Life in a small town

The Trials of Trial Balances and Reconciliation

Ledger Hauptbuch_Hochstetter_vor_1828Accounting trials that is … Thank God, and a Franciscan friar by the name of Luca Pacioli, and a Croation merchant named  Benedikt Kotruljevic, for the miracle of double entry bookkeeping. Double-entry bookkeeping, in accounting, is a system of bookkeeping so named because every entry to an account requires a corresponding and opposite entry to a different account. For instance, recording earnings of $100 would require making two entries: a debit entry of $100 to an account called “Cash” and a credit entry to an account called “Income.”

Back in the day I would have to do it all by hand ala the 19th century journal pictured above. Today I use Quickbooks Pro and as long as I make the entries correctly it does all the math and reports automatically on demand. My problem this year was completely missing making the journal entries for April and May 2014 due to complete family chaos. Anyway, that is what has been happening around here, spending several weeks correcting errors of omission which I forgot to enter because of all the distractions. As I said, without the miracle of double entry bookkeeping this might have been an almost insurmountable shamozzle.

Luca-PacioliSo this modern system which the entire business universe takes totally for granted was yet another unheralded product of Western Christianity. Many believe that the earliest known written description of double-entry accounting comes from Franciscan friar Luca Pacioli, the father of accounting, who was a Franciscan monk. He wrote the “Summa de Arithmetica, Geometria, Proportioni et Proportionalita” in 1494. In this method deciding which account has to be debited and which account has to be credited, the golden rules of accounting are used. This is also accomplished using the accounting equation: Equity = Assets − Liabilities.

Benedikt_Kotruljevic_mediumHowever, the earliest recorded mention of double entry bookkeeping was by Benedikt Kotruljević, who was born in Ragusa or what is now known as Dubrovnik in 1416. In 1458 in his work: Book on the Art of Trade, he describes what was as one of the world’s great intellectual breakthroughs.  Although only in a short appendix, it was the first description of modern accounting. This craft enables merchants, entrepreneurs and their investors to keep track of every penny they received or spent.

The MOST IMPORTANT characteristic of the double entry system is that the accounting equation serves as an error detection tool. If at any point the sum of debits for all accounts does not equal the corresponding sum of credits for all accounts, an error has occurred. It follows that the sum of debits and the sum of the credits must be equal in value. I would not have had any problem if I did a full accounting every month but my habit has been to look after payables weekly but to put off revenue and sales accounting until the end of the year.  This year is teaching me that maybe I should change my habit.

Double-entry bookkeeping is not a guarantee that no errors have been made—for example, the wrong ledger account may have been debited or credited, or the entries completely reversed. In my case this year I managed to miss lots of stuff in the course of the year and the system doesn’t guard against the errors, but it DOES make it reasonably easy to find them and fix them after the fact.

Anyway, life goes on … and on, and on, and on, …




“When going to a Party with wine, women, and song. Always ascertain the vintage of the first two.”



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