of Eyster v. Centennial Board of Finance, 94 U. S. 503, the Supreme Court of the United States decided that profits are receipts over expenditures, with no consideration given to depreciation. This decision strongly illustrates how far behind we are in our laws, as far as proper accounting is concerned, especially so as the buildings in this particular case had very little value after the exhibition.

Most of our court decisions are based on confused terminology. In one case, for instance, the court decided that all debts must be paid first, before the profits can be ascertained-a notion that is not only absurd to the accountant, but is against com

mon sense.

Some merchants, on the other hand, go to the other extreme, believing that a financial statement is an absolute exhibition of the exact status of the firm, at the time it is prepared; a fallacy also due perhaps to the terminology. It is interesting to note that Dicksee, in this connection states: "A balance sheet is not a statement of fact, but rather an expression of opinion." Rehm, in this connection is also of the same opinion; he states: "Not more than ten per cent. of the items in any average balance sheet are or can possibly be facts that are capable of being absolutely tested."

ACCOUNTING PROPER.

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The treatment of partnership accounts does not materially differ from the general principles that are applied to a business carried on by a single individual. Each partner's account is treated separately and profits or losses are adjusted and carried to their accounts per existing agreements. The excess of the assets over the liabilities at any time still represents proprietorship, with this distinction, however, that we must take into consideration the transactions between the business proper and its partners.

For the purpose of proper illustration we will assume that the reader has only a slight knowledge of the science of accounts and that, therefore, a few introductory remarks about bookkeeping in general will not be amiss.

Every business transaction involves the transfer of money or its equivalent; consequently, bookkeeping may be briefly defined as the science of recording such transactions in books.

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There are two systems in use known as single-entry" and double-entry" bookkeeping, respectively. Books kept upon an incomplete system of bookkeeping are said to be kept by singleentry. Very often, when books are kept by this system, the only ledger accounts kept are, customers' and creditors'. In other words, single-entry bookkeeping may be said to deal only with personal accounts. There are no complementary accounts relating to purchases or sales of merchandise, or to the income and expenditures of the business. The profit or loss for any given period is determinable solely from a comparison of the assets and liabilities of one period with those of another period, the excess of the one over the other showing the profit or loss.

The fundamental principle of double-entry bookkeeping is that for every debit (charge) there must be its complement, a credit, and vice versa. Every business transaction is of a twofold nature, involving, on the one hand, receiving some value, and, on the other hand, parting with a value. Consequently every transaction will involve two entries, affecting two accounts in opposite directions, and double-entry bookkeeping is so called because it gives effect to this twofold aspect of each business transaction. To illustrate; the sale of $25.00 worth of merchandise would be recorded in the books of the seller by debiting the buyer. He, having received the value is indebted to us and hence is debited on our books, our value with which we parted being the complementary credit. In the books of the buyer this procedure would be reversed.

It is thus seen that each transaction affects two accounts and, since the amount of each entry is the same, it follows that the total entries of the debit side will always equal the total entries of the credit side; and in this way a check is obtained upon the accuracy of the bookkeeping.

Double-entry bookkeeping has a still greater advantage over single-entry in that as it provides a complete record of all the transactions, it is possible, at any time, not only to prepare a balance sheet showing the financial position of the firm, but also its complementary, the profit and loss account, explaining how the profit or loss has been produced.

It is this contribution (the profit and loss account) which

double-entry bookkeeping has made to the science of accounts that is invaluable. It may not show the results more accurately than does a statement prepared from a set of books kept by single-entry, but it does present them in greater detail.

Although different trades and professions naturally possess different characteristics, necessitating the use of specially designed account books, the underlying principles of bookkeeping are the same in every case. While it is possible by a set of books kept on the single-entry system of bookkeeping to show results of operation, it is reasonable to say that no diversified business is safe where the books are kept by single-entry.

The books first used by the Venetians and which are to some extent also used to introduce the science to the student are

the day book, journal and ledger. In this age of progress, of extended business, and of labor-saving devices, the day book, in its primitive form, has become obsolete. The functions of the primitive journal have also been greatly modified and changed. At the present time, part of the function of the journal are taken care of by the sales book, invoice register, bill books, etc., etc.

It is not within the province of this treatise, however, to take up the various books of account seriatim; they are only mentioned in the course of narration, in order to make the general outline more complete.

The following are the universal principles in the science of accounts which govern all business transactions to which debits and credits apply:

ACTIVE.

(a) Debit whoever owes the business or firm.
(b) Debit whatever is bought and cost value.
(c) Debit cash received.

(d) Debit notes receivable account for other's notes received. (e) Debit notes payable account for our own notes redeemed. (f) Debit profit and loss account for all losses.

(g) Debit the partners' drawing accounts for their withdrawals, and their capital accounts for debit balances carried forward from the drawing account.

REASONS.

(a) All parties who owe the firm should be debited, in order that the firm may know how much other persons owe it.

(b) All property bought should be debited, under appropriate titles, that the firm may know how much it cost.

(c) Cash received is debited, in order to show how much cash has been received.

(d) Bills or notes receivable account should be debited for all notes and acceptances received by us, in order to show the amount received.

(e) Bills or notes payable account should be debited for all notes and acceptances previously issued by us and now redeemed, in order to show the amount of our notes redeemed.

(f) All losses should be charged to the profit and loss account, in order to show the amount lost.

(g) Partners' accounts should be debited in order to adjust losses and withdrawals against capital contributed.

PASSIVE.

(a) Credit whomever the business owes.

(b) Credit whatever is sold and produces value.

(c) Credit cash paid out.

(d) Credit notes receivable account for others' notes, redeemed by makers thereof.

(e) Credit notes receivable discounted account for others' notes, discounted by the firm.

(f) Credit notes payable account for our notes issued.
(g) Credit profit and loss account for all gains.

(h) Credit the partners' drawing accounts for interest on capital, and their capital accounts for all investments made by them, also for credit balances carried forward from the drawing

account.

REASONS.

(a) All parties whom the firm owes should be credited, in order that the firm may know how much it owes to other parties.

(b) All property sold should be credited under appropriate titles, that the firm may know how much was sold.

(c) Cash disbursed is credited, in order to show how much has been paid out.

(d) Bills or notes receivable account is credited for all notes and acceptances paid, in order to show the amount paid.

(e) Notes receivable discounted account is credited for other's notes discounted by us, in order to show the contingent liability created by us.

(f) Bills or notes payable account is credited for all notes and acceptance issued, in order to show the amount of our notes issued.

(g) All gains should be credited to the profit and loss account, in order to show the amount gained.

(h) Partners' accounts should be credited, in order to adjust profits against withdrawals and show their present worth.

Having dealt more or less with the principles governing the formation of partnerships; having also briefly treated the principles of bookkeeping in general, there is no necessity of going any further with the detail of the mechanism of actual business operations, as these will vary, according to the line of business.

This much, however, may be added to some advantage, that in recording transactions there are two objects to be aimed at, namely: (1) it is necessary that the records of transactions be so explicit that, at any subsequent time, the exact nature of the proceeding may be readily perceived without resorting to memory; (2) it is essential that the transactions should be so classified that at any time the combined effect of such procedure may be readily ascertained. The two principles mentioned are of vital importance; the classification of accounts is so important that either good or bad results of a year's operation can be shown by a mere change of classification.

As already noted, the adjustment of partnership accounts is the fundamental principle of all partnership dealings and we will therefore devote a little space to this part of our subject.

Before doing so, it would perhaps be advantageous to point out one important feature about which not only business men, but even bookkeepers are occasionally confused. In order to distinguish what a balance in any particular account signifies it is best to apply the following rules: (1) When a balance is on