25. VI. When a thing comes into my possession without being received on credit, in trust, as payment, or in exchange, the thing is DR.; but an imaginary CR. must be supplied.

EXAMPLE.-Gained £50 by buying goods at a sale, and immediately after disposing of them.

Here cash comes into my possession, and is made Dr.; and for the gain, Profit and Loss is made Cr. as above explained. Hence the entry will be

CASH Dr. TO PROFIT AND LOSS.

EXERCISES.

1. Sold Goods to J. Johnson, on credit.

2. Paid J. Jones his Account for Goods bought last month.

3. Lent Cash to W. Williamson.

4. Bought Goods from J. Williams, on credit.

5. Gave Donation to new church.

6. Accepted J. Williams's Draft.

7. Sold Goods for Cash.

8. Received Cash lent W. Williamson.

9. Allowed J. Roberts Discount on Goods.

10. Gained on a Speculation.

11. Bought Goods for Cash from A. Alison.

12. Received payment of S. Smellie's Account for Goods sold him. 13. Paid carriage of Goods.

14. Sold Cotton to W. Willis, on credit.

15. Received interest for money lent.

16. Paid sundry repairs on the ship "Hopeful."

17. Borrowed Cash from G. Clarke.

18. Exchanged Sugar for Coffee.

19. Paid J. Williams's Draft.

20. Sold Coffee for Cash.

21. Received acceptance of my Draft on W. Wentworth. 22. Drew Cash from the National Bank.

23. Bought a Bill to remit to Paris.

24. Directed J. Johnson to hand over Goods to S. Waithman.

25. Received payment of J. Johnson's note, paying discount. 26. Paid sundry House Expenses.

27. Received a Legacy from my uncle's executors.

28. Lodged Cash in the National Bank.

29. Indorsed J. Burgis's Note to W. Pitcairn.

30. Lost my Pocket-book containing Cash.

31. Bought Sugar from R. Simpson, for which I have given my Note. 32. Discounted a Bill for S. Stephens, and received discount.

33. J. Wells now owes me interest for last six months. 34. W. Potsworth has allowed me Discount on Goods. 35. Paid my Subscription to the "City Public Library." 36. J. Roberts has indorsed me his Draft on T. Oldham. 37. Received freight and fares for last trip of Steamer "Puma." 38. R. Peck has paid me for Goods handed him by Williams & Co. 39. I have settled J. Wilson's Account against me as follows:-Paid £250 in Cash, gave him two Bills making £170, and he allows me £9:7:6 of Discount for prompt payment of goods bought. 40. Received Half-yearly Dividend on Bank Shares.

SECTION III.

OF MERCHANTS' BOOKS.

I.-Structure of a Set of Books.

26. We have seen in our illustrations of the use of the terms Debtor and Creditor, that the things in which a person deals are represented as accountable to him when they come into his possession, or cost him anything, and as no longer accountable when they go out of his possession, or bring him in anything. The use of thus personifying the things is, that he is thereby enabled to see how much he gains or loses by each. Thus, suppose that I deal in cotton, and that I want to see how much I gain or lose by it, I enter it as Dr. whenever it costs me anything, and Cr. when any of it is sold; at the end of a fixed period I take a page of paper, divided down the middle, and bring all the transactions in which the cotton is Dr. to one side, and those in which it is Cr. to the

other, and compare them.

If the total of the Dr. side be the greater, I have lost, and I see how much the loss is; but if the Cr. side be greater, I have gained, and I see at a glance the amount of the gain.

In the same manner, suppose Robert Simpson to be a person with whom I have business transactions, I bring all those in which he is Dr. to one side, and those in which he is Cr. to the other, and compare them; then, if the total of the Dr. side be greater, a debt is due to me by R. Simpson; but if the Cr. side be greater, a debt is due to him by me; and in either case the amount of the debt is seen at a glance. When such a statement is made out for every article in which, and every person with whom, a merchant deals, he will ascertain, not only the debts due to him and by him, but also his gains and losses. It is to secure this object in all transactions that the principle has been laid down of never entering a person as Dr. or Cr. in his own books.

Those transactions in which an imaginary Dr. or Cr. has to be supplied, are managed in the very same manner. If John West, who is indebted to me, fails in business, and pays a composition of six-and-eight-pence in the pound, he "ceases to be responsible to me" for one-third of the debt, because he has actually paid it; and for the remaining two-thirds, because I consent to cancel the obligation. Therefore (Art. 18) in both parts of the transaction, West is Cr. In the first part it is plain (Art. 19), that the corresponding " Dr." is "cash," because cash comes into my possession; for that part, therefore, the entry is "CASH Dr. TO JOHN WEST." But in the remaining part there is no person or thing that can be made Dr., because no person becomes responsible to me in West's stead, and no thing comes into my possession by the transaction. Hence I must create " an imaginary Dr." and represent it as responsible for the sum lost. The name chosen (Art. 24) for this imaginary Dr. is "Profit and Loss," and the

entry therefore is "PROFIT AND Loss Dr. TO JOHN WEST." Again, suppose I buy a quantity of goods which I sell immediately afterwards at a gain of £50; it would be useless to record anything in my books but this gain of £50, and I enter accordingly "CASH Dr. TO PROFIT AND Loss," for the £50, and append the necessary explanation. By thus making "PROFIT AND Loss" Cr., I represent myself (Art. 18) as responsible to this "imaginary Cr." for gains that may accrue to me on other transactions.

So also when I compare the Dr. and Cr. sides of the page in which my transactions in cotton, as above, are brought together; if I find I have gained, I make "COTTON Dr. To PROFIT AND Loss" for the amount; if I have lost, I record my loss by saying "PROFIT AND LOSS Dr. TO COTTON."

At the end of the fixed period referred to I bring together, as in the former cases, all the transactions in which "Profit and Loss" is Dr. on one side of a page, and all those in which "Profit and Loss" is Cr. on the other, and compare them; and thus my total loss or gain by my business, during the period, is seen at a glance.

66

27. A statement or scheme of this kind, drawn up for the purpose of easy and exact comparison, is called a "Dr. and Cr. account." The universal practice is to make the left the Dr. side, and the right the credit or Contra" side; and an account is said to be debited to, or credited by, any sum, according as an entry is made on the former or latter of these two sides. The examples above given, the "Cotton Account," "Robert Simpson's Account," and "Profit and Loss Account," are types of the three classes of accounts which occur in business; "Real Accounts" (from the Latin res), as being accounts of things; "Personal Accounts," or accounts with persons; and "Imaginary Accounts," called also "Fictitious" and "Nominal" Accounts. A collection of these Dr. and Cr. Accounts forms that book of a Set called

the Ledger-whence they are also called Ledger Accounts. And the great object of Book-keeping may be said to be the right formation of this Ledger; the other books of a Set being merely preparatory to it-first steps towards that complete classification which the Ledger exhibits.

28. Now it is from the Record of our transactions by means of Dr. and Cr. (Day-book or Journal), in which we represent some person or thing as Dr. to another, according to the General Rules (Arts. 20-25), that such Dr. and Cr. Accounts as the above are made out. We may have for example the entry

COTTON Dr. TO R. SIMPSON,

for cotton bought from him; and in collecting the Drs. and Crs. to form the two sides of the "Cotton Account," and of "R. Simpson's Account," we must enter on the debit side of the Cotton Account, To R. Simpson, a certain sum; and on the credit side of R. Simpson's account, By Cotton, the same sum. So also, if we have the entry

W. LAWSON Dr. TO COTTON,

for cotton sold him, we must debit W. Lawson To Cotton, and credit Cotton By W. Lawson. And again, if we have the entry

R. SIMPSON Dr. TO BILLS PAYABLE,

for our bill given in payment of the cotton, we shall debit R. Simpson To Bills Payable; and credit Bills Payable By R. Simpson. We shall proceed in exactly the same manner in making out all the Dr. and Cr. accounts of the Ledger, entering the same sum twice; on the Dr. side, namely, of one account, and the Cr. side of another. This method of keeping books has hence been called "Double Entry."

Some idea may now be formed of the objects and advan-
These will appear more fully in the

tages of this method.