APPENDIX VII. ON THE MAIN PRINCIPLE OF BOOK-KEEPING.

the principle of double-entry. Since it is convenient that the balance account of the goods should merely represent the stock in hand at the close, the account of goods therefore lays the responsibility of £20 upon the profit-and-loss account, or there is the entry “Goods creditor by profit-and-loss, £20,” and also “Profit-and-loss debtor to goods, £20.” Again, in all payments which are not to bring in a specific return, such as house and trade expenses, wages, &c. these several accounts are supposed to adjust matters with the profit-and-loss account before the balance begins. Thus, suppose the outgoings from the mere premises occupied exceed anything those premises yield by £200, or the debits of the house account exceed its credits by £200, the account should be balanced by transferring the responsibility to the profit-and-loss account, under the entries “House expenses creditor by profit-and-loss, £200”, “Profit-and-loss debtor to house expenses, £200.” In this way the profit-and-loss account steps in from time to time before the balance account commences its operations, in order that that same balance account may consist of nothing but the necessary matters of account for the next year’s ledger.

This transference of accounts, or transfusion of one account into another, requires attentive consideration. The receiving account becomes creditor for the credits, and debtor for the debits, of the transmitting account. The rule, therefore, is: Make the transmitting account balance itself, and, on whichever side it is necessary to enter a balancing sum, make the account debtor or creditor, as the case may be, to the receiving account, and the latter creditor or debtor to the former. Thus, suppose account A is to be transferred to account B, and the latter is to arrange with the balance account. If the two stand as in Roman letters, the processes in Italic letters will occur before the final close.

And the entry in the balance account will be, “Creditor by B, £200,” shewing that, on these two accounts, the credits exceed the debits by £200.

Still, before the balance account is made up, it is desirable that the profit-and-loss account should be transferred to the stock account; for the profit and loss of this year is of no moment as a part of next year’s ledger, except in so far as it affects the stock at the commencement of the latter. Let this be done, and the balance account may then be made in the form required.

The stock account and the profit-and-loss account, the latter being the only direct channel of alteration for the former, differ in a peculiar manner¹ from the other preliminary accounts, and the balance account

is a species of umpire. They represent the merchant: their interests are his interests; he is solvent upon the excess of their credits over their debits, insolvent upon the excess of their debits over their credits. It is exactly the reverse in all the other accounts. If a malicious person were to get at the ledger, and put on a cipher to the pounds in various items, with a view of making the concern appear worse than it really is, he would make his alterations on the debtor sides of the stock and profit-and-loss accounts, and on the creditor sides of all the others. Accordingly, in the balance account, the net stock, after the incorporation of the profit-and-loss account, appears on the creditor side (if not, it should be called amount of insolvency, not stock), and the debts of the concern appear on the same side. But on the debit side of the balance account appear all the assets of the concern (for which the balance-clerk is debtor to the clerks from whom he has taken them).