form, employing however certain rulings and notations which will be explained in Section III (pp. 35, ff.).

It will be observed that the sum total of the debtor entries in these accounts of John Smith's for the month of January, total the same as the creditor entries. His assets at the end of the month consist simply of cash just as they did at the beginning and the increase in cash is equal to the increase in the capital or net worth of John Smith. Every transaction was analyzed into two parts

and gave rise to two entries, one on the debtor side of some account and one on the creditor side of some account. This is what is meant by the "double entry" system or principle in accounting and bookkeeping. Every transaction gives rise to two opposed entries in the accounts. When we say "two entries" we do not necessarily mean two in the literal sense but rather two opposing groups of entries. A transaction may be analyzed into one entry on the debtor side of the books and two or more on the creditor side or vice versa. The principle simply requires that the total value of the entries shall be the same on the debtor side of the accounts as on the creditor. In closing the accounts for the month the process of completing the entries and transferring balances gives rise to various technical processes necessitated by bookkeeping practice. These will be sketched in the following section.

III. KEEPING THE BOOKS.

Practical Problems.

Supposing that business has developed a perfect theoretical system of keeping its accounts, the question will always arise in every concern how practically to carry on the actual records in such a way as to save time and labor so far as possible and at the same time to insure the maximum of correctness and detail. Every bookkeeping system is more or less of a compromise because no concern is willing to spend more than is necessary upon the keeping of elaborate records however desirable such records might theoretically be. It is true, however, that many concerns, accustomed to old and traditional methods of bookkeeping and accounting, do maintain a variety of records that are of no special service, while on the other hand some firms, in their desire to simplify and avoid the maintenance of unnecessary records, cut out links in the accounting system that cannot well be dispensed with.

This is unfortunate from a good many standpoints, because the ordinary concern is frequently obliged to make use of its records of past transactions, either for the purpose of establishing various points in legal proceedings or of ascertaining what its practice has been on former occasions where given problems were presented, or for the purpose of convincing a prospective buyer of the exact nature of the profits that have been realized. It is not possible to lay down any hard and fast lines or rules with reference to the exact number of books or records that a concern shall keep or to specify which one can safely be omitted, or to indicate certain of them as absolutely necessary and indispensable. Experience shows what books must be kept by a concern and what ones may with profit be added; it also indicates the points at which the concern may more or less readily dispense with certain classes of records. Something further will be said on these points later on in our treatment. At this point it is enough to say that, contrary to many assertions on the subject, it is not possible to lay down any general system with regard to this matter but that there are, however, certain kinds of books which are traditional or conventional and which are found in some form in the majority of

concerns.

Traditional Books.

The traditional books that are carried on by the ordinary retail concern are the "day book," "journal" and "ledger." Why should these have come into such general use and why are they employed? Their use is as already suggested largely a matter of convention and convenience. This will be seen by a brief sketch of the contents of these books. As was noted in our early analysis of the transactions of John Smith, fruit vendor, it might easily have been determined by Smith, had he been so disposed, to get along with merely a diary or record indicating the character

and extent of his transactions. We saw that in his case, with very simple operations, that might have sufficed. Had he done so, he might have given to his record the name "Day Book." "A day book is, as ordinarily employed, nothing more than a summary or outline statement of the various transactions of the concern, they being recorded there for the sake of convenience, in the order in which they occur and, in small businesses, without any effort at classification. A day book is usually ruled with columns designed to enable the proper recording of figures and their totaling. In other words it is nothing more than a blank or record book suitably ruled for the sake of convenience. Suppose a concern had a month's transactions thus recorded in a day book. It would have no classification or grouping of the transactions, but on the contrary it could not see the results of what had been going on, even in any one phase. For instance, if Richard Brown had bought steadily of the concern every day for a month and others had done the same, the transactions of Brown and others would simply be set down in chronological order. If a system of accounting were to be employed, the segregation of the various items and their classification as accounts would be necessary. This could be done by simply transferring the items from the day book to another book in which the proper classification would be made.

The Ledger.

The book to which such transfers would be made is called the "Ledger." The ledger contains no new facts that are not recorded in the day book, but merely presents the same facts rearranged in such form as may be desired. The form ordinarily desired is a grouping under the real, nominal and personal accounts that have already been described in Section II. Every ledger, therefore, contains the customary nominal accounts such as capital, profit and loss, etc., the customary real accounts such as cash,

goods, etc., and then as many personal accounts as there are persons with whom the firm has had dealings which it desires to record in this detailed way. The ledger then is merely a book in which the transactions of the day book are assorted under the heads Capital, Profit and Loss, Cash, Goods, Richard Brown, etc., etc., etc. The process of transferring the items from the day book or any other book to the ledger, is called "posting," and the ledger is said to be "posted" when the entries that have been made in other books have been transferred to its pages. The process of posting evidently implies the recognition of the different accounts that are affected by a given transaction and the transference of the proper entry to every account which is thus thereby altered. In some cases this is not an easy thing to do correctly, while it may be that the day book does not give as full information about the nature of the transfers made as is desired. For that reason, another book is frequently introduced, intermediate between the day book and ledger. This is called the "Journal."

The Journal.

The journal is, as already indicated, little more than a means of sifting out the transactions rather better than could be done mentally, and serves the purpose of comparing the items for transfer by stating them in different form. There might be no particular reason for using the journal if the nature of the entry in the day book could always be recognized at sight and a corresponding transfer to the ledger could be made. But, as already indicated, this is not practicable, and hence the use of the journal. To the beginner in accounting or bookkeeping the use of the journal is rather necessary because it serves as a means of analysis and enables the testing of the work as well as its review for the purpose of ascertaining whether errors have slipped in or not. We shall speak of the journal (and of the other books) more fully at a later point. At