Bankers make up their pass-books in two ways. When the customer is in account with the banker the cash he pays in appears on the right-hand side of his book, and the cheques he draws out on the left. The more general method, however, is to make the bank in account with the customer, when the debits and credits in the pass-book are an exact copy of the client’s own cash-book, whereas the entries in the bank’s ledger are reversed. The latter and more usual practice will be adopted in this chapter.

Customers often complain that they are unable to check their half-yearly charges, that they do not quite understand at what rates they have been charged; and as some bankers are most careful to add the interest and commission together, and then to enter the aggregate in the pass-book as “charges” simply, it is a little difficult to understand how they expect their clients to check their interest and commission. For instance, suppose a man is charged £5 2s. 6d., and that the banker writes in his pass-book:

By charges, £5 2s. 6d.

Here we have a puzzle that is more than Chinese in its intricacy and suggestiveness, for it is evident that unless the customer remembers that he has arranged to pay, say, 4 per cent. per annum interest and ? per cent. commission, he will experience considerable difficulty in verifying the figures. As a matter of fact, the companies are not particularly anxious to enlighten him, for see how easily the client could have checked his charges were they specified thus:—

Such a statement is almost beautiful in its simplicity, and the entry “postages” may, perhaps, give us some clue to the mystery, as it is evident that a manager, by debiting charges in one sum, is thereby enabled to hide certain debits such as “postages,” “telegrams,” “legal expenses,” “stamps,” and so on, at which, were they entered separately in the bank-book, the customer would probably strongly protest. And then, again, by adopting this method of darkness, those persons who leave everything to the agent never know their rates, and they are sometimes too timid to call and inquire, as though fearing that such a request would reflect upon the agent’s honour.

Certain banks have an account open in their ledgers called Law Charges or Sundry Charges, to which doubtful debits are posted in the names of various customers. At the end of each half-year these sums are credited to the account in question and included in the clients’ charges. When, for instance, a manager does not wish a person to know that he is paying a fee of £3 3s. to the bank’s solicitors for the examination by them of certain deeds which he has deposited as security, he will probably resort to this subterfuge.

We can now criticize the account of John Jones, who on the 31st December, 1902, owed his banker £500 2s. 6d., and examine the entries in his pass-book from that date to the 30th June, 1903, when his bankers rule off their books and calculate their charges. Assuming that Mr. Jones keeps proper books, he will have an account in his ledger, which, after making allowance for cheques drawn but not presented for payment, will agree with his pass-book in every particular. The following is a copy of his bank-book:—

The London and Cheatem Bank, Ltd., with Mr. John Jones.

Mr. Jones’ ledger, then, assuming that none of his cheques are outstanding, will show the same balance at the debit of “bank,” though, of course, the dates will not agree, as Mr. Jones credits the bank on the day that he draws a cheque, whereas the bank debits him on the day that it pays it. We can see that his banker paid a cheque to Smith on the 15th February. If John Jones drew the said cheque on the 12th, then he debited Smith’s account and credited the bank on the same day. But these entries, as we shall see in our next illustration, appear upon the opposite sides of the banker’s ledger.

Mr. Jones, whose securities are tangible, has arranged with the manager that he is to pay 4 per cent. per annum on the overdraft and ? per cent. on his turn-over, and to receive 1½ per cent. on his daily credit balances. Having received his pass-book, he wishes to check his charges, and after making two or three attempts, he is convinced of the futility of his efforts, so renounces his task in despair. He has worked the figures out in his own way, which, though a little primitive, he generally finds answers pretty well, and, as his figures come to something like those entered in the pass-book, he supposes that it is all right. Perhaps the following copy of his account as it stands in the bank’s ledger may therefore prove both illuminating and instructive:—

Jones, John, General Dealer, 5, High Street, Exeter.

Now everything should be as clear as the flowing brook to Mr. Jones. He should, in the first instance rule a sheet of paper in exactly the same manner as the specimen page of the banker’s ledger. He next carries the entries from his pass-book to the ruled sheet, taking care that each amount, whether debit or credit, is placed under its right date, and at the end of each day, or when the next date appears, he extends the balance, as in our illustration, for it is upon this balance that the bank either allows or charges him interest for one, two, or twenty days, as the case may be, at an agreed rate. He then multiplies this balance by the number of days, and carries the product into a “total” column, which he adds up at the end of the half-year. This done, the rest is a very simple business for anybody who can manage a rule-of-three sum.

The banker, we can see, brings forward the amount of Mr. Jones’ indebtedness on the 31st December when his books were ruled off. This opening entry, which amounts to £500 2s. 6d., is placed in the debit column of his ledger, and extended as a debit balance. Upon the morning of the 1st January, therefore, one day’s interest was owing on £500, but the next operation upon the account did not take place until 20th January; and as from 31st December (excluding the 31st and counting 1st January as one day) to 20th January (inclusive) there are twenty days, the customer owes twenty days’ interest upon £500. If we multiply 500 by 20, as in our form, and carry the product into “total” column, he then owes one day’s interest upon £10,000. The result, of course, is precisely the same; so a banker, in order to save a multiplicity of calculation, adopts this rule throughout, with the result that, at the end of the half-year, his client owes one day’s interest upon £37,422.

Bankers, when referring to the figures in the “total” columns, speak of them mysteriously as “decimals,” and the customer, upon hearing so ominous a word, jumps to the conclusion that bankers’ calculations are most difficult and involved, when, in reality, they are of the simplest nature imaginable. Evidently the product in question is the result of a simple multiplication sum; so why bankers should speak of extending the “decimals,” when there is none to be extended, must ever remain one of the enigmas of their trade.

As a rule, should the shillings in the balance column be ten or over, the banker, in making his calculations, calls them one pound, and when less than ten shillings he ignores them. On the 20th January, for instance, the shillings are excluded, but upon the 26th May £47 is the sum we have to multiply by five. Further, in arriving at the number of days between two dates, exclude the first date and include the second, or vice versa, but do not include both dates.

The second “total” column of our form is for creditor results, or, as bankers incorrectly call them, creditor decimals, the left-hand column being, of course, the debtor, and the right the creditor, just as though they were left-and right-hand pages of a cash-book. Having ascertained the number of days from date to date, we add them up, and next proceed to balance them. From 31st December, 1902, exclusive, to 30th June following, inclusive, there are 181 days, and, as those are the figures in our days’ column, we know that they are correct. Next we add up the “total” columns, and here great care is necessary, because it is impossible to balance the figures.

Dealing with the debit total first, we find that John Jones owes his banker one day’s interest at 4 per cent. per annum upon £37,422. Hence:—

But Mr. Jones will make these figures £35,154, and the answer £3 17s. 1d., and upon asking for an explanation he will be told that he has been charged three days’ interest upon the cheques he paid to his credit during the half-year. The banker argues that his client receives credit for the cheques he pays in immediately, whereas he himself has to collect them through the “clearing,” and does not receive the money for two or three days. The argument is somewhat fallacious as to the length of time, but we need not discuss that minutely. Mr. Jones points out that he pays in cash and local cheques as well as cheques upon London and country bankers, and that, therefore, he cannot understand why the manager charges him three days’ interest upon the total sum paid to his credit during the half-year. He will, of course, decline to submit to this charge, and request the manager to refund him 4s. 11d. (three days’ interest upon £756 at 4 per cent. per annum).

With reference to the rate, the average Bank rate from 31st December to 30th June works out at £3 17s. 1d. While his account was overdrawn, however, the official minimum was at 4 the whole time, so the rate is a fair one, but this question has already been discussed in the previous chapter.

His banker owes him 1½ per cent. per annum upon his creditor balances, which are multiplied by the days and extended in our second “total” column. He has, therefore, to receive 1½ per cent. per annum upon £3,891 for one day. Hence:—

As this is the sum debited in the pass-book, Mr. Jones’ mind is at rest À propos of the correctness of the figures; but it will probably occur to him that the rate might be improved, for the fact that one is borrowing at 4 and lending at 1½ is not conducive to harmonious thinking.

Next, he checks the commission on his turn-over, which he makes £117. He pays ? per cent., of course, upon the amount of the cheques credited in his pass-book during the half-year, and these come to the sum aforesaid. Hence:—

But his banker has charged him ? per cent. on £617. His glance falls upon the balance forward of £500 2s. 6d., and it at once occurs to him that the manager has charged him thereupon, that, in short, a mere banker’s opening entry has been included in his turn-over. Excited by this discovery, Mr. Jones calls upon his banker, and points out to him, with a touch of Celtic intensity, that he sees no earthly reason why he should pay 12s. 7d. simply because the bank has made an entry of its own in his pass-book. Moreover, with a keen eye for mathematics, he clearly demonstrates that he has already paid commission upon the various transactions which resulted in the said balance; so the manager, adjusting his spectacles, and praying Mr. Jones to moderate his language, allows that, in the hurry of business, a little mistake has occurred. A customer, when checking his charges, should see that he does not pay commission upon opening entries of this description, as, needless to say, they are merely there in order to enable the banker to balance his books, and bear no relation whatever to a client’s turn-over, though they are sometimes added to it.

Just referring to the rate of commission, ? per cent. we know, seems too much, so Mr. Jones may be recommended to read Chapter VIII of this book.

Lastly, we come to the entry “Postages, 5s.” The manager, during the half-year, writes numerous letters to his customers, sends their pass-books to them through the post, and so on; therefore, in order to reduce his incidental expenses, he debits a few shillings to certain easy-going clients before the books are ruled off, and so as to prevent awkward questions being asked, he includes these small sums with “charges.” Mr. Jones, who has probably not received half a dozen letters from the bank during the half-year, will naturally refuse to pay this imposition.

Should a customer not have made arrangements with the manager as to the rates he is to pay, he would ask at what rates his account has been charged, and then proceed to check the banker’s figures in the manner indicated in these pages. Such an entry as “charges” has nothing better than its extreme vagueness to recommend it, and the client, when he finds this word in his pass-book, should, if he experience any difficulty in checking the figures, return it to the manager with the request that he will give him full particulars as to the rates of interest and commission, and also tell him the amount of any additional charge or charges, if there be any.

We can now make out a table of the amount Mr. Jones has to reclaim from his banker:—

The commission on £617 is 15s. 5¹/10d., but a banker would charge 15s. 6d. Mr. Jones, we can see, has been overcharged to the extent of £1 2s. 6d., and we may rest quite assured that he will not be easy in his mind until he has recovered this sum from his banker.

Sometimes a customer, when ruling off his own books, draws a cheque for, say, £600, and pays it to his credit at the bank. This would be a cross entry. But does he understand that this sum will be included in his turn-over, and that if he be charged ? per cent. thereupon, he pays 15s. to his banker for making a couple of entries in his ledger? Again, if the manager charge him three days’ interest at 5 per cent. per annum upon the sums paid to his credit, he will pay another 5s. (about), and at this rate a cross entry of £600 would cost him 20s. The luxury, it must occur to him, is expensive; and as this illustration is not a figment of my imagination it is evident that everybody who keeps a banking account should understand how to check a banker’s charges.

It seems an act of supererogation to point out that the average account would contain very many more entries than the one under review, but if the reader will carefully follow these instructions he should find little difficulty in checking the charges in any bank-book. Where the account has been overdrawn during the entire quarter or half-year the first “total” column must be used. Our example is that of a mixed account, and both columns are required; but should the account be a creditor one, then the extensions are made in the second “total” column, and the banker, of course, will allow the customer a rate.

When checking the interest of a loan account it is advisable to obtain a separate pass-book from the banker, and not to take out the entries from the current-account pass-book wherein the interest is debited. Should it be found that the commission has been charged upon the amount of the loan, the customer would ask for an explanation, and in checking his interest he would proceed in exactly the same way as shown in our example.

Again, we have seen that some customers arrange that their rate shall be either Bank rate or ½ above it, as the case may be. Suppose that the Bank rate on the 22nd April were raised from 3 to 3½ per cent., and that it had stood at 3 from 31st December. The customer, who has agreed to pay his banker ½ above Bank rate, will then owe 3½ per cent. per annum on the sum or sums he has borrowed from 31st December to 22nd April. Applying this hypothesis to the account under review, we rule a line beneath the figures 6,160 in “total” column, and add up the column, which comes to 30,600. From 31st December (exclusive) to 22nd April (inclusive) there are 112 days (see page 59), and, as the figures in the days’ column give the same result, we know that they are correct. The customer, then, owes his banker one day’s interest at 3½ per cent. per annum upon £30,600. At each change of the Bank rate this process must be repeated; so instead of having one rule-of-three sum to work out, as in our illustration, there may perhaps be four or five of them.

Should the fortunate possessor of a large creditor account have arranged with his banker that he is to receive 1½ per cent. below Bank rate on his daily credit balances, then assuming that the balances on our form were creditor, the banker would owe 1½ per cent. per annum on £30,600 for one day. The customer, when calculating the amount due to him, would proceed in the same manner as indicated above, and he might remember that, in arriving at the number of days from one change of the Bank rate to another, he excludes the day from which he calculates and includes the date to which he calculates. The rest is easy.