The Science of Bookkeeping

I have a confession to make. I have tendencies. Bibliophilia is one of my tendencies. While many people watch sports over the weekend, you might find me watching Book TV. Just so we are clear, bibliophilia is not perverted, it’s just the love of books.

Once in a while I surf the web to books.google.com and search on a keyword or term to see what books will rise to the surface. I was looking for a definition of bookkeeping and discovered the book Bookkeeping by Gerard Van de Linde, a Fellow and Joint Auditor of the Institute of Chartered Accountants in England and Wales. Since his book was published in 1891, I presume Mr. Van de Linde has passed and moved forward to where his debits were measured against his credits. I hope they balanced. However, it is not Mr. Van de Linde’s life I want to draw your attention to, but his definition of bookkeeping.

“Bookkeeping is a science, perfect in itself, simple and intelligible to those who take the trouble to master it from its foundation, and then to carry out in their strict integrity the fundamental principles which form the keystone to the whole structure.”

Now compare the above definition to the following contemporary definition which I found with a Google search.

“Bookkeeping is the activity or occupation of keeping records of the financial affairs of a business.”

Significantly increase the odds of success with timely and accurate reports and financial statements.

Significantly increase the odds of success with timely and accurate reports and financial statements.

I think we should go with the first definition. Mr. Van de Linde had a deep understanding of bookkeeping. This level of understanding and appreciation of bookkeeping is absent today.

In reality, “the science of bookkeeping” is just as important to running a business today as it was at the end of the 19th century. The world’s largest corporations could not manage their finances and investors would not have the confidence to invest their retirement funds in the securities market without a system of bookkeeping at the foundation of each successful business, a system that is “perfect in itself, simple and intelligible to those who take the trouble to master it from its foundation.”

I was reading the show notes to a podcast by Ray Edwards Podcast #120 The 10 True Reasons Fail. Mr. Edwards cited a statistic from statisticsbrain.com that 25% of all businesses fail in their first year, 55% of businesses fail by their fifth year, and 71% don’t continue in business past year ten.

For years it has been accepted as common knowledge that more than half of all small businesses close their doors by the fifth year. Everybody has an opinion as to why businesses close their doors, but the great majority of times is because they run out of money. After working with small businesses over 30 years, I am confident that most of these failed businesses had inadequate bookkeeping systems. Although an inadequate bookkeeping system might seldom be the primary cause of failure, a well designed and maintained bookkeeping system with timely and accurate management reports and financial statements that the owner studies, will significantly increase the business’s odds of success.

If you are a business owner and your bookkeeping system is inadequate, you put your business success at a disadvantage. But only you can decide what priority you will give it. Although I am a big fan of QuickBooks, buying a software package and having your dentist’s assistant moonlight and write your checks and record your deposits isn’t fundamentally sound. There are “fundamental principles which form the keystone to the whole structure.” It is to a business’s advantage to honor those principles which are “simple and intelligible to those who take the trouble to master it from its foundation.” If you need help, ask Potts & Company. We’ve taken the trouble to master bookkeeping and more.

 

David