12. Passing of the personalistic theory.—When the business man came to think of the money or prop erty rather than the custodian he soon forgot about the personalistic basis for his accounts. He began to build up accounts with various kinds of income or expenses. These accounts probably originated in memorandum form. For instance, the merchant would want to know how much he was paying his clerks, and he would keep a record of the payments in memorandum form. For the same.reason he would keep a record of the sales of the various kinds of mer chandise that he handled. Since the account was a very convenient form in which to present information of this kind, he probably built up his memorandum record of expenses or income in this same form.
Later on, the clerk or the bookkeeper was probably instructed to keep in the diary a permanent record of such transactions, and to accumulate them in the form of an account in the same way in which he accumulated the accounts of wealth owned and amounts owed. The result was a confused system that contained many memorandum accounts, usually more or less inac curate.
13. Operating the single-entry book.—There was no means of proving the accuracy of these accounts. Of course the balance in the cash account was checked by the balance of cash on hand, but if these balances did not agree the merchant could not determine whether his record was wrong, or whether there had been errors or theft in the cash transactions. The same may be said of all accounts that represented things owned, altho the debts due the merchant, as well as his debts to others, could be proved in part by a comparison of his records with those of the persons with whom he dealt. But the memorandum accounts of income and expenses were of little use, because of their inaccuracy.
One way in which single-entry bookkeeping serves the purpose of any accounting system is by showing the financial condition of the business. It has been explained that the financial condition is set forth by showing the relation of what is owned to what is owed. If the debts to be paid are less than the available funds with which to pay them, the condition is said to be good.
The business man can quickly ascertain his financial condition by taking from the ledger, a list of all debts due him, and of his own outstanding debts, supple mented by a list of his other possessions (assets) . Should he desire to know how much he is worth he need only subtract the total amount of all his debts from the total amount of the wealth that he owns.
This same information in more accurate form could be obtained by an inventory of how much he owned, and how much he owed.
14. Purpose and limitations of single-entry book keeping.—Single-entry bookkeeping was used solely to aid the business owner in keeping a record of the debts of his business. The various transactions which he wished to record in his accounts were noted in his diary. At convenient times he would post these items to the proper accounts in his ledger. Unfortu nately for him, the amount of information obtainable from his books was little; moreover, he had no as surance of its correctness. He might have failed to record some transactions, or he might have entered the amount incorrectly. He had no way of checking his work except the laborious method of going over his postings a second time to see whether they were correctly made, and even when he made a thoro check in this way he frequently overlooked errors that had been made. After the abandonment of the Personalistic Theory, single-entry bookkeeping became a confused system of records which were valuable in themselves, but which were not complete enough.
15. Method of converting books from the single to the double entry basis.—The first step preparatory to changing books from single to double entry is the preparation of a statement of assets and liabilities. With this statement as a basis a journal entry is made which records in the ledger the assets, the liabilities and the proprietorship. This gives a double entry ledger in which the debits equal the credits. The sub sequent transactions of the business may then be re corded in double entry form. If the ledger contains all these accounts already, there will be no need of any change beyond closing out these accounts and re opening them with their balance, after which double entry records instead of single entry records may be kept.
If, as is usually the case, the ledger is not complete, the accounts which are in the ledger must first be veri fied; and secondly, such new accounts opened as are required. At the same time there will usually be a certain number of memorandum accounts which, in themselves, may be a part of double entry records, but which are not complete. These accounts must be closed out either by a journal entry, or by ruling them off to indicate that they are no longer a part of the current record.