Page:EB1911 - Volume 04.djvu/241

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BOOK-KEEPING
227

a record of transactions. Thus transactions which have actually taken place may have been omitted from the books altogether, or they may have been recorded to the wrong accounts, or the money values attached to them may be incorrect; or, yet again, fictitious records may be entered in the ledger of transactions which have never taken place. A trial balance is thus no very adequate safeguard against fraud, nor does it bring to light mistakes in the monetary value attaching to the various transactions recorded. This last point is of especial importance, in that the monetary value of transactions may have been correctly recorded in the first instance, but owing to altered circumstances may have become inaccurate at a later date. This of course means that the altered circumstances constitute an additional “transaction” which has been omitted.

Trial Balance, 31st December 1906

    Dr. Cr.
  1 Capital account   £15,010 1 7
  5 Drawings 1,500 0 0  
 20 Trade creditors   4,961 10 0
 24 Fixtures, furniture, &c. 1,269 4 3  
 27 Bills payable   2,620 18 4
 40 Bad debts 71 4 2  
 44 Stock 1st Jan. 1906 4,078 16 4  
 50 Discounts allowed 975 3 3  
 53 Trade debtors 3,842 7 9  
 60 Discounts received   1,117 17 8
 65 Wages and salaries 1,865 12 0  
 75 Depreciation 141 0 5  
 78 Rent, rates and taxes 1,242 13 8  
 82 General expenses 1,087 8 0  
 90 Bills receivable 7,468 14 3  
 97 Purchases 44,731 2 10  
100 Sales   48,732 4 9
C56  Cash at bank 4,169 5 5  
     £72,442 12 4 £72,442 12 4

It will be observed, therefore, that in order to complete the record of the transactions by double-entry, it has become necessary to introduce into the ledger a third class of accounts, known as impersonal or nominal accounts. These accounts record the transferences of money, or of money’s worth, which, so far from representing a mere reshuffling of assets and liabilities, involve an increase in or a reduction of the amount invested in the business, i.e. a profit or a loss. Transactions representing profits are recorded upon the Cr. side of nominal accounts, and those representing losses (including expenses) upon the Dr. side. This is consistent with the rules already laid down in connexion with real and nominal accounts, inasmuch as expenditure which does not result in the acquisition of an asset is a loss, whereas receipts which do not involve the creation of liabilities represent profits. All debit balances therefore that are not assets are losses, and per contra all credit balances that are not liabilities are profits. So that, inasmuch as double-entry provides inter alia a complete statement under suitable headings of all profits and all losses, it is possible by aggregating these results to deduce therefrom the net profit or loss of carrying on the business—and that by a method entirely distinct from that previously described in connexion with single-entry, thus constituting a valuable additional check. Taking the trial balance shown above, the following represent the trading account, profit and loss account, Balance sheet. and balance sheet compiled therefrom. The trading account may be variously regarded as the account recording the movements of goods which represent the stock-in-trade, and as a preliminary to (or a subdivision of) the profit and loss account. The balance sheet is a statement of the assets and liabilities; but—inasmuch as, by transferring the balance of the profit and loss account to the capital account, it is possible to bring the latter account up to date and to show the credit balance representing the surplus of assets over liabilities to date—the balance sheet, instead of showing a difference, or a “balance,” representing what is assumed to be the amount of the capital to date, shows an absolute agreement of assets upon the one hand and of liabilities plus capital upon the other. The two sides of the account thus balance—hence the name.

Dr. Trading Account for the Year ended 31st December 1906 Cr.
To Stock on hand, 1st Jan. 1906 £4,078 16 4 By Sales £48,732 4 9
 ”  Purchases 44,731 2 10  ”  Stock on hand 31st Dec.  
 ”  Gross Profit, transferred     1906 5,751 3 10
   to Profit and Loss account 5,673 9 5  
 £54,483 8 7  £54,483 8 7
Dr. Profit and Loss Account for the Year ended 31st December 1906 Cr.
To Rent, rates and taxes  £1,242 13 8   By Gross Profit as per  
 ”  Salaries and wages1,865 12 0      Trading Account £5,673 9 5
 ”  General expenses  1,0878 0    ”  Discount received 1,117 17 8
—————£4,195 13 8  
 ”  Discounts allowed 975 3 3  
 ”  Bad debts 71 4 2  
 ”  Deprecation 141 0 5  
 ”  Net Profit for the year trans-    
   ferred to Capital account 1,408 5 7  
£6,791 7 1 £6,791 7 1
Dr. Balance Sheet as at 31st December 1906 Cr.
To A.B., Capital account £14,918 7 2 By Fixtures, furniture, &c. £1,269 4 3
 ”  Trade creditors 4,961 10 0  ”  Stock on hand 5,751 3 10
 ”  Bills payable 2,620 18 4  ”  Trade debtors 3,842 7 9
   ”  Bills receivable 7,468 14 3
   ”  Cash at bank 4,169 5 5
£22,500 15 6 £22,500 15 6
Dr. A.B., Capital Account Cr.
  1906.    
1906. To Drawings account £1,500 0 0  Jan. 1 By balance from last account  £15,010 1 7
 Dec. 31   ”  Balance carried down 14,918 7 2  Dec. 31  ”  Profit and Loss account, being net 
  profit for the year ended this date
1,408 5 7
£16,418 7 2   £16,418 7 2
  1907.    
       Jan. 1 By Balance brought down £14,918 7 2