, 1888-11-13
THE BALANCE SHEET.
HOW THE BUSINESS MAN FIGURES
HIS PROFIT AND LOSS.

for Those Who Haven't Any
Knowledge of Accounts by One Who
Knows-Meaning of taking Stock"
Gains and Losses-Assets
Most business men keep their affairs
well enough in hand to be able to tell at
any time about what they are doing, but
they all depend Upon the balance sheet at
the close of the year to show the exact
condition of the business. Indeed, there
is no other means of ascertaining it, for
even the most careful estimates made dur
ing the year are often misleading, partic-
ularly where the interests are large and
the details varied.
But what is the balance sheet, and how
does it show the merchant what he has
made or lost? The question is not I'M
timely, for every properly conducted bust
ness house in the country is now getting
things in shape for the preparation of this
important statement. A brief and simple
explanation of it and the proper method
of making it may be of interest to those
who have no knowledge of accounts, and
even those who have such knowledge may
find a suggestion here and there which
can be turned to advantage.
MEANING OF ''TAKING STOCK"
A prime condition of the balance sheet
is to know exactly the value of the goods
on hand on the last day of the year. This
is found out by taking Stock" as the
merchants call it, that is to say, a COM
plete inventory is made of all the goods in
stock at the prices paid for them when
purchased, or at their present market
prices if there has been any change. For
example, q lot of goods that cost So, 900
three months ago may be worth 50, 500 to-
day; if SO, they should be inventoried at the
latter price, and the appreciated value is as
legitimate a profit to the merchant as if he
had sold them at that figure. On the
contrary, if they have deprecated in
value, the depreciation woul be q loss.
The entire stock, then, must be taken at
its present market value.
In the meantime the bookkeeper has
been getting his books in shape. He car
ries into the ledger every item from the
original books of entry and then takes Off
a trial balance" to see whether his work
; has been correctly done. By the double
entry system of bookkeeping, the only
correct method, the sum of the debts
must equal the sum of the credits, and
the trial balance is made out to provo
this. He goes through the ledger and
finds the difference between the debit and
credit side of every account, and having
made a complete list of the accounts, HI
sets down opposite to each one its bal
ance as shown by the ledger, putting the
debts in one column and the credits in an
other. If the work has been correctly
done these columns will agree exactly; If
they do not agree there are errors which
must be found before further progress can
be made.
RI GAINS OR LOSSES.
The work having been verified the next
step is to find out the gross gains or losses.
There is an account on every ledger, gen.
orally called merchandise" which rep
resents the commodity or goods dealt in
All goods purchased are charged to this
account, and goods sold are credited to it.
AS its debit side shows the amount OF
money paid for the goods and its credit
side the amount received for what has
oeen sold, it is evident that the gains or
losses can be ascertained by adding the
stock on hand to the credit side and then
taking the difference between the two.
y If the balance is on the credit side there
is a gain; if on the debit side there is a
loss. The ~bookkeeper, therefore, enters
directly on the credit side of merchandise
account in the ledger the amount of the
goods on hand. If there is a credit bal
ance, he carries it to the credit of profit
and loss; If a debit balance, be carries it
to debit of profit and loss. But, as he
entered the stock on land to the credit of
merchandise directly on the face of the
ledger, he must bring the same amount
down on the debit side of that account as
the stock with which the new year starts.
Having reached this point in his work
he has only to charge up to profit and loss
-1he various expense accounts 70 dscertain
The net gain or loss, and he is then ready
20 make out the balance sheet. The fol-
lowing will be the form if a gain has been
made: Merchandise credit n stock on
hand; from the sum of these subtract the
merchandise debits-the differences will
represent the gross gains; the various ex-
pense accounts, the sum of them to be
subtracted from the gross g~ains-the re-
mainder will show the net gains. Then
. should follow a statement of the assets
I ind liabilities, the former consisting of
cash on hand, stock on hand and the notes
and accounts owing by others. The excess
of the assets over the liabilities will he the
amount of the net gains. If a loss has
been made the balance sheet is drawn up
substantially the same way, the only diff
ference being a change in the order of set
ting down the items. In this case the liza
bilities will exceed the assets by the
amount of the net loss.
The balance sheet, then, is simply an abb
stract of the ledger accounts, showing in
condensed form the condition of the bust
ness to a cent.-"Bookkeeper" in Phila-
delphia Times.