Bookkeeping has been defined as "a systematic record of business transactions in a form conveniently available for reference with a view to ascertaining with the minimum amount of trouble at any time:

1. The detailed particulars of the transaction undertaken.

2. Its cumulative effect upon business and its financial relations to others.

"The ideal of any system of bookkeeping is the maximum of record with the minimum of labor."

It is proper at this point to lay stress on the importance of what may be called "clean" bookkeeping, by which is meant not merely the absence of blots, erasures, and corrections, but clean-cut, definite, and precise entries, so that each item in the trial balance shows definitely some one thing.

Perhaps one of the most familiar examples of what is not "clean" bookkeeping is the Merchandise account, formerly so often found in the ledgers of mercantile concerns, in which the debits consisted of:




Goods sold and returned


*A bracketed number preceding a section heading indicates the number under which the account discussed in that section appears in the trial balance shown on pages 222-225.

Allowances and discounts Change in inventories etc., etc. and the credits included: Sales

Goods bought but returned by the concern Discounts and allowances Inventories etc., etc.

As the balance of such an account in itself meant nothing, other accounts are now substituted, such as:

Purchase accounts, consisting of debit charges for goods bought, the only credits being for goods returned to creditors.

Sales accounts, into which are brought credit entries for all sales, the only debits being goods returned • by customers.

Interest accounts, divided into (1) Interest and Discount Paid, and (2) Interest and Discount Received, etc., etc.

The balance of each of these accounts has a definite • meaning. In the purchase accounts and sales accounts, for instance, the balances show respectively the actual net purchases and sales of the period, a knowledge of which is essential to good management. Such clean-cut accounts are important to a real estate concern, especially to one doing a large business in time sales. Attention has already been called to this matter (Chapter XXI (Cancellations Of Time Sales. Section 148. Time Sales And Cancellations)) in connection with cancellation of contracts.

In like manner, the Real Estate account should be kept "clean" and should be a debit account, the difference between the balance of this account and of "Sales" being, in fact, a perpetual inventory of unsold property. The sales accounts should show the sales divided in such manner as convenience may suggest; "Commissions" should be divided into "Commissions Earned" and "Commissions Paid."

It is possible that immense volumes of business may be transacted in which commissions "earned" and "paid" are equal. In such a case, the usual Commissions account, containing commissions earned and commissions paid, would show no balance, and the trial balance would therefore give no direct indication of these transactions. Probably the account as shown in the profit and loss statement would not, unless analyzed, indicate the business really transacted. These defects are remedied by a separation of the accounts, and when this is done all statements taken from the books show clearly the result of each set of transactions. The same principle applies to "Interest Earned" and "Interest Paid," "Options Granted" and "Options Bought," "Rents Collected" and "Repairs." The keeping of such accounts adds nothing to the labor, for in either case each item must be posted once and once only. The advantage of this method will be further exemplified in connection with the preparation of monthly reports in Chapter XXVII (The Trial Balance And Monthly Statements. Section 255. The Purpose Of A Monthly Trial Balance).