+----+--------------------+----------------++------------------+---------------
| | _Liabilities._ | || _Assets._ |
| | | || |
| | Trade Creditors | L4,961 10 0 || Fixtures, Furni- |
| | Bills Payable | 2,620 18 4 || ture, &c. | L1,269 4 3
| | Balance, being ex- | || Stock on hand | 5,751 3 10
| | cess of assets | || Trade Debtors | 3,842 7 9
| | over liabilities | || Bills Recievable | 7,468 14 3
| | (or "Capital") | || Cash at Bank | 4,169 5 5
| | at this date | || |
| | carried down | 14,918 7 4 || |
| | +----------------++ +---------------
| | |L22,500 15 6 || |L22,500 15 6
| | +----------------++ +---------------
| | Amount of Capi- | || Balance brought |
| | tal on 1st Jan. | || down |L14,918 7 2
| | 1906 |L15,010 1 7 || |
| | Balance, being net | || Amount drawn |
| | profit for the | || out of business|
| | year ended this | || during year |
| | date | 1,408 5 7 || ended this date| 1,500 0 0
| | +----------------++ +---------------
| | |L16,418 7 2 || |L16,418 7 2
+----+--------------------+----------------++------------------+---------------
The method of accounting hitherto described represents _single-entry_,
which--albeit manifestly incomplete--is still very generally used by
small business houses, and particularly by retail traders. Its essential
weakness is that it provides no automatic check upon the clerical
accuracy of the record, and, should any mistake be made in the keeping
of the books, or in the extraction therefrom of the lists of assets and
liabilities, the statement of assets and liabilities and the profit or
loss of the current financial period, will be incorrect to an equal
extent. It was to avoid this obvious weakness of single-entry that the
system of double-entry was evolved.
Double-entry.
The essential principle of double-entry is that it constitutes a
complete record of _every_ business transaction, and as these
transactions are invariably cross-dealings--involving simultaneously the
receipt of a benefit by some one and the imparting of a benefit by some
one--a complete record of transactions from both points of view
necessitates an entry of equal amount upon debit and credit sides of the
ledger. Hence it follows that, if the clerical work be correctly
performed, the aggregate amount entered up upon the debit side of the
ledger must at all times equal the aggregate amount entered up upon the
credit side; and thus a complete list of all ledger balances will show
an agreement of the total debit balances with the total credit balances.
Such a list is called a _trial balance_, an example of which is given
below. It should be observed, however, that the test supplied by the
_trial balance_ is a purely mechanical one, and does not prove the
absolute accuracy of the ledger as 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.