The debit side of the account is always the larger. This balance shows the cash on hand, and is an asset.

A proof of cash consists of finding the difference between the two sides of the account and seeing that this difference is exactly equal to the cash on hand. If a part of the cash is on deposit in the bank, the amount in the bank is added to the cash in the safe, the drawer, or the cash register. Cash is proved at least daily, and more frequently if either receipts or payments are numerous and large in volume.

In practice, the individual items of cash receipts and payments are recorded in a special book called a "cash book." The Cash account in the ledger then shows only monthly totals of cash transactions. In the following illustration of a Cash account, however, and in the early exercises that are given for practice, the individual items of receipts and payments are recorded on the proper sides of the ledger account.

When the amount to be recorded is an even number of dollars, some bookkeepers draw a short horizontal line through the space for cents, a little above the blue line.

(1) Foot in small pencil figures the debit and credit sides of the account.

(2) In the explanation space on the side of the account which has the larger total, and on a line with the last item, place the difference between the two sides of the account in small pencil figures, determining the difference by mental subtraction if possible.

(3) Enter the balance in red ink in the first space on the smaller side of the account.

(4) Draw single lines in red on a level across the money column on each side of the account, and one space below draw double lines in red across all columns except the explanation space on each side. These lines are drawn on the blue lines. Write the total of each column in black in the space beneath the single horizontal line. (5) Bring the balance down in black on the opposite side of the account under the next succeeding date.

The Use of Red Ink. If red ink is used at all by the bookkeeper, it is used for all ruling in the ledger and in books of original entry and in balancing ledger accounts. In balancing an account, as explained above, the balance or inventory or net worth, whichever it may be, is entered on the smaller side of the account in red ink to bring the two sides into agreement prior to ruling the account. The balance is then transferred to the opposite side of the account, generally in black ink, although many bookkeepers bring down the balance in red in order to distinguish it from subsequent posting to the account.

Many modern offices have done away entirely with the use of red ink in the bookkeeping department, and schools in which bookkeeping is taught have in many instances adopted the same plan. By using black ink for all purposes, an economy is effected in the cost of ink, desk equipment, and time; red ink adds nothing to the bookkeeping except a certain artistic touch which can well be sacrificed in the busy office for practical reasons. *

All suggestions regarding the use of red ink in this text conform to the conventional practice, but teachers may follow their own ideas and convenience in the matter.

Exercises for the Student
EXERCISE A

The following transactions are to be recorded on the proper sides of a Cash account, after which the account is to be balanced, as shown in the illustration, the work being done on ledger paper. Entries are to be recorded in the month of November, the numbers to the left of each transaction indicating the date. The explanation space need not be used. The current year is to be used throughout the book in connection with all exercises required. Use ledger paper for these exercises, if you are not provided with a ledger.

1 Balance on hand, $19.27.

2 Collected dues to the High School Athletic Association from 170 students at 50¢ each. 3 Received from merchants for advertising space in the program for the Thanksgiving Day game, $64.50.

5 Paid printing bill for membership tickets, $20.

10 Collected dues from 63 students.

13 Bought two football suits at $12.60 each.

17 Received for advertising space, $72.60.

18 Bought new football, $6.

20 Paid bill for printing programs, $42.

22 Bought postage stamps, $10.20.

23 Collected dues from 19 students, $9.50.

25 Received for advertising space, $27.75.

26 Gate receipts of Thanksgiving game, $272.25.

27 Received for advertising space, $3.

30 Paid miscellaneous expenses of the game, $92.80.

EXERCISE B

James Moore, a merchant, received and paid out cash as follows for the month of December 19-. Construct a Cash account and balance the account at the end of the month. Leave three blank lines between the accounts.

1 Balance on hand at beginning of month, $1272.65.

2 Received from C. W. Curtis & Co. to apply on account, $300.

3 Paid Rhodes & Co. $500 to apply on account.

5 Paid rent for month, $200.

7 Cash sales of merchandise, $427.90.

8 Paid advertising bill, $125.

9 Paid bill for stationery and postage, $27.50.

10 Received from John E. Martin $129.65 in full of account.

12 Received from Altman Bros. $250 to apply on account.

13 Paid S. I. Andrews $122.31 in full of account.

15 Cash sales of merchandise, $62.84.

17 Borrowed $200 from Herman Lowe.

18 Bought automobile truck costing $1500.

20 Paid wages and salaries, $540.17.

22 Henry King paid his account in full, $512.60.

24 Received from Charles Lee & Co. $500 to apply on account.

26 Cash sales of merchandise, $327.75.

27 Received $277.60 from Thomas Smith in full payment of his account.

31 Paid the following expense items for the month: gas and electric bill, $29.72; telephone, $19.80; janitor, $50; office salaries, $475; coal bill, $38. (Enter singly.)

PERSONAL ACCOUNTS

Personal accounts are accounts kept with individuals, firms, and corporations with which the business has dealings. Such accounts are made necessary by the fact that a large volume of the average business is transacted on credit; goods are bought and sold on account, money is borrowed and loaned, and credit is extended in various other ways. Under such circumstances it is essential that an account be kept with each person or company with which the business has dealings, in order that those in the business may know at any time the exact amount that is owed to them or by them.

Personal accounts are of two classes, viz., those with debtors and those with creditors. A debtor is one who owes or who is indebted to another.

A creditor is one who is owed or one who has granted credit to another.

Accounts with debtors taken collectively are called Accounts Receivable; those with creditors, Accounts Payable.

The terms debtor and creditor have a purely personal application and should not be confused with the arbitrary terms debit and credit, which have both a personal and an impersonal application and are used to state the position an item occupies in an account.

The abbreviation for debtor is Dr.; for creditor, Cr. These abbreviations are also frequently used to denote debit and credit, which suggests the fact that the latter terms, used in double entry bookkeeping to apply to an account of any class, have a purely personal derivation and grow out of the relationship of trust which exists in all cases where business is done on credit.

In its primitive forms commerce was carried on entirely by barter, and later it was conducted through some common medium of exchange, which always resulted in a completed transaction; hence there was no real necessity for bookkeeping. Similarly at the present time it is not necessary for a private individual, a family, or any business conducted on a strictly cash basis to keep books. In such cases, much can be trusted to memory, the amount of cash on hand indicating quite clearly the financial position of the individual and the extent of his prosperity.

The expansion of credit at once gave rise to the necessity of keeping personal accounts, at least, as the details connected with the business carried on with many persons would be entirely too numerous to be retained in any other manner. Our bookkeeping terminology and its scientific development have therefore grown up side by side with the development of credit and credit instruments.

The rules for debiting and crediting personal accounts are as follows:

The balance shown by a personal account, if a debit, is the amount owing to the business, and is an asset; the balance, if a credit, is the amount owing by the business, and is a liability. Creditors' accounts always show credit balances.

Debtors' accounts always show debit balances.

An account with a debtor is illustrated on the next page.

In case payment of each bill is made in full in accordance with the terms thereof, the items on each side of the account will usually offset each other; a single line may then be drawn across the money column on each side to indicate that the account is in balance at that point.

But if payments are made on account, without applying to any particular bill, the items on each side bear no apparent relation to each other, and a balance would be "struck " by footing the two sides of the account in small pencil figures, finding the difference between the two, by mental subtraction if possible, and entering the difference in pencil on the larger side and on a line with the last item.

Personal accounts should be balanced at the end of the fiscal period at the time of closing the books, in the same way that the Cash account is balanced as illustrated on page 14, and the balance carried forward under the beginning date of the new fiscal period.

Construct ledger accounts with the following debtors and creditors, using ledger paper: (Leave three blank lines between the accounts.)

A. R. Davenport, 177 Custer St., Worcester, Mass. (a debtor).

January 1 Balance due, $277.50.

2 Sell him on account, 10 days, $727.30.

5 Sell him on account, $419.87.

12 Receive cash in payment of bill of the 2d.

15 Sell him on account, $227.55.

27 Receive note at 30 days for $400 to apply on account.

February 8 Sell him on account, $652.70.

19 Sell him on account, $375.

24 Receive check in payment of bill of January 15.

28 Sell him on account, $192.65.

EXERCISE B

William E. Hayes, 140 High St., Trenton, N. J.

May 6 We complete contract for the construction of an addition to his factory and charge him with the contract price; $12,250. A cash payment of $5000 is made to apply on the contract on May 8, and the balance is to be paid in monthly installments of $500 on the 10th of each month. Granting that all payments are made promptly, beginning with May 10, show how the account stands on December 31 of the same year.