Henry Rand Hatfield

“ZWEI PFADFINDER”

About ten years ago, the late Hugli1 published in the Zeitschrift fur Buchhaltung an essay about the origin of the natural theory of accounting, usually known as the theory of two series of accounts. In this article, he attributed the development of this new predomin-ant theory to two German authors, G. D. Augspurg of Bremen and George Kurzbauer of Vienna, whose works appeared almost simultaneously in the early 50;s. These authors are “the pioneers of this natural theory and their merit cannot be appraised too highly.” He says of Augspurg’s work, which appeared in the year 1852, “Here for the first time the two account series of double-entry bookkeeping are sharply differentiated and contrasted” and that “this differ-entation of the two account series of double-entry bookkeeping in their juxtaposition was a great step.” This view has up to now apparently not been refuted and is repeated by Professor Julius Ziegler in his “Contribution to the Explanation of the Two Account Series of Double-Entry Bookkeeping.”

The purpose of this essay is to show that two American authors, Thomas Jones and B. F. Foster, whose separate works appeared between the years 1836 and 1852, preceded the above named German authors by ten to fifteen years. In order to show this, important passages cited by Hugli are compared with similar passages from the writings of the two American authors.2
The principle on which the new doctrine with which Augspurg is credited is based, is reported by that writer as follows:

“The system of double-entry bookkeeping consists chiefly in keeping side by side two sets of accounts, the one for the entire capital and the other for the individual parts of it, and in proving by their agreement, the mathe-matical corrections of the results achieved.”

‘Translated by Richard H. Homburger. Original text appears in Zeitschrift fur Buchhaltung (Linz), No. 4, 1909, pp. 80-86. Certain translations from the original article which are simply translations into German of English quotes, have been omitted.

But this same idea is quite clearly expressed in Foster’s first work, which appeared sixteen years earlier, as follows:

“It is a primary axiom of the exact sciences that the whole is equal to the sum of its parts, and on this founda-tion rests the whole superstructure of Double Entry Book-keeping. It considers property as a whole, composed of various parts—the stock account records the whole capital; the money, merchandise, and personal accounts record the component parts. Hence, there must necessarily and inevitably be a constant equality between the stock account on one hand and all the remaining accounts on the other.”

In complete bookkeeping, the stock or capital is known by its particular account, without enumerating and adding together all the component parts. When, however, this general extract of the parts is made, their sum will correspond with the stock account if the books are correct; and thus, the parts and the whole mutually check and verify each other. (A Concise Treatise on Commercial Bookkeeping: Boston, 1836, p. 26.)

Four years later the same author writes:

“In the arrangement of a ledger by double entry, there are but two distinct classes of accounts, which may be distinguished as follows: 1) Parts of property 2) Whole property.
The first class comprises the money, merchandise, and personal accounts, with their divisions and subdivisions, from which we ascertain the nature and extent of the as-sets and liabilities. The second class consists of the stock account, with its branches and ramifications as Profit and Loss, Charges, Interest, Commission, and the like, from which we ascertain the amount of capital originally in-vested in the business and the gain or loss for any given period. (The Theory and Practice of Bookkeeping, illu-strated and simplified. Boston, 1840, p. 23.)”

In a similar way, the other author expresses himself when he says:

“The whole Capital being entered in the Stock account, and the parts of which it is composed in the remaining accounts, constitutes the double record which marks every successive step in the compilation of the ledger. (The Principles and Practice of Bookkeeping, N.Y.: 1841, p. 53.)”

In explaining the purpose of the two separate series of accounts, he says:
“The purpose of a bookkeeping system in business is either to learn from it the periodic substance of the indivi-dual parts of capital and to have some control over their proper management, or to learn what result (gain or loss) the individual branches of the business have produced. From this result two essentially different kinds of book-keeping. The main record of the first kind contains ac-counts which designate parts of capital, in which there-fore increases and decreases in those parts are recorded; the main accounts of the second kind designate branches of business, in which are recorded in monetary terms re-ceipts and expenditures caused by those branches, (p. 132).”

The two series of accounts which, according to Jones, are called “primary accounts” and “secondary accounts” are explained by him in a similar way as follows: “The result of any primary account is Resources, and of any secondary account, Gains, Losses, or Capital, (p 27′)

In another passage, he says that the two sides of secondary ac-counts indicate expenditures or, respectively, receipts (p. IX), and another time: “Each scheme is divided into accounts, to accom-plish different objects in the parts; one scheme being to measure the fixed property, and the other, the gain that is accruing. (Ibid., p. 55).”
Later the same author says in a more detailed fashion:

“The arrangement of Double Entry is based on the two following propositions:

Proposition I

If we can ascertain our Resources and Liabilities at any stated time, their comparison will determine the position of our affairs at that time.

Proposition II

If we can determine the position in which our affairs stood at the commencement of any period of time and our Gains and Losses during that period, we can therefrom determine our position at the end of the period.

So that by any possible way in which we may view these two distinct and and independent propositions, . . . they must necessarily lead us to the same result. Double Entry, then, embraces two distinct plans of arranging the facts that have transpired in a business, each plan involving a distinct set of accounts; the one set fulfilling the conditions of the first proposition, the other, those of the second; and the agreement in the result of the two constitutes what is called the balance of books, (pp. 21-222).55

According to Hugli, Kurzbauer did not recognize that debit is ac-tive in one of the series and passive in the other, but this was un-derstood by Augspurg. But it appears that this clarity of vision on the part of Augspurg was ascribed to him not on the basis of a definite clue which points to it, but rather because he says that the two series of accounts are treated in a dissimilar fashion.1 But it seems that in their concept of this important difference, the two American authors not only surpass Kurzbauer, but are at least equal to Augspurg, if they do not surpass him, too. Even if Jones and Foster do not say specifically that in the primary accounts debit contains the active and credit the passive accounts, while this is reversed in the secondary accounts, it appears, nevertheless, as if this important principle of double entry bookkeeping can be glimpsed from their writings. In the following sentences, it is to be seen:

1. The concept of debit and credit is expressly charac terized as positive and negative in the primary accounts, for example;

“All debits of the primary accounts denote increase in the fixed property . . . and all the credits of the primary accounts denote decrease of the fixed property (Jones, Principles, etc., p. 48).

The component parts of property are distributed into debtors and creditors; the positive parts constituting the former, and the negative parts, the latter (Foster, Double Entry Elucidated. Boston. 1852, p. 112).”

2. A repeated indication that debit and credit have a different significance in different accounts, for example:

“In each class of accounts, the debit items are different in their nature, and one debit is like another no further than as it belongs to the left hand column of the account

(Ibid., p. 43, as it is described by Jones; see also Foster, Theory and Practice, etc., p. 13, and Jones, p. 20).
The debits of one arrangement affect the merchant’s fi-nancial position by indicating an increase of his resources, while the debits of the other arrangement indicate outlay or decrease….

Any rule, therefore, which conveys the idea that all debits affect the merchant alike must render a clear comprehension of the subject impossible. (Jones, p. IX1).”
3. Sometimes there appears an almost definite indication of the doctrine in that, for example, Foster adds to his sentence that “The positive parts or debit items are entered in the left hand column” a footnote as follows:

“In estimating the profits of a concern, if the gain be positive, the loss will be negative, because the loss must be deducted from the gain to determine the net profit (Theory and Practice, p. 10).” And even more definitely:

“It plainly appears that each set of accounts in double entry, is a comparison of outgoings and incomings—but one the reverse of the other; that is, the outgoings in the secondary, and credits in the primary accounts (Jones, p. 55*).”

Even though in the preceding, the works of Foster as well as those of Jones are cited, prior credit for the theories presented must be ascribed to the latter, without consideration of the fact that Foster’s first book appeared five years before Jones’ work. This can be explained in the following way: Foster has dealt liberally with Jones’ ideas, borrowing from them, as Jones presented them in his lectures at the New York Commercial Academy, where Jones was Director and Foster was teacher. Not only does Jones deserve prior credit for the theories proclaimed by Foster, this right is conceded to him, even though reluctantly, by Foster. This becomes clear in a letter by Foster of August 1, 1838, which is published in the preface to Jones’ first work, and which, contains, among other, things, the following:

“The principal features of what I understand to be your plan of teaching bookkeeping, and for which, in my opin-ion, you are entitled to the merit of having originated, are the following:

3rd. Deducting from the different accounts two state-ments of the merchant’s affairs, each showing how much he is worth.

4th. Showing that the Ledger, by double entry, contains two sorts of accounts, which you term primary and secondary, each set producing one statement of the merchant’s affairs, and showing how much he is worth. The agreement in the result of the primary accounts with the results of the secondary accounts constituting the balance of the books.

I have availed myself of the information derived from your oral lectures in the compilation of my recent work entitled The Merchant’s Manual, so far as it relates to the explanation of the Ledger … an acknowledgement of which shall be made in my next publication on this sub-ject, and which has been inadvertently omitted in the present edition.”

It is striking, however, that Foster, after designating in his book which appeared in 1852, the passage about debit and credit as originating from Jones, he repeats this passage in his edition of 1866 without quotation marks, and without acknowledgement. And then, while the preface to his work of 1840 acknowledges his debt to Jones, no such acknowledgement is expressed in his later work, and expression is given to the broad statement that “modern publications show nothing original or systematic about them.”

The theories which are contained in the earlier works of Foster must, therefore, without doubt be ascribed to Jones. From all in-dications Foster was not even quite conscious of the significance of the theory which he borrowed so freely. This can be seen, for example, in the fact that even though he repeats Jones’ words about the different meaning of debit and credit in the different series of accounts, he tries nevertheless to give a universal rule for the entries into the journal and retains the well-known formula “the thing received is debtor to the thing delivered.”

Jones, on the other hand, is consistent and keeps in mind, in his entire work, the difference between the two series of accounts. On the other hand, Foster demonstrates a far-reaching knowledge of the literature on bookkeeping, he often quotes not only from French, but also from English works, and he was a Bibliophile. He presented an exten-sive list of works in the English language about bookkeeping and said that he owned 169 of these. His own works enjoyed considerable recognition in reprint editions, and several have also ap-peared in England.

This essay, without attempting to establish a connection between the writings of these two American authors with those of Augspurg and Kurzbauer, is intended to establish that, in point of priority, the credit that has so far been given to the German authors, should be attributed to Thomas Jones.

FOOTNOTES

“See No. 70 of our Journal (January, 1898).
2 Unfortunately, no copy of these works could be found in the United States, and an order which I placed already more than two years ago with a Berlin es-tablishment for old books was without success. I must, therefore, limit myself to references to Hugli’s work. The page numbers refer to the reprint of his article in his “Studies on Bookkeeping, Bern, 1900.- Editor’s Note: The work of B. D. Augspurg should still be available in several copies at Ed. Hampe in Bremen. George Kurzbauer’s “Bookkeeping” has appeared in a new editfon, prepared by his son, at Karl Gerold Son in Vienna.

3 With regard to this point, the author of this article has difficulties, as he can-not consult any copy of the book by Augspurg.