Branch Accounting in the Double-Entry Bookkeeping Record of a Gaeseong Merchant

This paper is the first attempt to analyze the branch accounting of a Korean traditional double-entry bookkeeping document. The subject of investigation is the head office account named ‘Kim Hong-youl’ included in ‘The Registered Cultural Heritage No. 587’. The period analyzed spans from 1898 to 1903, In this paper, it will be verified that ‘Kim Hong-youl’ is not a Dojung account which accounts partnership but the head office account of branch management. Journal entries of individual transactions, posting process, and settlement of accounts are analyzed in detail. This study is expected to enhance our understanding of branch accounting and management practice of a Korean Gaeseong merchant in the turn of the 20th century. It was found that the branch transactions were recorded based on double-entry bookkeeping principle with a head office concentration system. The debit of the Kim Hong-youl account can be understood as an investment in branch and the credit as the recovery of the investment. The crdit balance of the account at the year end is the annual net income of the branch. Annual net income was distributed to the head office and branch manager Kim Hong-youl by half. The fact that net income was halved is an evidence that Kim Hong-youl, the branch manager, was a ‘Chain’ who is a well-trained employee in charge of the part of business without monthly compensation. In the year of loss, it was carried forward to the following year. This paper provides additional evidence that the capitalistic thinking and management practice of Gaeseong merchant identified in previous studies were consistently applied to this branch accounting. First, the incentive compensation plan, which divides profits in half with branch manager in stead of paying monthly salary, has been implemented since 1898. In agricultural management of rice field, a yearly compensation contract was signed with workers based on expected crop and wages paid reflected actual crop. Compensation plans with motivational incentive scheme are common in current management practice since the scientific management had been introduced into the management area at the beginning of the 20th century. It is an evidence that Korea had an incentive scheme similar to USA around the same time. Second, the branch was one of the decentralized management organization and the performance index evaluated was net income. This means that the branch was managed as a profit center although is not clear how much independence the branch maintained in operation. However, compared to the fact that DuPont and GM implemented the responsibility accounting system at the beginning of the 20th century, Gaeseong merchant was also conducting the same practice around the same time. Third, the accounting record investigated explicitly deducted the cost of capital as an expense in the year end settlement of accounts and added it to the capital. In the ginseng field business, income was computed by considering capital cost for both investment and recovery. Since the branch accounting was settled in the same way as ginseng field, it is clear that the Gaeseong merchant consistently accounted for capital cost. Net income after the cost of equity capital is eqivalent to the recognition of the opportunity cost of equity capital