PRIVATE LEDGER.—Under the system of bookkeeping by double entry, the ledger must be looked upon as the dominant book, that is the book the results of all transactions are "focussed," if the word may be permitted. In the early of the art of bookkeeping it is probable that one ledger contained all the accounts, but later progress has tended to split up the ledger into its various constituent parts. There would thus be a separate book containing the accounts of customers; another containing the accounts of suppliers ; a third dealing with nominal accounts: a fourth with doubtful debts, and so on.
A private ledger, as its name implies, is generally used for the purpose of recording those accounts which are of a private character, or with which it is not politic, or desirable, that the general clerical staff, which has access to the other ledgers, should be acquainted. Such a ledger, in other words, may be said to be reserved for the proprietors of a business, and would contain particulars as to the capital of the proprietor or proprietors, the current accounts of the same, the profit and loss account, maybe, certain private loan accounts, and any other records which are not intended for general observation. It is usual to enter in the private ledger the various balance sheets which are prepared in connection with a concern, in order that they may be easily referred to, and may be kept in a permanent form free from the curiosity and attention of the general staff.
Controlling accounts of the personal ledgers (see SECTIONAL BALANCING) are sometimes kept in the private ledger, and indeed any of the accounts which are usually associated with the nominal ledger may be kept, if so desired, in this volume; convenience being the only object to serve.
In rare cases, a private cash book may be kept in conjunction with a private ledger, and the same principles of privacy and convenience which apply as regards a private ledger may be adopted where this plan is followed. The totals of the private cash book are, of course, carried periodically to the bank account, or pass through the general cash book.
PROFIT.—Prolit may be defined as the increase in the capital, or net wealth, of an individual or corporation arising through its employment; it being presupposed that the value of such capital as has been contributed remains intact. To this must be added the explanation that the word is frequently used loosely to express a variety of meanings involving the underlying idea of gain or acquisition. Profits are to "be distinguished from "Interest," which is the rent for a loan of money, from "Earnings" and "Salary," which are usually the returns for personal services, and from "Dividends," which are the distributions, by a company, of profits already made.
To a business man the word implies that gain, the hope of which induces him to risk his capital and fortunes in commercial enterprise; and its amount is the price lie is able to obtain for his goods or services less the amount which they cost him and the expenses of his business—in other words, such addition to the total cost to the seller as competition and the public demand, expressed in the current selling price, will allow. The monopolist trader is of course at liberty to add to cost price such profit margin as is legally allowable or as he deems proper, as long as there is a demand for his wares; but in competitive trading a current selling price will tend to become established, and the difference between this and the total cost of executing orders is the profit margin left to an individual trader: it may be greater or less than that realised by his competitors, according as his methods are inexpensive or the reverse.
The profit margin, though arrived at as thus stated, stands to the trader, when realised, in the shape of a fourfold return. One part of it may be regarded as equal to the interest which could have been obtained by simple investment of his capital, and it is obvious that the trader will not engage in the risks of commerce unless he may reasonably expect a return greater than investments would produce ; a second part may be regarded as remuneration for personal services ; a third as compensation for the risks involved, and the remainder as a reward of foresight. It is upon the monetary expression of these four requirements, as contrasted with the actual profit figures of any particular business, that an opinion in regard to the latter is to be based. A consideration of these four items will serve to show why a capitalist trading on his own account requires a greater return for his money than does the shareholder in a limited company ; the latter incurs but the risk of losing whatever he may have invested, while the former is liable for the business obligations to the extent of the whole of his pos sessions, may be made bankrupt in respect of them, and gives his time to supervision. Thus while a return of 5 per cent. on capital to an investing shareholder may be adequate, a profit of 10 per cent.; on capital will usually be none too large a compensation for a partner or a sole trader.