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The Abolition of the Trial Balance 
 
 together with 
 
 Twelve Studies in Book-keeping 
 and Accounting 
 
 IN XIV CHAPTERS 
 
 FULLY ILLUSTRATED 
 
 or THr 
 UNIVERSITY 
 
 or 
 
 SITY ^ 
 
 PubUshed by 
 
 The Book-Keeper Publishing Company, Limited 
 Detroit, Michigan 
 
SENEBAi: 
 
 C 
 
 Ik 
 
 Hf5,'J 
 
 5 
 
 Entered according to Act of Congress 
 in the year 1906, by 
 
 THE BOOK-KEEPER PUBLISHING COMPANY, LTD 
 DETROIT, MICHIGAN 
 
 In the office of the Librarian of Congress. 
 All rights reserved. 
 

 ^ or T 
 MNIVERSITY 1 
 
 OF J 
 
 INTRODUCTORY 
 
 GENERAL SCOPE 
 
 DESIGNED as a complete Course of Instruction for those who desire to 
 ground themselves in the science of book-keeping and the presentation 
 of accounting records as used in the most up-to-date practice, and as a pre- 
 liminary text book, in conjunction with Thome's 20th Century Book-keeping 
 and Business Practice, for those desirous of taking up the Individual Home 
 Study Course in Higher Accounting, conducted by The International Account- 
 ants' Society, Incorporated. 
 
 Ct, Special attention is devoted in these studies to the procedure necessary 
 in transferring books of account from single to double entry, from partner- 
 ships to corporations, and the general opening of sets of books by double 
 entry. 
 
 C[. An important section of the book is that concerning the abolition of the 
 trial balance, wherein it is demonstrated that the trial balance, as understood 
 in ordinary book-keeping nomenclature, should be relegated to the scrap- 
 heap as useless and, therefore, unnecessary. 
 
 EXERCISES AND STANDARD ANSWERS 
 
 C The exercises appended to each chapter have been specially prepared with 
 a view to imparting further information, and to strengthening the working 
 knowledge of the reader, along the lines above indicated. 
 
 C[. Every purchaser of this text book is strongly urged to work out these 
 exercises for himself and, on forwarding the answers so obtained to the Board 
 of Examiners of The International Accountants' Society, Incorporated, he will 
 be entitled to a review of same, and the highly valuable standard answers, 
 free of charge. 
 
 C This text book — together with the exercises, review of answers thereto, 
 and the standard answers— constitutes a complete course of study far in 
 advance of anything to be obtained elsewhere. 
 
 ■Jr) 
 
TABLE OF CONTENTS 
 
 CHAPTER I.— Primary Principles of Accounting. 
 
 CHAPTER II.— Sales Books, Sales Ledgers; Controlling Ac- 
 counts. 
 
 CHAPTER III.— Real, Trading and Nominal Accounts; Classifi- 
 cation of Assets and Liabilities. 
 
 CHAPTER IV.— Purchase and Voucher Records; Credit Journals; 
 Purchase Ledgers; Bills Receivable. 
 
 CHAPTER V. —Preparation of Trial Balance; Trading Accounts; 
 Profit and Loss Accounts and Balance Sheets. 
 
 CHAPTER VI.— Preparation of Comparative Statements. 
 
 CHAPTER VII.— Opening Entries; Transfer, Stock Discounts. 
 
 CHAPTER VIII.— Branch Stores Accounts; Partnerships, Inter- 
 est Formulas. 
 
 CHAPTER IX.— Opening Entries; Use of Manifold Blanks. 
 CHAPTER X.— Closing Entries; Reverse Posting System, Per- 
 petual Balances. 
 
 CHAPTER XI.— Complete Set of Double Entry Accounts; Open- 
 ing, Operating and Closing of Books; Trading Accounts; 
 Ledgers; Profit and Loss Accounts; Balance Sheets; Bal- 
 ance Adjustments. 
 
 Chapter XII.— Opening and Closing Entries; Treatment of 
 Good-will; Anticipated Discounts. 
 
 CHAPTER XIII.— The Abolition of the Trial Balance. 
 
 CHAPTER XIV.— Model Sets of Demonstrations. 
 
CHAPTER I 
 
 Preliminary Principles of Accounting. 
 
 (i) In the first installment of the Individual Home Study Course in 
 Higher Accounting we lay stress on .4ie fact that the capability to keep a set 
 of books in balance is simply the bottom rung of the ladder of accounting. 
 Nevertheless, before a student of the science of accounts can expect to 
 achieve the best results and reach the highest rung of the ladder, it is 
 absolutely necessary to attain proficiency in practical book-keeping, and for 
 this reason this Preliminary Home Study Course in Accounting and Book- 
 keeping has been established. One of the main objects of the course is to 
 induce in the student the habit of independent thought and investigation, 
 and to the student who will carefully work out the exercises attached to 
 these lessons we guarantee a thorough knowledge of the subject by the 
 time the course is completed. All exercises may be worked out on ordinary 
 journal ruled paper, which can be obtained very cheaply at any stationery 
 store. By journal ruled paper we mean paper ruled as follows : 
 
 The left-hand column is always used for debits and the right-hand 
 column for credits. It will not be necessary, therefore, to head these 
 columns, as the entries will be so understood. Items making up total 
 amounts (sometimes called extensions) should be written just outside the 
 left-hand column. 
 
 On receipt of the students' answers to the exercises they will be care- 
 fully examined by our Board of Examiners, and returned with such correc- 
 tions and criticisms as may be considered of value to the student.If the 
 
corrections and criticisms be many the student should be neither offended nor 
 discouraged, as such corrections and criticisms are made solely with a view 
 to his particular benefit. 
 
 PRIMARY PRINCIPLES. 
 
 {2) Primary principles are those which constitute the foundation of 
 book-keeping by double entry. 
 
 We will not consider the so-called single entry form of book-keeping, 
 as it is not only antiquated but practically obsolete. Only those persons 
 use the single entry system of book-keeping who are ignorant of the supe- 
 riority and advantages of double entry. 
 
 Most of the text books agree on the definition that book-keeping is 
 the art of recording the transactions of a business in a systematic man- 
 ner. To this we will add "and determining the accuracy of such records." 
 
 The great weakness of single entry is that it affords no opportunity 
 to prove the accuracy of book-keeping records. For example, almost every 
 business house keeps sales records of some kind, and the amounts of these 
 sales are posted to the accounts of customers in the customers ledger. By 
 single entry the omission of posting whole pages of sales from a sales 
 record to the customers ledger would remain undetected except by acci- 
 dental discovery. By a properly arranged double entry system such an 
 expensive error could not possibly escape notice. 
 
 DOUBLE ENTRY BOOK-KEEPING. 
 
 ( j) Double entry book-keeping means that for every debit there must 
 be a corresponding credit. As a contributor to The Book-Keeper and Busi- 
 ness Man's Magazine expressed it, ''Double entry is a system of opposing 
 contra things," which is partially right and partially wrong. There is a 
 great fascination in the idea of opposing contra things, so that many 
 accountants have gone to extremes, this accounting for what is termed the 
 science of Logismography, which is practically the science of involving 
 extra contras created for the purpose. We will have more to say later on 
 this subject, when our students become a little more accustomed to the 
 technology of accounting. 
 
 ACCOUNTS USED. 
 
 (4) The accounts used in the double entry system are personal ac- 
 counts, real accounts, representative accounts, and nominal accounts. The 
 last three classes of accounts are frequently included under the head of 
 impersonal accounts. 
 
 An account is a collection of charges and credits for the purpose of 
 ascertaining how much has been expended or received in respect of one 
 particular person or one particular object. 
 
I 
 
 PERSONAL ACCOUNT. 
 
 (5) A personal account is an account containing the history and par- 
 ticulars of all transactions with a particular person, persons, or corporation. 
 
 Nanxe c/oAn U).Jlob/e & Co. GlccoDr)tNo.M 
 
 Rating /52 ^ LirT\'t t^<;^25oo ^a^K SeconSJldfL 
 
 DoTei^o^ 
 
 Men\o. 
 
 Fo.i 
 
 V debits 
 
 
 ..A 
 
 r 
 
 
 J.^J1 
 
 • Fo. 
 
 MeP\o. 
 
 b<nteiqoif| 
 
 Mo. 
 
 Dfl 
 
 \0^\(A\j<q: I 
 
 L rcuiio 
 
 MO. 
 
 l>fl 
 
 J Of). 
 
 h 
 
 
 m 
 
 5^ 
 
 ^20 
 
 
 59 
 
 6 20 
 
 
 5^^2811 
 
 /f2o 
 
 C 
 
 reh 
 
 ^ 
 
 reb 
 
 10 
 
 
 30(y 
 
 i 
 
 ]9 5o 
 
 
 
 
 
 / 
 
 /c?z 
 
 
 l°1o 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 -_ 
 
 
 
 
 
 
 
 FORM a 
 
 REAL ACCOUNT. • 
 
 (d) A real account is an account containing the history of all transac- 
 tions relating to a particular propert}'. Properties are called resources, or 
 assets. 
 
 6l}eetNo.^ 
 
 Q 66 he&5 
 
 b<nTe 
 
 
 Fo. 
 
 V 
 
 debits 
 
 lb<al(3!)ce 
 
 [Credirs 
 
 v^ 
 
 Fo. 
 
 
 b^nte 
 
 <}arf. 
 
 1 
 
 loveolohy/ 
 
 i1b 
 
 
 130 
 
 00 
 
 
 
 
 
 
 
 
 
 
 
 J4- 
 
 c 
 
 5^3 
 
 
 13 
 
 50 
 
 
 
 
 
 
 
 
 
 
 
 6> 
 
 C 
 
 594 
 
 
 35 
 
 00 
 
 
 
 
 
 
 
 
 
 
 
 13 
 
 C 
 
 boz 
 
 
 l5o 
 
 00 
 
 J28 
 
 50 
 
 
 
 
 
 
 
 
 FORM 3 
 
 REPRESENTATIVE ACCOUNTS. 
 
 (7) A representative account is one which completes the double entry 
 for a number of debits or credits to personal accounts, carrying out the prin- 
 ciple that for every debit there must be a credit. Thus the debits to ten 
 customers or personal accounts in one month amount to $1,059. This 
 amount is credited to Sales account. 
 
 The purchases from various business houses for a month amount to 
 $850, and the amounts making up this sum are credited to the accounts 
 of the parties from whom the purchases have been made. In order to 
 complete the double entry these purchases are debited to Purchase account. 
 
 Statistical advantages of representative accounts will be fully consid- 
 ered later on. 
 
NOMINAL ACCOUNTS. 
 
 (8) A nominal account is one containing the history and particulars of 
 expenditures or receipts on account of certain particular sources of profit 
 or loss. 
 
 N<nn\ e J^osta^e 
 
 6lrt 
 
 
 Fo. 
 
 v/ 
 
 l^ebits 
 
 ^a\at)ce 
 
 Credits 
 
 y/ 
 
 Fo. 
 
 
 I>flTe 
 
 dcio- 
 
 31 
 
 c 
 
 Cg^ 
 
 
 liq 
 
 &7 
 
 liq 
 
 51 
 
 
 
 
 
 
 
 
 Feb. 
 
 IS 
 
 c 
 
 r^b 
 
 
 im 
 
 qo 
 
 3f«f 
 
 11 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 FORM i* 
 
 BOOKS USED. 
 
 (p) The principal books used in the double entry system of book- 
 keeping are : 
 
 Sales Books, or Journals. 
 
 Purchase, or Accounts Payable, Books, or Journals. 
 
 Voucher Records. 
 
 Cash Books. 
 
 General Journals. 
 
 Combination Cash- Journals. 
 
 Ledgers. 
 
 CLASSIFICATION OF DEBITS AND CREDITS. 
 
 (lo) Double entry actually consists of debits and credits, and these 
 both deal with transactions of the following nature : 
 
 The transfer of merchandise and money. 
 
 The rendering of services. 
 
 The use of something of value. 
 
 Both debits and credits are also used to correct errors, adjust differ- 
 ences and gather statistics. 
 
 Let us now consider some simple illustrations of these applications of 
 the terms ^'Debit" and "Credit." 
 
 1. The transfer of merchandise. 
 
 If we sell goods to a customer we debit him with the value of that 
 with which we have parted. 
 
 If we buy merchandise we credit the persons from whom we buy with 
 the value of what we receive. 
 
 2. The transfer of money. 
 
 If we loan money we debit the persons who borrow from us. 
 
 8 
 
If we borrow money we credit the persons who have loaned to us. 
 
 3. The rendering of services. 
 
 If we perform work of any kind (such as legal work) for some person, 
 L at his request, we debit that person with the value of those services. 
 r If some person performs work of any kind for us (such as a physi- 
 
 cian) we credit him with the value of that work. 
 
 4. The use of something of value. 
 
 If we build a house and rent it to a tenant, the tenant has the use 
 of our property, for which he agrees to pay a stipulated sum, and he is, 
 therefore, debited with the value of the use of the house. 
 
 If we rent or lease our offices from the owner, we credit him with the 
 stipulated value of the use of his premises. 
 
 5. The correction of errors. 
 
 If we debit the wrong person on account of goods purchased from us, 
 we credit his account and debit the right person in order to correct the 
 error. 
 
 6. The adjustment of differences. 
 
 If we bill our goods to a customer at too high a price, we adjust 
 the charge by crediting him and debiting the proper representative account 
 with the amount of the difference. 
 
 7. The gathering of statistics. 
 
 If our business contains a number of departments, and we wish to 
 make each bear its share of the rent covering the whole of the' premises, 
 we debit each department with its proper share of the burden and credit 
 rent account, which for the sake of illustration we assume as being previ- 
 ously debited with the entire amount of the rent as a general expense. 
 
 M (ii) In the Home Study Course in Higher Accounting debits and 
 
 K credits are thus classified : 
 
 1. Accounts representing values on hand or purchases, such as cash, 
 stock in trade, real estate, machinery — and property possessed by the 
 merchant prepared to do business. This class of debits comprehends all 
 those impersonal accounts which represent goods purchased for the purpose 
 of selling again and supplies furnished for the purpose of carrying on the 
 business. 
 
 2. Accounts representing values parted with, and also recording the 
 transfer of values, such as customers' accounts, investment accounts, etc. 
 This class of debits represent those charges to customers on sales made to 
 
 rhem of the goods previously purchased; thus constituting a transfer of 
 ralue. 
 3. Accounts representing losses, such as general expense, postage, 
 ;ash discount. 
 
4. Accounts carrying deductions from credits (negatives), such as 
 allowances for returns, depreciation, adjusting entries, etc. 
 
 (12) Credits are thus defined in The American Business and Account- 
 ing Encyclopedia : 
 
 "On a personal account a credit represents what we receive. 
 ''Example — Goods purchased by us (Accounts Payable). 
 Cash received by us (Accounts Receivable). 
 Goods returned to us (Accounts Receivable). 
 "On an impersonal account a credit represents a reduction of outlay. 
 
 . "Example — Charge John Jones, traveler $12.24 
 
 Credit Expense Account $12 . 24 
 
 for 612 miles of C. & N. W. mileage used 
 for personal purposes. 
 "On a statistical account a credit frequently represents a number of 
 debits made to personal accounts. 
 
 "Example — Sales Account, representing amount of sales to customers. 
 "In a Profit and Loss Account the credits represent the profit made 
 by the transaction of the business, and when the result of such transactions 
 IS a net profit, the balance of the account is a credit balance." 
 
 10 
 
EXERCISES. 
 
 1. Furnish examples of the following classes of accounts: 
 
 Real 
 
 Representative 
 
 Nominal. 
 
 2. Furnish examples of the following classes of debits and credits : 
 
 1. The transfer of merchandise. 
 
 2. The transfer of money. 
 
 4. The rendering of services. 
 
 4. The use of something' of value. 
 
 5. The correction of errors. 
 
 6. The adjustment of differences. 
 
 7. The gathering of statistics. 
 
 3. Furnish examples of the four classes of debits described in the 
 Course in Higher Accounting. (See paragraph 11.) 
 
 4. Furnish examples of the four classes of credits described in The 
 American Business and Accounting Encyclopedia. (See paragraph 12.) 
 
 5. Differentiate the items to be posted from Schedule B, Practice 
 Set, 'Thome's Twentieth Century Book-Keeping and Business Practice," 
 into personal, real, representative and nominal accounts. 
 
 11 
 
CHAPTER II 
 
 Sales Books, Sales Ledgers ; Controlling Accounts. 
 
 (8) Of the books mentioned in our first lesson sales books, sometimes 
 called sales journals, are generally used exclusively for debit entries — i.e., 
 charges to customers for goods sold or services rendered. There are many 
 varieties of sales journals, as the forms are adapted to the requirements of 
 different classes of business. 
 
 It is probably understood by most of our students, but we will explain 
 for the benefit of a possible minority, that the sales book is sometimes an 
 original record of orders received, and is sometimes a book in which the 
 names and amounts are listed from the original orders so as to distribute 
 them to different departments. In this case the debits to the ledger are made 
 from the sales book, and the totals of the distribution columns are posted 
 to the credit of the various departmental sales accounts at the close of the 
 month. 
 
 (p) A common form of sales book for an ordinary business is ruled as 
 per illustration. 
 
 The first column is for the items and the second column is for the total 
 of the bill, which is posted to the debit of the customer's account in the led- 
 ger. In this case the total of the debits to customers are credited at the end 
 of each month to an account entitled *'Sales Account," thus making the 
 double entry as follows : 
 
 Accounts receivable accounts Dr $1000 
 
 Sales account Cr $1000 
 
 When a business is divided into different departments the sales must 
 be credited to the various departments as indicated above instead of to one 
 sales account. 
 
 {lo) Another form of sales book is shown, being an extremely useful 
 office device. This sales book is made of a good quality of Lhin paper, every 
 other page being perforated as shown in illustration. A carbon sheet is 
 placed between the perforated sheet and the duplicate, which latter remains 
 in the book and, a proper kind of pen being used for the purpose, two copies 
 of the transaction are made at one writing. The perforated sheet written 
 in ink is detached from the book and sent to the customer as an invoice. The 
 
 12 
 
carbon copy remains in the book and constitutes the sales record, from which 
 posting is made to the customer's account in the ledger. 
 
 (//) It is becoming more and more customary to furnish traveling 
 
 January, 1903. 
 
 Day 
 
 Sales 
 
 Sales 15ook af)c) lf}volc« 
 
 Mr* . f^ate. 
 
 
 
 
 
 
 Ncin\e 
 
 
 
 
 Address 
 
 
 Customer's Order No, Ternvs 
 Shipped by . 
 
 Qu09tfry Descrrptioo 
 
 Price 
 
 Items 
 
 AtAourjT 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 No 
 
 NatA.c 
 
 hnte 
 
 
 /V dd""? 5 s 
 
 
 Custonver's Order No Terrns 
 Sl^ippcd by .. 
 
 QuO^tlty 
 
 Descnptior) 
 
 Price 
 
 iTei^s 
 
 An\oijr,T 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 No._ 
 
 DoTc 
 
 
 
 
 Ad'^rrsis 
 
 1 
 
 CusToPver'S Order No. Terr\s 
 Sl)ipped by 
 
 Quorjtityl DescripTtof) 
 
 Price 
 
 We 
 
 ms 
 
 ArvouQt 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 salesmen with order blanks ruled and printed as per illustrations, the names 
 and amounts being copied in a sales book, where they are distributed to the 
 
Order l5I«ir)K 
 
 TtBMS 
 
 
 
 
 iqo 
 
 
 1 
 
 8iNDE« rsuo 
 
 ■RATtfac 
 
 Soirl ro 
 
 LEOCER FOl'C- 
 
 t;nc)dress 
 
 LIMIT 
 
 OATE RErc.'\E& 
 
 Order HSonK No. N o. 
 
 
 
 
 1 
 
 
 CbecK 
 
 1 
 
 A (»N o u nTs 
 
 
 1 1 
 
 Quof^T'Ty 
 
 C)eScr;pfion Pnce 
 
 Re^ 
 
 l^lar C.C 
 
 D. 
 
 Cloves 
 
 F^.rCoc>T% 
 
 Robes 
 
 
 
 
 Ill 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 II 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 7Ae Crlove Manufacturing Business.) 
 
 
 
 
 
 Sales 
 
 Sbeet 
 
 
 
 
 Itcrrxs 
 
 No. Rpcb'ister No. 
 
 r>n1>. iqo 
 
 L.r 
 
 ' Ratir)£ 
 
 Sol 
 
 d+n 
 
 frilled 
 
 
 
 Address 
 
 Lin\i1~ 
 
 Shipped by 
 
 
 
 
 
 
 
 
 cijeck 
 
 Qociotrty 
 
 DeSCripfior) 
 
 Price T 
 
 otal (^ 
 
 loves Robes Pjjrs 
 
 C.O.D. i 
 
 bo 
 
 lys d 
 
 SO 
 ays 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 J 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 » 
 
 
 
 
 
 
 
 
 
 
 
 14 
 
various departments to which they belong. However, the distribution is 
 sometimes provided for on the order blanks themselves, as shown in the 
 
 Moo%ly Reccipiti^lcTtior) Sales Sheet 
 
 Folio 
 
 Ternss 
 
 /XrrvozjrChs 
 
 
 
 
 
 
 ===== 
 
 = 
 
 °° 
 
 
 n 
 
 
 
 
 Regular 
 
 co.r^. 
 
 Cloves 
 
 fi»rCodt^ 
 
 Robes ' 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 — 
 
 
 
 
 
 
 1 ' 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Sq 
 
 les 
 
 OiJn\rr\Qr^ 
 
 r 
 
 
 
 
 Ch)ar^e 
 
 Cloves 
 
 furs 
 
 Robes 
 
 ToTals 
 if) all be|DCirtn\er)t"s 
 
 Tdtcij in ec\c\) D€|3orTn\ei)1* 
 
 
 « 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 CO.D. 
 
 Total if) €acbDe|3arrp\er)t 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Totbl if) eac\) r>€pai^n\er)t 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Crcir)6 ToTcil 
 ir) each) D€(oar1rr\er)t 
 
 
 
 
 
 
 
 
 * 
 
 
 glove manufacturing business. 
 
 (12) This necessitates a recapitulation at the end of the month in 
 order to obtain the totals for the various departments. It will be noticed 
 that both form of recapitulation and form of summary shown provide for 
 
 15 
 
regular sales and C. O. D. sales, while the sales summary also provides for 
 cash sales. It is usual to hold C. O. D. orders and include them with cash 
 sales when the returns come in from the express company or delivery wag- 
 ons, so that the division between cash and C. O. D. seems scarcely necessary, 
 (jj) The last form of order blank illustrated does not fill the office 
 of a sales book, but is designed to go to various departments of a factory, 
 so that different parts of one article may be manufactured at the same time 
 on the same order. The Fisher book typewriter is used to make seven copies 
 of this order at one operation — one copy being retained hi the office, one 
 
 Ou* or Order 
 
 OoMomtr't 0r4*r la Oar Ordtr ■•. 
 
 
 being used as acknowledgement, and the others being furnished to the super- 
 intendent of the factory, to the machine, polishing, and assembling rooms, 
 and to the shipping room. 
 
 The price and date of shipment columns are not used for the factory 
 copies, and the factory columns are not used for the acknowledgment of 
 order. These changes are effected by perforation, or by the ''short leaf" 
 plan. 
 
 (14) As further illustrations of distribution we attach samples in the 
 lumber and brewery lines of businesses. 
 
 (ij) In breweries and some other kinds of businesses, it is necessary 
 to keep a record of packages. See illustration. These packages are charged 
 to the customer when the goods are sent out, and credited to him when 
 returned. 
 
 When the various orders representing sales to customers have been 
 O. K'D. and extended on order blanks, or entered in a sales book, the 
 amounts are posted to the debit of customers accounts in the sales ledger 
 and we now have an opportunity to explain the principle of double entry so 
 that it may easily be grasped. 
 
 (16) In Thome's Manual, par. 223, a sales book for a department 
 business is shown, the sales being distributed over six departments. They 
 are denominated by the letters A-F. The department accounts A-F are 
 kept in a ledger usually called the General Ledger, and to these accounts 
 are credited the total of the debits to customers. Thus, the total of Dept. A 
 
 16 
 
column is credited to Dept. A account in the general ledger, the items 
 being debited to accounts of customers in the Accounts Receivable ledger, 
 
 
 
 
 
 
 
 
 LurTNbe 
 
 r 
 
 :)ale6 
 
 lt)OoK 
 
 
 
 
 
 
 
 
 
 
 
 
 ^ Inv. 
 
 No. 
 
 Car 
 19,1 
 
 Car 
 No. 
 
 
 ^ 
 
 PL>r(l)0«r 
 
 DesTioatof) 
 
 Anvoui)T 
 
 P.oe 
 
 Cf 
 
 Menvlock 
 No.Fc^ 
 
 Mord- 
 wood 
 No.FeeT 
 
 No M No.M 
 
 (barK 
 
 WooJ 
 
 Cd6 
 
 s|^|LriT1)|i:^rK 
 
 A^^ 
 Wood 
 
 '^^ 
 
 .fc> 
 
 XI 
 
 M.C 
 
 l+Iil 
 
 bo"^ 
 
 Pd 
 
 6coTT#<:o 
 
 DetrotTM. 
 
 1231 
 
 &t 
 
 50000 
 
 ^0000 
 
 20000 15000 
 
 
 
 50 
 
 00 
 
 it.q 
 
 00 
 
 
 
 
 
 10 
 
 ., 
 
 15 
 
 X2 
 
 PRR 
 
 biJI 
 
 .^0^ 
 
 
 folooK-Co 
 
 (,rJ.Rc1[S.a» 
 
 
 
 
 
 
 lO 
 
 
 
 
 
 
 Soloo 
 
 
 
 i5 
 
 „ 
 
 I& 
 
 x^i 
 
 CRI 
 
 T2I 
 
 5<^ 
 
 
 Cb.H«r<) 
 
 Ka|jnv)zoc 
 
 
 
 
 
 
 
 if- 
 
 
 
 
 
 
 
 I& 
 
 00 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 roRix VIZI. 
 
 Sales Ibook 
 
 Sales \<)02> 
 
 bnte 
 
 C 
 . 
 
 1^ 
 
 bnvers 
 
 to 
 
 X 
 
 
 
 a 
 
 i 
 
 
 
 
 > 
 
 
 
 ^ 
 
 E 
 
 
 
 J 
 
 r 
 
 
 < 
 
 1. 
 
 
 Q. 
 
 f 
 
 N 
 
 1 
 
 i 
 
 
 
 (I 
 
 
 
 V) 
 
 
 
 
 Au<> 
 
 1 
 
 IG 
 
 C.SfT\)1t) 
 
 n 
 
 
 4o 
 
 
 
 5 
 
 
 
 
 2 
 
 
 2 
 
 2 
 
 
 
 
 
 
 
 cr 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 so that it will easily be seen that the total debits to customers in the Ac- 
 counts Receivable ledger exactly equals the total credits to the six depart- 
 ments. The debits to the customers are posted daily, item by item. The 
 credits to the departments are posted at the end of the month in totals. 
 
 Where a business is not divided into departments, one sales account is 
 carried in the general ledger. 
 
 If, therefore, the customers, or sales ledger, shows total debits in one 
 month of $1000, the sales account in the general ledger will show a cor- 
 responding credit of $1000, thus making the double entry and effecting a 
 balance, and at the same time making a statistical record on the books ex- 
 hibiting the total business done during that period. 
 
 Should a customer return a part of the goods purchased, it is customary 
 to make a journal entry crediting him with the value returned and making a 
 corresponding debit to the sales, or department, account. Sometimes these 
 entries are made in a cross-entry journal, sometimes on journal slips, and 
 
 17 
 
sometimes in the sales book itself. As we are now considering only the 
 sales book and ledger, we will not discuss cross-entry journals. When 
 returns are credited in the sales journal a special column for such entries 
 is provided as per the following illustration : 
 
 Dat<a 
 
 P^ niTc ^J J ^ 1^.^ 
 
 ro).o 
 
 ~r ~4^ 
 
 1 
 
 Dept. A 
 
 o«,c;+. e> 1 
 
 lolA) 
 
 ^^!er^ 
 
 Reiljnn-s 
 
 S<ale>& 
 
 T^^lZinrh& 1 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 The various amounts are posted to the credit of the customers' accounts 
 in the sales ledger and the total of the returns column is debited to the sales 
 account in the general ledger at the end of the month, thus making the 
 double entry just as the total of the sales debits is credited to sales account. 
 
 (j/) We now come to another very important feature in up-to-date 
 accounting systems, and that is the Controlling account. A Controlling, or 
 Adjustment, account, is one which exhibits a summary of the contents of a 
 
 
 SALES LEDGER 
 
 CONTROLLING ACCOUNT. 
 
 
 Date 
 
 Folio 
 
 Debits 
 
 Date 
 
 Folio 
 
 Credits 
 
 Dr. Bal. 
 
 Jan, 31 
 Feb. 28 
 
 S. 18 
 S. 95 
 
 $ 9,876 50 
 10,742 89 
 
 Jan. 31 
 i . Feb. 28 
 
 C. 97 
 J. 74 
 C. 100 
 J. 97 
 
 $5,954 62 
 
 897 40 
 
 7,501 25 
 
 552 40 
 
 $3,024 48 
 5,713 72 
 
 ledger. Thus a Sales Ledger account is an account exhibiting a summary 
 of the transactions recorded in a sales ledger. 
 
 The debits represent the total of the sales book for the month, the items 
 of which have been posted to the debit of the customers' accounts in the 
 sales or customers' ledger. The credits represent the total paid by customers 
 on their accounts for the month, and the total of allowances and returns, etc., 
 derived from the journal, and which amounts have been posted from the cash 
 book and journal to the credit of the customers' accounts in the sales and 
 customers' ledger. 
 
 Such accounts may be kept with great advantage where a number oft 
 traveling salesmen are employed, each having a certain territory. In this 
 case the sales ledgers should be subdivided, so many pages being allotted to 
 the customers of each salesman. Separate columns should be provided in 
 sales books, cash book and cross-entry journal for each section, and a repre- 
 sentative, or adjustment account opened with each section in the general 
 ledger to which the totals of columns in sales book, cross-entry journal, and 
 
 18 
 
cash book are posted at the close of each month. If practicable, it will be 
 found more convenient to provide a separate ledger for the section covered 
 by each traveler, and the loose leaf system is admirably adapted for this pur- 
 pose, as it can be made just the size to suit the number of accounts to be 
 carried, and enlarged and diminished at will. 
 
 (i8) The form of ledger we recommend (where exceptional circum- 
 stances do not alter cases) would contain the following columns : 
 
 Date, Items, r'oHo, Debits, Monthly Debits, Debit Balance. 
 Date, Items, Folio, Credits, Monthly Credits, Credit Balance. 
 
 The representative, or adjustment, accounts in the general ledger will 
 at the close of each month show as follows : 
 
 
 
 
 J. 
 
 F. ROBINS LEDGER 
 
 
 
 
 1900 
 
 Folio 
 
 Debits 
 
 Mo. Debits 
 
 Dr. 
 Balance 
 
 1900 
 
 Folio 
 
 Credits 
 
 Mo. Credits 
 
 March 31. 
 
 April so- 
 Journal 
 
 Cash 
 
 28 
 160 
 
 6,751 20 
 129 60 
 
 6,880 80 
 
 7,846 19 ; 
 7,631 24 
 
 April 30- 
 Cash 
 
 160 
 
 28 
 
 5,967 80 
 1,127 95 
 
 
 Journal 
 
 1 
 
 7,095 95 
 
 This account, you will note, displays the total business of J. F. Robins, 
 salesman, and its results, and it can be made still more useful by a little 
 more itemizing. Sales can be kept separate from cross entries on the debit 
 side, and on the credit side returns and allowances may be particularized. 
 The increase of "Monthly Debits" shows an increase of business, and the 
 increasing or decreasing "Debit Balance" shows how the customers are 
 paying their accounts. So that this account becomes a valuable comparative 
 statement of J. F. Robins' business. 
 
 In taking the trial balance of the J. F. Robins ledger, draw off monthly 
 debits, monthly credits and the balances, and foot all three columns. Then 
 if the total of the individual balances does not amount to $7,631.24, you 
 can see at a glance whether your total debits posted are $6,880.20, and your 
 total credits $7,095.75. That means that ninety-nine times out of a hundred 
 when there is an error it can be located to the side on which it occurred, 
 which is a tremendous advantage. 
 
 The prmciple above outlined can be successfully carried out in any 
 business with manifest benefit. In enterprises of considerable magnitude it 
 will frequently be found convenient to have separate cash books, sales books, 
 etc., as the use of columnar books in such cases will necessitate books of an 
 unwieldly size. 
 
 (ip) The accounts may be sectionalized in many ways as may be 
 found most suitable to the requirements of the business. Some houses sec- 
 tionalize territorially, as: New York ledger, Pennsylvania ledger, Ohio 
 
 19 
 
ledger, etc., etc. Some sectionalize alphabetically, A-F ledger, G-K ledger, 
 
 L-R ledger, S-Z ledger. 
 
 
 Folio 
 
 Debits 
 
 Mo. Debits 
 
 Dr. Bal. 
 
 1900 
 
 Folio 
 
 Credits 
 
 Mo. Credits 
 
 Mar. 31. Bal.- 
 
 
 
 
 
 April 30. Cash— 
 
 N.Y. ledger... 
 
 
 
 
 N. Y. ledger.. 
 
 
 
 
 9,562 75 
 
 234 
 
 8,765 14 
 
 
 Pa. ledger.... 
 
 
 
 
 2,758 92 
 
 Fa. ledger 
 
 234 
 
 2,219 75 
 
 
 Ohio ledger... 
 
 
 
 
 6,875 60 
 
 Ohio ledger.... 
 
 234 
 
 7,550 20 
 
 
 April 30. Jour.— 
 
 
 
 
 
 Journal— 
 
 
 
 
 N.Y. ledger.. 
 
 178 
 
 10,785 90 
 
 
 
 N.Y. ledger... 
 
 178 
 
 1,118 75 
 
 
 Pa. ledger.... 
 
 1V8 
 
 4,560 25 
 
 
 
 Pa. ledger 
 
 178 
 
 652 80 
 
 
 Ohio ledger... 
 
 180 
 
 8,972 60 
 
 
 
 Ohio ledger 
 
 180 
 
 678 25 
 
 20,984 89 
 
 Cash- 
 
 
 
 
 
 
 
 
 
 N. Y. ledger.. 
 
 235 
 
 475 35 
 
 
 
 
 
 
 
 Pa. ledger.... 
 
 235 
 
 
 
 
 
 
 
 
 Ohio ledger... 
 
 235 
 
 96 50 
 
 24,890 60 
 
 
 
 
 
 
 Balances— 
 
 
 
 
 
 
 
 
 
 N.Y. ledger.. 
 
 
 
 
 10,940 11 
 
 
 
 
 
 Pa. ledger.... 
 
 
 
 
 4,446 62 
 
 
 
 
 
 Ohio ledger.. 
 
 
 
 
 7,716 25 
 
 
 
 
 
 FORM XIII. 
 
 (20) A very frequent sectionalization is by departments, as Whole- 
 sale Ledger, City; Wholesale Ledger, Foreign; Retail Ledger, etc., etc. 
 
 {21) Where sales tickets are used it will be found useful to have dif- 
 ferent colored tickets for each section. 
 
 Where there are a number of sections it is also found useful to carry 
 the separate adjustment accounts in the general ledger, and group them in 
 the private ledger for the benefit of the principals, or officers of the company, 
 thus: 
 
 EXERCISES. 
 
 1. From Schedule B, par. 343, Thome's Manual, pick out the 
 sales of merchandise, ented same up in the shape of a sales book, open 
 accounts with customers and post the sales to the debit of these 
 accounts, post one-half of each amount to the credit of customers as 
 being cash received on account. Open a sales account and credit same with 
 the proper amount as per instructions given in this lesson. Open a control- 
 
 20 
 
ling account as per instructions given in this lesson and show a balance on 
 this account which will agree with the aggregate balances taken from the 
 customers' ledger accounts. 
 
 2. Draw form of sales book for a wholesale store dealing in hats, 
 gloves, boots and shoes, and men's furnishing. 
 
 3. Explain why the form of sales book illustrated in Thome's Man- 
 ual, par. 281, would not be suitable for the business referred to in exercise 2. 
 
 4. On form 13 we will suppose that the ledger balances brought for- 
 ward exactly equal the amount standing to the credit of the New York, 
 Pennsylvania, and Ohio departmental sales accounts. Make a trial balance 
 of these ledgers by incorporating the April transactions. 
 
 This Trial Balance to consist of the following accounts: sales ledger 
 controlling accounts ; sales accounts ; Cash account. 
 
 The balances brought forward are as follows: 
 
 DEBIT BALANCES. 
 
 New York Ledger $9,562 75 
 
 Pennsylvania Ledger 2,758 92 
 
 Ohio Ledger 6,875 60 
 
 CREDIT BALANCES. 
 
 New York Sales Account $9,562 75 
 
 Pennsylvania Sales Account 2,758 92 
 
 Ohio Sales Account 6,875 60 
 
 21 
 
CHAPTER III 
 
 Real, Trading and Nominal Accounts; Classification of 
 Assets and Liabilities. 
 
 (22) Impersonal accounts are conveniently divided as specified in 
 lesson 1, into real, representative and nominal accounts. Real accounts 
 represent assets. Nominal accounts represent expenditures, from which no 
 direct return is expected, and are sometimes denominated "revenue" ac- 
 counts. 
 
 Another class of accounts which relate to both real and nominal classes, 
 are those frequently denominated "trading" or "cost" accounts, namely, 
 those accounts which relate to the manufacture of product and the expendi- 
 tures in connection therewith. The wages paid to operatives in a factory, 
 for example, are considered as part of the cost of the product and are part 
 of the value of that product when completed. 
 
 As illustrative of these classes of accounts we attach charts, from which 
 we believe our students will be able to acquire the facility of promptly 
 determining the nature of those accounts with which they may have to deal. 
 
 (23) REAL ACCOUNTS. 
 
 (24) ACTIVE ASSETS. 
 
 Cash 
 
 Accounts Receivable 
 
 Notes Receivable 
 
 Bullion 
 
 Live Stock 
 
 Grain 
 
 Ice 
 
 Coal 
 
 Raw Material 
 
 Inventories of all kinds of Mdse. on hand for sale. 
 
 Cash. — This is an asset and may include cash in the office drawer and 
 in various banks. 
 
 Accounts Receivable may include accounts with customers kept in 
 various ledgers, such as wholesale ledger, retail ledger, Illinois ledger, etc. 
 
 Notes Receivable consists of notes received from customers in settle- 
 ment of account, the particulars of which are entered in a separate notes 
 receivable record. 
 
 See description of treatment of "Notes Receivable" and "Notes Pay- 
 able" later on. 
 
 22 
 
Bullion. — This is the ore extracted from a gold, silver or copper mine, 
 and ready for shipment to consignees. 
 
 Coal. — This is the product of the mine, ready for shipment to con- 
 signee, or it may be inventory of coal on hand. 
 
 Grain. — This may consist of the grain stored in elevators ready for 
 shipment to customers, or it may consist of the inventory of grain on hand 
 in a brewery ready for use. 
 
 Ice. — This may represent the amount of ice manufactured in an ice 
 making plant, or 'the ice stored in refrigerators ready for sale. 
 
 Live Stock. — This would consist of the horses in a livery business, 
 or cattle on a ranch, etc. 
 
 Raw Material. — This would consist of all supplies purchased for the 
 manufacture of any product to be put on the market for sale, such as iron, 
 steel, lumber, etc. 
 
 Inventories. — These are the various stocks-in-trade kept on hand for 
 sale to customers. 
 
 These are termed active assets because they can be easily realized. 
 
 (25) REAL ACCOUNTS CONTINUED. 
 
 FIXED ASSETS. 
 
 Right of Way 
 Road Bed 
 Real Estate 
 Buildings 
 Equipment 
 Machinery- 
 Tools 
 Cars 
 Poles 
 Wires 
 
 Furniture and Fixtures 
 Stocks and Bonds 
 Ores 
 Patterns 
 ' Engines 
 
 Boilers 
 Meters 
 Construction 
 Sinking Funds. 
 
 Right of Way. — This asset represents the cost of procuring the right 
 to lay a railroad track, and is usually purchased of a municipality, or similar 
 government authority. 
 
 Road Bed. — This represents the actual cost of making the railroad 
 track, such as rails, ties, grading, etc. 
 
 Real Estate. — This represents the cost of land purchased for the 
 purpose of building a factory thereon, etc. 
 
 Buildings. — This represents the cost of the buildings erected for pur- 
 poses of manufacture of product. 
 
 23 
 
Equipment. — This would represent on a railroad the cost of the cars, 
 telegraph poles, telegraph or telephone wires, etc. 
 
 Machinery. — This represents the cost of machinery purchased for 
 use in a factory. 
 
 Tools. — This represents the cost of any implements used for specific 
 purposes, such as hammers, files, saws, etc. 
 
 Furniture and Fixtures. — This represents the cost of the various 
 fittings, cabinets, etc., purchased for use in an office. 
 
 Ores. — This represents the value of unextracted ores which are valued 
 in order to form a basis of capitalization. 
 
 Patterns. — These are the models of machines, or parts of machines 
 from which the mechanical work is performed. 
 
 Engines. — On a railroad would form part of the equipment — in a 
 factory would mean a gas' engine which drives the dynamos, etc. 
 
 Boiler is a part of the "plant" of an establishment, plant being the 
 generic name used to denominate all fixed machinery and appurtenances. 
 
 Meters represent the devices employed by ''light" companies for 
 recording the amount of light consumed. 
 
 Construction, or Installation, represents the work of installing 
 the machinery or constructing the buildings. 
 
 Stocks and Bonds represent investments outside of the business, such 
 as the purchase of so many shares of stock by the American Manufacturing 
 Company in the American Iron and Steel Company. 
 
 Sinking Fund represents an outside investment for the purpose of 
 paying off a loan, or bonds, which will become due at a certain specified 
 time. 
 
 These assets are termed fixed assets because they are not easily realiz- 
 able, but are more or less of a permanent nature. 
 
 (26) REAL ACCOUNTS CONTINUED. 
 
 PASSIVE ASSETS. 
 
 License 
 
 Charter 
 
 Franchise 
 
 Good Will 
 
 Bonus 
 
 Patents 
 
 Suspense 
 
 Doubtful Debts 
 
 Promotion. 
 
 License. — This represents the amount paid by a saloon-keeper, or 
 barber, for the privilege of carrying on their businesses. This asset, like 
 others of a similar nature, decreases in value as the time which it covers 
 nears its expiration. 
 
 Charter is the amount paid to a municipality for the privilege of 
 
 24 
 
organizing a telephone or sirriilar business, and putting in the necessary 
 equipment. 
 
 Franchise is practically synonymous with "charter." 
 
 Good will is the estimated value of the patronage of a business, and is 
 usually based on the amount of net profits for three or four years. This is 
 not an invariable rule, however, as in one case the tangible assets of a 
 business^ were purchased for $46,000, while the price paid for good will was 
 $1,900,000. This was an exceptional case, however, as the annual profits 
 exceeded $250,000. 
 
 Bonus. — This represents an amount paid to the seller of a business 
 over and above the book value of the property sold. Thus in organizing a 
 corporation for the purpose of taking over a business the original proprietor 
 is frequently paid in stock, and the bonus is the amount of stock issued to 
 him in excess of the book value as previously explained. 
 
 Patents. — This account represents the value of the idea involved in 
 devising a certain article intended for public use. The value of a patent is 
 very difficult to determine, as it may be affected In various ways, such as a 
 patent subsequently obtained being an improvement, or the decline of popu- 
 larity of the article, or the expiration of the time covered by the patent. 
 
 Suspense. — This is a kind of adjustment account to which is some- 
 times debited certain expenditures which actually belong to a future period 
 and from which results can only be expected hereafter. Thus, an advertise- 
 ment in the May number of a magazine may be paid for in April, but as 
 no returns can be expected until May, the amount is carried in the balance 
 sheet as a "suspense" asset. 
 
 Doubtful Debts. — These are usually deducted from the Accounts 
 Receivable and shown separately, sometimes at their full amount, but usu- 
 ally less a certain percentage which is charged against the Profit and Loss 
 account. 
 
 Promotion. — This represents expenditures in organizing a corpora- 
 tion. It is usual to carry such expenditures as an asset and charge off a 
 certain proportion each year until the account is extinguished. 
 
 The above assets are termed passive because their intrinsic value gen- 
 erally depends on conditions and cannot always be accurately estimated. . 
 
 {.27) REAL ACCOUNTS CONTINUED. 
 
 FUNDED LIABILITIES. 
 
 Bonds 
 
 Debentures 
 
 Mortgages. 
 
 Bond. — A form of negotiable commercial currency Issued chiefly by 
 corporations, municipalities, states and governments, but payable at a speci- 
 
 25 
 
fied date instead of at demand, and secured by mortgages, reserve or sinking 
 fund. 
 
 There are many varieties of bonds, such as coupon, debenture, pre- 
 ferred, dividend, mortgage, register, guarantee, municipal, etc. 
 
 Bonds are frequently placed on the public market for sale through the 
 medium of a trust company or trustees to whom the mortgage security is 
 executed. As bonds are sold, the amount, realized on their sale is charged to 
 cash and the liability credited to Bonds Payable account. 
 
 Debentures. — "A debenture is a document admitting an indebted- 
 ness. The term is ordinarily applied to the acknowledgment given by a 
 limited company for a loan which it has received, upon which it undertakes 
 to pay interest periodically, and to repay principal upon such terms as may 
 be set forth in the body thereof. 
 
 "A mortgage debenture is a debenture giving to the inscribed holder 
 thereof, or to bearer, as the case may be, a charge upon certain assets of the 
 company which rank in priority to all other claims." 
 
 Debentures are bonds issued for sale for the purpose of securing work- 
 ing capital, the interest on which is a first charge on profits — i. e., in priority 
 to preferred or other dividends. 
 
 When secured by mortgage, they are termed Mortgage Debentures, 
 but when not secured by mortgage, there is generally a "floating charge" 
 upon the business under which, if the debentures are not paid when redeem- 
 able, the holders may apply for a receiver and have their claims scheduled 
 as preferences in the winding up of the business. 
 
 Mortgages represent a liability by a conditional conveyance of prop- 
 erty as security for the payment of a debt or performance of an obligation, 
 the said conveyance to become void upon the due payment of the debt of 
 performance of the obligation. 
 
 These liabilities are denominated as funded, for the reason that they 
 are due at certain specified dates. 
 
 (28) REAL ACCOUNTS CONTINUED. 
 
 FLOATING LIABILITIES. 
 
 Accounts Payable 
 Notes Payable 
 Unpaid Dividends 
 Unpaid Salaries. 
 
 Accounts Payable. — These are the records of amounts due for 
 goods purchased, either in the shape of raw material or completed articles, 
 ready for sale. 
 
 Notes Payable. — These represent the liability for notes given in set- 
 tlement of account. 
 
 Unpaid Dividends. — In large corporations a liability of this kind fre- 
 
 26 
 
quently has to be carried for a considerable time on acount of the absence 
 of the persons entitled to same and other causes. 
 
 Unpaid Salaries. — This liability is frequently carried on the books, 
 when they are closed at the end of a month which happens to be the middle 
 of a week. It is evident that if the closing occurs on Thursday morning 
 the salaries and wages earned up to Wednesday night are liabilities, which 
 should be included in any statistical record. 
 
 These accounts are called floating liabilities because they have to be 
 paid on demand or according to terms of purchase. 
 
 (29) REAL ACCOUNTS CONTINUED. 
 
 CAPITAL LIABILITIES. 
 
 Capital 
 
 Profit and Loss 
 
 Surplus. 
 
 Capital. — This represents the liability of the business to the stock- 
 holders who have invested money therein. 
 
 Profit and Loss. — This represents the liability of the business to the 
 stockholder for the amount of profit made during a certain period. 
 
 Surplus. — This represents the liability of the business to the stock- 
 holders for the amount of undistributed profits. 
 
 These accounts are called capital liabilities because they relate ex- 
 clusively to the investments and remuneration of stockholders. 
 
 (jo) real accounts continued. 
 
 LIABILITY RESERVES. 
 
 Liability Reserves. — In all large businesses reserves are made in 
 respect to contingent liabilities. In a manufacturing business it is necessary 
 to consider the cost of maintenance, and the reserve in this case is generally 
 known as depreciation. Where bonds have been issued it is not only neces- 
 sary to make a reserve for the payments of the principal, but also for the 
 interest. Taxes are usually paid in advance, but we have seen cases where 
 they were not, and therefore a reserve account was established to which 
 was debited each month the proper proportion of the liability. The usual 
 method of establishing a reserve against a sinking fund for the purpose of 
 paying off a debt is to credit a redemption fund. Further information on 
 this subject will be given later. 
 
 (ji) TRADING accounts. 
 
 In-freight 
 
 Wages 
 
 Manufacturing Expense 
 
 Repairs 
 
 Fuel 
 
 Water. 
 
 In-freight. — This represents the cost of transportation of raw ma- 
 terial in a factory, or completed goods in an ordinary store. 
 
Wages. — This represents the cost of production so far as the wages 
 of the operatives are concerned. 
 
 Fuel and Water. — This represents the cost of coal or water used 
 for producing power to drive machinery. 
 
 Repairs. — This represents the cost of maintaining machinery and 
 buildings used for manufacturing purposes. 
 
 Manufacturing Expense. — This represents such items as the sal- 
 aries O'f the foremen, salaries of helpers who do not w^ork directly on pro- 
 duction, salary of superintendent, etc. 
 
 The above are called trading accounts because they relate directly to 
 the cost of production, and are real accounts to the extent that the amounts 
 charged thereto are included in inventories as a part of the cost of the goods 
 inventoried. 
 
 (i^) NOMINAL ACCOUNTS. 
 
 Commission 
 
 Out-freight 
 
 Salaries 
 
 Traveling Expense 
 
 General Expense 
 
 Administrative Expense 
 
 Printing 
 
 Stationery 
 
 Rent 
 
 Advertising 
 
 Postage 
 
 Collection and Exchange 
 
 Discount 
 
 Legal Expense 
 
 Insurance 
 
 Taxes. 
 
 Commission. — A ledger account representing commissions paid or 
 payable. 
 
 The book-keeper wall find it necessary to keep close watch of this ac* 
 count in order to secure his principles against paying commission on unre- 
 liable accounts, deductions for claims and allowances, rescinded orders, etc. 
 It is therefore usual to carry a memorandum commission account, agents or 
 salesmen being credited only with commission as same is earned. 
 
 Commission paid is a selling expense and is charged against gross 
 profit brought from the trading account when there is a credit balance. 
 When goods are bought "on sale" the sales are not usually included in the 
 trading account, but are treated separately. Commissions paid and com- 
 missions received should not be mixed in one account. 
 
 Out-freight. — This represents a department of selling expense. 
 
 Salaries. — This represents the payment for services outside of the 
 manufacturing department. 
 
 Traveling Expense. — This represents the expenditures of the va- 
 rious salesmen and solicitors in connection with the business. 
 
 28 
 
Ueneral Expense. — This represents expenditures which are not re- 
 munerative, and are therefore charged direct to Profit and Loss. Thus 
 labor employed in manufacturing is termed productive expense as against 
 office labor, which is not directly productive, although it shares in the gen- 
 eral organization of the going business and should share in the credit of 
 building up and maintaining that business as a going concern. 
 
 Different kinds of expenditures should not be dumped into a General 
 Expense account any more than different kinds of purchases, sales, goods 
 returned, etc., should be dumped into a Merchandise account. The intelli- 
 gent merchant requires a comparative record of the different classes of his 
 expenditures which will show if they are justifiable considering the volume 
 of business, or if they are excessive and the result of a careless and lax ad- 
 ministration. 
 
 Separate accounts should be kept with advertising, postage, salaries, 
 express, selling expenses, etc., so that the fact of their being normal and not 
 extraordinary may be ascertained at any time w^ithout the trouble of analyz- 
 ing the Expense account by drawing off lists of the different items under 
 their separate headings. 
 
 Where a business is divided into departments, the cost of administra- 
 tion may be pro-rated according to the volume of business done. If, for 
 instance, certain employes are engaged in working for different departments 
 and an accurate account cannot be kept of the time spent by each employe in 
 each department, then the cost of their services may be pro-rated according 
 to the amount of turnover of each department. Such percentages are fre- 
 quently computed on gross sales, but it is considered preferable and more 
 equitable to compute them on the turnover. 
 
 Where the distribution of expense to different accounts would neces- 
 sitate a large number of separate accounts the following method has some- 
 times been adopted, although the advantages of such a system do not seem 
 particularly obvious, as in the one case the distribution is made in the ledger 
 by means of separate accounts, and in the other case the distribution is made 
 in an auxiliary record book involving duplication of entries and work. 
 
 *Tn planning books for a manufacturing concern 29 sub-heads have 
 been found. To open 29 accounts in the general ledger, would mean a heavy 
 burden on the book-keeper, and a columnar arrangement of the cash book 
 with a column for each sub-head would be too unwieldy. 
 
 The plan adopted, therefore, in this case, is as follows : 
 
 "There is but one ^expense' column in the cash book, the footings of 
 which are carried along and posted but once a month to the expense account 
 in the general ledger. This makes it easier for the trial balance, by far, 
 than as if there were 29 separate expense accounts. Then there is a sepa- 
 rate book for the 'Distribution of General Expense,' etc., which is a sort of 
 
 2d 
 
voucher record minus the voucher feature, and with this difference, that the 
 names of accounts are printed one below the other at the left hand margin 
 of the page, instead of being printed across the top of the page. The rest 
 of the page is ruled in columns, a column for a day, into which the items 
 are entered daily opposite the proper names, and a daily footing made 
 which must agree with the amount by which the expense account in the 
 cash book has been increased. 
 
 
 Di^tpibcjtior\ o^ Ocrr>epal 
 
 Elxper\&e A^oourSh 
 
 
 
 
 
 
 fopwapd 
 
 Nov. 4 
 
 NoYl^lNoviej 
 
 Nov 1 7 
 
 iBpwapd] 
 
 1 
 
 C-oKeeioT^e? 
 
 
 
 
 
 
 
 
 
 
 
 
 2 
 
 
 
 
 
 
 
 
 
 
 
 
 
 3 
 
 DooKKeeper 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 Po£.l2^^c ^U.^. Pev. 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 3>"tertTc>r>eray 
 
 
 
 
 
 
 
 
 
 
 
 
 
 6 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 L..5K+. 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 *'When the page is full a cross-addition is made of each account and 
 the grand total proved by adding the several totals of columns on the page. 
 The totals are forwarded to the next page, and at the end of the month 
 transferred to the back of the book to columns headed January, February, 
 etc. At the end of the year a grand summary is made by cross-addition. 
 The monthly totals must agree with the expense account in the general 
 ledger. 
 
 "With a little practice one can add across the page as quickly and as 
 accurately almost as down the page." 
 
 The following advantages are claimed for this book : 
 
 First. The work is condensed and a larger proportion of the space is 
 utilized. 
 
 Second. The printer does most of the work. The book-keeper must 
 only fill in the figures. 
 
 Third. It is much easier than posting to separate accounts, wath none 
 of the disadvantages and securing all the results of a separate posting. 
 
 Fourth. It shows the expense statistics in tabular form week by week, 
 month by month, and year by year, and any desired reference or compari- 
 son can be made almost instantaneously. 
 
 Administrative Expense. — This relates entirely to the work of the 
 principal officers of a corporation in regard to financing the business and 
 general superintendence, including, of course, their office help and the ex- 
 pense in connection with the office they occupy. 
 
 30 
 
Printing. — This represents expenditures on circular work, cata- 
 logues, etc. 
 
 Stationery. — This represents expense of letter heads, envelopes, and 
 general office supplies. 
 
 Rent. — This account should be carefully subdivided so that the fac- 
 tory, or each department of a business, is charged with the proper pro- 
 portion. 
 
 Advertising. — This relates to the cost of postage of all advertising 
 matter, and to the cost of production of all advertising matter not included 
 under the head of printing; also cost of magazine and newspaper adver- 
 tising. 
 
 Postage relates to all expenditures in this direction which cannot be 
 specifically distributed. 
 
 Discount. — This is something of a controversial question, but we 
 believe the totals of the discount columns should be closed into the Profit 
 and Loss account, and also that in the case of payment of invoices for goods 
 purchased, the gross amount should be debited and the discounts recorded 
 so that the Profit and Loss account will show the amount of discounts 
 gained from purchases and the amount of discounts lost to customers. 
 
 Legal Expense. — This expenditure relates to law costs incurred on 
 collections, etc. 
 
 Insurance and Taxes. — These expenditures are offset, as previously 
 shown, by reserves for unexpired time. 
 
 Collection and Exchange. — In a large business it is usual to keep 
 an account of this kind because the recDnciliation can ba more easily made 
 with the bank pass book. 
 
 EXERCISES. 
 
 Specify two new examples each of 
 
 Active Assets. 
 
 Fixed Assets. 
 
 Passive Assets. 
 
 Funded Liabilities. 
 
 Floating Liabilities. 
 
 Trading Accounts. 
 
 Nominal Accounts. 
 Explain the nature of each example according to the plan followed in 
 this lesson. 
 
 31 
 
CHAPTER IV 
 
 Purchase and Voucher Records; Credit Journals; Purchase 
 Ledgers ; Bills Receivable. 
 
 Books used exclusively for credit entries, consist of records of various 
 kinds of purchases, returns from and allowances made to customers, and 
 records of Bills Payable. 
 
 The purchase, or voucher record, will in most businesses, be provided 
 with distribution columns so that it will be possible to tell at a glance how 
 much has been purchased of different kinds of raw material, supplies, man- 
 ufactured goods, etc. 
 
 The purchase department of the business also has charge of the com- 
 pilation of statistical and other information in regard to where goods will 
 be obtained, prices and quotations, grades, etc. 
 
 (33) A good many concerns from whom purchases are made, issue 
 catalogues giving full descriptions and particulars of their wares. These 
 catalogues are filed in numerical order for reference and a card index is 
 
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 ^' 
 
 ua 
 
 used referring alphabetically to the various commodities required, so that 
 if we desire to purchase emery wheels, we look for the guide card "Emery 
 Wheels" and find that they are sold by W. Jones and Company, the Ham- 
 ilton Emery Wheel Company, and Smith and Robbins Manufacturing 
 Company. 
 
 Catalogues of these concerns are numbered 9, 42, and 206 respectively, 
 so that we obtain complete information on the subject of emery wheels 
 without delay. 
 
 {34) The same index is used for a record of business houses from 
 whom necessary supplies may be purchased, but who do not issue catalogues. 
 
 32 
 
(J5) In some businesses a system such as hereunder described is 
 found very convenient and efficient. Instead of keeping the record of pur- 
 chases in a bound book it is kept on cards or heavy loose leaf sheets of 
 paper. When goods are ordered, the orders are v^ritten on purchase order, 
 as per illustration. This is a thin order blank, and by placing a carbon 
 
 No. Purcl^ase Order 
 To Of 
 
 Please forward to us dt" o^u by^dst -fre'ifl^t ^oods as per llje ^ollowi9^ specl(icfl1ioi)s: 
 
 bate 
 
 
 Quo otity 
 
 Particulars 
 
 Price 
 
 AnvoDrsd" 
 
 Total J 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 3-' 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 sheet between it and the card a duplicate of the order is obtained for filing 
 in the card tray. This card tray is divided into three sections, with guide 
 cards for each. The sections are named "Goods Ordered," "Goods Re- 
 ceieved," "Bills Audited." 
 
 The original purchase order goes to the party from whom the goods 
 are ordered. 
 
 The duplicate purchase order goes to the receiving and shipping room. 
 
 The purchase record is filed in the card tray provided for the purpose 
 in front of the guide card marked "Ordered." 
 
 When the goods are received the shipping clerk makes a notation on 
 the purchase order he holds as to date of receipt, quantity received and 
 condition. 
 
 ( ?d) The purchase order is then compared with the bill, and prices 
 and extensions checked. The bill is attached to the purchase order by 
 means of a clip, and is then replaced in the card tray in the "received" 
 section. 
 
 ( J/) The bills are audited for payment on the last day of the month 
 and removed to the audited section. A recapitulation is made of the 
 amounts and the total is credited to Accounts Payable Controlling account 
 and debited to Purchase Manufacturing account, or whatever account has 
 been provided. The recapitulation sheet should be ruled so as to contain 
 the distribution of the purchases to the various material and supplies 
 accounts to which the totals are to be debited. 
 
 It will be seen from this description that the invoices received cannot 
 only be referred to, but information can be obtained at a glance as to 
 whether the bill of goods has been received; as to whether the goods are 
 
 33 
 
according to order, and the bill correct; as to whether the bill has been 
 audited, or paid; and as a matter of fact, no extra time has been consumed 
 because it is just as easy to place the bill in one file after reference has been 
 made to it as to place it in the file in which it was originally contained. 
 
 Wherever bills are regularly discounted and paid at certain fixed dates, 
 it is a waste of time to open separate ledger accounts with each concern 
 from whom purchases are made. The bills, attached to the voucher, should 
 be filed in vertical files, and as all the bills emanating from one house will 
 be filed together, immediate reference can be obtained whenever desired. 
 
 (3^) The Purchase Department also keeps the stock records. These 
 are kept on cards ruled after the style shown in illustration. When goods 
 
 are received the quantity is entered on the card and the card is sent down 
 to the storekeeper, who fills in the location. The card is then returned to 
 the Purchase Department. 
 
 On each card is marked a "limit," below which it is inadvisable to 
 allow the stock to fall. The storekeeper enters on the cards each day the 
 quantities delivered to the factory, after which a list is made of goods 
 which have fallen below the limit. This list is handed to the general man- 
 ager, who attends to requisition for new supplies. 
 
 (jp) In many businesses It Is considered desirable to combine the 
 purchase record and the maturity record, showing at a glance when bills 
 become due and must be paid in order to take advantage of discount, etc. 
 In the illustration, the "Sundries" column is intended to include everything 
 
 34 
 
which is not a factor in the cost of production, but there should be columns 
 provided for description and folio to make it a really satisfactory form 
 for practical use. 
 
 {40) The credit journal is an ordinary form of journal used for 
 recording returns from and allowances made to customers. The items are 
 credited to the customers' account in the customers' ledger, and the total 
 
 
 
 
 Pu 
 
 rc 
 
 base 
 
 a 
 
 Oc) Molur'^ 
 
 Recorc 
 
 ). 
 
 
 
 
 
 
 
 
 
 
 
 
 ^ 
 
 % i 
 
 z 
 
 
 Raw Mcflerinl | Fiijlsf^ed MtiTencil cir)d Sup|3lies 
 
 fi 
 
 t 
 
 £1 
 
 McjTurTTy Record | ^ \ 
 
 ? Hides 
 
 Fijrs 
 
 Robes [rhjread 
 
 e>uttst)s 
 
 Supplies 
 
 5ur)dpies 
 
 
 
 
 Z 
 
 < Zt T <>/)0 
 
 t 
 
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 5 1 
 
 Q£2 
 
 ^^ 
 
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 K^r^W 
 
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 1 
 
 
 
 
 
 
 
 
 
 
 
 at the end of each month debited to Sales account. This total also goes to 
 the credit of the Accounts Receivable Controlling account in the general 
 ledger. 
 
 (^7) The use of a voucher record indicates the use of the voucher 
 system, and a general description of this system and its advantages follows : 
 
 Form No. 1 shows the bill which in this instance is dated March 5, 
 1904, terms 1 per cent, ten days. The prices and extensions having been 
 
 CITY DEPARTMXNT. 
 
 
 BOUGHT OF FULLER ife FULLER CO. 
 
 WHOLESALE DRUGGISTS 
 
 Randolph and Frai>Klin Streets 
 
 Ran 
 
 ^ 
 
 PAID 
 
 652 
 
 MAR 151904 
 
 /^ 
 
 f^ 
 
 m 
 
 fz 
 
 r^yr 
 
 O. K.'d the voucher is made out and the voucher number stamped on the 
 bill, together with the word "paid," as shown in illustration. 
 
 Form No. 2 shows the voucher. These are numbered consecutively 
 from 1 to 1000. After the voucher has been made out, same is entered in 
 
 35 
 
the voucher journal and distributed to the proper accourU;, as shown on the 
 voucher. The voucher and bill is then passed to the offiae manager, who 
 audits same and approves the voucher for payment. 
 
 Form No. 3 — This form of voucher journal is the best because it is 
 simple in operation and sure in results. The distribution covers all ordinary 
 expenditures and the two extra columns on the right hand of the page are 
 
 BUCK & RAYNER, Ubofrioy 
 
 State & Uadlson Sta, 
 CHICAGO 
 
 — ^ Voucher No. G ...^,^'2. —..... 
 
 Month ol..^S?Pfayrc£,r.... ,.„_„_ \90jfy^ 
 
 Coaect, 
 
 JC 
 
 Approved 
 
 $..^ Date, 
 
 Received of BUCK & RAYNER, Uboratory 
 
 ir\ full of above account. 
 
 IWTWRII TMI» veUCNBH WITH *U ^KMIW ATTMNb «.„.«...-.-..^ — .. 
 
 ..I90.„„ 
 
 Dollars, 
 
 sufficient to provide for any extraordinary items for which it might be 
 desirable to open accounts. At the end of the month a journal entry is made, 
 
 Sundries, 
 
 To Accounts Payable, 
 
 and charges made against the various accounts affected, as explained above, 
 accounts payable being credited with the total. 
 
 Payment of Audited Vouchers. — When the date of payment arrives 
 the voucher is removed from. the tickler and passed to a clerk who draws 
 a check for same and notes check number on voucher. The bill, voucher 
 and check is then passed to the manager, who approves the voucher as 
 being correct, signs the check, and puts his initial opposite the amount on 
 the bill. The check and voucher is then forwarded to the party in whose 
 favor it is drawn, and the bill or bills filed in numbered folios. When the 
 voucher is returned properly receipted same is filed with the bills in the 
 numbered folder. 
 
 On the credit side of the cash book is entered the date, voucher num- 
 ber, name of payee, and the amount of the check entered in the accounts 
 payable column. The total of this column is then charged to accounts 
 
 36 
 
payable at the end of each month in the general ledger, and the difference 
 between the debit and credit side of this account will give the balance of 
 unpaid audited vouchers. This can be proved by footing the unpaid vouch- 
 ers in the tickler. The reconciliation of accounts payable should be made 
 at least once a month, preferably when there are few vouchers on hand. 
 The method of proving the voucher journal at any other time than the 
 closing period is as follows: 
 
 Balance of accounts payable as on the 1st. 
 
 Add voucher journal footing to date 
 
 Total 
 
 Subtract footing of accounts payable in cash book 
 
 Balance will show total of unpaid vouchers on hand. 
 
 There is no necessity whatever to have columns in voucher journal 
 showing on what date a voucher is paid as the cash book gives this infor- 
 mation if ruled up as suggested above. 
 
 By keeping a voucher journal along the lines set forth only live Items 
 are dealt with: no individual postings are made; proper distribution is 
 
 
 
 AixJited \/ovc\)crs 
 
 for 
 
 ■^. 
 
 M 
 
 orVtK of 
 
 
 
 
 
 
 
 
 
 bate 
 
 tot 
 
 Voucber 
 No. 
 
 A. ,-^,%..K+t 
 
 IMsCoi;t)1- 
 
 Mdse Purcl)tises 
 
 Cer)CP<jl Lufjcoscs 
 
 N(nn\e 
 
 Pay Me 
 
 bnJ$sl ||Ci^^rs2 
 
 &oda3 
 
 Salaries iff Reot5 | U^i^ b 
 
 
 
 
 IbroU^tForwarJ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 b52 
 
 Fuller^Fuller 
 
 <]l 
 
 5fa 
 
 
 
 qi 
 
 5b 
 
 
 
 
 
 
 
 
 
 
 
 
 b53 
 
 PettyCflsh for Mchj.oit 
 
 sqq 
 
 q't 
 
 
 
 
 
 
 
 
 
 350 
 
 00 
 
 150 
 
 oo t 
 
 11 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ^ 
 
 1 i 
 
 
 
 
 
 
 
 
 
 
 
 LI 
 
 
 _ 
 
 
 _ 
 
 
 _ 
 
 
 
 
 
 
 
 
 
 
 
 JlXarch 
 
 
 
 
 
 _l 
 
 ^04 
 
 
 
 
 
 
 GcQeral E.>.|oer)&e I 
 
 Ii)ci<fer)r<ils1 
 
 R.%\'l |Adver1i.,^<) 
 
 store 
 lf)vesTivTIO 
 
 Car Fare 1 1 
 
 Postage 11 
 
 Wiod 
 
 ow 
 15 
 
 ^im^ 
 
 6i^0S.5| 1 1 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 1 
 
 
 
 
 1 
 
 50 
 
 
 
 10 
 
 00 
 
 
 
 hr 
 
 35 
 
 I& 
 
 b2 
 
 
 
 52 
 
 15 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 guaranteed, and the cash disbursements are all entered in accounts payable 
 column instead of being spread all over a cash book with the attending 
 possibility of error. 
 
 Should the management desire to make a payment on account of an 
 audited voucher, a check is drawn and the amount of the check entered on 
 the face of the voucher, stating the date and noting the fact that the check 
 is on account. The voucher is not forwarded until the final check is drawn. 
 
 37 
 
In any event, the voucher number is entered on the stub of the check book- 
 so as to complete the record of the transaction. 
 
 (4^) The advantages claimed for the Voucher System may be sum- 
 marized as follows: 
 
 Elimination of ledger accounts with creditors. 
 
 Prevention of dishonesty without collusion of several officers. 
 
 Easy reference to all data. 
 
 Auditing facilitated. 
 
 Elimination of acknowledgments, separate receipts, statements, etc. 
 
 No danger of paying bills twice. 
 
 (^j) In form 5 it will be noted that a maturity record is included, 
 and key numbers are used. These key numbers are for the purpose of 
 
 VOUCMER-RECORD 
 
 No' 
 
 ~" 
 
 
 
 
 " 
 
 ^ 
 
 
 
 
 
 
 1 
 
 pp;j H 
 
 S«T, F^. 
 
 >< MJ..(UW 
 
 .^» r„-.JS> °^ 
 
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 ■JL„ .,«,. 1 
 
 1 
 
 
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 A-,..S> 
 
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 nil 
 
 
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 53 
 
 
 
 
 
 
 
 
 
 
 
 
 
 54 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 JUCMCR.- 
 
 RECORD 
 
 
 
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 ■1 
 
 
 
 
 
 
 
 
 
 
 
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 Form 5. 
 
 saving labor, the numbers only instead of the names of accounts being 
 endorsed on the back of the voucher for guidance in entering the amounts 
 in the proper columns in the voucher record. Form 6 shows a letter instead 
 of a figure key. 
 
 Purchase ledgers are usually made in the same style as the sales ledger, 
 and the use of controlling accounts is the same as explained in lesson 2 in 
 regard to sales ledgers. 
 
 (44) THE TREATMENT OF BILLS RECEIVABLE. 
 
 When a bill is received it is numbered and the particulars entered under 
 the proper headings, together with the amount. The register may have 
 one name to a page, two names, three names, or four names, according to 
 the space a customer is expected to occupy, all the bills received from the 
 
 38 
 
customer being entered on the page allotted to his account, which is indexed 
 in the ordinary way. 
 
 When a bill is paid, it is entered in the cash book in a special column 
 headed "Bills Receivable" and posted from the cash book first to the credit 
 of the customer's account in the Bills Receivable register and ledger, the 
 balance of notes outstanding being extended in the balance column; and 
 
 
 
 
 
 
 
 
 THE HOME TELEPMONE 
 
 Vouct)er Record 
 
 ITci^s 
 
 AccouritPoyob 
 
 5 Coo struct, or,, iTsTollaT.or, or,d El Qt/. pi»\eiT 
 
 
 loTn.or of 
 
 "Z^: A-vou^ 
 
 r ^ C) 
 
 C D fl P C 
 
 r. 
 
 u 
 
 M 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 COMPArNjY or 
 
 JAMESTOW 
 
 \1 N Y 
 
 
 
 Operol-.r,^ Aco^^Ts 
 
 IMo.nTericoc. Ac 
 
 lOuSTs Toc'o'lic' 
 
 Vouct, 
 
 Pa-.d 1 
 
 
 . 1 
 
 o 1 . 1 
 
 Q n S 
 
 T S.t.h.... T.„p^„„ 0,.^.uJ o.,J.rj..^ 
 
 (S„.li),^g. M.ii€ln» C«?«riil rro"~ 
 
 r.A.„,T, c.p.o.. E.p.is* ^i— ■^ 
 
 ^ NO. 
 
 W1,.0 
 
 M^ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Form 6. 
 
 second, to the credit of the customer's account in the customers' ledger. 
 This appears like double posting, but as a matter of fact the posting of the 
 cash credits to the customers' accounts in the customers' ledger takes the 
 place of the credits to the customers' accounts usually posted when the notes 
 are received. 
 
 Cerifrjf L eJgei- Folio. 
 
 No. Ui 
 
 rro^«J)o^ 
 
 Address 
 
 PoiT 
 Ofti'ce 
 
 wtjece 
 Poyfible 
 
 tjdor^. 
 
 AdJrtss 
 
 6ue 
 
 Ap\uDI>t 
 
 bate 
 Collp 
 
 T])roi;jl,VYl|<w hcl^t folio 
 
 Credits (5d|ar)c« 
 
 R€r^a^ks 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 1 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Make a notation on the customers' ledger account that a note has been 
 received, the amount, and the folio in the Bills Receivable register and 
 ledger where particulars may be found. 
 
 In the General Ledger carry a memorandum summary account, entitled 
 
 39 
 
"Bills Receivable Account," to which only monthly totals are posted and 
 the balance of which will show the amount of notes outstanding which can 
 be verified by taking an inventory of the notes on hand, and will agree 
 with the sum of the balances drawn off from the Bills Receivable Ledger. 
 
 In order to obtain the necessary figures for the memorandum ''Bills 
 Receivable Account" in the general ledger above mentioned, a recapitulation 
 sheet is used on which is listed the amounts of all bills as they are entered 
 in the Bills Receivable register and ledger, and the amounts of all credits as 
 posted from the cash book. At the end of the month these columns are 
 footed up and the totals posted to the debit and credit of the memorandum 
 Bills Receivable account, the balance of which must agree with the total 
 of the balances contained in the Bills Receivable register and ledger, thus 
 proving the accuracy of the work in that book. 
 
 It is needless to add that this memorandum account in the general 
 ledger is not included in the trial balance, for the reason that the balance 
 of this memorandum account is already included in the trial balance in the 
 form of debits to customers' accounts which have not been offset by notes 
 on hand. 
 
 The advantages of this system consist in the saving of labor and the 
 assurance of accuracy. 
 
 Labor saved — no journalizing; no posting of notes to Customers' ledger 
 accounts. 
 
 Checks on accuracy: — Recapitulation sheet — total credits must agree 
 with total of special column in cash book. Bills Receivable Ledger — sum 
 
 lb) lis nec€ 
 
 RECAPITULATION 
 
 irahlp -for JTi onft^ (yf- 
 
 . 
 
 Ct edits hrjnontl) of^ 
 
 
 
 ' ' ' . > . , 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 I N5TRDCTION6. 
 ToT^lsfDrpvopt^Tabe d^cirjcdorct-editeclto fbillb Receivable flccov9rip Ceijer-fllLec^^er: 
 Add Totfll deb*»T^ \^ M)n\ oj- last bfllii9(es, deduct credits, <ii)d repvflifjdcr wlir<ij»-ee witl) 
 TtfTal (^tt)is n\09tljv' bflUr)ces (^^6 |3rov€% rtccurncy o\"^(l wor-t\. 
 
 of outstanding balances must agree with balance of memorandum account 
 in Genera] Ledger and with inventory of notes on hand. 
 
 40 
 
EXERCISES. 
 
 Draw a form of purchase record with distribution columns. 
 Make entries therein of purchase of material, office supplies, etc., under 
 the following headings : 
 
 Advertising. Lumber. 
 
 Bolts, Nuts and Screws. Machinery. 
 
 Discount and Interest. Manufacturing Material. 
 
 Expenses. Patterns and Stencils. 
 
 Furniture and Fixtures. Power. 
 
 Foundry. Postage. 
 
 Freight. Paint. 
 
 Iron and Steel. Shop. 
 
 Insurance. Wages. 
 
 Draw form of general ledger and make postings from purchase record 
 to credit of Accounts Payable Controlling account, and debit of Purchase 
 Distribution accounts. 
 
 Make a list of cash payments and post same to debit of Account Pay- 
 able Controlling account. 
 
 Make a trial balance of the work. 
 
 Style will be considered in awarding marks. 
 
 41 
 
CHAPTER V 
 
 Preparation of Trial Balance; Trading Accounts; Profit and 
 Loss Accounts and Trial Balance Sheets. 
 
 (45) The proper construction and intelligent classification of Trial 
 Balances, Trading Accounts, Profit and Loss Accounts, and Balance Sheets 
 is a matter of great importance to the book-keeper who desires to thor- 
 oughly comprehend the science of accounting and to give his employers 
 the best possible service. 
 
 Statements of this kind prepared without any attempt at classification 
 are confusing to the business man desiring to understand the details of his 
 business, and the more the items of such statements are subdivided and 
 grouped in detail, the more information can be obtained therefrom. 
 
 In the first place, therefore, whenever possible, the book-keeper should 
 carefully classify and group his nominal, or general ledger, accounts, 
 which contain complete statistics of the business. 
 
 The asset accounts should be assembled together and subdivided as 
 per classification explained in lesson four — i. e., active, fixed, passive. 
 
 The liability accounts should be subdivided into funded, floating, and 
 capital, under which latter head reserves would be included. 
 
 The expense accounts should be assembled together and may be sub- 
 divided into selling, general, administrative. 
 
 Where trading accounts are carried on the main office books, they 
 should be assembled, probably consisting of raw material, labor, manufac- 
 turing expense, fuel, freight, etc. 
 
 Where the cost records are kept at the factory, it is usual to carry on 
 the main ofiice books two accounts, one called Manufacturing Account, to 
 which is debited all invoices for material and supplies, cash paid for labor, 
 etc. An account is also kept called Manufactured Stock, or subdivisions 
 thereof according to requirements, to which are debited completed products 
 delivered from factory to store, the cost value of same being credited tp 
 Manufacturing Account. 
 
 For the purpose of assembling accounts in this manner, loose leaf, or 
 card, ledgers are much more convenient than bound books, for the reason 
 that when accounts must be added owing to the expansion of a business, 
 there may be no room to place them in the proper group in a bound ledger, 
 
 42 
 
and the misplacement of such accounts interferes with the efficiency of the 
 system and involves more work on the part of the book-keeper. 
 
 The appended illustration of a nominal, or general ledger, will give 
 the student a very good idea of the way in which such ledgers should be 
 
 
 
 
 
 j^ea 
 
 
 ASSETS 
 
 
 
 
 
 
 
 
 
 
 
 
 Da^e 
 
 Rar.-t,coUr-A 
 
 t?>l.o 
 
 
 Debits 
 
 
 Ci»e<J.-ts|- jje>a.Uoc«= 
 
 
 
 
 
 
 
 
 
 
 
 
 i 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ... 
 
 
 
 
 
 
 
 
 
 
 arranged. When accounts are grouped in this way it greatly simplifies the 
 work of making Trading Accounts, Profit and Loss Accounts, and Balance 
 Sheets from the Trial Balance, and this is exemplified in the following 
 Working Balance Sheet, where the amounts belonging to each statement 
 are easily assembled by transfer from the first set of columns to the 
 desired location in the other columns on the same line. 
 
 There being three departments there are three Trading Accounts, the 
 transactions in connection with which are seen at a glance. 
 
 The items constituting the Profit and Loss Account are together, as 
 also those constituting the assets and liabilities, the latter making an intel- 
 ligent exhibit which should secure the approval of any business man looking 
 for information in regard to the results of his business transactions. 
 
 This Working Balance Sheet also illustrates the inter-relation of each 
 statement to the other and shows how the net profit exhibited in the Profit 
 and Loss Account agrees with the net profit, or surplus, exhibited on the 
 Balance Sheet, the inventories being included in the assets on the Balance 
 Sheet and credited to Profit and Loss, with the exception of the expense 
 inventory, which is deducted from the balance of Expense Account as shown 
 on the trial balance. The operations of the trading of the three depart- 
 ments have resulted in increasing the assets under the heading of Accounts 
 Receivable, and the profits of the business, amounting to $2132.30, are 
 included in the Balance Sheet under that heading and that of inventories. 
 
 43 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 44 
 
Further illustrations of trial balances are presented for study as fol- 
 lows: 
 
 TRIAL BALANCE. 
 
 ASSETS. 
 
 Cash $ 1,000 
 
 Accounts Receivable 40,000 
 
 Liventories Jan. 1st 35,000 
 
 Buildings 50,000 
 
 Plant and Machinery 25,000 
 
 Loose Tools, etc. . r 10,000 
 
 LIABILITIES. 
 
 Accounts Payable $ 10,500 
 
 Bank Overdraft 12,000 
 
 Mortgage Loan 30,000 
 
 Reserve Against Bad Debts 1,200 
 
 Capital Stock 100,000 
 
 PROFIT AND LOSS. 
 
 Salaries 3,500 
 
 Rent, Taxes and Insurance 2,800 
 
 Maintenance Account, Buildings 2,000 
 
 Machinery 2,500 
 
 TRADING ACCOUNT. 
 
 Iron and Steel 99,500 
 
 Factory Supplies 8,000 
 
 Coal and Coke 9,000 
 
 In-freight and Cartage 8,800 
 
 Wages 37,600 » 
 
 Bags and Packing 3,000 
 
 Factory Expense 6,000 
 
 Sales 190,000 
 
 $343,700 $343,700 
 
 Inventories Feb. 1st $ 36,000 
 
 TRADING ACCOUNT. 
 
 Dr. Cr. 
 
 Inventory Jan. 1 $ 35,000 
 
 Iron and Steel 99,500 
 
 Factory Supplies 8,000 
 
 Coal and Coke 9,000 
 
 In-freight and Cartage 8,800 
 
 Wages 37,600 
 
 Bags and Packing 3,000 
 
 Factory Expense 6,000 
 
 Sales $190,000 
 
 Inventory Feb. 1 36,000 
 
 Gross Profit 19,100 
 
 $226,000 $226,000 
 PROFIT AND LOSS ACCOUNT. 
 
 Gross Profit brought down $19,100 
 
 Salaries $ 3,500 
 
 Rent, Taxes and Insurance 2,800 
 
 Maintenance Account, Buildings 2,000 
 
 Machinery 2,500 
 
 Net Profit 8,300 
 
 $ 19,100 $ 19,100 
 BALANCE SHEET. 
 
 ASSETS. 
 
 Cash $ 1,000 
 
 Accounts Receivable 40,000 
 
 Inventories 36,000 
 
 45 
 
Buildings 50,000 
 
 Plant and Machinery 25,000 
 
 Loose Tools, etc 10,000 
 
 LIABILITIES. 
 
 Accounts Payable $ 10,500 
 
 Bank Overdraft 12,000 
 
 Mortgage Loan 30,000 
 
 Reserve Against Bad Debts 1,200 
 
 Capital Stock 100,000 
 
 Surplus 8,300 
 
 $162,000 $162,000 
 TRIAL BALANCE. 
 
 ASSETS. 
 
 Cash $ 7,500 
 
 Cash at Bank 12,000 
 
 Accounts Receivable 6,000 
 
 Bills Receivable 40,000 
 
 Inventories, Jan. 1st 33,000 
 
 Factory Buildings ...» 50,000 
 
 Plant and Machinery 65,000 
 
 Patent Rights 4,500 
 
 LIABILITIES. 
 
 Accounts Payable $ 2,000 
 
 Bills Payable 15,000 
 
 Preference Stock 100,000 
 
 Common Stock 60,000 
 
 Reserve Account 10,000 
 
 Reserve for Bad Debts 2,500 
 
 PROFIT AND LOSS. 
 
 General Expense $ 2,500 
 
 Advertising 1,500 
 
 Commission 900 
 
 Taxes and Insurance 2,500 
 
 Salaries 4,000 
 
 Bad Debts 1,000 
 
 Bank Charges 500 
 
 Current Profit and Loss $ 6,000 
 
 TRADING ACCOUNT. 
 
 Purchases $115,000 
 
 Wages 40,000 
 
 Factory Expense 2,000 
 
 In- freight and Duty 3,600 
 
 Sales $196,000 
 
 $391,500 $391,500 
 Inventories, Feb. 1st $ 36,000 
 
 TRADING ACCOUNT. 
 
 Inventory Jan. 1 $ 33,000 
 
 Purchases 115,000 
 
 Wages 40,000 
 
 Factory Expense 2,000 
 
 In-freight and Duty 3,600 
 
 Sales $196,000 
 
 Inventory Feb. 1 36,000 
 
 Gross Profit 38,400 
 
 $232,000 $232,000 
 PROFIT AND LOSS ACCOUNT. 
 
 Gross Profit brought down $ 38,400 
 
 General Expense $ 2,500 
 
 Advertising 1,500 
 
 Commission" 900 
 
 46 
 
Taxes and Insurance 2,500 
 
 Salaries 4,000 
 
 Bad Debts 1,000 
 
 Bank Charges 500 
 
 Current Profit and Loss 6,000 
 
 Net Profit 31,500 
 
 $ 44,400 $ 44,400 
 BALANCE SHEET. 
 
 ASSETS. 
 
 Cash $ 7,500 
 
 Cash at Bank 12,000 
 
 Accounts Receivable 6,000 
 
 Bills Receivable 40,000 
 
 Inventories 36,000 
 
 Factory Buildings 50,000 
 
 Plant and Machinery 65,000 
 
 Patent Rights 4,500 
 
 LIABILITIES. 
 
 Accounts Payable $ 2,000 
 
 Bills Payable 15,000 
 
 Preference Stock 100,000 
 
 Common Stock 60,000 
 
 Reserve Account 10,000 
 
 Reserve for Bad Debts 2^500 
 
 Surplus 31,500 
 
 $221,000 $221,000 
 TRIAL BALANCE. 
 
 ASSETS. 
 
 Cash $ 1,450 
 
 Accounts Receivable 3,090 
 
 Bills Receivable 700 
 
 Inventories Jan. 1st 4,400 
 
 Buildings 3,200 
 
 Machinery 800 
 
 Furniture and Fixtures 240 
 
 Good-will 1,700 
 
 LIABILITIES. 
 
 Accounts Payable $ 772 
 
 Bills Payable 610 
 
 Capital 15,000 
 
 PROFIT AND LOSS. 
 
 Taxes $ 274 
 
 Salaries 950 
 
 Traveling Expense 170 
 
 Postage 104 
 
 General Expense 90 
 
 Bad Debts 224 
 
 TRADING. 
 
 Purchases $ 7,100 
 
 Purchase Returns $ 300 
 
 Sales 10,800 
 
 Sales Returns 154 
 
 Wages 2,654 
 
 In-freight 182 
 
 $ 27,482 $ 27,482 
 Inventories Feb. 1st $ 3,750 
 
 TRADING ACCOUNT. 
 
 Inventory Jan. 1 $ 4,400 
 
 Purchases 7,100 * 
 
 Purchase Retruns $ 300 
 
 47 
 
Sales 10,800 
 
 Sales Returns 154 
 
 Wages 2,654 
 
 In-freight 182 
 
 Inventory Feb. 1 3,750 
 
 Gross Profit 360 
 
 $ 14,850 $ 14,850 
 PROFIT AND LOSS ACCOUNT. 
 
 Gross Profit brought down $ 360 
 
 Taxes $ 274 
 
 Salaries 950 
 
 Traveling Expense 170 
 
 Postage 104 
 
 General Expense 90 
 
 Bad Debts 224 
 
 Loss 1,452 
 
 $ 1,812 $ 1,812 
 BALANCE SHEET. 
 
 ASSETS. 
 
 Cash $ 1,450 
 
 Accounts Receivable 3,090 
 
 Bills Receivable 700 
 
 Inventories 3,750 
 
 Buildings 3,200 
 
 Machinery 800 
 
 Furniture and Fixtures 240 
 
 Good-will 1,700 
 
 LIABILITIES. 
 
 Accounts Payable $ 772 
 
 Bills Payable 610 
 
 Capital 15,000 
 
 Deficit 1,452 
 
 $ 16,382 $ 16,382 
 TRIAL BALANCE. 
 
 ASSETS. 
 
 Cash at Bank $ 15,358 
 
 Accounts Receivable 77,970 
 
 Bills Receivable 7,404 
 
 Inventories Jan. 1st 19,760 
 
 Leasehold Coal Mine, Plant and Machinery 600,000 
 
 Construction Account 11,416 
 
 Horses and Wagons 13,383 
 
 LIABILITIES. 
 
 Accounts Payable $ 73,210 
 
 Reserve Fund 24,314 
 
 Capital 600,000 
 
 PROFIT AND LOSS. 
 
 Discount and Allowances $ 13,396 
 
 Salaries 5,499 
 
 Auditors Fees and Law Charges 3,954 
 
 Taxes and Insurance 8,051 
 
 General Expense 3,741 
 
 Subscriptions and Donations 1,790 
 
 Interim Dividend 45,000 
 
 Undistributed Profits 18,078 
 
 TRADING ACCOUNT. 
 
 Wages $263,647 
 
 Rents and Royalties 35,791 
 
 Stores Supplies 52,044 
 
 Coal Used 19,752 
 
 Freight and Cartage 42,841 
 
 48 
 
Damages 1,340 
 
 Coal and Coke Sales ^ 526,535 
 
 $1,242,137 $1,242,137 
 Inventories Feb. 1st $ 20,500 
 
 TRADING ACCOUNT. 
 
 Inventory Jan. 1 $ 19,760 
 
 Wages 263,647 
 
 Rents and Royalties 35,791 
 
 Stores Supplies 52,044 
 
 Coal Used 19,752 
 
 Freight and Cartage 42;841 
 
 Damages 1,340 
 
 Coal and Coke Sales $526,535 
 
 Inventory Feb. 1 20,500 
 
 Gross Profit 111,860 
 
 $547,035 $547,035 
 PROFIT AND LOSS ACCOUNT. 
 
 Gross Profit brought down $111,860 
 
 Discount and Allowances $ 13,396 
 
 Salaries 5,499 
 
 Auditors Fees and Law Charges 3,954 
 
 Taxes and Insurance 8,051 
 
 General Expense 3,741 
 
 Subscriptions and Donations 1,790 
 
 Undistributed Profits 18,078 
 
 Net Profit 93,507 
 
 $129,938 $129,938 
 
 Profits Available for Dividend $ 93,507 
 
 Less Interim Dividend 45,000 
 
 Undistributed Profits $ 48,507 
 
 BALANCE SHEET. 
 
 ASSETS. 
 
 Cash at Bank ' $ 15,358 
 
 Accounts Receivable 77,970 
 
 Bills Receivable 7,404 
 
 Inventories 20,500 
 
 Leasehold Coal Mine, Plant and Machinery 600,000 
 
 Construction Account 11,416 
 
 Horses and Wagons 13,383 
 
 LIABILITIES. 
 
 Accounts Payable $ 73,210 
 
 Reserve Fund 24,314 
 
 Capital 600,000 
 
 Surplus 48,507 
 
 $746,031 $746,031 
 TRIAL BALANCE. 
 
 ASSETS. 
 
 Dr. Cr. 
 
 Cash $ 6,400 
 
 Accounts Receivable 3,000 
 
 Bills Receivable 500 
 
 Inventories Jan. 1st 3,000 
 
 Furniture and Fixtures 600 
 
 LIABILITIES. 
 
 Accounts Payable $ 2,000 
 
 Bills Payable 500 
 
 Capital 10,000 
 
 49 
 
PROFIT AND LOSS. 
 
 Expense $ 1,000 
 
 Rent 600 
 
 TRADING. 
 
 Purchases $ 20,000 
 
 Discount on Purchases $ 1,000 
 
 Sales 22,000 
 
 Discount on Sales 400 
 
 $35,500 $35,500 
 Inventories Feb. 1st ....$ 4,200 
 
 TRADING ACCOUNT. 
 
 Inventory Jan. 1 $ 3,000 
 
 Purchases 20,000 
 
 Discount on Purchases $ 1,000 
 
 Sales 22,000 
 
 Discount on Sales 400 
 
 Inventory Feb. 1 4,200 
 
 Gross Profit 3,800 
 
 $ 27,200 $ 27,200 
 PROFIT AND LOSS ACCOUNT. 
 
 Gross Profit brought down $ 3,800 
 
 Expense $ 1,000 
 
 Rent 600 
 
 Net Profit 2,200 
 
 $ 3,800 $ 3,800 
 BALANCE SHEET. 
 
 ASSETS. 
 
 Dr. Cr. 
 
 Cash $ 6,400 
 
 Accounts Receivable 3,000 
 
 Bills Receivable 500 
 
 Inventories 4,200 
 
 Furniture and Fixtures 600 
 
 LIABILITIES. 
 
 Accounts Payable $ 2,000 
 
 Bills Payable 500 
 
 Capital 10,000 
 
 Surplus 2,200 
 
 $ 14,700 $ 14,700 
 
 50 
 
EXERCISE. 
 
 Classify the items of the appended trial balance, and prepare working 
 
 balance sheet showing Trading Account, Profit and Loss Account, and 
 
 Balance Sheet as per examples illustrated in this lesson. 
 
 TRIAL BALANCE. 
 
 Bills Payable $ 2,600 
 
 Rents from Sub-lettings 190 
 
 Incidental Expenses $ 500 
 
 Wages 17,540 
 
 Salaries 3,005 
 
 Traveling Expenses 1,430 
 
 Rent, Rates and Taxes 1,850 
 
 Insurances 90 
 
 Advertising 650 
 
 Commission 245 
 
 Discounts and Allowances 700 
 
 Bank Interest and Charges 150 
 
 Bank Overdraft 950 
 
 Packing, &c 350 
 
 Sales and Charges — Finished Goods 65,670 
 
 Sales and Charges — Repairs, &c 4,325 
 
 Sales and Charges — Packages, &c 400 
 
 Purchases 10,540 
 
 Plating 4,500 
 
 Sundry Expenses (Manufacturing) 4,890 
 
 Bad Debts 260 
 
 Cash in Hand 105 
 
 Sundry Debtors 20,250 
 
 Sundry Creditors 2,300 
 
 Inventory Jan. 1st 9,560 
 
 Bills Receivable 5,570 
 
 Plant, Machinery and Tools 4,250 
 
 Capital 10,000 
 
 $ 86,435 $ 86,435 
 Inventory Feb. 1 $ 8,350 
 
 51 
 
CHAPTER VI 
 
 Preparation of Comparative Statements. 
 
 (46) The preparation of comparative statistical statements is one of 
 the most important features of the up-to-date book-keeper's work, as from 
 this kind of a statement properly prepared the proprietors of a business are 
 enabled to follow the progress made in every department of the business; 
 the increase or decrease of cost of manufacture; the increase or decrease of 
 non-productive or general expense ; the increase or decrease, in a given 
 period, of assets and liabilities. 
 
 While the average book-keeper will not have much to do with regard 
 
 to cost of product, the results arrived at are usually presented to him in 
 
 tabular form and included in some way on the books, forming a part of 
 
 the Trial Balance, Balance Sheet, Trading and Profit and Loss accounts 
 
 as shown in Lesson 5, and now reproduced : 
 
 TRIAL BALANCE. 
 
 Bills Payable $ 2,600 
 
 Rents from Sub-lettings 190 
 
 Incidental Expenses $ 500 
 
 Wages 17,540 
 
 Salaries 3,005 
 
 Traveling Expenses 1,430 
 
 ' Rent, Rates and Taxes 1,850 
 
 Insurances 90 
 
 Advertising 650 
 
 Commission 245 
 
 Discounts and Allowances 700 
 
 Bank Interest and Charges 150 
 
 Bank Overdraft 950 
 
 Packing, &c 350 
 
 Sales and Charges — Finished Goods 65,670 
 
 Sales and Charges — Repairs, &c 4,325 
 
 Sales and Charges — Packages, &c 400 
 
 Purchases 10,540 
 
 Plating 4,500 
 
 Sundry Expenses (Manufacturing) 4,890 
 
 Bad Debts 260 
 
 Cash in Hand 105 
 
 Sundry Debtors 20,250 
 
 52 
 
Sundry Creditors 2,300 
 
 Inventory Jan. 1st 9,560 
 
 Bills Receivable 5,570 
 
 Plant, Machinery and Tools 4,250 
 
 Capital 10,000 
 
 $86,435 $86,435 
 Inventory Feb. 1 $ 8,350 
 
 In Th. M., paragraphs 69, 449, 450, 454, 455, 456, special attention 
 is devoted to the preparation of comparative statements of various kinds, 
 with numerous illustrations, and the student's attention is particularly 
 directed to the information therein contained. 
 
 (For the information of those who do not possess a copy of Thome's 
 Twentieth Century Book-Keeping and Business Practice, which is now 
 furnished to all students of the Course, we append copies of some of the 
 forms referred to.) 
 
 {41) It will be seen in order to secure, accurate information as to 
 costs and expenses it is necessary to compute percentages so as to show the 
 relative proportions of one constituent to another. To make this clear we 
 will take the example of labor. The inclusion of $6513.34 under the head- 
 ing of "December 31, 1900," and of $15,630.55 under the heading of 
 "December 31, 1902," in the Trading account section of Comparative State- 
 ment of a Woolen Mill, of itself gives very little information, but when 
 we show that $6513.34 is 12-50/100% of turnover, or value of product 
 manufactured in a given period, and that $15,630.55 is 18% of turnover 
 for a similar period, it is at once evident that we are either paying higher 
 wages or are not producing so much for the amount of wages paid. Here 
 is a definite condition very necessary to be investigated, because the in- 
 creased cost of labor as compared with output of factory directly affects 
 the profits made in the business, and this comparison is, therefore, of the 
 utmost value. 
 
 In like manner, referring to the same comparative statement, it will 
 be noted that in the same way it is shown that general expense decreased 
 considerably in proportion to increase of output, this being a very healthy 
 and satisfactory sign. 
 
 In The Individual Home Study Course In Higher Accounting we go 
 into the subject of the preparation of comparative statements with consid- 
 erable detail, but while we will endeavor to impress on students of this Pre- 
 liminary Course the value and necessity of being able to prepare lucid and 
 comprehensive statements of this kind In a business of any description 
 whatever, we will not make the exercises in connection with this lesson as 
 difificult as those in the advanced course, where students are required to 
 create conditions and furnish suitable comparative data in connection 
 therewith. 
 
 53 
 
The question the book-keeper should ask himself when taking charge 
 of the books of a business is, What are the vital elements of this business 
 which concern the profits, and on which the success or failure of the busi- 
 ness depends? 
 
 (48) An analysis of the trial balance above reproduced from Lesson 
 5 will disclose that the business consists of some kind of manufacture, 
 goods so manufactured being sold, we will suppose, at certain standard 
 prices which do not vary except under the influence of close competition. 
 In this connection competition means a reduction of selling price, and con- 
 sequently a reduction of profits, and the proprietors of such a business will 
 attach the greatest importance to the possession of knowledge which will 
 enable them to cut their profits without seriously endangering the existence 
 of the business. Our analysis, then, will show that the purchases during 
 the month of January amounted to $10,540; wages of factory employes, 
 $17,540; plating, $4,500; manufacturing expense, $4,890 (rent, light, heat, 
 non-productive wages, foremen and superintendents' salaries, etc. ) ; that 
 the inventory January 1st amounted to $9,560, and the inventory February 
 1st to $8,350.00. We now have the necessary information from which 
 to obtain the turnover (See Th. M., paragraph 243 and Model Sets), and 
 our comparison or percentages will be based on this turnover. 
 
 (In some businesses it is the custom to take the sales as the basis of 
 percentage, but this is an unsatisfactory basis, for the reason that the 
 selling price is liable to vary so that the same quantity of goods may be 
 sold at different times at different prices, and the comparison as to propor- 
 tion of labor, manufacturing expense, etc., would not, therefore, be based 
 on actual output, but on the amount received for quantity sold.) 
 
 The turnover in the present example will be as follows : 
 
 Inventory January 1st $ 9,560 
 
 Purchases 10,540 
 
 Wages 17,540 
 
 Plating 4,500 
 
 Manufacturing expense 4,890 
 
 Total $47,030 
 
 Less inventory February 1st 8,350 
 
 Turnover $38,680 
 
 It is evident from this trial balance that the cost of repair work is not 
 kept separately from the cost of production of manufactured goods, and 
 we therefore include in the Trading account total sales of finished goods 
 and repair work. It is, however, highly desirable in businesses of this kind 
 to provide the necessary particulars for a separate Repair Trading account, 
 so that it may be ascertained that a sufBcient amount is charged for repair 
 work, and that the business is not losing money in this department, as fre- 
 
 54 
 
quently happens when the superintendent of the factory makes estimates 
 on this kind of work but fails to include in the price a proper percentage 
 of the expense of running the business. 
 
 From the above turnover and the amount of sales we now find that 
 we have disposed of goods costing $38,680 for $69,995, or a gross profit 
 of $31,315. 
 
 We next proceed to construct our Profit and Loss account, finding the 
 net profit to be $22,675, and are ready to prepare our comparative state- 
 ment exhibiting all the information possible of the results of the month's 
 
 Cor\pQrc\t\'ve Moi)Tf)ly 5t^TeRef)r. 
 
 Nap\es of AccoDt)Ts 
 
 J<n9i)(nry 
 
 Febrydfy | M^ircf) | A|orri 
 
 M^y 1 Ji;r)e | 
 
 /fau/M^rer/i7/ 
 
 I05MC 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Labor 
 
 Iptc 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 /^/ar/nj 
 
 Mfjoo 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 M'fii'^%foenie 
 
 '^K'^o 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 /nrejfories 
 
 ifbo 
 
 
 gysc 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 -rjjr-noren 
 
 \f^ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Croii r>ro-hr 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 1 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 "■ 
 
 
 
 
 
 
 
 General Expense 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 C in d era in ' 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 hle'r f^ro-fr'r 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Con^hetraTi've^^-^^ Cross /^rofr't ^2%. P/aT/nq i/^o'% AJ/etfimn 'i^ 
 'Percentaaes^^^ Net Prof,-r 5i^o% /^a e^henie n''-^oJo y-cy^/ 
 
 I £7 hot- it5^olo Tr^vehntj^Kfjense 3 ^<. % 
 
 business. Thus we find that the percentages of gross profit, net profit, cost 
 of raw material, cost of labor, etc., are as shown on illustration of com- 
 parative statement herein. We can go still further and furnish percentages 
 of cost of salaries, traveling expenses, commission, advertising, packing, etc. 
 We are now in a position to arrange a form which will show the varia- 
 
 Cor\[:>flMtiVc Mor)n)ly 5Ttirer\e()t- Cf)<nir5. 
 
 
 Nflmesof- Accoi)t)r$ 
 
 J<nr)ytir5 
 
 / 
 
 Fe brvc] fy 
 
 Marci) 
 
 Apn\ 1 M^y 
 
 Jvt)e 
 
 
 Sryle ■ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 OvoriTiK of lumhei- uied 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Cosfh^^- H- 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Coir of Lumhet- 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 » •• Vn-ho/iTif/nc 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 L^hor ^' 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Mfg £:%her,ie 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Invtrito'^Jei 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 -tut-novcr 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ■' Croii Rropr 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Nvrr\her- R re J need 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 /Ivy. Coit/:'er- doz. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 0/0" Incen ie 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 '^0 ^ecre^se 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Con\batiit'iye 
 Pkrcer)Ta<fei 
 Of^rvf-noret- 
 
 tions of these percentages from month to month, so that any apparent dis- 
 crepancies can be immediately investigated and accounted for. 
 
 The student will note from our Illustration of a comparative statement 
 of an Electric Manufacturing Company that the totals and increase or de- 
 
 55 
 
crease for the month, or elapsed months, are given, but that the person 
 furnished with this statement would have to make his own percentages in 
 order to obtain the proper value from the statistics furnished. This form of 
 comparative statement is quite common, as will be seen by the other illus- 
 trations referred to, but we consider it imperfect and the statistics fur- 
 nished insufficient. 
 
 We also show a very complete form of comparative statement of man- 
 ufacturing cost in the wood-working business to which should be added 
 columns for record of percentages as above indicated. Separate statements 
 should be prepared for the different departments where tables and lounges 
 are manufactured. 
 
 (4p) Returning to the trial balance which has formed the basis of 
 
 Cor\parc\t\\e MnTer\ef)t of Assets <i()c)Li^b*ililTev 
 
 Ham of AccowpB 
 
 Jar^-oary 
 
 Febrvory 
 
 locrease of 
 
 b€cr€<^ie of 
 
 Assets II Li<ibi litres 
 
 Assets flli<lbi|iTfes 
 
 Assets 
 
 liflbilititt 
 
 Assets 
 
 Li Ob', lilies 
 
 C£JS/t Of) tyciod 
 
 / f 75 
 
 
 
 
 105 
 
 1 
 
 
 
 
 
 
 /¥-7o 
 
 
 
 
 Aaan.ReceiYahle 
 
 15 Is 20 
 
 
 
 
 20150 
 
 
 
 
 /fl,3o 
 
 
 
 
 
 
 
 
 /3illiRece!rcihle 
 
 If 000 
 
 
 
 
 55^0 
 
 
 
 
 /5lo 
 
 
 
 
 
 
 
 
 P/(if)r, en. 
 
 ¥200 
 
 
 
 
 J^25o 
 
 
 
 
 k 
 
 
 
 
 
 
 
 
 fbJlii PoYdb/e 
 
 
 
 3oio 
 
 
 
 
 2laOo 
 
 
 
 
 
 
 
 
 5-io 
 
 
 Accn.Peiytihle. 
 
 
 
 i5oo 
 
 
 
 
 2^00 
 
 
 
 
 Si)0 
 
 
 
 
 
 
 OanK Overdfafr 
 
 
 
 
 
 
 
 %'^o 
 
 
 
 
 Cf^o 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 io25o 
 
 
 il^o 
 
 
 iJ^1o 
 
 
 ^,0 
 
 
 NeflncteaieofAsiefs 
 
 
 
 
 
 
 
 
 ifpo 
 
 
 
 
 
 
 
 
 Nethaeaie afHahiliki 
 
 
 
 
 
 
 
 
 
 /^4o 
 
 
 
 
 
 
 
 
 Svffi/vs 
 
 
 
 
 
 
 
 
 
 3fr^c 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 this Lesson, a comparative record of the increase or decrease of assets and 
 liabilities should be arranged as illustrated. 
 
 {S^) Comparative statements are also formulated in relation to the 
 work of traveling salesmen, or agents selling on commission. A good 
 form of record of this kind is shown in Th. M., paragraph 461, and is repro- 
 duced here. It furnishes full particulars in regard to month, section of 
 territory covered, amount of sales, and as to all selling expenses incurred. 
 This form might also be improved by providing a percentage record, as it 
 would then be so much the easier to understand the purport of the figures. 
 
 Comparative statistics in regard to agents' commissions might be sim- 
 ilarly arranged to show month, territory covered, sales, commissions earned, 
 and other selling expenses. Both of these forms of statement are valuable 
 in the comparison afforded of the work of one man in a particular territory 
 against the work of others in the same or different territory. 
 
 56 
 

 
 COMPARATIVE STATEMENT OF A RAILROAD COMPANY 
 
 
 
 ar)(i ei. 
 
 iQefd/focu'ioa is a rr\or)1i^lu Con\hciraiTve Stdter\Qi)f' erf /f)corr\e 
 l^epJi'tvte of CI f^ailufcii/ Co. (cl^ief i7en\s^ 
 
 Jfi)uarLj /^0J> 
 
 % <% 
 
 Jcif)V(li-ij l^oH- 
 
 iQcrense 
 
 I)pcteaS€ 
 
 
 
 
 RECEIPTS. 
 
 
 
 
 
 
 
 
 
 45000 
 
 00 
 
 
 
 24^1 /rsfjofts 2t.Sl 
 
 50000 
 
 00 
 
 
 
 5000 
 
 00 
 
 
 
 if2000 
 
 00 
 
 
 
 22.88 a%hor/J 2|.if8 
 
 ifOOOO 
 
 (iO 
 
 
 
 
 
 2000 
 
 OO 
 
 D5ooo 
 
 00 
 
 
 
 2^.qt, Loccin-ei'jhfs 32 2 3 
 
 fcoooo 
 
 00 
 
 
 
 5ooo 
 
 00 
 
 
 
 "^000 
 
 00 
 
 
 
 3.81 PatreTs.etc 2.(,S 
 
 5000 
 
 00 
 
 
 
 
 
 200O 
 
 OO 
 
 ^oooo 
 
 00 
 
 
 
 lt).34 J^^sseooers I2;f)f 
 
 25000 
 
 00 
 
 
 
 
 
 5ooo 
 
 OO 
 
 1000 
 
 00 
 
 
 
 ,65^ Excess I^ac/qaqe .^0 
 
 1^00 
 
 00 
 
 
 
 5'oo 
 
 00 
 
 
 
 100 
 
 00 
 
 
 
 •05 Te/eQi-^f^s -Ok 
 
 1^ 
 
 00 
 
 
 
 
 
 16 
 
 OO 
 
 5oo 
 
 00 
 
 
 
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 100 
 
 00 
 
 
 
 Jooo 
 
 00 
 
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 00 
 
 |.(33 Mi'sce/hoeovs 2.IM 
 
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 00 
 
 l&tl^^" 
 
 00 
 
 1000 
 
 OO 
 
 
 
 
 
 
 
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 15000 
 
 OO 
 
 M-0.85 Total a/otKio(l ^^f)co^e H2.^1 
 
 
 
 SOOOO 
 
 00 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 00 
 
 5^.15" I^£i/anec 510} 
 
 
 
 loM-j'T 
 
 00 
 
 
 
 
 
 
 
 
 
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 10400 
 
 00 
 
 
 
 11000 
 
 00 
 
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 500 
 
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 00 
 
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 3400 
 
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 200 
 
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 } 
 
 
 
 
 Mo.'&5 *Vo ofRece'ihTs >+2.^l 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 57 
 
COMPARATIVE STATEMENT OF A WOOLEN MILL 
 
 
 
 
 
 Dec.3 1.1900. 
 
 Dec.v3l.ISOI. 
 
 Dec.3i.i902. 
 
 Dec.5l.lS03. 
 
 Dn 
 
 Cr. 
 
 br 
 
 Cr 
 
 Dr 1 Cr: 
 
 br 
 
 Cr 
 
 Miiteriol ACCOU9T5 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 &0482 
 
 10 
 
 
 
 <]520if 
 
 50 
 
 
 
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 IS0t15 
 
 03 
 
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 21 
 
 
 
 2^433 
 
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 ^441 
 
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 U21 
 
 14 
 
 
 
 33X^ 
 
 t,l 
 
 
 
 3501 
 
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 4Siq 
 
 S3 
 
 
 
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 1181 
 
 85 
 
 
 
 1331 
 
 04 
 
 
 
 l(o04 
 
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 1812 
 
 51. 
 
 
 
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 I33(.3 
 
 34 
 
 
 
 25152 
 
 05 
 
 
 
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 Worited Yo »-o StocK 
 
 
 
 
 
 
 
 
 
 
 
 
 
 302SI 
 
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 M'ff Cosrs 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 1I0I 
 
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 32«1^ 
 
 82 
 
 
 
 505if 
 
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 H02 
 
 81 
 
 
 
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 115 
 
 02 
 
 
 
 1082 
 
 5U 
 
 
 
 1812 
 
 loo 
 
 
 
 2t51 
 
 SO 
 
 
 
 Mill6D|3|D|[es 
 
 bk-] 
 
 51 
 
 
 
 t.3q 
 
 44 
 
 
 
 t,02 
 
 08 
 
 
 
 22^3 
 
 n 
 
 
 
 FdcI 
 
 qti 
 
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 1452 
 
 (>2 
 
 
 
 2481 
 
 ^8 
 
 
 
 354-| 
 
 ^1 
 
 
 
 Fr€ ifl)t 
 
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 1209 
 
 13 
 
 
 
 11^3 
 
 tl 
 
 
 
 2201 
 
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 L^bor 
 
 C5I3 
 
 34- 
 
 
 
 q55Jf 
 
 82 
 
 
 
 l5i>30 
 
 55 
 
 
 
 \lbki/\ 
 
 W 
 
 
 
 G ross Profit 
 
 20830 
 
 23 
 
 
 
 20801 
 
 t,o 
 
 
 
 2^411 
 
 (.-] 
 
 
 
 24201. 
 
 88 
 
 
 
 
 Ukll 
 
 l£ 
 
 X04X2 
 
 1" 
 
 ^5204 
 
 5o 
 
 ^5204 
 
 50 
 
 I443(^ 
 
 80 
 
 IU3U 
 
 80 
 
 ho('15| 
 
 05 
 
 ^W 
 
 03 
 
 GenercilE:)c|oense 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 "^ 
 
 Cross Profit dowr) 
 
 
 
 2O&30 
 
 23 
 
 
 
 20801 
 
 fco 
 
 
 
 2<)4ll 
 
 ^1 
 
 
 
 2420 fc 
 
 88 
 
 Ei^bense . 
 
 1243 
 
 35 
 
 
 
 1812 
 
 41 
 
 
 
 3400 
 
 2^ 
 
 
 
 3151 
 
 3^ 
 
 
 
 biscount- 
 
 I25& 
 
 ^5 
 
 
 
 2242 
 
 ^1 
 
 
 
 321(, 
 
 11 
 
 
 
 %l^ 
 
 84 
 
 
 
 Trov. E")(.|Der)5e 
 
 lObZ 
 
 00 
 
 
 
 1320 
 
 55 
 
 
 
 loq6 
 
 00 
 
 
 
 I2tl 
 
 t)3 
 
 
 
 lot^rest- 
 
 13^4 
 
 42 
 
 
 
 1258 
 
 33 
 
 
 
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 2108 
 
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 242 
 
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 244 
 
 38 
 
 
 
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 13^1 
 
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 115^1 
 
 11 
 
 
 
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 59 
 
EXERCISE. 
 From the trial balances presented hereunder prepare forms of com- 
 parative statement and increase or decrease of assets and liabilities, com- 
 puting percentages, and showing turnover. 
 
 TRIAL BALANCE. 
 Assets. 
 
 Jan. Feb. Jan. Feb. 
 
 Cash $ 1,700 $ 1,000 
 
 Accounts Receivable 36,000 40,000 
 
 Inventories January and February , 32,500 35,000 
 
 Buildings 50,000 50,000 
 
 Plant an'd Machinery .'..24,500 25,000 
 
 Loose Tools, etc 10,000 10,000 
 
 Liabilities. 
 
 Accounts Payable $11,300 $10,500 
 
 Bank Overdraft 10,000 12,000 
 
 Mortgage Loan 30,000 30,000 
 
 Reserve Against Bad Debts 1,200 1,200 
 
 Capital Stock 100,000 100,000 
 
 Profit and Loss. 
 
 Salaries 2,000 $ 3,500 
 
 Rent, Taxes and Insurance 2,300 2,800 
 
 Maintenance Account, Buildings ' 2,000 2,000 
 
 Machinery 2,500 2,500 
 
 Trading Account. 
 
 Iron and Steel 05,250 99,500" 
 
 Factory Supplies 6,600 8,000 
 
 Coal and Coke 7,900 9,000 
 
 In-freight and cartage 7,500 8,800 
 
 Wages 29,500 37,600 
 
 Bags and Packing 2,500 3,000 
 
 Factory Expense 5,200 6,000 
 
 Sales 135,450 190,000 
 
 $287,950 $343,700 $287,950 $343,700 
 Inventories March 1st. . ., $ 36,000 
 
 60 
 
CHAPTER VII 
 
 Opening Entries; Transfer, Stock Discounts. 
 
 5/. OPENING ENTRIES. 
 
 When a book-keeper seeking a position calls on a merchant in answer to 
 an advertisement and is informed that the latter is organizing a corpora- 
 tion, and requires some one competent to open and keep a set of books, the 
 applicant who has the requisite knowledge under his hat can not only 
 respond affirmatively, but proceed to convince the merchant that he can 
 satisfactorily undertake the work. This is the book-keeper who secures 
 the position. 
 
 It is just in regard to information of this character that so many 
 book-keepers have had no actual experience, and their conception of the 
 requirements connected with the opening of the books is accordingly defi- 
 cient, and their explanation of methods they would adopt in case they 
 should be tried in the position are, consequently, anything but convincing 
 or impressive. 
 
 We, therefore, propose in this lesson to devote particular attention 
 to the illustration of opening entries in connection with the starting of 
 new businesses, the transfer of businesses from one ownership to another, 
 and the transfer of books from single to double entry. 
 
 5^ SALE OF STOCK BY INSTALLMENT AND AT PREMIUM. 
 
 A corporation is organized to conduct a manufacturing business. The 
 capital is to be $100,000. Subscriptions to be paid as follows: — 20 per 
 cent cash on application and 20 per cent per month for four months. 
 
 The nature of the business is to manufacture wire clips for which 
 machinery and tools are required. 
 
 Mr. J. McMonnies has been working on samples of clips which were 
 devised and patented by him, and has obtained orders for 50,000,000 from 
 stationers and dealers in office supplies at 60 cents per 1000. He sells his 
 device, and his orders amounting to $30,000, to the new company for 
 
 61 
 
$10,000 cash and $50,000 in stock in the company. The profit expected 
 to be realized from the orders on hand is 30 cents per 1000. The remainder 
 of the stock is offered for sale at 20 per cent premium. 
 
 OPENING ENTRIES. 
 Debits. Credits. 
 
 Capital $100,000 
 
 $100,000 Subscription Account. 
 
 60,000 J. McMonnies. 
 
 40,000 Treasury Stock. 
 
 Subscription Account 100,000 
 
 60,000 Patents, Goodwill, and Contracts. 
 
 J. McMonnies 60,000 
 
 4,800 Cash. 
 
 4,800 April Installments. 
 
 4,800 May Installments. 
 
 4,800 June Installments. 
 
 4,800 July Installments. 
 
 X reasury Stock 20,000 
 
 Premium Account 4,000 
 
 It will be particularly noted that the $60,000 stock given to McMon- 
 nies covers patents, good-will, and contracts. It is evident, therefore, that 
 when these contracts are filled, the value of this account will have dwin- 
 dled to a certain extent, while the profit on the contracts, $9,000, will 
 have been received by the new company. It is to be supposed that new 
 orders of an equal or greater amount will have been received in the mean- 
 time, but it is generally considered best in cases of this kind to charge off 
 a certain amount annually against accounts of this nature. The trans- 
 action was, of course, effected with a view to the benefit of the business 
 in future years, and each year should, therefore, bear a certain proportion 
 of the depreciation of a somewhat intangible asset. If the business con- 
 tinues active, and there is a greater demand for the clips, the good-will 
 does not become seriously depreciated and should be treated accordingly. 
 
 Another point is the premium exacted from the purchasers of the 
 Stock, because said stock is considered a good investment. This premium 
 should not be credited to surplus so that it will become available for 
 dividend, as it is not the intention that the purchasers of the stock who 
 pay the premium shall be able to immediately withdraw it from the busi- 
 ness. By crediting this amount to a premium account it can be used as 
 working capital and stand on the books as a kind of reserve account. 
 
 The next thing to be done is to purchase machinery for the produc- 
 tion of the clips, and furniture and fixtures for the office. As these pur- 
 chases are made accounts are opened for same in ledger. Productive labor 
 should have a separate account from office salaries, and manufacturing 
 and office expense should be carefully distinguished and debited also to 
 separate accounts. 
 
 62 
 
At the end of the first six months, therefore, the balance sheet and 
 profit and loss account would show something as follows : 
 • 53. BALANCE SHEET. 
 
 ASSETS. 
 
 Cash. 
 
 Accounts Receivable. 
 
 Bills Receivable. 
 
 Patents, Goodwill and Contracts. 
 
 Machinery. 
 
 Furniture and Fixtures. 
 
 Inventories. 
 
 LIABILITIES, 
 
 Accounts Payable. 
 Bills Payable. 
 Premium Account. 
 Capital Stock. 
 Surplus. 
 
 34- TRADING ACCOUNT. 
 
 Inventory. 
 Sales. 
 
 '■ OF THF 
 
 UNIVERSITY 
 
 or 
 
 PROFIT AND LOSS ACCOUNT. 
 
 Gross Profit from Trading. 
 Interest and Discount. 
 
 Purchases. 
 Labor. 
 In-freight. 
 Packing. 
 
 Pro-rated Expense. 
 Gross Profit. 
 
 55- 
 
 Office Supplies. 
 Advertising. 
 Commission. 
 Salaries. 
 Rent. 
 Etc., etc. 
 Net Profit. 
 
 In-freight represents part of cost of wire for manufacture. Packing 
 represents cost of paper boxes, each to contain a certain number of clips. 
 
 Sometimes it is desired to show on the books only the amount of paid 
 up capital. In this case authorized capital is not credited on the books in 
 the first place, but as subscriptions are paid, cash is debited and capital 
 credited with amount received. 
 
 Assets turned over to the purchasers of a business to be paid for in 
 stock as in the present instance are considered as representing so much 
 paid up stock. 
 
 Taking the last balance sheet as an example, the capital stock under 
 these conditions would show as follows : 
 
 BALANCE SHEET. 
 
 56. 
 
 ASSETS. 
 
 Cash. 
 
 Accounts Receivable. 
 
 Bills Receivable. 
 
 Patents, Goodwill and Contracts. 
 
 Machinery. 
 
 Furniture and Fixtures. 
 
 Inventories. 
 
 LIABILITIES. 
 
 Capital authorized $100,000 00 
 
 Capital paid up $ 80,000 00 
 
 Surplus. 
 
 Premium Account. 
 Accounts Payable. 
 Bills Payable. 
 
 5/. STOCK SOLD AT DISCOUNT. 
 
 On the other hand, stock is frequently sold at a discount, and this 
 presents another source of difficulty in making opening entries. 
 
 Take for example, a piece of land expected to produce oil. A com- 
 
 63 
 
pany is formed to purchase a lease of this land and to develop oil wells. 
 The purchasers of the lease sell it to a company for so much stock, the 
 price including a substantial bonus for promotion, expense, and good-will 
 of the oil producing property. They set aside so much stock for sale at, 
 say, 50 per cent discount from par, with a view to obtaining working cap- 
 ital with which to develop the property. What should be done with this 
 discount of 50 per cent? 
 
 It should not be debited to profit and loss, as in this case the profits 
 of the first few years perhaps would all be swallowed up, whereas the sac- 
 rifice of value of stock was made for the benefit of probably many future 
 years' transactions. 
 
 It should not be deducted from authorized capital, because dividends 
 must be paid on the full nominal value of the stock sold, thus, if one buys 
 $100 of stock for $50 he expects to receive dividends on $100 not on $50, 
 and that is one of the reasons why the stock is purchased and one of the 
 inducements held out to buyers. This discount on stock should, there- 
 fore, be carried on the books as a fictitious asset, a certain amount being 
 charged off each year until the amount is extinguished. The opening 
 entries in this case would, therefore, be: 
 
 Debit cash for amount received. 
 
 Credit treasury stock with par value of stock sold. 
 
 Debit stock discount with difference. 
 
 ^8. TRANSFER FROM ONE BUSINESS TO ANOTHER AND TREAT- 
 MENT OF BONUS. 
 
 The opening entries to be made on books of account when a business 
 is transferred from one owner, or set of owners, to another, also frequently 
 presents difficulties to the book-keeper who has not had experience along 
 this particular Hne. 
 
 Let us take as an example the business of a single proprietor sold to 
 a corporation, the previous owner receiving for his interest the net value 
 thereof, plus a bonus of $5,000, all in stock of the new company. The 
 new company is capitalized at $100,000. The net volume of business taken 
 over is $60,000. The proprietor of the business purchased by the new cor- 
 poration therefore receives in stock $65,000 in payment of purchase price. 
 The remaining $35,000 is divided as follows: 
 
 C. J. Bauer, subscription $10,000. 
 
 F. M. Burr, subscription 10,000. 
 
 F. H. Hill, subscription 10,000. 
 
 C. E. Roberts, subscription 5,000. 
 
 The name of the previous proprietor of the business being W. A. 
 Thompson, the new concern is incorporated under the name of Thompson 
 
 64 
 
& Bauer Manufacturing Company. The statement of assets and liabilities 
 of W. A. Thompson at date of purchase is as follows : 
 
 59. W. A. THOMPSON'S BALANCE SHEET. 
 
 ASSETS. LIABILITIES. 
 
 Cash $ 6,700 00 Accounts Payable $12,575 00 
 
 Machinery 21,500 00 Bills Payable 15,785 00 
 
 Furniture and Fixtures. 1,750 00 Net Assets 60,000 00 
 
 Horses and Wagons 2,900 00 
 
 Inventories 10,785 00 
 
 Accounts Receivable . . . 20,975 00 
 
 Bills Receivable 23,750 00 
 
 $88,360 00 $88,360 00 
 
 PROCEDURE. 
 Debits. • Credits. 
 
 Capital $100,000 
 
 $100,000 Subscription Account. 
 
 60,000 W. A. Thompson. 
 
 5,000 Good Will. 
 
 10,000 C. J. Bauer. 
 
 10,000 F. M. Burr. 
 
 10,000 F. H. Hill. 
 
 5,000 C. E. Roberts. 
 
 Subscription Account 100,000 
 
 (Subscription Account is introduced in order to make the explana- 
 tion perfectly clear, but in actual practice in a case of this kind sub- 
 scribers might be debited direct when capital is credited.) 
 
 $ 35,000 Cash. 
 
 C. J. Bauer $10,000 
 
 F. M. Burr 10,000 
 
 F. H. Hill 10,000 
 
 C. E. Roberts 5,000 
 
 6,700 Cash. 
 
 21,500 Machinery. 
 
 1,750 Furniture and Fixtures. 
 
 2,900 Horses and Wagons. 
 
 10,785 Inventories. 
 
 20,975 Accounts Receivable. 
 
 23,750 Bills Receivable. 
 
 W. A. Thompson 88,360 
 
 (Assets transferred by W. A. Thompson to the Thompson & Bauer 
 Manufacturing Company as per bill of sale dated ). 
 
 Accounts Payable $12,575 
 
 Bills Payable 15,785 
 
 28,360 W. A. Thompson. 
 
 (Liabilities of W. A. Thompson assumed by the Thompson' & Bauer 
 Manufacturing Company as per bill of sale dated ). 
 
 W. A. Thompson's account on the ledger in the new books will now 
 show as follows: 
 
 W. A. THOMPSON. 
 
 Stock subscribed $60,000 Assets $88,360 
 
 Liabilities 28,360 
 
 $88,360 $88,360 
 
 The statement of assets and liabilities of the new corporation at date 
 of commencement of business will now show as follows : 
 
 65 
 
• THOMPSON & BAUER MANFG. CO. 
 6i. BALANCE SHEET. 
 
 ASSETS. LIABILITIES. 
 
 Cash $ 41,700 00 Capital Stock $100,000 00 
 
 Accounts Receivable . . 20,975 00 Accounts Payable 12,575 00 
 
 Bills Receivable 23,750 00 Bills Payable 15,785 00 
 
 Inventories 10,785 00 
 
 Machinery 21,500 00 
 
 Horses and Wagons... 2,900 GO 
 
 Furniture and Fixtures. 1,750 00 
 
 Good Will 5,000 00 
 
 $128,360 00 $128,360 00 
 
 62, THE TRANSFER OF BOOKS FROM SINGLE TO DOUBLE ENTRY. 
 
 The actual entries necessary in the changing of books of a firm or cor- 
 poration from single to double entry must necessarily vary according to 
 conditions, but the following may be taken as a general procedure to follow : 
 
 Take inventory of all assets and liabilities, and ascertain actual sur- 
 plus or deficiency. Presuming a surplus to be found, this should be com- 
 pared either with the proprietor's or partners' investment account, or with 
 the capital account, under whichever name this account may be carried, 
 because the surplus of assets over liabilities represents the net capital of a 
 business. If the surplus of assets over liabilities exceeds the investment or 
 capital, it then represents an undistributed profit, and should be credited to 
 investment account, in the case of single proprietorship or partnership, or 
 to surplus account in case of a corporation. 
 
 This having been accomplished, the book-keeper is ready to make a 
 new start. If he is fortunate enough to have a new set of books to work 
 upon, he will open accounts with all assets and liabilities as shown on his 
 balance sheet, or inventory, and open accounts also with Sales (credit entry 
 offsetting accounts receivable). Purchases (debit entry offsetting accounts 
 payable). Cash (Debit entry at end of month offsetting excess of receipts 
 over expenditures, the items being entered in cash book, and only the bal- 
 ance being posted to the ledger at end of each month for trial balance pur- 
 poses), and such expense accounts as will indicate a proper classification 
 of disbursements. 
 
 Presuming that an accurate record of Sales and Purchases is to be 
 found or can be compiled, the proper method is to open Sales, Purchase, 
 Inventory, and Profit and Loss accounts in the old books, closing Sales, 
 Purchase, Inventory, Expense, Discount, etc., accounts into Profit and Loss, 
 and in the case of a single proprietor, or of a partnership, transferring the 
 net profit to the Capital account of the business. Then open the new 
 accounts in the new ledger. 
 
 The figures obtained, however, will be the same in either event, as the 
 following illustrations will show: 
 
62. SCHEDULE OF ASSETS AND LIABILITIES. 
 
 ASSETS. LIABILITIES. 
 
 Cash $ 4,260 00 Stock Account $15,000 00 
 
 Accts. Receivable 7,500 00 Accounts Payable 1,000 00 
 
 Bills Receivable 5,720 00 Bills Payable 1,500 00 
 
 Furniture and Fixtures. . 1,740 00 Surplus $6,370 00 
 
 Inventories 4,650 00 
 
 $23,870 00 
 
 $23,870 00 
 64. PROFIT AND LOSS ACCOUNT. 
 
 Dr. * Cr. 
 
 Purchases $16,210 00 Sales $22,280 00 
 
 Expense Accounts 4,600 00 Interest and Discount.. 250 00 
 
 Net Profit 6,370 00 Inventories 4,650 00 
 
 $27,180 00 $27,180 00 
 
 EXERCISE. 
 
 Nov. 8th W. M. Whitney purchased of F. Trueman the mens' furnish- 
 ing business carried on by the latter for the sum of $2,500 as of date of 
 Nov. 1st. 
 
 The assets and HabiHties Nov. 1st were as follows: 
 
 Accounts Receivable $2,520— guaranteed to realize $3,000 
 
 Furniture and Fixtures 750 
 
 Inventories — 
 
 Hats 325 
 
 Gloves 250 
 
 Hosiery 175 
 
 Accounts Payable 976 
 
 The following transactions occurred between Nov. 1st and Nov. 8th : 
 
 Purchased of Smith & Wilson, invoice of hats $136 70 
 
 Purchased of W. Wallace, invoice of gloves 120 00 
 
 Cash Sales of hats 46 50 
 
 Cash Sales of gloves 38 75 
 
 Cash Sales of hosiery 65 00 
 
 No credit sales were made during this period. 
 
 Received from R. Crawford $100 00 
 
 Received from R. J. White 20 00 
 
 Give opening entries on W. M. Whitney's books, arranging the scheme 
 of accounts so that the loss or profit on each department can be readily 
 ascertained. 
 
 Make Trading and Profit and Loss accounts and balance sheet as at 
 date of Nov. 8th when actual possession is given to Mr. Whitney. Expendi- 
 tures on account of expenses and salaries during this period amount to 
 $72.50. 
 
 67 
 
CHAPTER VIII 
 
 Branch Stores Accounts; Partnerships, Interest Formulas. 
 
 (64) ACCOUNTING WITH BRANCH HOUSES. 
 
 The accounts of branches may be handled with a loose leaf system in a way 
 to save much time and labor. In the Creamery business, for example, have 
 ruled and printed two forms fitting the ledger in use at the home office. When 
 remittance is made to a branch charge the amount to Adrian Branch balance 
 account in general ledger. Also open Adrian Branch income account (pro- 
 vided the branch makes any collections) ; open Adrian Branch expense account; 
 open Adrian Branch furniture and fixtures account, making four accounts only 
 for each branch. Entries to be made in the three latter once a month only, same 
 being taken from the ruled sheets which are received from the branch once a 
 week. No entries are made on these sheets by the home office until they are 
 filed in the front of the home office general ledger. The line "for home office 
 use only" being for the home office book-keeper to bring forward the totals 
 from the week previous, after checking up the items with vouchers sent by 
 branch along with the account. The numbers at the left of items are to put on 
 the vouchers for the respective expenditures. At the end of the month the foot- 
 ings will show the various expenditures for pay roll, general expense, machin- 
 ery, power, etc., etc. From these totals the home office book-keeper gets his 
 grand total for Adrian Branch general expense account, furniture and fixtures, 
 etc. He makes a journal entry for the month crediting Adrian Branch balance 
 account and charging Adrian Branch general expense ; and another entry cred- 
 iting the balance account and charging the furniture and fixtures account or 
 whatever title he wishes to give the machinery and plant or investment account. 
 The above entries are made from the disbursement sheet. The general opera- 
 tion is the same with regard to the receipts with the exception that no entry 
 is made for the total of "received from home office" column, because that entry 
 is made from the home office cash book and is posted to the Adrian Branch bal- 
 ance account. The other totals of receipts are handled once a month similar 
 to the disbursements, i. e., debit Adrian Branch balance account; credit income 
 
 6S 
 
account with the total for the month. The balances of the four accounts above 
 mentioned will show : Adrian Branch balance account, the balance on hand or 
 unaccounted for in hands of that branch ; income account, the amount received 
 by the branch at the town where the branch is located; furniture and fixtures, 
 or plant account, the amount spent for fixtures and machinery ; general expense. 
 
 6gitiof) Reiaort-fDr WecK ELpdir)^ DI6I5UR5tnEiNT6 
 
 
 Pciy-Roll 
 
 E5(pe9se 
 
 Rerjt 
 
 M«l,i,<ry 
 
 Type 
 
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 Power 
 
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 Cus. bis. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 ' 
 
 
 
 roruiahJ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 69 
 
On the "receipts" sheet provision is made for bank balance, provided a local 
 bank account is to be opened in the name of the branch. If no local bank 
 account is opened the ''cash in safe" column will show the totals for the items 
 on the respective receipts and disbursement sheets. In the event that a local 
 bank account is carried, the two columns, as above, will show balance in bank 
 and balance in safe and the sum of the two must agree with Adrian Branch bal- 
 ance account in general ledger. The back of the disbursement sheet is ruled 
 in blank and is to be used for a summary of expenditures for a period to be 
 determined by the length of the fiscal period. 
 
 By the use of the system the home office book-keeper makes one entry in 
 each general account once a month; entries on the balance account as the 
 amounts are remitted to the branch, and foots up and carries forward the 
 totals on the weekly sheets as they come in. 
 
 (6^) INTEREST. 
 
 Interest may be defined as the amount charged for the use of money, 
 usually on a percentum basis. 
 
 The following are simple and practical rules for finding interest: 
 
 (66) SIX PER CENT. INTEREST RULE. 
 
 Divide principal by 6. If no cents are expressed in principal, place deci- 
 mal one point to the left, and if cents are expressed in principal, place decimal 
 three points to the left, which will give the interest for one day, which multiply 
 by the number of days of interest required, and the result will be the amount 
 of interest due. 
 
 Example: Find interest on $1,249.32 for 78 days at six per cent, per 
 annum. 
 
 Operation: $1,249.32 divided by 6 equals 20.822; multiplied by 78 equals 
 $16.24116. Answer, $16.24. 
 
 For three per cent., cut amount in two; for four per cent., deduct one- 
 third ; for five per cent., deduct one-sixth ; for seven per cent., add one-sixth ; 
 for eight per cent., add one-third ; for nine per cent., add one-half, and for ten 
 per cent., add two-thirds. Or, four per cent., multiply interest by 4 and divide 
 by 6; for five per cent., multiply interest by 5 and divide by 6; for seven per 
 cent., multiply interest by 7 and divide by 6 ; for eight per cent., multiply by 8 
 and divide by 6; for nine per cent., multiply by 9 and divide by 6, or add one-half 
 amount of interest; for ten per cent., multiply by 10 and divide by 6. 
 
 ANOTHER RULE. 
 
 Required the interest on $250 for 63 days at 6%. 
 
 1. The rate for one year is 6%, 
 
 2. The rate for 1-6 year, or 2 months, is 1%. 
 
 3. 1% of $250=$2.50, interest for 60 days. 
 
 4. Ir20 of $2.50=$0.12i^, interest for 3 days. 
 
 5. $2,62^ interest for 63 days. 
 
 70 
 
((5/) TWELVE PER CENT. INTEREST RULE. 
 
 Remove decimal in principal two places to the left ; multiply by time stated 
 in months, and decimals of a month ; multiply the product by rate per cent., and 
 divide that product by 12. 
 
 We may simplify and shorten the process by observing the proportion 
 which the required rate bears to 12. For example, deducting 1/6 from itself 
 from 12 gives us 10; deducting % of itself from 12 gives us 9; deducting 1/3 
 of itself from 12 gives us 8; dividing 12 by 2 gives us 6; adding 1/6 of itself 
 gives 7; deducting 1/6 of itself from 6 gives 5; dividing 12 by 3 gives 4, etc. 
 
 The following will be found to be excellent rules for finding the interest 
 on any principal for any number of days. When the principal contains cents, 
 point off four places from the right of the result to express the interest in dol- 
 lars and cents. When the principal contains dollars only, point off two places. 
 
 Four per cent. — Multiply the principal by the number of days to run, and 
 divide by 90. 
 
 Five per cent. — ^lultpily by number of days, and divide by y2. 
 
 Six per cent. — Multiply by number of days, and divide by 60. 
 
 Seven per cent. — Multiply by number of days, and divide by 52. 
 
 Eight per cent. — Multiply by number of days, and divide by 45. 
 
 Nine per cent. — Multiply by number of days, and divide by 40. 
 
 Ten per cent. — Multiply by number of days, and divide by 36. 
 
 Twelve per cent. — Multiply by number of days, and divide by 30. 
 
 Fifteen per cent. — Multiply by number of days, and divide by 24. 
 
 Eighteen per cent. — Multiply by number of days, and divide by 20. 
 
 Twenty per cent. — Multiply by number of days, and divide by 18. 
 
 Twenty-four per cent. — Multiply by number of days, and divide by 15. 
 
 {68) A SIMPLE INTEREST FORMULA. 
 
 Interest may be very easily understood and computed by what might be 
 called the Rational Method. The method has a great advantage in following 
 the same line of reasoning by which pupils solve such questions, as, "What is 
 the cost of 2 bu. 3 pks. i qt. I pt. of beans at $1.75 per bushel?" 
 
 In that way it makes interest but a continuation of other subjects, instead 
 of an entirely new subject with a new system of computation. 
 
 The rule is stated as follows: Find interest on principal for one year at 
 given rate ; reduce months and days to the decimal of a year ; multiply the inter- 
 est for one year by the number of years. 
 
 For example : Find the interest of $750 for 2 yrs. 9 mos. 18 days at 4>^ 
 
 per cent. 
 
 Divide 18 days by 30 and reduce to a decimal. 
 30)18.0 
 
 .6 month. 
 
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 Multiply $33.75 (interest for one year) by 2.8 (years) =$94.50. 
 Interest on $2,875.75 for 3 yrs. 7 mos. 17 days at 5i%. 
 17^30^.567 month. 
 

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 (dp) THE EAGLE PRINTING COMPANY. 
 
 The Eagle Printing Company was organized Dec. ist, 1904, with a capital 
 of $10,000, A. Johnson subscribing $6,000 ($4,000 cash and $2,000 plant and 
 
 73 
 
machinery), and J. Lang subscribing $4,000 cash. Furniture and fixtures were 
 purchased to the extent of $490, and the paper stock and shop supplies of a 
 bankrupt printing company were purchased for $1,000 (paper $728.91, various 
 shop supplies $271.09). It was agreed that Johnson should receive a salary of 
 $150 and Lang a salary of $125 per month for services. The rent of the office 
 and shop, including power for running presses, was $100 per month. 
 
 We append particulars of the transactions for the first month, viz., sales 
 book (showing distribution of cost of work and profit on same), schedule of 
 purchases during month, schedule of cash receipts and expenditures, and 
 schedule of journal entries. 
 
 The starting point of the business transactions is as follows: 
 
 THE EAGLE PRINTING COMPANY. 
 
 Statement of assets and liabilities as at date of commencement of business, 
 Dec. 1st, 1904. 
 
 Assets. Liabilities. 
 
 $6,510 00 Cash. 
 
 2,000 00 Plant and machinery. 
 
 1,000 00 Shop inventory. 
 
 490 00 Furniture and fixtures. 
 
 Capital $10,000 00 
 
 $10,000 00 $10,000 00 
 
 SCHEDULE "a." 
 
 ACCOUNTS PAYABLE DEBITS. 
 
 W. T. McCormack $6.00, allowed to J. H. Gillett & Co. on account of poor 
 quality of paper. 
 
 W. T. McCormack $18.00, allowed to G. W. Ammerman & Co. on account 
 of poor quality of paper. 
 
 W. T. McCormack $18.00, allowed to J. F. Bell on account of poor quality 
 of paper. 
 
 customer's ACCOUNT CREDIT. 
 
 One dollar and eighty cents allowed to W. T. Sailing for overcharge. 
 
 LIST OE CASH RECEIPTS. 
 
 J. H. Gillett & Co $ 70 65 
 
 G. W. Ammerman & Co 712 59 
 
 W. T. Baker 1 95 
 
 D. T. Gillings 315 70 
 
 W. Moore 18 51 
 
 Detroit Sanitary Supply Company 275 49 
 
 W.T. Griffin ...... 232 76 
 
 H. T. Holbrook 642 10 
 
 W. T. Sailing 238 61 
 
 W. T. Sailing 613 20 
 
 LIST OF DISCOUNTS ALLOWED TO CUSTOMERS. 
 
 W. T. Griffin $4 75 
 
 H. T. Holbrook 13 10 
 
 W. T. Sailing 4 87 
 
LIST OF CASH DISRURSEMENTS. 
 
 W. T. McCormack $1,620 12 
 
 Office and supplies 18 00 
 
 Composition 216 78 
 
 Binding 345 39 
 
 Press work 301 70 
 
 Postage 3 85 
 
 Salaries 275 00 
 
 Rent and power 100 00 
 
 DISCOUNTS DEDUCTED. 
 
 W. T. McCormack $85.27 
 
 Note. — Students will f.ll in date for these transactions. 
 
 SCHEDULE "b/' 
 
 Dec. 2 W. T. McCormack $587 50 
 
 " 2 Page & Company 47 83 
 
 " 5 Buffalo Ink Co 8 00 
 
 " 12 W. T. McCormack 46199 
 
 " 12 Buffalo Ink Co 18 00 
 
 " 16 W. T. McCormack 310 40 
 
 " 18 Page & Company 44 10 
 
 " 19 Page & Company 6 43 
 
 " 24 Page & Company 360 00 
 
 " 26 W. T. McCormack 387 50 
 
 Paper Stock was purchased from W. T. McCormack; envelopes from Page & Co., 
 
 ink from Buffalo Ink Co. 
 
 The student is requested to make customers* ledger rulings with special 
 balance column; open and post sales to customers' accounts. 
 
 Make forms of cash book and journal and incorporate entries from schedule 
 (A). Provide special columns in Cash Book for discounts. 
 
 Make form of purchase book and incorporate entries from schedule (B), 
 providing distribution columns for paper, ink and sundries, paper and ink 
 belonging to the trading account, sundries to general expense. 
 
 Post cash receipts to customers' accounts and cash payments to purchase 
 accounts. ^ 
 
 Make general ledger rulings similar to those for customers' ledger and 
 open accounts therein with creditors' and nominal accounts, posting the various 
 items relating thereto from schedule (A). Open controlling account with cus- 
 tomers' ledger. 
 
 Extend balances in balance columns. 
 
 Submit trial balance of work. 
 
 Make Trading account, Profit and Loss account and balance sheet as 
 explained in previous lessons. 
 
 In Lesson 9 we will continue this business for another month, making com- 
 parative statements of cost, general expense, sales, gross and net profit, etc., 
 and will declare a dividend. 
 
 75 
 
(/O) SINGLE PARTNERSHIPS. 
 
 Where a business is owned by one person instead of by a corporation, the 
 general methods of accounting would be the same in every particular, but 
 whereas in a corporation the capital always remains at the authorized amount 
 for which the company is incorporated, in a single proprietorship, the net profits 
 are transferred from Profit and Loss account to the credit of the capital or 
 investment account of the proprietor. 
 
 (/j) PARTNERSHIPS. 
 
 In a business owned by a partnership the procedure is the same as in a 
 single proprietorship, with the exception that the profits are divided proportion- 
 ately between the partners. In the partnership deed there would probably be a 
 provision whereby Johnson would be entitled to 6/ioths and Lang to 4-ioths 
 of the net profits of the business. If the partners receive salaries as remunera- 
 tion for their services many complications are avoided, but where no salaries 
 are provided for, the partners' drawings are subject to interest, unless other- 
 wise provided for in the partnership deed. 
 
 The responsibility assumed by partners is summarized in Spaulding's En- 
 cyclopaedia of Law and Forms as follows : 
 
 "As a general rule, a partnership may exist in any business or transaction 
 which is not a mere personal office, and for the performance of which payment 
 may be enforced. It may be created for a special purpose, or confined by the 
 parties to a particular line of business, or even a single transaction. One part- 
 ner may contribute all the money or all the stock, or all the labor or skill neces- 
 sary for the purposes of the firm ; but in order to make people liable as partners 
 to each other, it is necessary that there should be a community of profits, 
 although one of them may stipulate to be indemnified against loss. This, how- 
 ever, respects their mutual claims, for however they may stipulate with each 
 other, all who take a share in the profits, and all who allow themselves to be 
 described and held out as partners, are liable as such to those to whom they 
 have so held themselves out. Supposing the parties to have become partners, 
 the result is that each individual partner constitutes the others his agents for the 
 purpose of entering into all contracts for him in the scope of the partnership 
 concern, and consequently, that he is liable to the performance of all such con- 
 tracts in the same manner as if entered into personally by himself. It is not 
 essential to the existence of a partnership that there should be any joint capital 
 or stock. Sometimes a partnership exists between parties merly as the mana- 
 gers and disposers of the goods of others. A partnership is presumed to be 
 general when there are no stipulations, or no evidence, from the course of busi- 
 ness, to the contrary. There may be a partnership to trade in land. A ship 
 as well as any other chattel may be held in strict partnership. But ships are 
 generally owned by parties as tenants in common, and they are not, in conse- 
 
 76 
 
quence of such ownership to be considered as partners. The same is true of 
 any other species of property in which the parties have only a community of 
 interest. 
 
 Though partnerships are usually formed by participation in profits and 
 losses, partners may agree as to any way of dividing the losses ; that a partner 
 shall have his share of the profits and not be liable for losses. And this agree- 
 ment is valid as between themselves. And this agreement will be equally effica- 
 cious, whether stated in articles or proved by circumstances, or otherwise. For 
 partners among themselves may make whatever bargain they choose. But no 
 such agreement will prevent such partner from being liable for the debts of the 
 partnership, unless the creditor knew of this bargain between the partners, and 
 with this knowledge gave the credit to the other partners only." 
 
 (7^) Limited partnerships, like corporations, permit of the investment of 
 capital in a business, the responsibility being limited to the amount invested. 
 Partnerships of this kind are not provided for in common law, but must be 
 authorized by special state statutes. 
 
 (7j) The general advantages of incorporations over partnerships may be 
 described as follows: 
 
 Each stockholder is liable only for the amount of stock subscribed. 
 
 A corporation, whenever in need of increase in the working capital, can 
 issue debenture bonds, and place same on the public market without giving 
 Chattel Mortgage. Nobody knows what a Trust Deed may include, but a 
 chattel mortgage must be registered in a Court of Record, which records are 
 published. 
 
 If the management of a company is intrusted to some stockholder who 
 proves to be inefficient, he may be removed by vote of the majority of the stock, 
 and some one else appointed. 
 
 77 
 
CHAPTER IX 
 
 Opening Entries; Use of Manifold Blanks. 
 
 (^4) We now present the necessary particulars for a continuation 
 of the transactions of The Eagle Printing Co. for the month ending Jan. 
 31st. These particulars consist of: 
 
 Schedule A — Order Register and Sales Book. 
 
 Schedule B — List of Purchases. 
 
 Schedule C — List of Cash Receipts and Expenditures. 
 
 Schedule D — Journal Entries. 
 
 Continue the forms and accounts prepared for the transactions of the 
 previous month's business, including Customers' Ledger, Cash Book, Journal, 
 Purchase Record, General Ledger, Controlling Account with Customers* 
 Ledger. 
 
 Submit trial balance of work. Make Trading account, Profit and Loss 
 account, and Balance Sheet. 
 
 Submit comparative statements as to cost of production, general expense, 
 sales, and gross and net profit for the two months. 
 
 From the net profit declare a dividend after providing for a reserve for 
 depreciation of 5 per cent, per annum on plant and machinery, and 10 per cent, 
 per annum on furniture and fixtures. 
 
 SCHEDULE "B." 
 
 Jan. 2. Page & Co., Envelopes $13 92 
 
 Jan. 2. Page & Co., Paper 302 15 
 
 Jan. 4. W. T. McCormack, Paper 330 00 
 
 Jan. 5. Page & Co., Paper and Envelopes 48 75 
 
 Jan. 6. W. T. McCormack, Paper 555 60 
 
 Jan. 6. Page & Co., Envelopes 207 50 
 
 Jan. 6. W. T. McCormack, Paper 508 70 
 
 Jan. 7. Buffalo Ink Co., Ink 75 00 
 
 Jan. 7. Page & Co., Paper and Envelopes 41 65 
 
 Jan. 8. Page & Co., Paper ard Envelopes 10 77 
 
 Jan. 12. W. T. McCormack, Paper 360 00 
 
 Jan. 15. Page & Co., Envelopes 300 00 
 
 Jan. 18. Buffalo Ink Co., Ink 75 00 
 
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 SCHEDULE "C." 
 
 LIST OF CASH RECEIPTS AND EXPENDITURES. 
 CASH RECEIPTS. 
 
 W. F. Trescott $ 18 97 
 
 G. W. Moore 1 05 
 
 W. G. Brown 3 63 
 
 F. C. Smith 3 71 
 
 J. G. Huber 3 50 
 
 W. Sommerville 3 78 
 
 A. Gratz 4 87 
 
 W. J. Wilson ...: 2 50 
 
 J. F. Moore 46 50 
 
 J. McLaughlin 81 09 
 
 W. F. Whitney 882 00 
 
 2% discount 18 00 
 
 Jan. 14. G. P. Upton 735 00 
 
 2% discount 15 00 
 
 D. F. Morton 1 46 
 
 Jan. 17. A. C. McLeod 122 00 
 
 Jan. 21. G. F. Sheeley 64 00 
 
 Jan. 23. W. C. Ball 42 50 
 
 F. C. Dester 1000 00 on account 
 
 J. T. Wing 500 00 on account 
 
 SCHEDULE OF CASH PAYMENTS. 
 
 Material Purchases. 
 
 Jan. 10. Page & Co $ 458 36 
 
 Buffalo Ink Co 26 00 
 
 Jan. 23. W. T. McCormick 1000 00 on account 
 
 J. F. Moore, (A. R.) 3 75 
 
 Jan. 26. Buffalo Ink Co 73 50 
 
 Discount 1 50 
 
 Jan. 30. Page & Co 296 10 
 
 Discount 6 05 
 
 SUNDRY PAYMENTS FOR MONTH. 
 
 Jan. 31. Repairs 13 00 
 
 Stamps 5 00 
 
 Office Supplies 21 37 
 
 Salaries 275 00 
 
 Rent 100 00 
 
 TRADING EXPENSES FOR MONTH. 
 
 Jan. 31. Press Work $ 912 11 
 
 Binding 681 56 
 
 Composition 100 00 
 
 SCHEDULE "D." 
 
 JOURNAL ENTRIES. 
 
 Inventory, Jan. 31 $690 00 
 
 W. T. McCormick, Dr. to J. T. Moore, Cr 3 75 
 
 (Allowance on defective paper.) 
 
 LABOR ACCRUED BUT NOT DUE. 
 
 Binding 71 15 
 
 Press Work 18 14 
 
 (/j) ILLUSTRATIONS OF OPENING AND CLOSING ENTRIES. 
 
 John R. Smith and A. Reynolds desire to turn their partnership business 
 into a corporation. It is decided to incorporate the company with a capital 
 of $75,000 — 750 shares at $100 per share. 
 
 The assets and liabilities of the partnership are as follows : 
 
 ASSETS. LIABILITIES. 
 
 $10,000 Machinery and Fixtures 
 8,000 Cash on Hand and at Bank 
 
 80 
 
18,500 Plant and Building 
 16,000 Merchandise Inventory 
 2,000 Accounts Receivable 
 
 Accounts Payable, $24,000 
 
 John R. Smith subscribed for 450 shares. 
 
 Allen Reynolds subscribed for 300 shares. 
 
 In considering the opening entries for this corporation, it will be observed 
 that the partners of the old business are only worth $30,500, while on the 
 other hand they subscribe for the whole of the capital stock. It is, therefore, 
 evident that they will either pay cash for the balance of their stock accounts, 
 or will place some approximate value on the good-will of the business, which 
 will enable them to show the value of the stock as paid in full. For the sake 
 of this example we will suppose the good-will is valued at $20,000, and will 
 proceed as follows: 
 
 In a case of this kind, where the personnel of the management of the 
 business is not changed, it is not usual to open a complete set of new books. 
 The accounts receivable transferred to the new corporation, and the liabilities 
 assumed by the new corporation can be taken at their face value according to 
 ledger, unless otherwise specified, and these accounts can be carried along 
 without change. 
 
 With regard to the representative, real, and nominal accounts, it is bet- 
 ter to transfer them to a new ledger usually termed a "General Ledger" as 
 described and illustrated in-Th. M. It is also advisable to record the transfer 
 in the regular cross entry journal of the business, preceding it by a recital of 
 the general conditions of the transfer. 
 
 In this particular case the partnership transferred to the corporation 
 assets to the amount of $54,500, and liabilities to the amount of $24,000. The 
 net interest of the partners in the business, therefore, is $30,500. In this 
 instance, we have not mentioned the respective interests of the partners, but 
 will suppose they are in the proportion of 450 to 300 shares of the capital 
 stock. 
 
 The opening entries will therefore be as follows : 
 
 Dr. Cr. 
 
 Capital Stock, $75,000 
 
 Subscription Account, 
 $45,000 J. H. Smith, 450 shares 
 
 30,000 A. Reynolds, 300 shares 
 
 Assets transferred to the new corporation by Smith & Reynolds. 
 
 $10,000 Machinery and Fixtures 
 
 8,000 Cash on Hand and at Bank 
 
 18,500 Building and Plant 
 
 16,000 Merchandise Inventory 
 
 2,000 Accounts Receivable 
 
 Liabilities assumed by the new corporation. 
 
 Accounts Payable $24,000 
 
 J. H. Smith's Stock Account 30,300 
 
 A. Reynold's Stock Account , , 20,200 
 
 81 
 
These accounts now stand debited with the balance of the capital stock 
 subscribed but not paid, viz., $24,500, and this amount it is supposed they will 
 contribute later. 
 
 J. Robinson, F. Smith and J. F. Rock have been carrying on business 
 under a partnership deed, the net assets of the firm amounting to $93,000. 
 They propose to incorporate with a capital stock of $100,000, to be divided 
 into preferred stock $50,000 (guaranteed 6 per cent.), common stock $50,000. 
 The partners are to receive 50 per cent, preferred stock and 50 per cent, com- 
 mon stock in payment for their interest in the assets of the partnership which 
 are to be transferred to the new corporation. 
 
 The partnership proportions, and stock issued to them in accordance 
 therewith are as follows: 
 
 J. Robinson's interest $48,000, takes 240 shares preferred stock and 240 
 shares common stock. 
 
 F. Smith's interest $22,500, takes 112^ shares of preferred stock and 
 112^ shares common stock. 
 
 J. F. Rock's interest $22,500, takes 1121/2 shares of preferred stock and 
 112^ shares of common stock. 
 
 J. Gilbert purchases 35 shares of common stock. 
 
 F. Smith holds a note of $2,000, for which the firm is liable. He sub- 
 scribes for 20 shares of preferred stock, giving this note as payment for same. 
 
 J. Robinson purchases 15 shares of preferred stock for cash. 
 
 Taking the preceding illustration as an example, the opening entries would 
 
 be as follows: 
 
 Dr. ' Cr. 
 
 Capital Stock — 
 
 
 Preferred, 
 
 $50,000 
 
 
 Common, 
 
 50,000 . 
 
 <t1AAAAft 
 
 
 SUBSCRIPTION ACCOUNTS. 
 
 
 
 J. Robinson — 
 
 
 $ 25,500 
 
 Preferred 
 
 
 24,000 
 
 Common 
 F. Smith- 
 
 
 13,250 
 
 Preferred 
 
 
 11,250 
 
 Common 
 L. F. Rock- 
 
 
 11,250 
 
 Preferred 
 
 
 11.250 
 
 Common 
 J. Gilbert 
 
 
 3,500 
 
 Common 
 
 
 Assets transferred to the new corporation: 
 $123,500 Gross Assets 
 
 Liabilities assumed by the new corporation: 
 
 Accounts Payable, $ 30,500 
 
 (Including note of Smith, $2,000) 
 
 J. Robinson, Stock Account, 48,000 
 
 F. Smith, Stock Account, 22,500 
 
 J. F. Rock, Stock Account, 22,500 
 
 82 
 
$ 2,000 Accounts Payable, 
 
 F. Smith, Stock Account, 2,000 
 
 5,000 Cash 
 
 J. F. Rock, Stock Account, 3,500 
 
 J. Robinson, Stock Account, 1,500 
 
 W. C. Caldwell and E. M. Ainsworth carrying on business under the 
 style of Caldwell & Ainsworth decide to incorporate. Caldwell's investment 
 account shows a credit of $7,810.17. Ainsworth's investment account shows 
 a credit of $1,663.62. It is decided to incorporate for $15,000. Good-will is 
 valued at $2,500, this representing an addition to the net assets of Caldwell 
 and Ainsworth as shown by their investment accounts. 
 
 There is an amount due a traveling salesman on the books of $500. The 
 salesman agrees to accept stock to that amount in settlement. 
 
 Mrs. Ainsworth loaned the old firm the sum of $500 on a note. She also 
 agrees to accept stock for that amount in settlement. 
 
 The balance of the stock is to be disposed of as opportunities may arise. 
 
 On the books of the old firm an account is opened for good-will, this being 
 debited with $2,500. The partners are credited with their proportion of same, 
 based on their respective interests as shown by the partnership accounts, viz.: 
 
 Caldwell $2,060.99, Ainsworth $439.01, making Caldwell's total invest- 
 ment $9,871.16 and Ainsworth's total investment $2,102.63. 
 
 OPENING ENTRIES. 
 
 Dr. Cr. 
 
 Capital Stock, $15,000 00 
 
 $10,000 00 Caldwell Stock Subscribed 
 
 2,100 00 Ainsworth Stock Subscribed 
 
 500.00 Mrs. Ainsworth Stock Subscribed 
 
 500 00 W. Jack Stock Subscribed 
 
 1,900 00 Treasury Stock 
 
 Assets transferred by Caldwell and Ainsworth to the new coiypany, 
 as per schedule: 
 $ 18,517 04 
 
 Liabilities of Caldwell and Ainsworth assumed 
 
 by the new company, $ 6,543 25 
 
 128 84 Caldwell's Personal Account (to adjust) 
 Caldwell's Stock Account, 
 Ainsworth's Stock Account, 
 Ainsworth's Personal Account (to adjust), 
 
 $ 18,645 88 . 
 
 500 00 Accounts Payable, W. Jack 
 
 Jack's Stock Account, 
 500 00 Notes Payable 
 
 Mrs. Ainsworth's Stock Account, 
 
 10,000 00 
 
 2,100 00 
 
 2 63 
 
 $18,645 88 
 
 $ 500 00 
 
 500 00 
 
 A. P. Lord is the proprietor of a small business, which is valued at $4,000, 
 the assets consisting of tools and fixtures $2,000, good-will $2,000. He pro- 
 poses to admit F. W. Mooney as a partner, who will purchase a one-half 
 interest for $2,000. 
 
 The $2,000 invested by F. W. Mooney belongs to A. P. Lord personally, 
 
 83 
 
and he loans it to the new firm, taking the firm's note at 12 months, it being 
 purposed that later on F. W. Mooney will invest another $2,000, in which case 
 A. P. Lord will also invest the $2,000 loaned by him to the business, making 
 the total capital of the firm $8,000. 
 
 OPENING ENTRIES. 
 
 Dr. Cr. 
 
 $ 2,000 Tools and Fixtures 
 2,000 Good Will ' 
 
 A. P. Lord's Investment Account, $ 2,000 
 
 A. P. Lord's Personal Account, 2,000 
 
 2,000 Cash 
 
 F. W. Mooney's Investment Account, 2,000 
 
 2,000 A. P. Lord's Personal Account 
 
 Notes Payable Account, 2,000 
 
 The necessary journal entries when F. W. Mooney makes his other invest- 
 ment, and loan from A. P. Lord is transferred from Notes Payable to the 
 credit of his Investment Account are simple, and need not be here detailed. 
 
 The J. L. Rose Company has been organized to purchase the business of 
 K. S. Donovan, the latter transferring to the J. L. Rose Company his stock on 
 hand and other assets as per inventory amounting to $26,000, the J. L. Rose 
 Company assuming all liabilities of the business amounting to $2,169.94. K. 
 S. Donovan agrees to take 250 shares of capital stock at $100 per share in the 
 J. L. Rose Company in full payment for the property transferred as above. 
 
 The J. L Rose Company incorporates for $60,000, J. L. Rose subscribing 
 for 250 shares for which he will pay cash. 
 
 Five shares of stock are donated to the following five persons in recogni- 
 tion of valuable services to be hereafter rendered to the J. L. Rose Company: 
 
 H. R. Vandervort — 5 shares. 
 
 L. DeCastro — 5 shares. 
 
 A. D. Speedie — 5 shares. 
 
 J. H. Gorke — 5 shares. 
 
 W. F. Cunningham — 5 shares. 
 
 This is a mail order business in the patent medicine line, packages of 
 
 medicine being sent out C. O. D. and on approval without orders being 
 
 received. The value of the packages out is not accurately known at the time 
 
 of the transfer of the business, but has been estimated at $6,500. 
 
 OPENING ENTRIES. ^ 
 
 Dr. Cr. 
 
 Capital Stock, $60,000 00 
 
 $25,000 00 K. S. Donovan 
 25,000 00 J. L. Rose 
 10,000 00 Treasury Stock 
 
 Assets transferred to the J. L. Rose Company by K. S. Donovan : 
 
 $ 1,871 25 Furniture and Fixtures 
 
 1,725 00 Printing and Stationery 
 
 1,800 00 Typewriters 
 
 75 75 Packages and Boxes 
 
 1,150 00 Drugs and Medicines 
 
 84 
 
12,878 00 Formulas, Patents, etc. 
 5,000 00 C. O. D. Packages Out 
 1,500 00 Mail Order Packages Out 
 
 Liabilities assumed by the J. L. Rose Company : 
 
 Bills Payable, $ 1,136 41 
 
 Accounts Payable, 1,033 53 
 
 K. S. Donovan, Stock Account, 25,000 00 
 $ 1,169 94 Organization Expense 
 
 25,000 00 Cash 
 
 J. L. Rose, Stock Account, 25,000 00 
 
 $ 2,500 00 Organization Expense 
 
 H. R. Vandervort, $ 500 00 
 
 L. DeCastro, 500 00 
 
 A. D. Speedie, 500 00 
 
 J. H. Gorke, 500 00 
 
 W. F. Cunningham, 500 00 
 
 With regard to the estimated C. O. D. and mail packages out, open separ- 
 ate accounts for C O. D. packages old, and C. O. D. packages new, mail order 
 packages old, and mail order packages new ^The old accounts will remaiti 
 open until all the packages are accounted for. If there is a deficit, charge the 
 amount to Organization Expense. If there is a surplus, credit it to Organiza- 
 tion Expense. This method is adopted because the business has been acquired 
 for $25,000, regardless of whether the assets and liabilities have been accur- 
 ately listed or not 
 
 The organization expense can be gradually written off as found con- 
 venient. 
 
 A, B and C enter into a co-partnership, the profits to be shared equally. 
 
 A has an established business, consisting of inventory $2,500, cash $500, 
 His liabilities consist of a $150 note, on which there is one year's interest due 
 at 6 per cent and $650 of accounts payable. 
 
 B purchases a one-third interest in the firm, in consideration of an invest- 
 ment of $3,000 cash, and a $200 note, guaranteed good, on which no interest 
 has accrued. 
 
 C purchases a one-third interest in the business in consideration of an 
 investment of $2,400 cash and a $700 note, guaranteed good, on which six 
 months' interest has accrued at 6 per cent. 
 
 OPENING ENTRIES. 
 
 It is evident from the particulars submitted that A is selling one-third 
 interest in his well established business, B investing $3,200 in purchase of his 
 one-third interest, and C investing $3,121 in purchase of his one-third interest. 
 It is evident, therefore, that A's account should stand on the books at the same 
 value, so that he may be also entitled to a one-third share of the profits, both 
 legally and in equity. The following entries would, therefore, be in order : 
 
 85 
 
Dr. Cr. 
 
 $ 2,500 Merchandise Inventory 
 500 Cash 
 
 Accounts Payable, $ 650 
 
 Notes Payable, 150 
 
 Interest Accrued Due, 9 
 
 1,009 Good Will 
 
 A's Investment Account, 3,200 
 
 3,000 Cash 
 200 Notes Receivable 
 
 B's Investment Account, 3,200 
 
 2,400 Cash 
 700 Notes Receivable 
 21 Interest Accrued Due 
 
 C's Investment Account, 3,121 
 
 79 C's Suspense Account 
 
 C's Investment Account, 79 
 
 We have no doubt the above adjustment would recommend itself both 
 to A and to C. 
 
 A concern, whom we will denominate Thomas & Co., possess a valuable 
 saleable commodity, and rent the right to sell same to subsidiary companies 
 organized to do business in different cities. 
 
 McKenzie, Day & Cunningham organize a corporation to sell this com- 
 modity with a capital of $100,000 — $25,000 preferred and $75,000 common 
 stock. 
 
 The proprietors' of the commodity to be sold receive $15,000 per annum 
 rent or royalty for the right to sell, and also $50,000 of common stock in the 
 new corporation. 
 
 McKenzie, Day & Cunningham subscribe for the $25,000 preferred stock, 
 and it is provided that they receive as a bonus $25,000 of common stock, thus 
 disposing of the whole of stock Issued. 
 
 We present this example to students of the Course without expressing any 
 opinion as to the merits of the case. It is quite possible, however, that any 
 book-keeper might be confronted with similar conditions, and it is well that he 
 should be informed regarding same. 
 
 Dr. 
 
 Cr. 
 
 
 Capital Stock, $100,000 
 
 
 Preferred, $25,000 
 
 
 Common, 75,000 
 
 $10,000 
 
 McKenzie Subscription 
 
 10,000 
 
 Day Subscription 
 
 5,000 
 
 Cunningham Subscription 
 
 75,000 
 
 Treasury Stock 
 
 60,000 
 
 Franchise Account, 
 
 
 Thomas & Co., in payment for right to sell 
 
 
 commodity. 
 
 
 Treasury Stock, $50,000 
 
 25,000 Bonus Account 
 
 Stock donated to McKenzie, 10,000 
 
 86 
 
Stock donated to Day, 10,000 
 
 Stock donated to Cunningham, 5,000 
 
 in consideration of subscription of preferred 
 stock. 
 Treasury Stock Account, 25,000 
 
 (yd) PREMIUM ON STOCK SUBSCRIBED. 
 
 In connection with the subject of opening entries, the proper disposition 
 of premium on stock subscribed appears to present difficulties when the premium 
 is paid by new investors. A perusal of the appended articles discussing this 
 question will undoubtedly be of considerable benefit to those who may here- 
 after come in contact with questions of this nature. 
 
 For example, A and B having been in partnership and desiring additional 
 working capital so as to be able to take advantage of an increasing demand 
 for their product, resolve to incorporate. Their original capital was $50,000. 
 They incorporate for $100,000, transferring the business to the new company 
 for $60,000 ($10,000 good will) and offering remaining shares for sale at 10 
 per cent premium. 
 
 In the case of a partnership, where A and B, requiring additional working 
 capital, resolve to admit a third partner who shall pay a premium of 10 per 
 cent for a certain interest in the business, it is clear that the premium does not 
 concern the partnership after C has been admitted as a partner, but belongs 
 to A and B in proportion to their respective partnership holdings. But in an 
 incorporated company where the books have been duly opened showing capital 
 $100,000, $60,000 subscribed, $40,000 unsubscribed, where does the premium 
 belong ? 
 
 If it is credited to surplus, it is available for distribution by way of divi- 
 dend, the result being that the stockholders who pay the premium receive a 
 certain proportion back in the way of dividend. 
 
 In the particular case being discussed, this eventuality had never occurred 
 to the vendors of the partnership business, and they were very indignant at 
 the bare supposition that the premium they had exacted from the purchasers 
 of the stock should be returned to those purchasers in any shape, manner or 
 form. The new investors in the business on their part averred that the only 
 reason they consented to pay the premium was the knowledge that part of it 
 would return to them by way of dividend, and that this was the universal 
 custom in such cases. 
 
 A public accountant was called in to arbitrate, and he suggested the follow- 
 ing compromise: 
 
 Credit the premium to a premmm account and cdlow it to stand as a 
 reserve account, so that not only the additional capital subscribed but also 
 the premium thereon shall remain in the business as working capital. 
 
 "In the case referred to the presumption is that the business has been 
 
 87 
 
brought to a stage in which the shares issued for the purchase of the business 
 are worth ten per cent above par, because of (i) a surplus on hand, (2) a 
 conservative valuation of assets, or (3) an earning power of more than par. 
 
 The legitimate object of asking a premium for the additional $40,000 stock 
 therefore would be to place it on the same level with the $60,000 first issued, 
 on the same principle that a person taking out shares in a building and loan 
 association six months after the series has been opened is asked to pay a 
 premium in order to place his shares in the same position as those issued at 
 the opening of the series and which have been earning profits for six months. 
 In this case the premiiim would properly be credited to surplus account. 
 
 The suggestion of the accountant alluded to would hardly be considered 
 a compromise by the vendors if they understood it thoroughly, for in case of 
 subsequent liquidation of the business — assuming that the assets would fully 
 meet the liabilities — would not the amount in the premium account be closed 
 into and divided with the surplus, or divided among the stockholders on the 
 same basis as the surplus? 
 
 If, however, the vendors intended that the premium paid for the $40,000 
 additional stock should eventually go to them individually as a bonus for per- 
 mitting the other parties to purchase shares in the business, a simple way would 
 be to credit the premium to the individual accounts of the vendors, with the 
 understanding, in the form of a written agreement, if necessary, that it would 
 not be withdrawn from the concern unless they disposed of their interest in 
 the business or it was wound up. This method would show the item in its 
 proper lig^ht as a liability." 
 
 *'A & B as partners in business have $50,000 invested — want to expand— 
 agree to incorporate at $100,000 and turn over their business for $60,000 stock 
 — and evidently do it. They agree to sell balance of stock at a ''premium" of 
 10 per cent — and the fact of the disagreement with other stockholders seems to 
 indicate that they also did that. I can't see any chance for "argument" or any 
 reason for dissatisfaction. In the first place, A & B had a right to incorporate 
 at any old figure and sell their own business as partners to themselves as a 
 corporation at any other old figure. It would seem, however, that their figures 
 were not unreasonable, and that the business warranted it, or purchasers could 
 not have been found to buy the minority stock at $1.10 when they (the said 
 stock purchasers) were aware that $60,000 had been issued at 16 2-3 per cent 
 discount — or that the original partners had not only purchased their stock at 
 *'par" but had received an additional bonus of $10,000. All of this was a 
 matter of record, and therefore purchasers of stock at $1.10 had no right to 
 go behind the returns, as evidently everything was satisfactory up to this point. 
 No secret seems to have been made of the $10,000 price placed on "good will," 
 and any legitimate business in healthy condition should stand a bonus of this 
 
 88 
 
amount. Up to this point there should be no controversy. A & B were in full 
 control and should have shown Capital Stock Cr. $60,000, Assets in proper 
 items aggregating Dr. $50,000, and Good Will Dr. $10,000. 
 
 Good Will is as legitimate as any other asset of actual value, and is a much 
 better way of handling honest incorporations than the usual method of arbi- 
 trarily increasing the value of all assets, including ''Blue Sky" and "Water 
 Ways." 
 
 Now the new stockholders purchase stock (admittedly Treasury Stock) at 
 $1.10. If it was Treasury Stock the proceeds belonged to the company. If 
 $40,000 was sold at $1.10, Capital Stock should be credited with $40,000, Cash 
 debited with $44,000 and "Premium on Stock Marketed" or any such title 
 clearly indicating the facts should be credited with $4,000, and the whole 
 $44,000 belongs to the company, which now shows assets $94,000, good will 
 $10,000, and every holder of stock owns bis proportionate amount of all the 
 assets regardless of whether they are to be held by the company or paid out in 
 dividends. 
 
 I can't see anything particularly clever about the suggestions of the public 
 accountant called in to arbitrate. He simply did what any accountant should 
 have done. However, I believe that he was absolutely right and that any 
 complaint from A & B was the result either of ignorance or a natural desire 
 of many people to always want more after they realize that they are getting 
 all they asked.'' 
 
 (//) MANIFOLD ORDER BLANKS. 
 
 Our illustration shows how this system is used in large businesses, each 
 department in any way connected with the order receiving its separate copy. 
 
 The number to the left is the regular serial number of the order, printed 
 when the blanks are printed. 
 
 The number on the right is the office number, and is only a temporary 
 number, by which customer's invoice and office copy of invoice are filed pending 
 receipt of notice from the shipj)ing department that the goods have been 
 shipped. 
 
 The factory number is placed on the shop order, and is the number by 
 which all factory records are filed. 
 
 The seven order blanks are filled out on the typewriter at one operation. 
 
 The first copy is the invoice to the customer. 
 
 The second copy is the office copy. 
 
 The third copy is used for factory order. 
 
 The fourth copy is used by the statistical department, where recapitulations 
 arc made of volume of business, etc. 
 
 The fifth copy is sent to the sales department for use in making up lists 
 of salesmen's sales, after which it is filed as a customers' record. 
 
 The sixth copy goes to the freight department. 
 
 89 
 
Thjs N. K. Pairbank Company 
 
 «M» earand t (ttpsr Ca 
 
 Allanllo Cliy II T 
 
 fnm .Chloic* 
 
 latt OcptrtiiKM. 
 fm^txtrntmnm ST. LOUIS o> NEW ORLCAMS 
 
 The N. K. Fairbank company 
 
 . 7S27 ■ 
 
 DnriDd • taspar Co 
 
 iklanlto CUjr » » 
 
 Jur.a ?0 1)04 
 
 8ALCS Ot^AVrMtNT-co" cr o*k* 
 
 '*'* The N, K. PAiRBANk Company 
 
 SMfM DnraDd A laspar Ce 
 
 ilUntlo City t T 
 
 ppw> Chleaeo 
 
 7527 
 
 lunt 20 1994 
 
 10 1904, 
 
 ? tttf>« l»r«i C*»i«»M. >790 
 
 -J2» 
 
 , n , ^ 3 « f a. «^ifc_I5C7_ 
 
 The Ni K- Fairbank Company 
 
 •MB 0«r*ai t It4ipir Co 
 
 AlltBllo Clt7 a 1 
 
 t i n — /ooti 
 
 tnm .Ctl»»f0 
 
 JuM 20 1904 
 
 IM. June 10 1904 
 
 m f/iff 
 
 ONOCII 
 
 The jr. K- Fairbank Company 
 
 **"' Hrtai » l4t|sr e«. 
 
 iiittti* cur B I 
 
 /»•• 20 1904 
 6m Jtso 10 190'"* 
 
 5 TUreat I.»r4 eaBiasX 
 
 j6 Baif nu ^ 
 
 \00 e/3 5 U Falla * 
 
 
 The N. K. Fairbank Company 
 
 J4lMUt« Cliy ■ r 
 ./•aaa 
 ekiatfo 
 
 <Ma«a. J«B* 20 1904 
 . •»•»• 10 1904« 
 
 
 imw&vmsm&m^^jmm^. 
 
 < Ml CMiMra 51 
 
 Otraad 4 Kaapar C*. 
 
 Ailaalle Clly U T 
 ■Jenta 
 Cblea(o 
 
 tJQJtt 30 19C'-e-^ 
 Jan* 10 190^^ 
 
 5 Tlareaa Lard Coaoound 1700 # r 
 
 10 Half Bbla • 1300 # T 1/2 
 
 100 C/S5 Lb falla * «000 # j 
 
 tj C/» 5 tb-, • • ^ J500 / #7/0 
 
 490 tb« 'loara ■tav«* « 
 
 fralckl >rapal4 
 .jiUrM4 t« I J raraoBS 
 
 LOOSE-LEAF FORMS USED BY THE N, K. FAIRBANK CO. 
 90 
 
The last copy is furnished to the salesman who took the order for his 
 information and use. 
 
 (y8) MANIFOLD DRAFTS. 
 
 The appended illustration shows a system in use which has proved very 
 satisfactory. The system consists of a form of draft, four copies being made 
 at one writing. 
 
 n- 
 
 bTATEMCNT. 
 
 yrrhp p RiHHftn fc CQ 
 
 Toieao Ohio /25C . QQ 
 
 ^^ \ &K slaht ItyMifiPDnhPfoF Ser.QDd Mat BaMc 
 
 TttTO Hundred ft. PtfU 
 
 .OO/lOO- 
 
 @r^^ 
 
 ./„„,/ -A »>-jr Ua't'-'^i./-/ 
 
 crano rapids brass company. 
 
 A Stub is attached to the original form and serves as a statement of the 
 account for which the draft is drawn. 
 
 The duplicate is forwarded to the cashier of the bank where the draft 
 is deposited for collection. 
 
 The triplicate copy is used as a letter of notification to customer that draft 
 has been drawn and deposited for collection. 
 
 The fourth copy is retained in the office for reference. 
 
 91 
 
CHAPTER X 
 
 Closing Entries; Reverse Posting System, Perpetual Balances. 
 
 CLOSING ENTRIES. 
 
 (7p,) The proper method of making closing entries is of the utmost 
 importance to the progressive book-keeper, and we therefore propose in 
 this lesson to give numerous examples — not so much of the closing records 
 themselves, but of their effect in preparing financial statements w^hich are 
 required in every up-to-date business. 
 
 MERCHANDISE ACCOUNT. 
 
 (80.) Where a Merchandise account is carried, it must be closed by- 
 crediting the amount of the current inventory and inserting the balance of 
 account on the debit side. Credit this balance to Profit & Loss account 
 and bring down the inventory as the debit balance of the Merchandise 
 account for the current year. 
 
 Thus : • 
 
 Total debits $2,856 95 Total Credits $3.246 52 
 
 Bal. to Profit and Loss 1,489 57 Inventory 1,100 00 
 
 $4,346 52 $4,346 52 
 
 Inventory brought down $1,100 00 
 
 Where separate Sales, Purchases and Inventory accounts are carried, 
 these are closed primarily into a Trading account, as shown in Th. M. and 
 illustrated herein. 
 
 The balances of all revenue accounts are closed into Profit & Loss 
 account, either to the debit or to the credit, as the case may be. 
 
 It generally happens that in accounts like Expense, Rent, Insurance, 
 Taxes, etc., there is an unexpired or unearned balance. These balances 
 should be brought down as inventories, being credited to Profit & Loss 
 account and included in the balance sheet as assets in the one case, or being 
 debited to Profit & Loss account and included in the balance sheet as liabili- 
 ties in the other case. 
 
 TRIAL BALANCE NO. 81, 
 
 Dr. Cr. 
 
 Capital X $8,000 00 
 
 Capital Y 7,000 00 
 
 Capital Z 5,000 00 
 
 Land and Buildings $ 9,000 00 
 
 92 
 
Plant, Machinery and Tools 4,000 00 
 
 Tools 1,500 00 
 
 Inventory March 1st 4,500 00 
 
 Purchase Account, Material 11,000 00 
 
 Wages 6,000 00 
 
 Freight and Express 800 00 
 
 Coal and Coke 1,200 00 
 
 Salaries, Manufacturing 1,500 00 
 
 Salaries, Clerks and Traveling 500 00 
 
 Water Rates and Taxes 450 00 
 
 Discounts and Allowances 600 00 
 
 Rents (Sub-letting) 150 00 
 
 Fifth National Bank 2,000 00 
 
 Cash on Hand 40 00 
 
 Accounts Payable 1,500 00 
 
 Accounts Receivable 5,000 00 
 
 Expense, Repairs and Replacements 800 00 
 
 Plant Extension Act 3,000 00 
 
 Bad Debts (Uncollectible) 30 00 
 
 Sales Account 30,500 00 
 
 Sales, Returns and Allowances 230 00 
 
 $52,150 00 $52,150 00 
 
 In this case it is required to strike off from Plant and Machinery a 
 
 Depreciation of 5% and 15% from Tools; interest at 4% to be charged on 
 
 Partners' capital. The partners share profits and losses in proportion to 
 
 capital invested. The Inventory June 30th was $6,000.00. 
 
 TRADING ACCOUNT. 
 
 Inventory, March 1st $ 4,500 00 
 
 Purchases $11,000 00 
 
 Freight and Express 800 00 $11,800 00 $16,300 00 
 
 Wages 6,000 00 
 
 Salaries, Mfg 1,500 00 
 
 Coal and Coke 1,200 00 
 
 Sales $30,500 00 
 
 Less Returns and Allowances 230 00 80.270 00 
 
 Inventory June 30 6,000 00 
 
 Gross Profit Carried Down 11,270 00 
 
 $36,270 00 $36,270 00 
 
 PROFIT AND LOSS ACCOUNT. 
 
 Gross Profit Brought Down $11,270 00 
 
 Salaries, Clerks and Traveling $ 500 00 
 
 Water Rates and Taxes 450 00 
 
 Discounts and Allowances 600 00 
 
 Rents Received from Sub-tenants 150 00 
 
 Expenses, Repairs and Replacements 800 00 
 
 Bad Debts (Uncollectible) 30 00 
 
 Interest on X, Y and Z Capital Accounts, 1^^% on $20,000 266 66 
 
 Net Profit 8,773 34 
 
 $11,420 00 $11,420 00 
 
 SURPLUS ACCOUNT. 
 
 Net Profit Carried Down $ 8,773 34 
 
 5% Depreciation on Plant, Machinery and Tools $ 200 00 
 
 15% Depreciation on Tools 225 00 
 
 Balance to Credit of Partners' Accounts 8,348 34 
 
 $ 8,773 34 $ 8,773 34 
 93 
 
EXHIBIT OF partners' ACCOUNTS AND BALANCE SHEET. 
 
 "X" Capital Accouni. 
 
 Capital, March 1st $ 8,000 00 
 
 Interest from March 1st to June 30th 106 67 
 
 By Surplus 411925% of $8,106.67 3,339 34 
 
 $11,446 01 
 "Y" Capital Account. 
 
 Capital, March 1st $ 7,000 00 
 
 Interest from March 1st to June 30th 93 33 
 
 By Surplus 411925% of $7,093.33 ; 2,921 92 
 
 $10,015 25 
 "Z" Capital Accounts. 
 
 Capital, March 1st $ 5,000 00 
 
 Interest from March 1st to June 30th m QQ 
 
 By Surplus 411925% of $5,066.66 2,087 08 
 
 $ 7,153 74 
 
 BALANCE SHEET, JUNE 30tH. 
 
 Capital Account "X" $11,466 01 
 
 Capital Account "Y" 10,015 25 
 
 Capital Account "Z" 7,153 74 
 
 Accounts Payable 1,500 00 
 
 Land and Buildings $ 9,000 00 
 
 Plant, Machinery and Tools 3,800 00 
 
 Plant Extension Account 3,000 00 
 
 Tools 1,275 00 
 
 Accounts Receivable 5,000 00 
 
 Cash in Bank and on Hand 2,040 00 
 
 Inventory as on June 30th 6,000 00 
 
 $30,115 00 $30,115 00 
 
 TURNOVER. 
 
 Inventory March 1st $ 4,500 00 
 
 Purchases 11,000 00 
 
 Freight and Express 800 00 
 
 Wages 6,000 00 
 
 Salaries, Mfg 1.500 00 
 
 Coal and Coke 1,200 00 
 
 $25,000 00 
 Less Inventory, June 30th 6,000 00 
 
 Turnover $19,000 00 
 
 Sold for 30,270 00 
 
 Gross Profit , .$11,270 00 
 
 PERCENTAGES ON TURNOVER. 
 
 Gross Profit ($11,270 00) 59.1% 
 
 Net Profit ( 8,773 34) 46.2% 
 
 Manufacturing Expense ( 8,700 00) 45.8% 
 
 General Expense ( 2,496 %) 13. 1% 
 
 TRIAL BALANCE NO. 2. 
 
 Dr. Cr. 
 
 John J. Hodge $ 2,750 00 
 
 Capital Stock Subscribed ' 9,389 50 
 
 Capital in Arrears 298 00 
 
 Land and Buildings 15,000 00 
 
 Swift, Dodds & Co 3,900 00 
 
 Expense, General 155 28 
 
 Printing and Stationery 13 07 
 
 Petty Cash 35 
 
 Telegrams and Postage :..... 55 03 
 
 94 
 
Salaries 361 6o 
 
 Rent, Office 112 00 
 
 Expense, Office 5 06 
 
 Machinery 400 00 
 
 Interest 250 00 
 
 Interest 7 10 
 
 Accounts Payable 37 00 
 
 W. C. Sheffield 79 20 
 
 Transfer Fee 26 
 
 Cash 49 07 
 
 $16,405 96 $16,405 ^Q 
 
 The amount of authorized capital is $15,000.00, consisting of 1,500 
 
 $10 shares, 800 of which have been issued to the vendor in payment for the 
 
 property. Of the 700 shares available for subscription 555 7/10 shares 
 
 have been sold, on which a first installment of $2.50 has been received. 
 
 We show two ways of arranging the balance sheet in this case, the 
 second form being the one most generally used. 
 
 ORGANIZATION EXPENSES. 
 
 General Expense $155 28 
 
 Printing and Stationery 13 07 
 
 Telegrams and Postage 5 03 
 
 Salaries 361 00 
 
 Office Rent 112 00 
 
 Office Expense 5 06 
 
 Interest '. 7 10 
 
 $658 54 
 Less Transfer Fee « 26 
 
 Net Organization Expense $658 28 
 
 BALANCE SHEET. 
 
 Assets. Liabilities. 
 
 Capital Stock $15,000 00 
 
 Less : 144 3/10 shares Treas. Stock 1,443 00 
 
 Subscribed Capital $13,557 00 
 
 Less : Capital in arrears $ 298 00 
 
 Unpaid Subscriptions 4,167 50 $ 4,465 50 
 
 Liability to Stockholders $ 9,091 50 $ 9,091 50 
 
 John J. Hodge 2,750 00 
 
 Swift, Dodds & Co 3,900 00 
 
 W. C. Sheffield 79 20 
 
 Loan Account 250 00 
 
 Accounts Payable 37 00 
 
 Land and Buildings $15,000 00 
 
 Machinery 400 00 
 
 Cash 49 42 
 
 Organization Expense : . . 658 28 
 
 $16,107 70 $16,107 70 
 This item is a legitimate Asset, and the custom is to write off the 
 Asset gradually, about 20,% or 25% each year, charging Surplus account 
 and crediting Organization Expense. 
 
 95 
 
BALANCE SHEET. 
 
 Assets. 
 
 Capital Stock 
 
 Subscribers' Accounts $ 4,167 50 
 
 Capital in Arrears 298 00 
 
 Treasury Stock 1,443 00 
 
 John J. Hodge 
 
 Swift, Dodds & Co 
 
 W. C. Sheffield 
 
 Loan Account 
 
 Accounts Payable 
 
 Land and Buildings *. 15,000 00 
 
 Machinery 400 00 
 
 Cash 49 42 
 
 Organization Expense 658 28 
 
 $22,016 20 
 
 TRIAL BALANCE NO. 3. 
 
 Dr. 
 
 Land and Buildings .$ 5,000 00 
 
 Machinery anji Plant 8,800 00 
 
 Patterns 1 3,300 00 
 
 Inventory 9,000 00 
 
 Office Fixtures and Furniture 400 00 
 
 Tools 2,500 00 
 
 Patents 1,000 00 
 
 Accounts Receivable 10,500 00 
 
 Cash 100 00 
 
 Profit and Loss Account, January 1st, 1903 4,270 00 
 
 Capital Stock 
 
 Debenture Stock 
 
 Accounts Payable 
 
 Bank (Over Drafts) 
 
 Sales Account 
 
 Purchase Account 19,000 00 
 
 Wages, Manufacturing 11,800 00 
 
 Erecting, Fitting and Freight 2,400 00 
 
 Expense, Repairs and Maintenance 800 00 
 
 Expense, Coal, Coke, Water, Gas 450 00 
 
 Expense, Printing, Advertising, Stationery 250 00 
 
 Expense, Rent, Taxes and Insurance 260 00 
 
 Expense, Traveling and Commission 1,400 00 
 
 Expense, General 450 00 
 
 Discounts and Bad Debts, Reserve 
 
 Directors* Fees 100 00 
 
 Interest on Debentures 900 00 
 
 Interest 70 00 
 
 Law, Costs and Auditors' Fees 1,150 00 
 
 Royalties 200 00 
 
 $83,100 00 
 The following depreciation must be provided for: 
 
 From Land and Buildings 3% 
 
 Machinery and Plant 5% 
 
 Patterns ^. 10% 
 
 Patents ". 10% 
 
 Office Furniture 5% 
 
 Also establish a reserve of 6,% on accounts receivable as a provision 
 
 against discounts and bad debts. 
 
 Inventory, Jan. 1, 1904— Merchandise $9,500 00 
 
 Tools 2,300 00 
 
 96 
 
TRADING ACCOUNT. 
 
 Inventory, Jan. 1st, 1903 $ 9,000 00 
 
 Purchases $19,000 00 
 
 Erecting, Fitting and Freight 2,400 00 
 
 21,400 00 
 
 30,400 00 
 
 Wages, Manufacturing 11,800 00 
 
 Coal, Coke, Water, Gas 450 00 
 
 Royalties 200 00 
 
 Sales $40,000 00 
 
 Inventory January 1st, 1904 9,500 00 
 
 Gross Profit 6,650 00 
 
 $49,500 00 $49,500 00 
 
 PROFIT AND LOSS ACCOUNT. 
 
 Gross Profit brought down $6,650 00 
 
 Repairs and Maintenance $ 800 00 
 
 Printing, Advertising and Stationery 250 00 
 
 Rent, Taxes and Insurance 260 00 
 
 Traveling and Commission 1,400 00 
 
 General Expense 450 00 
 
 Net Profit carried down 3,490 00 
 
 $6,650 00 $6,650 00 
 
 SUBSIDIARY PROFIT AND LOSS ACCOUNT. 
 
 Net Profit brought down $3,490 00 
 
 Directors' Fees $ 100 00 
 
 Interest on Debentures 900 00 
 
 Interest 70 00 
 
 Law Costs and Auditors' Fees 150 00 
 
 Surplus for 1903. .'. 2,270 00 
 
 $3,490 00 $3,490 00 
 
 Surplus brought down $2,270 00 
 
 Depreciation on Tools $ 200 00 
 
 Depreciation on Land and Buildings 150 00 
 
 Depreciation on Machinery and Plant 440 00 
 
 Depreciation on Patterns 330 00 
 
 Depreciation on Office Furniture and Fixtures 20 00 
 
 Depreciation on Patents 100 00 
 
 Reserve for Discounts and Bad Debts, 6% of $10,500 630 00 
 
 Net surplus for 1903 ^ 400 00 
 
 $2,270 00 
 
 BALANCE SHEET. 
 
 Capital Stock 
 
 Debenture Stock 
 
 Accounts Payable 
 
 Reserve for Discounts and Bad Debts 
 
 Reserve for Depreciation on Tools 
 
 Reserve for Depreciation on Land and Buildings 
 
 Reserve for Depreciation on Machinery and Plant 
 
 Reserve for Depreciation on Patterns 
 
 Reserve for Depreciation on Office Furniture and Fixtures 
 
 Reserve for Depreciation on Patents 
 
 Bank Overdraft 
 
 Accounts Receivable $10,500 00 
 
 Cash on Hand 100 00 
 
 Land and Buildings Inventory 5,000 00 
 
 Machinery and Plant Inventory 8,800 00 
 
 Patterns Inventory 3,300 00 
 
 Office Furniture and Fixtures, Inventory 400 00 
 
 Tools Inventory , 2,500 00 
 
 Patents Inventory , 1,000 00 
 
 97 
 
 $2,270 00 
 
 $20 000 00 
 
 15,000 00 
 
 7,000 00 
 
 830 00 
 
 200 00 
 
 150 00 
 
 440 00 
 
 330 00 
 
 20 00 
 
 100 00 
 
 900 00 
 
Inventory December 31, 1904 9,500 00 
 
 Assets $41,100 00 1 
 
 Deficiency January 1, 1903 $4,270 00 
 
 Less Net Surplus for 1903 400 00 
 
 3,870 00 
 
 $44,970 00 $44,970 00 
 
 TRIAL BALANCE NO. 4. 
 
 Dr. Cr. 
 
 Accounts Payable $7,500 00 
 
 Bank Overdraft 3,000 00 
 
 Mortgage Debt 5,000 00 
 
 Capital, J. W. Davis 18,000 00 
 
 Capital, W. F. Bingham 12,000 00 
 
 Sales Act 20,500 00 
 
 Cash Sales 4,100 00 
 
 Accounts Receivable $11,500 00 
 
 Cash on Hand 50 00 
 
 Land 10,000 00 
 
 Plant and Machinery 2,500 00 
 
 Tools, Horses and Wagons 1,550 00 
 
 Inventory, March 1st, 1903 15,000 00 
 
 Purchases 18,500 00 
 
 Freight and Cartage 1,500 00 
 
 Wages, Labor 3,200 00 
 
 Salaries and Wages Office 800 00 
 
 Rates and Insurance 1,550 00 
 
 Repairs Expense 300 00 
 
 Trade Expenses 1,200 00 
 
 Discounts and Allowances 900 00 
 
 Bad Debts 200 00 
 
 Interest and Discounts 250 00 
 
 Interest on Mortgage 200 00 
 
 Salaries 900 00 
 
 $70,100 00 $70,100 00 
 In this case it is required to provide a reserve of $150 against bad 
 debts, and 3J^% on accounts receivable for anticipated cash accounts. 
 Add $205 to trade expenses for expense bills incurred, but not entered on 
 the books. The net profit to be divided between the partners in proportion 
 to investment. 
 
 Inventory, March 1, 1904 $22,600. 
 
 TRADING ACCOUNT. 
 
 Inventory, March 1, 1903 $15,000 00 
 
 Purchases $18,500 00 
 
 Freight and Cartage 1,500 00 
 
 20,000 00 
 
 $35,000 00 
 
 Wages and Labor 3,200 00 
 
 Sales Account 20,500 00 
 
 Cash Sales 4,100 00 
 
 $24,600 00 
 
 Inventory March 1st, 1904 22,600 00 
 
 Gross Profit carried down $9,000 00 
 
 $47,200 00 $47,200 00 
 
 PROFIT AND LOSS ACCOUNT. 
 
 Gross Profit brought down $9,000 00 
 
 Salaries and Wages Office $ 800 00 
 
 Rates and Insurance 1,550 00 
 
 Repairs Expense 300 00 
 
 98 
 
Trade Expenses 1,405 00 
 
 Discounts and Allowances 900 00 
 
 Bad Debts 200 00 
 
 Interest and Discounts 250 00 
 
 Net profit carried down 3,595 00 
 
 $9,000 00 $9,000 00 
 
 SURPLUS ACCOUNT. 
 
 Net profit brought down $3,595 00 
 
 Interest on Mortgage $ 200 00 
 
 Salaries 900 00 
 
 Reserve for Bad and Doubtful Accounts 150 00 
 
 Reserve for Customers' Cash Discounts 402 50 
 
 Surplus 1,942 50 
 
 $3,595 00 $3,595 00 
 
 BALANCE SHEET. 
 
 Liabilities. 
 Capital Accounts : 
 
 J. W. Davis ...$18,000 00 
 
 % of $1,942 50 Net Profit 1,165 50 
 
 $19,165 50 
 
 W. T. Bingham $12,000 00 
 
 ys of $1,942 50 Net Profit 777 00 
 
 12,777 00 
 
 Accounts Payable 7,500 00 
 
 Bank Overdraft 3,000 00 
 
 Sundry Accounts: 
 
 Reserve to Provide for Trade Expenses $ 205 00 
 
 Reserve for Bad and Doubtful Accounts 150 00 
 
 Reserve for Customers' Cash Discounts 402 50 
 
 : $ 757 50 
 
 Assets. 
 
 Lands .$10,000 00 
 
 Less Mortgage 5,000 00 
 
 $5,000 00 
 
 Plant and Machinery 2,500 00 
 
 Tools, Horses and Wagons 1,550 00 
 
 Accounts Receivable 11,500 00 
 
 Cash on Hand 50 00 
 
 Inventory March 1st, 1904 22,600 00 
 
 $43,200 00 $43,200 00 
 
 TURNOVER. 
 
 Inventory March 1, 1903 $15,000 00 
 
 Purchases $18,500 00 
 
 Freight and Cartage 1,500 00 20,000 00 
 
 $35,000 00 
 Wages and Labor 3,200 00 
 
 $38,200 00 
 
 Less Inventory March 1, 1904 22,600 00 
 
 Turnover 15,600 00 
 
 Sold for 24,600 00 
 
 Gross Profit $9,000 00 
 
 PERCENTAGES ON TURNOVER. 
 
 Gross Profit $9,000 00 57.68% 
 
 Net Profit 3,595 00 23.04% 
 
 Manufacturing Expense 3,200 00 20.51% 
 
 Selling Expense 6,305 00 40.41% 
 
 General Expense 1,652 50 10.59% 
 
 Surplus 1,942 50 12.20% 
 
 99 
 
THE SLIPj OR REVERSE POSTING SYSTEM. 
 
 (82) In using the Slip System, the sHp should be placed on the right 
 hand side of the ledger. The amount should be first posted from the book 
 of original entry to the ledger, and from the ledger to the slip. By adopt- 
 ing this method it certainly seems impossible to enter an amount on the 
 slip without having first posted it to the ledger, as the entry on the slip 
 must always be copied from the ledger. It may be that the book-keeper is 
 called away while posting, but even then, on returning to his work he 
 should look to the ledger for the amount to be entered on the slip. 
 
 There is really no way of preventing a book-keeper from making a 
 mistake of this kind, and where such errors are made no checking system 
 could possibly be efifective. Many book-keepers prove their ledgers each 
 day against the slip. A slip of paper is inserted in the ledger where post- 
 ings are made, and a recapitulation of the debit and credit postings is 
 obtained by an adding machine. Where this can be done a mistake of the 
 kind referred to would be caught the same day; but in large businesses, 
 where the posting is very heavy, this plan would occupy too much time. 
 At the end of the month, however, the total debits and credits should be 
 drawn off (provided a discrepancy is found) and agreed with the total 
 debits and credits as shown by the slips. See illustration of Balance Slip. 
 
 
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 Another objection made is that where postings are made from numer- 
 ous books (say several sales books for example) the use of separate slips 
 for each book would be objectionable. 
 
 The reason why separate slips are used for separate books is to prevent 
 the possibility of entering amounts on the slips in the wrong columns. 
 This is an error that might easily occur, and when made makes the proof 
 absolutely ineffective. We are unable to see anything objectionable in the 
 use of separate slips for each book from which postings are made, no matter 
 how numerous those books may be, nor do we see how the use of separate 
 
 100 
 
slips could in any way inconvenience the book-keeper who checks his work 
 by this method. 
 
 PERPETUAL BALANCES. 
 
 (Sj) A perpetual balance can only be obtained by means of a per- 
 petual inventory, and this must either be approximate, or what is called 
 a "book" inventory, i. e., a stock record is kept on the card system, on 
 which is debited all material or goods received, and on which is credited 
 all material used or goods sold. 
 
 This book inventory, like a cash account, only shows what the inven- 
 tory on hand should be if all entries on the stock record are correct. It does 
 not necessarily follow that the cash called for by the balance shown in the 
 cash book is on hand, or that the merchandise called for by the book inven- 
 tory is actually in our possession. In order to ascertain if we have it an 
 actual inventory must be taken. 
 
 Book inventories are extremely useful, however, because they provide 
 an effectual check on the disposition of material or merchandise by showing 
 how much should be accounted for when inventory is taken. 
 
 Stock Record. 
 
 No. or Sfze 
 
 Article 1 
 
 Section 
 
 Cost 
 
 MnxirMJlT^ 
 
 fi»ox 
 
 ^^]^)lrr\^)ir^\. 
 
 bote 
 
 RECEIPTS 
 
 beliyeries 
 
 
 lnYcr)tory 
 
 VfllUfltloi). 
 
 Frofv 
 
 Re9o'i$itio()N». 
 
 Qufli)tiry 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 - 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 One sheet should be used for each article or class of goods and 
 should be ruled to show the quantities received, quantities disbursed and 
 balance in stock. While in some cases there may be reasons why the 
 stock-keeper should not know the cost of goods, it is usually advisable to 
 include prices in these records. 
 
 Since certain items are more active than others, provision must be 
 made for unlimited expansion. For such records, cards or loose leaf 
 books are therefore the most satisfactory. 
 
 EXERCISE. 
 
 Mr. F. Robertson purchases for $315 a small stock of hardware sup- 
 plies, etc. ; he also invests $685 cash for the purpose of carrying on the 
 
 business. 
 
 101 
 
A schedule of transactions for the month of January is attached, in- 
 cluding Sales Charges ; Purchases ; Cash Receipts and Disbursements ; and 
 Journal Entries. 
 
 Required — Completed sales and purchase entries ; open ledger accounts 
 in which to record sales, purchases, and general ledger items. Submit 
 Trial Balance; Balance Sheet; Trading account; Profit and Loss account; 
 showing present worth of F. Robertson. 
 
 TRANSACTIONS FOR MONTH OF JANUARY. 
 
 SALES CHARGES. 
 
 Tonawanda Lumber & Saw Mill Co., 
 
 To 2 Gal. Paint at $1.40. 
 Ironton Land Co., 
 
 To 15 lbs. 20d Nails at 3c $0 45 
 
 20 lbs. 8d Nails at 3c 60 
 
 Bolton Carbon Mfg. Co., 
 
 To 6 sheets 20x28 Tin at 15c. 
 James Rhoney, 
 
 To 10 lbs. 8d Nails at 3c 30 
 
 5 lbs. 20d Nails at 3c 15 
 
 5 lbs. lOd Nails at 3c 15 
 
 Pioneer Planing Mill, 
 
 To 12 >4xl2 Bolts at Ic 12 
 
 2 lb. Vs Iron Washers at 5c 10 
 
 1 8" Rd. File 15 
 
 1 12" Rd. File 25 
 
 W. M. Merrill, 
 
 To 54 gal. Ker. Oil at 7c. 
 Bolton Carbon Mfg. Co., 
 
 To 34 ft. 12" Belt at $1.55, $52.70. 
 50% off. 
 
 To 1 Nail Puller 2 00 
 
 A. H. Miller, 
 
 To 50 5/16x3 Bolts 77 
 
 505/16x4 Bolts 82 
 
 Geo. Royce, 
 
 To 1 85-18 F. & W. Range 25 00 
 
 James Patton, 
 
 To 39 ft. 3" Conductor at 8c 3 12 
 
 6 ft. 2" Conductor at 7c 42 
 
 2 3" Elbows at 20c 40 
 
 4 Lts. 26x34 DT Glass $13 76 
 
 4 Lts. 36x52 DT Glass 35 00 
 
 48 76 
 
 75% off. 
 Tonawanda Lumber & Saw Mill Co., 
 
 To 2 Gal. Paint at $1.40 2 80 
 
 J^ Gal. Turpentine at 60c 30 
 
 Bolton Carbon Mfg. Co., 
 
 To 6 lbs. Solder at 20c 1 20 
 
 510 lbs. Sheet Iron at S^c 17 85 
 
 Hewett Furniture Co., 
 
 To 1 H Globe Valve 60 
 
 1 1 Globe Valve....'. 75 
 
 2 VA Globe Valve at $1.25 2 50 
 
 A. H. Miller. 
 
 To 200 ^x3 Bolts $ 4 60 
 
 500 ^x4i/^ Bolts 12 50 
 
 500 Vsxey2 Bolts 15 00 
 
 65% off. S2 10 
 
 102 
 
i 
 
 rnest Klemer, 
 
 To 2655 lbs. Sash Weights 31 86 
 
 21/3 Doz. Wrt. Butts 152 
 
 Bolton Carbon Mfg. Co., 
 
 To 36 ft. 8" Belt $36 72 
 
 169 ft. 6" Belt 128 44 
 
 165 16 
 
 50 and 10 off. 
 
 2 lbs. Empire Packing at 60c. 
 
 2 24x6x27/16 SW Pulleys $14 60 
 
 2 24x14x27/16 SW Pulleys 30 20 
 
 1 24x10x3^ SW Pulley 10 45 
 
 I 12x6x27/16 SW Pulley 3 55 
 
 40% off. 58 80 
 
 Hewett Furniture Co., 
 
 To 418 lbs. Galv. Iron 22 99 
 
 87 Hours Time 26 10 
 
 32 Hours Time 4 80 
 
 II lbs. Solder 1 65 
 
 Pioneer Planing Mill, 
 
 To 6 Doz. 8" Mill Files 6 00 
 
 100 lbs. 40d Nails 2 25 
 
 A. W. Story, 
 
 To Hot Water Heater and installing as per contract 425 00 
 
 Ahr Broy., 
 
 To 3 Gal. No. 1 Coach Varnish at $2 6 00 
 
 1 Gal. Wagon Varnish 1 75 
 
 PURCHASES. 
 
 Bought of Geo. C. Harris & Co., 
 
 4 Lts 26x34 DT Glass $13 76 
 
 4 Lts. 36x52 DT Glass 35 00 
 
 $ 48 76 
 
 Less 75-5 and 2^- 
 Bought of Kellogg & McDougal, 
 
 1 Bbl. Mach. Oil, 50 Gal, at 19c. 
 Bought of Fairbanks Co., 
 
 2 24x6x2 7/16 S. W. Pulleys $14 60 
 
 2 24x14x2 7/16 S. W. Pulleys 27 20 
 
 1 24x10x3 y^ S. W. Pulleys 10 45 
 
 1 12x6x2 7/16 S. W. Pulleys 3 55 
 
 55 80 
 
 Less 50%. 
 
 Bought of Buffalo Belting, 
 
 36 ft. 8" Belt $ 36 72 
 
 169 ft. 6" Belt 128 44 
 
 165 16 
 
 Less 50, 10 and 10%. 
 
 Bought of Star Oil Co., 
 
 3 Bbls. Ker. Oil, 154 Gal. at 6Hc. 
 Bought of Fuller & Warren Co., 
 
 1 Hot Water Heater 297 50 
 
 Bought of F. O. Pierce & Co., 
 
 10 Gal. No. 1 Coach Varnish 16 00 
 
 3 Gal. Wagon Varnish 1 50 
 
 25 Gal Paint 30 00 
 
 Less 25%. 
 
 Bought of Pittsburg Supply Co., 
 
 6 M Globe Valves $6 00 
 
 6 1 Globe Valves 7 50 
 
 6 m Globe Valves 9 00 
 
 6 \V2 Globe Valves 10 50 
 
 33 00 
 
 Less 50 and 5 off. 
 
 103 
 
Mcintosh Huntington Co. 
 
 500 ^x3 Carriage Bolts $10 25 
 
 500 Vs^S'A Carriage Bolts 11 00 
 
 500 ^x4 Carriage Bolts 11 75 
 
 600 V8K4y2 Carriage Bolts 12 50 
 
 600 ^x5 Carriage Bolts 13 25 
 
 600 Hx6^ Carriage Bolts 15 50 
 
 74 25 
 
 Less 70%. 
 
 Walbridgs & Co., 
 
 2655 lbs. Sash Weights , 29 20 
 
 988 lbs. Galv. Iron 49 40 
 
 12 Doz. 8" Mill Files 10 00 
 
 5 Kegs 40d Wire Nails, $1.75 8 75 
 
 10 Kegs lOd Wire Nails, $1.90 19 00 
 
 10 Kegs 8d Wire Nails, $2 20 00 
 
 JOURNAL ENTRIES. 
 
 Bills Receivable $200 00 
 
 To A. W. Story $200 00 
 
 Part payment of Heating Contract. 
 
 Pittsburg Supply Co 1 38 
 
 To Expense Account 1 38 
 
 Freight on Inventory, 2/11/04. 
 
 Ahr Bros 80 
 
 To A. H. Miller 80 
 
 100 9^x3 bolts charge wrong. 
 
 Expense Account 12 75 
 
 To A. H. Miller 12 75 
 
 Amt. his bill for blacksmithing. 
 
 Bills Receivable 425 00 
 
 To A. W. Story 425 00 
 
 Walbridge & Co 26 43 
 
 To Purchase Account 26 43 
 
 Mdse. Returned. 
 
 Fuller & Watten Co 97 50 
 
 To Bills Payable 97 50 
 
 Sales Account 4 75 
 
 To Bolton Carbon Mfg. Co 4 75 
 
 Mdse. Returned. 
 
 Expense Account 10 65 
 
 To Tonawanda Lumber & Saw Mill Co 10 65 
 
 Lumber for Repairs. 
 
 SCHEDULE OF CASH RECEIPTS AND DISBURSEMENTS. 
 
 January 1, Cash on Hand $685 00 
 
 Cash Receipts. 
 
 Tonawanda Lumber & Saw Mill Co $ 2 80 
 
 J. Rhoney 60 
 
 Bolton Carbon Mnfg. Co 28 35 
 
 G. Royce 25 00 
 
 Bolton Carbon Mnfg. Co 19 05 
 
 Ernest Kleiner 33 38 
 
 Hewett Furniture Co 55 54 
 
 Cash Disbursements. 
 
 G. Harris & Co $ 11 29 
 
 Fairbanks & Co 27 90 
 
 Buffalo Belting Co 66 90 
 
 Office Supplies 11 53 
 
 Labor 87 50 
 
 January 1, Inventory on Hand $315 00 
 
 February 1, Inventory on Hand $460 00 
 
 104 
 
CHAPTER XI 
 
 Complete Set of Double Entry Accounts; Opening, Operating and 
 
 Closing of Books ; Trading Accounts ; Ledgers ; Profit and 
 
 Loss Accounts; Balance Sheets; Balance Adjustments. 
 
 In this lesson is presented for the careful study of the student the prin- 
 ciples of double entry book-keeping, illustrated by the accounts of a Tea, 
 Coffee and Sugar Retail Business. 
 
 (84). In the formation of partnerships, the subjects to be considered are 
 the amount of Working Capital required, the ability of the partners to pay in 
 the Capital, the ability and temperament of the parties, the suitability of the 
 location, and the partnership agreement. It is a habit of parties forming co- 
 partnerships to fail to draw up a partnership agreement of any kind. Ex- 
 perience has taught that under all circumstances the partnership agreement 
 is desirable, as on this basis the accountant must proportion the profits or 
 losses between the partners. 
 
 ''agreement."" 
 
 "John Smith and Thomas Jones have this day formed a co-partnership 
 under the firm name of Smith & Jones for the purpose of carrying on a Re- 
 tail Tea, Coffee and Sugar Business." Each party has contributed two 
 thousand dollars in cash. 
 
 "John Smith and Thomas Jones have further agreed that each party is 
 to devote his whole time to the best interests of the business, and that thev 
 are to share equally in the Profits or Losses." 
 
 "John Smith and Thomas Jones further agree that each party is to draw 
 salary at the rate of $1,500.00 per annum." 
 
 "John Smith and Thomas Jones further agree that John Smith is to 
 conduct the store and have charge of the finances ; and that Thomas Jones 
 is to make the purchases, act as solicitor, and to have charge of the sales- 
 men." 
 
 "John Smith and Thomas Jones further agree that in the event of a 
 dispute arising as to the operation of the business, each party to this agree- 
 ment is to select one representative, the two representatives selecting a third 
 party or umpire. The three parties are to make an effort to adjust the dif- 
 ferences between the partners, and in the event of their failure to accomplish 
 this purpose, they are to place a valuation on the interest of the party ap- 
 pealing from their decision, which party, by the signing hereof, agrees to 
 surrender all right, title and interest in the assets of Smith & Jones in con- 
 sideration of the award made by the arbitrators." 
 
 105 
 
The above paragraphs recite in a general way the principles under 
 which a partnership should be formed so as to reduce the possibility of 
 dissension to a minimum. On account of the business being a new ven- 
 ture, there are no opening entries to be made except the crediting of Cash 
 to the Capital Account of the respective parties. 
 
 Having outlined in a general way the condition under which the busi- 
 ness is to be operated, we will now proceed with the entries made on the 
 books of Smith & Jones, and make the proper adjustments in order to 
 ascertain the profits of the business. 
 
 (8j). Schedule of entries made on the books of Smith & Jones from 
 January 2nd to January 13th inclusive. 
 
 1905 
 Jan. 2 Smith & Jones commence business, each party contributing $2,000.00 in Cash 
 
 Deposited in Bank. 
 
 Rent paid for January 50.00. 
 
 Purchased Horse and Wagon for 325.00 cash. 
 
 Purchased Counters, Desk, Bins, Coffee Mills. 450.00 from Henry Adams. 
 
 Received goods from Henry Wilson & Co. 15 barrels of Sugar valued at 
 
 239.88 ; 45 bags of Coffee, 750.26 ; 12 chests of tea, 163.80. 
 
 Terms: — Sugar net ten days. Coffee 1% ten days, Tea 5% ten days. 
 
 " 3 Cash Sales, Tea 12.60; Coffee 18.90; Sugar 19.65. 
 Paid for cleaning and scrubbing 3.00. 
 
 " 4 Purchased set of Harness 50.00, less 2% for spot Cash. 
 
 Cash Sales, Tea 9.50; Coffee 13.65; Sugar 23.45. 
 
 Charges to Customers :— Tea 12.25; Coffee 15.30; Sugar 28.60. 
 " 5 Smith draws 15.00. 
 
 Cash Sales, Tea 16.55; Coffee 17.80; Sugar 32.40. 
 " 6 Smith draws 10.00 ; Jones 20.00 ; Clerk hire and driver 25.00. 
 
 Cash Sales:— Tea 35.15; Coffee 39.10; Sugar 45.25. 
 
 Charges to Customers :— Tea 26.35; Coffee 30.00; Sugar 33.35. 
 
 Collections from Customers: — 45.33. 
 
 *' 8 Purchased from Jenkins & Co. :— 30 barrels of Sugar valued at 477.50 ; 100 bags 
 of Coffee $1537.50; 35 chests of Tea 350.15 :— paying $1000.00 Cash and 60 day 
 note for balance at 6%. 
 
 Cash Sales, Tea 15.30; Coffee 17.50; Sugar 12.60. 
 Charges to Customers :— Tea 25.00; Coffee 32.50; Sugar 55.00. 
 Paid 54.00 Premium for Fire Insurance on Stock and Fixtures 3000.00. 
 Policy dated Jan. 2nd, 1905. 
 
 " 9 Paid Henry Adams 250.00 on account. 
 
 Cash Sales:— Tea 23.40; Coffee 35.20; Sugar 28.35. 
 
 Charges to Customers :— Tea 45.60 ; Coffee 83.45 ; Sugar 58.00. 
 
 Collections from Customers: — 95.56. 
 
 Sold 25 sugar barrels for 4.50, 35 Coffee sacks for 2.10 and 40 lbs. of Tea lead 
 
 for 1.20— Cash. 
 " 10 Cash Sales:— Tea 12.50; Coffee 15.60; Sugar 17.30. 
 
 Charges to Customers :— Tea 35.40; Coffee 96.75; Sugar 82.00. 
 
 Charge Jenkins & Co. with 42.55 being the allowance made by them for damaged 
 
 goods as follows :— Sugar 18.75; Coffee 10.30; Tea 13.50. 
 
 106 
 
11 Paid for scrubbing and removing rubbish 3.00. 
 Postage 5.00 ; Advertising 35.00. 
 
 Cash Sales:— Tea 11.35; Coffee 46.75; Sugar 33.25. 
 
 12 Paid Henry Wilson & Co. 1138.25 in settlement of their invoice of the 2nd. 
 Cash Sales:— Tea 15.10; Coffee 26.25; Sugar 18.75. 
 
 Charges to Customers: — Tea 45.90; Coffee 97.50; Sugar 55.00. 
 Collections from Customers : — 198.75. 
 
 13 Smith draws 25.00; Jones 30.00; clerk hire, driver, and extra wagon 55.00. 
 
 (86) 
 
 CHARGE TO CUSTOMERS. 
 
 n 
 
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 (8/). The form of invoice shown in Figure No. 1 is made in dupli- 
 cate by the use of carbon paper, the original being removed and sent to 
 the customer with the goods. The original invoices are perforated and 
 numbered consecutively, the duplicate being the sales record and bearing 
 the same number as the original. About fifty originals and fifty dupli== 
 cates make a nice size book. Postings are made from the total column 
 of the duplicate to customers' accounts. The details of the Tea, Coffee, 
 Sugar and total columns are forwarded from one duplicate to the other 
 until the end of the month so that the figures can be made up for the 
 recapitulation sheet shown in figure No. 3. 
 
 The figures in the invoice book are carried forward from day to day 
 until the end of the month, when the amount of the total column should 
 agree with the total of the charges column of the recapitulation sheet. In 
 order to find the detail of sales for any one day, the total at the end of 
 that day can be deducted from the totals of the day previous. 
 
 ,^ (88) customers' ledgers. 
 
 W There are three kinds of records suitable for a customers' ledger, bound 
 ledger, loose-leaf ledger and ledger cards. For various reasons, the prin- 
 cipal of which is the nature of the accounts, we prefer cards for the recording 
 
 107 
 
of these accounts as shown in figue No. 2. A Trial Balance of these cards 
 should be made each month, which balance should agree with that shown 
 by the Customers' Accounts Receivable Controlling Account in the General 
 Ledger. 
 
 JohnOtevensort 3q7 )YooJwarJ Ave. 
 
 Ml 
 
 Invoice No. 
 
 
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 Cr 
 
 
 
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 J^i) 
 
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 61-1 
 
 
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 — 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 One advantage in the use of ledger cards, is that when an account is 
 closed the card can be removed from the active accounts and placed in a 
 separate drawer. To facilitate posting the cards should be kept in alphabet- 
 ical order. Under no circumstances should the ledger cards be used as a 
 list for circularizing, etc. The proper scheme would be to have a separate 
 card index giving the names of all the parties with whom you desire to do 
 business. The card should be suitably ruled so that proper notations can be 
 made as to letters and circulars mailed, calls from salesmen, etc. 
 
 (PO), ' RECAPITULATION OF SALES. 
 
 The total charges each day, as shown by the sales record, should be 
 entered in the charge column and pencil figures made in the Tea, Coflfee and 
 Sugar Columns so that when the total cash sales are recorded in the cash 
 column, the detail of that total can be added to the pencil figures or entered 
 
 
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 Fig. 4. 
 
 109 
 
in the Tea, Coffee and Sugar Columns, thus arriving at the total Tea, Cof- 
 fee and Sugar Sales for the day. The total column of the recapitulation 
 sheet equals the sum of the cash and charges columns, as also total of the 
 figures shown in the Tea, Coffee and Sugar Columns. This record will be 
 found to be an excellent check on the accuracy of the sales sheets, and will 
 prove a valuable statistical record. 
 
 (Pl). CASH BOOK. 
 
 The details of the transactions already outlined affecting cash, are en- 
 tered in the cash book, as shown in figure No. 4. The only explanation that 
 appears to be necessary is that the receipts for the day, minus the expense 
 paid out, were deposited the following day, which entry appears in the bank 
 column on the debit side of the cash book. No other explanation is neces- 
 sary as the Ledger Folios are marked on the cash book and each entry can 
 be traced to its proper account. Only the total of the accounts having spe- 
 cial columns in the cash book are posted. 
 
 (p2), JOURNAL. 
 
 The journal entries above the first fotings, as shown in figure No. 5, are 
 those made up to the point of forming the new partnership. The subse- 
 quent entries are those connected with the adjustment, which will be taken 
 up later and thoroughly explained. 
 
 Porct)oseJ 
 
 Cerjemi 
 
 [T 
 
 
 Jourf)<nl 
 
 L. 
 
 Gcr>e 
 
 ra\ 
 
 1 ReTopr»*.ir)c'Anowiioce«. | 
 
 Tc. 
 
 Coffee H Su^flr 
 
 Lcdfer j|r. 
 
 U^^er 
 
 1 5u6tir 
 
 Coffee 
 
 1 Teci I 
 
 
 
 
 
 
 
 If 5c. 
 
 00 
 
 \ 
 
 -^c\y% 
 
 Furnirvte andn^rurei 
 
 
 
 1 ^ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 To Her)rytnd(iP\i 
 
 1 
 
 if'yp 
 
 00 
 
 
 
 
 
 
 
 \^:> 
 
 (>o 
 
 7.'50 
 
 1<P 
 
 :.,^<1 
 
 56 
 
 
 
 y 
 
 1 2. 
 
 :5ijndr!es ' ' 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 To Henrsj Wllion-^Co. 
 
 1 
 
 ii-S^. 
 
 '\h 
 
 
 
 
 
 
 
 ^50 
 
 15 
 
 i?^7 
 
 50 
 
 477 
 
 50 
 
 
 
 
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 dvndn'es ' ^ ^ 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ToJeriffini-'-Co. 
 
 1 
 
 ?'>lo'5 
 
 i-S 
 
 
 
 
 
 
 
 
 
 
 
 
 
 I.%? 
 
 15 
 
 1 
 
 ,. 6 
 
 JenKini *-Co. '' 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 1 
 
 I'.i.'i 
 
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 l^ 
 
 
 V 
 
 
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 I 
 
 \Qo 
 
 
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 '' 
 
 
 
 
 
 
 
 
 
 
 
 H Coffee Sales 
 
 a 
 
 .'>h 
 
 5o 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 1 
 
 31 1 
 
 
 
 
 
 
 
 
 
 > 
 
 
 — 
 
 
 
 
 — 
 
 
 
 ToTai CharaesfroiT^Scilei OootfJao. 
 
 m 
 
 75 a 
 
 /J 
 
 
 
 
 
 
 _ 
 
 ADJUSTMENT ENTRIES. 
 
 I 115 38 
 
 81 23 
 
 2 80 
 
 L. F. 
 
 
 
 
 
 L. F. 
 
 
 19 
 
 Jan. 
 
 13 
 
 Wages. 
 
 To Smith, Drawing Acct, 
 To Jones, Drawing Acct, 
 
 
 2 
 
 4 
 
 $ 57 69 
 57 69 
 
 28 
 
 Jan. 
 
 13 
 
 Adjustment Acct. 
 To Unexp. Rent., 
 To Unexp. Ins. 
 
 
 18 
 21 
 
 29 03 
 52 20 
 
 20 
 
 Jan. 
 
 13 
 
 Misc. Expense. 
 
 To Adjustment Acct., 
 Int. on B/P., 
 Storage, 
 
 $1 14 
 
 1 m 
 
 28 
 
 2 80 
 
 110 
 

 
 
 
 CLOSING ENTRIES. 
 
 
 
 $2,326 25 
 
 27 
 
 Jan. 
 
 13 
 
 Inventory Acct. 
 To Trading Acct., 
 
 16 
 
 $2,326 25 
 
 3,476 54 
 
 16 
 
 Jan. 
 
 13 
 
 Trading Acct. 
 
 To Tea Purchases, 
 To Coffee Purchases, 
 To Sugar Purchases, 
 
 13 
 14 
 15 
 
 500 45 
 
 2,277 46 
 
 698 63 
 
 341 95 
 
 22 
 
 Jan. 
 
 13 
 
 Tea Sales. 
 
 
 
 586 25 
 
 23 
 
 Jan. 
 
 13 
 
 Coffee Sales. 
 
 
 
 542 95 
 
 24 
 
 Jan. 
 
 13 
 
 Sugar Sales. 
 
 
 
 7 80 
 
 25 
 
 Jan. 
 
 13 
 
 Misc. Receipts. 
 
 To Trading Acct., 
 
 16 
 
 1,478 95 
 
 328 66 
 
 16 
 
 Jan. 
 
 13 
 
 Trading Acct. 
 
 To Profit and Loss, 
 
 17 
 
 328 66 
 
 266 95 
 
 17 
 
 Jan. 
 
 13 
 
 Profit and Loss. 
 To Rent, 
 To Wages, 
 To Misc. Expenses, 
 To Insurance, 
 
 18 
 19 
 20 
 21 
 
 20 97 
 
 195 38 
 
 48 80 
 
 1 80 
 
 16 69 
 
 26 
 
 Jan. 
 
 13 
 
 Discount. 
 
 To Profit and Loss, 
 
 17 
 
 16 69 
 
 78 40 
 
 17 
 
 Jan. 
 
 14 
 
 Profit and Loss. 
 
 To Smith, Drawing Acct., 
 To Jones, Drawing Acct., 
 
 2 
 4 
 
 39 20 
 89 20 
 
 (p^), GENERAL LEDGER. 
 
 The General Ledger can be either a bound book or on the loose-leaf 
 plan. The illustration of the accounts contained in this lesson are made 
 upon loose-leaf ledger sheets. The loose-leaf ledger is preferable because 
 the accounts can be continued in the same location indefinitely and at the 
 same time admit of an expansion not possible with a bound book. We do 
 not approve of cards being used for the keeping of general ledger accounts 
 as the entries to this ledger are so few that there is no labor saved. 
 
 The rotation of accounts in the general ledger should conform to the 
 following arrangement as nearly as possible : 
 
 1 — Liabilities. 
 2 — Assets. 
 
 3 — Purchase Accounts. . < 
 
 4 — Expense Accounts. 
 5 — Sales Accounts & Misc. receipts. 
 
 6 — Any Personal Accounts other than Customers or Creditors 
 Accounts. 
 
 It would be well for the student to remember the above classification 
 in opening commercial accounts. Long experience has proven the above 
 arrangement to be very satisfactory, so much so, that it is considered stand- 
 ard and is used by the greater majority of public accountants. 
 
 After posting the entries from the cash book and journal to the ledger 
 accounts, we now proceed to take a trial balance in order to prove the mathe- 
 matical accuracy of the work before making the adjustments. This trial 
 balance is shown in Figure 6 in the first and second columns immediately 
 following the title of the accounts. The inventories and a memorandum, of 
 
 111 
 
the adjustments to be made are shown beneath the trial balance as a matter 
 of convenience. 
 
 TRIAL BALANCE AS OF JAN. 13, 1905. 
 Smith & Jones Dr. Cr. 
 
 Smith, Capital Account $2,000 00 
 
 Smith, Drawing Account $ 50 00 
 
 Jones, Capital Account 2,000 00 
 
 Jones, Drawing Account 50 00 
 
 Bills Payable 1,365 15 
 
 Henry Adams 200 00 
 
 Jenkins & Co 42 55 
 
 Furniture and Fixtures 450 00 
 
 Horse and Wagon 375 00 
 
 Customers' Accounts Receivable 518 31 
 
 Cash 1,868 39 
 
 Tea Purchases 500 45 
 
 Coffee Purchases 2,277 46 
 
 Sugar Purchases 698 63 
 
 Rent 50 00 
 
 Wages 80 00 
 
 Misc. Expense 46 00 
 
 Fire Insurance 54 00 
 
 Tea Sales 341 95 
 
 Coffee Sales 586 25 
 
 Sugar Sales 542 95 
 
 Misc. Receipts 7 80 
 
 Discount 16 69 
 
 Adjustment Account 
 
 Trial Balances after 
 Adjustments are made 
 
 Dr. 
 
 $ 42 55 
 
 450 00 
 
 375 00 
 
 518 31 
 
 1,868 39 
 
 500 45 
 
 2,277 46 
 
 698 63 
 
 20 97 
 
 195 38 
 
 48 80 
 
 1 80 
 
 78 43 
 
 Cr. 
 
 $2,000 00 
 
 7 69 
 
 2,000 00 
 
 7 69 
 
 1,365 15 
 
 200 00 
 
 341 95 
 
 686 25 
 
 542 95 
 
 7 80 
 
 16 69 
 
 $7,076 17 $7,076 17 
 
 $7,060 79 $7,060 79 
 
 INVENTORIES AND ADJUSTMENTS. 
 
 Tea Inventory $ 263 75 
 
 Coffee Inventory 1,860 15 
 
 Sugar Inventory 202 35 
 
 ADJUSTMENTS. 
 
 Unexpired Rent. 
 
 Partners' Drawing Account. 
 
 Interest on Bills Payable. 
 
 Unexpired Insurance. 
 
 Storage on 100 bags of Coffee, 5 days at 10c per bag per month. 
 
 (P4)» The form of the General Ledger leaf shown in this lesson is what is 
 known as the Balance Ledger. It has at all times been found useful to show 
 the balance of a ledger account at frequent intervals, so that it has now be- 
 come quite customary to provide a special column for the purpose. 
 
 The provision of balance columns also does away with the old-fashioned 
 method of ruling off accounts each month and bringing down the balances, 
 which absorbs, or wastes a great deal of valuable time, interferes with the 
 convenient checking off of bills paid, and increases the possibility of error. 
 The monthly ruling off of nominal, or representative accounts is especially 
 to be discouraged, as it is absolutely essential for the convenient preparation 
 of comparative statistics that the totals of debits and credits of these ac- 
 counts be obtainable at any time. 
 
 The separate balance column is also a great improvement on that other 
 
 112 
 
old-fashioned plan of disfiguring the ledger pages with balances written in 
 pencil. 
 
 5!)e€L2 
 
 
 
 
 
 
 
 
 
 
 
 
 Acco>5r\t N 
 
 o.&Slt- 
 
 
 M<nn\e. 
 
 (jjn//an\UohnsondSor,s 
 
 
 \Adress '^^ ^ Ne\v YorK 
 
 
 
 ^'fr'< 
 
 li)voKeNo. 
 
 foU^ 
 
 be bits 
 
 l^al(i()ce 1 
 
 CrecliTs 1 
 
 Folio 
 
 i)^fe 
 
 _ 
 
 
 Jan 
 
 Ho 
 
 J2t^ 
 
 
 ^35 
 
 00 
 
 
 
 Joo 
 
 oo 
 
 CXI 
 
 .^7/7. 
 
 2i 
 
 ^-\ 
 
 
 2U 
 
 31.75 
 
 
 6(5/ 
 
 25 
 
 
 
 t>5 
 
 00 
 
 Jll 
 
 
 < 
 
 2>V- 
 
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 5oo 
 
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 CZ5 
 
 
 
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 Feb. 
 
 11 
 
 U^jl 
 
 
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 367 
 
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 In entering the difference between debits and credits in the balance col- 
 umn, *'Dr." or "Cr." need not be noted in front of the amount of the balance, 
 where the balance of the account is obviously a debit or a credit. Account 
 No. 2 gives a good illustration of the point just mentioned. 
 
 Invariably a Partner's Drawing Account will show a debit balance, but 
 on account of the circumstances outlined in the lesson, this account at the 
 time of closing the books shows a credit balance, consequently "Cr." is noted 
 in front of the figure entered in the balance column. No "Dr." or "Cr." no- 
 tation is necessary for Customers' Accounts Recivable or Cash Account, as 
 these accounts invariably show a debit balance. 
 
 In order that the method of making the entries in a balance ledger may 
 be more clearly understood, we give an illustration of the account with Wm. 
 Johnson & Sons. On the 31st of January the balance of the account is 
 $251.25, which amount is entered in the balance column opposite the last 
 entry for the month. This procedure is followed whether the balance is a 
 debit or credit, no matter how many lines are skipped on either side of the 
 account. One line is skipped before commencing the entries for the follow- 
 ing month. This feature virtually compels sectionalization of the work and 
 admits of localizing errors in much less time than formerly required by the 
 old method, by which items were posted beneath each other without regard 
 to keeping the entries of each month in separate blocks or sections. 
 
 ADJUSTMENT ENTRIES. 
 
 (95)' Wages account is charged and the drawing account of Smith & 
 Jones credited with two weeks' salary for each party. In the regular course 
 of business these entries should be made once each month, one-twelfth of the 
 annual salary being credited to each party. 
 
 Full value for the expenditures on account of Rent and Insurance not 
 having been received, it is necessary to consider the unexpired portion of 
 
 113 
 
these accounts as an asset. At the time of adjustment the Rent was paid 
 in advance for eighteen days, and the Insurance for eleven and five-sixth 
 months. Adjustment Account is debited with the sum of these two items 
 as shown in the journal entry and the respective accounts credited. The re- 
 sult of this operation is that only the balance of the accounts affected will 
 be carried to Profit & Loss instead of the whole amount if the adjustment 
 were not miade. 
 
 There are two items in the nature of liabilities requiring adjustment, 
 viz., five days' interest on Bills Payable, and storage on the coffee in the 
 warehouse. Miscellaneous expense is charged and adjustment account 
 credited with the sum of these two items as shown in the journal entry under 
 the heading adjustment entries. 
 
 The balance shown by the adjustment account represents the differ- 
 ence between the debits and credits posted to this account. The adjust- 
 ment entries are reversed after the books are closed, which process closes the 
 adjustment account and distributes the items to their respective accounts. 
 
 TRIAL BALANCE. 
 
 After the adjustment entries are posted a trial balance is taken, the Re- 
 sult being the figures shown in columns 3 and 4 of Figure 6. It is very 
 necessary that a trial balance be taken before closing the books in order to 
 prove that the work is in balance up to that point. 
 (p6) <:losing entries. 
 
 The inventories are cIoSeH into trading account, inventory account 
 being charged as shown in the first entry. There are two methods of en- 
 tering inventories on the books, one being to charge inventory account and 
 credit the respective purchase accounts. The second method is the one used 
 in the lesson, and for the present we prefer that the student use this method. 
 
 Trading Account is now debited and the respective purchase accounts 
 credited with the net amount of the purchases for the period. This is illus- 
 trated in the second entry. 
 
 The respective sales accounts, together with miscellaneous receipts 
 properly entering into trading, are now transferred to trading account as 
 shown in the third entry. 
 
 The balance of trading account now shows either the trading profit or 
 trading loss for the period under review. We find that the operations have 
 resulted in a gross profit of $328.66, which amount is charged to trading ac- 
 count and credited to profit and loss. 
 
 The cost of operating the business is now charged to profit and loss, 
 the respective accounts being credited as shown in the fifth entry. Discount 
 has been deducted from remittances sent to creditors to the extent of $16.69. 
 This amount is transferred to Profit & Loss discount being debited, and 
 
 114 
 
{97 
 
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 b^nte 1 
 
 
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 115 
 
Profit & Loss credited. Had any discount been allowed to coustomers the 
 entry would be the reverse of the one just mentioned. 
 
 All items entering into the Trading and Profit & Loss Account having 
 been considered, the balance of Profit & Loss account now represents either 
 a profit or a loss. The balance of this account appears as a credit and is 
 consequently a profit. Under ordinary circumstances this profit would be 
 transferred equitably to the credit of the Capital Account of the respective 
 partners, or to a Surplus Account. However, as the books are being closed 
 for the purpose of taking in a new partner, this arrangement could not be 
 carried out, and at the same time preserve the equilibrium between the capi- 
 tal accounts of the respective partners. For this reason the profit from the 
 operation of the business has been divided between Smith & Jones, one-half 
 of the profit being credited to the Drawing Account of each partner. 
 
 THE MAKING OF STATEMENTS FOR THE PROPRIETOR. 
 
 The true value of a book-keeper to the employer is best demonstrated 
 in the ability to give accurate reports showing the operations and condition 
 of the business whenever this information is desired. Much skill and in- 
 genuity is required where the business is of a complex nature and the de- 
 tails not properly recorded. It is of vital importance that records be kept 
 that will give full particulars in a clear and concise manner so that the sta- 
 tistical value will not be lost, and it is for the purpose of developing the con- 
 structive ability of the student that the exercises in connection with this les- 
 son have been made up. 
 
 In studying the statements which we are about to present, the student 
 should first place himself in the position of an intended purchaser of the 
 business and ask himself the same questions he would require the party to 
 answer. The first question would be: What is the volume of the busi- 
 ness? This is quickly answered by reference to the recapitulation of sales 
 shown in Figure No. 3. The next question is. What are the expenses? The 
 ledger accounts show at once the operating expense. How much credit 
 business do you carry on, and how do the customers pay? This informa- 
 tion is hown by the customers' accounts receivable controlling in the general 
 ledger. The amount of the purchases is shown in the respective purchase 
 accounts. In purchasing a business the feature most interesting to the pur- 
 chaser is: How much capital is invested in the business? What are the 
 profits ? 
 
 STATEMENTS TAKEN FROM THE BOOKS OF SMITH & JONES, AS OF JAN. I4TH, I905. 
 
 TRADING ACCOUNT. 
 
 (98). Tea. 
 
 Purchases $ 500'.45 Sales $ 341.95 
 
 Profit 106.45 Misc. Receipts 1.20 
 
 Inventory 263.75 
 
 $ 606.90 
 
 ^ t $ 606.90 
 
 116 
 
General Ledger 
 
 b^re 1 
 
 roiio 
 
 bebitb 
 
 15^|<ni)ce 
 
 Credits 
 
 Folio 
 
 
 ^a\i 
 
 iqo5 
 
 
 
 
 
 \-ff' 
 
 e /^x* 
 
 'chhses 
 
 
 
 
 1^05' 
 
 
 J^n\ 
 
 
 J 
 
 1 
 
 22&7 
 
 ^A 
 
 
 
 10 
 
 30 
 
 J-l 
 
 Returns -^^Ihnancei 
 
 Jany 
 
 
 
 
 
 
 
 
 
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 2277 
 
 4t, 
 
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 117 
 
Coifee. 
 
 Purchases $2,277.46 Sales , .....$ 586.25 
 
 Profit 171.04 Misc. Receipts 2.10 
 
 Inventory 1,860.15 
 
 $2,448.50 
 
 $2,448.50 
 
 Sugar. 
 
 Purchases $ 698.63 Sales $ 542.95 
 
 Profit 51.17 Misc. Receipts 4.50 
 
 Inventory 202.35 
 
 $ 749.80 
 
 $ 749.80 
 
 (99). PROFIT AND LOSS ACCOUNT. 
 
 Rent $ 20.97 Trading Profit on Tea $ 106.45 
 
 Wages 195.38 Trading Profit on Coffee 171.04 
 
 Misc. Expense 48.80 Trading Profit on Sugar 51.17 
 
 Insurance 1.80 Discount 16.69 
 
 Surplus 78.40 
 
 $ 345.35 
 
 $ 345.35 
 
 (100). BALANCE SHEET. 
 
 Furniture and Fixtures $ 450.00 Smith, Capital Account .$2,000.00 
 
 Horse and Wagon 375.00 Jones, Capital Account 2,000.00 
 
 Unexpired Rent and Insurance 81.23 Bills Payable 1,365.15 
 
 Customers' Accounts Receivable.. 518.31 Henry Adams 200.00 
 
 Jenkins & Co 42.55 Smith, Drawing Account 46.89 
 
 Inventories 2,326.25 Jones, Drawing Account 46.89 
 
 Cash 1,868.39 Interest and Storage Accrued 2.80 
 
 $5,661.73 $5,661.73 
 
 In view of the explanations already given, the only accounts requiring 
 a review are the Tea, Coffee and Sugar Trading Accounts. These accounts 
 are debited with the purchases and credited with the sales, the amount re- 
 ceived from the sale of empty packages and the inventory. The balance, as 
 shown, represents a profit in each case, which profit is carried to Profit & 
 Loss Account. The Profit & Loss Account requires no further explanation. 
 The balance sheet is virtually a trial balance of the books after all nominal 
 accounts are closed and the adjustment entries reversed as already referred 
 to. 
 
 A careful study of the ledger accounts in connection with the books from 
 which the postings are made will give the student valuable information as 
 to the correct method of keeping a set of double entry books so that they 
 will show the true condition of the business. 
 
 EXERQSES 
 
 Henry Davis and William Johnson have this day (Oct. 1, 1904), formed 
 a co-partnership under the name of Davis & Johnson, for the purpose of con- 
 ducting a Wholesale and Retail Coal business. 
 
 Henry Davis has contributed cash $10,000.00. William Johnson turned 
 over to the new concern a piece of land with wharfage facilities and switches 
 
 118 
 
valued at $7,500 and $2,500 cash. Each party is to share equally in the 
 
 profits or losses arising from the operation of the business. 
 
 Oct. 2— Purchased 2 wagons, $600 ; 4 horses, $800 ; harness, $250, for Cash. 
 
 Oct. 3 — Purchased a one-sixth interest in the Hamilton Mine, giving Cash 
 $5,000, and note at 60 days for $10,000 with interest at 4^^%. In 
 consideration of our becoming stockholders, we are to get a dis- 
 count of 5% off the net price of purchases in excess of $5,000.00 
 per month. 
 The other transactions for the three months ended Dec. 31, 1904, were 
 
 as follows : 
 
 Purchases from Hamilton Mine $18,000.00 
 
 Purchases from Century Mine 8,000.00 
 
 Sales Wholesale Ledger (Less frt.) 23,475.00 
 
 Sales Retail Ledger 7,025.00 
 
 Sales Retail from yard for Cash 695.00 
 
 Paid Hamilton Mine on account in Cash 14,100.00 
 
 Paid Century Mine 7,200.00 
 
 Received Cash from Wholesale Customers 20,300.00 
 
 Received from Wholesale Customers freight vouchers to be 
 charged against Hamilton Mine on account of freight 
 
 charges exceeding guaranteed rate , 865.00 
 
 Received Cash from Retail Customers 4,850.00 
 
 Allowed discount to Wholesale Customers 266.00 
 
 Allowed discount to Retail Customers 84.50 
 
 Feed 200.00 
 
 Stable Expense 55.00 
 
 Drivers 150.00 
 
 Yard Men 460.00 
 
 Salaries of Partners 900.00 
 
 Salaries of Office Help 600.00 
 
 Office Expenses 52.00 
 
 Furniture and Fixtures 305.00 
 
 Bins, Screens and Scale for Yard 1,500.00 
 
 Dec. 1st, Henry Davis loans the business $5,000 — in cash for 60 days at 6%. 
 
 Anthracite Inventory Dec. 31, 1904 $ 1,835.00 
 
 Bituminous Inventory Dec. 31, 1904 650.00 
 
 The purchases were divided as follows: — 
 
 From Hamilton Mine, Anthracite $12,350.00 
 
 From Hamilton Mine, Bituminous 5,650.00 
 
 From Century Mine, Anthracite 3,300.00 
 
 From Century Mine, Bituminous 4,700.00 
 
 The Sales tickets show the following distributions: — 
 
 Anthracite $17,960.00 
 
 Bituminous 13,235.00 
 
 1. See Th. M. par. 163 and 503. Make opening entries on the books 
 of Davis & Johnson. 
 
 2. Make such further Journal entries as you deem necessary to show 
 the transactions, other than Cash, on the books. Making Closing entries. 
 
 3. Draw a form of Purchase Book dividing the purchases into Bitum- 
 inous and Anthracite, also showing a maturity record similar to the illus- 
 tration contained in Th. M. par. 150. 
 
 4. Draw a form of Invoice Record and Sales book combined, dividing 
 the sales into Bituminous and Anthracite. 
 
 5. See Th. M. par. 326. Make up Cash Account, drawing such col- 
 
 119 
 
umns as you think necessary to provide for the receipts and disbursements. 
 All receipts are deposited and all expenditures made by checks. Provide 
 columns in Cash Book for keeping a record of the Bank account. 
 
 6. Show Trial Balance taken from the books after the Journal and 
 Cash Book entries are posted. It is not necessary to send in the ledger ac- 
 counts themselves ; the Trial Baalnce will be sufficient. 
 
 7. See Th. M. par. 345. Make up separate Trading Accounts showing 
 the Gross Profit on Anthracite and on Bituminous Coal, carrying the result 
 to a General Trading Account. 
 
 8. Charge General Trading Account with such expenses as were in- 
 curred in handling and delivering the coal. Carry the result to Profit & 
 Loss. 
 
 9. Charge Profit & Loss with the general and executive expense. 
 Close Profit & Loss Account by transferring the net result to the part- 
 ners' Capital Account. 
 
 10. Prepare Balance Sheet. 
 
 120 
 
CHAPTER XII 
 
 Opening and Closing Entries ; Treatment of Good-will ; 
 Anticipated Discounts 
 
 It would be impossible to present anything more instructive and 
 practically useful than the solving of actual business problems connected 
 with the opening and closing of books of account. 
 
 In a recent number of The Business Man's Magazine, we propounded 
 a problem which involved the change of books of account (with opening 
 and closing entries) from a single proprietorship to a partnership, and from 
 the partnership to a corporation. This problem also included the prepara- 
 tion of Balance Sheets, Trading, and Profit and Loss accounts as at the 
 dates of the business changes. 
 
 The interest aroused by this problem was very great, and the Competi- 
 tion Editor was literally snowed under with solutions, many of which were 
 of great merit and very fully covered all the necessary points. 
 
 For the benefit of students of this Course, we now reproduce the 
 problem as originally stated, and two of the best solutions received, and 
 recommend that close attention be given to them and that they be pre- 
 served as a guide for reference in case similar problems may arise in the 
 student's own business experience. 
 
 (lOl) THE CASE OF MR. MONTGOMERY CURTIS. 
 
 When Mr. Montgomery Curtis decided to become his own master and 
 engage in business for himself the first matter to take into consideration 
 was the question of capital. Fortunately, he was well and favorably known 
 among the business men of his city, and when Mr. Samuel Peterson refused 
 to give him an interest in the business Mr. Montgomery Curtis had done so 
 much to establish, the fact elicited a considerable amount of unfavorable 
 criticism on the employer and sympathy for the employe. Consequently 
 Mr. Montgomery Curtis found little difficulty in borrowing $10,000, with 
 which amount he established a small factory and proceeded to organize a 
 business in competition with that of his recent employer. In this under- 
 taking he was remarkably successful, and at the close of the first year made 
 the following inventory of his financial condition : 
 
 121 
 
Bills Payable, $4,000 ($6,000 paid off loan) 
 
 Accounts Payable , $ 6,574 50 
 
 Cash 1,752 50 
 
 Accounts Receivable 12,694 18 
 
 Inventory 4,765 90 
 
 Salaries 3,500 00 
 
 Sundry Expenditures 435 50 
 
 Manufacturing Expenses *11,759 50 
 
 (*In this account is included everything pertaining to cost of produc- 
 tion except purchases of raw material.) 
 
 During this first year Mr. Montgomery Curtis kept his own books. 
 He did not, however, attempt to keep them by double entry. His sales 
 book, however, showed that the amount of sales for the year was $35,643.25, 
 while from the invoices it was ascertained that the total purchases amount- 
 ed to $16,076.07. 
 
 The enterprise having been so remarkably successful, Mr. Montgomery 
 Curtis now made arrangements for the admission of a partner, a Mr. C. W. 
 Pacy. Pack contributed $10,000 to the partnership, and it was agreed that 
 the partners should share equally in all profits or losses. 
 
 It was also decided to employ a book-keeper, and have the books kept 
 hereafter by double entry. 
 
 From the particulars given, make a trial balance and submit the neces- 
 sary journal entries to complete the double entry principle. 
 
 Ascertain interest of Mr. Montgomery Curtis in the business and credit 
 him with same. 
 
 At the close of the second year the business of Curtis & Pacy had 
 largely increased ; in fact to such an extent that additional working capital 
 was found to be absolutely indispensable. The balance sheet, trading and 
 profit and loss accounts of the partnership were as follows : 
 
 ASSETS. BALANCE SHEET. LIABILITIES. 
 
 $ 3,505 00 Cash, 
 20,962 15 Accounts Receivable, 
 7,852 60 Inventories, 
 
 Accounts Payable, $ 8,750 00 
 
 M. Curtis' Investment Account, 8,638 08 
 
 C. W. Pacy's Investment Account, 10,000 00 
 
 Surplus, • 4,931 67 
 
 $32,319 75 $32,319 75 
 
 DR. TRADING ACCOUNT. CR. 
 
 $ 4,765 90 Inventory, Jan. 1st, 
 27,485 00 Purchases, 
 18,650 00 Manufacturing Expense, 
 
 Sales, $52,769 47 
 
 Inventory, Dec. 31st, 7,852 60 
 
 9,721 17 Gross Profit, 
 
 $60,622 07 $60,622 07 
 
 DR. PROFIT AND LOSS ACCOUNT. CR. 
 
 Gross Profit brought down, $9,721 17 
 
 $ 4,000 00 Salaries, 
 
 789 50 Sundrv Expenses, 
 4,931 67 Net Profit, 
 
 $ 9,721 17 $ 9,721 17 
 
 i 
 1 9.9! h 
 
It is now decided to incorporate for $50,000, the partners taking stock in 
 accordance with their respective interests in the partnership, a Mr. C. H. 
 Vaughan subscribes for $10,000 of stock, and Mrs. Pacy for $5,000. Stock 
 to the amount of $500 each (50 shares) is donated to the following employes 
 in recognition of valuable services : 
 
 A. D. Speedie, 
 
 W. F. Cunningham, 
 
 J. H. Gorke. 
 
 The good will of the business is valued at $2,500. 
 
 J. R. Daines, a traveling salesman, has a credit on the books amounting 
 to $300 and he agrees to accept stock in settlement of same. 
 
 Make the necessary closing entries on the partnership books, and open- 
 ing entries on the books of the new corporation. 
 
 (102) FIRST SOLUTION. 
 
 Journal Entries to change books of Montgomery Curtis from single to double entry : 
 
 Raw Material Purchases, $16,076 07 
 
 To Accounts Payable and Cash (already 
 
 posted), $16,076 07 
 
 (Above taken from invoices on file, 
 paid and unpaid.) 
 Accounts Receivable and Cash (already 
 
 posted), $35,643 25 
 
 To Sales Manufactured Material, 36,643 25 
 
 (Represented by total footings of Sales 
 Book.) 
 
 TRIAL BALANCE. 
 
 $16,076 07 Raw Material Purchases, 
 
 Sales Manufactured Material, $35,643 25 
 
 Bills Payable, 4,000 00 
 
 Accounts Payable, 6,574 50 
 
 $10,000 00 
 $56,217 75 
 
 11,752 50 
 
 Cash, 
 
 12,694 18 
 
 Accounts Receivable, 
 
 3,500 00 
 
 Salaries, 
 
 435 50 
 
 Sundry Expenses, 
 
 11,759 50 
 
 Manufacturing Expense, 
 
 
 C. W. Pacy, Investment, 
 
 $56,217 75 
 
 
 
 RALANCE SHEET. 
 
 $ 4,765 90 
 
 Inventory, 
 
 11,752 50 
 
 Cash, 
 
 12,694 18 
 
 Accounts Receivables 
 
 
 Bills Payable, 
 
 
 Accounts Payable, 
 
 
 C. W. Pacy, Investment, 
 
 
 Surplus (Montg. Curtis, net worth), 
 
 $29,212 58 
 
 TRADING STATEMENT. 
 
 Manufactured Material Sales, 
 Manufactured Material Inventory, 
 16,076 07 Raw Material Purchases, 
 11,759 50 Manufacturing Expense, 
 12,573 58 Gross Profit— carried down. 
 
 $40,409 15 
 
 4,000 00 
 
 6,574 50 
 
 10,000 00 
 
 8,638 08 
 
 $29,212 58 
 
 $35,643 25 
 4,765 90 
 
 $40,409 15 
 
 123 
 
PROFIT AND LOSS. 
 
 Gross Profit brought down, $12,573 58 
 
 $ 3,500 00 Salaries, 
 
 435 50 Sundry Expenses, 
 8,638 08 Net Profit to Montg. Curtis, 
 
 $12,573 58 
 
 JOURNAL, 
 
 $12,573 58 
 
 Profit and Loss, $8,638 08 
 
 
 To Montgomery Curtis, 
 
 $8,638 08 
 
 )urnal Entries to close books of Curtis & Pacy: 
 
 
 Surplus, 
 
 $4,931 67 
 
 
 C. W. 
 
 Pacy, 
 
 2,465 84 
 
 Good Will, 
 
 2,500 00 
 
 
 Montgomery Curtis, 
 
 1,250 00 
 
 C W. 
 
 Pacy, 
 
 NEW BALANCE SHEET. 
 
 1,250 00 
 
 Montgomery Curtis, $2,465 83 
 
 
 $ 3,505 00 
 
 Cash, 
 
 
 20,962 15 
 
 Accounts Receivable, 
 
 
 7,852 60 
 
 Inventories, 
 
 
 2,500 00 
 
 Good Will, 
 
 
 
 Accounts Payable, 
 
 8,750 00 
 
 
 M. Curtis, Investment Account, 
 
 12,353 91 
 
 
 C. W. Pacy, Investment Account, 
 
 13,715 84 
 
 $34,819 75 $34,819 75 
 
 Journal Entries to transfer business to Corporation: 
 
 The Curtis & Pacy Co., $26,069 75 
 
 Accounts Payable, 8,750 00 
 
 To Cash, $ 3,505 00 
 
 Accounts Receivable, 20,962 15 
 
 Inventories, 7,852 60 
 
 Good Will, 2,500 00 
 
 M. Curtis, $12,353 91 
 
 C. W. Pacy, 13,715 84 
 
 To The C. W. Pacy Co., 26,069 75 
 
 Opening Journal Entries on books of New Corporation : 
 The Curtis & Pacy Co., incorporated Jan'y 1, 19.. Authorized stock, 
 $50,000.00 ; 5,000 shares, par value $10.00 each. 
 
 Subscription, $50,000 00 
 
 To Capital Stock, $50,000 00 
 
 Montgomery Curtis, 1,236 shares, 12,360 00 
 
 C W. Pacy, 1,372 shares, 13,720 00 
 
 C H. Vaughan, 1,000 shares, 10,000 00 
 
 Mrs. C W. Pacy, 500 shares, 5,000 00 
 
 A. D. Speedie, 50 shares, 500 00 
 
 W. F. Cunningham, 50 shares, 500 00 
 
 J. H. Gorke, 50 shares, 500 00 
 
 J. R. Daines. 30 shares, 500 00 
 
 Treasury Stock, 712 shares, 7,120 00 
 
 To Subscription, 50,000 00 
 
 The Company is authorized by the Board of Directors to accept in part 
 payment of shares subscribed for by M. Curtis and C. W. Pacy their respec- 
 tive interests in the co-partnership of Curtis & Pacy as shown by their 
 balance sheet: 
 
 124 
 
$ 3,505 00 
 
 
 20,962 15 
 
 
 7,852 60 
 
 
 2,500 00 
 
 
 
 8,750 00 
 
 
 12,353 91 
 
 
 13,715 84 
 
 Cash, 
 
 Accounts Receivable, 
 
 Inventories, 
 
 Good Will, 
 
 To Accounts Payable, 
 
 To M. Curtis, 
 
 To C. W. Pacy, 
 
 The Board of Directors authorizes that, in consideration of valuable 
 services rendered, the shares subscribed for by A. D. Speedie, W. F. Cun- 
 ningham and J. H. Gorke, be donated to them. 
 
 Donation Account, $ 1,500 00 
 
 To A. D. Speedie, $ 500 00 
 
 To W. F. Cunningham, 500 00 
 
 To J. H. Gooke, 500 00 
 
 J. R. Daines, Personal Account, 300 00 
 
 To J. R. Daines, Stock Account, 300 00 
 
 Assuming that subscriptions of C. H. Vaughan $10,000.00, Mrs. C. W. 
 Pacy $5,000, balance on subscriptions of Montgomery Curtis $6.09 and C. 
 W. Pacy $4.16, have been paid in cash and properly entered on cash, I 
 submit the following: 
 
 BALANCE SHEET. 
 
 Capital Stock, $50,000 00 
 
 $ 7,120 00 Treasury Stock, 
 18,515 25 Casn, 
 20,962 15 Accounts Receivable, 
 7,852 60 Inventories, 
 2,500 00 Good Will, 
 1,500 00 Donation, 
 
 Accounts Payable, 8,450 00 
 
 (103) 
 
 $58,450 00 
 
 
 
 SECOND SOLUTION. 
 
 
 LEDGER OF M. CURTIS. 
 
 $12,694 18 
 
 Accounts Receivable, 
 
 11,759 50 
 
 Manufacturing Expense, 
 
 435 50 
 
 Sundry Expense, 
 
 3,500 00 
 
 Salary Account, 
 
 16,076 07 
 
 Purchases, 
 
 
 Sales, 
 
 
 Accounts Payable, 
 
 
 Bills Payable, 
 
 1,752 50 
 
 Cash Book Balance, 
 
 $58,450 00 
 
 $35,643 25 
 6,574 50 
 4,000 00 
 
 $46,217 75 $46,217 75 
 
 I am taking it for granted that Mr. Curtis had acocunts opened in his 
 ledger for all of the figures given of his financial condition, of which the 
 above is a copy. 
 
 I do not find It necessary to make any journal entry to complete the 
 double entry system. By opening accounts and posting thereto the pur- 
 chases and sales (as indicated in red ink) I have all the figures necessary 
 to make the books balance. Having done this my next step is to transfer 
 all necessary accounts to the trading account and by including the inventory 
 it will appear as follows : 
 
 125 
 

 TRADING ACCOUNT. 
 
 
 
 Sales, 
 
 $35,643 25 
 
 $16,076 07 
 
 Purchases, 
 
 
 11,759 50 
 
 Manufacturing Expenses, 
 
 
 
 Inventory, 
 
 4,765 90 
 
 12,573 58 
 
 Gross Profit, 
 
 
 $40,409 15 $40,409 15 
 
 Having found the gross profit I proceed by transferring the gross 
 profit, salaries and sundry expenses to Profit and Loss account, to ascertain 
 the.net profit. 
 
 PROFIT AND LOSS ACCOUNT. 
 
 Gross Profit, $12,573 58 
 
 $ 3,500 00 Salaries, 
 
 435 50 Sundry Expenses, 
 8,638 08 Net Profit, 
 
 $12,573 58 $12,573 58 
 
 Now that I have found the net profit and Mr. Curtis is going to admit 
 a partner, I open a stock account for him and transfer the net profit to his 
 credit, which will show his net worth. The following is the 
 
 
 TRIAL BALANCE. 
 
 
 $ 1,752 50 
 
 Cash, 
 
 
 12,694 18 
 
 Accounts Receivable, 
 
 
 4,765 90 
 
 Inventory, 
 
 
 
 Bills Payable, 
 
 $ 4,000 00 
 
 
 Accounts Payable, 
 
 6,574 50 
 
 
 M. Curtis's Stock Account, 
 
 8,638 08 
 
 $19,212 58 $19,212 58 
 
 Mr. Pacy enters by paying $10,000.00 cash. I open a stock account for 
 him and credit him with it through the cash book. 
 
 After doing business for one year I find the trading account as follows : 
 
 7,852 60 
 
 $ 4,765 90 
 27,485 00 
 18,650 00 
 
 9,721 17 
 
 TRADING ACCOUNT. 
 
 Inventory, Jan. 1st, 
 Purchases, 
 
 Manufacturing Expenses, 
 Inventory, Dec. 31st, 
 Gross Profit, 
 
 $60,622 07 $60,622 07 
 
 Having found the gross profit I proceed by transferring the gross 
 profit, salaries and sundry expenses to Profit and Loss account to ascertain 
 the net profit. 
 
 PROFIT AND LOSS ACCOUNT. 
 
 Gross Profit, $ 9,721 17 
 
 $ 4,000 00 Salaries, 
 
 789 50 Sundry Expenses, 
 4,931 67 Net Profit, 
 
 $ 9,721 17 $ 9,721 17 
 
 As Mr. Curtis and Mr. Pacy are to share equally all profits, I balance 
 the Profit and Loss account by transferring to Mr. Curtis' stock account 
 
 126 
 
one-half of the net profit ($2,465.83) and to Mr. Pacy's stock account one- 
 half of net profits ($2,465.84). 
 
 Having decided to incorporate and valuing the good will of the business 
 at $2,500.00, which each shall share equally, I make the following journal 
 entry : 
 
 $ 2,500 00 Good Will, Dr. to Sundries, 
 
 M. Curtis, $ 1,250 00 
 
 C W. Pacy, 1,250 00 
 
 Now that all entries are made and the books are closed I submit the 
 following : 
 
 TRIAL BALANCE. 
 
 $ 3,605 00 Cash on Hand, 
 20,962 15 Accounts Receivable, 
 7,852 60 Inventory, 
 2,500 00 Good Will, 
 
 Accounts Payable, $ 8,750 00 
 
 M. Curtis, Stock Account, 12,353 91 
 
 C. W. Pacy, Stock Account, 13,715 84 
 
 $34,819 75 $34,819 75 
 
 As the corporation is to take over all assets and liabilities of Curtis & 
 Pacy I make the following journal entries to close the books of Curtis & 
 Pacy: 
 
 JOURNAL ENTRY NO. 1. 
 
 $31,314 75 The Curtis & Pacy Co., Dr. to Sundries, 
 
 Accounts Receivable, $20,962 15 
 
 Merchandise as per Inventory, 7,852 60 
 
 Good Will, 2,500 00 
 
 JOURNAL ENTRY NO. 2. 
 
 Sundries Dr. to The Curtis & Pacy Co., $34,819 75 
 
 $ 8,750 00 Accounts Payable, 
 12,353 91 M. Curtis, 
 13,715 84 C W. Pacy, 
 
 As these entries will show that the old firm is debtor to The Curtis & 
 Pack Co. $3,505.00, I draw a check to the order of The Curtis & Pacy Co. 
 This will then balance all acounts of the old firm. Having closed the books 
 of the old firm, I am now prepared to open the books of the corporation. 
 
 As The Curtis & Pacy Co. is incorporated for $50,000.00 and there are 
 subscribers to the amount of $42,860.00, I make the following journal entry, 
 which also shows how I arrive at the amount subscribed for: 
 
 Sundries Dr. to Capital Account, $50,000 00 
 
 $42,860 00 Subscription Account, 
 7,140 00 Treasury Stock, 
 
 M. Curtis subs, for 1,235 
 
 shares at $10.00 each, $12,350 00 
 
 C. W. Pacy subs, for 1,371 
 
 shares at $10.00 each, 13,710 00 
 
 C H. Vaughan subs, for 1,000 
 
 shares at $10.00 each, 10,000 00 
 
 Mrs. Pacy subs, for 500 
 
 shares at $10.00 each, 5,000 00 
 
 A. D. Speedie subs, for 50 
 
 shares at $10.00 each, 500 00 
 
 127 I Uk.,?'^^^^^ 
 
 "^'V,],% 
 
 ITY I 
 
N. F, Cunningham, subs, for 50 
 
 shares at $10.00 each, $12,350 00 
 
 J. H. Gorke, subs, for 50 
 
 shares at $10.00 each, 500 00 
 
 J. R. Daines, subs, for 30 
 
 shares at $10.00 each, 300 00 
 
 As The Curtis & Pacy Co. are taking over all assets and liabilities, I 
 make the following journal entry: 
 
 JOURNAL ENTRY NO. 1. 
 
 Sundries, Dr. to Curtis & Pacy, $31,314 75 
 
 $20,962 15 Accounts Receivable, 
 7,852 60 Merchandise, 
 2,500 00 Good Will, 
 
 JOURNAL ENTRY NO. 2. 
 
 $34,819 75 Curtis & Pacy, Dr. to Sundries, 
 
 Accounts Payable, $ 8,750 00 
 
 M. Curtis, 12,353 91 
 
 C. W. Pacy, 13,715 84 
 
 As Curtis & Pacy had given to The Curtis & Pacy Co. a check for 
 $3,505.00, this will balance the account of Curtis & Pacy. 
 
 Now I proceed to balance the subscription account by the following 
 entries: 
 
 JOURNAL ENTRY. 
 
 Sundries, Dr. to Subscription Account, $27,860 00 
 
 $12,350 00 M. Curtis, 
 13,710 00 C. W. Pacy, 
 300 00 J. D. Raines, 
 1,500 00 Donation Account, stocks donated to, 
 
 A. D. Speedie, $500 00 
 
 W. F. Cunningham, 500 00 
 
 J. H. Gorke, 500 00 
 
 As $1,500.00 in stock was donated I open an account called Donation 
 account to show the real facts. However if the books are not to show this 
 gift you may call it Commission account or any other name whereby it 
 may appear as an expense in disposing of the stock. 
 
 As C. H. Vaughan and Mrs. Pacy pay for their stock with cash, this 
 $15,000 being posted from the cash book will balance the subscription 
 account. 
 
 The books of The Curtis & Pacy Co. are now opened and all necessary 
 entries are complete. I submit the trial balance as it now appears : 
 
 
 TRIAL BALANCE. 
 
 
 
 $18,505 00 
 
 Cash on Hand, 
 
 
 
 20,962 15 
 
 Accounts Receivable, 
 
 
 
 7,852 60 
 
 Merchandise, 
 
 
 
 2,500 00 
 
 Good Will, 
 
 
 
 1,500 00 
 
 Donation, 
 
 
 
 7,140 00 
 
 Treasury Stock, 
 
 
 
 
 Accounts Payable, 
 
 $8,450 00 
 
 
 
 M. Curtis, 
 
 3 91 
 
 
 
 C. W. Pacy, 
 
 5 84 
 
 8,459 75 
 
 
 Capital Stock, 
 
 
 50,000 00 
 
 $58,459 75 
 
 $58,459 75 
 
 128 
 
M. Curtis and C. W. Pacy not being able to subscribe for a fraction of 
 a share, it leaves them this small balance (as shown in Acount Payable on 
 trial balance) to their credit, for which they should receive a check so as 
 to balance their account. 
 
 (104). POINTERS ON THE TREATMENT OF GOOD WILL. 
 
 Questions Kindly advise me what is the best practice in the treatment 
 of the item of good will. What constitutes good will, how is its value com- 
 puted and how should it show on the books ? 
 
 Answer : This is a rather difficult question to answer, for the reason 
 that the respective views of the business man and acountant do not always 
 agree in these days of strenuous incorporations and consolidations. 
 
 When a professional promoter perceives an opportunity to induce a 
 few com.mercial magnates to cease competition and co-operate for the sake 
 of mutual economy, aggrandizement, etc., he perfectly understands that if 
 he is to get anything for his ideas and services it must be from some other 
 source than the original stockholders of the businesses to be amalgamated. 
 Where then must it come from? The only answer is — From the innocent 
 and confiding public. The promoter, therefore, arranges to first give the 
 original owners everything they want (which means the actual value of the 
 businesses involved, with something additional thrown in), and then in- 
 creases the issue of stock for public subscription, the proceeds of which are 
 intended chiefly to pay his bill, which may be as large as the promoter likes, 
 so long as it does not afifect the pockets of the original owners heretofore 
 alluded to. 
 
 This stock issued for public subscription must be represented on the 
 books by some kind of an asset, and so the promoter opens an account on 
 the ledger called good will, or franchise, or something similar, and debits 
 it with whatever amount may be found advisable. 
 
 We never find a man like Carnegie subscribing for any stock repre- 
 sented by hermetically sealed vacuum. When someone recently alluded to 
 the slump in steel stocks, Carnegie is reported to have said that it did not 
 interest him in the least, as all the stock he held was secured by first mort- 
 gages on the property. 
 
 There are cases, however, where good will is a fairly respectable asset 
 and not a phantom in masquerade. Suppose a retail grocer has carried on 
 his business for years on a particularly much frequented corner on a 
 principal street. Everybody knows him, he has a solid reputation for the 
 class of goods he sells, and because of his advantageous corner position a 
 great deal of custom comes to him which otherwise would go elsewhere. 
 This retail grocer thinks it time to retire from business, and a corporation is 
 organized to purchase his interests. Here is an instance where the good 
 
 129 
 
will of a business is a tangible and valuable asset and must be paid for. 
 Furthermore, in this case the good will is not likely to depreciate in value 
 so long as the business is intelligently conducted, and the new proprietors 
 will violate no law of accountancy if they retain the amount paid for good 
 will on their books as a permanent asset. 
 
 In the event of a business being acquired by a company, the stock- 
 holders other than the vendors of which are investors and not workers, the 
 amount charged for good will should be proportionately larger as the 
 success of the business continues to depend on the individual efforts of the 
 vendors. The amount charged by vendors for good will is usually based 
 on the amount of net profits earned by the business for a certain number of 
 years — frequently three years. 
 
 As above indicated it is not necessary nor always desirable to write off 
 a certain amount of good will from the profits each year, but care should be 
 taken to see that good will is not inflated by capitalized commissions, 
 brokerage, or advance advertising, and omitting to write these accounts 
 off within a reasonable period. If good will is expected to depreciate a 
 good plan is to establish a reserve against such depreciation and this reserve 
 will be ample protection so long as the directors do not covet the amount 
 and endeavor to loot it by way of dividend. Where a corporate organization 
 is being effected with a view to purchasing a growing business and good 
 will is an element of the bill of sale the accounts of the business should be 
 very carefully examined by a professional accountant with the view to 
 satisfying the purchasers that they have not been falsified in order to show 
 excessive profits, and thus secure an excessive valuation of good will. 
 Vendors of businesses have been known to conceal liabilities, pay expenses 
 out of their own pockets, include unsalable stock and uncollectible debts in 
 their inventories, and otherwise devote their energies to obtaining something 
 for nothing. 
 
 Our advice, therefore, to incorporators of companies organized with a 
 view to purchase growing businesses is — pay as little as possible for good 
 will, carry it on the books as a permanent asset and build up a reserve 
 sufficient to cover any depreciation which may ensue. 
 
 (lO^). A POINTER ON ''WAITING^' FILES. 
 
 We illustrate a very complete and convenient record of unfilled orders, 
 the particulars being entered on the back of the regular order blank. 
 
 In addition to recording the successive deliveries of each item in the 
 proper column, it is a good plan to also stamp on the face of the order blank 
 the word "complete" against each item as soon as it is shipped. 
 
 (l06). A POINTER ON ANTICIPATED DISCOUNTS. 
 
 In some businesses it is usual to allow as much as 15% for cash dis- 
 
 130 
 
count provided the bill is paid on a certain day of the next month to that in 
 which the bill is rendered. 
 
 In making up the balance sheet, it can easily be seen that it is scarcely 
 correct to include these accounts receivable at their face value, as most of 
 the customers w^ill undoubtedly take advantage of the discount. The best 
 plan, therefore, is to debit Profit and Loss, and credit Discount Adjustment 
 account with the amount of these cash discounts. This item then stands in 
 the balance sheet as a liability. 
 
 When the books are not closed as is customary in businesses making 
 Balance Sheets, Trading, and Profit and Loss accounts each month, this 
 adjustment may be made as a memorandum outside of the books. 
 
 When the adjustment is made on the books, it is necessary in reopening 
 them to debit Discount Adjustment account, and to credit Profit and Loss. 
 Then, as the discounts are allowed, the Profit and Loss credit is adjusted. 
 
 (lOy). A POINTER ON CASH SALES. 
 
 A very efficient plan of checking cash sales is the use of cash sales 
 tickets with stubs or carbons. The salesman retains the stub or carbon 
 for his own protection. The original goes to the cashier with the money. 
 'At the end of the day each salesman should make a summary from his 
 stubs or carbons, and report amount of same to the manager. The manager 
 will foot these amounts and compare them with the amount entered in the 
 cash book. The stubs or tickets should be consecutively numbered when 
 printed, so that every ticket must be accounted for. 
 
 EXERCISES. 
 
 The United States Book Company, a corporation, makes an arrange- 
 ment with its creditors, and a receiver is appointed to close out the business. 
 
 The trial balance of the United States Book Company, July 1st, 1903, 
 at which date the receiver took possession, is as follows : 
 
 Capital Stock, 
 
 
 $20,000 00 
 
 Cash, 
 
 $ 553 69 
 
 
 Office Furniture, 
 
 1,666 92 
 
 
 Meter Deposit, 
 
 60 00 
 
 
 Accounts Receivable, 
 
 26,153 95 
 
 
 Rogers & Co., moneys collected for their 
 
 account 
 
 
 on books sold, 
 
 
 14,738 00 
 
 Notes Payable, 
 
 
 27,573 50 
 
 Accounts Payable, 
 
 
 4,197 22 
 
 Merchandise Purchases, 
 
 27,404 74 
 
 
 Merchandise Sales, 
 
 
 8,045 35 
 
 Expenses, 
 
 10,751 97 
 
 
 Surplus (deficit), 
 
 7,962 80 
 
 
 $74,554 07 $74,554 07 
 The value of merchandise on hand, July 1st, 1903, was $20,183.86. 
 The trustee's cash receipts and payments are scheduled below. 
 
 131 
 
RECEIPTS. 
 
 Balance on hand, 
 
 Meter Deposit, 
 
 Office Furniture sold for, 
 
 Accounts Receivable Collected, 
 
 Additional Collections for Rogers & Co. (in full), 
 
 Sales of Merchandise, 
 
 Commissions Received fromjlogers & Co., 
 
 PAYMENTS. 
 
 Notes Paid, 
 
 Accounts Paid, 
 
 Merchandise Bought, 
 
 Expenses, 
 
 Remitted to Rogers & Co. in full. 
 
 $ 553 69 
 
 60 00 
 
 487 90 
 
 22,872 75 
 
 1,965 24 
 
 22,090 70 
 
 6,703 24 
 
 $54,733 52 
 
 $27,573 50 
 
 4,197 22 
 
 562 55 
 
 5,697 01 
 
 16,703 24 
 
 $54,733 52 
 Accounts receivable not collected are worthless. The office furniture 
 
 was sold by auction and realized the amount stated. 
 
 From the trial balance of the United States Book Company, make 
 
 Trading account and Profit and Loss account, showing total deficit on that 
 
 date, also make balance sheet. 
 
 The receiver's report of receipts and payments was submitted July 20. 
 
 Make Trading and Profit and Loss account of his operations and make 
 
 necessary journal entries to close the books of the United States Book Co. 
 
 SHIPMENTS. 
 
 Waiting File-(See par. 105) 
 
 132 
 
CHAPTER XIII 
 
 The Abolition of the Trial Balance. 
 
 Some time ago a little pamphlet entitled "How to do without a Trial 
 Balance" was published by The Bookkeeper Publishing Co., Ltd. This 
 treatise had a very large sale and has been of considerable value to book- 
 keepers. It illustrated several ways by which the bookkeeper's posting 
 work could be proved accurately each day, as it was performed, so that at 
 the end of the month the trial balance was merely an ornamental statement 
 drawn off for the satisfaction of the principals of the business, who required 
 it, because they had always hitherto been accustomed to receive it. 
 
 To the average bookkeeper, however, the trial balance has always been 
 an untamed bug-a-boo, a thing of horror and vexation for ever. Each 
 month would be a repetition of the last. Nothing could exceed the anxious 
 care with which each posting was made and scrutinized after being made. 
 Every addition and subtraction in drawing off balances was re-added and 
 re-subtracted to insure absolute accuracy. All the balances were entered 
 in red ink, so that none should escape observation in listing them. In fact 
 every possible precaution was taken to verify the listing of the balances on 
 the trial balance sheet and then at last came the fateful footing — first 
 the debits and then (with nerves on edge and bated breath) — the credits — 
 and then deep gloom, irradiated only by savage language unfit for repetition 
 in these classic pages — the lightning illuminating the storm. 
 
 Still, in entirely abolishing the trial balance, it will be necessary to take 
 the same care in making postings, in adding and subtracting, and in 
 drawing off balances, and we still recommend the methods advocated in 
 these little text books — How to do without a Trial Balance and The Detroit 
 Bookkeeper's Balance System, these methods being further developed and 
 illustrated in 'Thome's Twentieth Century Bookkeeping and Business 
 Practice." 
 
 (l08) WORKING BALANCE SHEET. 
 
 But the trial balance itself is unnecessary — a useless encumbrance,— 
 and in order to convey our ideas in a shape easily comprehensible, we will 
 first refer to the ordinary working balance sheet. This statement usually 
 consists of four sections — 
 
 Ku 133 
 
(a) Trial Balance, 
 
 (b) Trading Account. 
 
 (c) Profit and Loss Account. 
 
 (d) Balance Sheet. 
 
 The three sections b, c and d are simply a distribution of Section a^ 
 
 (lOp) ARBITRARY BALANCES. 
 
 It is a matter of common knowledge that in many businesses the cash 
 and bank balances are not carried in ledger accounts, but are taken direct 
 from the cash and bank records, and arbitrarily included in the balance 
 sheet. The same remark applies to the inventory, which is also added 
 arbitrarily to the balance sheet and to the Trading account. 
 
 We are speaking particularly in reference to businesses where complete 
 statistics are required each month and this requirement is becoming 
 universal in up-to-date establishments. 
 
 (no) AGREEMENT BETWEEN BALANCE SHEET AND PROFIT AND LOSS ACCOUNT. 
 
 It will be apparent to all that with the addition of the cash and bank 
 and inventory balances, the balance sheet and Profit and Loss account will 
 agree, i. e., the current surplus of assets over liabilities on the balance sheet 
 will equal the current surplus of revenue over expenditures in the Profit 
 and Loss account. 
 
 (in) SECTIONALIZATION AND GENERAL LEDGER ACCOUNTS. 
 
 Having assimilated this proposition sufficiently, it will be a compara- 
 tively easy matter to appreciate that with a proper sectionalization of the 
 accounts carried in the general ledger, the balance sheet. Trading and 
 Profit accounts can be drawn off directly from the ledger without the 
 interposition of any trial balance, which by this method becomes entirely 
 unnecessary and is hereafter banished to the unproductive and un-inter- 
 esting land of the has-beens. 
 
 A practical illustration of this method of operating monthly the annual 
 statements is now presented. 
 
 (lI2) CARD GENERAL LEDGER. 
 
 A general or private ledger will be carried which will contain all assets, 
 liabilities, representative and nominal accounts. We would prefer a card 
 ledger, because of the facility with which it can be cross indexed, and 
 because when one card is full another may be substituted and the position 
 of the accounts will always be identically the same, as planned in the 
 original classification. If a new account is opened, it can under these 
 conditions be dropped in exactly in its right place, so that there will never 
 be any confusion and the ledger accounts will always be found in their 
 proper sequence, as they should appear on the statistical or financial 
 statements. 
 
 In any case, whether bound books, loose sheets or cards are used the 
 
 134 
 
manipulation of accounts in the ledger is, as a rule, only detected by 
 accident. 
 
 Chemicals can be used for altering amounts and the embezzler can 
 certainly afford to purchase a duplicate ledger, if considered necessary, the 
 pages of which may be used as substitutes for those removed from any kind 
 of ledger. 
 
 Unless an Auditor is employed to check the books the employers are 
 at the mercy of the dishonest book-keeper unless accidental discovery is 
 made, but on account of the locking devices and consecutive numbers which 
 form a part of every modern loose-leaf, or card equipment, no one but the 
 employer and the book-keeper has any chance to lose, or destroy, or 
 substitute cards or loose-leaves. 
 
 (113) ^ CONTROLLING ACCOUNTS AS SAFEGUARDS. 
 
 Then again, by the use of controlling accounts the alteration of 
 balances, or the destruction of cards or loose-leaves containing accounts, 
 would promptly be detected because the balances of the controlling accounts 
 derived from the books of original entry, from which postings are made, 
 would not agree with the aggregate balances of the ledgers to which the 
 controlling accounts relate. These differences, however, would only be 
 discovered by the checking of the work, either by an Auditor, or some 
 independent investigator. 
 
 With a card ledger, therefore, we would provide guide cards for the 
 principal divisions and an extension tab for each account, thus doing away 
 with all indexing. 
 
 (114) SUB-SECTIONALIZATION OF TRADING ACCOUNTS. 
 
 We would start our ledger with the trading section (guide card, 
 Trading account). The sub-sectionalization of the trading accounts would 
 depend entirely upon the nature of the business. This does not in any way 
 affect the general plan submitted and is only mentioned to show that 
 complications of this kind have been borne in mind. First will come the 
 trading debits, second the trading credits (sales, etc.), third the inventory 
 accounts of raw material and material out on uncompleted jobs. The 
 balance of this account (gross profit) is transferred to the Profit and Loss 
 account. 
 
 Our next section contains the revenue accounts (guide card, Profit and 
 Loss accounts). 
 
 (775) SUB-SECTIONALIZATION OF REVENUE ACCOUNTS. 
 
 These accounts will be sub-sectionalized, as per accounting require- 
 ments suited to the business, such as current general expense, selling 
 expense, suspense and other debits (wherever revenue is received and 
 charges made in respect of investments outside of the business, such as 
 real estate, bonds, etc., these items should be carried to a subsidiary 
 Profit and Loss account, after showing in the regular Profit and Loss 
 
 135 
 
account the amount actually gained by the business itself) current credits 
 other than sales credits, the balance being net profit. 
 
 (77(5) SUE-SECTIONALIZATION OF BALANCE SHEET. 
 
 Our next section will consist of the general asset and liability accounts 
 (guide, card. Balance Sheet), also properly sub-sectionalized and usually 
 after the following plan. 
 
 Assets. (a) Active Assets. 
 
 (b) Fixed Assets. 
 
 (c) Suspense. 
 Liabilities, (a) Floating Liabilities. 
 
 (b) Funded Liabilities. 
 
 (c) Capital Liabilities. 
 
 (d) Outside Investments, to be shown on subsidiary 
 
 balance sheet. 
 
 (777) AGREEMENT BETWEEN BALANCE SHEET AND PROFIT AND LOSS ACCOUNT. 
 
 The ledger accounts are now exactly in the order in which they should 
 appear on the financial statements and all the bookkeeper has to do is to 
 list the balances of the proper statements and look for his agreement 
 between the surplus of assets over liabilities on the balance sheet and the 
 surplus of revenue over expenditures on the Profit and Loss account, 
 instead of looking for same in the footings of miscellaneous balances on the 
 trial balance. 
 
 (778) ADJUSTMENTS. 
 
 All adjustments should be made by journal entry. Temporary adjust- 
 ments (not intended to go on the books, but taken into consideration in 
 order to obtain an accurate statement of actual conditions) should be 
 debited and credited to a special Adjustment account carried in the Trading 
 or Profit and Loss section. For example — prepaid insurance proportion 
 per month $41.50, deduct $41.50 in pencil from Insurance Asset account, 
 debit Profit and Loss Adjustment account same with wages earned, but not 
 due, etc. 
 
 FREE COUPON OFFER. 
 
 All purchasers of this text book and Thome's Twentieth Century 
 Bookkeeping and Business Practice will be entitled, free of charge, to a 
 chart of classification of their accounts, illustrating how they should be 
 arranged in order to successfully eliminate the Trial Balance. 
 
 This classification will be standard, and according to the best account- 
 ing practice. 
 
 Those desiring to avail themselves of this ofifer will please mail a copy 
 of Trial Balance last drawn off from the books (excluding figures) together 
 with mention of this offer to the Secretary, International Accountants' 
 Society, Incorporated, Detroit, Mich. 
 
 136 
 
137 
 
CHAPTER XIV 
 
 Presenting two complete illustrations, showing how the statistical accounts 
 
 of the business should be sectionalized and how to prove 
 
 the accuracy of the work on the books 
 
 without taking a trial balance. 
 
 (//p) DEMONSTRATION NO. I. 
 
 Telford & Martin began business January 1, 1903, and at the end of the 
 
 year the following trial balance was submitted : 
 
 TRIAL BALANCE, DEC. 31, 1903. 
 
 William Telford $15,000 
 
 Samuel Martin 15,000 
 
 Merchandise account $12,000 
 
 Cash 1,300 
 
 General expenses 400 
 
 Office salaries 6,500 
 
 Wages — Shipping clerks, porters, cartmen, etc 1,500 
 
 Accounts receivable 20,000 
 
 Discounts 1,500 
 
 Horses and trucks 1,000 
 
 Horse feed, stable charges, etc 300 
 
 Traveling expenses 3,000 
 
 Interest 200 
 
 Bills payable (firm's note discounted at 5 per cent, due 
 
 Feb. 1, 1904) 10,000 
 
 Rents 1,500 
 
 Furniture and fixtures 500 
 
 William Telford, drawings 3,000 
 
 Samuel Martin 3,000 
 
 Accounts payable 15,000 
 
 Bad loan 750 
 
 Stationery and printing 250 
 
 Profit on sale of bonds 1,700 
 
 $56,700 $56,700 
 An analysis of the merchandise account showed debits: Inventory, 
 Jan. 1, 1903, $15,000, purchases $76,850, returns $1,500, freight on purchases 
 $900, freights on sales $250. Credits: Sales, $79,000, returns $2,000, 
 allowances $1,500. 
 
 The inventory, Dec. 31, 1903, showed cost $32,000. The partners are 
 allowed 6 per cent salaries, which were drawn and charged to office salaries, 
 viz : Telford $3,000, Martin $2,500. Allowances are to be made as follows : 
 5 per cent for doubtful debts ; 10 per cent for depreciation on horses and 
 trucks and furniture and fixtures. 
 
 Prepare balance sheet and necessary accounts for presentation to the 
 firm. 
 
 138 
 

 
 
 
 
 
 
 
 
 
 
 
 
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 Af50IlTlON OF THE TRIAL (BALANCE 
 
 
 
 Tf^ADlNG ACC02;NT Decef->ber 3i«J 
 
 
 
 Dr 
 
 Cr. 
 
 
 lf)veQTory ^i 
 Pure Incises 
 lO-Frei^ljt 
 
 Gross Profit 
 
 
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 77-5"oo 00 
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 PROFIT AMD L055 ^CCOiJNT Lec.3i 
 
 
 
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 l3« Gros6 Profit (^roi^^l^tlDowfj 
 
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 Oi^t-Frei^^)r 
 
 Stciti 9 e ry £vPr I Qti q ^ 
 
 30 0.OO 
 300 00 
 
 1050 00 
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 15000 47.50.00 
 
 
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 1 0000 
 
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 Ne-f BiJSiQG'ss Profit 
 
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 Total Profit 
 
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 BALANCE SHEET Deo.3i 
 
 
 
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 149 
 
(l20) DEMONSTRATION NO. 2. 
 
 TRIAL BALANCE AT END OF PERIOD. 
 
 Inventory $ 4,328 91 
 
 Purchases 13,852 33 
 
 Wages 9,499 19 
 
 Factory expense 242 11 
 
 Sales $15,794 79 
 
 Cash discounts received on purchases 417 41 
 
 Allowances to customers 195 34 
 
 Rent 300 00 
 
 General expense 312 87 
 
 Insurance 354 54 
 
 Commission 45 00 
 
 Cartage on deliveries 166 09 
 
 Salaries 3,031 49 
 
 Cash 49 91 
 
 Bank 2,651 73 
 
 Accounts receivable, good 5,336 29 
 
 Accounts receivable 2,211 97 
 
 Suspense deposits on contracts 500 00 
 
 Loans, good 4,408 13 
 
 Show room stock 1,812 50 
 
 Machinery 4,399 78 
 
 Tools 2,325 66 
 
 Drawings 311 66 
 
 Models 2,107 55 
 
 Office furniture and fixtures 759 29 
 
 $9,903 94 
 
 Factory improvements 852 59 
 
 Notes payable $14,550 00 
 
 Capital stock $25,000 00 
 
 Capital stock 10,000 00 
 
 15,000 00 
 
 Surplus 14.292 73 
 
 $60,054 93 $60,054 93 
 
 From the accompanying trial balance of the books of B company, iron 
 manufacturers, prepare such statements as are necessary to show the value 
 of its capital stock. 
 
 The inventory at the end of the period is : 
 
 Material 1,266 00 
 
 Orders in process 15,369 00 
 
 $16,635 00 
 
 Make such provision for depreciation as you think proper. The stock 
 in the show room consisting of ornamental iron and bronze work has not 
 deteriorated. The drawings and models represent two years' outlay, all of 
 which is carried as assets, but they have no realizable value. Factory 
 alterations and improvements are to be spread over a period of ten years, 
 represented by the lease of the factory. 
 
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nANi;rACTZ;RlNG ACCOZJNT Dec^i 
 
 Inventory /i 
 
 Less Ccb\j Disc^ 
 
 factory E.Xpe^se 
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 E9^i9eerif)^ ExpeQse 
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 417.41 
 
 4J2?^« 
 i34J4>?^ 
 
 ;i4£. 1 1 
 
 2 1 g?<T<? 
 
 i3oi-<?.<a 
 
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 2<?fc<f4•.l^ 
 
 TRADING ACC0Z;NT, Dec 3» 
 
 Cr 
 
 |30J"^.I2 
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 3^0 00 
 ^OO.OQ 
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 1040 33 
 1684^45 
 
 5cilc6 
 
 l6?4q.45 
 
 PI^OFIT AND L055 ACCOi^NT, Dec^l- 
 
 Dr 
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 Com«*\iS5ioQ6 
 
 (jer)'\. Expense 
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 ^ F6^F 
 Models (writteij off) 
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 t?3i.4q 
 
 i66.oq 
 
 4500 
 
 35454 
 
 3 I 2. 3^7 
 
 23 1 Sr.feq 
 75^3 
 
 105377 
 I 55^3 
 
 G3l 4Z» 
 
 BALANCE SHEET, Dec. 31 
 
 Cr 
 
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 I 684^.4 "J 
 
 104033 
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 L0Q()b 
 
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 iQverjtory 
 
 5^70v^/-Roon^ 5tocK. 
 
 Mcicbif)ery 
 
 Tools 
 
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 27 I 64 
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 47131.47 
 
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 G 5 I 4 2 1 
 
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 162 
 
 ^ OF THf 
 IIMIX/CDCITV 
 
INDEX 
 
 By Chapters and Paragraphs 
 
 A 
 
 Chapter. Paragraph. 
 
 Accounts — Adjustment 2 17 
 
 Controlling 2 17 
 
 Merchandise 10 80 
 
 Nominal 1 8 
 
 Personal 1 5 
 
 Profit and Loss 5 45 
 
 7 55, 64 
 
 10 SI 
 
 11 99 
 Real 1 G 
 
 3 23 
 
 Representative 1 7 
 
 Revenue 13 109 
 
 Sales Ledger 2 17 
 
 Trading 3 31 
 
 5 45 
 
 7 54 
 
 10 81 
 
 11 98 
 
 Acfcounts Used 1 4 
 
 Accounting with Branch Houses 8 04 
 
 Active Assets 3 24 
 
 Adjustment Accounts 2 17 
 
 13 113 
 
 Adjustment Entries — Illustration of 11 95 
 
 Adjustments 13 118 1 
 
 Advantages of Incorporation 8 73 
 
 Advantages of the Voucher System 4 42 
 
 Anticipated Discounts 12 106 
 
 Arbitrary Balances 13 109 
 
 Audited Bills 4 37 
 
 B 
 
 Balance Ledger — Explanation and Illustration of 11 94 
 
 Balance Sheet and Profit and Loss Account — Agreement Betv -^en 13 110,117 
 
 Balance Sheet — Sub-Sectionalization of 13 116 
 
 Working 13 108 
 
 Balance Sheets 5 45 
 
 7 53, 56, 59, 61, 63 
 
 10 81 
 
 11 100 
 
 Bills Receivable 4 44 
 
 Book Inventory 10 83 
 
 Books of Mr. Montgomery Curtis 12 101 
 
 Solution No. 1 12 102 
 
 Solution No. 2 12 103 
 
 163 
 
Books Used 2 9 
 
 Books Used Exclusively for Debit Entries 2 8 
 
 C 
 
 Capital Liabilities 3 29 
 
 Card Catalogue Record 4 33 
 
 Card Ledger 13 112 
 
 Card Ledger — Form of 11 89 
 
 Card Supplies Record 4 34 
 
 Cash Sales 12 107 
 
 Cash Book — Form and Entries of 11 91 
 
 Catalogue Record — Card 4 33 
 
 Charges to Customers — Method of Making 11 87 
 
 Classification of Debits and Credits 1 10 
 
 Classification of Trial Balances 5 45 
 
 Closing Entries 10 79 
 
 11 96 
 
 Colored Sales Tickets 2 21 
 
 Comparative Statement by Months 6 48 
 
 Comparative Statement by Months — Chair Manufacturing Business... 6 48 
 
 Comparative Statement of Increases and Decreases 6 49 
 
 Computation of Percentages 6 47 
 
 Controlling Account 2 17 
 
 Controlling Accounts as Safeguards 13 113 
 
 Cost Comparative Statements 6 48 
 
 Credits 1 10 
 
 Credit Journal 4 40 
 
 Customers' Ledgers — Description of 11 88 
 
 D 
 
 Debits 1 10 
 
 Debits and Credits — Classification of 1 10 
 
 Demonstration No. 1 - 14 119 
 
 Demonstration No. 2 14 120 
 
 Departmental Sectionalization 2 20 
 
 Distribution of Trial Balances 5 45 
 
 Double Entry Book-keeping 1 3 
 
 E 
 
 Eagle Printing Co 8 69 
 
 9 74 
 
 Entries on the Books of Smith & Jones 11 85 
 
 F 
 
 Factory Order Blank 2 13 
 
 Fixed Assets 3 25 
 
 Floating Liabilities 3 28 
 
 Funded Liabilities 3 27 
 
 G 
 
 General Ledger Accounts — Arrangement of 11 93 
 
 Illustration of 11 97 
 
 Sectionalization of 13 111 
 
 Good-will 12 104 
 
 I 
 
 Incorporation — Advantages of 8 73 
 
 Interest 8 65 
 
 Interest Rule — Six Per Cent 8 66 
 
 Twelve Per Cent , 8 67 
 
 Inventory— Perpetual 10 83 
 
 164 
 
Book 10 83 
 
 Invoice — Form of 11 86 
 
 J 
 
 Journal and Entries — Form of 11 92 
 
 k 
 
 Keying Distribution Columns 4 43 
 
 L 
 
 Ledger Accounts— Classification of 13 114, 115, IIG 
 
 Liabilities — Floating 3 28 
 
 Funded 3 27 
 
 Liability Reserves 3 30 
 
 Limited Partnerships 8 72 
 
 M 
 
 Manifold Drafts 9 78 
 
 Manifold Order Blanks 9 77 
 
 Merchandise Account 10 80 
 
 Model Sets for Demonstrations 14 
 
 N 
 
 Nominal Accounts 1 8 
 
 3 32 
 
 Nominal Ledger 5 45 
 
 O 
 
 Omission of Trial Balance 13 111 
 
 Opening Entries 7 51, 60 
 
 Opening and Closing Entries — Illustration of 9 75 
 
 Order Blanks 2 11 
 
 Outside Investments 13 115 
 
 P 
 
 Partnership Agreement 11 84 
 
 Partnerships 8 71 
 
 Passive Assets 3 26 
 
 Perpetual Inventory 10 - 83 
 
 Personal Account 1 5 
 
 Premium on Stock Subscribed 9 76 
 
 Preparation of Comparative Statements 6 46 
 
 Primary Principle 1 ? 
 
 Private Ledger 13 112 
 
 5 45 
 
 Profit and Loss Accounts 5 45 
 
 7 55,64 
 
 10 81 
 
 11 99 
 
 Profit and Loss — Subsidiary Account 13 115 
 
 Purchase and Maturity Records 4 39 
 
 Purchase Order 4 36 
 
 Purchase Record System 4 35 
 
 R 
 
 Real Accounts 1 6 
 
 3 23 
 
 165 
 
Representative Account 1 
 
 Revenue Accounts — Sub-Sectionalization of 13 
 
 S 
 
 Sale of Stock at Discount 7 
 
 Sale of Stock at Premium 7 
 
 Sale of Stock by Installments 7 
 
 Sales Book — Regular Form of 2 
 
 Duplicate 2 
 
 Lumber Business 2 
 
 Brewery Business 2 
 
 Department Business 2 
 
 Sales Journals 2 
 
 Sales Ledger Account 2 
 
 Sales Recapitulations 2 
 
 Sales Recapitulations — Form of 11 
 
 Sectionalization of General Ledger Accounts 13 
 
 Simple Interest Formula 8 
 
 Single Proprietorships 8 
 
 Six Per Cent Interest Rule 8 
 
 Slip System of Checking 10 
 
 Solution No. 1 12 
 
 Solution No. 2 12 
 
 Special Balance Ledger 2 
 
 Statement of Increase or Decrease of Assets and Liabilities 6 
 
 Stock Record 4 
 
 Sub-Sectionalization of Balance Sheet 13 
 
 Sub-Sectionalization of Revenue Accounts 13 
 
 Sub-Sectionalization ot Trading Accounts 13 
 
 Subsidiary Profit and Loss Account 13 
 
 Supplies Record — Card 4 
 
 T 
 
 Trading Accounts 3 
 
 7 
 
 5 
 
 10 
 
 11 
 
 Trading Accounts — Sub-Sectionahzation of 13 
 
 Transfer from One Business to Another 7 
 
 Transfer from Single Proprietorship to Partnership 12 
 
 Transfer from Single to Double Entry 7 
 
 Traveling Salesmen's Comparative Records 6 
 
 Territorial Sectionalization 2 
 
 Trial Balances 10 
 
 Classification of 5 
 
 Distribution of 5 
 
 Omission of 13 
 
 Turnover 6 
 
 Twelve Per Cent Interest Rule 8 
 
 V 
 
 Voucher System 4 
 
 Voucher System — Advantages of the 4 
 
 W 
 
 Waiting Files 12 
 
 Working Balance Sheet 5 
 
 13 
 
 166 
 
INDEX TO STANDARD ANSWERS 
 
 Accounts— A Chapters. 
 
 Accounts Payable Controlling 3 
 
 Cash 11 
 
 Controlling _ 2, 3, 8, 9 
 
 Mine 11 
 
 Nominal 1, 3 
 
 Personal 1 
 
 Profit and Loss 7, 8, 9, 10, 11, 12 
 
 Real 1 
 
 Realization , 12 
 
 Receivers' 12 
 
 Representative 1, 8 
 
 Trading 3, 7, 8, 9, 10, 11, 12 
 
 Accounts Payable Controlling Account 4 
 
 Accounts Payable Record 4 
 
 Accounts Payable Recapitulation 10 
 
 Accounts Receivable Recapitulation 10 
 
 Active Assets 3 
 
 Adjustment of Differences 1 
 
 B 
 
 Balance Sheet 5, 7, 8, 9, 10, 11, 12 
 
 Balance Sheet — Working 5 
 
 C 
 
 Capital Liabilities 3 
 
 Cash Account 11 
 
 Cash Book 8, 10 
 
 Classification of Debits and Credits 1 
 
 Closing Entries 11 
 
 Colliery Accounts 11 
 
 Comparative Monthly Statem.ent 9 
 
 Comparative Statements 6 
 
 Comparative Statement of Assets and Liabilities 6 
 
 Comparative Statement of Revenues and Expenditures 6 
 
 Controlling Accounts 2, 4, 8, 9 
 
 Corporation Accounts 11 
 
 Correction of Errors 1 
 
 Cross Entries — Illustration of 1 
 
 D 
 
 Departmental Profit and Loss Account 7 
 
 Departmental Sales Book. 2 
 
 Depreciation 9 
 
 Differences — Adjustment of 1 
 
 E 
 
 Eagle Printing Co. Solution 8 
 
 Eagle Printing Co. Second Solution 9 
 
 Errors — Correction of 1 
 
 F 
 
 Fixed Assets i 3 
 
 Floating Liabilities ; 3 
 
 Funded Liabilities 3 
 
 G 
 
 Gathering of Statistics 1 
 
 I 
 
 Invoice 11 
 
 J 
 
 Journal 8 
 
 L 
 
 Liabilities — Capital 3 
 
 167 
 
Floating 3 
 
 Funded 3 
 
 M 
 
 Maturity Record 4 
 
 Merchandise — Transfer of 1 
 
 Mine Accounts 11 
 
 Money — Transfer of 1 
 
 N 
 
 Nominal Accounts 1, 3 
 
 O 
 
 Opening Entries 11 
 
 P 
 
 Partnership Accounts 11 
 
 Passive Assets 3 
 
 Percentages — Computation of 9 
 
 Percentages on Turnover 9 
 
 Personal Accounts 1 
 
 Profit and Loss Account 7, 8, 9, 10, 11, 12 
 
 Profit and Loss Account — Departmental 7 
 
 Purchase Book 11 
 
 Purchase Ledger 10 
 
 Purchase of Business and Transfer of Accounts 7 
 
 Purchase Record 4, 8 
 
 R 
 
 Real Accounts 1 
 
 Realization Accounts 12 
 
 Receivers' Accounts 12 
 
 Records — Accounts Payable 4 
 
 Maturity 4 
 
 Purchase 4, 8 
 
 Sales 10 
 
 Voucher 4 
 
 Rendering of Services 1 
 
 Representative Accounts 1, 8 
 
 Reserves 6 
 
 Reserves for Depreciation , 9 
 
 S 
 
 Sales Book — Form of 2 
 
 Sales Book — Departmental 2 
 
 Sales Ledger 10 
 
 Sales Record : .* 10 
 
 Services — Rendering of 1 
 
 Solution — Eagle Printing Co 8 
 
 Solution No. 2 — Eagle Printing Co 9 
 
 Statistics — Gathering of ; 1 
 
 T 
 
 Trading Accounts 3, 7, 8, 9, 10, 11 , 12 
 
 Transfer of Accounts and Purchase of Business 7 
 
 Transfer of Merchandise 1 
 
 Transfer of Money 1 
 
 Trial Balance 8, 9, 10, 11 
 
 Turnover 9 
 
 U 
 
 Use of Values 1 
 
 V 
 
 Values — Use of - 1 
 
 Voucher Record 4 
 
 W 
 
 Working Balance Sheet 5 
 
 Winding Up of Business 12 
 
 168 
 
UNIVERSITY OF CALIFOHNIA LIBRARY 
 BERKELEY 
 
 Return to desk from which borrowed. 
 This book is DUE on the last date stamped below. 
 
 UJunDEAD 
 
 LD 21-100w-ll,'49(B7146sl6)476 
 
YC 25019 
 

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