This week’s video looks over Pacioli’s summary bookkeeping, and points out how complete the bookkeeping cycle is documented. Below is Jerry Cripps translated version the summary. The full translation can be found here. This is Episode 122 of Conversations with Kip, the best financial system vlog there is.
Entries in the Ledger
“1. In the ledger, all debits must be entered in the left-hand column and all credits in the right-hand column
“2. Entries posted to the Ledger must be double entries. Whenever you make a debit entry, you must also make the credit entry.
“3. Both debit and credit entires must include three bits of data: the date, the amount and the explanation for the entry.
“4. The total amount of the debit entry must equal the total amount of the credit entry.
“5. The debit and credit entries should be posted to the Ledger on the same day.
The Trial Balance
“6. A “trail balance” is prepared by extracting each debit Ledger balance and each credit Ledger balance and recording these on a separate sheet of paper. The purpose is to make sure that the total of the debit balances equals the total of the credit balances. When the totals balance, the Ledger is in good order.
“7. The trail balance should balance. That is, the total of the extracted debit balances should total the same amount as the total of the extracted credit balances. If the totals are not equal, then there is a mistake in the Ledger.
“8. The cash account should always show a debit balance. Otherwise, there is a mistake in the Ledger.
“9. No debtor should be recorded in the Ledger without debtor’s contractual consent; otherwise, the record is false. In the same way, terms and conditions cannot be added to a creditor’s contract without the consent of the creditor. Otherwise, the records are untrue.
“10 The values recorded in the Ledger must be given in a single currency. In the explanation of a transaction, you may identify other currencies; but, when writing the amount in the Ledger columns, you must be consistent and use a single currency so that the currency you use is the same currency throughout the Ledger.
“11. Explanations of debit and credit cash entries, for the cash account only, may be shortened by simply noting the donor’s or recipient’s name since the reason for the entry is explained by the balancing entry.
“12. When you need to open a new account, use a new page in the Ledger. Never go back in the Ledger, even if there is room.
“13. To correct a wrong entry made in the Ledger (it happens sometimes through absentmindedness), do the following: Place a mark in the margin to identify the wrong entry, then make a reverse entry. Then mark this new entry with a mark. That is all.
“14. When all the space available for a particular account has been filled up and you wish to make another entry, do the following: calculate the remaining balance on the account, whether it is a debit or a credit balance. Transfer the balance to a new page. Then turn the pages until you find a new blank page and there, on page so and so, make the following entry.
“15. When the Ledger is full or old and it is time to open a new Ledger, and you want to transfer balances to a new one, then do as follows: first, check to see that your old book is identified on its cover with the letter A, for example. In this case, you make on the cover of the new book a B because, as noted business books must be kept in alphabetical order. Take out a trial balance of the old book and check that it is correct and balances as it should. Then in the new book, transfer all the outstanding balances, in just the same order as they appear in the old book. Leave an appropriate amount of space between accounts for anticipated activity.
“16. For each debit and credit entry, state the page reference in the old book marked A when you transfer the balance to the new book.
“17. Now, to cancel the old book, make sure that every account is closed using a trial balance. Thus an old book account with a credit balance will be listed on the balance sheet, and you will enter an appropriate debit item in the new book so that the credit balance is carried forward to the new B book. This is the way to close out your old books and open new books. When an old book account has a credit balance, you do as just noted for the credit balance. This time, the debit balance is carried forward by making a credit item entry in the new book.
“Now my book is finished.”
The full book in original language can be accessed here. The accounting section begins on printed page 197 through page 210.