mxmnmv i mtimutJiMM u taHH i itmviva teaiassissstt^ OOK ODERN KIRK AND STREET 5fifl ita GIFT THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA HENRY RAND HATFIELD MEMORIAL COLLECTION PRESENTED BY FRIENDS IN THE ACCOUNTING PROFESSION 2695 LE CONTE AVENUE BERKELEY CALIFORNIA BOOKKEEPING FOR MODERN BUSINESS BY JOHN G. KIRK, Ph.B., M.C.S. Principal of Frankford Evening High School, and Head of Department of Commerce, Frankford High School, Philadelphia AND JAMES L. STREET, B.S., M.C.S. Head of Department of Commerce, William Penn High School, and Wanamaker Institute of Industries, Philadelphia SCRIPT BY RENfi GUILLARD THE JOHN C. WINSTON COMPANY PHILADELPHIA CHICAGO Copy right. 1920, l)y The Johx C\ Winston Compaxy All rights reserved lU^'-^ PREFACE Bookkeeping for Modern Business is a working manual planned to develop logically the correct principles of bookkeeping— principles advocated and practiced by modern bookkeepers. It has been designed to meet the requirements of business colleges, high schools, and institutes that prepare students for business, and is well adapted for evening schools. The authors in preparing this text have made use of the fund of general information which all students have acquired before they take up the study of bookkeeping. They have used as their basis for developing the account what knowledge the students possess of the simplest business transactions, such as the receiving and paying out of money which comes into their possession, the facts that bring about the condition of owing and being owed, their knowledge of arithmetic learned in the elementary schools, etc. The students are led from one class of business transactions to another in such a way that they realize the necessity for the use of more than one account in order to keep a complete record of the various classes of transactions. To this end a large number of simple and reasonable exercises have been included, all of which give an intelligent explanation of each new principle. Moreover, every process is so fully illustrated by model exercises that the students are never lost in the mazes of the average bookkeeping manual. An effort has been made, also, to simplify the transition from one subject to another by anticipating, in the method of treatment and in the character of the exercises on one subject, the difficulties of the next. The treatment of accounts, for example, is made to pave the way for an understanding of the two-fold effect of a business transaction. They soon realize, when a transaction is analyzed, that more than one account is necessary to record the transaction completely. Following this the students are easily guided from the subject of accounts to the books of original entry where the transactions are classified before they are entered in the ledger accounts. Likewise, such analytical steps as are necessary for an intelligent explanation of the journal are fully illustrated by model exercises, and from it the other books of original entry are developed. Thus many of the difficulties in teaching the principles of the cashbook, the purchases journal, and the sales journal, all of which are practically identical in principle, are eliminated. Because of the complete illustrations by model exercises at each stage of the work the close relation of the journal to the cashbook, the purchases journal, and the sales journal can be easily understood by the student. The authors show clearly that a record of a business transaction in any one of these books represents a journal entry just as fully, though differing in form, as a record made in the regular journal. This fact made clear, these books become special journals and are presented as such. An effort has been made throughout, both in the classification of accounts, the building of the financial statements, and the closing of the ledger, to conform to sound theory and general practice. Suggestions for building and proving the financial statements are fre- quently made in order that the students may become thoroughly familiar with modern forms and the arithmetical processes involved. (3) M511257 4 PREFACE survey of the text will reveal an unusual amount of carefully graded aescriptive matter relating to banking, filing, and business papers helpful to the students when taking up the study of bookkeeping. A limited amount of clerical work in writing checks, notes, drafts, trade acceptances, etc., and the proper filing and checking of the same, has been given. The authors have attempted throughout to avoid technicalities and to present the subject of bookkeeping in the most approved pedagogical manner by guiding the students from the known to the unknown, from the simple to the complex. In presenting each subject, the approach has been made so simple and obvious that each successive step, developed and illustrated clearly, is learned with astonishing ease. A large quantity of material for drill in connection with each subject, planned to meet the needs of the busy teacher and of the average class, has been supplied. The selection of the subject matter of this text and the method of presentation have grown directly out of the authors' extensive preparation in collegiate and business schools; their practical accounting experience in manufacturing and banking houses; their practical teaching experience in business colleges, institutes, academies, and high schools, both day and evening courses, and out of the classroom, where it has been tested by other teachers. Invalu- able assistance has been given by those who have been teaching from the original manuscript, and by accountants and business men who have suggested some changes. The authors desire to express their sincere appreciation of the assistance which they have received from business men, accountants, and teachers in both business colleges and high schools. Special thanks are due Mr. R. J. Bennett, C.A., C.P.A., who read the manuscript and made many valuable suggestions regarding the classification of accounts, financial state- ments, and the closing of the ledger; Miss Mary A. Waesche, B.S., Head of the Bookkeeping Department of the Wanamaker Institute of Industries, Philadelphia, and an Instructor in the Department of Commerce in the Frankford High School, who has used the manuscript in her classes for several years and has contributed portions of the book in its preliminary form; and to other teachers of bookkeeping in the Frankford High School and the William Penn High School who have either read the manuscript or have used it in their classes. Thanks are also due Dr. William D. Lewis, Deputy Superintendent of Public Instruction, Harrisburg, Pa.; Mr. H. Winfield Wright, C.P.A., Philadelphia; Mr. Parke Schoch, Principal, and Mr. Murray Gross, Head of the Department of Commerce, West Philadolpliia High School for Girls, Philadelphia; Dr. Laura H. Cadwallader, Head of the Department of Commerce, South Philadelphia High School for Girls, Philadelphia; Mr. Sydney A.Farbish, of the Depart- ment of English in the Frankford High School, Philadelphia; Mr. Leigh W. Prentice, German- town High School, Philadelphia; Mr. C. D. Moore, Head of the Bookkeeping Department, Banks Business College, Philadelphia; Mr.Rene Guillard, formerly of the Zanerian College, Columbus, Ohio, now with tli<> Banks Business College, Philadelphia; Mr. C. J. Halson, Federal Reserve Bank, Philadelphia. CONTENTS PART I FUNDAMENTAL PRINCIPLES AND DEFINITIONS PAGE A Business Transaction Defined 9 Bookkeeping Defined 9 The Development of an Account 9 The Terms Debit and Credit Explained 11 Various Accounts Named; Their Functions 11 The Ledger and Its Use 12 The Cash Account, with Exercises 12 Exercises in Ruling 15 Personal Accounts with Creditors; Exercises 17 Personal Accounts with Customers; Exercises 20 Promissory Notes Illustrated and Explained 23 The Notes Receivable Account, with Exercises 25 The Notes Payable Account, with Exercises 27 The Merchandise Accounts Illustrated and Explained 31 The Merchandise Purchases Account, with Exercises 32 The Freight Inward Account, with Exercises 35 The Merchandise Sales Account, with Exercises 36 The Merchandise Inventory Illustrated and Explained 38 The Merchandise Inventory Account, with Exercises 39 The Merchandise Trading Account, with Exercises 42 The Selling Expense Account, with Exercises 45 The General Expense Account, with Exercises 47 The Profit and Loss Account, with Exercises 50 The Proprietor's Account, with Exercises 53 PART n THE DEVELOPMENT OF DEBIT AND CREDIT IN BOOKS OF ORIGINAL ENTRY The Double Effect of a Business Transaction Illustrated by Ledger Accounts . 57 A Model Set of Accounts Illustrated 62 A Trial Balance of Totals Illustrated and Explained 63 (5) 6 CONTENTS PAGE Supplementary Exercises in Accounts 64 Journalizing Illustrated and Explained 65 The Double Effect of a Business Transaction Illustrated by the Journal Method 66 A Model Journal Illustrated 68 Books of Original Entry Explained 70 Books of Final Entry Explained 70 Auxiliary Books Explained 70 Posting Defined and Explained 70 Exercises in Journalizing, Posting, and Taking a Trial Balance 73 Development of the Sales Journal from the Journal, with Exercises .... 73 Development of the Purchases Journal from the Journal, with Exercises 77 Development of the Cash Journal or One-Page Cashbook from the Journal, WITH Exercises 80 The Two-Page Cashbook, with Exercises 83 Closing and Ruling the Cashbook, with Exercises 84 PART III THE FLOUR AND GRAIN BUSINESS WITHOUT BUSINESS PAPERS General Explanation 88 Books and Forms Involved in the Business 88 Transactions — September Business 89 Checking and Closing the Purchase Journal 98 Checking and Closing the Sales Journal 100 Checking, Balancing, and Closing the Cashbook 101 A Trial Balance of Differences Illustrated and Explained 105 Suggestions for Finding Errors in the Trial Balance 107 Correction of Errors in Books of Original and Final Entry 108 Supplementary Exercises 109 Development of the Notes Receivable Book from the Journal, with Exercises 112 Development of the Notes Payable Book from THE Journal, with Exercises 110 PART IV THE FLOUR AND GRAIN BUSINESS WITH BUSINESS PAPERS General Explanation 120 Books ^nd Forms Involved in the Business 120 Transactions — October Business 121 Filing Business Papers 126 Statement of Customer's Accounts, with Exercises 133 CONTENTS 7 PAGE The Profit and Loss Statement Illustrated and Explained 137 Closing Journal Entries Illustrated and Explained 138 The Balance Sheet or Financial Statement Illustrated and Explained . . 146 Proof Trial Balance Illustrated 148 The Working Sheet Illustrated and Explained 149 Reviews: Test Ledgers; Statements; Closing the Ledger 151 Supplementary Exercises 153 PART V INTRODUCTION TO BANKING PRACTICE Banking Accounts Fully Explained 158 Savings Bank 158 Commercial Bank 158 Deposits 158 Federal Reserve System 159 Check Records Illustrated 160 Bank Statements 164 Reconciliation of Bank Statement Illustrated 165 DEVELOPMENT OF ADDITIONAL BOOKS AND ACCOUNTS Discounts and Terms of Payments, with Exercises 165 Discount on Purchases Account, with Exercises 167 Discount on Sales Account, with Exercises 168 Interest and Methods of Calculating 169 Interest Earned Account, with Exercises 170 Interest Paid Account, with Exercises 171 Furniture and Fixtures Account, with Exercises 173 Real Estate Account, with Exercises 175 Insurance Prepaid Account, with Exercises 177 Special Column Cashbook, with Exercises 180 THE WHOLESALE CARPET AND RUG BUSINESS General Explanation 184 Transactions for November 184 Perpetual Inventory Card System 186 Profit and Loss Statement 199 Percentage Results Explained 202 Drafts and Trade Acceptances 204 Exercises on Drafts and Trade Acceptances 211 8 CONTENTS PAGE THE WHOLESALE CARPET AND RUG BUSINESS Partnership Business 215 General Explanation 215 Transactions for December 216 Closing Journal Entries 222 Depreciation Accounts 223 Review Exercises 224 CLOSING THE LEDGER— DIRECT METHOD General Explanation 228 Ledger Closed by Direct Method Illustrated 230 Abbreviations, Contractions and Signs Used in Business 232 Index 23.> BOOKKEEPING FOR MODERN BUSINESS PART I INTRODUCTION FUNDAMENTAL PRINCIPLES AND DEFINITIONS Business Transactions.— When two persons exchange articles of value, they engage in trade. If a farmer brings butter and eggs to the country store, and receives in return sugar and coffee, he and the storekeeper engage in trade. If a merchant rents a storeroom for which he pays the owner $50.00 each month, he and the owner of the store engage in trade. If a bookkeeper receives $80.00 a month for his services, he and the owner of the store engage in trade. If you buy a set of bookkeeping supplies for $5.00 from the owner of your school and agree to pay for them at the end of the month, you and the owner of the school engage in trade. All such trades or exchanges are called business transactions. A Business Transaction is an exchange of values; that is, one value is given in exchange for another. Bookkeeping.— Years ago men who engaged in trade learned that it was unwise to carry on business without keeping written records of their business transactions. They found it was necessary to keep written records in order that they could tell, from time to time, the amounts of cash received and paid out; the value of the goods purchased and sold; what persons owed the business for goods sold them on credit, and how much; what persons the business owed for goods purchased on credit, and how much; the amount of cash paid out for rent, coal, help, etc. From these written records the owner of the business could determine what the business owned and what the business owed, and whether the business was being run at a profit or a loss. The process of keeping such records is called bookkeeping. Bookkeeping consists in recording business transactions in a systematic manner so that the results of the various kinds of business transactions may, at any time, be easily determined. An Account.— In bookkeeping, written records are kept to show the results of the various kinds of business transactions. Students who begin the study of bookkeeping may know nothing of the way firms record business transactions but they are famiUar with receiving and paying out cash which comes into their possession. Take the following very simple illus- (9) 10 BOOKKEEPING FOR MODERN BUSINESS tration, to show how everyday transactions are recorded in a way, very similar to the method universally used by the experienced bookkeeper in recording amounts of cash received and paid out. Illustrative Exercise September 1. I received S5.00 from father; S2.00 from mother. 2. I paid .S4.25 for a pair of shoes; oO^ for collars. 3. I paid SI. 00 for a cap: 25^ for a notebook. 4. I received 75(^ from father. 5. I paid 2')^ for a ticket foi" a Ijall-game. 6. I counted my money and found I had 81.50. The Student's Notebook Record. — Turning to the student's notebook in which he had entered, in one column, the amounts of cash received, and in another column, the amounts of cash paid out. we should find probably the following record. Illustration 1 I^Z^" /~^..i-i:zy i:>-tyt^C^ # 3 00 oa 7^ ^7^ Jy^€^^^■y'^^y 2S SO 2-^ 23 2 S Such a two-column record, which the student would make in his notebook for the amounts of cash received and cash paid out by him, under the title of Cash, is known in bookkeeping as an Account. A careful examination of Illustration 1 may, more readily than words, convey to your mind its purpose and the method of keeping it. An Account is a record of transactions of the same class, grouped or classified under one title in order to .show the result of some certain group of transactions, such as a group involving the receiving and joaying out of cash, called the Cash account. A Cash Account, for instance, is kept by placing the amounts of cash received in one column and the amounts of cash paid out in another column. The i-esvdt, called the cash on hand, is found at any time ])y taking the difference between the total amount of cash received and the total amount of cash paid out. The Bookkeeper's Record. — The bookkeeper in making his record for the amounts of cash received and paid out bj'' the student would arrange these items in a way similar to the student's, but he would use paper specially ruled to show the dates, amounts, and character of the various transactions. FUNDAMENTAL PRINCIPLES AND DEFINITIONS 11 The following form illustrates the ruling of an account together with the bookkeeper's record for the student's cash transactions. Illustration 2 DATE EXPLANATION F. AMOt] NT DATE EXPLANATION F AMOWT &S^^ / jy^zy^X.^yl-' ^ oc> ^^^^^■^i^ 2 >^hCePn&^ V IS / ^l<^Ldy 2 oo 2 OcTZ^^*^-'^ 50 ^ .^i^^i^-^^ 7 7^ 3 3 / 2S s /t:e^ey^£:f-t-(). 5. Received cash for merchandise sold to-day, $250.11. 6. Paid cash for postage stanips, $4.50. 8. Sold merchandise for cash, $125.00. 10. Bought merchandise for cash, $230.00. 12. Received cash from L. L. Tucker, $432.65. 13. Paid cash for stationery, $12.45. THE CASH ACCOUNT 13 Illustration 3 C^i:zA^ny 3 /z 2>?^'/^ /t:5z2-z^:23 Balancing the Cash Account. — The Cash account is balanced as follows: 1. Add or foot in small pencil figures the amount columns of the account. 2. Ascertain the amount of the balance by subtracting the credit from the debit side. Determine the difference by mental subtraction if possible. 3. In the explanation space on the debit side of the account and on the same hne with the last amount, enter the difference between the two sides of the account in .small figures as shown in Illustration 2. 4. Next write this balance on the credit side in red ink, dating it the 13th, the date of balancing the account. Write Balance in the explanation column. 5. Draw a single red line across the money column underneath the lowest item of the account. Draw another single red line on a level with the first one across the other money column on the opposite side of the account. 0. Write the total of each column in iJack ink in the space beneath the single horizontal red lines. 7. Draw double red lines below the sums or footings across all columns except the explana- tion spaces. 8. Write the balance, in l)lack ink, below the double red ruling, on the debit side of the account under the next succeeding business date as shown in Illustration 3. THE CASH ACCOUNT 15 The Use of Red Ink.— The use of red ink in bookkeeping work is entirely optional with the bookkeeper, or the one who has charge of the bookkeeping work. All suggestions regarding its use in this text conform to the conventional practice, and are advised for the exercises in this text. Ciphers in the Cents Column.— When the amount to be written consists of an even number of dollars, write two ciphers in the cents column unless otherwise instructed by your teacher. While some bookkeepers place a dash or leave the cents column blank when the amount to be written is an even number of dollars, the better practice is to write the two ciphers in the cents column as shown in the model Cash account (Illustration 3). Exercises in Ruling.— Before proceeding further in the study of accounts it would be well for the student to be able to rule neatly and correctly, as good mechanical work is essential in bookkeeping. In ruling with ink, see to it that the beveled edge of the ruler is next to the paper so that the point of the pen, when drawn across the page, does not come in contact with the ruler. The ruling should be made without blotting the page or making heavy or ragged lines. First RuUng Exercise.— Take a sheet of ledger paper and practice the following ruhng exercise until you have a perfect page. Let the ledger paper lie in its usual position on the desk, as if you were about to write on it. Hold your pen vertically with the flat part at right angles to the ruler. Draw the pen from left to right, holding it against the beveled edge of the ruler. Do not lift the pen until the line is finished. The single ruling and the first hne of each double ruling should be placed exactly on the light blue lines of the paper. In making double rulings the position of the ruler should not be changed in order to make the second line, but change the position of your pen by inclining the top of the holder a little farther from you. By following this suggestion you will have little difficulty in making the two fines close together and parallel. The single addition lines cross the money columns only, the double closing fines cross the entire page except the explanation columns. 16 BOOKKEEPING FOR MODERN BUSINESS Second Ruling Exercise. — On a sheet of ordinary ruled writing paper, draw a line across the page as follows : Single line: Continue the ruling until you have ruled a line on every blue line of the page. Third Ruling Exercise. — On another sheet of ordinary ruled writing paper, draw a single line on the blue line, and a second line just underneath the first. You now have double or parallel lines across the page. Double or parallel lines: Continue this ruling until you have ruled both sides of the paper. Exercises for the Student Prepare the ledger accounts for the following examples. Enter the amount first, then the date. Add each column in small pencil figures or "pencil foot," as they say, and balance the accounts. After the accounts have been ruled, bring down the balance under the date of the next .succeeding bu.siness day as shown in the model Cash accoimt. When the examples are completed, hand your work to your instructor for examination and approval. Exercise 1 February 1. Received cash from the proprietor, $3,200.00. 2. Paid James Smith for merchandise, .$846.12. 3. Paid cash for rent, $55.00. 4. Received from cash sales of merchandise, $411.89. 5. Paid cash for postage stamps, $6.50. 6. Paid cash for merchandi.se purchased to-day, $1,126.21. 8. Received from cash sales to-day, $398.98. 9. Received from J. K. Howell, cash, $268.78. 11. Sold merchandise for cash, $112.68. 12. Bought merchandise for cash, $568.50. 13. Paid cash for stationery, $16.58. Questions: 1. What items are entered on the debit side of the Cash account? On the credit side? 2. What was the total amount of cash received? 3. What was the total amount of cash paid out? 4, How much cash remains on hand? 5. Can the credit side of the Cash account be greater than the debit side? Explain fully. 6. Analyze each transaction following the method used in analyzing the model Cash account. Exercise 2 March 1. Received cash from George Gray, $2,500.00. 2. Paid cash for books and stationery, $21.42. 3. Paid cash for rent, .$65.00. 4. Sold merchandise for cash, $125.21. 5. Received from cash sales to-day, .$432.83. 6. Bought merchandise for cash, $321.67. 8. Paid Thomas Brown cash for merchandise purchased to-day, $217.71. 10. Received cash for merchandi.se sold to-day, $345.67. 12. Paid cash for services, $15.00. 13. Received from cash sales to-day, $175-79. PERSONAL ACCOUNTS 17 Questions: 1. What was the total amount of cash received? 2. What was the total amount of cash paid out? 3. How much cash remains on hand? 4. Analyze each transaction following the method used in analyzing the model Cash account. Exercise 3 April 1. Received from George Bond, cash, $4,000.00. 2. Paid cash for rent, $70.00. 3. Paid cash for stationery, $15.00. 4. Paid cash for merchandise purchased to-day, $1,200.00. 5. Received cash for merchandise sold to-day, $627.17. 6. Paid cash for merchandise purchased to-day, $1,560.11. 8. Received from H. W. Wright, cash, $250.24. 9. Cash sales of merchandise to-day, $724.32. 10. Paid advertising bill, $27.42. 11. Cash sales of merchandise to-day, $246.32. 12. Paid cash for merchandise purchased to-day, $211.27. 13. Cash sales of merchandise to-day, $229.92. 15. Received from T. M. Moore, cash, $175.22. 17. Paid cash for merchandise purchased to-day, $160.17. Questions: 1. What was the total amount of cash received? 2. What was the total amount of cash paid out? 3. How much cash remains on hand? 4. When is the Cash account debited? 5. When is the Cash account credited? 6. What is the object of keepmg a Cash account? 7. Analyze each transaction following the method used in analyzing the model Cash account. 8. Read from your Cash account the history of the transactions, i. e., state what transaction gave rise to each ledger entry. PERSONAL ACCOUNTS Personal accounts are accounts kept with individuals, firms, and corporations with which the business has deahngs. They are divided into two classes: one class shows the result of transactions with persons to whom merchandise has been sold, known as Accounts with Customers, and the other class shows the result of transactions with those from whom merchandise has been purchased, known as Accounts with Creditors. PERSONAL ACCOUNTS WITH CREDITORS The object of keeping a Personal account is to group together all our dealings with a certain person, firm, or corporation. This account will show the value given to or received from the person, firm, or corporation. Illustrative Exercise Transactions with R. D. Smith, 345 Fourth Ave., Pittsburgh, Pa. February 1. Bought merchandise from him on account, $250.00. 3. Bought merchandise from him on account at 10 days, $150.00. 8. Paid him cash on account, $250.00. 9. Bought merchandise from him on account, $345.11. 11. Paid him cash to apply on account, $100.00. 13. Paid him cash to apply on account, $50.00. 18 BOOKKEEPING FOR MODERN BUSINESS Illustration 5 ^^S^^^i. Z^- [^u^m^ /J 2S ^oo ' ^-^ jA^'^JL 2^ (J^x^-^^T^^z^yyiy, Ue^iyyX'' J.ZL'-^ ^L^ 2^0 Ot ■ "TF^ r // /J 2 Of Observations : Dehii a personal account to show that a person has received value from the business. Credit a personal account to show that a person has given value to the business. Analysis of John C. Martin's Personal Account: January 1. Mr. Martin's account is debited with $120.00 to show the value of the merchandise which he received from the business. 3. Mr. Martin's account is debited with $75.00 to show the value of the merchandise which he received from the business. 8. Mr. Martin's account is credited with $120.00 to show the amount (value) of cash which he gave to the business. 9. Mr. Martin's account is debited with $250.00 to show the value of the merchandise which he received from the business. 11. Mr. Martin's account is credited with $50.00 to show the amount (value) of the cash which he gave to the business. 13. Mr. Martin's account is credited with $25.00 to show the amount (value) of the cash which he gave to the business. John C. Martin's account shows that he has received merchandise from the business valued at $120.00 which he paid in cash; also merchandise valued at $75.00 which he paid in cash; and merchandise valued at $250.00 which he still owes. The result of John C. Martin's account shows that he owes the business $250.00. The result of a personal account shows the amount owed to the business or by the busi- ness. The result is found by taking the difference between the two sides of the account. If the debit side of a personal account is the larger, the account shows that the person has received more value from the business than he has given to the business, hence he owes the business. A person or firm which has received more value from the business than it has given to the business is known as a debtor. A debtor is one who owes or is in debt to another. The abbreviation for debtor is Dr., and refers only to persons. When used in reference to an impersonal account, such as the Cash account, like the abbreviation for creditor, it denotes only the position an item occupies in an account. 22 BOOKKEEPING FOR MODERN BUSINESS The result of Mr. Martin's account shows that he owes the business $250.00. This bal- ance is a value which the business owns and is known as an asset. An asset, we remember, is anything of value owned by the business. Wlien the debit side of a personal account is the larger, showing that the person is indebted to the business, the account is known as an asset account, or an account receivable. Accounts Receivable. — Mr. Martin's account is called an account receivable, because the amount of his balance, S250.00, is to be received by the lousiness. It has been observed that the result or balance shown by a personal account is cither an asset or a liability. If the debit side is the larger, it shows the amount owed to the business, which is an asset. If the credit side is the larger, it shows the amount owed by the business, which is a liability. Personal accounts with debtors always show debit balances and are known as asset accounts. Personal accounts with creditors always show credit balances and are known as liability accounts, thus: A Personal Account which shows a Debit Balance : represents a Debtor or an Asset Account. Credit Balance: represents a Creditor or a Liability Account. Exercise 7 Transactions with H. R. Shaff, 946 Main St., Pittsburgh, Pa. July 1. Sold him merchandise on account, $200.00. 3. Sold him merchandise on account at 10 days, 8112.75. 8. Received cash from him for bill of the 1st, $200.00. (Rule out balancmg items.) 9. Sold him merchandise on account, $326.50. 13. Received cash from him in full payment of bill of the 3d, $112.75. 15. Sold him merchandise on account, $360.00. 18. Received cash from him in part payment of bill of the 9th, $200.00. 21. Sold him merchandise on account at 20 days, $125.00. 31. Received cash from him for balance of bill of the 9th, $126.50. Questions: 1. When is a personal account credited? 2. When is a personal account debited? 3. When the debit side of a personal account is the larger, what does it show? 4. Analyze each transaction following the method used in analyzing John C. Martin's account. 5. Read from your account the history of the transactions, 2. e., state what trans- action probably gave rise to such a ledger entry. Exercise 8 Transactions with J. K. Johnson, 4702 Penn St., Cincinnati. Ohio. August 1. Sold him merchandise on account, $350.00. 3. SoUl him mcM-chandise on account at 10 days, $572.11. 8. deceived cash from him for i)ill of the 1st, $350.00. 13. Received cash from him in full payment of bill of the 3d, $572.11. 15. Sold him merchaiHJisc on account, $().30.00. 18. Received cash from liim in part payment of l)ill ofthe 15th, $300.00. 21. Sold him merchandise on account at 20 days, $125.00. 31. Received cash from him for balance of l)ill of the 15th, $330.00. PROMISSORY NOTES 23 Questions: 1. Did you rule out the items that balance as the balancing entries were made? 2. Who is a debtor of the business? 3. Define asset. 4. Is this account an account receivable or an account payable? Explain. 5. Analyze each transaction following the method used in analyzing Exercise 7. Exercise 9 Read from the account the history of the transactions, i. e., state what transaction probably gave rise to each ledger entry. Illustration 8 /S^^i^^-w y^2 ^^0' Jc 1^ j/C // /(> /J /5 ^/^O -/o Ih 2/^ // /6 Exercise 10 Interpret the following accounts, i. e., state which are asset accounts and which are hability accounts; which men are debtors to the business and w^hich are creditors, and give full reasons in each case : Name of the Account Debit Credit (1) B.S.Williams $716.16 $216.16 (2) Thomas Lawson 346.33 446.33 (3) William Brown 450.00 200.00 (4) R. S. Rickard 350.00 700.00 (5) M. S. Smith 678.90 (6) L. L. Tucker 923.56 (7) Cash 945.67 440.17 PROMISSORY NOTES A Promissory Note is a written promise to pay a certain sum of money at a specified time. Parties to a Promissory Note. — There are always two original parties to a note: the maker and the payee. The Maker is the person who signs the note and who promises to pay the amount named in the note. The Payee is the person to whom the note is made payable. Notes are generally given and received in settlement of personal accounts changing an oral promise to a written promise; in place of cash for the purchase or sale of merchandise; or when money is borrowed or lent. 24 Illustration 9 BOOKKEEPING FOR MODERN BUSINESS Promissory Notes Illustrated (Two Forms) (/i^//^/^////?/; /^~ y//7r/r/^^ ^ ^ /^^^^/^v^^^v^^ hiZ ^///:-J^^ ^/^/ ^ X/^- (j>^^ C^^C ^T^y}^ /^ /^ ^__^y>/r/mj€- /eV/r/J/ /e ' m^/ y/r^zh ^/W The above note indicates that the maker, George L. Moore, is indebted to the payee, Henry Bruce, and agrees, in writing, to pay the face value of the note, $118.56, on October 18, 19—. The Face Value of a Note. — The amount written in the body of the note at the time (he note is issued by the maker is known as the face value of the note. Subsequent Parties to a Note. — Notes may be transferred by the payee to another holder, a third person, to whom the promise is transferred. This transfer is effected by endorsement by the paj'ee or holder, and ddiveiy to the new ()\vn(>r. Endorsement consists in the payee's or holder's writing his name across the back of the note, with or without words indicating to whom the paper is transferred. The person trans- ferring the paper is the endorser. The person to whom the paper is transferred is the endorsee. When a note can be transfcncd fiom one jiarty to another, as indicated l)y the words to the order of, it is said to be necjotiablr. There are otlicr foinis of ni>fi;otiabl(> }xiper such PROMISSORY NOTES 25 as checks, drafts, trade acceptances, bills of exchange, etc. — all of which are to be explained later. Thus, in the illustration given, Henry Bruce, the payee, may desire to transfer the note to William Jones. He may do so by writing on the back of the note: Illustration 10 or by simply writing his name, thus : Illustration 11 (7) A^^i^i>c^c^ When a note is transferred by endorsement, the endorser becomes ■ responsible to the party to whom he transfers it ; that is, he agrees to redeem it if the maker does not. Notes Receivable is a title given to an account in which are recorded all notes and other written promises of others received by the business. Notes Payable is the title given to an account in which are recorded all notes and other written promises issued or given by the business. THE NOTES RECEIVABLE ACCOUNT The object of keeping a Notes Receivable account is to show the amount of notes and other written promises received from others, and the amount of those which have been redeemed, returned, or otherwise disposed of. Illustrative Exercise Transactions relating to the Notes Receivable account in the books of L. L. Tucker. October 1. The proprietor, L. L. Tucker, has invested a note which he holds against A. B. Riker, $275.45. 2. Sold George Taylor, on his 10-day note, merchandise, $75.00. 3. Sold L. B. Reed, on his 15-day note, merchandise, $234.56. 8. A. B. Riker pays his note due to-day, $275.45. 10. Sold G. H. Jones, on his 30-day note, merchandise, $89.29. 12. George Taylor pays his note due to-day, $75.00. 26 Illustration 12 BOOKKEEPING FOR MODERN BUSINESS AT- - / 2 3 121!± J- j 23^ JC 3C 19 C ^cf- 2 7^ VJ" -Z^ 06 Observations: Dehit the Notes Receivable account to show the amount (at face value) of all notes and other written promises of others received by the business. Credit the Notes Receivable account to show the amount (at face value) of all notes and other written promises of others returned or otherwise disposed of by the business. Analysis of the Model Notes Receivable Account: October 1. 3. 10. 12. The Notes Receivable account is debited with $275.45 to show the (at face value) of the note received by the business. The Notes Receivable account is debited with $75.00 to show the (at face value) of the note received by the business. The Notes Receivable account is debited with $234.56 to show the (at face value) of the note received by the business. The Notes Receivable account is credited with $275.45 to show the (at face value) of the note returned b}- the business. The Notes Receivable account is debited with $89.29 to show the (at face value) of the note received by the business. The Notes Receivable account is credited with $75.00 to show the (at face value) of the note returned by the business. amount amount amount amount amount amount The result of this Notes Receivable account shows that the business has two notes on hand, their face values being $234.56 and $89.29 respectively. The result of a Notes Receivable account shows the amount (at face value) of all notes and other written promises on hand. This is found b}- taking the difference between the two sides of the account. Since the result of the Notes Receivable account shows the amount of value which others owe the business on their written pi'oinisc^ to pay, this balance is an asset of the business; hence, the Notes Receivable account is known as an asset account. Exercises for the Student Prepare the ledger accounts for the following examples. When the examples are com- pleted, hand your work to your instructor for examination and approval. PROMISSORY NOTES 27 Exercise 11 September 1, We receive a note at 10 days for -1250.00 from A. H. Wilson. 3. We receive a note at 15 days for S475.00 from C. J. Bowman. 5. We receive a note at 20 days for S175.00 from W. 0. Weaver. 11. A. H. Wilson pays his note due to-dav, S250.00. 12. We receive a note at 10 days for $2lf.00 from A. B. Riker. 15. We receive a note at 15 days for $172.00 from J. H. Gilson. 18. C. J. Bowman pays his note due to-day, .$475.00. 22. A. B. Riker pays his note due to-day, $211.00. 24. We receive a note at 1 month for S200.00 from G. A. Taylor. 25. W. O. Weaver pavs his note due to-da}^ S175.00. 28. We receive a note^ at 60 days for $724.00 from W. A. McBane. 30. J. H. Gilson pays his note due to-day, $172.00. Questions: 1. When is the Notes Receivable account debited? 2. When is the Notes Receivable account credited? 3. What is the total value of all Notes Receivable on hand? 4. Analyze each transaction following the method used in analj^zing the model Notes Receivable account. Exercise 12 October 1. We receive a note at 10 days for $250.00 from George L. Brown, 4. We receive a note at 15 days for $475.00 from B. L. George. 8. We receive a note at 20 days for .?400.00 from Thomas Green. 11. George L. Brown pa3's his note due to-day, $250.00. 12. We receive a note at 15 days for $725.00 from William Lowe. 14. W^e receive a note at 10 days for $222.00 from R. D. Smith. 17. We receive a note at 1 month for $275.00 from Charles Cameron. 19. B. L. George pays his note due to-day, $475.00. 24. R. D. Smith pavs his note due to-dav, $222.00. 24. We receive a note at 90 days for $117.00 from H. R. Shaff. 27. William Lowe pays his note due to-day, $725.00. 28. Thomas Green pays his note due to-day, $400.00. Questions: 1. Did you rule out the items that balance as the balancing entries were made? 2. Define promissory note. 3. Who is the maker of a note? The payee? 4. How may the paj^ee transfer a note to another party? 5. Analyze each transaction. Exercise 13 Write the following promissory notes on blank paper, after the form shown in Illustra- tion 9, and present them to your instructor for examination and approval. 1. Write a note dated September 1, 19 — , payable 10 days after date, in favor of H. R. Shaff (payee) for $234.56, made by R. D. Smith (maker). Payable at the Citizens' Bank. 2. Write a note made by William Lowe, dated September 12th at 1 month, in favor of B. L. George, for $1,122.33, payable at the Second National Bank. 3. Write a note dated September 24th, payable 15 days after date, in favor of H. W. Patten, made by George Taylor, for $1,000.00, payable at the Chemical National Bank. 4. Write a note made by your instructor, dated September 30th at 30 days after date, in favor of yourself, for $100.00, payable at the Commercial Bank. THE NOTES PAYABLE ACCOUNT The object of keeping a Notes Payable account is to show the amount of all notes and other written promises issued by the business to others, and also the amount of those which have been redeemed by and returned to the business. 28 BOOKKEEPING FOR MODERN BUSINESS Illustrative Exercise Transactions relating to the Notes Payable account in the books of Walter Mansley October 1. Gave B. J. Rose a note at 10 days for $556.00, on account. Gave E. B. Race a note at 20 clays, on account, S24G.00. Paid his note in favor of B. J. Rose due to-day, S556.00. Gave George Mumford a note at 15 days, on account, .'J260.00. Gave Thomas Moore a note at 1 month, on account, $112.00. Paid liis note in favor of George Mumford due to-day, $260.00. Paid his note in favor of E. B. Race due to-day, $246.00. 10. 11. 12. 21. 27. 30. Illustration 13 // 3c / /O /2 2/ ^^/i^^-ryz^a^/TZtP-o-^l^'' £^(1 2V^ / /2 at-' Observations : Credit the Notes Payable account to show the amount (at face value) of all notes and other written promises issued by the business to others. Dehii the Notes Payable account to show the amount (at face value) of all notes and other written promises redeemed by, or returned to the business. .; Analysis of the Model Notes Payable Account: October 1. The Notes Payable account is credited with $556.00 to show the amount (at face value) of the note issued by the business. 10. The Notes Payable account is credited with $246.00 to show the amount (at face value) of the note issued by the business. 11. The Notes Payable account is debited with $556.00 to show the amount (at face value) of the note redeemed by and returned to the business. 12. The Notes Payable account is credited with $260.00 to show the amount (at face value) of the note issued by the business. 21. The Notes Payable account is credited with $112.00 to show the amount (at face value) of tlie note issued by the business. 27. The Notes Payal)le account is debited with $2()0.00 to show the amount (a1 face value) of tli(> note redeemed by and returned to the business. 30. The Notes Payable account is debited with .$246.00 to show the amount (at face value) of the note redeemed by atul returned to the business. The result of this Notes Payable account shows that the business has one outstanding note for $112.00. PROMISSORY NOTES 29 The result of a Notes Payable account shows the amount (at face value) of all notes and other written promises outstanding against the business. This is found by taking the difference between the two sides of the account. Since the result of the Notes Payable account shows that the business owes $112.00 on its written promise to pay, this balance is a liability of the business, hence a Notes Payable account is known as a liability account. The result or balance of the Notes Receivable account is an asset, because it represents an amount which the business will receive, and the result or balance of the Notes Payable account is a liability because it represents an amount which the business owes. Exercises for the Student Prepare the ledger accounts for the following examples. Enter the amount first, then the date. When the examples are complete, hand your work to your instructor for examination and approval. Exercise 14 We gave our note at 10 days to H. J. King for $247.00. We gave our 15-day note for $726.00 to George Rowe. We gave our note at 20 days for $400.00 to A. H. Wilson. We paid our note in favor of H. J. King due to-day, $247.00. We gave Walter Roberts our note at 10 days for $422.00. We gave our 10-day note for $400.00 to Thomas Moore. We gave William Saile our note at 1 month for $500.00. We paid our note in favor of George Rowe due to-day, $726.00. We paid Walter Roberts $422.00, for our note due to-day. We gave our 90-day note for $175.00 to Morris Reed. We paid our note in favor of Thomas Moore due to-day, $400.00. We paid A. H. Wilson $400.00 for our note due to-day. September 1. 4. 8. 11. 12. 14. 18. 19. 22. 24. 24. 28. Questions: 1. What is the object of keeping a Notes Payable account? 2. When is the Notes Payable account debited? 3. When is the Notes Payable account credited? 4. What is the total value of all Notes Payable outstanding? 5. Analyze each transaction following the method used in analyzing the model Notes Payable account. Exercise 15 October 1. Gave our note at 10 days for $211.00 to Stanley Wilson. 6. Gave our 15-day note to R. S. Adair for $461.00. 11. Paid Stanley Wilson $211.00 for our note due to-day. 11. Gave A. S. Adams our 20-day note, on account, for $675.00. 18. Gave our 3 months' note to A. E. Dick for $275.00. 21. Paid our note in favor of R. S. Adair due to-day, $461.00. 23. Gave our note at 1 month for $246.17 to H. W.^ Wright. 24. Gave our 90-day note for $768.00 to J. K. Scott. 29. Gave our note at 10 days to George Mills for $200.00. 31. Paid our note in favor of A. S. Adams due to-day, $675.00. Questions : 1 . Did you rule the items that balance as the balancing entries were made? 2. What is the object of keeping a Notes Payable account? 3. Define liability. 4. Analyze each transaction following the method used in analyzing Exercise 14. 5. Read from your accounts the history of the transaction, i. e., state what transactions gave rise to each ledger entry. 30 BOOKKEEPING FOR MODERN BUSINESS Exercise 16 Write the following promissory notes on blank paper, after the form shown in Illustra- tion 9, and present them to your instructor for examination and approval. 1. Write a note dated September 1, 19—, payable 10 days after date for $1,200.00, in which George Mumford is the maker and T. B. Ross is the payee. 2. Write a note for H. L. Scott dated Octol)er 5, 19 — , payable 20 days after date in favor of U. S. Grant, for .S239.89. 3. Write a note dated Octo])er 13, 19—, at 20 days in favor of the Commercial Bank made by Harry Blair, for $1,000.00, payable at the Commercial Bank. 4. Write a note dated October 31, 19 — , at 3 months in favor of your instructor for $342.65, made by yourself. Exercise 17 (Review) Transactions relating to both the Notes Receivable and the Notes Payable accounts in the books of William Dayer. November 1. Gave James Ennis a note at 10 days for $676.20, on account. 2. Sold Harry Blair, on his 10-day note, merchandise, $321.41. 6. Gave William Ashton a note at 20-days, on account, $402.17. 8. Sold Joseph Feast er, on his 15-day note, merchandise, $171.21. 10. He gave his 15-day note for $721.86 to Walter Brown, for merchandise purchased to-day. 11. Paid his note in favor of James Ennis due to-day, $676.26. 12. Harry Blair paid his note due to-day, $321.41. 15. He received a note at 15 days for $677.32 from Thomas Brown. 19. He gave his note at 60 days to R. A. Smith for $100.00. 23. Joseph Feaster paid his note due to-day, $171.21. 25. Paid his note in favor of Walter Brown due to-day, $721.86. 26. He paid his note in favor of William Ashton due to-day, $462.17. 27. He received a note at 1 month for $350.72 from Harry Blair. 29. He gave James Ennis his note at 60 days for $600.00. 30. Thomas Brown paid his note due to-day, $877.32. Questions: 1. What is the total value of all Notes Receivable on hand? 2. What is the total value of all Notes Payable outstanding? 3. Did j^ou rule the items that balance as the balancing entries were made? 4. Analyze each transaction. Exercise 18 (Review) Transactions affecting personal accounts in the books of Louis Evans. December 1. Bought merchandise of George Green, 1900 Chestnut Street, City, on account, $1,271.24. 2. Sold merchandise to John Thomas, 1244 Market Street, City, on account, .$311.81. 6. Paid George Green, on account, $500.00. 7. John Thomas paid him, on account, $200.00. 11. Sold John Thomas merchandise, on account, $817.32. 12. Purchased merchandise of George Green, on account, $1,511.21. 17. Paid George Green, on account, $771.24. 18. John Thomas paid liim, on account, $111.81. 24. Bought merchandise of George Green, on account, $781.22. 25. John Tlioinas paid him, on account, .$317.32. 30. Paid George Green, on account, $511.21. 31. Sold John Thomas merchandise, on account, $300.00. MERCHANDISE ACCOUNTS 31 Questions: 1. When is a personal account debited? 2. When is a personal account credited? 3. When the debit side of a personal account is the larger, what does it show? The credit side? 4. Is George Green's account an account receivable or an account payable? Explain. Exercise 19 (Review) Transactions affecting the Cash account in the books of C. H. Hobson. January 1. C. H. Hobson began business by investing cash $4,500.00. 2. Received from George McKean to apply on account, $250.00. 3. Paid R. M. Grosser $275.60 to apply on account. 4. Paid rent for month, $85.00. 6. Cash sales of merchandise, $561.21. . 8. Paid J. E. Baker, on account, $422.98. 9. Bought merchandise for cash, $1,671.43. 10. Sold merchandise for cash, $263.78. 12. Paid R. M. Grosser, on account, $230.00. 14. Paid his note in favor of B. C. King due to-day, $400.00. 16. Louis Webber paid him, on account, $250.00. 18. George McKean paid his note due to-day, $1,000.00. 19. Bought merchandise for cash, $650.00. 21. Paid Brooks & Co., on account, $160.00. 23. Paid his note in favor of W. O. Weaver due to-day, $350.00. 25. Bought merchandise for cash, $75.21. 26. Green, Day & Co. paid their note due to-day, $750.00. 28. Received from Louis McKnight, on account, $175.00. 29. Bought merchandise for cash, $211.66. 30. Sold merchandise for cash, $511.32. 31. Received from Herbert Lee, on account, $210.00. Questions : 1 . What items are entered on the debit side of the Cash account? On the credit side? 2. What was the total amount of cash received? 3. What was the total amount of cash paid out? 4. How much cash remains on hand? 5. Can the credit side of the Cash account be greater than the debit side? Why? 6. Read the history of the transactions from this Cash account. Exercise 20 (Review) Interpret the following accounts, i. e., state which are asset and which are Hability accounts, giving full reasons in each case: Name of the Account Debit Credit (1) George Mumford $500.00 $250.00 (2) Walter Mansley 146. 12 546. 12 (3) Cash 890.34 300.34 (4) Notes Receivable 1,234.67 " 234.67 (5) Notes Payable 567.89 1,567.89 (6) J. K. Johnson 456.89 (7) Notes Receivable 723.54 (8) Notes Payable 1,123.72 MERCHANDISE ACCOUNTS Merchandise is a general term given* to any commodity that is bought for the purpose of selhng again at a profit. 32 BOOKKEEPING FOR MODERN BUSINESS The principal operations in conducting a mercantile business are the purchasing and sell- ing of merchandise. In order to provide an accurate record of these operations, two accounts are kept, Merchandise Purchases and Merchandise Sales accounts. THE MERCHANDISE PURCHASES ACCOUNT The object of keeping a Merchandise Purchases account is to show the cost of merchandise purchased. Illustrative Exercise Transactions affecting the Merchandise Purchases account in the books of R. D. Smith. September 1. He purchased merchandise^ valued at $1,500.00. 0. He paid freifi;ht charges, 812.84. 12. He was allowed a shortage claim on merchandise bought, 82.36. 15. He was allowed a rebate for an overcharge on freight, 81.34. 17. He paid storage and warehouse charges, 834.23. 19. He received an allowance for damaged goods purchased, 82.50. 21. He returned goods which were found to be unsalable, 823.23. 25. He purchased merchandise valued at 82,000.00. 27. He paid for warehouse supplies, 834.55. 30. He paid for warehouse labor, 865.00. 30. He purchased merchandise valued at 81,067.98. Illustration 14 /7ZeA^Aa^23-:? /2 /■5 2/ 30 ■T^ty yyie^-AZ^AxStzZ'ty Or / 2 / 2 3i 31/- 50 Z3 ^7 ^7^^k< Observations: Bchil the Merchandise Purchases account to show the cost of the merchan- dise purchased, and for any additional cost to the merchandise purchased. Crcdil the Merchandise Purchases account to show any decrease in the cost of merchandise purchased. Analysis of the Model Merchandise Purchases Account: Septemlx;r 1. Tlu; Mertliandise Purchases account is debited with $1,500.00 to show the cost of the merchandise purchased. MERCHANDISE ACCOUNTS 33 September 6. The Merchandise Purchases account is debited with $12.34 for the freight on goods bought since freight is an additional cost of merchandise purchased. 12. The Merchandise Purchases account is credited with $2.36 for the short- age claim on merchandise bought since this will decrease the cost of merchandise purchased. 15. The Merchandise Purchases account is credited with $1,34 for the rebate on freight charges paid since this will decrease the freight charges and thereby decrease the cost of merchandise purchased. 17. The Merchandise Purchases account is debited with $34.23 for the stor- age and warehouse charges since all expenses and charges on goods bought is an additional cost to merchandise purchased. 19. The Merchandise Purchases account is credited with $2.50 for the allow- ance for damaged goods bought since this will decrease the cost of merchandise purchased. 21. The Merchandise Purchases account is credited with $23.23 for the goods returned which were found to be unsalable since this will decrease the cost of merchandise purchased. 25. The Merchandise Purchases account is debited with $2,000.00 to show the cost of merchandise purchased. 27. The Merchandise Purchases account is debited with $34.55 for the ware- house supplies since all expenses on goods bought are additional costs to merchandise purchased. 30. The Merchandise Purchases account is debited with $65.00 for warehouse labor since any expense necessary in preparing the goods for delivery to the customer increases the cost of merchandise purchased. 30. The Merchandise Purchases account is debited with $1,067.98 to show the cost of merchandise pm'chased. The Merchandise Purchases account shows that the total cost of merchandise purchased is $4,714.10; the merchandise returned, rebates, and allowances amount to $29.43, therefore the net cost is the difference or $4,684.67. The result of a Merchandise Purchases account shows the cost of merchandise purchased. This result is found by taking the difference between the two sides of the account. The Merchandise Purchases account, at the close of a business period, is closed and the balance carried to the debit side of the Merchandise Trading account. A business period is the period of time for a smnming up of the profits and losses of a business. A business period is usually understood to mean a year, but for practical reasons a business period may refer to a monthly, quarterly, or semi-annual division of the year. The Merchandise or Merchandise Trading account is set up at the close of a business period to show the results of the buying and selling of merchandise. Invoice and Bill. — An invoice is an itemized account of goods bought, while a bill is an itemized account of goods sold, of work performed, or expenses incurred. 3 34 BOOKKEEPING FOR MODERN BUSINESS Both the invoice and the bill shoukl contain the place and date of the purchase or sale, the terms, the quantity, name, price and amount of each item, and the total amount of the bill or invoice. Such an itemized account as is mentioned above is called by the buyer an invoice; and by the seller, a bill. It has, however, become quite customary for both the buyer and the seller to call it an invoice. The tenn invoice, however, is never applied to a statement of services rendered or of expenses incurred. Exercises for the Student Prepare the ledger accounts for the following examples. Enter the amount first, then the date. When the examples are completed, hand your work to yoxir instructor for examination and approval. Exercise 21 Transactions affecting the Merchandise Purchases account in the books of L. L. Tucker. October 1. He purchased merchandise valued at 81,200.00. 8. He paid freight and drayage charges on merchandise bought, S78.34. 11. He paid storage and warehouse charges, S24.67. 14. He paid for warehouse supplies, 811.23. 16. He received a credit memorandum for shortage in goods bought, 8112.34. 18. He was allowed a rebate on an overcharge on freight, 83.47. 19. He purchased merchandise valued at 81,400.00. 20. He paid freight charges on merchandise bought, 817.29. 20. He received a credit memorandum for damaged goods returned, 811.23. 26. He took merchandise for his own private use, at cost, $13.13. 28. He paid for warehouse labor, 855.00. 29. He paid cartage charges on merchandise bought, $16.00. 31. He purchased merchandise valued at 81,079.09. Questions: 1. What is the object of keeping the Merchandise Purchases account? 2. When is the ^Merchandise Purchases account debited? 3. When is the Merchandise Purchases account credited? 4. What is the total cost of Merchandise Purchases? 5. Analyze each tran.saction following the method used in analyzing the model Merchandise Purchases account. Exercise 22 Transactions affecting Merchandise Purchases account in the books of J. G. Moore. November 1. He purchased merchandise valued at 81,500.00. 10. He paid freight on meichandi.s(> bought, 856.78. 11. He paid drayage on merchandise bought, 811.23. 14. He donated goods to the City Hospital, at cost price, 823.78. 17. He returned goods which were of an inferior grade, 876.45. 21. He was allowed a shortage claim on merchandise bought, 856.34. 22. He purchased merchandise valued at 81,100.00. 25. He paid for warehouse supplies, 845.67. 26. He paid for freight on meichandise bought, $25.11. 28. He paid express charges on merchandise purchased, $11.12. 29. He paid for waichouse labor, 867.00. 30. He lAuchased merchandise valued at 8967.23. 30. He paid cartage charges on merchandise bought, 815.00. Questions: 1. Define invoice-bill. 2. Define merchandise. 3. Name the various items which decrease the cost of Mercliaiidise Purchases. 4. Analyze each transaction follow- MERCHANDISE ACCOUNTS 35 ing the method used in analyzing Exorcise 21. 5. Read from your accounts the history of the transactions, i. e., state what transactions gave rise to each ledger entry. THE FREIGHT INWARD ACCOUNT Many bookkeepers consider it a better practice to keep a separate account, called Freight Inward, in which to enter all freight, express and draj'-age charges in order that each account may show but one specific result. These items contribute to increasing the cost of merchandise purchased and are often charged directly to the Merchandise Purchases account. If for any reason a Freight Inward account is kept, the following method is used. Illustration 15 <^::^^^^^^/C/W^^^^^t^^^ 3o ^ ^^^ JL ^ Z2. ^^- '2 .30 2 23 d 5(P 62 \S^ /2 Observations : "Dthit the Freight Inward account to show the cost of all freight, express and drayage charges on merchandise purchased. Credit the Freight Inward account to show the amount of any rebate or allowance on freight, express and drayage charges previously charged to this account. The result of the Freight Inward account shows the net cost of the freight, express and drayage charges on merchandise purchased. The balance, at the close of a business period, is usually carried to the debit side of the Merchandise Purchases account. Freight, express and drayage charges on merchandise sold is a selling expense and not a part of the purchase price of merchandise. The transactions given in these exercises involve the use of accounts with Merchandise Purchases and Freight Inward. Enter the merchandise purchased in the Merchandise Purchases account and all freight, express and drayage charges on merchandise purchased in the Freight Inward account. Close the balance of the Freight Inward account into the Merchandise Purchases account. Exercise 23 Transactions affecting the Merchandise Purchases and Freight Inward accounts in the books of David Monroe. September 1. He purchased merchandise valued at $1,800.00. 3. He paid freight charges, $21.72. 4. He was allowed a shortage claim on merchandise bought, $13.21. 5. He paid for warehouse supplies, $17.92. 6. He purchased merchandise valued at $214.18. 8. He paid freight charges, $28.12. 36 BOOKKEEPING FOR MODERN BUSINESS September 10. He was allowed n rebate on an overcharge on freight, S5.46. 11. Ho received an allowance for ilaniaged goods purchased, 832.23. 14. He paid storage and warehouse ciiargcs, .Si 7.47. 15. He purchased nu'rchandise valued at .S341.ll. 16. He paid drayage charges on merchandise bought, $11.27. 17. He paid freight charges, S14.51. 18. He paid warehouse lai)or, .S15.00. 20. He returned goods which were damaged, .S3 1.28. 22. He purchased merchandise valued at SI, 643. 37. 24. He paid freight charges, S28.22. 26. He was allowed a rebate on an overcharge on freight, $4.89. 27. He returned goods whicii were damaged, $29.27. 28. He purchased merchandise valued at $211.23. 29. He paid warehouse labor, 815.00. 30. He paid storage and warehouse charges, $27.11. Exercise 24 Enter the transactions in Exercise 21, in a Merchandise Purchases or Freight Inward account. Close the balance of the Freight Inward account into the Merchandise Purchases account. Exercise 25 Enter the transactions in Exercise 22, in a Merchandise Purchases or Freight Inward account. Close the balance of the Freight Inward account into the Merchandise Purchases account. Exercise 26 Enter the transactions given in Illustration 14, in a Merchandise Purchases or Freight Inward account. Close the balance of the Freight Inward account into the IMerchandise Purchase account. Questions: 1. What is the object of keeping a Freight Inward account? 2. When is the Freight Inward account debited? When credited? 3. What does the result or balance of the Freight Inward account show? 4. Why is the balance of the Freight Inward account carried to the Merchandise Purchases account? 5. Read from your account the history of the transactions, i. e., state what transaction gave rise to each ledger entry. THE MERCHANDISE SALES ACCOUNT The object of keeping a Merchandise Sales account is to show the net returns from merchandise sold. Illustrative Exercise Transactions affecting the Merchandise Sales account in the books of R. D. Smith. September 1. He sold merchandise amounting to $1,200.00. 6. He allowed a shortage claim of $12. .34. 12. He allowed an overcharge claim for $15.67. 19. He allowed a claim for damaged goods. .S4.56. 20. He sold merchandise amounting to $1,400.00. 22. Cioods were returned amounting to $17.37. 29. (Joods were returned amounting to $23.45. 30. He sold merchandise amounting to $1,412.76. MERCHANDISE ACCOUNTS 37 Illustration 16 ^^. /2 2Z 2^ JO (J!k/-cyu>A^e^iA^ /^i^,(^X^?a:^X^«ci&^ '^ / /5 2J J^Jr/ - Ur3y 2-jU 34, i > / 20 30 "PTl^/d^ » ^ J ^ J; /20C ^0/2 £>0 zi ^ Observations: "Dehii the Merchandise Sales account to show the value of any rebate, allowance or other deduction which diminishes the amount to be reaUzed from merchandise sold. Credit the Merchandise Sales account to show the selling price of merchandise sold. L, 200.00 to show the Analysis of the Model Merchandise Sales Account: September 1. The Merchandise Sales account is credited with selling price of merchandise sold. 6. The Merchandise Sales account is debited with $12.34 for the shortage claim since this will diminish the amount to be realized on merchandise sold. The Merchandise Sales account is debited with $15.67 for the allowance for overcharge since this will diminish the amount to be realized on merchandise sold. The Merchandise Sales account is debited with $4.56 for the claim for damaged goods since this will diminish the amount to be realized from merchandise sold. The Merchandise Sales account is credited with $1,400.00 to show the selling price of merchandise sold. The Merchandise Sales account is debited. Why? The Merchandise Sales account is debited. Why? The Merchandise Sales account is credited with 1 selling price of merchandise sold. 12. 19. 20. 22. 29. 30. 1,412.76 to show the The result of this Merchandise Sales account shows the total sales were $4,012.76. Goods returned and allowances amounted to $72.39. The net returns from sales, therefore, is the difference, $3,939.37. 38 BOOKKEEPING FOR MODERN BUSINESS The result of a Merchandise Sales account shows the net returns from merchandise sold. This is found by taking the difference between the two sides of tlie account. The ^Merchandise Sales account, at the close of the business period, is closed and the balance carried to the credit side of the Merchandise Trading account. Exercises for the Student Prepare the ledger accounts for the following examples. Enter the amount first, then the date. When the examples are completed, hand your work to your instructor for examination and approval. Exercise 27 Transactions affecting the Merchandise Sales account in the books of T. B. Lee. October 1. He sold merchandise amounting to $1,300.00, 6. He allowed a claim for damaged goods, .$23.45. 12. Goods were returned amounting to SI 1.34. 18. He allowed a shortage claim, S4.56. 19. He sold merchandise amounting to $1,500.00. 24. Goods were returned amounting to $12.67. 29. An overcharge claim was allowed, $7.68. 31. He sold merchandise amounting to $1,067.98. Questions: 1. What is the object of keeping the Merchandise Sales account? 2. When is the Merchandise Sales account debited? 3. When is the Merchandise Sales account credited? 4. What were the net returns from sales? 5. Analyze each transaction following the method used in analyzing the model Merchandise Sales account. Exercise 28 Transactions affecting the Merchandise Sales account in the books of W, D. Tell, November 1. He sold merchandise amounting to $1,200.00. 9. Goods were returned amounting to $35.67. 11. He allowed a claim for damaged goods, $3.45. 17. An overcharge claim was allowed, $23.78. 19. He sold merchandise amounting to $2,000.00. 23. Goods were returned amounting to $12.34, 27. He allowed a shortage claim of $45.34. 30. He sold merchandise amounting to $1,035.67, Questions: 1. What was the total amount of merchandise sold? Explain. 2. How is the net returns from the sales found? Explain. 3. Analyze each transaction following the method used in analyzing E.xercise 27. 4. Read from your accounts the history of the trans- actions, i. e., state what transaction gave rise to each ledger entry. Merchandise Inventory A Merchandise Inventory is an itemized list sli owing the value of the unsold merchandise on hand at the close of a business period, calculated usually at cost price. Illustrative Exercise R, D. Smith, a merchant, by making an actual count of all the unsold merchandise on hand September 30, 19 — , found he had the following merchandise: 25 bbl. Flour pmcliased at Sl()..')() per blij. MERCHANDISE ACCOUNTS 39 niustratioa 17 148 bu. Wheat purchased at $1.75 per bu. 239 bu. Oats purchased at .75 per bu. 259 bu. Corn purchased at SI. 50 per bu. 129 bu. Rye purchased at $1.25 per bu. yO^Z^^l'CJz-C^.^'T^Z't^^Cc^^ ■Jc^ y^ - /2^ ^. 2 ^2 2^£^ ■5(>, CC 25 sd z s o so THE MERCHANDISE INVENTORY ACCOUNTj The ohjed of keeping a Merchandise Inventory account is to show the value of the unsold merchandise on hand at the close of any business period. Illustrative Exercise The following are the monthly inventories as shown by the Merchandise Inventory account in the books of Henry Bruce. July 31, 19—, $2,345.67; August 31, $2,645.78; September 30, $2,476.98. Illustration 18 yO^Z£yU>Ai:^?y<^^'t::^^t^'d^ /d merchandise valued at 82,234.27. 9. He paid friMglit and cartage charges on merchandise bought, 843.25. 10. He received a rebate on freiglit l)iil of yesterday, 83.25. 11. Hor.se-shoeing. 88.50; driver's wages, 815.00. 12. Rebate on coal bill, 84.56. THE PROPRIETOR'S ACCOUNT 53 January 13. He sold merchandise amounting to .it<2,456.37. 15. He paid freight on part of merchandise sold on the 13th, $3.67. 17. He sold merchandise amounting to $1,123.45. 21. Meals for employees, $7.80; office wages, $50.00. 24. Newspaper advertising, $34.23; printing order books, $24.35. 27. Salesman's expenses, $56.67; salesman's salary, $125.00. 29. He sold merchandise amounting to $1,825.87. 31. Frank H. Young, by making an actual count of all unsold merchandise on hand, found he had merchandise, valued at cost, amounting to $1,911.23. Exercise 50 (Review) Transactions affecting the Merchandise and Expense accounts in the books of W. H. Martin, Chicago, 111. February 1. He purchased merchandise valued at $4,234.22. 2. He paid freight charges on merchandise bought, $34.67. 3. Warehouse and storage charges, $32.45. 4. He returned merchandise amounting to $1,823.56. 6. Rent for the month, $150.00. 8. Coal bill, $56.78; gas bill, $13.45. 9. He purchased merchandise valued at $3,878.34. 10. He sold merchandise amounting to $2,234.56. 11. Postage, $15.00; legal expenses, $50.00. 12. General manager's salary, $250.00. 13. He sold merchandise amounting to $1,511.24. 14. He paid freight charges on a part of the goods sold yesterday, $2.00. 15. Commission allowed to selling agent, $34.56. 16. He received an allowance for damaged goods purchased, $34.23. 17. Merchandise sold on the 13th was returned to him amounting to $36.78. 19. He paid warehouse storage charges, $39.20. 21. He purchased merchandise valued at $879.00. 24. He paid freight charges on merchandise bought, $11.23. 27. He returned merchandise purchased on the 21st, $234.56. 28. He sold merchandise amounting to $2,234.56. 28. W. H. Martin, by making an actual count of all unsold merchandise on hand, found he had merchandise, valued at cost, amounting to $2,343.65. THE PROPRIETOR'S ACCOUNT The Proprietor's account contains a record of the amount invested at the beginning of the business, any additional investments, his withdrawals from the business, and his profit or loss for the business period. The object of keeping the Proprietor's account is to show the interest of the proprietor in the business. Illustrative Exercise The Capital account of R. D. Smith. September 1. R. D. Smith invested cash, $4,000.00; merchandise, $2,250.00; note receivable, $1,250.00. 5. He withdrew merchandise for personal use, $25.00. 12. He withdrew cash for personal use, $100.00. 20. He made an additional cash investment, $1,500.00. 30. The profit of the business, as shown by the Profit and Loss account, is $109.18. Illustration 22. 54 Illustration 23 BOOKKEEPING FOR MODERN BUSINESS /T^Z/^s^>i^^c/'AyC^^^ /2 30 25 £^/d^<^^:e:^i4'cA-e^.. d£^' /rcp0 £?(P Analysis.— The Merchandise Purchases account is debited for §1,800.00 to show the value (cost) of the merchandise received; and the Cash account is credited for $1,800.00 to show the amount of cash paid out. Thus, the ^Mercliandise Purchases account is debited for 81,800.00, (one effect), and the Cash account is credited for 81,800.00 (second effect). The model accounts illustrate clearly the two-fold effect of the above transaction. Thi.s transaction, which is an exchange of cash for mercliandise, does not increase or decrease the value of the business. The amount of cash on hand has been decreased, 81,800.00, while merchandise valued at 81,800.00 has been acquired. Exam-ple 3. — September '.^. If we rent a storeroom for 875.00, we part witii one form of value, namely ca.sh, and receive in return an equivalent value, namely the use of the storeroom for one month. Again l\v applying the principles already learned, we can record this transaction, as follows, showing its double effect. THE DOUBLE EFFECT OF A BUSINESS TRANSACTION 59 lUustration 28 "^^ i-^tx7'2^ez<:iy^^^i^?-i4^7'iy J0a(y "7?^ ^^^Z^:iU£,'^>^cACA- Analysis.— The Cash account is debited for SoOO.OO to show the amount of cash received; and the Merchandise Sales account is credited for S500.00 to show the value of the merchan- dise sold (parted with). Thus, the Cash account is debited for 8500.00 (one effect), and the Merchandise Sales account is credited for SoOO.OO (second effect). Example 5.— September 5. If we purchase 1,000 bushels of oats at 75^ per bushel, amount- ing to $750.00, from William Hill, 567 Arch Street, Philadelphia, on account, it must be clear that the Merchandise Purchases account alone is not sufficient to record this transac- tion completely. The Merchandise Purchases account records the value of the merchandise received, but it fails to account for the source of the merchandise received. By applying the princir.les already learned for the separate accounts, we can record this transaction, as follows, showing its double effect. Illustration 32 Illustration 33 t'Tt^^l^^ ^^ -te^^-^ /?^a^U^^^4o/uz^'J ■/SO 0.7 THE DOUBLE EFFECT OF A BUSINESS TRANSACTION 61 Analysis. — The Merchandise Purchases account is debited for S750.00 to show the value (cost) of the merchandise received; and William Hill's account is credited for $750.00 to show the value which he has given to the business. Thus, the Merchandise Purchases account is dcljited to show the value (cost) of the merchandise received (one effect) ; and William Hill's account is credited to show the value which he has given to the business (second effect) . Example 6. — September 6. If we sell Frank Wells, 234 Walnut Street, Philadelphia, on account, 700 bushels of oats at 80^ per bushel, amounting to $560.00, it must be clear that the Merchandise Sales account alone is not sufficient to record this transaction completely. The Merchandise Sales account records the value of the merchandise parted with, but it fails to account for the cause of the merchandise sold. By applying the principles already learned for the separate accounts, we can record this transaction, as follows, showing its double effect. Illustration 34 Illustration 35 ^ / '■/ C^<::^uiJ^ oo c'O Analysis. — Frank Wells' account is debited for $560.00 to show that he has received value from the business; and the Merchandise Sales account is credited for $560.00 to show the value of the merchandise sold (parted with). Thus, Frank Wells' account is debited for $560.00 (one effect), and the Merchandise Sales account is credited for $560.00 (second effect). Model Set of Accounts The following model ledger shows the accounts used in the previous transactions arranged in the order in which they are entered in the ledger. 62 Illustration 36 BOOKKEEPING FOR MODERN BUSINESS ^ K.^^-^tZ-^T^-fSy ?JV^fe/t*^^ 3<^(^o 00 ^^ ^. /roa iPo ■7S ■yo • r y s to Ci^ >d€^ /9lf!i^A^/j>JL/e^ S^y ^^ZicX->^ St^O CO /j:vC<^<^z-A€Z^.y2^i^^d^■ ii^^cA^A^z-^i^ jac^o Oi^ "^ J an oo Jooo 0(? (?0 0(A Instructions for preparing a Trial Balance of Totals from the Model Ledger accounts, Illustration 36. (1) Foot in small pencil figures the debit and credit sides of each account when there are two or more debit or credit entries in the account as shown in the model ledger. (2) At the top of a sheet of journal paper, write the heading, Trial Balance, September 6, 19—. 64 BOOKKKEPINCi FOR MODERN BUSINESS (3) List the accounts in the order in which they occur in the model ledger, writing the total debits and total credits opposite each account in the list. In the column to the left of the name of an account, place the ledger page on which the account appears. (4) Rule a single red line under the last item in the list, and foot the columns. The footings of the debit and credit columns should be equal. Rule the double red lines under the footings as shown in the illustration. Supplementary Exercises in Accounts The transactions given in these exercises involve the use of accounts with the Proprietor, Cash, Merchandise Purchases, Merchandise Sales, (general Expense, and Personal accounts. Give each account one-third of a page. Use ledger paper. Since each business transaction affects more than one account, show the two-fold effect of each transaction by recording the debit and the corresponding credit entry in the proper ledger accounts. After you have recorded the transactions in the proper accounts, write the sum in pencil, or pencil-foot the ledger accounts and prepare a trial balance of totals. The work should then be submitted to your instructor for examination and approval. Exercise 56 September 1. William Gray begins business with a cash investment of S3,600.00. 2. He rents a storeroom paying, cash -175.00, for September. 4. He buys merchandise for cash valued at -ISOOO.OO. 6. He sells merchandise for cash amounting to $350.00. 8. He buys merchandise for cash valued at $357.89. 10. He sells merchandise for cash amounting to .$678.98. 12. He buys merchandise for cash valued at $567.56. 14. He buys merchandise from T. B. Williams, 325 State St., City, on account, $450!00. 16. He sells merchandise to S. A. King, 345 Fourth Ave., City, on account, $769.79. 18. He sells merchandise for cash amounting to $134.27. 20. He makes an additional cash investment of $1,200.00. 26. He buys merchandise for cash valued at $234.00. 30. He sells merchantlise for cash amounting to .$352.63. Analyze each transaction following the method used in Illustration 36. Exercise 57 A October 1. George Taylor invests $5,000.00 cash in the flour and grain business. 2. He rents a storeroom, paying $85.00 cash, for October. 4. He buys merchandise for cash vahunl at $1,600.00. 6. He sells merchandise for cash amounting to .$234.56. 8. He buys office sui)plies, paying $12.50 cash. 10. He l)uys merchandise for cash valued at $1,234.76. 12. He biiys merchandise from Cieorge L. Jones, 456 Market St., City, on account, $438.57. 14. He sells merchaTulise for casl» ainoiinling to .'==;3S2.7S. 16. He sells merchandise to R. D. Thompson, 324 Broadway, City, on account, $456.36. THE DOUBLE EFFECT OF A BUSINESS TRANSACTION 65 October 18. He makes an additional cash investment of SI, 000.00. 20 He biij's merchandise for cash valued at S432.65. 22. He sells merchandise to Thomas Ryan, 352 Broad St., City, on account, 8586.73. 24. He withdraws cash,S100.00, for private use. 26. He buys merchandise from George L. Jones, 456 Market bt., City, on account, $426.63. 28. He buys office stationery, paying S23.45 cash. 30. He sells merchandise for cash amounting to $232.32. Exercise 57 B November 1. Harry Blair began business with a cash investment, $5,000.00. 2. Paid cash for rent of storeroom, $75.00. 3. Bought merchandise from James Green, 534 West Ave., City, on account, $3,500.00. ^ ^. 4. Sold Merchandise to Louis McBane, 792 State St., City, on account, $840.00. 5. Bought merchandise for cash, $800.00. 6. Received cash from Louis McBane, on account, $625.00. 8. Sold merchandise for cash, $630.00. 9. Paid James Green cash, on account, $3,000.00. 10. Sold merchandise to George Roberts, 527 Wilson Ave., City, on account, $260 00. 11. Bought merchandise from John Riley, 403 Washington Lane, City, on account, .$420.00. 12. Bought merchandise for cash, $230.00. 13. Sold merchandise for cash, $360.00. 15. Sold merchandise to Louis McBane on account, $640.00. 16. Received cash from George Roberts on account, $160.00. 17. Paid John Riley cash, on account, .$333.00. 18. Received cash from Louis McBane on account, $220.00. 19. Paid cash for merchandise, $360.00. 20. Sold merchandise to Louis McBane on account, $275.00. 22. Sold merchandise to George Roberts on account, $425.50. 23. Bought merchandise for cash, $375.80. 24. Received cash from Louis McBane on account, $230.00. 25. Paid James Green cash, on account, $325.00. 26. Bought merchandise for cash, $534.67. 27. Sold merchandise for cash, $325.60. 29. Sold merchandise to Louis McBane, on account, $472.00. 30. Paid clerk hire in cash, $75.00. Journalizing Thus far attention has been directed to the two-fold effect of each business transaction as it occurred, and its record in the proper ledger accounts. Since every business transaction carried out, and every agreement relating to the business should be carefully recorded, at the time, under the date, and in the order of its occurrence, a more complete record should be made than is usually possible in the ledger accounts. While the journal, as a book of record is used in this bookkeeping text only where its use would be justifiable from the standpoint of practical bookkeeping, yet the principles underlying business transactions may be best understood when expressed in the form of journal entries. 66 BOOKKEEPING FOR MODERN BUSINESS Example 1. — September 1. The student who recorded Thomas Brown's cash invest- ment of S3, 000. 00 (see illustrations 24 and 25) did so by mentally deciding the double effect of this transaction and recording it in the ledger accounts. The Cash account was debited to show the amount of cash received; and Thomas Brown's Capital account was credited to show the value which he invested in the business. By applying these principles he thus recorded this transaction showing its double effect. Illustration 38 C..€ZcdJ7y _/^i*z-'tP'?^7^i^€^L<^py':^^--i^^ L.^J-e^i^.- / L-^cz-d-'Ay Jooa 00 xnstead of recording the double effect of the above transaction immediately in the proper ledger accounts, he might have recorded it in the journal, and thus be able to explain the transaction clearly and fully so that it may be properly interpreted by any one who may examine the books. By applying the same principles used in making the records directly into the proper ledger accounts wc can record this transaction in the journal showing its double effect. Journal Illustrated Illustration 40 ro> (2) (3^ (^J (-V aj rvj The following is an explanation of the use which is made of each ruled space in the journal, the number corresponding to the number inserted in the illustrated journal entry. THE DOUBLE EFFECT OF A BUSINESS TRANSACTION 67 Illustration 41 y z./^- (pe> joao ffa (3) (4) ■Jc?r«^ J '^(^A^<^^,J<^^^r^-^ ),^rn^ciyc^-yiyh^<^'t4^''^^ yOO ,,<^*«'^'rsK5' .ro yso ^40 00. oo 00 JOOO TO /roo oo 7^ soo jSO sio oc? 00 oo 00 Exercises for the Student Journalize the following transact ions, making the proper record ni the journal. When the exercises are completed, hand your work to your instructor for examination and approval. Keep the work for a subsequent exercise. THE DOUBLE EFFECT OF A BUSINESS TRANSACTION 69 Exercise 58 September 1. George Bunn began business investing cash, $3,500.00. 2. He paid $75.00 for the rent of the store for September. 3. He bought from F. A. Faloon, on account, 500 bu. oats at 50^ per bu., $250.00. 5, He bought from Andrew Rodgers, on account, 1,000 bu. wheat at $1.25 per bu., $1,250.00. 9. He sold to Charles Smith, on account, 200 bu. oats at 75^ per bu., $150.00. 10. He bought from Andrew Haines, on account, 400 bu. oats at 505!^ per bu., $200.00. 12. He sold to John Hudson, for cash, 300 bu. wheat at $1.50 per bu., $450.00. 13. He bought from Charles Cameron, for cash, 1,000 bu. oats at 50j/5 per bu., $500.00. 14. He paid Andrew Haines cash, $200.00, for the oats purchased on the 10th. 15. He sold to H. R. Shaff, for cash, 600 bu. oats at 75f^ per bu., $450.00. 20. He paid F. A. Faloon cash, $250.00, for the oats purchased on the 3d. 25. He received from Charles Smith, cash $150.00 for the oats sold him on the 9th. 30. He bought from F. A. Faloon, on account, 450 bu. oats at 50^ per bu., $225.00. Analyze each transaction and compare your journal with the model Illustration 42 for the form and arrangement of your entries. Exercise 59 October 1. L. L. Tucker began business by investing cash, $3,200.00. 2. He paid $65.00 for the rent of the store for October. 4. He paid the clerk's salary, cash $75.00. 6. He bought 500 bu. oats at 50^ per bu., $250.00, from D. K. Lee on account. 8. He bought from J. J. Johnson, on account, 1,000 bu. wheat at $1.25 per bu., $1,250.00. 11. He sold to Lawson & Company, on account, 500 bu. wheat at $1.50 per bu., $750.00. 13. He bought from Price Engle, on account, 600 bu. oats at 52(f per bu., $312.00. 15. He paid D. K. Lee cash, $250.00, for the oats purchased on the 6th. 16. He sold Charles White, for cash, 100 bu. wheat at $1.55 per bu., $155.00. 18. He took for private use, cash $50.00. ^ 19. He paid Price Engle cash, $312.00, for the oats purchased on the 13th. 24. He received from Lawson & Company cash, $750.00, for the wheat sold them on the 11th. 28. He bought from Milton Jones, on account, 800 bu. oats at 52^ per bu., $416.00. 30. He sold to Lawson & Company, on account, 555 bu. oats at 77^ per bu., $415.25. Analyze each transaction and compare your journal with the model Illustration 42 for the form and arrangement of your entries. Exercise 60 November 1. William A. McBane began business by investing cash, $4,200.00. 2. He paid cash, $70.00, for the rent of the store for November. He paid cash, $30.00, for books and stationery. 4. He bought from William Black, on account, 2,400 bu. oats at 50jz! per bu., $1,200.00. 70 BOOKKEEPING FOR MODERN BUSINESS November 6. 8. 10. 14. 18. 24. He bought from Homer Faloon, on account, 1,150 bu. wheat at $1.26 per bu., SI. 449.00. He sold to Stephen Bunn, for cash, 650 bu. oats at 76^ per bu., $494.00. He sold to Ernest Race, on account, 450 bu. oats at 77^ per bu., .S346.50. He paid William Black cash, .?1,200.00, for the oats purchased from him on the 4th. He sold to Nelson & Son, on their 10-day note, 500 bu. oats at SI. 50 per bu., «750.00. He bought from William Black, on his 10-day note, 500 bu. oats at 50)if per bu., $250.00. Classification of Books Books of Original Entry. — The books in which transactions are first recorded at the time of their occurrence are known as books of original entry. The book of original entry which you have studied thus far is the journal. Books of Final Entry. — The principal book of final entry is the ledger. Transactions are transferred from the books of original entry to the ledger, where they are gathered together or classified into various groups or accounts such as the Proprietor's account, the Cash account, the General Expense account, etc. Auxiliary Books. — These are books in which are recorded additional information of facts necessary to keep a complete record of the business. Posting Since a record of a business transaction in the journal simply indicates which account is to be debited and which account is to be credited in the ledger, journalizing is an incomplete process. The accounts to be debited and the accounts to be credited must be opened in the ledger and the amounts must be transferred from the journal to the ledger, where they are gathered together or classified into the various groups or accounts. This act of transfer- ring to the ledger is called posting. Example 1. — September 1. The student who recorded Thomas Brown's cash invest- ment of $3,000.00 in the journal in Illustration 41 did so by mentally deciding what accounts were affected by the transaction, i. e., what account was to be debited and what account was to be credited in the ledger before recording the transaction as follows: Illustration 43 C^-eZ^fzy ,,x;>%«!»»*^s^<5'^/C?^^^^^<'^»^<;yC«!^r»*^S-<>^ yi^^^-cfftyyZ^uy^ytcisn^A. 3oo a 00 '^ -'y<: 3000 00 THE DOUBLE EFFECT OF A BUSINESS TRANSACTION 71 As the above journal entry indicates that the Cash account should be debited to show the amount of cash received, and Thomas Brown's Capital account should be credited to show the amount of cash which he invested in the business, these two accounts are opened in the ledger and the $3,000.00 transferred to the proper side of the accounts as determined in the journal entry. Posting to the Cash Account The amount, $3,000.00 is posted to the debit side of the Cash account,, the record being made in the following order: First, write $3,000.00 in the amount column; second, write 1, the page of the journal in the folio column and the initial J just to the left of the folio colmnn to indicate the book from which the entry is posted; third, write Thomas Brown in the explanation column; fourth, write Sept. 1 in the date column, placing the current year above the first entry to indicate the year. The following illustrates the form of the Cash account after the $3,000.00 has been posted to it from the journal. Illustration 44 C^-tZcdJiy ^^;r /^ , ./^tTTyiiZA'^^H-c-u^-^^^ {^ JOOO 00 Postmarking the Entries. — Next, write 1 , the page of the ledger to which the amount has been posted, in the folio column of the journal. As each item is posted, the page of the ledger to which it has been transferred is placed in the column immediately to the left of the journal entry as shown in Illustration 43. Do not fail to put the page number in the folio column at the time of posting. The page numbers in the journal act as checks, showing what items have been posted and where any particular item may be found in the ledger. The page numbers, together with the initial J in the ledger accounts, indicate the book and the page of the book from which the item was posted. Posting the Proprietor's Account The amount, $3,000.00, is posted to the credit side of Thomas Brown's Capital account in the exact order that was used in making the record in the Cash account. Review the order carefully. The following illustrates the form of Thomas Brown's Capital account after the $3,000.00 has been posted to it from the journal. 72 Illustration 45 BOOKKEEPING FOR MODERN BUSINESS *^.-X^^^C^??<^2^:^^^^<^^tor^iS>*<5^7^-;' C-ePZ^^-i^^^Z.'C^ (ZudJ^ f Jooc oc Postmarking the Entries. — Next, write 7. the page of the ledger to which the amount has been posted, in the foho column in the journal, as shown in Illustration 43. The second journal entry is posted in the same way. The Merchandise Purchases account is debited and the Cash account is credited with $1,800.00, the amount of the cash purchase of merchandise on the 2d. The third, fourth, fifth, and sixth journal entries are posted in a similar way. Exercise 61 On a sheet of journal papsr copy neatly the model journal shown in Illustration 42, fol- lowing carefully the script forms for both letters and figures. Always write the current year in full, instead of 19 — . Preparatory to posting these transactions to the ledger, the following accounts are to be opened in the ledger, in the order given, allowing one-third of a page to each account. The addresses of all persons should be shown in the ledger, the street address should be written above the explanation space on the debit side, and the city and state above the explanation on the credit side as shown in the model set of accounts in Illustration 36. Cash. Frank Wells, 234 Walnut Street, Philadelphia. William Hill, 5G7 Arch Street, Philadelphia. Thomas Brown, Capital. Merchandise Purchases. Merchandise Sales. General Expense. Review caicfully the method of posting the model journal entry given above. Post the six journal entries to the proper ledger accounts following the same method and order as was used in posting the model form. Be sure to postmark each entry after it has been posted to the ledger. Foot in small pencil figures the dcl^it and credit sides of each account wh{>n there are two or more debit or credit entries in the account. On the following page of your journal prepare a trial l)alance of totals. List the accounts in the order in whicii they occur in the ledger, writing the total debits and total credits opposite each account. Add and rule the trial balance. The work should then be submitted to your instructor for examination and approval. THE DOUBLE EFFECT OF A BUSINESS TRANSACTION 73 Exercise 62 The transactions given in these exercises involve the use of accounts with the Proprietor, Cash, Notes Receivable, Notes Payable, Merchandise Purchases, Merchandise Sales, General Expense, and Personal accounts. Give each account one-third of a page in the ledger. After you have recorded the transactions in the journal, post the various items to the proper ledger accounts, pencil-foot the ledger accounts and prepare a trial balance of totals. The work should then be submitted to your instructor for examination and approval. October 1. W. A. Thompson began business investing cash, $4,200.00. 2. He paid $75.00 for the rent of the store for October. 3. He bought from T. S. Andrew, 252 Green St., City, on account, 600 bu. oats at 50^ per bu., $300.00. 5. He sold to C. D. Lewis, 922 Wallace St., City, on account, 200 bu. oats at 75^ per bu., $150.00. 9. He bought from M. L. Green, 1122 Broad St., City, for cash, 700 bu. wheat at $1.12 per bu., $784.00. 12. He bought from T. S. Andrew, on account, 1200, bu. oats at 50^ per bu., $600.00. 13. He sold to C. D. Lewis, on his 30-day note, 300 bu. wheat at $1.50 per bu., $450.00. 15. He bought from T. S. Andrew, on his 10-day note, 500 bu. wheat at $1.15 per bu., $575.00. 20. He received from C. D. Lewis, cash, $150.00, for the oats sold him on the 5th. 25. He paid T. S. Andrew, cash, $575.00, for his note due to-day. 30. He took for private use, cash, $65.00. Exercise 63 If further preliminary practice is needed in journahzing, posting, and taking a trial balance, record the transactions in Exercise 56. Exercise 64 Journalize, post, and take a trial balance of the transactions in Exercises 57-a and 57-b. Exercise 65 If further preliminary practice is needed in posting and taking a trial balance, post the journal which the student prepared for Exercise 58. Exercise 66 Post the journal and take a trial balance for Exercises 59 and 60. Development of the Sales Journal So far in making original entries in the journal every sale of merchandise has been recorded as a credit to the Merchandise Sales account, and involved the posting of at least two items for each transaction, namely, the credit of Merchandise Sales, and the debit which explains the cause for parting with the merchandise. Thus, each sale required the writing of the words Merchandise Sales, and at least two amounts, one for the account to be debited and the other for the account to be credited. Now, since the credit items are posted to the 74 BOOKKEEPING FOR MODERN BUSINESS Merchandise Sales account in the ledger and there added, we may save many entries in the ledger bj' recording similar transactions in a separate book and posting only the total amount of all sales for a given period to the Merchandise Sales account in the ledger. Illustrative Exercise Transactions affecting the Merchandise Sales account in the books of I. B. Cameron. September 1. He sells to N. 0. Race, 1110 Broad St., on account, 400 bu. oats at 7b^ per bu., S300.00. 8. He sells to M. N. Lee, 714 State St., 800 bu. oats at 7d6 per bu., .?600.00. 21. He sells to L. K. Jones, 117 Fourth Ave., 1.200 bu. oats at 75j^ per bu., 8900.00. 30. He sells to J. K. Scott, 238 Lake St., on account, 200 bu. rye at $1.25 per bu., 8250.00. Journal Method The following illustrates the method of recording the foregoing transactions in the journal. Illustration 46 September 1, 19- N. 0. Race on account 300 00 Mdse . Sales 400 bu. oats 8 on account .75 1 300 00 M. N. Lee 600 00 Mdse. Sales 800 bu. oats 21 .75 600 00 L. K. Jones on account 900 00 Mdse. Sales 1200 bu. oats 30 .75 900 00 J. K. Scott on account 250 00 Mdse. Sales 200 bu. rye 1.25 1 250 00 Observe the repetition of the credit to the Merchandise Sales account in each transac- tion. In posting from the journal, each person's account is debited for the amount of the sale, and the Merchandise Sales account is credited for the amount of each sale as shown in the following illustration. Illustration 47 Merchandise Sales 19- Sept, 1 N. 0. Race J 1 300 00 8 M. N. Lee J 600 00 21 L. K. Jones J 900 00 30 J. K. Scott J i 250 2050 00 00 THE DOUBLE EFFECT OF A BUSINESS TRANSACTION 75 It is quite evident from the foregoing journal entries and ledger account that the unneces- sary repetition of the credit Merchandise Sales might be avoided if certain pages of the journal were reserved exclusively for the sales. Instead of crediting the Merchandise Sales account each time some other item is debited, the Merchandise Sales account may be credited for the sum of these debits as shown in the following modified form of the journal. Illustration 48 September 1, 19- N. 0. Race on account 400 bu. oats 8 .75 M. N. Lee on account 800 bu. oats 21 .75 L. K. Jones on account 1200 bu. oats 30 .75 J. K. Scott on account 200 bu. rye 30 1.25 Mdse. Sales Credited total sales 300 600 900 250 00 00 00 00 2050 00 Observe that the modified form of the journal entry contains exactly the same complete information that the previous journal contained. In posting from the modified form of the journal, each person's account is debited for the amount of the sale to him, l3ut the Merchan- dise Sales account is credited for the sum total of all the sales instead of being credited for each sale as shown in the following illustration. Illustration 49 Merchandise Sales 19- Sept. 30 Total Sales S 2050 00 Compare the result of the Merchandise Sales account which contains the four items posted from the journal with the Merchandise Sales account which contains but one item posted from the modified form of the journal. It will be observed that the results are the same, namely, $2,0.50.00. The unnecessary repetition of the credit Merchandise Sales has thus been avoided by reserving certain pages of the journal exclusively for the sales. The initial »S is substituted for the initial J in the ledger account to show that the posting 76 BOOKKEEPING FOR MODERN BUSINESS was done from the sales journal instead of from tlic joiiinal. The initial S is substituted also in each of the four personal accounts instead of the initial J for the same reason. The usual practice in business is to make out bills containing an itemized list of goods sold when a sale is made. Instead of making out l)ills singly with the pen or typewriter, they can be made in duplicate on the tj'pewriter or on a billing machine by the use of carbon paper. The original or copy of the bill is mailed or handed to the customer and a copy is filed in order that the business may have a complete and permanent record of all sales made by the business. The record or entry is made in the sales journal from the copy of the bill, and after the sales number has been written on it, the bill is filed. These copies are referred to by dates or number so that the}' are always available for reference. Smce the copy of the bill contains a complete record of the sale, the journal may be still further modified. Instead of making a complete record of the sale in the journal, we may avoid making a full record by using a journal, specially ruled, wliich will give the necessary information for posting and, if need be, through the sales number, aid us in finding the copy of the bill which was filed, when detailed information is needed. The following illustrates the form of a sales journal which may be used when a duplicate copy of a bill is filed. Sales Journal Illustration 50 ACCOUNT DEBITED ^J€^ / F 2/ 3o 3o ///O. //■/ \^Si^€?e^>J^ ■yc c^-T-iyy?^ / 2 3 300 I^OOOO m. 2^C 2 o s o 2 O^C OO oo Compare the above sales journal with the modified form of the journal of Illustration 48. The sales journal contains the same information as the modified form of the journal except the itemized list of the goods sold. The bills, containing the itemized list of the goods sold, are numl^ercd (■ons(H'utively as they are issued, and a record of this is made in the Sales Number cohjnm. The bills are then filed where they are kept as a permanent record for the merchan- dise sold. 1. Exercise 67 Design a sales journal on a sheet of journal paper exactly like the model sales journal (see Illustration 50). The headings of the columns should be lettered. Record in it the various sales in Exercise 58. Number the sales consecutively as they are entered in the sales journal. Close the sales journal at the end of the month similarly to the model sales journal. Design another sales journal and record the sales given in I'^xercise 59. Follow the same met iiod used in the first exercise given above. THE DOUBLE EFFECT OF A BUSINESS TRANSACTION 77 3. Design another sales journal and enter the sales given in Exercise 60. sales journal at the end of the month. 4. Design another sales journal and enter the sales given in Exercise 62. sales journal at the end of the month. Close the Close the Development of the Purchases Journal Again in making original entries in the journal every purchase of merchandise has been recorded as a debit to the Merchandise Purchases account, and involved the posting of at least two items for each transaction, namely, the debit of Merchandise Purchases, and the credit which explains the source from which the merchandise was received. Thus, each purchase required the writing of the words Merchandise Purchases, and at least two amounts, one for the account to be debited and the other for the account to be credited. Since the debit items are posted to the Merchandise Purchases account in the ledger and there added, we may save many entries in the ledger by recording similar transactions in a separate book and posting only the total amount of all purchases for a given period to the Merchandise Purchases account. Illustrative Exercise Transactions affecting the Merchandise Purchases account in the books of Robert Savage. September 1. He buys merchandise from T. B. Williams, 325 State St.. City, on account, 500 "bu. oats at 70c^ per bu., S350.00. 16. He buys merchandise from F. A. Ross, 112 Fourth Ave., City, on account, 800 bu. oats at 70cf per bu., $560.00. 30. He buys from A. L. Wilson, 234 Penn St., City, on account, 130 bu. rye at S1.20 per bu., $156.00. Journal Method The following illustrates the method of recording the foregoing merchandise transactions of Robert Savage in the journal. Illustration 51 September 1, 19- Mdse. Purchases T. B. Williams Mdse. Purchases F. A. Ross Mdse. Purchases A. L. Wilson on account 500 bu. oats 16 on account 800 bu. oats 30 on account 130 bu. rye 350 00 .70 350 560 00 .70 560 156 00 1.20 156 00 00 00 Observe the repetition of the debit to the Merchandise Purchases account in each trans- action. In posting from the journal, each person's account is credited for the amount of the purchase from him, and the Merchandise Purchases account is debited for the amount of each purchase as shown in the following illustratioa. 78 BOOKKEEPING FOR MODERN BUSINESS Illustration 52 Merchandise Purchases 19- Sept. 1 T. B. Williams J 16 F. A. Ross J 30, A. L. Wilson J 350 00 560 00 156 00 1066 00 It is quite evident from the foregoing journal entries and ledger account that the unneces- sary repetition of the debit Merchandise Purchases might also be avoided if certain pages of the journal were reserved exclusively for the purchases. Instead of debiting the Merchan- dise Purchases account each time some other item is credited, the Merchandise Purchases account may be debited for the sum of these debits as shown in the following modified form of the journal. Illustration 53 September 1, 19- T. B. Williams on account 500 bu. oats 16 on account 800 bu. oats 30 on account 130 bu. rye 30 Mdse. Purchases Debited total purchases F. A. Ross A. L. Wilson .70 70 1.20 1066'00 350 560 156 00 00 00 Observe that the modified form of the journal contains exactly the same complete informa- tion that the previous journal contained. In posting from the modified form of the journal, each person's account is credited for the amount of our purchase from him ])ut the Merchan- dise Purchases account is debited for the sum of all the purchases instead of being debited for each purchase as shown in the following illustration. Illustration 54 Merchandise Purchases 19- Sept, 30 Total Purchases P 1066 00 Compare the result of the Merchandise Purchases account which contains the three items posted from the journal witli the Merchandise Purchases account which contains but one item posted from the modified form of the journal. It will be observed that the results THE DOUBLE EFFECT OF A BUSINESS TRANSACTION 79 are the same, namely $1,066.00. The unnecessary repetition of the debit Merchandise Pur- chases has thus been avoided by reserving certain pages of the journal exclusively for the purchases. The initial P is substituted for the initial J in the ledger account to show that the posting was done from the purchases journal instead of from the journal. The initial P is substituted also in each of the three personal accounts instead of the J when the posting is done from the purchases journal. The Purchases Journal Just as the record of the merchandise sales was taken from the general journal and grouped in the sales journal in order to avoid the unnecessary repetition of the credit Mer- chandise Sales, so may the record of the merchandise purchases be grouped in the purchases journal in order to avoid the unnecessary repetition of the debit Merchandise Purchases. Since an invoice, containing an itemized list of goods bought, is received when merchandise is purchased, a complete record need not be made from the invoice. This may be avoided by using a journal, specially ruled, which will give the necessary information for the posting and, if need be, through the invoice number, aid us in finding the invoice in our files, when detailed information is needed. The following illustrates the form of a purchases journal which may be used when the invoices are properly filed. Ulustration 55 Purchases Journal DATE L.F.. ACCOURT CREDITED ADDRESS TERMS mv. MDSE. PUR- NO. _ CHASES DR. -7^ / /6 JO JO / 2 3 3~J0.00- s6d\ oo /sC oo ■U:Jitz.xercise. Development of the Cash Journal or One Page Cashbook Just as the record of merchandise sales and merchandise purchases was taken from the general journal and grouped in the sales journal and in the purchases journal respectively, in order to avoid the unnecessary repetition of the credit Merchandise Sales and the debit Mer- chandise Pio'chases, so may the record for the cash receipts and cash payments be grouped in a cash journal in order to avoid the unnecessary repetition of the debit Cash and credit Cash. Illustrative Exercise The following transactions are taken from the books of H. H. Harris. September 1. He invested cash, $5,000.00. 11. He received cash from J. K. Johnson on account, .^SOO.OO. 19. He received cash from Earl Rand for his note due to-day, .S200.00. 30. He received cash from Lewis and (Iray on account, $500.00. Journal Method The following illustrates the method of recording the foregoing cash receipts transactions in the journal. Illustration 56 September 1, 19- Cash H. H. Harris, Capi Cash J. K. Johnson Cash Notes Receivable Cash Lewis & Gray Investment tal 11 on account 19 Earl Rand pays his note due to-day 30 on account 5000 00 300 00 5000 00 200 00 30000 20000 500 00 ll 50000 Observe the repetition of the debit Cash in each transaction. In posting from the journal, each credit amount is entered in its respective account, and the Cash account is debited for the amount of each cash receipt as shown in the following illustration. Illustration 57 Cash 19- Sept. 1 H. H. Harris J 11 J. K. Johnson J 19 Notes Receivable J 30, Lewis & Gray J 5000;00 300,00 20000 500'00 eooo'oo THE DOUBLE EFFECT OF A BUSINESS TRANSACTION 81 It is quite evident from the foregoing journal entries and ledger account that the unneces- sary repetition of the del^t Cash might bo avoided if certain pages of the journal were reserved exclusively for the cash receipts as shown in the following illustration. Illustration 58 Date L.F. Account Credited Explanation CashDr. Total 19- Sept. 1 H. H. Harris, Capital Investment 5000 00 11 J. K. Johnson on account 300 00 19 Notes Receivable Earl Rand's note 200 00 30 Lewis & Gray Cash Debited on account 500 00 6000 00 For convenience we put the term Cash in the account credited column, but it is really not a credit. To distinguish it from accounts credited, therefore, we add Debited to it because it represents the total amount of cash received by the business. Observe that the cash journal contains exactly the same complete information that the previous journal contained. In posting from the cash journal, each credit amount is entered in its respective account, but the Cash account is debited for the sum of all cash receipts instead of being debited for each cash receipt as shown in the following illustration. Illustration 59 Cash 19- Sept. 30 Total Receipts 6000 00 Compare the result of the Cash account which contains the four items posted from the journal with the Cash account which contains but one item posted from the cash journal. It will be observed that the results are the same, namely, $6,000.00. The initial C is substituted for the initial / in the ledger account to show that the posting was done from the cash journal instead of from the journal. The initial C is substituted also in each of the four credit accounts instead of the initial J when posting is done from the cash journal. Exercise 69 Design a cash journal on a sheet of journal paper exactly like the model cash journal (see Illustration 58). The headings of the columns should be lettered. Record in it the various cash receipts in Exercise 50. Close the cash journal at the end of the month similarly to the model cash journal. Design another cash journal and record the cash receipts given in Exercise 59. Follow the same method used in the first exercise given above. Design other cash journals and enter the cash receipts given in Exercises GO and 62. Close each journal at the end of the month. 82 BOOKKEEPIXa FOR MODERN BUSINESS Development of the Cash Journal or One Page Cashbook The cash payments may also be grouped in a cash journal in order to avoid the unneces- sary repetition of the credit Cash. Illustrative Exercise The following transactions were taken from the books of H. H. Harris. September 1. He paid 875.00 for the rent of the storeroom for September, 9. He paid Robert Burns cash on account, .S400.00. 22, He paid Thomas ]\Ioore cash for his note due to-day, $525,00, 29, He paid Wilham Gardner cash on account, $500.00. Illustration 60 Journal Method September 1, 19- General Expense Rent for September 75 00 Cash 9 on account 75 00 Robert Burns 400 00 Cash 22 400 00 Notes Payable Note in favor of 525 00 Cash Thomas Moore due to-day 29 525 00 William Gardner on account 500 00 Cash 500 00 Observe the repetition of the credit Cash in each transaction. In posting from the journal, each debit amount is entered in its respective account, and the Cash account is credited for the amount of each cash payment as shown in the following illustration. Illustration 61 Cash 1 19- Sept. 1 9 22 29 General Expense J Robert Burns J Note Payable J William Gardner J 75 00 400 00 525 00 500 00 1500 00 It is quite evident from tlie foregoing journal entries and ledger account that the unneces- sary repetition of the credit Cash might be avoided if certain pages of the journal were reserved exclusively for the cash payments as shown in (lie following illustration. THE DOUBLE EFFECT OF A BUSINESS TRANSACTION 83 Illustration 62 Date 19- Sept. 1 9 22 29 L.F. Account Debited General Expense Explanation Rent for September i Robert Burns on account Notes Payable Thomas Moore's note William Gardner on account Cash Credited ICash Or, 75 400 525 500 00 00 00 00 Total 1500 00 You will observe that the entries in the journal are different in form from the cash journal entries, but they serve the same purpose. In posting from the cash journal, each debit amount is entered in its respective account, but the Cash account is credited for the sum of all the cash payments instead of being credited for each cash payment as shown in the following illustration. Illustration 63 Cash 19- Sept. 1 30 Total payments C 1500 00 Compare the result of the Cash account which contains the four items posted from the journal with the Cash account which contains but one item posted from the cash journal. It will be observed that the results are the same, namely, $1,500. 00. Exercise 70 1. Design a cash journal on a sheet of journal paper exactly like the model cash journal (see Illustration 62). The headings of the columns should be lettered. Record in it the various cash payments named in Exercise 50. Close the cash journal at the end of the month similarly to the model cash journal. 2. Design another cash journal and record the cash payments named in Exercise 59. Follow the same method used in the first exercise given above. 3. Design other cash journals and enter the cash payments in them given in Exercises 60 and 62. Close each cash journal at the end of the month. A Two Page Cash Journal or Cashbook It has become quite customary to arrange the two cash journals in one book, the left- hand page being used for the receipts of cash, and the adjoining right-hand page for the pay- ments of cash. The left-hand page is known as the debit side, the meaning being that the Cash account is to be debited for the sum of the amounts there recorded; and the right- 84 Illustration 64 BOOKKEEPING FOR MODERN BUSINESS A Two Page Cash Journal or Cash Receipts Accouirr cseoitbd BXPLAlCATIOIf =^ a^ // Jo SOOO 300 /^=i^- ^06 0d[ -->^dsZ-^-Z-<3^ oo T^r? ^ooo /^,or)rior^ ^j>(PC',:P(P oo hand page is known as the credit side, the meaning being that the Cash account is to be credited for the sum of the amounts there recorded. This segregation of the cash receipts and cash payments in one book is permissible since all cash receipts are debits, and all cash payments are credits. The student is cautioned not to think of the separate items on the debit side of the cash- book as being debited. Remember that they indicate, just as in the case of journal entries, that in each instance the Cash account is to be debited, and the other account is to be credited. Each separate item is simply the credit portion of a full journal entry, and it must, therefore, be credited in the ledgc^r to show the source of the cash received. A two page cash journal or cashbook may be constructed by placing the one page cash journal of Illustration 58 showing cash receipts on the left-hand or debit side, and the one page cash journal of Illustration 62 showing cash payments on the right-hand or credit side as shown in Illustration 64. Observations: 1. To place an amount in the money column of the debit side of the cashbook indicates that the Cash account is to be debited. 2. To place the name of an account on the debit side of the cashbook in the Account Credited column indicates that that account is to be credited. 3. To place an amount in the money column on the credit side of the cashbook indicates that the Cash account is to be credited. 4. To place the name of an account on the credit side of the cashbook in tiic Account Debited eoluiim indicates that that account is to be dehitcHl. Balancing the Cashbook. — The cashbook is balanced in sulistantially the same way that the ledger account of cash is balanced. Care should be taken, however, in bringing the bal- ance down to the opposite side, as it must be placed in the second money column so that it THE DOUBLE EFFECT OF A BUSINESS TRANSACTION 85 Cashbook Illustrated Illustration 65 Cash Payments =^ / f 22 2^ J(2 ACCODHT DEBITED )S^S^'^i^^yUiJ^&/^^^'-'^^^7^^ EXPLANATION 7^ ^2-5 00 oo oo /:500 USO>(2 (2,(7(20? \20. or? will not be again posted to the ledger. Future postings to the Cash account in the ledge? must be only for new receipts and payments of cash. The ledger account Cas/i wiU then show the same balance as the cashbook. Exercise 71 1. Design a cashbook on a sheet of journal paper exactly like the model cashbook (see Illustration 64). The headings of the columns should be lettered. Record in it the various cash receipts and cash payments given in Exercise 50. Close the cashbook at the end of the month similarly to the model cashbook, and bring down the balance. 2. Design another cashbook and record the cash receipts and cash pajanents in them given in Exercise 59. Follow the same method used in the first exercise given above. 3. Design other cashbooks and enter the cash receipts and cash payments in them given in Exercises 60 and 62. Close each cashbook at the end of the month and bring down the balance. Exercises for the Student If you have made a careful study of the preceding pages, you should have little difficulty in entering the following transactions in the cashbook, purchases journal, and sales journal. Number the purchases and sales consecutively as they are entered in the purchases journal and sales journal, beginning with invoice number 1 in the purchases journal and sales number 1 in the sales journal. Opportunity will be given later to write, handle, and study business papers. Design a cashbook, purchases journal, and sales journal. Use loose journal and ledger paper. The headings of the columns should be lettered. Record in them the following transactions, after which close the books at the end of each month as previously instructed. When the examples are completed, hand your work to your instructor for examination and approval. 86 BOOKKEEPIXG FOR MODERN BUSINESS 2. 3. 4. Exercise 72 September 1. C. T. Kirkbrido ongased in the flour and grain business at 324 Euclid Ave., City, investing cash, 83,500.00. He paid H. A. Ginn rent of store for September, in cash, 875.00. He bought of W. E. Ashton, 235 Penn St., City, on account, 500 bu. wheat, at SI. 25 per bu. He bought of M. W. Martin, 1122 State St., City, on account at 10 days, 1 ,500 bu. oats at 50^ per bu. 5. He sold Walter E. Mej^er, 123 Superior .^ve., City, on account, GOO Ini. oats at 75(f per bu. 6. He sold C. H. Bowman & Co., 456 Union Ave., City, on account at 20 days, 200 l)u. wheat at 81.70 per bu. 8. He paid W. E. Ashton cash, 8300.00, in part payment of invoice of the 3d. 9. He bought of W. E. Ashton, on account, 700 bu. rye at 81.05 per bu. (Address given in previous transaction.) 10. He sold David Lane, 2323 Broad St., City, on account, 400 bu. oats at 75^ per bu. 11. He paid W. E. Ashton cash, 8325.00, in full payment of invoice of the 3d. 12. He received cash from Walter E. Mever, 8200.00, in part pavment of bill of the 5th. 13. He paid \l. W. IMartin cash, 8750.00, in full pavment of invoice of the 4th. 15. He bought of L. L. Tucker, 1134 State St., Citv, on account, 100 bbl. flour at 87.65 per bbl. 16. He sold David Lane, on account, 20 bbl. flour at $8.75 per bbl. 17. He received cash from David Lane, 8300.00, in full pa^^nent of bill of the 10th. 18. He bought of M. AV. Martin, on account, 1,000 bu. oats at 50?f per bu. 19. He paid W. E. Ashton cash, $235.00, in part payment of invoice of the 9th. 20. He sold C. H. Bowman & Co., on account, 30 bbl. flour at S8.75 per bbl. 22. He paid L. L. Tucker cash, 8765.00, in full pa\Tnent of invoice of the 15th. 23. He received cash from Walter E. Meyer, 8250.00, in full pajanent of bill of the 5th. 24. He paid W. E. Ashton cash, 8500.00, in full of invoice of the 9th. 26. He received cash from C. H. Bowman & Co., 8340.00, in full paMnent of bill of the 6th. 27. He sold Walter E. Meyer, on'account at 10 days, 400 bu. rye at $1.25 per bu. 29. He sold David Lane, on account, 600 bu. oats at 75j!J per bu. 30. He paid cash for clerk hire, $70.00. October 1. 2 4 10 12 14 Exercise 73 Robert Benson engaged in the flour and grain business at 592 Fifth Ave., City, investing cash, 84,500.00. He paid L, A. .James rent of store for October, in cash, $80.00. He bought of A. H. Rogers, 2534 Fourth Ave., City, on account, 100 bbl. flour at 87.70 per bbl. He bought of Martin Brown, 567 School Lane, Citv, on account at 10 days, 800 bu. wheat at 81.25 per bu. He sold Hart Bros., 115 John St.. City, 25 bbl. flour at 8S.S0 per bl)l. He sold Richard Cilson, 135 Front St., City, on account at 20 days, 500 bu. wheat at 81.75 per bu. He paid A. H. Rogers cash, 8500.00, in part payment of invoice of the 4th. He received casli from Hart Bros., 8220.00, in full payment of bill of the 8th. THE DOUBLE EFFECT OF A BUSINESS TRANSACTION 87 October 16. He paid Martin Brown cash, $1,000.00, in full payment of invoice of the 6th. 18. He bought of W. A. McBane, 1092 Pitt St., City, on account, 1,400 bu. oats at 50^ per bu. 20. He sold Hart Bros., on account, 50 bbl. flour at S8.80 per bbl. 22. He bought of Charles Smith, 389 Spring Ave., City, on account, 1,100 bu. rye at $1.0.5 per bu. 23. He bought of A. H. Rogers, on account at 10 days, 50 bbl. flour at $7.75 per bbl. 24. He sold W. A. McBane, on account, 700 bu. rye at $1.22 per bu. 25. He received cash from A. H. Rogers, $270.00, in full of invoice of the 4th. 26. He received cash from W. A. McBane, $700.00, in full payment of bill of 18th. 27. He paid Charles Smith cash, $655.00, in part payment of invoice of the 22d. 29. He sold Richard Gilson, on account, 1,100 bu. oats at 75^ per bu. 30. He received cash from Richard Gilson, $875.00, in full payment of bill of the 10th. 31. He paid the bookkeeper's salary for October, in cash, $85.00. PART III THE FLOUR AND GRAIN BUSINESS WITHOUT BUSINESS PAPERS William H. Brown, Proprietor The preceding exercises have been planned to give the student a knowledge of accounts and of the simplest forms of bookkeeping. As a means of illustrating further the method of recording business transactions in the books of original entry, of transferring or posting these to the proper ledger accounts, and of preparing the trial balance, the following transactions are now presented. The books used are the journal, the cashbook, the purchases journal, the sales journal, and the ledger. Be sure that each transaction is entered in the proper book and a full explanation is given. Since a record of a business transaction in the journal, the cashbook, the purchases journal, or the sales journal simply indicates which account is to be debited and which account is to be credited, and later must be posted to the proper ledger account, open the following accounts in the ledger. Beginning on page 1, enter in the order given, three accounts on each page. You will be instructed, from time to time, when to post from the books of original entry to these ledger accounts. Accounts receivable are the Personal accounts that show the amounts due from regular customers of the business. As a rule these accounts will be far more numerous than anj' other class of accounts. Since these Personal accounts are usually grouped together in the ledger, this method will be followed in this text. Accounts payable are the Personal accounts that show the amounts owed by the business. As a rule these accounts also are grouped together in the ledger. Cash. William H. Brown, Capital. ]\Ierchandise Purchases. Merchandise Sales. General Expense. Omit one page. William French & Co., 3G8 North 15th St., City. E. W. Jones, 249 Union Ave., City. T. C. Miller, 3G2 Walnut St., City. T. :M. Rice tfe Co., 820 Marshall St., City. C. J. Thomas, 321 Main St., City. John J. Hill, 721 St. Clair St., City. J. G. Keller, 1G2 East Stenton Ave., City. Omit one page. (88) BOOKKEEPING WITHOUT BUSINESS PAPERS 89 James T. Hart, 316 Cherry St., City. H. H. Hall, 210 Light St., City. Walter T. Scott, 129 Front St., City. E. M. Grace, 229 Front St., City. No. 1. — September 1. William H. Brown has this day invested $3,000.00 in the flour and grain business at 834 Green St., your city. Comment: On beginning a business, a record is usually made in the journal, in which is recorded the name of the proprietor, the kind of business engaged in, the place where the business is to be conducted, and the amount of the proprietor's investment as shown in the following illustration. Illustration 66 ^^^Zi^^m-J'-e^y/, ■/./^- ^e^-T^^^ ■:^--^'7y 'y^A ■/ iL^^^iy. CC -'>^^.^0€,'<^'^-^Czy^c-c:zy^^-^ While full particulars should always be given in the journal regarding the establishment of the business the entry for the cash invested in the business is made in the cashbook. Make an entry on the debit or cash receipts side of the cashbook for the $3,000.00 like the following illustration. lUustration 67 Cash Receipts ACCOintT CREDITED EXPLANATION '^ / ^J^,-'9'Z--Zy'-£-Z.C^ 3(?OCP 0(P Comment: This record of Mr. Brown's investment in the business should be kept entirely distinct from his personal affairs. The transactions which you will record in this set will be made for the business and not for Mr. Brown personally. No. 2.— September 1. Mr. Brown, the proprietor, has rented the store building at 834 Green St., from the City Real Estate Co., at a yearly rental of $600.00. He has paid the rent for September in cash, $50.00. 90 BOOKKEEPING FOR MODERN BUSINESS Comment: Mr. Brown has leased the store building for one year for the business, agreeing to pay the rental monthly in advance. He has, in effect, paid out $50.00 of the original cash investment of S3.000.00, and with it has purchased the use of the building for one month. Make an entry on the credit or cash payment side of the cashbook for the S50.00 like the following illustration. Cash Payments Illustration 68 t ACCOUHT DBBITEO EXPU NATION '^ ^S^fi^z£4^ez^CiB^t.^^^-z.i£^^ i^i^^^U^^^ /^A ^O oo No. 3.— September 2. Bought of Hoskins & Co., books and stationery for office use, for which Mr. Brown paid cash, .S17.50. Instructions : Record this transaction on the cash payment side of the cashbook. Place the entry directly beneath the transaction for September 1st which is the record for the cash payment of rent. Do not rewrite or place ditto marks in the space set apart for the name of the month. Place 2 in the second space of the date column. Your record or entry is hke the following illustration. Cash Payments Illustration 69 '% ACCOQNT DEBITED EXPLANAnON U^*2<^<^<^ . CASBCR. <7 fa No. 4.— September 2. Bought of James T. Hart, 316 Cherry St., City, on account, 275 bu. corn at $1.41 per bu., 2G0 bu. oats at G8^ per bu., 167 bu. rye at $1.18 per bu.: total, $761.61. Comment : Merchandise, we remember, is a general term given to any commodity which is bought for the purpose of selling. The expression on account (abbreviated on a c) in this transaction indicates that the purchase was made without any definite time of payment specified, the time of pajinent depending generally upon the custom of the particular business. Purchases made on account arc usually tlue and payable on the first of the following month. Each purchases journal entry has a double effect, just as each cashbook entry has. An entry in the purchases journal is a debit to tiic Merchandise Purchases account and a credit to tlu; account named i)ecause it represents the value of the merchandise which the business has received, and at the same time it represents value which H. H. Hall has given to the business. BOOKKEEPING WITHOUT BUSINESS PAPERS 91 The invoices of merchandise purchased will be numbered consecutively as they are received by the business. As this is the first purchase of merchandise by the business, it is numbered 1. Make an entry in the purchases journal for the purchase of merchandise from James T. Hart like the following illustration. Purchases Journal Illustration 70 DATE L.F ACCOUNT CREDITED ADDRESS TERMS INV. NO. MDSE. PUR- CHASES DR. ic^^^ J - j^^-Kyt^.lf^A^Q't^ J/4 (..^^■£-4.''t.'^i^'^^ (^-T-W^^ / 7^/ i,/ No. 5.— September 2. Bought of H. H. Hall, 210 Light St., City, on account at 30 days, 21 bbl. flour at SIO.IO per bbl, 278 bu. wheat at $1.65 per bu.: total,S670.80. Comment: The expression on account at 30 days (abbreviated a c 30 days) means that the invoice of merchandise is due 30 days from the date the merchandise was invoiced. This transaction is similar to the preceding one with James T. Hart. The entry for this purchase of merchandise should be made in the purchases journal directly beneath Mr. Hart's entry. No. 6.— September 3. Sold William French & Co., 368 North 15th St., City, on account, 74 bu. corn at $1.50 per bu., 43 bu. oats at 75?5 per bu., 82 bu. rye at $1.25 per bu.: total, Make a record for this sale to WilHam French & Co., in the sales journal like the follow- ing illustration. Sales Journal Illustratioii 71 ACCOUNT DEBITED lALES HO. BIDSE. SAUSCR. J/ :g^/Zr/s- Z^SiJk,^^ 'Yo 2^^ 7^ Comment: Each sales journal entry has a double effect, just as each purchases journal entry has a double effect. An entry in the sales journal is a credit to the Merchandise Sales account and a debit to the account named because it represents the value of the merchan- dise which the business has given out, and at the same time it represents value which WilHam French & Co. have received from the business. The merchandise in this transaction was sold to William French & Co., who have given the business their promise to pay for the merchandise at some future time. Since William French & Co. have received value from the business, their account is debited for the amount of the sale, $245.75. 92 BOOKKEEPIXG FOR MODERN BTWXESS Posting. — At such time as may bo convoniont, tho bookkeeper transfers the items from the purchases journal, the sales journal, the journal, and the cashbook to their proper ledger accounts. In posting, the utmost care should be exercised that all debit items shall be carried to the debit side of the proper ledger account, and that all credit items shall be carried to the credit side of the proper ledger account. Order of Posting. — When transactions are being recorded in the purchases journal, the sales journal, tiie journal, and the cashbook, the following order of posting is suggested: the purchases journal, the sales journal, the journal, the cash receipts side of the cashbook, and the cash pa>Tiients side of the cashbook. When this ordc.'r of posting is followed, credits are not entered in a customer's account before the debits are posted; and debits are not entered in a creditor's account before the credits are entered. In posting from the purchases journal, all items entered in the Account Credited column are posted to the credit side of their respective accounts. An entr^- in the Accoimt Credited column of the purchases journal indicates that the Alerchandise Purchases account is to be debited and the account named is to be credited. You will now transfer the $761.61 which is the record for the purchase of merchandise from James T. Hart to the credit side of James T. Hart's account in the ledger making the entry in the following order: First, write $761.61 in the amount column; second, place the page of the purchases journal 1 from which the entry is posted, in the folio column, and P (abbreviation for purchases journal) just to the left of the folio column to indicate the original book from which the entry is posted; third, write on a/c in the explanation column; fourth, write Sept. 2 in the date column, placing the current year above the first entry to indicate the year. Your entry should be like the following illustration. Illustration 72 3/6 Postmarking the Entries. — Next, write 5, the page of the ledger to which the amount has been posted, in the folio column (abbreviated L. F.) of the purchases journal. The following illustrates the form of the entry: Purchases Journal Illustration 73 DATS L.F. ACCOTmT CREDITED ADDRESS TERMS mv. IfO. MDSE. PUR- CHASES DR. 2 r Ui^-yj^i^^WciyU^ J/(aC^A^^i^i.'^->^'^c / y6/ C/ BOOKKEEPING WITHOUT BUSINESS PAPERS 93 When posting always write in the foho column of the ledger the page of the purchases journal from which the amount is posted, and write in the folio column of the purchases journal the page of the ledger to which it is posted. This operotioti is knoum as postmarking. You will also transfer the $670.80 which is the record for the purchase of merchandise from H. H. Hall to the credit side of H. H. Hall's account in the ledger, making the entry in the exact order as previousl}^ instructed in James T. Hart's account. Postmark the entries. The Merchandise Purchases account is debited with the total amount of the purchases when the purchases journal is closed at the end of the month. In posting from the sales journal, all items entered in the Account Debited column are posted to the debit side of their respective accounts. An entry in the Account Debited column of the sales journal indicates that the account named is to be debited and the INIerchandise Sales account is to be credited. You will now transfer the S245.75 which is the record for the sale of merchandise to William French & Co. to the debit side of William French & Co.'s account in the ledger. Post the entry in the exact order given below. First, write 8245.75 in the amount column; second, place the page of the sales journal 1 from which the entry is posted in the folio column, and aS (abbreviation for sales journal) just to the left of the folio column to indicate the original book from which the entry is posted; third, write on a/c in the explanation column; fourth, write Sept. 3 in the date column, placing the current year above the first entry to indicate the year. Next, write 4, the page of the ledger to which the amount has been posted, in the folio column of the sales journal. Your entry should be like the following illustration. Illustration 74 ^-7^1^ '^/yLs-T^t^zy 'kL^L 7r J^ -77^ J ^ Cy>7^z^ ^y^y J 2V^ 7-3 In posting from the cashbook, all items entered in the Account Credited column on the cash receipts side are posted to the credit side of their respective accounts. An entry on the cash receipts side of the cashbook indicates that the Cash account is to be debited and the account named is to be credited. You will now transfer the $3,000.00 investment from the cash receipts side of the cashbook to the credit side of William H. Brown's Capital account in the ledger, making the entry in the following order: First, write 83,000.00 in the amount column; second, place the page of the cashbook 2 from which the entry is posted in the folio column, and C (abbreviation for cashbook) just to the left of the folio column to indicate the original book from which the entry is posted; third, write Investment in the explanation column; fourth, write Sept. 1 in the date column, placing the current year above the first entry to indicate the year. Be sure to postmark your entries. Your entry should be like the following illustration. 94 Illustration 75 BOOKKEEPING FOR MODERN BUSINESS ~^. ^^ ^^Jn'Ui^AJ^^f^^^yt^ 2 : JOOdf 0(P In posting from the cashbook, all items entered in the Account Debited column on the cash payments side are posted to the debit side of their respective accounts. An entry on the cash payments side of the cashbook indicates that the Cash account is to be credited and the account named is to be debited. You will now transfer the S50.00 which is the record for the cash payment of rent from the cash payments side of the cashbook to the debit side of the General Expense account in the ledger. Post the entry in the exact order given in the previous transaction with William H. Brown, Capital. Next, write 2, the page of the ledger to which the amount has been posted, in the folio column of the cashbook. You will also transfer the $17.50 which is the record for the cash payment for books and stationery from the cash payments side of the cashbook to the debit side of the General Expense account in the ledger. This is the second transaction affecting the General Expense account. A new account with General Expense is not opened in the ledger, but the entry is made directly beneath the entry for the cash payment of rent. Do not rewrite, or place ditto marks in the space set apart for the name of the month. Place 2 in the second space of the date column. Post the entry in the exact order given in the previous transactions. Postmark your entries. Your entry should be hkc the following illustration. Illustration 76 >&^^^yi£yli^lJy 0-^;i:^^2.e-7^ui^y ^'^•>> Sd 00 /7 so Questions: 1. Give the functions of the Cnsh account. 2. What does the term cn^h include? '.^. A\'hat does the Proprietor's Capital account show? 4. What is posting? Answer: The process of ti-ansferring an amount from a book of original entry to the proper account in the ledger. 5. What is postmarking? 6. What is an expense? 7. Give the general classification of expense items. 8. With what items is the General Expense account debited? The Selling Expense account? 9. What is meant In' the term nurchnndisc? 10. CJivc the functions of the Merchandise Purchases account? 11. With what items is the Merchandise Purchases account debited? 12. What are Personal accounts? 13. Give the rules for delnting and crediting Personal accounts. 14. What does the expression on account mean? On account at 10 daijs? J, 5. What does the abbi-eviation C in a hHJger account mean? P? »S'? Hi. (Jive tiie functions of the Merciiandise Sales account? 17. With what items is the Merchandise Sales account credited? 18. Define Assets, Liabilities, Debtors, Creditors, Accounts lleceivable, and Accounts Payable. 19. Give the reason for each debit and each credit entry in the six transactions just recorded. BOOKKEEPING WITHOUT BUSINESS PAPERS 95 No. 7. — September 4. Sold to E. W. Jones, 249 Union Ave., City, on account at 30 days, 4 bbl. flour at $10.90 per bbl., 73 bu. wheat at SI. 75 per bu.: total,S . Comment: This transaction is similar to the preceding one with William French & Co. The record for this sale should be made in the sales journal directly beneath the one made for William French & Co. No, 8.— September 5. Sold to T. C. Miller, 363 Walnut St., City, on account, 45 bu. wheat at $1.75 per bu., 96 bu. corn at $1.50 per bu.: total, $ . No. 9. — September 5. Mr. Brown has paid James T. Hart, in full for the invoice of merchandise bought on the 2d, S761.61. Comment: On September 2d, the business purchased merchandise from James T. Hart, on account, agreeing to pay for the goods within a reasonable time. A record for this was made in the purchases journal and the amount, $761.61, was posted to the credit side of Mr. Hart's account in the ledger. Mr. Hart's account in the ledger was credited because the business owed him for the value of the merchandise. The business has now paid its indebted- ness to Mr. Hart in cash. James T. Hart's account, therefore, should be debited because Mr. Hart has received value from the business. Turn to James T. Hart's account in the ledger and verify the amount paid out, $761.61, with his ledger account before making the entry for the cash payment in your cashbook. It is very essential that from the beginning you should be methodical in all your bookkeeping work. The accurate and careful bookkeeper will alwaj^s turn to the ledger account" to see if the amount of cash received or paid out is correct. Instructions: Make an entry for the cash paid to James T. Hart on the cash pay- ments side of the cashbook as follows: First, place 8761.61 in the amount column; second, James T. Hart in the account debited column; third, write 5 in the date column; fourth, inv. 9/2 (abbreviation for September 2d) in the explanation column. No. 10. — September 6. Wilham French & Co. have paid cash for the bill of merchandise sold them on the 3d. Comment: On September 3d, the business sold merchandise to William French & Co. on account. A record for this sale was made in the sales journal and the amount, $245.75, was posted to the debit side of then- account in the ledger. William French & Co.'s account- in the ledger was debited because they received value, merchandise, from the business and thus became indebted to the business. WiUiam French & Co. have now paid their indebtedness to the business in cash. Their account, therefore, should be credited because they have given value to the business. Before making the entrj^ for the cash received from WlUiam French & Co. in your cash- book, turn to their account in the ledger and verify the amount received, $245.75, with their ledger account. If j'our work is correct, you wiU find that their account was debited for $245.75 on the 3d. Always verify the amount of cash received or paid out with the proper ledger account. Instructions: Make an entry for the cash received from William French & Co. on the cash receipts side of the cashbook as follows: First, place 8345.75 in the amount column; second, William French & Co. in the account credited column; third, 6, the date of the transaction, in the date column: fourth, bill 9/3 in the explanation column. 96 BOOKKEEPIXG FOR MODERN BUSINESS No. 11.— September 8. Bought of Walter T. Scott, 129 Front St., City, on account, 10 bbl. Hour at SIO.IO per bbl., 213 bu. rye at $1.18 per bu.: total, S352.34. No. 12. — September 9. Sold to J. G. Keller, 162 East Stenton Ave., City, on account at 30 days, 57 bu. wheat at $1.75 per bu., 48 bu. corn at $1.50 per bu.: total, $ . No. 13. — September 10. Sold to William French ct Co., on account, 97 bu. rye at $1.25 per l)u., 4G bu. wheat at $1.75 per bu.: total, $ . No. 14. — September 11. Received from T. C. ]\Iiller $75.00 to apply on account of bill of jgoods sold him on the 5th. Comment: Turn to the sales journal and determine the amount which Mr. Miller owes the business since the amount of this sale has not been posted to his ledger account. You w^ill see that the amount of cash received, $75.00, is only a part of his indebtedness to the business. The bill of merchandise sold to Mr. Miller on the 5th amounted to $222.75, therefore, he will still owe the balance. When making your entrj- in the cashbook, write to apply on bill 9^ 5 in the explanation column. No. 15. — September 11. Paid Walter T. Scott $150.00 to apply on account of invoice bought from him on the 8th. Comment: Turn to the purchases journal and determine the amount which the business owes Walter T. Scott since the amount of this purchase has not been posted to his ledger account. You will find that the cash paid out is only a part of the amount owed to Mr. Scott. The invoice of merchandise bought from Walter T. Scott on the 8th amounted to $352.34, therefore, the business will still be indebted to him for the balance. AMien making your entrj^ in the cashbook write to apply on inv. 9/8 in the explanation column. No. 16. — September 12. Purchased from James T. Hart, on account, 120 bu. wheat at $1.65 per bu., 210 bu. corn at $1.41 per bu.: total, $494.10. No. 17. — September 13. Purchased from E. M. Grace, 229 Front St., City, on account, 210 bu. oats at 68^ per bu., 200 bu. corn at $1.41 per bu.: total, .$424.80. No. 18.— September 15. Sold to T. M. Rice & Co., 820 Marshall St., City, on account at 20 days, 82 bu. corn at $1.50 per bu., 15 bbl. flour at $10.90 per b])l. : total, .$ . Posting. — Post the transactions from 3 our purchases journal, sales journal, and cashbook. For explanation of posting, see pages 92 and 93. Post the purchases journal and sales journal first, then the cashbook. Ruling Personal Accounts. — "WTien an account has the same amount on both the debit and credit sides, the account is said to balance, and is ready to be ruled. Rule ])oth William French & Co.'s and James T. Hart's accounts in the ledger after you liave posted the items to their accounts from the cashbook. For explanation of itiling, see page 19. Questions: 1. Uefine posting. When should posting l)e done? 2. When is an account said to balance? 3. How are personal accounts ruled when the debit and credit sides are equal? 4. Turn to James T. Hart's account in your ledger. Was this account opened with Mr. Hart as a debtor or as a creditor? Explain fully. 5. Turn to William French & Co.'s account in your ledger. Was this account opened with William French W-2'^,St^^^?^-.^^^^^^2^^cz-*i:«-z-^ J^ /^:^^^^2'<:^-i^c^--p^C^-e:Z'^^ ^-^ TT'\ »=f^>^'«-S5c^5^«,S-»'t<^ O ^ V jt-i^^-ti fifth hne write General Expense, and in the debit colmnn, the amount of the debit footing. Where there are two or more items on either side of an account, the balance is shown by the sum of these items. 7. On the sixth Hne write William French & Co., and in the debit column, the difference between the two sides of his ledger account. Do not include the $245.75 in your addition. Amounts above the rcnl lines are not included in the totals. 8. On the seventh line write E. W. Jones, and in the debit column write the amount of the debit footing. 9. On the eighth line write T. C. Miller, and in the debit column write the balance of his account. 10. In the same manner write T. M. Rice & Co. on the 9th line; C. J. Thomas on the 10th line; omit John J. Hill's account as the two sides of the account are equal; J. C. Keller on the 11th line; James T. Hart on the 12th line; omit H. H. Hall's account as the two sides are equal; Walter T. Scott on the 13th line; and E. M. Grace on the 14th line. 11. Add each column of the trial balance. The total debits should equal the total credits. Rule the trial balance similarly to the model trial balance as shown in Illustration 85. 12. Present your trial balance to your instructor for examination and approval. A Trial Balance of Differences Illustrated The following illustrates the form of a trial balance of differences, balance is similar in form and arrangement. See that your trial Trial Balance, September 30, 19 — Illustration 85 Cash George E. Benson, Capital Merchandise Purchases Merchandise Sales General Expense Walter Bailey & Co. John W. Cooper George M. Gray Oliver C. Reed J. C. Williams & Co. W. A. Moore William Jackson James D. Bunting C. H. Green $2,060 2,341 115 126 209 141 138 56 107 $5 , 295 46 17 35 10 50 50 50 00 00 58 $2 500 00 1 831 85 117 274 571 41 46 86 $5 ,295 58 BOOKKEEPING WITHOUT BUSINESS PAPERS 107 Suggestions for Finding Errors in a Trial Balance : 1. Verify your additions both in the trial balance itself and in each ledger account; also verify your subtractions in finding the difference between the sides of the ledger accounts. 2. Find the exact amount of the difference between the two sides of the trial balance and look through your books of original entry to see if any such amount appears in one of them. If you find the amount, the error may be the result of your failing to post that amount. 3. An item posted to the wrong side of the ledger will cause a difference of twice the amount of the item. Divide the amount of the error in the trial balance by 2, and look for an amount corresponding to this result. 4. If the difference between the sides of the trial balance is divisible by 9, it is probable that some figures in the column have been transposed in posting, for example, ^87.50 posted as $78.50. 5. If the difference between the sides of the trial balance is divisible by 99, it is probably due to a transplacement of some figures, for example, ifGO.OO for 60«f. 6. See that the balances of all accounts were properly brought down when the ledger was closed at the end of the last business period. 7. If the error is not discovered by any of these methods, carefully check all the postings following the instructions previously given at the end of the September work. 8. There are three very common errors which a trial balance will not disclose. It may balance, and errors exist nevertheless. A bookkeeper first may fail to make a record for a transaction; second, if a journal entry, fail to post an entire transaction; third, post an amount to the correct side but to the wrong ledger account. It is well, therefore, to check the entire work, following the instructions previously given for checking the various books of original entry, since a trial balance is not a positive proof of the correctness of the ledger because it will not disclose these errors. Correction of Errors. — If an error is made in a book of original entry and the error is dis- covered before the entry is posted, do not erase it or scratch it out, but rule a light red hne through the wrong entry or amount, and place the right entry or amount above it. As a general rule, no erasures should be made in books of original entry. For example, if a cashbook entry is wrong, correct it as follows: Draw a light single red line through the wrong name or amount, and then write the correct name or amount above, as follows: Illustration 86 ^ /Z^t?-6ey^ (i// ^^:=Ct^c.e^^■C€>-<::^€^■■^^ ^aoao If the incorrect entry has been posted to the wrong account, one of two methods may be followed: 108 BOOKKEEPING FOR MODERN BUSINESS First, the better method is to make a correcting or adjusting entry in the journal when the mistake is discovered. For example, instead of changing the original cashbook entry as shown in the above illustration, the following journal entry may l)e made which, when posted, cancels the incorrect credit to Thomas Brown's account and credits the Notes Receivable account. Illustration 87 y£Z-OC'C>-t'l^ ■ih..£y ,'^t2't^>e?z-«-»-t. ^ soc^ CO sot oo Second, instead of making a correcting or adjusting entry in the journal when the error is discovered, change the original cashbook entrj^ by drawing a light red hne through the wrong name and then writing the correct name above as shown in the cashbook Illustration 86, for Thomas Brown's entry. Cancel the incorrect credit to Thomas Brown's account by drawing a light red line through the wrong entry ; then post the amount to the Notes Receivable account. If it is found that the wrong amount has been posted in the ledger, correct it as follows: Draw a light red hne through the wrong amount and write the correct amount, in black ink, above the amount canceled, as follows: Illustration 88 ^9- Ja ;^' J2SC OO 6 If it is found that an amount has been posted on the wrong side of a ledger account, correct it as follows: Draw a light red line through the wrong entry and post the amount on the proper side of the account, as follows: Illustratioa 89 BOOKKEEPING WITHOUT BUSINESS PAPERS 109 1^ /- x^ S^ /^^^f-f-i^ ui^i^-e^ CJih^ Y'^ "^ S(PO OO 7 ^ ^ frfTfx^^ Supplementary Exercise 74 The books used in this set arc the journal, the oashbook, the purchases journal, the sales journal, and the ledger. Open the following accounts in the ledger, three accounts on each page, in the order given. You will be instructed, from time to time, when to post to these ledger accounts. Cash S. J. Keller, 687 Wabash Ave., City. T. C. Miller, Capital. R. T. IMartin, 767 Green St., City. IMerchandise Purchases Henry Davis, 316 Market St., City. Merchandise Sales Smith & Co., 248 Spring Ave., City. General Expense H. H. ^^^lite, 918 Huntingdon St., City. Henry Walker, 814 Ridge Ave., City. A. B. Brown & Co., 218 Mill St., City. September 1. 3. 4. 5. 6. 8. 9. 11. 12. 13. 15. 16. 18. 19. 21. T. C. ]\Iiller has this day invested $5,000.00 in the flour and grain business at 746 Frankford Ave., your city. Paid rent for the month of September in cash, S60.00. Bought of Henrv Davis, 316 Market St., City, on account at 12 days, 125 bu. wdieat at'$1.68 perbu., 345 bu. rye at $1.15 per bu. Bought of Smith & Co., 248 Spring Ave., City, on account, 435 bu. corn at $1.39 per bu., 207 bu. oats at 61 (^ per bu. Sold to Henry Walker, 814 Ridge Ave., City, on account at 15 days, 80 bu. wheat at $1.78 per bu., 72 bu. corn at $1.47 per bu. Paid for a set of books and stationery for office use, $12.25. Sold to A. B. Brown & Co., 218 Mill St., City, on account, 105 bu. oats at 70^ per bu. Bought of Henry Davis, on account, 70 bl^l. flour at $10.04 per bbl. Received cash from A. B. Brown & Co., on account, $60.00. Paid Smith & Co., cash to apply on account, $50.00. Post the transactions from your purchases journal, sales journal, and cashbook. Rule out all balancing items in the Personal accounts as the balancing items are posted. Bought of H. H. White, 918 Huntingdon St., on account at 10 daj^s, 100 bu. wheat at $1.68 per bu., 195 bu. oats at 61e per bu. Sold to S. J. Keller, 687 Wabash Ave., Citv, on account at 10 days, 210 bu. rye at $1.24 per bu., 20 bbl. flour at $10.86 per bbl. Paid Henry Davis cash in full for invoice of the 2d. Sold to R. T. Martin, 767 Green St., City, on account, 215 bu. corn at $1.47 per bu., 135 bu. rye at $1.24 per bu. Paid Smith & Co. cash for the balance of invoice of the 2d. Received cash from Henry Walker in full for bill of the 3d. Sold to Henry Walker, on account, 85 bu. corn at $1.47 per bu., 97 bu. oats at 10;ilancing items ui the Personal accounts as the bal- ancing items arc posted. BOOKKEEPING WITHOUT BUSINESS PAPERS 111 October 12. Bought of Smith & Baker, 1141 Diamond St., City, on account at 30 days, 100 bu. wheat at $1.71 per bu., 125 bu. corn at $1.36 per bu. Sold to Burton Bros., on account at 15 days, 95 bu. rve at $1.25 per bu., 109 bu. corn at $1.44 per bu. 13. Paid Henry J. Turner cash to apply on account, $100.00. 14. Sold to T. B. Jackson, 234 Master St., City, on account, 114 bu. corn at $1.44 per bu., 10 bbl. flour at $10.89 per bbl. Bought of William Dawson, on account at 15 days, 95 bu. wheat at $1.70 per bu., 50 bbl. flour at $10.15 per bbl. 16. Sold to Burton Bros., on account, 82 bu. wheat at $1.82 per bu., 40 bbl. flour at $10.90 per bbl. 15. Paid William Dawson cash in full of account. 16. Sold to Burton Bros., on account, 82 bu. wheat at $1.82 per bu., 40 bbl. flour at $10.90 per bbl. 17. Sold to D. M. Howard, 56 Spencer St., City, on account at 30 days, 100 bu. corn at $1.44 per bu. 18. Received cash from T. B. Jackson to apply on account, $100.00. 19. Bought of Smith & Baker, on account, 87 bu. rye at $1.14 per bu., Ill bu. wheat at $1.70 per bu. 20. Received cash from John Smith for bill of the 10th. 22. Sold to Burton Bros., on account, 125 bu. wheat at $1.81 per bu., 75 bu. oats at 71d per bu. 23. Bought of Henry J. Turner, on account, 50 bbl. flour at $10.14 per bbl., 100 bu. rye at $1.14 per bu. Post the transactions from your purchases journal, sales journal, and cash- book. Rule out all balancing items as the balancing items are posted. 24. Sold to D. M. Howard, on account, 85 bu. r3^e at $1.25 per bu., 98 bu. wheat at $1.82 per bu. 25. Paid Smith & Baker cash to apply on account, $75.00. Received from Burton Bros, cash for bill of the 16th. 26. Sold to WiUiam Dawson, terms cash, 25 bbl. flour at $10.89 per bbl., 150 bu. rye at $1.23 per bu. The cash was received at the time the goods were delivered. 27. Received from Burton Bros, cash to apply on account, $75.00. Received cash from Burton Bros, for bill of the 12th. 28. Paid Henry Dickson cash to apply on account, $100.00. Sold to John Smith, on account at 10 days, 75 bu. rj-e at $1.23 per bu. 29. Paid Smith & Baker cash in full of invoice of the 19th. Received from D. M. Howard cash for bill of the 24th. Paid William Dawson cash for invoice of the 14th. 30. Paid Henry Dickson cash in full of invoice of the 10th. Paid student cash for services to date, $70.00. Post the transactions from your purchases journal, sales journal, and cash- book. Rule out all balancing items in the Personal accounts as the bal- ancing items are posted. Close and check the cashbook, purchases journal, and sales journal, take a trial balance of j^our ledger. The work of the entire exercise should now be submitted to your instructor for examination and approval. Development of the Notes Receivable Book Just as the Merchandise Sales, the Merchandise Purchases, the Cash Receipts, and Cash Payments were taken from the general journal and grouped in the sales journal, the purchases journal, and the cashbook respectively, in order to avoid the unnecessary repetition of the credit Merchandise Sales, the debit Merchandise Purchases, and the debit and credit Cash, 112 BODKKEEPIXG FOR MODERX BI' SIX ESS so may the record for the Notes Receivable 1)(> ''Vs;*a.'i-^*^%?^2'/ycv^ c^i^^-fr**; The Notes Receivable Book Compare the above notes receivable book with the modified form of the journal (see Illustration 92). The notes receivable book contains a more complete record of the notes than either the general journal or the modified form of the journal. The result as shown by the closing entry of the notes receivable book is exactly like that shown by the modified ferm of the journal. In posting from the notes receivable book, each person's account is credited for the value of the note received from him, and the Notes Receivable account is debited for the sum of all the notes. Exercises for the Student Design a notes receivable book like Illustration 94. The headings of the columns should be lettered. Close the notes receivable book at the end of the month. The notes are received on account, and payable at the Commercial Bank. Exercise 76 Transactions relating to notes receivable in the books of L. L. Tucker. September 1. He received a note at 60 days for $250.00 from A. H. Wilson. 3. He received a note at 90 days for $475.00 from C. J. Bowman. 5. He received a note at 45 days for $175.00 from W. (). Weaver. 11. He received a note at 1 month for $200.00 from A. B. Riker. 17. He received J. H. Gilson's 20-day note for $350.78. 24. He received G. A. Taylor's 10-day note for $235.67. 29. He received a note at 60 days for $326.78 from W. A. iVIcBane. Exercise 77 Transactions relating to notes receivable in the book of W. O. Weaver. He received H. R. Shaff's 60-day note for $567.45. October 1. 8. 16. 24. 26. 28. He received a note at 1 month for $925.34 from R. D. Smith. He received a note at 90 days for $325.76 from Thomas Moore. He received Charles Cameron's 10-day note for $100.25. He received a note at 30 days from (Jeorgc L. Brown for $112.34. He received William Lowe's 10-day note for $562.52. BOOKKEEPING WITHOUT BUSINESS PAPERS The Notes Receivable Book 115 Illustration 94 RECEIVABLE DATE Month TIME TO RUN WHEN DUE Year ! Month INT. RATE NOTES RECEIVABLE DEBITED ACCOUNT CREDITED 1 f 6 /^ 6 2C>cP ^^y oc CO oc jJi. /^c^ ]^^L:£^>,y-aJ^A^'..^ Development of the Notes Payable Book Just as the notes and other written promises received from others were taken from the general journal and grouped in the notes receivable book in order to avoid the unnecessary repetition of the debit Notes Receivable, so may the record for our written obligations be grouped in the notes payable book in order to avoid the unnecessary repetition of the credit Notes Payable. Illustrative Exercise The following transactions are taken from the books of Henry Bruce. October 12. Gave A. H. Wilson a 10-day note in payment of invoice of the 3d, $342.00. 13. Gave C. J. Bowman & Co. a 10-day note for $500.00 in part payment of invoice of the 6th. 25. Gave John Gilfillan a 30-day note with interest for $172.00 in full payment of invoice of the 15th. Illustration 95 The Journal Method October 12, 19- A. H. Wilson Notes Payable C. J. Bowman & Co Notes Payable John Gilfillan Notes Payable Gave my 10-day note in pay- ment invc . , 10/3 13 Gave my 10-day note in part payment invc . , 10/6 25 Gave my 30-day note with in- terest for invc, 10/15 342 500 172 00 00 00 342 500 172 00 00 00 Observe the repetition of the credit Notes Payable in each transaction. In posting from the journal, each debit amount is entered in its respective account, and the Notes Payable account is credited for the amount of each note as shown in the following illustration. 116 Illustration 96 BOOKKEEPING FOR MODERN BUSINESS Notes Payable 19- Oct. 12 13 25 A. H. Wilson J 342 00 C. J. Bowman & Co. J 500 00 John Gilfillan J 172 00 It is quite evident from the foregoing journal entries and ledger account that the unneces- sary repetition of the credit Notes Payable might be avoided if certain pages of the journal were reserved exclusively for the notes payable. Instead of crediting the Notes Payable account each time some other item is debited, the Notes Payable account may be credited for the sum of these credits as shown in the following modified form of the journal. Illustration Q7 October 12, 19- A. H. Wilson C.J. Bowman & Co John Gilfillan Notes Payable, ere Gave my 10-day note in pay- 342 ment invc. , 10/3 13 Gave my 10-day note in part 500 payment invc . , 10/6 25 Gave my 30-day note with in- terest for invc, 10/15 172 31 dited 00 00 00 1014 00 Observe that the modified form of the journal contains exactly the same complete informa- tion that the previous journal contained. In posting from the modified form of the journal, each person's account is debited for the value of the note given to him but the Notes Payable account is credited for the sum of all the notes issued, as shown in the following illustration, instead of being credited for each note. Illustration 98 Notes Payable 19- 1 Oct. 31 Total N.P. 101400 Compare the result of the Notes Payable account which contains the three items posted from the journal with the Notes Payable account which contains but one item posted from the modified form of the journal. It will be observed that the results are the same, namely, $1,014.00. The unnecessary repetition of the credit Notes Payable has thus been avoided by reserving certain pages of the journal cxtlu.sivclN- for \hv notes payable. BOOKKEEPING WITHOUT BUSINESS PAPERS 117 The initials A^. P. are substituted for the initial J in the ledger account to show that the posting was done from the modified form of the journal instead of from the journal. The Notes Payable Book. — Just as the record for the notes receivable were taken from the general journal and grouped in the notes receivable book, so may the record for the notes payable be grouped in the notes payable book. In order to remind the bookkeeper when the notes fall due, so as to be prepared to meet written obligations of tlu^ business; to give informa- tion for posting; and other information necessary to keep a complete record of the notes issued by the business, a specially ruled notes payable book has been devised. Illustration 99. Compare the notes payable book with the modified form of the journal as shown in Illustration 97. The notes payable book contains a more complete record of the notes issued by the business than either the general journal or the modified form of the journal. The result as shown bj^ the closing entry of the notes payable book is exactly like that shown by the modified form of the journal. In posting from the notes payable book, each person's account is debited for the value of the note issued to him by the business and the Notes Payable account is credited for the sum of all the notes issued. Exercise for the Student Design a notes payable book on a sheet of blank paper exactly like the model notes payable book (see Illustration 99). The headings of the columns should be lettered. Number the notes consecutively as they are entered in the notes payable book. The notes are issued on account, and payable at the Commercial Bank. Close the notes payable book at the end of the month similarly to the model notes payable book. Exercise 78 Transactions relating to notes payable in the books of David Fenton. September 1. He gave B. S. Rose a note at 10 days, $556.34. 6. He gave George C. Worstal a note at 60 days, $325.66. 8. He gave E. B. Race a note at 30 days, $426.89. 14. He gave Homer H. Moore a note at 1 month, $325.72. 18. He gave his 45-day note for $761.23 to Louis R. Kenderdine. 24. He gave G. M. Mumford a 90-day note, $252.42. 26. He gave Walter Mansley a 15-day note, $101.12. 28. He gave his 60-day note for $223.23 to E. T. Worthington. 30. He gave R. S. White a 10-day note, $326.45. Exercise 79 October 1. He gave William Saile his note at 1 month for $500.00. 6. He gave his 30-day note for $490.89 to T. S. Moore. 8. He gave William Watson his note at 90 days for $150.00. 11. He gave his 90-day note for $234.56 to George Rowe. 16. He gave his note at 20 days for $325.87 to Morris Reed. 18. He gave his 90-day note for $50.25 to L. C. Wettling. 21. He gave Walter Roberts his note at 30 days for $121.12. 24. He gave his 15-day note for $167.67 to E. H. Buckman. 27. He gave S. J. Williams his note at 2 months for $32.56. 30. He gave his note at 10 days to K. H. Lee for $369.03. 118 Illustration 99 BOOKKEKPING FOR MODERN BUSINESS The Notes Payable Book NOTES ' J t=^ DATE GIVEN DRAWER OR ENDORSER (DRAFT) MAKER OR DRAWEE (NOTE) (DRAFT) 9- IN WHOSE FAVOR (PAYEE) WHERE PAYABLE ^,^^d^X^^^ Exercise 79 B Transactions relating to both the Notes Receivable and the Notes Payable accounts in the books of Richard M. Holme. The notes are payable at the Second National Bank, and issued and received on account. Close both the notes receivable and notes payable books at the close of the month. November 1. 2. 3. 4. 5. 6. 9. 10. 11. 12. 14. 15. 17. 19. 24. 26. 28. 29. 30. He gave J. B. Brown his note at 10 days for $345.23. He received a note at 1 month for $567.24 from J. A. Adams. He gave his note at 60 days to C. M. Wallace for $390.73. He sold E. C. Hanna, on his note at 30 days, merchandise, $324.26. He gave his 20-day note for $1237.98 to John G. Maxwell, for merchandise purchased to-day. He sold James Hayes, on his note at 2 months, merchandise amounting to $579.42. He purchased merchandise from H. P. Carroll valued at $367.45. He gave his 60-day note in payment. He gave his 90-day note for $325.67 to David Feaster for merchandise purchased on the 5th. He sold James Robinson, on liis note at 3 months, merchandise amount inc; to $352.98. He purchased merchandise from Walter Holt valued at $658.56. He gave his 20-day note in paj-ment. He received a note at 30 days for $300.00 from David Huxlev to apply on bill of the 11/2. He gave his 30-day note for $356.03 to Thomas Nearing for merchandise purchased on the 10th. He sold Scott Burch, on his note at 2 months, merchandise amounting to $592.47. . Chirk, on his 20-dav note, merchandise, 8567.56. . Allen iiis note at 3 inonths for $620.70. Downes, on his note at 15 days, in(>rchaiuh's(> amounting to He sold H. J He gave F. A He sold L. A. $625.34. He purcha.scd nuM-chandise from B. C gave iiis 3()-day note in payment. He gave i\. L. Townsend his note at 15 davs foi Hc! rec(uved a note at 2 months for $250.00 'from H. A. Bishop He gave his note at 20 days to W. O. McBridc for $390.00. Newton valued at $326.75. He $300.00. BOOKKEEPING WITHOUT BUSINESS PAPERS The Notes Payable Book 119 Illustration 99 PAYABLE Oo^lJ NOTES PAYABLE L. F. CREDITED J^/2 \00 ACCOUNT DEBITED :^ /c-in^ za Exercise 79 C December 1. He gave Thomas Allen his note at 10 days for S375.89. 2. He deceived a note at 2 months for $56 34 f^'om John Halleck. 3. He gave his note at 30 days to Richard Brown for $100.00. 4 He sold Thomas Read, on his note at 60 days merchandise, I60O.OO. 5; He gave his 20-day note for $789.90 to Wilham Gano for merchandise 6. He^sold Robert" Starch, on his note at 3 months, merchandise amounting to 'ft82Q 68 8. He purchased merchandise from Samuel Thurston valued at $628.65. He aave his 30-day note in payment. , ,• 9. He gave his 60-day note for $528.45 to Ernest Van Tuyl for merchandise Durchased on the 6th. , t x- 10. He sold James Sutton, on his note at 1 month, merchandise amounting 11. HeVurchased merchandise from William Mcrey valued at $123.34. He gave his 60-day note in payment. 12. He received a note at 60 days for $670.00 from William Lakewood to 14. He gal^e Ws^4iclly^L\e'^for $200.00 to Andrew Holman for merchandise 15. He^soldtoS^McCan,' on his note at 1 month, merchandise amounting 17. He^'sold Harry Scranton, on his 30-day note, mercliaridise, $300.00. 19 He gave Robert Hunter his note at 2 months for $350.00. „„„,•„ 24. He sold Cxeorge Greene, on his note at 30 days, merchandise amounting 26. He°pSa?ed merchandise from W. W. Heberton valued at $345.67. He gave his 60-day note in payment. 28 He gave Ormond Rambo his note at 30 days for $^00.0U. 29. He received a note at 1 month for SIOO.OO from A^R Radcliffe. 31. He gave his note at 45 days to J. S. Stowell for $500.00. THE FLOUR AND GRAIN BUSINESS WITH BUSINESS PAPERS PART IV Henry Bruce, Proprietor The object of this set is to give systematic drill in elementary business practice. Your previous experience has only covered the theory of the elementary principles of bookkeeping. You will now be instructed in the use of some of the various business papers, the use of the files, and the preparation of the business statements. You have been engaged as bookkeeper by Henry Bruce, 235 Adams Street, who has invested S3,500.00 in the flour and grain business. Mr. Bruce has deposited the $3,500.00, the amount of his investment,in the bank, and, for the present, will issue all checks and receive all cash paid to the business. The invoices for merchandise purchased and other business papers which ]Mr. Bruce desires to place in your hands will be found in the envelope marked Incoming Vouchers. Each business paper in this envelope is numbered to correspond with the number of the transaction in this set. Papers issued by the business are to be written by j^ou. You will handle the business papers and perform the office routine as wx41 as make the bookkeeping records. The books used are the journal, the cashbook, the purchases journal, the sales journal, the notes receivable book, the notes payable book, and the ledger. Before making the entry for any transaction in this set, first determine which accounts are affected by the transaction, and then determine in which book of original entry the trans- action should be recorded, by applying the principles previously given. Since a record of a business transaction in a book of original entry simply indicates which account is to be debited and which account is to be credited, and later must be posted to the proper ledger account, open the following accounts in the ledger. Beginning on page 11, enter in the order given, three accounts on each page. You will be instructed, from time to time, when to post from the books of original entry to these ledger accounts. Cash. Walter Roberts & Co., Broad & Green Sts. Notes Receivable. George L. Moore, 345 Lehigh Ave., City. Merchandise Inventory. J. M. Freeman & Co., 1143 Arch St., City. Notes Payable. David Lane, 1414 Jackson St., City. Henry Bruce, Capital. J. H. Gilson & Co., 1718 Adams St., City. Merchandise Purchases. Charles Smith & Co., 927 Federal St., City. Merchandise Sales. Omit one page. General Expense. W. (). W(>aver, 320 Market St., City. Merchandise Trading. A. H. Wilson, 3451 Walnut St., City. Profit and Loss. Walter E. Myers, 741 State St., City. Omit one page. C. J. Bowman & Co., 1172 Union Ave., City. (120) BOOKKEEPING WITH BUSINESS PAPERS 121 No. 1. — October 1. After reading page 120 carefully, make an entrv for Mr. Bruce 's investment of $3,500.00. Comment: As bookkeeper, make the cashbook entry, and the journal memorandum for this transaction. No. 2.— October 2. Mr. Bruce paid the City Real Estate Company $50.00 cash for the rent of the storeroom for October. Comment: A receipt is given by the person receiving money or goods to the person from whom such money or goods is received showing the date of receipt, the amount received, and for what received. A receipt should always be given for currency received. The following illustrates a special form of a receipt. A Special Receipt Illustration 100 $< ^r you lia\-e made your entry from it. Fold the invoice, face outward, and place it in the envelope marked Invoices Payable. All unpaid iii\'oices sliould be filed in this envel()i)e. BOOKKEEPING WITH BUSINESS PAPERS 123 No. 4.— October 3. Bought of A. H. Wilson, 3451 Walnut St., City, merchandise as per invoice. Instructions: Verify the multiplications and addition, and if you find them to be correct, O.K. the invoice as instructed in the previous transaction. Make the proper entry for tlie purchase after which file the invoice, face outward, in the Invoices Payable file, directly in front of the last invoice. No. 5. — October 4. Bought of Johnson & Co., for cash, office books and stationery, $21.45. Comment: The bill will be found in the envelope marked Incoming Vouchers. Observe that the terms of the bill are net cash. This means that the business is not entitled to a dis- count, the bill being due and payable at once. Notice that the bill itself has been receipted for the cash payment. This is done by writing or making a rubber-stamp impression on the face of the bill similar to the form of the receipt used by Johnson & Company in this trans- action. The usual practice is to receipt the bill if the cash has been received at the time the goods are billed. After you have made your entry, file the bill, face outward, in the envelope marked Receipts and Paid Bills, directly in front of the last receipt. The following illustrates the form of a receipted biU. A Receipted Bill Illustration 102 Philadelphia, Pa.,_ October 4, ^9 JOHNSON & COMPANY BOOKS STATIONERY 3333 WILSON AVENUE Sold t o Henry Bruce 235 Adams Street, City Terms_J!etCash_ 1 each Cashbook, Sales Journal, Purchases Journal, Notes Receivable and Notes Payable book, and Ledger. Statements RECEIVED PAYMENT October 4, 19 — JOHNSON & COMPANY 17 00 45 21 45 No. 6. — October 4. Sold to Walter Roberts & Co., Broad and Green Sts. City, on account, 100 bu. corn, 125 bu. wheat. 124 BOOKKEEPING FOR MODERN BUSINESS Comment: A bill, containing an itemized list of goods sold, should be mailed or handed to the customer when the sale is made. The usual practice in business is to make out bills in duplicate. Instead of making out bills singly with the pen or typewriter they can be made in duplicate on tiic tyi)('wri{er or on a billing machine by the use of carbon sheets. The original or fiist copy of the l)ill is usually mailed or handed to the customer and the duphcate copy of the bill is filed in a sales binder in order that the business may have a com- plete and permanent record of all sales made by the business. An entry is made in the sales journal from the duplicate copy of the bill in this set, and after the serial number has been written on the duplicate bill, it is filed in the sales binder. The customer's ledger account may be debited directly from the duplicate bill or from the record in the sales journal. Both the original and duplicate copies of the bill must be exactl}' alike. The writing may be done with ink, pencil, or carbon. By the use of carbon sheet and a lead pencil, two bills can be filled in at one writing. Instructions: A duplicate bill for this transaction will be found in the envelope marked Prepared Papers. Complete the bill by filling in the unit prices, extensions, and total amount. Copy on card No. 6a the selling price-list assigned you Ijy your instructor from the numbered lists found in the text-book on page 157. It will be necessary for you to adhere strictly to this price-list in order to get correct results. Do not compare 3'our bills with those of other students as the results will be different. Detach a bill from the pad of blank bills which you will find among your supplies, and fill it in exactly like the following illustration if the first price-list has been assigned to you, otherwise use your price-list for the unit prices. An Original Bill Illustration 103 Xo.6 Sales No. 1 Philadelphia, Pa., October 4, 19 HENRY BRUCE DEALER IN GRAIN AND FLOUR 235 ADAMS STREET Sold to Walter Roberts & Company Broad and Green Sts., City Terms On a/c . 100 bu. Corn 1.62 162 GO 125 " Wheat 1.78 222 50 384 50 BOOKKEEPING WITH BUSINESS PAPERS 125 Review your multiplications and addition. Remember that all bills sent out from the office must be correct. If the bill is correct, mail the original copy to Walter Roberts & Co. by folding it, face outward, and placing it in the envelope marked Outgoing Papers. Make an entry in the sales journal from the duplicate bill, entering the sales number 1 in the sales number column. File the duplicate bill in the envelope marked Sales Binder. No, 7.— October 5. Bought of Walter E. Myers, 741 State St., City, on account at 30 days, merchandise as per invoice. Instructions: Take the invoice from the envelope marked Incoming Papers; verify the multiplications and addition; and if they are correct, 0. K. the invoice as instructed in a previous transaction. Enter and file the invoice. No. 8.— October 5. Sold to George L. Moore, 345 Lehigh Ave., City, on account, 225 bu. barley, 225 bu. rye. Instructions: A duplicate bill for this transaction will be found in the envelope marked Prepared Papers. Complete the bill by filling in the extensions and the total amount as instructed in a previous transaction. Detach a bill from the pad of blank bills, and fill it in. Review your multiplications and addition. IMail the original copy of the bill to George L. Moore by folding it, face outward, and placing it in the envelope marked Outgoing Papers. Make an entry in the sales journal from the duplicate bill. Since this is the second sale of merchandise it is numbered 2. Write 2 in the sales nmnber column of your sales journal. File the duphcate bill in the envelope marked Sales Binder, directly in front of the last bill. No. 9.— October 5. Mr. Bruce gave W. 0. Weaver a check for .SIOO.OO to apply on account. Comment: You were instructed, at the beginning of this series of transactions, that Mr. Bruce, the proprietor, would issue all checks for the business. In the above transaction Mr. Bruce is paying out a part of the money which he has deposited in the bank to the credit of the business. A special receipt need not be issued or received by the business when money is received or paid out by check, nor is it necessary to have the original bill or invoice receipted asinstructed in transaction No. 5. The canceled check is coming to be universally regarded as a sufficient receipt not only by business firms but by private individuals as well. No. 10.— October 6. Bought of C. J. Bowman & Co., 1172 Union Ave., City, on account, merchandise as per invoice. Instructions: Verify and check the invoice, and if the multipUcations and addition are correct, 0. K. it. Make the proper entry for the purchase and file the invoice. No. 11.— October 6. Received of W^alter Roberts & Co., then- check for $200.00 to apply on the bill sold them on the 4th. Comment: The check received from Walter Roberts & Co., in the above transaction, was deposited in the bank to the credit of the business by Mr. Bruce. Do not issue a special receipt for the cash received from Walter Roberts & Co. The canceled check will be a suffi- cient receipt. 126 BOOKKEEPING FOli MODERN BC SI NESS No. 12. — October 8. Sold to David Lane, 1414 Jackson St., City, on account at 10 days, I'Ai) bii. wheat, 13.5 bu. corn. Instructions: Complete the duplicate bill and verify your calculations. Fill in and mail the original copy of the bill to David Lane. Make the sales journal entry and file the dupli- cate bill. Student's Reports. — The object of filling in these reports is to show whether the files have been properly kept, the cash on hand correctly proved, and the papers issued and received by the business properly verified. Report No. 1. — Detach a report blank from a pad found in your business forms envelope and write your name at the top. Fill in the spaces for the Report Number (Ij, and the date (Oct. 8, 19 — ) in the proper places. How to Fill in the Report. — Cash. — Add in small pencil figures the cash receipts and the cash pa\'ments sides of }our cashbook. Opposite the words Cash Receipts of the report write the total of the cash receipts in the amount column. Opposite the words Cash Pay- ments of the report write the total of the cash payments in the amount column. The differ- ence between the total cash receipts and the total'cash payments is the balance of the cash on hand. The Cash Proof. — Since Henry Bruce receives and pays out all the cash in this set your instructor will verif}" the cash for you when you present your report for examination and approval. Papers Issued. — List in each report all papers issued since October 1st. Only one kind of paper has been issued thus far. The others will be explained when they have been issued. The bills issued by the business will be found in the envelope marked Outgoing Papers. Count them, total the amounts, and write the number and the sum in the proper columns. Condition of the Files. — This is one of the most important details of 3'our bookkeeping work. The report will show whether your files have been properly kept. Invoices Payable. — All unpaid invoices are kept in the envelope marked Invoices Payable. Count them, total the amounts and write the number and the sum in the proper columns. When invoices are paid, they should be taken from tlie Invoices Payable envelope, marked or stamped Paid, and placed in the envelope marked Receipts and Paid Bills. Duplicate Sales. — Duplicates of all bills issued to our customers are kept in the envelope marked Sales Binder. Count them, total the amounts, and write the number and the sura in the proper columns. Receipts. — Only two kinds of receipts have been received thus far. One formal receipt and one receipted bill. These will be found in the envelope marked Receipts and Paid Bills. Write the number and the total of the amounts in the proper columns. These are the only results required in the first report. Present your report to your instructor for examination and aj^proval. If your report is correct, your instructor will O. K. it, after which you sh(ml(l place it in the envelope marked Voucher File. Post the transactions from the purcliascs journal, the sales journal, and the cashbook. Kulc o\it all balancing items as the balancing items are posted. BOOKKEEPING WITH BUSINESS PAPERS 127 Questions: 1. Define posting. When should posting be done? 2. What is an invoice? A bill? 3. Name the different kinds of receipts. 4. How should you proceed with an invoice of merchandise received, before writing 0. K. upon it? 5. Why is it unnecessary to itemize the merchandise purchased in the purchases journal? 6. Why should a receipt be taken when cash is paid for any purpose? 7. When is it not necessary to take a receipt? 8. What is the object of checking the postings, and when should it be done? 9. Outline the procedure when an invoice for merchandise purchased is received. When a sale is made. No. 13. — October 9. Received from George L. Moore, his note at 10 days in payment of biU of the 5th, $571.50. Comment : A personal account in the ledger represents an oral or implied promise to pay, while the Notes Receivable account in the ledger represents a written promise to pay. George L, Moore's account in the ledger which represents the amount of his indebtedness to the business will now be transferred from his personal account to the Notes Receivable account. It should be understood that in the case of Mr. Moore's personal account there is only his implied promise to pay the amount due, while the Notes Receivable account represents debts owed to the business which have been reduced to writing. Instructions : The note which the business received from George L. Moore will be found in the envelope marked Incoming Vouchers. Examine the note carefully to see whether it is properly filled in. Turn to George L. Moore's account in the ledger and verify the amount of the note with his ledger account before making the entry for it. If you find the amount of the note to be correct and properly filled in, make an entry for it in the notes receivable book. The model notes receivable book. Illustration 94 on page 114, contains the proper entry for this note with the exception of the amount (the first entry). File the note in the envelope marked Notes Receivable File. No. 14.— October 9. Sold to J. M. Freeman & Co., 1143 Arch St., City, on account, 110 bu. rye, 110 bu. barley. Instructions : Complete the duplicate bill and verify your calculations. Fill in and mail the original copy of the bill to J. M. Freeman & Co. Make the sales journal entry and file the duplicate bill. No. 15. — October 9. Sold to George L. Moore on account, 150 bu. oats, 25 bbl. flour. No. 16.— October 10. Received from J. M. Freeman & Co., their 10-day note for $100.00 to apply on bill sold them on the 9th. Instructions: The note will be found in the envelope marked Incoming Vouchers. Examine it carefully to see whether it is correct. Make an entry in the notes receivable book for the note. As this is the second note received, place 2 in the number column. File the note in the envelope marked Notes Receivable File. No. 17.— October 10. Sold to J. H. Gilson & Co., 1718 Adams St., City, 140 bu. corn, 140 bu. wheat, terms 15-day note. Instructions : Complete the duplicate bill and verify your calculations. Fill in and mail the original copy of the bill to J. H. Gilson & Co. Make the sales journal entry writing note 15 days for the terms; file the duplicate bill. Take the note which the business received from the envelope marked Incoming Vouchers. 128 BOOKKEEPING FOR MODERN BUSINESS The amount of the note should agree with the amount of the bill which you entered in the sales joiu-nal. Examine it carefully to see whether the amount is correct and the note properly filled in. Make an entry in the notes receivable book for the note following the instructions pre- viously given for notes received by the business. No. 18.— October 11. Bought of W. 0. Weaver, 320 Market St., City, on account, merchandise as per invoice. No. 19. — Octol)er 12. Gave A. H. Wilson a 10-day note for $930.00 in payment of invoice of the 3d. Comment : A personal account in the ledger represents an oral or implied promise to pay, while the Notes Payable account in the ledger represents our written promise to pay. A. H. Wilson's account in the ledger which represents the amount of our indebtedness to him will now be transferred from his personal account to the Notes Payable account. It should be understood that in the case of A. H. Wilson's personal account there is the implied promise only of the business to pay the amount due, while the Notes Payable account represents its written promise to pay. Instructions: The note which the business issued to A. H. Wilson will be found in the envelope marked Prepared Papers. Examine it carefully to see whether Air. Bruce filled it in properlj'. Turn to A. H. Wilson's account in the ledger and verify the amount of the note with his ledger account before making the entry for it. If you find the amount of the note to be correct and properly filled in, make an entry for it in the notes payable book. The model notes payable book, Illustration 99, contains the proper entry for this note with the exception of the amount (the first entry). File the note in the envelope marked Notes Payable. Take the invoice from the Invoices Payable file and mark it paid by writing Paid— 10-day note — W '12/19 — upon it. File the invoice in the envelope marked Receipts and Paid Bills. No. 20.— October 13. Gave C. J. Bowman & Co. a 10-day note for SoOO.OO in part payment of invoice of the 6th. Instructions: The note will be found in the envelope marked Prepared Papers. Examine it carefully to see whether Mr. Bruce filled it in properly. Follow the instructions given in transaction No. 19 for making the notes payable book entry. File the note as pre- viously instructed. No. 21.— October 13. Sold to Charles Smith & Co., 927 Federal St., City, on account, 95 bu. rye, 95 bu. barley. No. 22.— October 15. Bought of A. H. Wilson, 3451 Walnut St., City, merchandise as per 'invoice. Terms, 20-day note. Instructions: Take the invoice from the envelope marked Incoming Vouchers; verify the nuiUii)licalioMs and addition: O. K. the invoice; make the proper entry; and file the invoice. The note will be found in the envelope marked Prepared Papers. Examine it carefully to see whether Mr. Bruce filled it in properly. Make an entry in tlu> notes payable book and file the note. No. 23.— October 15. Gave C. J. Bowman & Co. a check for $200.00 to apply on account. BOOKKEEPING WITH BUSINESS PAPERS 129 No. 24. — October 16. Received from J. M. Freeman & Co. their check for S179.40 in full of account. Report No. 2. — Detach a report blank from the pad of report blanks found in your business forms envelope, and fill it in, following the instructions given for Report No. 1, The report on Papers Issued will include all papers issued since October 1st. The report on the Condition of Files will show the condition of the files as they now stand. Two new files are used for the Notes Receivable and the Notes Payable. Count the notes, total the amounts, and write the number and the sum in the proper columns. Observe that one invoice has been paid. Be sure that it has been marked Paid and placed in the envelope marked Receipts and Paid Bills. Present your report to your instructor for examination and approval. Post the transactions from the purchases journal, the sales journal, and the cashbook. Rule out all balancing items as the balancing items are posted. In posting from the notes receivable book, all items entered in the Account Credited column are posted to the credit side of their respective accounts. An entry in the Account Credited column of the notes receivable book indicates that the Notes Receivable account is to be ■debited and the account named is to be credited. Post the $571.50, the face value of the note received from George L. Moore, to the credit side of George L. Moore 's account in the ledger. Postmark your entries. The following illustrates the form of your record after you have posted and ruled George L. Moore's account. Illustration 104 JA^SU^ >^^e2>w^i^2^ >S^.^ y^/^e^iPd^y^t^i^^ /^/•r jry/ s^ Turn to your notes receivable book and write Paid 10 '18 '19 — in the Remarks column. Return the canceled note to George L. Moore by placing it in the envelope marked Outgoing Papers. BOOKKEEPING WITH BUSINESS PAPERS 131 No. 28.— October 19. Sold to J. M. Freeman & Co., 1143 Arch St., City, on account, 60 bbl. flour, 155 bu. oats. No. 29.— October 20. J. M. Freeman & Co. paid their note due to-day by check, $100.00. Instructions: Take the note from the envelope marked Notes Receivable, mark it paid; make the proper entries for it in both the cashbook and notes receivable book; return the canceled note to J. M. Freeman & Co. No. 30. — October 21. Received of Charles Smith & Co. their check for .S75.00 to apply on account. No. 31. — October 22. The business paid its note in favor of A. H. Wilson due to-day, $930.00. Instructions: Receive the note from A. H. Wilson by removing it from the envelope marked Notes Payable. Write Paid, October 22, 19 — across the face of the note, and ask your teacher, representing A. H. Wilson, to sign it. In the above transaction the business has paid its written obligation to A. H. Wilson. Since written obligations of the business are entered as Notes Payable when they are issued, it follows that they must be entered in the cashbook as Notes Payable when they are paid. Make an entry for the note on the cash payments side of the cashbook as follows: Illustration 107 22 (^ /i( /zZ^^^i-<'^K^£yyi<^ /o/y2 fjip 0(P Turn to your notes payable book and write Paid 10/22/19 — in the Remarks column. File the canceled note in the envelope marked Receipts and Paid Bills. No. 32. — October 23. Sold to J. H. Gilson & Co., 1718 Adams St., City, on account, 75 bbl. flom-, 50 bu. wheat. No. 33. — October 23. The business paid its note in favor of C. J. Bowman & Co., due to-day, $500.00. Instructions: Take the note from the envelope marked Notes Payable. Mark it paid; enter and file the canceled note. No. 34.— October 24. Paid W. 0. Weaver $854.50 by check for the balance of their invoice of the 3d. Mark the invoice Paid and file it as previously instructed. No. 35.— October 25. Received from J. H. Gilson & Co., their check for $476.00 in payment of their note due to-day. No. 36. — October 26. Sold to David Lane, 1414 Jackson St., City, terms, 15-day note, 125 bu. barley, 125 bu. rye. Instructions: Mail the original bill to David Lane and file the duplicate after making your entry. The amount of the note should be the same as the amount of the bill. Make an entry for the note and file it. No. 37.— October 27. Received of J. H. Gilson & Co., their check for $225.00 to apply on account. 132 BOOKKEEPING FOR MODERN BUSINESS No. 38.— October 28. Bought of Walter E. Myers, 741 State St., City, terms, lo-day note, merchandise as per invoice. No. 39.— October 29. Received of Charles Smith & Co., their check for S166.70 for balance of bill of the 13th. No. 40. — October 30. Paid C. J. Bowman & Co., $150.00 by check to apply on accomit. No. 41. — October 31. Mr. Bruce paid }ou, the student, cash .^GO.OO, October salarJ^ Report No. 3. — Detach the report blank from the pad found in your business forms enve- lope, fill it in, following the instructions previously given. The report on Papers Issued will include all papers issued since October 1st. The report on the Condition of Files will show the condition of the files as they now stand. Posting. — Post the remaining entries in your sales journal, purchases journal, notes receivable book, notes payable book and cashbook. Foot the columns of your cashljook as previously instructed. If your work is correct, the debit footing should be $5,753.60, and the credit footing should be $2,865.95. Post these items to the Cash account. Balance and rule the cashbook. After posting and closing the cashbook, check each item posted to the ledger to see that no errors have been made. Foot the sales journal. If your work is correct, the amount should be $4,982.45 for the first price list. Have your instructor verify your result if another price list has been assigned to you. Make the closing entry and rule the sales journal. After posting, check each item posted to the lodger to see that no errors have been made. Foot the purchases journal. If your work is correct, the amount should be $5,922.50. Make the closing entry and rule the purchases journal. After posting, check each item posted to the ledger. The sum of all the notes received by the business during the month should })e $1,665.00. If you find your work to be correct, rule and foot the amount column, and write Notes Receivable Debited as shown in the model notes receivable book on page 115. Post the total amount of the notes received to the debit side of the Notes Receivable account in the ledger. Postmark the entries. Check the items posted from the notes receivable book with the items entered in the ledger accounts by placing a hght pencil check mark, thus (V), on the double vertical lines just to the left of the amount in the ledger account and check the entry in the notes receivable book, thus (V), just to the left of the amount as previously instructed when checking your other records. The sum of all notes issued by the business during the month should 1)0 $2,580.00. If you find your work to be correct, rule and foot the amount column, and write Notes Payable Credited as shown in the model notes payable book on page 119. Post the total amount of the notes issued to the credit side of the Notes Payable account. Postmark the entries. Check the items posted from the no<(>s payable book with the items entered in the ledger accounts following the instructions given for chocking the notes recoivablo l)Ook. Take a trial balance of your ledger since you have not only jiosted the daily transactions but the totals of the various books as well. Proceed to prepare the trial balance as previously instructed. Have your trial balance approved before proceeding further. BOOKKEEPING WITH BUSINESS PAPERS 133 Illustration 108 STATEMENT FOLIO. M. -2^2.19- ^<^^ '^^Ayf7->f^ yu/.,AA^y/7^. In account with HENRY BRUCE 235 ADAMS STREET 2^ Balince Mdse. per bill rendered 7.^2 ■y^ a.T/? l2. Statement of Customer's Account. — This is a copy of a customer's account as it appears on our ledger. It is a common practice to render a statement, at the close of each month, to each customer showing the con- dition of his account as it appears on our books. The statement should show the balance, if any, of the previous month's state- ment, the date of each bill ren- dered and any special terms indicated on it, the date and the amount of each credit accepted on account, and the balance due at the end of the month. The balance as shown by the state- ment should be the same as the balance of the customer's account on our ledger. The statement affords the customer an opportunity to compare his account with our records, and correct any difference which may exist between his books and ours. Such a statement also calls the attention of the customer to bills as they fall due and thus may be con- sidered as a request for the prompt payment of amounts which are due or past due. Statements which are paid in full should be receipted by writing or making a rubber- stamp impression on the face of the statement similar to the form of the receipt in Illustration 101 ; partial payments should be in- dicated only by the date and the amount as shown in the model statements. Since statements are pre- pared entirely from the ledger accounts, it follows that all posting must be completed Illustration 109 STATEMENT - V0\A0/^2^^y ( Jl 1 m account with HENRY BRUCE 235 ADAMS STREET .jr^Uyfziy^ / Balance / /.O 7^ 70 Mdse. per bill rendered ^f .10^ yr ^ ■ — 1— 134 BOUKKEEl'L\(J FOR MODERN BUSINESS Illustration 110 STATEMENT FOLIO. M_ c^. A^ Jjf^^.^^. ^^.SrP jq ' T L ^^.-'>^^^..^^_ "/Zy. In accoun. j^th HENRY BRUCE 235 ADAMS STREET ie^-^fi^ Z^ Hdse per bill rendered n ..^^ X Jy .'>i,T,j J^^yf,^j'..<^ ■^-^-^ ■^ 2J- y^o UJ- before they can be made out. No. 42.— Check the state- ments which were received from W. 0. Weaver, Walter E. Myers, and C. J. Bowman & Co. with their ledger accounts. Turn to W. 0. Weaver's account in your ledger and check the statement which you received from him with his ledger account. This affords you an opportunity to compare your account with his records, and correct any differ- ence which may exist between your books and his. Observe carefully whether the balance as shown by the statement is due or past due. Study the form carefull}^, in all its details. Turn to Walter E. Myers' and C. J. Bowman & Co.'s accounts and check their statements with your ledger accounts. Correct any difference which may exist between your books and theirs. Studj' the forms carefully. File the statements in illustration in the envelope marked Voucher File. No. 43. — Prepare statements of accounts for all customers who owe you a balance. Turn to Walter Roberts & Co.'s account in your ledger, and from it prepare a statement like the model statement of James H. Dodds. Prepare similar statements for all others who owe you a balance. Place tlu^n in properly addressed envelopes and hand thcin to your instructor for ex- amination and approval. The Statements. — Thus far 5'ou have been classifying l)usi- ness transactions and recording BOOKKEEPING WITH BUSINESS PAPERS 135 them in their proper ledger accounts. At the end of the month you were instructed to prove your work by checking j^our postings and taking a trial balance of the ledger to ascertain whether the debit and credit sides were equal. In addition to classifying and recording the transactions, the bookkeeper is often asked to submit to the proprietor, at the end of the year or other business period, detailed statements showing the result and the condition of the business. In order that you may understand clearly the building of these statements and the object of making them, it is necessary for you to review some of the bookkeeping terms already given and study others used in the building of the statements. Accoimts Classified. — Accounts in the ledger are of two classes, namely, financial accounts and profit and loss accounts. Before explaining the term financial account it is necessary to review again the definitions of asset and liability. An asset or resource is anything of value belonging to the business, or amounts due the business from others, that is, what the business owns. A liability is what the business owes, that is, the debts and obhgations of the business. A financial account is one which shows by its result whether it is an asset or a liability to the business. If the debit side of a financial account has the larger amount, it is an asset account; if the credit side has the larger amount, it is a Uabilitj^ account. The financial accounts used thus far are the Cash account, the Personal accounts, the Notes Receivable account, and the Notes Payable account. Before explaining the term Profit and Loss account, it is necessary to define profit and loss. Profit is an increase in the value of property or an excess of the amount received for merchandise over the purchase price. Loss is a decrease in the value of property or an excess of cost over selling price. The term Loss is also appHed to any item of expense necessary to carry on the business. Profit and loss accounts are those which show by their results either a profit or a loss. If the debit side of a profit and loss account shows the larger amount, it is a loss account; if the credit side is the larger amount, it is a profit account. The profit and loss accounts used thus far are the merchandise accounts, namely, Merchandise Purchases and Merchandise Sales, and the General Expense account. Summary. — An account which shows by its result a debit balance, therefore, represents either an asset or a loss. If the balance denotes something of value belonging to the business it is an asset; otherwise it is a loss. An account which shows by its result a credit balance, therefore, represents either a liability or a profit. If the balance represents an amount which the business owes it is a liability; otherwise it is a profit. Assets are always debits; liabilities are always credits. Losses are always debits; profits are always credits. Statements Classified. — The principal statements prepared at the end of a business period are the Profit and Loss Statement and the Balance Sheet or Financial Statement. 136 BOOKKEEPING FOR MODERN BUSINESS The Profit and Loss Statement, i. e., a summary of all the profit and loss accounts, con- sists then of u list of all the profits and losses of the business, prepared for the purpose of sliowing the result of the business for the period ending at the time the statement is taken. The Balance Sheet or Financial Statement, i. e., a summary of all financial accounts, consists then of a list of all the assets and liabilities of the business, prepared for the purpose of showing the condition of the business at the time the statement is taken. Analysis of the Trial Balance. — Since the trial balance is a hst or schedule of the debit and credit balances of all accounts remaining open in the ledger at any specified time, it forms the basis for all statement work. The accounts in the trial balance should, therefore, be analyzed, each account being designated in such a manner as to indicate whether the account is an asset, a liability, a profit^ a loss, or an account necessary to determine the result of the Merchandise Trading account. This may be done by placing to the left of the folio column, on the line with the account, an abbreviation indicating what the account represents as shown in the following illustration of a trial balance. Illustration 112 •^^I'i^-tz^^ /^^h;z^c£^?l^-£yly J^ /, /^~ My My a a yxyy x x y xxX X XX XXX XXX XXX XXX xyyxx XX XX XX XX XX xxxx XXX XXX .XXX XX XX XX XX XX X X BOOKKEEPING WITH BUSINESS PAPERS 137 The Merchandise Inventory. — Before the profit and loss statement can be prepared it will be necessary to calculate the value, usually at cost price, of all merchandise on hand. The student, by making an actual count of all the unsold merchandise on hand October 31, 19 — , finds he has the following merchandise: 145 bu. barley purchased at SI. 05 per bu. 10 bu. clover seed purchased at $14.50 per bu. 135 bu. corn purchased at $1.45 per bu. 40 bbl. flour purchased at $10.60 per bbl. 195 bu. oats purchased at 64yf per bu. 120 bu. rye purchased at $1.20 per bu. 15 bu. timothy seed purchased at $7.50 per bu. 120 bu. wheat purchased at $1.65 per bu. Make a record showing the value of the unsold merchandise in the inventory book similarly to the form shown in Illustration 17. The Profit and Loss Statement The object of preparing the profit and loss statement is to show the result of the business, that is, the amount of profit or loss during a business period. The profit and loss statement is prepared at the end of a business period, namely, monthly, quarterly, semi-yearly, or yearly. The heading of the profit and loss statement should always, show the period covered as shown in the following illustration. (The first price list.) Illustration 113 ts'^LyC'd'lP^^i'CyC^- — c*.^;*^ / ■ / Sf2 2 SO JO '/fJ^2 ^•S U^2i, SSC /J/ 4/2V 2^ i^S rc^ 138 BOOKKEEPING FOR MODERN BUSINESS Analysis of the Profit and Loss Statement: ^Moichandise sales represents the net returns from merehandisc sold. ^lerchandise purchases represents the net cost of merchandise bought. Merchandise inventory represents the value of all unsold merchandise on hand, calculated at cost price. Cost of goods sold is the result obtained by deducting the value of the merchandise inven- tory from the net cost of merchandise purchased. Gross profit on sales is the result obtained by deducting the cost of merchandise sold from the net sales. General Expense represents the cost of conducting the business. Net profit as shown by the profit and loss statement represents the increase in value of the business during the business period. Instructions: Prepare the profit and loss statement for the business period ending October 31, 19 — , and submit it to your instructor for examination and approval. Comment: The profit and loss statement is only an arithmetical proposition arranged in an orderly form. If all the merchandise purchased had been sold, the only calculation neces- sary to find the gross profit on merchandise sold would have been to find the difference between the cost of merchandise purchased and the net returns from sales. But since only a part of the merchandise purchased was sold it was necessary, therefore, to find the cost of merchandise sold l)y dc^ducting the merchandise inventory from the merchandise purchases. When the returns from merchandise sold is more than the cost of merchandise sales, it shows a gross profit on merchandise. Closing the Ledger. — The profit and loss statement which you have just prepared has been approved by Mr. Bruce. Entries should now be made in the journal which will, when posted to the ledger, close the profit and loss accounts because they have served their purpose. It consists, essentially, of transferring the profits and losses as shown by the various accounts to the summary Profit and Loss account. The net profit or loss is in turn transferred into the Proprietor's capital account. This process is called closing the ledger. The object of closing the ledger is to provide a permanent record showing the result and condition of the business as shown by the profit and loss statement and the balance sheet at the close of the business period. Two Methods of Closing the Ledger. — Two general methods are used in closing the ledger accounts, the journal method and the direct method (fully explained in Illustration 208). The journal method is explained and illustrated in the following exercises. In the journal method of closing, the accounts are classified in the journal and posted to the proper ledger accounts. The closing journal entries should contain the facts as set forth in the various steps of the profit and loss statement. Additional Accounts Used in Closing the Ledger. — Three additional accounts, not used thus far in this set, will l>e used in closing the ledger, namely, — a Merchandise Trading account, a Mcrciiandise Inventory account, and a Profit and Loss account. Thc^si^ accounts have been explained in the first part of the text. It is advisable to have the profit and loss statement before you for reference while closing the ledger. BOOKKEEPING WITH BUSINESS PAPERS 139 Closing the Merchandise Accounts into the Merchandise Trading Account. — The results of the three merchandise accounts (the Merchandise Purchases account which represents the cost of goods bought, the Merchandise Sales account which represents the returns from sales, and the Merchandise Inventory account which represents the cost or value of the unsold merchandise on hand at the close of September) which were affected by the buying and the selling of merchandise are assembled into a Merchandise Trading account in order to show the gross trading profit in the ledger in permanent form. The first step to be taken in closing the ledger is to transfer the value of the merchandise sales, $4,982.45 (the first price list), as shown in the IVIerchandise Sales account to the Merchandise Trading account in order to close the Merchandise Sales account and transfer the net returns from sales to the Merchandise Trading account. This is done by making the following journal entry: Illustration 114 7/ 7' ---iSi'C'Oep-t'C'^^. < ^fr2 ^s ^fr2 ^s Post the journal entry to the proper ledger accounts under date of October 31st. The result of this journal entry closes the Merchandise Sales account and credits the Merchandise Trading account as shown by the following illustrations: Illustration 115 Q^. J/ H'.£fr2 OOr 3/ /J^«^;^ri^;w£^ >J^' ■^arz • ^jT. Illustration 116 nur J/ ^e^>Z^^/ ^rs ¥S 140 BOOKKEEPING FOR MODERN BUSINESS The second step to be taken in closing the ledger is to transfer the value of the merchandise purchases, 85,922.50, as shown in the Merchandise Purchases account to the Merchandise Trailing account in order to close the Merchandise Purchases account and transfer the net cost of purchases to the Merchandise Trading account. This is done by making the following journal entry: niustration 117 SI .yOci.■^i^i^if^/6ci^^i^^..^/^^<^<;^c^'^^ S^22 J-O S<^22 Jt? Post the journal entry to the proper ledger accounts under date of October 31st. The result of this journal entry closes the Merchandise Purchases account and debits the Mer- chandise Trading account as shown by the following illustrations: Illustration 118 /y^^^^y2'cJ^^:z^7^2^citU^i^y/ •'f J/ '2^etii^^^^i■c.^L^U/A 2 SaJi SO -7^ jy /^2c^u^-fC/yia.j!,if^ y L^2J- J^ Illustration IIQ //Z^4'€Ji-ci^PU:^od£y^^/-4 =^^ a^ J/ /^^aid£/^yU./dzA^ Q ^c/S'l ^S The third step to be taken in closing the ledger is to record the value of the unsold mer- chandise on hand, $1,496.30, as shown by the merchandise inventory to the Merchandise Trading account in order that the Merchandise Trading account may show the gross trading profit as shown by the profit and loss statement and record the merchandise inventory in the Merchandise Inventory account. This is done by making the following journal entry BOOKKEEPING WITH BUSINESS PAPERS 141 Illustration 120 /y^<^ai.£^.,.yC^T»<3^t>f'i^ — ♦^/ ..^^«^-^^^*^-^ia>i^5C«^^'»»*^'i<.^^;z^«2^^^ -7^ J/ /^eiike^f'^c^u^L^z^i^ J/ y^~ / J^(f2 2 J-(? a^ J/ 3/ ?^^.^^>AAf / The fourth step to be taken in closing the ledger is to transfer the gross trading profit on merchandise, $556.15 (the first price list), as shown by the Merchandise Trading account, to the Profit and Loss account in order to close the Merchandise Trading account and transfer the gross trading profit to the Profit and Loss account. The Profit and Loss account is the summary account to which all profits and losses are transferred. This is done by making the following journal entry; 142 Illustration 123 BOOKKEEPING FOR MODERN BUSINESS 7/ L<><^ --i^^£:'>^%e^/!t^^>ic^^^?r:. ^^?.ds £Z^ 0.-iZ>/z^ -^^t^i £y "7~ 2 J / 28 SO 2 / J/ ~yS.<:^^^9c;?^^ / / /J/ '^S / J / ^s /J / t^S Dlustrat ion 1 /^^i^p^J^^^tc^ i>^dJ =^^ J/ ^s^^^yiJy Q-^A^^-'^^i^^ y Ojr J/ ■^/Ic^^ke^.^/^ SSi 2S The sixth step to be taken in closing the ledger is to transfer the net profit, $424.80 (the first price list), as shown by the Profit and Loss account, to Henry Bruce's Capital account in order to close the Profit and Loss account and to transfer the net profit of the business period to Henry Bruce's Capital account. This is done by making the following journal entry: 144 Illustration 129 BOOKKEEPING FOR MODERN BUSINESS ^/ ro v^-.=J<:^.dJ ^7- J/ J/ / '7- J/ /^UUt/J'^4.i,:,^^ Q / ssi 2 J sj-i 2S SJi 2S' Illustration 131 J/ V \JSOO */2i/ Balancing the Proprietor's Account. — It is customary to balance and rule the Proprietor's Capital account at the end of a business period in order to show the proprietor's net capital at the beginning of the next business period. Mr. Bruce invested S3, 500.00 in the business BOOKKEEPING WITH BUSINESS PAPERS 145 on October 1st. During the month or business period the business gained S424.80 (the first price list), which was transferred to Henry Bruce's Capital account making his total net capital §3,924.80 on November 1st. . In Henry Bruce's Capital account, enter $3,924.80, Net Capital, and October 31st in red ink on the debit side; rule the account, and then transfer the red ink entry to the credit side of the account, below the rulings, in black ink, under date of November 1st hke the follow- ing illustrations. Illustration 132 'Oyl'U^ /Qi^i4^C^, C^«^^^'i^<^i:> ^i^p^i \ ^ 1 J/ %J~'Ciz^f^c^ jiy^ V ro /,,._ / J / / J J 00 O ro J^Z^ r;7 J <^ 2^ ro ?i^^ Jz^P=' C-i^ C^s.c^c 2c>jsr (po J^oo oo ^?^, ^f? J/r»'oo \y.-' ^ ?.%f-a into cash as shown in the model balance sheet. Since you have indicated on your trial balance which are assets and which are liabilities simply list them as directed above. The first item to be entered under Assets is Cash; the second, Merchandise Inventory; third, Notes Receivable; fourth, Accounts Receivable; followed by the personal accounts listed separately which make up the total accounts receivable. Observe that the item of merchandise inventory does not appear in the trial balance but on the inventory sheet which was prepared at the end of the business period and afterward entered in the ledger when closing the profit and loss accounts. The total assets are found by adding the items in the first money column. Extend the amount thus found into the second money column. Proceed to list the liabilities found in the trial balance as follows: First, write Liabilities on the first line beneath the double red lines on the right-hand page. Enter the liabilities in the balance sheet in the order in which provision would be made for their payment. The first item to be entered under Liabilities is Notes Payable; the second, Accounts Payable; followed by the Personal accounts which make up the total accounts payable. The next item to be entered is Total Liabilities, which is found by adding the items in the first money column. Extend the amount thus found into the second money column. 148 BOOKKEEPING FOR MODERN BUSINESS The proprietary interest should next be shown in the balance sheet. The first item to be entered under Proprietary interest is Henry Bruce's investment; second, Henry Bruce's net profit for the niontii ending 10 81 19 — ; tiiird, Heiny Bruce's net capital, extending the amount into the second money column. Rule and foot the two sides of the balance sheet as shown in the model balance sheet of Illustration 133. Comment: The clerical accuracy is proved if the total assets as shown by the balance sheet equal tiie total liabilities plus the net capital or proprietorship. The Proof Trial Balance A proof trial balance should always l^e taken from the ledger after the various profit and loss, and financial accounts have been ruled at the close of a business period. It is essential that the ledger is in balance after closing the books and before any additional entries are made in it. Instructions: Take a sheet of journal paper, and on the blue line above the double red lines, write the heading Proof Trial Balance, October 31, 19 — . Follow the same instruc- tions in preparing the proof trial balance as you. followed in preparing the trial balance. A Proof Trial Balance Illustration 134 '/^.cPt^._24-i:^^&■^d^-■^^^ ^f- /2. '7 "7 (Lt^€zJ^cey ^z/. 'O S/y Ta Mr 7^ ^ e^2 2 . ■>o ■7(7 ■7(2 J:<^2 2 . ^o .'..yC Jo /•,• -7 i JC / /^t? ■}<> ^hP^ ;^^%2^^>:i3^V^ •v^^.r-z 4J ^fS-2 \i^ /J / < /J / i O" 7 r^ ya a^ ^ ^X%,^i5^^,5^,»>^,e«^»2,^(^ ^^2^ jr ^i/Z ?3 '77' TO 7^7. 7^ 7^ '77 7ff y2^. ro 72^ 6js ^0 '2(7 / Cy(?' r lb. Post the transactions from your purchases journal, sales journal, cashbook, notes receivable book, notes payable book to the proper ledger accounts. 26. Received of H. H. Howe cash, $222.00, in payment of his note due to-day. OCTOBER PRICE LISTS 157 January 27. Sold to A. J. Williams, on his 10-day note, 210 lb. Java at 33^ per lb., 250 lb. iMaracaibo Coffee at 27^ per lb. 28. Gave T. C. Martin your 30-day note for $100.00, to apply on account. 30. Sold to J. L. Adams, on his 30-day note, 280 lb. Young Hyson Tea at 42j!f por lb., 210 lb. Java Coffee at 34:146 per lb. ]Merchandise inventory taken this day, $450.00. Post the remaining transactions and close and check the books of original entry. Prepare a trial balance, a working sheet, a profit and loss statement, and a balance sheet. Find the percentages called for in Exercise 37. Prepare the journal entries and close the ledger accounts. The work of the entire exercise should now be submitted to your instructor for examination and approval. October Price Lists 1 2 3 4 5 6 7 8 9 10 11 12 13 Barley $1.20 $1.21 $1.22 $1.19 $1.17 $1.16 $1.14 $1.23 .$1.11 $1.24 $1.10 $1.09 $1.12 Clover Seed 15.40 15.39 15.41 15.38 15.42 15.37 15.43 15.40 15.60 15.59 15.41 15.25 15.29 Corn 1.62 1.60 1.59 1.63 1.61 1.58 1.64 1.57 1.60 1.56 1.65 '1.55 1.67 Flour 12.05 12.10 12.17 12.06 12.11 12.30 12.25 12.19 12.17 12.31 12.28 12.09 12.13 Oats .77 .76 .78 .79 .71 .70 .74 .80 .69 .68 .77 .79 .76 Rye 1.34 1.33 1.32 1.35 1.37 1.38 1.40 1.31 1.43 1.30 1.44 1.45 1.42 Timothy Seed 8.05 8.10 8.00 8.05 8.14 9.00 7. .50 7.75 7.90 8.90 8.75 8.50 7.00 Wlieat 1.7S l.SO 1.81 1.77 1.79 1.82 1.76 1.83 1.74 1.84 1.75 1.85 1.73 14 15 16 17 18 19 20 21 22 23 24 25 26 Barle}- $1.13 $1.25 .$1.26 $1.07 $1.06 $1.27 $1.08 $1.28 $1.01 .$1.03 $1.29 $1.04 fl.20 Clover Seed 15.15 15.60 15.20 15.55 15.16 15.10 15.17 15.67 15.87 15.50 15.43 15.73 15.10 Corn 1.54 1.68 1.69 1.70 1.53 1.52 1.60 1.61 1.63 1.58 1.56 1.69 1.62 Flour 12.22 12.16 12.15 12.50 12.49 12.40 12.39 12.14 12.48 12.41 12.17 12.45 12.37 Oats .72 .71 .68 .67 .77 .76 .72 .81 .78 .79 .71 .72 .77 Rye 1.41 1.29 1.28 1.47 1.4S 1.27 1.46 1.26 1.53 1.51 1.25 1.50 1.34 Timothy Seed 7.25 7.30 7.40 7.77 7.78 7.19 7.29 7.13 8.06 7.90 8.10 8.15 8.09 Wheat 1.86 1.72 1.71 1.70 1.87 1.88 1.80 1.79 1.77 1.82 1.84 1.71 1.79 27 28 29 30 31 32 33 34 35 36 37 38 39 Barley $1.22 $1.24 .$1.18 $1.16 $1.14 $1.26 $1.21 .$1.19 $1.23 $1.17 $1.25 $1.15 $1.13 Clover Seed 15.19 15.75 15.64 15.72 15.09 15.11 15.17 15.. 36 15.63 15.71 15.21 15.00 15.56 Corn 1.67 1.55 1.65 1.56 1.66 1.57 1.64 1.58 1.61 1.63 1.59 1.60 1.53 Flour 12.47 12.27 12.17 12.16 12.26 12.46 12.56 12.19 12.29 12.30 12.43 12.33 12.50 Oats .75 .73 .79 .80 .69 .65 .78 .73 .72 .69 .79 .70 .72 Rye 1.32 1.30 1.36 1.38 1.40 1.28 1.33 1.35 1.31 1.37 1.29 1.39 1.41 Timothy Seed 8.11 8.75 8.57 8.37 8.27 8.01 8.56 7.96 7.99 8.32 8.21 8.11 8.17 Wheat 1.73 1.85 1.75 1.84 1.74 1.83 1.76 1.82 1.79 1.77 l.Sl 1.80 1.87 BANKING PART V INTRODUCTION TO BANKING PRACTICE Bask. — A bank is an institution chartered by either the national or the state government to deal in credits and money. Banks are divided into two classes; namely, Savings and Commercial Banks. Savings Bank. — A savings bank is one chartered by the state for the purpose of encour- aging the person of moderate means to save a portion of his income. Deposits in savings banks draw interest which is credited to the depositor's account usually semi-annually. These deposits usuall}' are not subject to check. The money deposited in a savings bank may be withdrawn only when a written order is given and the depositor's pass book is pre- sented at the bank. Commercial Bank. — A commercial bank is one that transacts a general banking business and renders important services to business men. National Banks, Trust Companies, State banks, and some private banks belong to this class. Some of the functions of the commercial bank are: 1. It accepts money on deposit subject to check. 2. It lends money on approved security. 3. It facilitates the sending of money from one place to another b\^ allowing the deposits to be drawn out on an order called a check. 4. It provides a safe place to keep valuables and securities. 5. It makes collections, such as notes, checks, drafts, and trade acceptances. 6. It advises its patrons concerning the advisability of making investments. Commercial banks probably have a wider knowledge along this line than any other financial institution. How to Open a Bank Account. — After a person has decided to open an account with a commercial bank, the bank usually requires that he be introduced to some oflScer or employee before he will be accepted as one of its depositors. After this identification, he writes his name on a signature card or in a signature book, according to the custom of that particular bank. One should write his lousiness signature in the exact form used in signing checks. A plain, neat signature is the most difficult to imitate. He then fills out a deposit ticket for all items deposited such as cash, checks, etc. The deposit ticket with the deposit is handed to the receiving teller, who enters the amount of the deposit in the bank pass book. The pass, book is returned to the depositor and serves as a receipt for the amount deposited in the bank. The signature card is left with the Ijank so that the paying teller may make comparisons with the name signed to the checks or orders when presented for payment. The l);ink will also furnish, without charge, deposit tickets and an order book known as a check book. Deposits. — Deposit tickets are not uniform in arrangement. The ticket has a space for the name of the depositor and the date. The listing of the separate items which make up the (158) BANKING PRACTICE 159 DEPOSIT TICKET Illustration 136 deposit is of special importance to the bank. For instance, if the deposit ticket permits, the specie should be separated into gold, silver, and minor coins. A space is also provided for bills. Arrange all bills in one way, having the larger denominations at the top. List each check separately by giving the name of the bank or city on which it is drawn. If the bank is an out-of-town one, the name of the city or town should be written on the deposit ticket. This practice has been changed to some extent by the numerical system introduced by the Federal Reserve System. The United States is divided into twelve districts. Each district has what is known as a Federal Reserve Bank. Each Federal Reserve Bank is assigned a serial number. Other banks may become members of the Federal Reserve Bank located in the same district. Each member bank is assigned a serial number. If the member bank is located in one of the twelve cities where a Federal Reserve Bank has been established, the member bank will take as its initial number the one assigned to the Federal Reserve Bank. For instance, Pliiladelphia has been assigned the Federal Reserve Bank number 3. A member bank located in Philadelphia may have a num- ber assigned to it as follows : 3-87. The figure 3 means that it is located in Philadelphia, and 87, the number assigned to that particular mem- ber bank. Each state also has a serial number. The State of Pennsylvania has been assigned number 60. If a member bank is located outside of Philadelphia, it will take as its initial number the one assigned the state, and as its final num- ber the one assigned by the Federal Reserve system. For instance, a member bank located in Reading may have such a number as 60-93. This nmnber is printed on the check of the mem- ber bank and may be used in the listing of checks upon the deposit ticket. District number one includes the states of Maine, New Hampshire, Vermont, Massachu- setts, Rhode Island, and the greater part of Connecticut. District number two includes the State of New York, a part of Connecticut and a part of New Jersey. The central or Federal Bank of district number one is located in Boston. The central bank of district number two is located in New York, The central bank of district number three is located in Phila- delphia. If you have such checks when making a deposit, it is much more convenient for the banker if you write this serial number, which is printed on the check, on the deposit ticket instead of using the name of the bank or city. Second National Bank Philadelphia, Pa. May 1, 19- Deposit of John T. Smith Large Notes Small Notfts 1 50000 93 00 Silvpr 80 00 9 50 Th^rkR 3-44 125 00 60-103 247 36 6£-6 19 32 55-454 lOO'OO Boston, Mass. 245 00 2 419 18 1 i 160 BOOKKEEPING FOR MODERN BUSINESS Analysis of Deposit Ticket. — Tho first itom of SI, 500.00 is made up of notes of the denomi- nation of s.j.OO or inon;. Tlie item of S93.00 is made up of one's and two's. The item of S80.00 is made up of gold coins. The item of S9.50 is made up of silver coins. The check for .S125.00 is one drawn on the Franklin National Bank located in Philadelphia, the Federal Reserve district number 3. The next check is drawn on the First National Bank of Johnstown, Pennsylvania. The State of Pennsylvania has the initial numl)er GO. The next check is drawn on the Central National Bank, Wilmington, Delaware. The State of Delaware has the initial number of ()2. The next check is drawn on the Riverside National Bank, Riverside, New Jersey, the initial number of New Jersey being 55. The last check is drawn on a bank which is not a member of the Federal Reserve system, therefore it is necessary to write in the name of the city and state. The banker will record only the total amount of the deposit in the pass book. Check Record. — A check book is furnished by the bank to its depositors. The checks are written, detached and given to the parties to whom the mone}- is to be paid. A record of each check is kept on the stub of the check book. Each deposit is recorded in the check book in the space provided for that purpose. The deposit should be hsted in the same way as it was listed on the deposit ticket, with the exception that the name of the drawer of the check is substituted for the Federal Reserve number or city. Some bookkeepers instead of making a copy of the deposit on the back of the stub of the check book, have carbon copies made of each deposit. The duphcate is filed away and onl}- the total entered in the check book. There are many different ways of keeping a check book. Three different methods are shown in Illustrations 137. 138, 139. Method 1. — Illustration 137 has the distinct advantage of having the total amount of all deposits forwarded to date and this total can easily be compared with the statement which the bank renders at the end of each month. It has the disadvantage of not giving at first glance the l)alance in bank. It is necessary for the bookkeeper to watch very carefully the total deposits and the total checks in order to avoid overdrawing the firm's bank account. To prov^e cash, it is necessary for the bookkeeper to deduct the total checks from the total deposits. This difference will show the amount of cash in the bank. Method 2. — The method shown in Illustration 138 is found in many business offices. It differs from Method 1 only in that the balance found at the bottom of the page of the check book is forwarded to the top of the next page. The sum of all the checks on a given page is transferred under the total deposits and tlie (Ufference between the total checks and the total deposits is the balance forwarded to the next page. Method 3.— The method shown in Illustration 139 differs materially from the other two. Tlie deposits are listed on the back of the stub as before. The total of each deposit is then transferred to the face of the check stub and added to the last balance. Each check is deducted from the i)n'vious balance and eacli tleposit is added to the previous balance. This inetliod has the distinct advantage of always having the balance in bank as the last amount on the page. However, experience has shown that more mistakes in calculation occur when this metluxl is used than either method 1 or 2. The teacher will advise you as to which method you sliould use. BANKING PRACTICE luustration 137 (Back of Stub) (Stub of Check) Joe 2 /O '^OO 2JO / /^o 1 t-^^^^^S'-^i^^'^Z-l^.iZ^^^zi^ / / ^o U(P ^c^'i'cc^szyt-tai-e-c^ C7J r c 2 OO 2S PC 'fj 2 ^O 1,-2 2^ /^y^\Cj\ No.- Order of //^Ayf^^'hX^ For -^-^--r ^ '^2/2 Amount of bill, Discount ^2_ % Deposited %JO(?.(PC> % Coo Date Order of _ (layi^^^.^y^^y^ . ? No.- -19U=^' ■^£=i^?«Z5fez-il_ For r?-f-7y. -fg,^^,-/? Amount of bill, Discount To Deposited Date Order of (. ^-trp^. /C^ „ For [ /4a-Ar.-»;z ^^?< ^ ^.e^^y-y?-' Amount of bill, " % Discount '~o t Deposited . 19_ No.^ -19 _T Date_ Orderof, C^.:;:^ For ^-r:i^;h-fi.2U^ .6. Amount of bill, Discount % Deposited No.-(^ . Date {/ef,-PT.^^i^a^^.- ^ 19,^ Order^ tCZ-:^ , 4^^^^^.^ C^ Amount of bill, $_ Discount To * Deposited 19 •../^'C-'i'C^^ayi'Cg^e'i^ 161 2^. ^00 00 fo\oo 77- A 00 y y^ JO 00 J T'^ /2J yj^/ or 162 BOOKKEEPING FOR iiiustratton 138 (Back of Stub) MODERN BUSINESS (Stub of Check) Joe? 2 /O 2 JO /y ^O t^O / J U6 y y^' oo ^0 J6i\^d / 0<2 2^ OO JiC 2 V^ 2J OO 2 OO OO 00 CL^ OO /c^W*^^^-»*-t:^<-..^'tf>-^t:^ 2 W <^jy 7^ Order igf A'r^^^ Jc^'U^ Oj. For -!.^r^T^ ^^/-^ Amouot of bill, Discount .^2- % Deposited S. S i^-O- 19 no i— Date i^^^^z<^--<--t.t,t^.Z^ Amount of bill, Discount % Deposited Amount of bill. Discount -^- % Deposited % /ii.OO Date- . Order of ^C^;^ Vpv^- ; For _^ir^ii-cii;i:^l Amount of bill. Discount % Deposited ?^^ ^?J? / ^^ / ^■' ^ 2^(P 2^ (Stub of Check) Amount of bill, Discount ^2_ % Deposited Nc- Date iffx^'y^'^^i^tx^i^^ . -^-£«*z2'-^^s8ii-e^^ No.--6^ ^.,<:ryf^ -7t^ Date_^ , Order «f O..::^ (C^^v ft; (^- For ^y^i^A^f/.^r>-i^^ .<7^^.-n^^.-f':^^ Amount of biU, S Discoimt % S Deposited j/ry^i^y. C^ No. -19- Date Order of J^.J^:,zi^^^i^ /CZt,^^j-^yA^ For -'t.i^^y-' / p/^ Amount of bill. Discount ^ % Deposited Uf:z^t^^ -.C ^ No- ^ Order ^ ^~:^l9^J^^.f^ C^ For ^f7-»->-^->g-<;-/>^ Amount of bill, $ Discount % S Deposited = 19 i-'-^**^4»--^'CZ^<«^ ^^<>^a ro ao JCC Z/:o J.i,C ^o so oo 3/6 /i?S 2S Jf// 6S .J'/V / 2 y 2 i/ b Oj2_ oo J d.y /23 is 164 BOOKKEEPING FOR MODERN BUSINESS Depositor's Monthly Statement. Illustration 140 STATEMENT HENRY BRUCE in ac< :oimt il ; 10 with The Commerck Forth*, month of November Bank Day Checks Deposits Balance 00 Balance brought forward 3,268 40 2 250 50 1 3 160 00 5 247 30 - 6 421 85 9 148 75 940 11 27 30 12 236 50 15 142 30 Int. 29 04 17 326 75 18 146 80 20 21 320 74 70 150 00 1 23 165 00 25 248 00 27 216 50 30 310 12 1,748 1 Total Deposits for Month 1 2,718 24 Total Credits 5,986 64 Total Checks 3.517 91 73 Balance 2,468 Business firms as well as pri- vate individuals generally pay all bills Ijy check. A special receipt is not necessary when a bill is paid in this way. The check should be written with great care. The business man judges a cus- tomer to some extent at least by the neatness and accuracy of his business papers. The previous model check books show how the stubs should be filled out. The check goes into the hands of the public, therefore, great care should be exercised in preparing the checks. The amount, in fig- ures, should be plainly written ver}' close to the dollar sign. This is done to avoid the raising of the amount. The figures showing the number of cents should be written somewhat smaller than those showing the dollars. The amount in words is written on the follow- ing line. Begin writing the amount in words at the extreme left. If there is a blank space after the amount has been written, it should be filled in with a neatly drawn line or a waved or broken one. See Illustration 155. These checks are stamped Paid by the bank when presented for paj-ment. Themodern bankwillsendto the depositor at the end of each month a statement showing the amount of deposits made during the month as well as the list of checks paid during the same period of time. These canceled checks will have the endorsement of the payee on the back, and therefore serve as rrrnpis. BANKING PRACTICE 165 Monthly Bank Statements.— The bank statement (Illustration 140) will show the amount of your balance after all checks which have been presented during this period of time have been paid. You should compare the balance shown on this statement with the balance which you have in your check book. If all the checks which you have written have been presented to the bank and paid, the balances should be the same. Reconciliation of Bank Statement. — If checks are drawn daily, it is quite likely that some of them have not been presented for payment when the bank statement was prepared, there- fore the balance shown by your check book would not be the same as that shown by the bank statement. Upon receipt of the statement and canceled checks, arrange the checks numer- ically or by date issued. Turn to the check book and place a check mark on the stub of each of the checks paid by the bank and make a list of the numbers and the amounts of those still unpaid; to the balance, as shown by the statement, add the sum of the unpaid checks. List all deposits which do not appear in your check book and add these to the balance as shown by the check book. The two results should agree, and if so, the statement rendered is correct. Illustration follows. Illustration 141 Reconciliation of Bank Statement November 30, 19— Balance per bank statement $2,468 . 73 Checks not presented No. 384 $50.00 No. 395 128.75 No. 397 25.80 No. 399 248.00 Total checks not paid 452 . 55 $2,016.18 Balance per check book $1,987 . 14 Interest credited 11/15 29 .04 $2,016.18 Some banks will allow interest on the depositor's balance. This interest is credited to his account usually semi-annually. The bank's statement may show that interest has been credited to the depositor's account during the period of the statement. If the interest has not been recorded in yom- pass book or in your check book, add the amount to your check book balance as a deposit. The reconciliation statement should be preserved, either by copying it on the back of the stub of the check book or by filing it. Commercial Discounts. — There are two kinds of commercial discounts, namely, (a) trade discount; (h) cash discount. Trade Discount. — Many manufacturers, publishers, and wholesalers issue catalogues describing their product. The prices issued in the catalogues are usually higher than those at which the goods are actually sold. This plan is adopted in order that it may not be necessary to print new catalogues each time the market price of the goods rises or falls. Since the catalogue price is usually higher than the market price, they regulate their changes by 166 BOOKKEEPING FOR MODERN BUSINESS allowing discounts. If tho market price increases, the discount allowed is less; if the market price falls, the discount is increased usually by allowing a second or a third discount to be deducted after the first discount has been deducted. When two or more discounts are allowed on a bill they are known as a chain discount or a discount series. For example, an article may be hsted in a catalogue for SIOO.OO less a trade discount of 40%, 10%, and 10%. This does not mean that a discount of 60%, the sum of these discounts, is to be deducted, but that each discount in turn is deducted. Thus, SIOO.OO less 40% = S60.00; SOO.OO less 10% = 54.00; $54.00 less 10% = $48.60, the final amount of the bill. A trade discount of $51.40, therefore, is allowed when the discount series is 40%, 10%, and 10% on each .SIOO.OO. Such a discount is deducted by the seller on the bill which he renders to the purchaser, therefore, no record of the discount appears on the books of either the buj^er or the seller. Thus : A trade discount is a deduction made by the seller from the list or catalogue price of his goods, for the purpose of fixing the selling price to the trade. Find the invoice cost if: 1. The list price of a bill of goods is $200.00; the trade discount is 50%, 10%, and 5%. 2. What would be the invoice cost if an article is listed at $450.00 with a trade discount of 30%, 10%, and 23^%? 3. What would be the invoice cost in Example 2 if the discounts were changed to 40%, 20%, and 5%? Cash Discount. — Price lists are usuallj' prepared on the basis of credit sales, and the buyer is allowed a discount to encourage cash purchases or pa3'ment within a specified time. Such a discount is deducted b}^ the purchaser in case he takes advantage of the discount offered. Since the goods are billed to him for the entire amount, the full amount is recorded on the books of both the buj-er and the seller. If the buj'er takes advantage of the cash discount by paj-ing for the goods within the specified time, the discount allowed must be entered on the books of both the buyer and the seller. Thus : A cash discount is a deduction allowed the buyer from the invoice price in consideration of pajTiient within a specified time. There are two kinds of cash discounts, namelj^ : (a) Discount on Purchases; (6) Discount on Sales. The one shows the amount of discount allowed to the customer and the other the amount of discount allowed to the business. Terms of Payment On account (a/c or on a/'c) means that there is no definite time when the bill is to be paid. It is a business custom, however, that payment for sales made on account is due the first of the following month. On account — 20 days (a/c — 20 da.) means tlmt the payment of the bill is due in 20 days from the date of the sale. Cash less 5% means that a deduction of 5% maj^ be made from the bill if it is paiil at once. However, it is now a business custom to grant a few days for a cash discount. 5% 10 days — net 30 days (5' 10, n 30) means that if the bill is jiaid in 10 days from the date it is is.sued a chscount of 5% will Ije deducted. The bill is due in 30 days without discount. 10% 10 days, 5% 30 days, net 60 days (lO/lO, 5 30, n 60) means that if the bill is paid in DEVELOPMENT OF ACCOUNTS 167 10 clays from the date of issue, 10% discount will be allowed; if not paid within 10 days but paid within 30 days a discount of 5% will be allowed. The bill is due at the expiration of 60 da^'s. The successful merchant usually takes advantage of cash discounts. Persons who make it a custom to pay their bills within the discount period have a much better rating with banks than persons who do not. A merchant would much rather sell to a customer who pays promptly than to one who is in the habit of allowing his bills to run over the due date. The prepa^^nent of bills is optional with the purchaser. If the purchaser takes advantage of the discount allowed him by paying the invoice in the time stated, he will be increasing the profits of the business. It is necessary to record this profit in an account which will show, at the end of a business period, the total amount gained by paying invoices in time to secure this discount. When the purchaser takes advantage of the discount, he records the amount he has gained in an account called Discount on Purchases. The party from whom the invoice was bought, or in other words the seller, would also make a record of the discount which he has allowed to the purchaser in an account called Discount on Sales. Discount on Purchases Account The object of keeping a Discount on Purchases account is to show the amount of discount allowed to us for paying invoices within the discount period. Illustrative Exercise Transactions relative to the Discount on Purchases account. January 1. Paid an invoice of merchandise purchased on December 16th, $500.00, less a discount of 5%, ($25.00). 2. John Jones allowed you a discount of 2% on an invoice of goods amounting to $750.00, ($15.00). 4. Paid John Smith for the invoice of merchandise bought on December 15th, terms, 10 10, 5 30, n/60. Amount of invoice $365.00, ($36.50). 6. John Smith reports that he cannot allow more than the 5% discount on the bill of December 15th, It was not paid within the 10% period. Illustration 142 ^^^,/J!^.C.yi.C^^^f-Z^i-^^^li£^,^tZ-^^U^K.^^ ■f- 'f- y s./C^^&^t^^-i-c^£^ /Z7 CC //^^z-t/^ JO /!^a-C't<^i'<^^f^i<>c-^£''^:/'^ SOOQ- 70 / • 2 /2a oo CO J / A:?J«^4z<»*-£^d'^7^*T.^o/ 0-0 i^O /J /S yo JO oo /6, ' <^ao oo -?7 oc ^/j oo J/ .,.^:!3^t^i^t>^j(^U-^^,.,^^ 2 0^g CO By making a careful studj' of the three methods of making entries for this type of trans- action, it will be seen that the final result when posted to the ledger accounts is the same. When the special column method is used for discounts on sales and discounts on purchases in the cashbook, it is not necessary to use either the simple form of cashbook or the journal method. Exercises for the Student Exercise 94 Rule paper and prepare a special-colmiin cashbook for the following transactions. May 1. John Mason invested .SG,000.00 in the carpet and rug Inisiness. Paid rent of ston^room located at 210 Market St., .SIOO.OO. Paid T. C. Wrigiit for invoice of niorclinndisc, .S^oO.OO, less 3%. H. S. Martin paid his bill of the 1st inst., $430.00, less 5%. Robert White paid his note, .$150.00, due to-day. Paid .lames .J. Hastings on account, .$300.00. Itcceivcd a check from li. \\. Scott to apply on account, $500.00 Paid telephone bill for tiie month of Aj^rii, $5.30. Received a check from L. P. Ross in payment of bill of .$308.00, less 3%. 2. 3. 4. 5. (). 8. 10. 11. SPECIAL COLUMN CASEBOOK 183 12. John Mason withdrew $50.00 for personal use. 13. Paid .110.20 for stationery and stamped envelopes. 14. Received a check from J. K. Lusk for bill of 1720.00, less 2%. 14. Paid invoice of Jones & Co. of the 5th for $700.00, less 3%. 15. Paid electric light bill, !s;26.30. 17. Paid note due to-dav, $350.00. 18. F. W. Earl & Co. paid their note due to-day, $720.00. Close the cashbook, studying very carefully the model given in Illustration 149. Exercise 95 April 1. Balance from previous month $4,863.20. 1. Paid rent in advance for the month of April, $120.00. 2. Received a check from F. E. Rogers, $145.00, less 1%. 4. Received a check from Frank Moore & Son $300.00, to apply on account. 6. Paid invoice M. A. Fell, for $625.00, less 3 /€■ 7. Paid store wages, $68.00. 8. J. E. Bender paid his note due to-day, $350.00. 10. Received a check from C. W. Gray for bill of $368.00, less 2%. 12. Paid note due to-dav held by Hillis & Co., $250.00. 14. Received a check from G. H. Martin for biU of $720.00. 16. Paid Shaw & Co., for invoice of the 4th, $380.00, less 2%. 18. Paid Eaton & Co. on account, $200.00. 19. Received a check from Stearns & Co., $500.00, for note due to-day. Close the cashbook as previously instructed. If instructed by your teacher, enter Exercises 94 and 95 in a simple form of cashbook showing the cross entries for Discount on Purchases and Discount on Sales. Rule and close the cashbooks. Also, enter Exercises 94 and 95 in a simple form of cashbook showing only the net cash received, and the journal for recording the Discount on Purchases and Discount on Sales. Rule and close the cashbooks. 184 BOOKKEEPIXC; FOR MODERN BVSIXE^^ THE WHOLESALE CARPET AND RUG BUSINESS Thomas B. Miller, Proprietor This set follows the same general plan of business practice as was given in September and October. Several new bookkeeping features will be introduced and a more extended study of the preparation and use of the vaiious business papers will Ijo made. The use of each will be fully explained at the point whore it is introduced, and in connection with each transaction you will find such special directions as you may need. Thomas B. Miller is about to open a wholesale carpet and rug business at 487 State Street, Philadelphia, Pennsylvania. Having been offered a higher salary and better oppor- tunity for advancement by Air. Miller, you have accepted a position as bookkeeper and cashier at a salary of S70.00 a month. As bookkeeper, you will record the transactions as they 0CCU1-, the work being in this respect similar to the previous month's work. As cashier or agent for Mr. Miller, you will handle all cash received and paid. It will be necessary for you to sign and endorse notes, checks, receipts, and other business papers as well as keep a record of the business transactions. On the pad of Incoming Vouchers you will find a legal document known as a Power of Attorney which ^Nlr. :Miller has had pre- pared. A Power of Attorneij is a legal document empowering the person named therein to act in the place of the person signing it, in certain specified matters which are named in the document, or in all matters of a kind indicated. It is generally witnessed by a notary public, who stamps the document with his seal. Read the document carefully and see what powers it confers upon you. Fold the document lengthwise and brief it. Briefing means writing on the back of the document in concise, brief form, the nature of the contents, as follows: Fold the Power of Attoryiey so that the briefing will be on the outside and file it in the envelope marked Voucher File. If this brief form, showing the nature of the con- tents, is placed on the back of the document, the paper is easily located when filed away with other papers. ^'aried selling price lists are given in this set in order that the work of the students may show different results. A selhng price list will be assigned by the instructor from the numbered list on page 203. No. 1. — November 1. Take from the pad of Incoming Vouchers the envelope marked 1-a Thomas B. Miller's Investment, in which will be found $200.00 in currency and the bank's statement of the amount of money now credited to Mr. IMillcr's account. This constitutes Mr. ^Miller's investment in this new business. Count the cash and place it in the envelope marked Cash Drawer. The $200.00 in currency will be used to pay small bills wliich will be presented to you from time to time. Prepare a journal memorandum of the nature^ of the business, amount invested, etc. Make the proper entry in the cashl)()()k for Mr. Miller's cash investment, $6,000.00. Place the amount in the Net Receipts column. Power of Attorney between Thomas B. Miller, Proprietor and Student WHOLESALE CARPET AND RUG BUSINESS 185 Signature of Business Address Remarks- SECOND NATIONAL BANK PHILADELPHIA, PA. '^■^i ^-^.-y:/<(y^.^ No. 2. — November 1. Mr. Miller has been keeping his money in the Second National Bank. It is not safe to keep a large sum of mon(^y in the cash drawer. Since you have been given a Power of Attorney, which gives you the right to sign checks for Mr. Miller, it will be necessary for you to give to the bank a copy of your signature which you will use when signing checks. On the pad of Incoming Vouchers, you will find a blank signature card No.2, on which you will write Mr. Miller's name per your name, as shown by the following illustration. When money is deposited in the lustration 1S2 bank, the receiving teller makes a record of it in a receipt book known as a pass hook. Mr. Miller requested the bank to give him a new pass book for this business. It will be found among your supplies. Take the pass book to your in- structor, who, representing the bank, will make a record in it for the $5,800.00, as shown by the bank statement. Banks furnish its depositors with an order book known as a check hook. The depositor should keep a strict account of each deposit and of each check issued, so that he can tell, at any time, the amount of money he has in the bank. A check book has been put in your outfit. Study the three methods of keeping the check book which were illustrated in the chapter on Banking. Have your instructor decide which method you are to follow in this set. No. 3.— November 1. Pay the rent for November in advance, $60.00. The building at 487 State Street, is rented from the Philadelphia Real Estate Co. Pay the rent for November in cash. Always make payment in bills of the largest denomi- nations possible. In this instance you should take one fifty-dollar and one ten-dollar bill. Detach the lease No. 3 and receipt No. 3a from the pad of hicoming Vouchers. The lease is a written agreement, in legal form, between Mr. Miller, the renter, or lessee, and the Phila- delphia Real Estate Co., the landlord or lessor. Read the lease carefully and see what rights and restrictions it mentions. Brief the lease according to the instructions for briefing the Power of Attorney in the previous transaction. Make the necessary entry in the cashbook entering the amount in the Net Payments column. File the receipt in the Receipts and Paid Bills envelope and the lease in the envelope marked Voucher Fik No. 4.— November 2. This invoice is from the Mason Furniture Co., Boston, Mass. The goods were shipped by freight. You will receive on the pad of Incoming Vouchers a hill of lading signed by the railroad company. This bill of lading is a receipt from the railroad company showing that it had received the goods in first class condition from the Mason Furniture Co. and had agreed to transport the goods to Philadelphia. The bill of lading should be carefully preserved by the customer, as it must be presented to the railroad company in case a claim is made for damages or lost goods. File the bill of lading in the Voucher File. 186 BOOKKEEPING FOR MODERN BUSINESS Perpetual Inventory. — A modern business custom is to keep Stock Record Cards on which is entered a record of the quantity of each article Ijought and sold. The object of theae cards is to show the quantity of goods on luind from day to day. When the goods are bought, the amount is entered in the bought column and added to the last balance; when sold the amount is entered in the sold column and deducted from the last balance to find the amount of goods on hand. Illustration follows: Merchandise Stock Record Card Illustration 153 AXMINSTER BODGHT FROM OR SOLD TO Cost Bought Sold On hand \/rz^^ /f? /Ol^^^ 2.00 JO JO / Z(y 7^^^2^^.i^^ / o i 1 i I j No. 5. — November 2. A bill from the Rothwcll Furniture Co. ]\Ir. IMiller has O. K.'d the bill and instructs you to pay it by check. The stub of the check should always be filled in first, as a delay in this matter is often the cause of a great deal of trouble. The stub contains a memorandum of the check and can be referred to after the check has been detached and delivered. Fill in the stub of the check book as shown in the following illustration. Fill in the check as follows: Illustration 154 rstub of Check) / , Date Order of yA^^2 ^^^.^.',e/^^v^.^^^^<^^.;<^^y>t^^CZ. /CO ^j^ i i i 1 1 1 i i File the order in the Orders file, the note in the Notes Receivable file, the bill of lading shipping order and bill in the Outgoing Papers file and the Memorandum Copy in your Receipts and Paid Bills file. No. 9. — November 4. Invoice of merchandise ordered by Mr. Miller. Write the note in favor of J. Barton & Sons' Carpet Co. for the full amount of the invoice. No. 10. — November 5. A bill from the National Transportation Company for freight on merchandise delivered to date, $17.50. See illustration of entry below. Illustration 157 C4■^^l^'^^'.J>f■z<.^^^xyt€iC^ ..^>Uti^^^.^J^C^^ ^ V ^^ Write the check in favor of the National Transportation Company. File the freight bill in the envelope marked Receipts and Paid Bills. No. 11. — November 6. Order and check from INIr. Walter T. Thompson, Louisville, Ky. Prepare bill of lading, shipper's order, and memorandum copy. Receipt the bill and deduct the articles from the stock record cards. No. 12. — November 6. Invoice of merchandise purchased from Simpson Furniture Co. If you should find an error in an invoice, notify the teacher and ask for instructions. Hcn^after the Ijills of lading will be omitted from the incoming voucher pad. Proof of Cash. — Tlic bookkeeper should prove cash at tiie end of each week or, in a business wliere there are man}^ cash items, at the end of eadi day. Proceed as follows: Find the total amount of cash received and cash paid by adding the net receipts and net payments columns of the cashbook. Place these amounts below the last items in small but neat pencil figures. On a separate piece of paper deduct the total amount of cash payments from the total WHOLESALE CARPET AND RUG BUSINESS 189 amount of cash receipts and the difference should equal the amount in the cash drawer and bank. Prepare^ a form as shown in the following model, fill in, and present it to the instructor for approval. Illustration 158 Proof of Cash on November 6, 19— Cash receipts ^^'o?nnn Cash payments 250.00 Cash balance $6,346.00 Represented by: Cash in bank '?in'm Currency in cash drawer 140 . 00 Walter T. Thompson's check 596.00 Total (which equals balance in cashbook) $6,346 .00 No. 13.— November 8. An order from the Morris Furnitm-e Co., Detroit, Mich. No. 14.— November 8. An invoice from W. B. Jones & Sons, Washington, D. C. Make the entry in the purchases Illustration 159 Nc- Date- /Zr?-7y'^i^i-^.-i^^iey^^ U^ Order For journal for the entire amount of the in- voice. Write a check in favor of W. B. Jones & Sons for the net amount of the invoice. You have entered in the purchases journal the total amount of the invoice which will be posted to the credit side of W. B. Jones & Sons' account in the ledger. Make an entry on the cash payments side of the cashbook, debiting W. B. Jones & Sons' account in the Accounts Payable column for the full amount of the invoice. Place the amount of the discount in the special column provided for Discount on Purchases. Credit the Cash account for the amount of cash paid in the Net Payments column. Illustration follows : Amount of Bill, Discount ^ % Deposited $^^/. / /. y 7-^2 -19. J'^ Illustration 160 ^r ^^. ^ y^^-^z^Q^ ■r>^<^ 2^ J^J 7^ No. 15.— November 9. Fill this cash order from John J. Howard & Co. Prepare a bill, deducting the 2% discount. Enter the bill in the sales journal for the gross amount. Make an entry on the cash receipts side of the cashbook, placing the gross amount of the bill in the Accounts Receivable column, the discount in the special column for Discount on Sales, and the amount of the check in the Net Receipts column. 190 Illustration 161 BOOKKEEPING FOR MODERN Bl\SINESS ye^^'ft^j/- Av-t.t^ciyZ^^'^L.^ot ySt:^ ///^ 2'^/c Jjra J" //J oo Illustration 162 No. 16. — November 0. Deposit the check received on November 6th, from Walter T. Thompson, and the one received to-day from John J. Howard & Co. The deposit ticket was illustrated in the chapter on Banking. A duplicate copy may be made for the file of the depositor. Such duplicates are valuable for reference. As these checks were made payable to Mr. Miller or order, endorse them to the Second National Bank as follows: List them on a de- posit ticket, which j-^ou will find in 3'our sup- plies, and place the de- posit ticket and checks in the pass book. Hand the deposit ticket, checks, and pass book to the receiving teller of your school bank or to your instructor. A record of the deposit will be made in the pass book which serves as a receipt for the de- posit. If at any time a deposit is made without the pass book two deposit tickets should be prepared, one of which the receiving teller will stamp duplicate. This duplicate should be taken to the bank when the next deposit is made and the amount entered in the pass book. Enter the deposit on the stub of the check book. No entry is required in the books of original entry, as the money was simply transferred from the cash drawer to the bank. No. 17. — November 10. The Morris Furniture Co. returned for credit one 9 x 12 Wilton Rug at $45.00, sold them on the 8th. It was found to be defective. It is customary when returning goods for credit to write a letter explaining why the goods are being returned and at the same time to render a bill, at cost price, for the goods. Take the letter and l)ill from the pad of Incoming Vouchers. Compare the bill with the duplicate sales bill to see if the ])vh-v is correct. If tile goods are accepted, send a Credit Memorandum to the firm returning the gootls. Fill out a credit memorandum, which you will find among your supplies. This credit mem- oiaiidurn is evidence that you have accepted the goods and have given the person or firm returning the goods credit. The following illusi rates the form of a credit memorandum. WHOLESALE CARPET AND RUG BUSINESS 191 Illustration 163 Philadelphia, Pa., Nov. 10, 19- Memorandum of Amount placed to the CREDIT of Morris Furniture Co. 275 Darian St. Detroit, Mich. By THOMAS B. MILLER. Wilton Rug 9 X 12 45.00 45 00 Make the entry for the returned rug in the journal as shown in the following illustration. Illustration 164 yA^e?:^^^^<£^^^^:i-^Upi:i^^l^(Li^ :- t^x /2,, ¥S CO ^jr 0(7 Debit the Merchandise Sales account to show the value of all goods returned at the selling price. You will find, by referring to the record in the sales journal, that the Merchandise Sales account has been credited for $662.40. As a part of these goods has been returned, the Mer- chandise Sales account should be adjusted in such a way as to show the actual amount of goods sold. Records in books of original entry should not be altered or erased, therefore a record of this transaction is made, debiting the Merchandise Sales account in order that it may show the actual sales. Likewise by referring to the Morris Furniture Co.'s account you will find that their account was debited for the whole amount of the bill. They should now be credited for the amount of goods returned. When goods are returned to us, a record is made on the stock record cards, adding the quantity returned to the last balance. No. 18. — November 10. The rug received from the Morris Furniture Co. has been returned by us to the Howe Carpet Co. for credit at cost price, $40.50. Write a letter, enclosing a bill for the defective rug, to the Howe Carpet Co., explaining why the rug is being returned. Make an entry in the journal as follows: 192 Illustration 165 BOOKKEEPIXa FOR MODERN BUSINESS ^/O SO i^o so You will find by referring to the invoice received from the Howe Carpet Co. on the 3d, that the record in the purchases journal has been made for the total amount of the invoice, SI, 275. 10. Since a part of these goods has been returned, the Merchandise Purchase account should be adjusted to show the actual amount purchased. Tliis is not a sale, but a return of a previous purchase. When goods are returned by us, a record is made on the stock record cards by deducting the quantit}' returned from the last balance. No. 19. — November 11. Paj' the invoice of November 2nd, Mason Furniture Co., less 1^/c discount. Calculate the discount and write a check for the proceeds. No. 20. — November 12. This order, accompanied by a 10-day note, is received from the Butler & Carson Co., Cincinnati, Ohio. Report No. 4. — Prepare the report and submit it to the instructor for approval. Open the following accounts in the ledger beginning on the first blank page, three accounts on each page in the order given below. Post all entries to date. Do not post the amounts in the special columns in the cashbook for Discount on Sales and Discount on Purchases at this time. This will be done at the end of the month. ]\Tany of the following accounts will not be used during the month of November, but will be used during the month of December. Cash. Notes Receivable. Merchandise Inventory. Real Estate. Furniture and Fixtures. Notes Payable. Thomas B. Miller, Capital Thomas B. Miller, Personal. "Student," Capital "Student, " Personal. Merchandise Purchases. Freight Inward. Merchandise Sales. Selling Expense, (jcneral Expense. Insurance Prepaid. Interest Earned. Discount on Purchases. Merchandise Trading. Profit and Loss. (Omit one page.) Butler & Carson Co., 2684 Wal)ash Ave., Cincinnati, Ohio. John J. Howard & Co., 1216 Market St., City. A. J. Keister, 247 York St., Nashville, Tenn. A. C. Martin, 1007 Vine St.. Boston, Mass. T. J. Jackson and Co., 324 Cherry St., Baltimore, Md. W. C. Mills, 138 Grove Ave., Lima, Ohio. Walter T. Thompson, 1705 Hill Ave., Louisville, Ky. Morris Furniture Co., 275 Darian St., Detroit, Mich. Wilson & Brown, 407 Green St., New York, N. Y. (Omit one page.) Mason Furniture Co., 230 State St., Boston, Mass. Howe Carpet Co., 316 Morris Ave., Kansas City, Mo. J. Barton & Sons, 309 Black St., Knoxville, Tenn. Simpson Furniture Co., 1446 Cedar Ave., Knoxville, Tenn. WHOLESALE CARPET AND RUG BUSINESS 193 Real Estate Expense. Interest Paid. Discount on Sales. T. M. Lewis & Co., 349 Water St., Harrisburg, Pa. J. M. Lynch & Co., 27 Hill Ave., Albany, N. Y. W. B. Jones & Sons, 434 Penn Ave., Washington, D. C. No. 21.— November 13. Give a 10-day note to the Howe Carpet Co. for the balance of the invoice bought on the 3d. No. 22.— November 13. Fill this order from Walter T. Thompson. No. 23.— November 15. Our note of November 4th, in favor of J. Barton & Sons Carpet Co., is due to-day. Write a check in favor of J. Barton & Sons Carpet Co. for the amount of the note. No. 24.— November 15. This check is from T. J. Jackson & Co. in payment of their note due to-day. No. 25.— November 15. Mr. Miller has taken one 9 x 12 Wilton Rug for his personal use, at cost price, $40.50. When the proprietor takes rnerchandise for personal use, it is customary to charge him at the cost price. A profit should not accrue from a transaction with the proprietor. The transaction is not considered a sale but is treated as a credit to the Merchandise Purchases account. The following journal entry should be made. Illustration 166 ..X^>>*^,;e<^^.2^:i^^/v^i=A?>^^ (^2;.^^>^M-^^7^^-^;^^^i■'^'■<^'^-^*^^ />^2^^<>%9-r.-f:z^ ~A^ /7Z^^^^^^ Indorser Face $ 2^L0

.00 Total $ /IS. Proceeds %2j/^.R5 Illustration 171 /^e?-z^ 2 (P 2¥<^ (2 a / /^ 2¥^ 85 When a note is discounted at the bank you will receive credit for the value of the note on the day discounted. Make the entry on the cash receipts side of the cashbook, debiting the Cash account and crediting the Notes Receivable account for the net amount or actual cash received, in the Net Receipts column. Illustration 172 _ 2^ yi^^-^^,iO>^^:,^.£:tAiz,A^~:^^^ 2W JSS This does not credit the Notes Receivable account for the face value of the note, there- fore it is necessary to make a journal entr}- adjusting this account. The journal entry should be made as follows: Illustration 173 .^^LJk.d'^.^'-t-t.'yi-C'^^'^zy /jCc*2ii£^-<4^**'C^ / 5 J S WHOLESALE CARPET AND RUG BUSINESS 197 It is not good practioo to ontor tho disoount on a note in the special columns provided for Discount on Sales and Discount on Purchases. As there is no special column for discount in the cashbook in this set, it is necessary to use a journal entry to make the adjustment. It is possible to make the cross entry in the cashbook which was illustrated for the Discount on Sales when the simple form cashbook is used. Since a cross entry has the distinct disadvantage of not showing the actual amount of cash received, it is avoided in this text. No. 38.— November 22. Check in payment of Butler & Carson Co.'s note due to-day. No. 39. — November 22. Deposit the checks which you have in the cash drawer. No. 40.— November 22. Pay the Simpson Furniture Co., by check, .1150.00, on account. Report No. 5.— Prepare a report and hand it to your instructor for approval. Post all transactions to date. No. 41. — November 23. The express company has returned the C. 0. D. collection of November 20th, by sending you two express money orders for $69.50. They have deducted 50^ as their charge for collecting and returning the money. Express money orders are not made for a sum larger than $50.00. Since Wilson & Brown's bill amounted to $70.00, from which the express company retained 50f^, the agent for the express company made out two express money orders, one for $50.00 and another for $19.50. Express money orders are regarded as cash. Make an entry on the cash receipts side of the cashbook debiting the Cash account and crediting Wilson & Brown's account for the value of the two express money orders. Place the amount in both the Net Receipts and Account Receivable columns, An illustration of the journal entry follows: Illustration 174 Oiec-^^ta^yt-aj-Lrt^Tiy C^ C£,Z^mJ2^. No. 42.— November 23. Write a check in favor of the Howe Carpet Co., in payment of our note due to-day. No. 43. — November 23. This check was received from Walter T. Thompson in payment of bill due to-day, less discount. No. 44. — November 24. Invoice from the Mason Furniture Co., terms cash less 2%. No. 45. — November 24. Fill this C. 0. D. order for one 6x9 Axminster Rug and one 9 X 12 Axminster Rug for A, C. Martin, Boston, Mass. No. 46.— November 25. Fill this order from the Morris Furniture Co., terms on account. No. 47.— November 25. The National Transportation Co. has presented their bill for freight and drayage to date, $16.72. Pay the bill in cash from the cash drawer. No. 48. — November 26. The express company has returned the C. 0. D, collection of November 24th by sending us an express money order. They have charged 25^ for collecting the bill. 198 BOOKKEEPIXC FOIi MODERX IW SI NESS No. 4Q. — November 26. This .30-day note for S500.00 was received from the Morris Furnitui-e Co. to apply on account of bill sold on the 2oth. No. 50. — November 27. Fill this order from Butler & Carson Co., which is received with a 60-day note in full pajTnent of the bill. No. 51. — November 27. Discount at the bank the note received to-day from Butler & Carson. Prepare the discount memorandum. Enter the proceeds on the stub of your check book and add to your previous balance. Make cashbook and journal entries. No. 52. — November 29. Write a check in payment of our note due to-day. Write a 30-day note for S300.00 in favor of the Howe Carpet No. 53.— November 29. Co. to apply on account. No. 54. — November 29. No. 55.— November 30. No. 56.— November 30. Invoice from the J. Barton & Sons' Carpet Co. Fill this order from Walter T. Thompson, terms 2/10 n/30. Your salary for the month of November is due. Write a check for $70.00 in favor of yourself. No. 57. — November 30. Deposit all checks, express money orders, and cash on hand. No. 58. — November 30. Thomas B. Miller desires to have the balance of his personal account transferred to his capital account. ^lake a journal entry debiting his Capital account and crediting his Personal account Illustration follows: Illustration 175 .7^ .,a..c-c- SO '/O so On the pad of Incoming Vouchers will be found a statement from the Second National Bank which shows the balance in bank to the credit of Thomas B. Miller. Prcjiare a reconciliation of the bank statement. Report No. 6. — Prepare the report, and post all transactions to date. Closing the Books of Original Entry. — Foot, rule and check the books of original entry and post the totals of each to their respective accounts in the ledger. Post the total of the Discount on Sales column in the cashbook to the debit side of the Discount on Sales account, and the total of the Discount on Purchases column to the credit side of the Discount on Purchases account. Prepare a trial balance and have it approved by the instructor. Send statements to customers. Inventory Record. — The principal object in keeping the stock record cards is to be able to ascertain at any time the quantity of merchantlise on hand. It is necessary that these cards be accurately kept in order to show the exact amount of unsold goods at the end of the business period. Find the value of the merchandise inventory at the latest cost price. The furniture and fixtures are valued at cost price, S150.00. WHOLESALE CARPET AND RUG BUSINESS 199 The following work is now required : 1. Prepare a Working Sheet as previously instructed. 2. Prepare a Profit and Loss Statement. 3. Prepare a Balance Sheet. 4. Make the closing entries and rule the ledger accounts. 5. Prepare a Proof Trial Balance. Illustration 176 Profit and Loss Statement November 1 — November 30, 19 — Gross Merchandise Sales Less — returned sales Net sales Merchandise Purchases Less returned purchases _ Net purchases Add — Freight Inward Total cost of purchases Deduct — Merchandise inventory, Nov. Cost of merchandise sold Gross profit on sales 1 xxxx XX XXX XX xxxx XX XX XX XXXX xxxx xxxx xxxx XX XX XX XXXX XX XX XX 30, 19— XX XXX XX Other income Discount on Purchases Gross income XX XX XXX XX 1 Deduct from income — Selling Expense General Expense Discount on Sales Interest Paid Net profit X XXX X XX XX XX XX XX XXX XX XXX XX 1 1 Explanation of the Profit and Loss Statement.— The amount of the gross sales, repre- senting the total value of the merchandise sold, is found on the credit side of the Merchandise Sales account; the returned sales on the debit side. The difference or net sales, is the amount found in the trial balance. The gross purchases, representing the total value of the merchandise purchased, is found on the debit side of the Merchandise Purchases account; the returned purchases on the credit 200 BOOKKEEPING FOR MODERN BC SI NESS side. The difference, net purchases, is the amount found in the trial balance. Since the freight charges increase the cost of the merchandise purchased, the amount found in the Freight Inward account is added to the net purchases to show the total cost of merchandise purchased. The cod of merchandise sold is found by deducting the value of the present inventory from the total cost of merchandise purchased. The amount is extended into the second money column as it is to be deducted from the net sales, The gross profit on sales is found by deducting the cost of merchandise sold from the net sales. The amount found in the Discount on Purchases account represents an additional income. This amount added to the gross profit on sales gives the gross income of the business. The tunounts found in the Discount on Sales account, the Interest Paid account the Selling Expense account and the General Expense account, representing amounts allowed to others or paid out for expenses incurred in the management of the business, are deducted from the gross income to show tlie net profit of the business for the business period. ClosiDg Entries. — Illustrations were given at the end of October for the closing entries. Close the accounts in the same order as they were used in making the profit and loss statement. The Freight Inward account is an additional cost to the merchandise, therefore it should be closed into the Merchandise Purchases account, which wall correspond to the step in the statement showing the total cost. The illustrations which follow will show the necessary journal entries to close the accounts not used in the October work. The amounts used in the following illustrations may not be the same as those found in your ledger. Illustration 177 'SO Method of closing Freight Inward account into the Merchandise Purchases account. Illustration 178 V ^ 'S^^^ 2S /^ ^^-f^^7^'i^^, so 2S '9- Jo ^J ..2J- WHOLESALE CARPET AND RUG BUSINESS 201 The following illustrations show the closing of the Discount on Purchases account. The object is to transfer the income shown by this account to the Profit and Loss account. Illustration 179 S^ lustration 180 -'CifLe^ 2S V^V 2S i/a /c^cn^ Ji:? 2.S ^^ JO w^^^T^S-!^ Cy 2S Jl^ W ^£^ II The following illustration shows the closing of the Discount on Sales account. The object is to transfer the loss shown by this account to the Profit and Loss account. Illustration 181 /^:^2^^9=-<=;^ \3a 9^^.^t^xd<^ ^='^^-Si^^i^>i:^-z^i.--f'z/^cP-7-zy>dCt^^ 2S^ Illustration 182 y^i^dU>t2'l-^^'-Z^ (py^t^ a<^ r i -rr- A^cn^ JO ^yCiP-uz^ (-^ /C ^7 S^p-ly^ JO 9^JhtC added to the gross profit to meet all expenses? (Divide the total exp(^nse })y the gross profit.) 8. Wliat is the per cent of the net profit on the capital for the period? (Divide the net profit l)y the capital for the period.) Review Questions : 1. What i§ a Power of Adorney? 2. How do you brief a, legal document? 3. What is a lease? 4. What is a l^ill of Lading? 5. What is the oliject of keeping tiie stock record cards? 6. AMiat is a Special or Full Indorsement? 7. \Vhat is a credit memorandum? 8. What is a C. O. D. sale? WHOLESALE CARPET AND RUG BUSINESS SELLING PRICE LIST FOR NOVEMBER AND DECEMBER 203 1 2 3 4 5 6 7 8 9 10 11 12 Axminster Rugs, 6x9 $12.50 .$12.45 $13.00 $12.75 $12.60 $12.50 $12.60 $12.40 $12.00 $12.20 $12.80 $13.10 Wilton Rug, 9 X 12 45.00 45.25 45.50 44.75 45.10 45.40 46.00 44.50 45.50 45.00 44.75 45.25 Ingrain, yd. .87 .86 .88 .85 .84 .90 .91 .87 .83 .88 .92 .88 Tapestry Brussels, yd. 1.02 1.01 .97 1.00 .99 .98 1.03 1.04 1.03 1.05 1.02 .97 Axminster Rugs, 9 x 12 22.50 22.55 22.00 22.25 22.40 22.50 22.40 22.60 23.00 22.80 22.20 21.90 Wilton Rug, 6x9 29.50 29.25 29.00 29.75 29.40 29.10 28.50 30.00 29.00 29.50 29.75 29.25 Velvet, yd. 1.47 1.48 1.46 1.49 1.50 1.44 1.43 1.47 1.51 1.46 1.42 1.46 Body Brussels, yd. 1.65 1.70 1.95 1.55 1.40 1.63 1.65 1.43 1.44 1.65 1.95 1.63 Axminster, yd. 1.80 1.81 1.85 1.82 1.83 1.84 1.79 1.78 1.79 1.77 1.80 1.85 Wilton, yd. 4.50 4.45 4.20 4.60 4.75 4.52 4.50 4.72 4.71 4.50 4.20 4.52 Tiining .14 .13 .16 .15 .17 .14 .18 .15 .13 .17 .18 .14 SELLING PRICE LIST FOR NOVEMBER AND ] DECEMBER (Conti nued) 13 14 15 16 17 18 19 20 21 22 23 24 Axminster Rugs, 6x9 $12.90 $12.10 $12.50 $12.60 $12.80 $12.60 $12.30 $12.40 $12.20|$12.50 $12.40 $12.30 Wilton Rug, 9 X 12 46.00 44.50 44.75 45.50 45.00 45.40 46.00 45.25 44.50 45.10 45.00 44.50 Ingrain, yd. .85 .87 .90 .83 .92 .84 .88 .92 .87 .91 .88 .90 Tapestry Brussels, yd. .99 1.03 1.02 1.00 1.07 1.04 1.05 .99 1.00 1.02 1.01 1.05 Axminster Rugs, 9 x 12 22.10 22.90 22.50 22.40 22.20 22.40 22.70 22.60 22.80 22.50 22.60 22.70 Wilton Rug, 6x9 28.50 30.00 29.75 29.00 29.50 29.10 28.50 29.25 30.00 29.40 29.50 30.00 Velvet, yd. 1.49 1.47 1.44 1.51 1.42 1.50 1.46 1.42 1.47 1.43 1.46 1.44 Body Brussels, yd. 1.65 1.55 1.40 1.70 1.44 1.95 1.55 1.95 1.70 1.63 1.43 1.55 Axminster, yd. 1.83 1.79 1.80 1.82 1.75 1.78 1.77 1.83 1.82 1.80 1.81 1.77 Wilton, yd. 4.50 4.60 4.75 4.45 4.71 4.20 4.60 4.20 4.45 4.52 4.72 4.60 Lining .12 .19 .18 .14 .17 .16 .15 .13 .14 .17 .18 .19 SELLING PRICE LIST FOR NOVEMBER AND DECEMBER (Continued) 25 26 27 28 29 30 31 32 33 34 35 36 Axminster Rugs, 6x9 $12.70 $12.20 $12.60 $12.70 $12.50 $12.45 $12.80 $12.00 $13.00 $13.10 $12.30 $12.90 Wilton Rug, 9 X 12 45.40 45.40 46.00 45.25 45.50 44.50 45.10 44.75 45.00 45.10 46.00 44.50 Ingrain, yd. .84 .88 .92 .90 .87 .91 .84 .85 .83 .90 .87 .92 Tapestry Brussels, yd. 1.02 1.00 1.05 1.00 1.02 .97 1.04 1.03 .99 .98 1.01 1.02 Axminster Rugs, 9 x 12 22.30 22.80 22.40 22.30 22.50 22.55 22.20 23.00 22.00 21.90 22.70 22.10 Wilton Rug, 6x9 29.10 29.10 28.50 29.25 29.00 30.00 29.40 29.75 29.50 29.40 28.50 30.00 Velvet, yd. 1.50 1.46 1.42 1.44 1.47 1.43 1.50 1.49 1.51 1.44 1.47 1.42 Body Brussels, yd. 1.65 1.40 1.55 1.70 1.65 1.95 1.44 1.63 1.43 1.65 1.95 1.40 Axminster, yd. 1.80 1.82 1.77 1.82 1.80 1.85 1.78 1.79 1.83 1.84 1.81 1.80 Wilton, yd. 4.50 4.75 4.60 4.45 4.50 4.20 4.71 4.52 4.72 4.50 4.20 4.75 Lining .15 .12 .18 .15 .19 .14 .17 .19 .16 .14 .12 .18 204 BOOKKEEPING FOR MODERN BUSINESS DRAFTS AND TRADE ACCEPTANCES When merchants sell merchandise on account, payment is usually made by check. Some- times customers fail to pay for the merchandise according to the terms of the sale. Then their attention is called to their past-due accounts bj^ telephone or by a personal letter. Suppose C. J. Clark of New York City, to whom J. T. Brown of Philadelphia had sold merchandise amounting to $250.00, failed to pay his account when due. ]\Ir. Brown would write a letter calling Mr, Clark's attention to the overdue account requesting him to pay the S250.00. Assume that Mr. Clark failed to pay the amount due and continued to ignore Mr. Brown's letters requesting payment. What procedure would follow? Business men have found that a customer will not be likely to refuse pa3'ment of a past- due account when the request is made through a bank, in order to preserve their financial standing. The following letter, therefore, might be written by Mr. Brown and delivered to the Second National Bank requesting payment by Mr. Clark. Philadelphia, Pa., April 3, 19- Mr. C. J. Clark, 658 Wall Street, New York, N. Y. Dear Sir: Please pay two hundred fifty ($250.00) dollars to the Second National Bank when this written request is presented to you. This is the amount with which I have you charged on our books. Charge my account when you have paid the Second National Bank this amount. Yours very truly, JTB/GH (J. T. Brown) If the form of such a letter or request were changed somewhat and the negotiable words or order or or bearer added, it becomes a commercial negotiable paper called a draft, as shown in the following illustration: Sight Draft (for Collection) Illustration 185 $2.JJ2Jf^ PHILADELPHIA. PA. /C^C^^^ .9 \ 9 -_ Tin: ORDER Of P.VV TO WITH eXCHANOE r- N.M.LiE RECKrSTSD AND CH^VRGK THE S.\M li TO ACCOl .N T OI^ TO (^.{ / . ( ^y ^^ y ) n /3/p z^ DRAFTS AND TRADE ACCEPTANCES 205 The foregoing draft is simply a moro formal request than the letter asking C. J. Clark to pay the Second National Bank, or anyone to whom the Second National Bank endorses the draft, S250.00 which he owes Mr. Brown. A draft is a written request drawn by one party directing a second party to pay a certain sum of money to the order of a third party. Parties to a Draft.— The three names mentioned in Illustration 185 are known as the parties to the draft. J. T. Brown, who makes the request, is called the draiver. C. J. Clark, to whom the request is made, is called the draivee. The Second National Bank, which presents the written request, is called the payee. Thus: The drawee is the one who owes the money, and on whom the draft is drawn. The drawer is the one to whom the money is owed, and who writes or draws the draft. The payee is the one to whom the draft is made payable. Kinds of Drafts.— If the written request directs the drawee to pay money at sight (the time of presentation of the draft) it is called a sight draft. If the written request dii'ects the money to be paid at some time in the future, it may be a time draft or a time sight draft. Use of Drafts.— A draft is drawn, to make collections, or to transfer credit. In the sight draft illustrated in No. 185, Mr. Brown requested Mr. Clark to pay $250.00 to the Second National Bank instead of paying the money to him. It is the same as if the money had been paid to Mr. Brown and deposited by him in the Second National Bank. His bank account has been increased by this amount. The following illustrates the form of the entry which Mr. Brown would make on the cash receipts side of his cashbook, debiting the Cash account and crediting C. J. Clark's account. Illustration 186 J. T. Brown's (The Drawer) Cashbook Entry : Cash Receipts C^-^i^ J GGCLil^ ■^.^■i-iX^i^ 2SO ao In actual business it is not customary for the drawer of a draft to make an entry in his books crediting the drawee's account until the money is received, or as in the above case, until collected and the amount placed to the drawer's credit in the bank. In this and the following exercises it will be assumed that the parties will pay the drafts when presented, in order that the entries may be made and fully explained at the time the exercises are given. Terms of Expression.— When a sight draft is paid by the drawee it is said to be honored; if the drawee refuses to pay the draft when it is presented to hun it is said to be dishonored. Drafts Drawn to Transfer Credit.- Another form of a draft less frequently used in business to-day may be drawn to transfer credit. Suppose J. T. Brown had purchased merchandise valued at $250.00 from William Miller of New York City. Instead of drawing a draft in favor of the Second National Bank, Illustration 185, Mr. Brown could have substituted William Miller's name. Since both Mr. Clark's and Mr. Miller's places of business are in New York City, Mr. Clark could pay the money directly to Mr. Miller; thus Mr. Clark would cancel his indebtedness to Mr. Brown and Mr. Brown would cancel his indebtedness to 206 BOOKKEEPING FOR MODERN BUSINESS Mr. ]\Iiller. This method of settling indebtedness constitutes a convenient way when the drawee's and payee's places of business are in the same town or city. It relieves the drawee from sending money to the drawer which can more easily l^e paid directly to the payee. Illustration 187 is a sight draft drawn by J. T. Brown (drawer) on C. J. Clark (drawee) in fa\'or of William Miller (payee). Sight Draft (Transfer Credit) Illustration 187 S-^:..^^- /^ PHILADELPHIA, PA. /^^^^^A^^Jy^ . ? IH - PAV TO TirE ORDE . /..■'i^i^-ty .^A^£yC-)^L't::?>±^ ^^^' WITH EXCHANGE DOLLARS ^ALL•E RECEI\T3D AMD CILVItGL: TIIL: S.VME TO ACCOUNT OF lO. 0(7rA.J. NO. C/ ^Q ^^ ■^V^y'-l^-y J. T. Brown's (The Drawer) Journal Entry. — The following illustrates the entry which J. T. Brown would make debiting William Miller's account and crediting C. J. Clark's account. Illustration 188 -2J-^ £>£> 2SO In Illustration 188 J. T. Brown debited William Miller's account to show that he paid him S2o0.00 (through C. J. Clark), and he credited C. J. Clark's account to show that C. J. Clark canceled his ind(0)tedness to him. Th(> money did not pass through the hands of Mr. Brown. C. J. Clark's (The Drawee) Cashbook Entry. — The following illustrates the form of entry which C. J. Clark would make on the cash payments side of his cashbook, debiting J. T. Brown's account and crediting the Cash account. Cash Payments Illustration 189 {i!!^Ut:/- ^■'y- /C^^^--yz^9^>Jrp'f'Z^ Cash Receipts ^'t'-yz^t^^ J J/ /S JtiJ 7^ William Miller received the money from C. J. Clark at the written request of J. T. Brown. Since C. J. Clark was not indebted to William Miller but paid him at the request of J. T. Brown, C. J. Clark's name is not recorded on William Miller's books. Time Draft (Three Parties) Illustration 191 %2.^0 PHILADELPHIA, PA.. li.19 I'AV TO ?»yM^^ DOLLARS EXCHANGE \ ALUE RECEIMED ^\ND CHARGE THE S.'OIE TO ACCOUNT OF Time Drafts.— The draft illustrated in No. 191 is the same as the draft illustrated in No. 187 with the exception that it is to be paid by the drawee, C. J. Clark, thirty days after April 3d or on May 3d; therefore it is called a time draft. The drawer's entry is the same for the above tune draft as it was for the three-party sight draft illustrated in No. 188. The time draft is taken by William Miller, the payee, to C. J. Clark, the drawee, who either honors or dishonors it. To honor a time draft is to agree to pay it at maturity, the day it is due. This agreement should be in writing and signed by C. J. Clark (drawee). Writing the word accepted across the face of the draft and signing it constitutes an agreement to pay the amount of the draft when due. This agreement is called accepting the draft. When the time draft. Illustration 191, has been accepted by C. J. Clark, the drawee, it becomes his written promise to pay. This, as you have learned in previous work, is called a Notes Payable. The accepted draft will be held by William Miller, the payee, until the day of maturity when it will be presented by him to C. J. Clark, the drawee, for payment. C. J. Clark should debit J. T. Brown's account and credit the Notes Payable account. His entry should be made in the notes payable book. 208 BOOKKEEPIXC; FOR MODERN BUSINESS Accepted Time Draft Illustration 192 $2^^^^ PHILADELPHIA, PA. ^, 19^ PAV TO DOLLARS _fl^ 6^(2-r^y-^y The Notes Payable account should include both promissory notes and accepted drafts. William Miller should debit the Notes Receivable account and credit J.T.Brown's account. His entry should be made in the notes receivable book. Time Sight Draft fThree Parties) Illustration 193 %^.^n J^ 19 p. W TO DOLLARS \'.VLUE RKCEINTSn AND CHARGE T aaa^AA N o. y/. ^. s /r')^M^£!^?7^^.^'U^J^ TZ'U . / / h>i^r7i'^./->i:y The time draft illustrated in No. 192, r(>ads Thiriy days after date, whicli means that it will be due and payable thirty days after April 3d, even if not accept i\l until a (.late later than April 3d. The time sight draft illustrated in No. 193 reads Thirty days after sight, which means that it will be due thirty days after it has been accepted by the drawee. The time draft illustrated in No. 192 is due on May 3d (thirty days after the date of draft). The time sight draft illustratofl in No. 103 is due on May .")th (thirty days after the date of acceptance). All entries for the draft illustrated in No. 193 are the same as for No. 192. DRAFTS AND TRADE ACCEPTANCES Sight Draft (Two Parties) 209 Illustration 194 $^^cZl£ PKULADELPHIA. PA. /^^^^^•;/ .19 PW Ti) THE ORDER OF TH EXCHANGE DOLLARS \ALUE RKCEIVED .WD CHi^J^GE THE S.VME TO ACCOUNT OF V. / A >^..^9-/^y-pi'^ The draft illustrated in No. 194 is used extensively in business for the purpose of collecting accounts that are due or past due. The draft is made payable to the order of the drawer or his agent and is usually left at a bank for collection. In a two-party draft the payee is the drawer or his agent. J. T. Brown's (Payee and Drawer) Entry: Illustration 195 J QG.(2La^ iso': e>e> Mr. Clark's entry for Illustration 194 would be the same as in Illustration 189. Accepted Time Draft (Two Parties) Illustration 196 ^ J^.5-^^ THE ORDER OF d^^sz^ PAV TO OLI^AJRS N-O.^ZZ' r ^y'-^y 210 BOOKKEEPING FOR MODERN BUSINESS In Illustration 196 the drawer, J. T. Brown, would make an entry in his notes receivable book debiting the Xotes Receivable account and crediting C. J. Clark's account. C. J. Clark would make an entry in his notes payable book debiting J. T. Brown's account and crediting the Notes Payable account. Observations : The Drawer's Entries A Three-Party Draft. The drawer credits the drawee's account. The drawer debits the paj^ee's account unless the payee is an agent to collect the money, when the entry would be the same as for a two-party draft. The Drawee's Entries The drawee always debits the drawer's account. The drawee credits the Cash account if it is a sight draft. The drawee credits the Notes Payable account if it is a time draft or a time sight draft. The Payee's Entries The payee always credits the drawer's account. The payee debits the Cash account if it is a sight draft. The payee debits the Notes Receivable account if it is a time draft or a time sight draft. A Two-Party Draft. — In a two-party draft the drawer and payee are the same person. The Drawer and Payee's Entries As payee, he would debit the Cash account if a sight draft, or debit the Notes Receivable account if a time draft or a time sight draft. As drawer he would credit the drawee's account. The Drawee's Entries The drawee's entrj^ is the same in a two-party draft as it is in a three-partj' draft. A notice of protest is a formal act of a Notary Public, declaring certain paper dishonored by the payer, and holding the person who previously held title to the paper liable to the holder. The law requires that each person secondarily liable for the payment of any commercial paper, shall be notified in case of dishonor. However, the holder can waive or set aside this requirement by using the No Protest notice shown on the left-end of Illustration No. 193. Questions in Review: Do not, under any consideration, attempt to proceed further in the work until you can answer the following questions. 1. What is a draft? 2. What names are given to the parties to a draft? 3. What is a sight draft? 4. What is a time draft? 5. What is a time sight draft? G. What entry does the drawer always make when a three party draft is drawn? 7. What party does the drawee always debit? 8. What party does the payee always credit when a three party draft is drawn? 9. What is meant by honoring a draft? 10. What is meant by accepting a draft? 1 1 . What agreement does it constitute? DRAFTS AND TRADE ACCEPTANCES 211 Exercises for the Student Exercise 96 Write the drafts called for in the following exercises, and make the journal, cashbook, and notebook entries for each party. May 1, 19—. Albert Reed & Co., Cincinnati, Ohio, owe you $450.00, and they have agreed to honor your sight draft on them in favor of H. H. Ervien. May 2, 19—. Martin C. Hoover, Pittsburgh, Pa., has drawn a sight draft on you for $500.00, in favor of the Pittsburgh National Bank. May 3, 19—. You received from Walter T. Scott, Albany, New York, on May 2d, a sight draft drawn on Clifford Moore (your city) for $240.00. You presented the draft to Mr. Moore to-day and received payment. May 5, 19—. You owe Walter C. Cannon, Lima, Ohio, $200.00, and H. S. Lehr of the same town owes you a like amount. Draw a sight draft that will settle the two accounts. May 6, 19 — . J. C. King, Boston, Mass., drew a 10-day time draft in your favor on John C. Peiffer of your city for $350.00. You presented the draft to Mr. Peiffer, and he accepted it. Write the acceptance for Mr. Peiffer. May 8, 19 — . You have to-day accepted a 10-day sight draft for $230.00, drawn by Oliver Mason, Chicago, 111., in favor of George W. Long (your city). May 10, 19—. Draw a 30-day time draft on Charles Murry, Philadelphia, Pa., for $260.00, in favor of yourself. Accept the draft for Mr. Murray. May 12, 19—. You owe Byron T. Smith $400.00 on account, and you give him in pay- ment a sight draft drawn on Henry Mason, Ada, Ohio, for this amount. May 16, 19 — . You have on hand the acceptance received from John C. Peiffer on the 6th, which is due. Present it to Mr. Peiffer for payment. May 18, 19 — . George W. Long of your city presented your acceptance of the 8th for payment. You have written a check to pay it. May 20, 19—. Draw a 10-day draft on W. D. Ferris, Akron, Ohio, for $120.00, in favor of J. L. Plummer. Accept the draft for W. D. Ferris. Suppose Thomas B. Miller & Co., Philadelphia, Pa., wish to buy merchandise from Brown & WTiite, Albany, New York, amounting to $550.00. If their financial standing is unknown to Brown & White, they should not send their own check, but should buy a bank draft from the bank in which they keep their deposit and send it to them instead. Brown & White will accept the draft in payment and ship the merchandise at once. Banks have, as agents, other banks, called correspondents, in financial centers, with whom they carry de- posits. It is against these deposits that orders or drafts are drawn. A bank draft may be made payable to the order of the person or firm to whom it is to be sent, or to the order of the purchaser. The better plan is to have the draft made payable to the order of the purchaser, who will, in turn, endorse it to the person or firm from whom the goods were purchased. The endorsement will enable the draft to be identified if it should become separated from the instructions relating to it. The following form illustrates how Thomas B. ISIiller & Co., should draw their check in order to buy a bank draft from the Second National Bank. 212 Illustration 197 BOOKKEEPING FOR MODERN BUSINESS Philadelphia, Pa., ^ 4<. 19, Pay to the order of SECOND NATIONAL BANK 3-6i Some banks charge a small fee for the draft, while others do not charge regular customers. The above check is drawn for 50c more than the face of the draft, and this charge is called Exchange. When Thomas B. Miller & Co. send tlicir check to the Second National Bank, the cashier will issue a bank draft to their order similar to the following form : Bank Draft Illustration 198 No. 1987 Philadelphia, Pa., 2 4< 19^ Pay to the order of SECOND NATIONAL BANK 3-6i Dollars To National City Bank New York, N. Y» A hank draft is an order drawn by the cashier of one bank upon a l)ank in another city or town. A bank diaft does not differ from an ordinary sight draft except that it is drawn by one bank on another, and is made payable to the order of a thirtl party. The bank draft is a convenient and safe way of making remittances of money. The draft is usually drawn in favor of the purchaser, who endorses it to the person or firm to whom it is to ])e sent. As Thomas B. Miller & Co. have had the draft made payable to their order, they should endorse the draft before mailing it to Brown tt White as shown in Illustration 199. DRAFTS AND TRADE ACCEPTANCES 213 A Full Indorsement The entry for a bank draft "'"^tration 199 is the same as for a check. Trade Acceptance. — A trade acceptance is an uncon- ditional written order ad- dressed by the seller to the purchaser, signed by the person drawing it, asking the person to whom it is addressed to pay at a stated time in the future a certain sum in money to the order of a specified person, A trade acceptance is somewhat similar in form to the ordinary accepted draft, yet differs from it in character and circumstances under which the trade acceptance is drawn. A trade acceptance must arise out of an actual commercial transaction. It must comply with most of the requirements of negotiable paper. It must possess a definite maturity. It BANK C/^^^ ^/^^TO ~~ — Dollars X,,^^ /yr (l^te^v!?-z-.,&^^^-2^:-- \^ Cashier/Z Trade Acceptance Illustration 200 Philadelphia, Pa., ON. July 1, Megrl 1,: TIT "FT Two hundred OOf^lOO o "517 -£^^S ^ J'Af :Q>TOR h|reob awsbs :e order of ourselves OLLARS ($^00_00/lOO_) vixv^^, ^^ XX r.^^ »-^>. ^ - -- -'F THE PURCHASE OF GOODS FROM THE DRAWER. ' THE DRAwS wTAY^AiCCEPT THIS BIL^ AT ANY BANK, BANKER. OR TRUST No. 28 THE OBLIGATION OF TI§ ACC xxxx^ DRAWER. THE DRAWM MAY AiCCEPT THIS BILL PAYA^l^ COMPANY IN THE UNITED S-^ES JJiPCft HE M*Y D^Sl^NATE.N^ O O TO. Robinson & Daley ^ 1106 State St. PQ Chicago, Sll^ ir T. C. Martin & Co >5 OQ ^y J^T^ziayiJ^^ must be an unconditional promise to pay at maturity. It must be signed by the party who has made the purchase. All of the above requirements tend toward making the paper self- liquidating. 214 BOOKKEEPING FOR MODERN BUSINESS The Use of the Trade Acceptance. — When a person sells merchandise to another, he may send witli the bill a trade acceptance which the buyer will accept and return. The person selling the merchandise may take the trade acceptance to his bank, discount it and reinvest the money at once. When merchandise is sold on account, the money is not immediately available for reinvestment. Credit given under the open account system is always for an indefinite period of time. The trade acceptance has a definite, specified period. The trade acceptance is given at the time the transaction is made, and carries with it no imputation of inability to pay. The trade acceptance has been almost the only commercial credit paper used in continental Europe for several years. The principal thought behind the trade acceptance is to make the financing of real trans- actions easier for all concerned — to make it easier to trade by making the credit of the countr}' more mobile. Method of Accounting Trade Acceptances.- -When the buyer accepts a trade acceptance, he has placed himself in the same position as the acceptor of a draft. It has the same relation to the buyer as a notes payable and to the seller as a notes receivable and is entered as such. Some firms, where the number of trade acceptances is large, prefer to open accounts with Trade Acceptances Receivable and Trade Acceptances Pay- able. It is also desirable in some instances to show the value of each sale in the customer's account and credit his account from the Notes Receivable book. The latter method has been used in this text. WHOLESALE CARPET AND RUG BUSINESS 215 THE WHOLESALE CARPET AND RUG BUSINESS Thomas B. Miller & Co. Preliminary Explanations.— The object of this set is to continue the work of November under a contract of partnership between Thomas B. Miller and the student. Partnership. — A partnership is a relation created by contract made between two or more persons to combine their property, effects, labor, or skill in a lawful business and to divide the profit or loss between them. The contract of partnership may be verbal or in writing. Articles of Copartnership is a written contract which sets forth the legal relation of the parties interested. The essential parts of any written Articles of Copartnership are given below : 1. Name of the firm. 2. Purpose and nature of the business. 3. Place of business. 4. Date of commencement and duration of partnership. 5. Amount of capital. 6. Activities of partners. 7. Length of fiscal period, etc. 8. Distribution of profit 9. Salaries to be paid to each partner. 10. Provision for dissolution. Additional provisions may be added to fit the peculiarities of the business. Thomas B. Miller and the student have agreed to form a partnership, and to continue the carpet and rug business located at 487 State Street, Philadelphia, Pa. The student is to invest in cash a sum equal to Mr. Miller's present worth at the close of the business on Novem- ber 30th as shown by the Balance Sheet. Remove the Articles of Copartnership from the pad of Incoming Vouchers, sign it and have your instructor sign it for Mr. Miller. Brief and file the agreement. No. 59.— December 1. The name of the firm is to be Thomas B. Miller & Co. Take the Morris Furniture Co's. note from the Notes Receivable file and endorse it as follows: Pa^/ to the order of Thomas B. Miller & Co., Thomas B. Miller. Write a check in favor of Thomas B. Miller & Co. for the amount of Thomas B. Miller's bank balance as shown by the stub of the check book. No entries are necessary. The object is to transfer the right of property to the new firm. A bill of sale is a written statement which clearly expresses a transfer of interest in property. Make your investment in the business by filling out the blank check found on the pad of Incoming Vouchers. The check should be drawn for the same amount as Thomas B. Miller's present worth at the close of November. Draw a red line in the cashbook beneath the balance of cash. This is done in order that it will not be posted a second time to the ledger account. Future postings to the cash account in the ledger must be only for the new receipts and payments of cash. Make an entry for your cash investment in the cashbook immediately below the balance for November. Prepare a brief memorandum in the journal of the conditions under which the copartnership was formed. Deposit your check and the one signed by Thomas B. Miller in the Second National Bank. Endorse the checks in the name of the firm. No, 50. — December 1. It has been decided to purchase the store and lot at 487 State St., in which the business is now located, from the Philadelphia Real Estate Co., for $7,000.00, 216 BOOKKEEPING FOR MODERN BUSINESS value of lot 81,000.00. The deed has been sent to the Recorder of Deeds for record and transfer of title. A deed is any authority or contract in writing, signed, sealed, and delivered, that purports to convey the title to lands from one person to another. Write a check in favor of the Philadelphia Real Estate Co. for $7,000.00. Sign the check as shown in the following illustration. Illustration 201 No._^^ _ Philadelphia, Pa., ^-^yLk^^ / 19- SECOND NATIONAL BANK 3-6i Pay to the order >:^^ No. 61. — December 1. We have had the building insured for 84,000.00 in the ^Mercantile Y'lXKi Insurance Co. at a yearly premium of $60.00, and our stock of goods insured for 82,000.00 in the same company at the monthly premium rate of 32^ per hundred. Write a check in favor of the Mercantile Fire Insurance Co. for $66.40, in payment of the policies. Charge this amount to the Insurance Prepaid account. No. 62. — December 2. Pay this bill for stationery by check. No. 63. — December 2. Invoice from W. B. Jones & Sons, terms, 2 15, n/30. Stock Record cards will not be kept during the month of December. No. 64. — December 2. Invoice from the INIason Fm-niture Co., terms, 10-day trade acceptance. Accept it and make entries in the purchases journal and notes payable book. No. 65.— December 2. Draw a check for $200.00 in favor of Cash. Cash it and place the monc'3 in the cash drawer. The 8200.00 in currency will be used to pay small bills and other expenses which occur from time to time. No entry is made for this check in the cashbook, as we have only trans- ferred the money from the bank to our cash drawer, and it is still in our possession. No. 66. — December 3. Order from Butler & Carson Co., accompanied bj' a check for 8300.00 to apply on account. No. 67. — December 3. Order from John J. Howard tt Co., terms on account. No. 68. — Decenilier 3. Write a telegram of ten or less words ord(M-ing from the Mason Furniture Co. 80 j^ds. Body Brussels; 60 yds. Axminster. Pay 35ff in currency for the tele- gram. Have the telegram approved by the instructor. Write a letter confirming the telegram. The following suggests the general wording and the form of a telegram. WHOLESALE CARPET AND RUG BUSINESS 217 CLASS OF SERVICE DESIRED | TELEGRAM DAY LETTER — NIGHT MESSAGE NIGHT LETTER Pctrons should nuik an X opiio- tlte Die class o( senrka dosireil: OTHERWISE THE MESSAGE WILL BE TRANSMITTCD AS A FULL-RATE TEL£G!WM WESTEJ^k UNION AM NEWCOMB CARLTON. PRCSIOBNT OEOROE W. E. ATKINS. FIRST VICB-PRKSIDKNT I OR CHARCa Send tba following message, sobject to the temii ' oa back hereof, which are hereby agreed Co Philadelphia Pa December 3 19 To Mason Furniture Co Boston Mass Send eighty yards velvet ten wilton rugs nine by twelve Thomas B Miller & Co A business house preserves duplicate copies of all papers sent out. All telegrams should be typewritten if possible. When this is impossible, it is of the utmost importance that the handwriting be legible. If the message to be sent is important, it is customary to request the receiving operator to repeat the message to the sending operator. Repeating the message practically insures its correct transmission. An additional charge of one-half the unrepeated telegram rate is made for this service. A carbon copy of the telegram with a letter confirming the message should be mailed immediately after the message has been sent. The letter may begin as follows: "The following is in confirmation of our telegram of this date," etc. No. 69. — December 4. Pay the bill by check. No. 70. — December 4. 2/10, n/30. No. 71. — December 4. No. 72. December 6. to apply on account. No. 73. — December 6. sent on the 3d. No. 74. — December 6. No. 75. — December 7. Bill from the Dayton Furniture Co. for one office desk, $48.00. Fill this telegraphic order from Walter T. Thompson. Terms T. J. Jackson & Co. send their check for $200.00 on account. Send a check to the J. Barton & Sons' Carpet Co. for $300.00 Invoice from the Mason Furniture Co. in response to our telegram Pay this freight bill by check. Draw a sight draft on T. J. Jackson & Co. in favor of the Howe Carpet Co., for $510.00, in full of account. Review the exercises previously given for sight drafts. By referring to the Howe Carpet Co.'s account in the ledger it will be found that we owe them a balance on their invoice of November 17th. Since T. J. Jackson & Co. is indebted to us, we have decided to request them to pay a part of what they owe us to the Howe Carpet Co. Write a sight draft, and enclose it with a letter properly addressed to the Howe Carpet Co. advising them of the remit- tance. It is customary also to write a letter to the drawee, in this case T. J. Jackson & Co., advising them that you have drawn on them in favor of the Howe Carpet Co. and requesting them to honor the draft when it is presented to them by the Howe Carpet Co. 218 BOOKKEEPING FOH MODERN BUSINESS No. 76. — December 7. Order from W. C. Mills, Lima, Ohio. Draw a 30-day trade acceptance for the amount of the bill. Have j-our instructor accept it for W. C. Mills. Forms of Notification of Drafts Philadelphia, Pa. , December 7, 19- Rogers & Co. , Baltimore, Maryland. Gentlemen We have this day drawn upon you at sight. in favor of the Brown Ca rpet Co. f your city, for $600. 00. PI ease honor | the draft wh en presented for payment. Yours very truly. Thomas B. Miller & Co. 1 Per Philadelphia, Pa., December 7, 19- The Brown Carpet Co., Baltimore, Maryland. Gentlemen: Enclosed find a sight draft on Rogers & Co., drawn in your favor, for $600.00, the balance due on your invoice of November 17. Yours very truly. Thomas B. Miller & Co. Per No. 77. — December 7. Discount at the bank the trade acceptance received from W. C. Mills in the above transaction, and receive credit for the proceeds. Report No. 7. — Prepare a report and post all entries to date. No. 78. — December 8. Draw a sight draft on Morris Furniture Co., in favor of J. Barton & Sons' Carpet Co., for the amount of the Morris Furniture Co.'s indebtedness, and forward it to J. Barton & Sons' Carpet Co. to apply'on account. Draw the sight draft and write the necessary letters. No. 79. — December 8. Order from A. C. Martin, with the request that it be filled at once and shipped by express, C. O. D. No. 80. — December 8. Give the J. Barton & Sons' Carpet Co. your 10-dav note with interest at G% for tiie balance of the invoice of November 19th. No. 81. — December 9. Fill this order from W. C. Mills. He has agreed to accept our 10-day trade acceptance. Write it and have your instructor accept it for W. C. Mills. No. 82. — December 9. Invoice, accompanied by a 10-day trade acceptance, from the Howe Carpet Co. Accept the trade acceptance. No. 83. — December 9. Check from T. J. Jackson & Co., to apply on account. WHOLESALE CARPET AND RUG BUSINESS 219 No. 84. — December 10. Discount the note received from the Morris Furniture Co. on November 26th, and have the net proceeds placed to your credit. No. 85.— December 10. Prepay your note for $300.00 given to the Howe Carpet Co. on November 29th. Deduct the discount for the unexpired time. No. 86. — December 10. Order from A. J. Keister, Nashville, Tenn., terms on account, 2/10, n 30. No. 87.— December 10. Check from Walter T. Thompson, Louisville, Ky., for bill of November 30th, less 2%. No. 88. — December 11. The American Express Co. has returned the collection of December 8th. Collection charges 50^. No. 8Q.— December 11. Invoice from T. M. Lewis & Co., Harrisburg, Pa., terms cash less 3%. Write a check for the net proceeds. No. 90. — December 11. Prove cash and submit your proof to your instructor for approval. No. 91. — December 13. A. J. Keister, Nashville, Tenn., to whom you sold a bill of goods on the 10th, reports that 30 yds. of Body Brussels were defective. Allow him a rebate of 40(^ per yd. No. 92. — December 13. Deposit all checks and the express money orders on hand. No. 93.— December 13. The body Brussels carpet bought from the ^lason Fm-niture Co. on the 6th is defective, and they have agreed to allow you a rebate of 25(^ per yard. No. 94. — December 14. Draw a sight draft on John J. Howard & Co., Philadelphia, Pa., in our favor, for the bill of November 19th, and deposit it in the bank. Prepare the draft and endorse it to the bank. Prepare a deposit shp and take the draft to your instructor, who will enter the amount in your pass book. The practice followed by some banks is to place sight drafts to the credit of responsible depositors, when requested by them to do so, the same as checks or express money orders. If the draft is not paid when presented, the dspositor is notified, whereupon he gives the bank his check for the amount of the draft. Since John J. Howard & Co. have agreed to honor your draft when presented for payment and the bank has credited your account, this draft will be regarded as cash. Enter the draft on the cash receipts side of the cashbook, crediting John J. Howard & Co. Add the amount of the draft to j^our check book balance. No. 95. — December 14. Check from Walter T. Thompson, Louisville, Ky., for invoice of the 4th, less 2% discount. No. 96. — December 14. Prepay your trade acceptance of December 2d, due January 1st, by check, less discount at 6% for the unexpired time. No. 97. — December 15. The bank presents a sight draft from J. Barton & Sons' Carpet Co. for $101.00. Write a check for this amount in favor of the Second National bank and charge it to the J. Barton & Sons' Carpet Co. Although the check was written in favor of the Second National Bank, charge the J. Barton & Sons Carpet Co.'s account. The bank is only collecting the draft and will remit the amount to the J. Barton & Sons' Carpet Co. Have the bank stamp the draft Paid. No. 98.— December 15. Order from the Morris Furniture Co., Detroit, Mich. They have enclosed their 15-day interest-bearing note in payment. No. 99. — Pay this freight bill by check. 220 BOOKKEEPING FOR MODERN BUSINESS No. 100. — December IG. 60-day interest-bearing note. No. 101.— December 16. No. 102. — December 16. No. 103.— December 17. Order from T. J. Jackson & Co. It is accompanied by a Order from W. C. Mills, Lima, Ohio. Invoice from T. M. Lewis & Co., Harrisburg, Pa. Write a check in favor of W. B. Jones & Sons, Washington, D. C, in payment of invoice of December 2d, less 2% discount. No. 104. — December 17. The Second National Bank presents a sight draft drawn upon us by the Simpson Furniture Co., Knoxville, Tenn., for the balance of the invoice of November 6th. No. 105. — December 17. Order from the Morris Furniture Co., Detroit, Mich. The goods are to be shipped In' freight f. o. b. Philadelphia. They request that we prepay the freight and charge it to their account. When goods are shipped f. o. b. (free on board) place of shipment, the seller delivers the merchandise to the transportation compan}^, which transports the merchandise at the expense of the buyer. Shipping goods/, o. b. Philadelphia means that you are to deliver the goods to the transportation company^ and the Morris Furniture Co. is to pay the freight charges from Philadelphia to Detroit. As they have requested you to prepay the charges, you will do so and charge it to their account. Prepare the bill, terms, On account, f. o. h. Philadelphia. Take $6.50 from the cash drawer and prepay tlie freight charges. Make an entry in the cashbook as follows: Illustration 202 /7 //CtT^/i^.^Ci^A^'Vc^li-d^yL.,^^ -;^-^.^^e«^^ai^^^^<^^^^2^ The amount of the prepaid freight charges should be added to the amount of the bill. No. 106. — December 18. Write a check in favor of the J. Barton & Sons' Carpet Co. in payment of your interest bearing note due to-day. Take the note from the Notes Payable file and calculate the interest. Write a check for the amount of the note. The amount of a note is the face plus the interest. Two entries are required in the cashbook as follows: Illustration 203 J7> ■P^^'^ C-tf'c/,-^?**'^^ ^J^^i-^-^^gyts-^i^ o<^ypi>U'ty' v y.^>^y£^i-e<^y^J./ar.,^^-t:dcc^^- •^.^7 so JO Credit the Interest Earned account for the difference between the amount of the interest and the amount of the discount. No. 116. — December 22. Order from Butler & Carson Co., terms on account. No. 117.— December 22. Fill this order from T. J. Jackson & Co. Allow them a discount of 3%, in return for their 30-day interest-bearing note. No. 118. — December 23. Write a check in your favor for $60.00, and charge the amount to your Personal account. 222 BOOKKEEPING FOR MODERN BUSINESS No. 110.— Dpccmber 23 No. 120.— Docombcr 23. No. 121.— Dceombor 24. No. 122.— December 24. No. 123.— December 24 SIOO.OO. Pay it by check. No. 124.— December 24. in pa\Tnent. No. 125.— December 27. No. 126.— December 28. Fill this order from A. J. Keister. Terms 2/10, n/30. Pay this freight 1)111 by check. Pay the Lehigh Coal Co's. bill by check. Check for $100.00, from the Morris Furniture Co. The bank presents the Mason Furniture Co.'s sight draft for Invoice from J. M. Lynch & Co., Albany, X. Y. Send a check Invoice from the J. Barton & Sons' Carpet Co. Invoice from the Simpson Furniture Co., terms 3% discount in consideration of your giving them your 30-day note with interest. No. 127. — December 28. Order from Walter T. Thompson, terms cash, less 2%. No. 128. — December 28. Write a check in favor of the J. Barton & Sons' Carpet Co. for the amount of their note due to-day. No, 129. — December 29. Discount at the bank the note received on December 18th, from the Butler & Carson Co. No. 130.- -December 30. This order is a cash sale. No. 131. — December 30. Discount the note received from A. J. Keister on the 21st. No. 132. — December 30. Check from the Morris Furniture Co. in pa>Tnent of their interest -bearing note due to-day. No. 133. — December 31. Deposit all checks and currency on hand. No. 134. — December 31. Credit Thomas B. Miller and yourself for your salaries for the month, SIOO.OO each. The partners are generally credited each month with their salaries. The following illus- trates the form of the journal entry. Illustration 205 *^2i^.if-ii:Zc::^^<;2^^ '?^<^dfe'?«au^ ,.«^t«<^'^-'i>C&rdJ>C ■i'^^z-e^ /^ 9^^Z^ayC'Cr Rugs, 9x 12, at $22.r->0. 6. Returned the defective rug recoiv(>d from Chas. C. Bauman to A. P. Snook from whom we purchased it. Received credit at cost price, $26.55. 8. The American Express Co. retmiicd tlu" C. O. D. collection of November 6th, collection charges 25(^. 8. Purdiased of C. C. Benton some special Wilton Rugs, terms 2 10, n 30. Amount of invoice, .$232.50. 8. Ordered merchandise by telegraph from F. L. White, Cleveland, Ohio. Paid 25(^ charges. Post all entries to date. SUPPLEMENTARY EXERCISE 225 November 9. Discounted at the bank the note for $100.00 received on the oth from John H. Scott. (Make the entry on a piece of paper and have it approved by the instructor in charge before making entry in books.) 9. Took, at cost price, 1 Wilton Rug, 9 x 12, for your personal use, $40.50. 10. Sold to John H. Scott, on account, 80 yds. Axminster, $L80; 80 yds. Lining, 14p. 10. Purchased merchandise from H. D. Brown, 2/10,. n/30, $168.70. 10. Paid freight on the above invoice, $3.20. 11. Paid your note due to-day, $534.10. 11. Paid C. C. Benton for invoice purchased on the 1st. 12. John H. Scott gave you his check in payment of his note due to-day, $135.00. 12. Received the goods ordered by telegraph from F. L. White, Cleveland, Ohio. Amount of invoice $198.75, terms on a/c. 12. Received from Henry R. Johnson his check for $72.00 the balance of the bill purchased on the 2d. 13. Sold to Henry R. Johnson, 2/10, n 30, 60 yds. Body Brussels, $1.65; 25 yds. Tapestry Brussels, $1.02. 13. Received Carmen & Hunter's check in full for bill due to-day. (Refer to his ledger account for the amount.) 13. Paid by check your note drfe to-day. 13. Received from C. J. Morris & Co. a check, $114.95, in payment of bill of the 3d less the discount. 15. Sold to Carmen & Hunter, 2/10, n/30, 5 Axminster Rugs, 9 x 12, at $22.50; 5 Axminster Rugs, 6 x 9, at $12..50. 15. Paid A. P. Snook $141.95 for invoice bought on the 4th less returned goods. 15. Received cash, $117.11, from Chas. C. Bauman for bill clue to-day less 2%. 16. Sold to C. J. Morris & Co., 20 vds. French Wilton, $4.50; 60 yds. Ingrain, 87^; 3 Wilton Rugs, $45.00; terms, note 30 days for $200.00, balance on a/c. Post all entries to date. 16. Discounted the note received from C. J. Tvlorris & Co. and received credit for the proceeds. 17. Sold to Walter T. Brown, Norfolk, Va., C. 0. D., 1 Wilton Rug, 9 x 12, $45.00; 1 Axminster, 6x9, $12.50. 17. Sent F. L. White a check for $150.00 to apply on account. 17. Paid electric light bill in cash, $6.30. 18. Paid C. C. Benton, $227.85, in full for invoice of 8th less discount. 18. Purchased merchandise from A. P. Snook for $260.00, and gave a 10-day note in pajoiicnt. 19. Received an express money order for $57.25, for the goods sent to Walter T. Brown on the 16th. The balance of the amount was retained for collection charges. 19. Sold to Chas. C. Bauman, 50 yds. Velvet, $1.47; 90 yds. Lining, lU; 20 yds. Tapestry Brussels, $1.02. Received in payment his 30-day note. 20. Paid H. D. Brown, by check for invoice of November 10th less discount. 20. Purchased merchandise from C. C. Benton on a c, $584.21. 22. Paid the Pennsylvania Railroad Co.'s freight bill of $4.18. 22. Received cash, -SIOO.OO, from John H. Scott to applv on a/c of bill of the 10th. 23. Henry R. Johnson sent you a check for $122.01 to pay his bill of Novem- ber 13th less discount. ^''■' 226 BOOKKEEPING FOR MODERN BUSINESS November 23. Sent F. L. White a check to balance his account. 24. Purchased nierchanthse from H. 1). Brown. So50.00. Gave in part payment a 30-(lay note for §250.00, balance, on a c. 24. Returnetl to H. U. Brown a ruR costing $40.50, purchased from him on the 24th. It was found to be defective. 25. Carmen & Hunter sent you a check for $175.00 the amount of their bill due to-day. They order 2 Wilton rugs at $45.00 each, which you have billed to them on account. 26. Paid C. C. Benton .$350.00 to apply on invoice of November 20th. 26. Paid the Lehigh Coal Co. for 2 tons coal at $6.80 per ton. 27. Carmen & Hunter returned for credit one of the rugs bought on the 25th; value of rug, $45.00. 29. Paid your note for $260.00 due yesterday. 30. Paid your bookkeeper's salary, $40.00. 30. Inventory of merchandise on hand, $1,994.47. Post, close, and check all books. Take a trial balance. Prepare a working sheet, profit and loss statement and balance sheet and make the necessary journal entries to close the accounts in the ledger. Submit all of the supplementary work to your instructor for approval. Exercise 98 John C. Mason's Trial Balance, June 30, 19 — 1 1 2 2 3 3 6 6 7 7 8 8 9 12 12 12 14 14 14 Cash Notes Receivable Furniture and Fixtures Notes Payable John C. Mason, Capital John C. Mason, Personal Merchandise Purchases Freight Inward General Expense Interest Paid Discount on Sales Merchandise Sales Discount on Purchases Walter Cohan & Son Warner & Warner James B. Arnold John L. Moore J. C. Grace T. C. Johnson 4,780 03 1 1,575 00 200 00 50 00 7,895 43 31 00 76 56 1 75 75 30 675 42 10 79 789 09 $16,160 37 1 1 530 8,000 00 00 6,890 23 98 467 106 67 |$16.160 30 78 54 52 37 Merchandise Inventory, June 30, 19—, $1,547.80. In th(! al)OVe trial balance the Merchandise Purchases account was debited, $7,987.15 SUPPLEMENTARY EXERCISE 227 and credited for goods returned to others, $91.72; the Merchandise Sales account was credited, $6,942.56, and debited, $52.33, the amount of goods which were returned by others. Prepare a working sheet, profit and loss statement, and balance sheet, and make the necessary journal entries to close the accounts in the ledger. Present all papers to your instructor for approval. Exercises for the Student Cashbook Exercise 99 Design a special column cashbook and enter the following transactions. Close the cash- book at the end of the month. May 1. Balance, $2,807.65. 2. Paid office rent for the month in advance, $250.00. 4. Paid last month's bill for advertising in the Inquirer, $65.00. 5. Received a check from C. C. Collins for his bill of June 15th, $567.50 less a discount of 2%. 6. Paid Walter Bacon for invoice of June 20th, $756.80, less a discount of 3%. 8. Paid freight bills to date, $25.66. 10. Paid our 60-day note for $200.00 in favor of George E. Bender, due to- day. 12. B. B. Hunt paid his account in full, $345.00. 14. Paid $4.00 for stamped envelopes. 15. Received a check from T. C. Mann for $300.00 in payment of note due to-day. 16. Received a check from Brown Bros, for $22.50 in payment of interest on their note which was renewed to-day. 18. Paid our 30-day note due to-davj for $400.00, to Robert H. Allen, with interest at 5%. 20. Paid salary of bookkeeper to date, $75.00. 22. Paid expenses of traveling salesman, $35.00. Cashbook Exercise 100 June 1. Balance, $3,645.50. 2. T. C. Smith paid his account in full, $156.00. 4. Paid Robert H. Allen in full of account, $188.50. 5. Paid S. C. Ashley's invoice of May 15th, $450.00, less 2% discount. 5. Paid freight on invoice of merchandise received from Butler & Carson, $12.50. 6. J. H. Ervin paid his bill of May 25th, $375.70, less discount 3%. 7. Received a check from Miller Bros, in pavment of note due to-day, $400.00. 9. Loaned G. W. Botsford $300.00, and took his note for 30 days. 10. Paid coal bill $24.55 in cash. 11. Paid our 60-day note for $260.00 due to-day, in favor of the Commercial Bank, with interest at 6%. 14. Paid telephone bill for May, $4.50. 18. Received cash, .$450.00, from C. S. Morey, to apply on account. 20. Paid clerks' salary to date, $60.00. 25. Received a check from H. F. Adams in payment of bill of May 30th, $650.00 less 3%. Exercise 101 The footings of the following trial balance are equal, but some of the accounts show that the principles of debit and credit have been violated in making the original entries. Find the accounts that are wrong and state your reasons. 228 BOOKKEEPING FOR MODERN BUSINESS H. O. Grey's Trial Balance, July 31, 19 1 H. 0. Grey, Capital $4,000 00 1 Cash $3,329 46 2 Merchandise Purchases 3,250 00 2 Discount on Purchases 65 50 3 Merchandise Sales 2,875 78 4 Discount on Sales 26 78 5 Interest Paid 17 60 5 Interest Earned 15 00 6 Notes Receivable 300 00 7 Notes Payable 150 00 8 George Griffith 420 00 9 H. 0. Gray, Personal 45 00 $7,247 56 ' $7,247 56 CLOSING THE LEDGER— DIRECT METHOD You have previously learned that the object of closing the accounts in the ledger is to transfer the net profit or loss shown by the profit and loss statement to the proprietor's account. You have been instructed to close the accounts showing a profit or a loss by making a series of journal entries and then posting them, thus closing the ledger accounts. Another method which is used by some bookkeepers is known as the Direct Method of closing the ledger. The same principle applies to the closing by the direct method as in the jomnal entry method; but, there is a difTerent application of the principle. The direct method, as the name infers, is a dh-ect transfer from one account to another without making a journal entry. To illustrate: If the General Expense account showed a loss of S25.00, this amount would be entered on the credit side of the General Expense account in order to balance the account, and the same amount would be placed on the debit side of the Profit and Loss account. This you will readily see is the same in principle as the making of a journal entry debiting the Profit and Loss account and crediting the General Expense account. It is neces- sary that the transfer be properly paged. In other words, the entry in the General Expense account should show the page of the ledger on which the Profit and Loss account is recorded, and the entry in the Profit and Loss account should show the page of the General Expense account from which the transfer was made. The following illustrations show a series of accounts closed by the direct method. Directions for Closing a Ledger by the Direct Method. — Follow the directions in the successive steps given below and compare each step with the ledger which follows. Step 1. — The first step to l)e taken is to tiansfcr tJie result of the Merchandise Sales account to the Merchandise Trading account. This is done I)}' inserting on the debit side, the amount required to balance the account. Red ink is usually used for this purpose. The explanation space is used to name the account to which the balance is to be transferred, which, in this case, is the Merchandise^ Trading account. It is vt ly important to place the page of the account to which you make the transfer in the folio colunui. Next the balance is entered CLOSING THE LEDGER— DIRECT METHOD 229 on the credit side of the Merchandise Trading account, under the same date that was used in Merchandise Sales account. Merchandise Sales is written in the explanation space, as this is the name of the account from which the transfer was made. The page of the Merchandise Sales account is placed in the folio space. This shows from which page in the ledger the trans- fer was made. It is readily seen that the principle is the same as when a journal entry is made, debiting Merchandise Trading account and crediting the Merchandise Sales account, and posting it as previously instructed. Step 2. — The balance of the Freight Inward account is transferred to the Merchandise Purchases account. As the debit side of the Freight Inward account is the greater, it is neces- sary to enter the balance on the credit side in red ink, naming the account and inserting the page to which the transfer is to be made. This balance is entered on the debit side of the Merchandise Purchases account, naming the account and inserting the page from which the amount was transferred. Step 3. — The balance of the Merchandise Purchases account is transferred to the Mer- chandise Trading account by entering the amount necessary to balance the account on the credit side and transfer the balance to the debit side of the Merchandise Trading account. Step 4. — The value of the merchandise on hand at the end of the business period, is entered on the credit side of the Merchandise Trading account and also on the debit side of the Merchandise Inventory account. Step 5.— The Merchandise Tradmg account is closed in order to transfer the net gain or loss on sales to the Profit and Loss account. If the debit side is the smaller, the difference is a gain and is entered on the debit side of the Merchandise Trading account and on the credit side of the Profit and Loss account. If the credit side is the smaller, the difference is a loss and is entered on the credit side of the Merchandise Trading account and on the debit side of the Profit and Loss accomit. In the above case the difference is a gain. Step 6. — The Discount on Purchases account is closed and the balance representing an income is transferred to the credit side of the Profit and Loss account. Step 7. — The Discount on Sales account is closed. As this account shows a loss, the balance is transferred to the debit side of the Profit and Loss account. Step 8. — The General Expense account is closed and the balance transferred to the Profit and Loss account. Step 9. — After the balances of all the accounts which affect the Profit and Loss statement have been transferred to the Profit and Loss account, it should be closed and the balance transferred to the Proprietor's account. This is done by inserting, on the smaller side, the amount necessary to balance the account. If the debit side is the smaller, the balance is a profit. If the credit side is the smaller, the balance is a loss. This balance is transferred to the proper side of the Proprietor's account. Step 10. — The last step is to determine the net capital of the proprietor by finding the balance of his account and entering the amount of this balance on the debit side of the account. Rule the account, and transfer the balance below the ruHng, as previously instructed. It will be observed, by comparing this ledger which has been closed by the direct closing method with the ledger for November, that the final result is the same. 230 Ulustration 207 BOOKKEEPING FOR MODERN BUSINESS AL.v_/ y:i:^/7i^i-^:y. L^a^^c-^ri-c^ 9-' (•/(/,'} ^ f- J/ /C^^J&tZ^''-. o Cooo ■lcl^' X^ /s /23^ /23S ...A^'-te^C^JiZ^^^^J^yi^Z-i^i^^ /O c C ^ V ^7 7^ 2S /7 J/ /!^lcfi<:i^^^/t.^'^^^