BOOKKEEPING. Bookkeeping is the art or science of recording business transac tions in a systematic and convenient form. The objects of the record are, not merely to state what transactions took place and when they occurred, but more particularly, to determine the amounts and sources of the profits or losses during any financial period; and to show, at the end of the period, the nature and value of the assets, or things owned, and the nature of the liabilities, or things owed; and the amount of the net worth or capital.
The form of the record is columnar; col umns for date, explanation and amount or money value being the least number used.
Fundamental Equation.— If a person as signs a money value to all of his assets and liabilities and if the assets are in excess of the liabilities, the difference is called that person's net worth or capital. Expressed as an equa tion; assets minus liabilities equal net worth; or, in an equivalent form, assets equal lia bilities plus net worth. In symbols, A—I.+ N. W. This is the fundamental equation of bookkeeping and all records are made so as to maintain its equality although the amounts of the various terms are changed by every transaction. This equation may be affected by
any of the following six occurrences; (1) in crease of assets; (2) decrease of assets; (3) increase of liability; (4) decrease of liability; (5) increase of net worth; (6) decrease of net worth. An increase of assets would cause an amount to be added to the left side of the equation. A decrease of assets would necessi tate the subtraction of an amount from the left side of the equation; but in bookkeeping subtraction is always avoided by adding the amount to the opposite side; so a decrease of assets would be represented by adding the amount of the decrease to the right side of the equation. Similarly, an increase of lia bility would be an amount added to the right side of the equation, and a decrease of liability would be an additive term on the left side; an increase of net worth would be an addition to the right side, while a decrease of net worth would be added to the left side. In other words, to keep all the terms of the equation positive and avoid subtractions, the six occur rences which may affect the equation must be grouped thus: