A brief notice of the principle on which accounts are kept (when they are properly kept) may perhaps be useful to students who are learning book-keeping, as the treatises on that subject frequently give too little in the way of explanation.
Any person who is engaged in business must desire to know accurately, whenever an investigation of the state of his affairs is made.
1, What he had at the commencement of the account, or immediately after the last investigation was made; 2, What he has gained and lost in the interval in all the several branches of his business; 3, What he is now worth. From the first two of these things he obviously knows the third. In the interval between two investigations, he may at any one time desire to know how any one account stands.
An account is a recital of all that has happened, in reference to any class of dealings, since the last investigation. It can only consist of receipts and expenditures, and so it is said to have two sides, a debtor and a creditor side.
All accounts are kept in money. If goods be bought, they are estimated by the money paid for them. If a debtor give a bill of exchange, being a promise to pay a certain sum at a certain time, it is put down as worth that sum of money. All the tools, furniture, horses, &c. used in the business are rated at their value in money. All the actual coin, bank-notes, &c., which are in or come in, being the only money in the books which really is money, is called cash.
The accounts are kept as if every different sort of account belonged to a separate person, and had an interest of its own, which every transaction either promotes or injures. If the student find that it helps him, he may imagine a clerk to every account: one to take charge of, and regulate, the actual cash; another for the bills which the house is to receive when due; another for those which it is to pay when due; another for the cloth (if the concern deal in cloth); another for the sugar (if it deal in sugar); one for every person who has an account with the house; one for the profits and losses; and so on.
All these clerks (or accounts) belonging to one merchant, must account to him in the end—must either produce all they have taken in charge, or relieve themselves by shewing to whom it went. For all that they have received, for every responsibility they have undertaken to the concern itself, they are bound, or are debtors; for everything which has passed out of charge, or about which they are relieved from answering to the concern, they are unbound, or are creditors. These words must be taken in a very wide sense by any
one to whom book-keeping is not to be a mystery. Thus, whenever any account assumes responsibility to any parties out of the concern, it must be creditor in the books, and debtor whenever it discharges any other parties of their responsibility. But whenever an account removes responsibility from any other account in the same books it is debtor, and creditor whenever it imposes the same.