Bookkeeping; The Principles and Practice of Double Entry; With Exercises, Key and an Appendix of Forms (Paperback)

This historic book may have numerous typos and missing text. Purchasers can usually download a free scanned copy of the original book (without typos) from the publisher. Not indexed. Not illustrated. 1904 edition. Excerpt: ... to lead up to th principle that real accounts, representing, as they do, assets and liabilities, are those which are to be included in the balance sheet, and that nominal account, representing neither assets nor liabilities, must bo periodically got rid of or "written off," and for that purpose are transferred to the Profit and Loss Account. Real accounts remain in the books, and one period opens with the same balances as those with which the preceding period closed. Nominal accounts are completely written off, and the new period starts with a clean sheet. It is quite possible for an account to change its character. Thus, a personal account representing a debt due to a trader may become a nominal one by reason of the debtor's inability to pay. It then ceases to represent an asset, and is for that reason written off by being transferred to Bad Debts, which is a nominal account. Similarly, plant and machinery which cost '1, ooo may, at the end of a year, have depreciated to the extent of 1oo. In that case the balance of the account is only real to the extent of 900. It should be reduced to 900 by crediting it with 100, and at the same time debiting Depreciation Account. The latter is a nominal account, and will be written off to Profit and Loss Account. Again, a reserve for an expense, such as commission, may subsequently be found unnecessary, and so becomes nominal, and should be transferred to the credit of Profit and Loss Account as "Commission over-reserved." In preparing the Balance Sheet and Profit and Loss Account from the Trial Balance, it is therefore necessary to test every Ledger balance by the question, "Is it real or is it nominal?" If it is only partly real it should be reduced...