Excerpt from Bookkeeping Exercises, Developing the Principles of Debits and Credits
§ 1. Each Individual requires food, clothing, education, amusement, and many other things necessary for his comfort and enjoyment. These necessities and luxuries can be obtained with money, which is the medium of exchange. The individual secures money through a compensation for services rendered to others, income from investment, or the profit resulting from the operations of a business.
James Brown is employed as salesman for the Citizens Motor Car Co.; his income is the salary received for the services rendered. J. W. Smith owns the building in which the Citizens Motor Car Co. is operated: his income is the rent received from the building, which is his investment. W. O. Winkler owns the Citizens Motor Car Co.; his income is the profit made by selling automobiles at a price greater than the cost.
§ 2. A Business. The one who sells to the individual the food, clothing, education, amusement, or other things which he needs for his comfort and enjoyment, is said to be engaged in business, and the operations in connection therewith are referred to as a business. The operations include the buying and selling of the commodities in which the business deals, at a place of business and under a name selected by the owner. There are many kinds of businesses, each supplying a specific demand; there arc many businesses of the same kind, each undertaking to supply the same demand.
John Jones owns and operates a drug store at 405 Main Street, known, and advertised to the public as "The Central Drug Store.'' Mr Jones is a business man because he operates a business. The operations of his business include the buying and selling of medicine and drugs as well as the other articles a drug store usually handles, and his business is referred to as a drug business.
§ 3. The Purpose of a Business. A business is organized and operated in order that the owner may make a profit, and thus enable him to purchase from others the material or services which his business does not provide. The profit results from selling material or service at a price greater than its cost. If the material or service which the business has for sale is sold at a price lower than its cost to the business, the operations have resulted in a loss. The purpose of a business can be accomplished only after the material or service which it undertakes to provide has been sold to those who demand it; no profit can result until the material or service has been sold.
Mr. Jones, the druggist referred to in the illustration in Section (§) 2, hopes to make sufficient profit through the operations of his drug business to permit him to purchase food, clothing, education and amusement for himself and family, and the many other articles and services which are needed in everyday life. To make a profit, it is necessary for him to sell the articles which he offers for sale at a price sufficient to cover (a) the cost of the article, (b) the cost of operating his business (rent, heat, light, etc.), and (c) the profit needed to provide those things necessary for the comfort and enjoyment of himself and family.
§ 4. Assets, Liabilities, and Proprietorship. Property is any object of value that an individual or business may lawfully acquire and hold. Any one kind of property (money, goods purchased for sale, land, buildings, etc.) owned by a business is referred to as an asset, and all the property owned by a business, as its assets.
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