Bank accounting consists in making written, permanent records of every transaction. Every penny must be accounted for. The statement of the bank, which we have just discussed, shows the general, or control, accounts of the bank, and the various books of the bank show the detail of these items. It would not be impossible, but it would be entirely impractical, to enter every figure directly on the statement of condition. We might imagine an enormous sheet on which the capital is entered as to the ownership of each share of stock. Instead of total deposits, the balance of each depositor would appear opposite his name. On the other side, instead of loans and discounts, there would be an itemized list of the loans with the names of the borrowers. With such a sheet spread out over a floor space of great area, we might imagine the clerks crawling up and down the columns like flies making debits and credits. This is, of course, absurd, but it is precisely what happens, except that the entries are made on books, loose leaves or cards, and the final results are posted on the statement of condition which is thus altered day by day.
As in other matters we have mentioned, banks are also alike with respect to bank accounting, the same principles govern whether the bank is large or small, national bank or trust company. All the books are a part of the general books, and the extent to which they are divided depends on the size of the bank. Division is made to fit the capacity of the clerk. When any part of the work becomes too burdensome for one man, he may be given an assistant or the books and records will be further divided, so that two men can do the same thing without conflicting. In very large banks a clerk may spend all his time listing checks upon a sheet, or adding up certain columns of figures or doing any one of a thousand things that must be done in the process of keeping accounts. Unless he is studious and observant, he loses sight of the fact that his work is a part of the whole, he becomes mechanical, falls into a rut and banking, instead of being an interesting employment full of possibilities, is to him mere drudgery. He is standing so close to the machinery that he allows it to master him instead of broadening his vision by study and thus mastering his task.
The first principle in bank accounting, as in all other bookkeeping, is that for every debit there must be a credit, and vice-versa. In accordance with this fundamental theory the books must always be in balance. As we have seen with respect to the statement, every dollar of liabilities is accounted for by another dollar of resources. This is true of every bank. If the institution is large enough to be divided into departments, such departments are charged with all funds passing through their hands, and they must show on their records what has become of every penny. Similarly each clerk, bookkeeper or teller accounts at the end of the day for each item of cash he has handled. When he has done so he is said to have "settled," "balanced" or "struck a proof." Every bank clerk has had the experience of remaining at his desk until a late hour at night checking up his day's work searching for a difference of a few cents. Often he becomes embittered at what seems to him a tyranny when the small sum of money involved is considered. The reason he must settle, however, is not on account of the possible loss of ten cents, but because the most important principle in bank accounting is involved. "Accuracy first" is a motto that should be framed, figuratively at least, upon the wall of every banking room.
The books used by a bank are of various kinds and their purpose is indicated by name. A ledger is a book used to keep a record of balances. To "post" means to enter in the proper columns either the debits or credits on the ledger, and the difference between them represents the balance either due by or to the bank. Most banks are doing away with bound books, especially ledgers, and substituting cards or loose leaves. This plan enables several men to work on the same records, which would be impossible if they were bound in a single book. Alphabetical division is also easier of adjustment and "inactive" accounts can be readily separated from "active" accounts. Totals of balances can be listed upon adding machines for proof more easily from loose sheets than from bound books. But whether bound or not, records of balances are kept upon ledgers.
A journal is a book in which daily transactions are listed in regular order as to accounts, and the total debit or credit is then posted on the ledgers. Journals, too, may be loose sheets so that they can be inserted in the carriage of an adding machine; indeed, machines have been invented upon which both debits and credits may be written and the machine will automatically subtract or add and print the new balance. The journal, then, is merely a subdivision of the ledger.
A depositor of the bank wishes his account to be charged and the money paid to a named payee. The piece of paper upon which he writes this order is a "check." If he deposits money, he writes the memorandum of the amount upon a ruled slip of paper and this is the "deposit ticket." Bookkeepers enter debit and credit records upon their journals directly from these items. Money, however, may change hands or from one account to another, in other ways; by letter, telegram or other debit and credit advice. In such cases a "charge ticket" or "credit slip," as the case may be, is signed or initialed by an officer of the bank, and entry with full explanation is made upon a book from which record the bookkeeper makes his entries. This book is known as a "scratcher," "tickler" or a "blotter." The terms mean practically the same thing. A book upon which a complete description of a negotiable instrument or transaction is made for a permanent record or for reference, is called a register. For example, bond register, collection register, etc.
All other books, cards, sheets of whatever nature are a part or subdivisions of these books. Often they become known among the clerks by some other name descriptive of their general appearance. For instance, the general ledger scratcher in one bank is known as the "red book," while the collection department scratcher is the "black book." These names have stuck through generations of clerks, and a young man going into another bank has been known to ask for the "black book," and being untrained in accounting, he had difficulty in making himself understood. Similarly, in New York City banks the pigeonholed desk where checks are assorted for the clearing house is generally known as the "clearing house rack." A New York bank clerk visiting a Philadelphia institution and asking to see the "rack" would probably be shown a hat room.
The records made by one clerk upon one set of books, in a well-appointed accounting system, go to check the records of another clerk upon a different set of books. For instance, the paying teller and the receiving teller will each keep a record of checks cashed or deposited payable within the bank. The debit postings of the individual bookkeeper would agree with the teller's figures. Skillful accounting lies in making the fullest possible use of original entries, at the same time having a check on all figures to guard against either error or fraud. Many young bank men have materially increased their salaries and rate of promotion by devising improved accounting methods.
As has been said, every transaction ultimately affects the bank's statement of condition by debit or credit. Refer again to the outline statement shown in the preceding chapter. A deposit of $1,000.00 is made, consisting of $200.00 cash, and checks as follows: $200.00 on the bank itself and $600.00 payable in another city. At the end of the day (assuming this to be the only deposit), on the liabilities side there is an increase of $800.00, all of which appears in the item "deposits" being the total $1,000.00, less the check for $200.00 which is charged to the account of the drawer. On the resource side, then, we must have a corresponding increase of $800.00, and this is made up by an increase in the cash of $200.00 and an increase of $600.00 in the item "due from banks." Or a transaction may appear on one side of the statement only. The bank has sold $5,000.00 of the bonds it owns. The bond item of resources would show a reduction of this amount, and either "cash" or "due from banks" would be increased, depending whether payment was made in cash or by check. If payment for the bonds is made with a check on the bank itself, both sides of the statement are affected, a corresponding reduction in deposits taking place. How these various transactions are recorded will be discussed in more detail in the following chapters.