considered that he has reduced his debt by the amount so removed. This is a common-sense ap plication of the rule for debits and credits already formulated for personal accounts.
In the illustration, Samuel Johnson, cashier, is first represented as owing the business $2,000, the amount of money in his custody on the morning of March 1st. During the week, $375 is collected from James Brown, William Smith, Charles Greene and Hiram White, and turned over to the cashier, for which additional sum also, he becomes indebted to the business. Hence, the four debits in his account. But during the same period he pays W. C. Robinson $2.50, A. J. Reid $500, and the employes $150, thereby reducing the debt to the business by the total of these sums. Therefore his account is credited with $900. At this time the records show that he has become indebted to the business to the extent of $2,375, but has discharged $900 of this indebtedness. His net indebtedness is therefore $1,475, which is the amount of the business' money that is supposed to be in his possession.
In this illustration, the account has been closed out at the end of the week and a new balance has been brought down. In order to close the account, it is necessary to enter the balance on the credit side and foot, or total, both sides. If these totals agree, the balance is correct and may be carried down on the morning of the next day. The ruling and method of closing and opening an account, as given in this il lustration, are consistent with the best bookkeeping practice. It should be observed, however, that today accounts are seldom, if ever, closed and reopened daily or weekly. The balances may be drawn off, but the accounts are usually closed out only at the end of fiscal or semi-fiscal, periods—month, half year or year.