■04 :■ :hsr|H5K m 1 1 Sj5 i I iiifi i •4 tit; 1, l'!»P . ' :■ Z-^:- M rr'-^w m ^^ Digitized by the Internet Archive in 2007 with funding from IVIicrosoft Corporation http://www.archive.org/details/costaccountingfoOOcolerich COST ACCOUNTING FOR INSTITUTIONS BV WILLIAM MORSE COLE, A.M. ASSISTANT PROFESSOR OF ACCOUNTING IN HARVARD UNIVERSITY RONALD ACCOUNTING SERIES » . * •, », » » NEW YORK THE RONALD PRESS COMPANY 1913 W^^.G^ COPYRIGHT, 1913, BY THE RONALD PRESS COMPANY • • • • « General Statement of £Mtorial J3oat^ Applicable to all hooks of the Ronald Accounting Series 'T^HE manuscripts of the books forming the -*• Ronald Accoimting Series have been sub- mitted to us and have been approved by us for publication. In some cases the views of the several authors are not fully in accord with those entertained by us, but in no instance are such differences of sufficient importance, in our judgment, to war- rant the withholding from publication of a meritorious work. J. E. Sterrett. Robert H. Montgomery. 268538 INTRODUCTION The first fact to realize with regard to a plan of cost accounting is that no a priori determination of exact meth- ods can be made for any establishment. No two establish- ments are alike in all details, and a perfect plan for cost accounting in one will fail of perfect fitness in any other. Certain principles are fundamental, however, and may be indicated in a general plan. Discussion of these general principles unattached to a specific organization, on the other hand, would hardly be quite serviceable, for the principles so discussed would lack concreteness and definiteness to readers not already familiar with the application of such principles to specific cases. In this book effort has been made to discuss general principles and to apply them for illustration in certain specific types of institution — usually the most complicated type likely to be found in most com- munities. Yet the application here indicated may not fit exactly any particular institution even of that type, for cer- tain assumptions must be made in the distribution of costs, and not all of these particular assumptions may hold valid in a particular case; but the author hopes that the careful and intelligent reader will be able to adjust the accounting plan here outlined to any particular circumstances of his need. The plan outlined will appear to most persons extremely complicated and abounding in red tape. As expounded here, the plan undoubtedly is so ; but many plans are much more simple in operation than in theory. It may take a page of text to describe a process performed in a few sec- onds of bookkeeping, and many varieties of transaction vi INTRODUCTION must be suggested in such a treatise as this even though only one of them will be applied in any specific case. In order, again, to make the treatment comprehensive, effort has been made in this book to provide for virtually all types of contingency and of variation from the simplest type of organization, and therefore the discussion here is meant to cover at the same time the simple, the somewhat com- plex, and the extremely complex conditions of any estab- lishment. Obviously a treatment intended to be compre- hensive for such conditions must be in itself complicated, even though its application in a single case may be simple both in theory and in practice. A glance at the forms and schedules may, again, sug- gest a vast amount of detail and of clerical labor in the keeping of records; but if one examines them carefully one will note that, although many of them are used daily or even oftener, others are used only weekly, some only monthly, and others only annually. If they could be ar- ranged so that one would see at once only those in use at any particular time, one would observe that the number is not great, the labor is not prohibitive, and the cost is practically insignificant. If any one should hesitate to introduce a cost-account- ing plan in an institution for fear of the cost, he might substitute, for continuous use of the forms and accounts here indicated, an occasional or periodic use of them and so learn certain averages and standards. If, for instance, it were deemed inadvisable to keep a constant record for each meal of the special or occasional foods consumed, one might well use the forms here shown for certain specified periods, such as one week in a month or four isolated months in a year, and use the results for establishing ratios and averages. Similarly, one might keep temporarily cer- tain subordinate-ledger accounts for details of expense INTRODUCTION vii within departments (such as freight and supplies) and learn about what proportion of the total charges on those scores are attributable to certain departments, and then use those ratios, without further detailed accounting, over long pe- riods. The system here shown, in other words, may be used in part without nullifying its value as a system. It is here made complex only that it may be made comprehensive. The text, again, suggests monthly closing of accounts. The plan is equally workable, though it cannot produce results so satisfactory, if accounts are closed annually. A few illustrations of the possibilities of simplifying the plan shown herein are suggested by observation of the subdivision of many accounts. For hospitals, separate ac- counts are recommended for several kinds of nurses (super- intending, graduate, special, and those in training), for orderlies, and for ward employees. Obviously, if one is not willing to go to the expense of making this separation, one may combine them all into a single account — though this by so much reduces the possibility of making a comparison of costs with hospitals where the conditions of nursing are different or the classification is more detailed. Similarly, separate accounts are shown here to cover maintenance of equipment, in the housekeeping department, for the dining- room, for the bedrooms, and for the general household. In many institutions this subdivision would be hardly worth while. In the accounts for libraries, again, separate wages costs are kept for administrative officers, cataloguers, order clerks, delivery clerks, etc. Commonly this subdivision would not be necessary. Every consolidation of accounts simplifies the accounting process, but by so much limits the information which the accounts may give ; and therefore in this book divisions which under any ordinary circumstances are thought to be worth while are given in detail — not because the division is recommended in every case, but viii INTRODUCTION merely in the desire to have it noted for the case when it is necessary, and with the thought that wherever it is unde- sirable consolidation will suggest itself as obvious. Most of the illustrations used are for conditions likely to arise in hospitals ; but most other institutions are subject not only to many conditions similar to those in hospitals, but also to other conditions which, though not similar in outward characteristics, are nevertheless capable of expres- sion in the accounts by the application of similar principles. It is believed that few problems will arise in other institu- tions not capable of solution by the application of the principles indicated for hospitals. Nevertheless certain suggestions are made not only for specific accounts likely to be required in institutions other than hospitals, but also for the content of those accounts. In one or two instances illustrations are given of the method of drawing conclu- sions from such accounts in ways somewhat different from those desirable for hospitals. It would have been possible, of course, to treat every particular of the accounts from the point of view of hospitals, then from that of educa- tional institutions, and lastly from that of hotels or clubs, and to gather into one place all lists of accounts, all forms, and all comments relating to any phase of the account- ing; but that would have produced a treatise which would hardly be usable except for the theoretical student; for the treatment of accounts for no institution would be in connected form. For this reason the illustrations are taken for each chapter as a whole from the circumstances of hospitals, and then variations or additions for other insti- tutions are suggested in a supplementary discussion. No attempt is made in this book to describe the ordi- nary processes of bookkeeping, or to direct a person un- trained as a bookkeeper in the method of making entries. Cost accounting cannot be done by persons who cannot INTRODUCTION ix "keep books." So far as any higher type of bookkeeping is required here than that familiar to bookkeepers in institu- tions, the information regarding it should be easily obtain- able from books dealing with the subject. This plan pre- supposes the bookkeeper's knowledge of special-column cash books, of voucher registers, of subordinate ledgers, and of controlling accounts. Some one in any institution should have a general knowledge of bookkeeping and accounting principles; but he needs no more technical or detailed knowledge than can be obtained from the general chapters in the author's book entitled "Accounts: Their Construction and Interpretation," and from the treatment there of one or two special subjects (such as accounting for investments) related to institutional affairs. The general principles here worked out have been recommended by a committee of persons interested in insti- tutional management. Appendix E gives a copy of the report of that committee (on uniform accounting for in- stitutions) at the Lake Placid Conference in June, 19 12. The author is indebted to the persons whose names appear in that report, and to many others, for valuable suggestions. , \ TABLE OF CONTENTS CHAPTER PACE I General Principles 1 II The Balance Sheet 16 III The Statement of Financial Transactions for the Year 43 IV The Classification of Expense Accounts 63 V The Method of Determining Costs in Detail 97 VI Forms for the Determination of Costs 107 VII Closing Processes 170 APPENDIX A I Alphabetical Index of Symbols of Hospital Ac- counts 197 II Alphabetical Index of Additional Symbols for In- stitutions Other Than Hospitals 206 B Alphabetical Index of Common Items of Hospital Expense, with the Symbols of Accounts Charge- able 211 C Comparison of Accounts of the New York Plan of Accounting for Hospitals and the Plan Advo- cated Herein 217 D The Bookkeeping Entries for Imaginary Transac- tions in a Hospital 220 E Report of the Committee on Uniform Accounting for Institutions 236 Index 243 LIST OF GENERAL FORMS GENERAL SUPPORTING PORH SCHEDULES A Balance Sheet 28 I Furniture and Fixtures 30 II Investments 31 III Statement of Condition of Special Funds . . 32 B Statement of Financial Transactions for THE Year 51 Earnings, Schedule A 51 Endowment Income, Schedule B 51 Normal Current Income, Schedule C 51 Special Items, Schedule D 52 xi BNBRAI. FORM SUPPORTING SCHEDULES c IV V VI xH TABLE OP CONTENTS PAGB Summary of Financial Transactions for the Year 54 Final Summary of Institution Expenses 192 Revenue from Institution Sources 56 Comparison of Departmental Income and Expense 57 VI Comparison of Divisional Income and Ex- pense 58 VII Subscriptions from Normal Sources 60 VIII Legacies and Other Special Contributions Received 61 D Expense Ledger 110 TABLE OF LISTS OF SYMBOLS Capital Accounts — Hospitals, etc 35 Schools, Colleges, etc 37 Hotels, Clubs, etc 40 Expense Accounts — Hospitals, etc 66 Schools, Colleges, etc 90 Hotels, Clubs, etc 94 Income Accounts — Earnings > 56 Other Income 59 Alphabetical Indexes — Hospitals, etc 197 Other Institutions 206 Common Items of Hospital Expense 211 LIST OF FORMS FOR THE DETERMINATION OF COSTS FORM NUMBER 1 Registry Book 117 2 Daily Ward Patient Report 118 3 Ward Record 120 4 Monthly Patient Summary, All Wards 122 4a Annual Patient Summary 125 5 Monthly Discharge and Death Record 127 TABLE OF CONTENTS xiii FORM NUMBER pj^GB 5a Annual Discharge and Death Record 128 6 Monthly Patient Report 130 6a Annual Patient Report 131 7 Time Sheet 132 7x Time Sheet Appendix 135 8 House Tables Requisition 136 9 Ward Diet Requisition 137 10 Summary Patient Diet Requisition, All Wards 137 11 Requisition on the Steward's Department 140 12w Weekly Dietary Summary 142 12 Monthly Dietary Summary 143 13 Calculation of Special Food Costs 145 14w Weekly Summary of Special Food Costs 147 14 Monthly Summary of Special Food Costs 148 15 Calculation of Occasional Common Food Costs 149 16w Weekly Summary of Occasional Common Food Costs. . 151 16 Monthly Summary of Occasional Common Food Costs . . 152 17 Calculation of Regular Common Food Costs 154 18 Summary of Average Food Costs per Day 156 19 House Tables Record 158 20 Distribution of Food Costs 160 21 Engineer's Daily Time Card 161 22 Engineer's Monthly Summary 163 23 Space-Cost Basis 165 24 Space-Cost Distribution '. 167 25 Monthly Record of Ice 168 • »».*♦• COST ACCOUNTING FOR INSTITUTIONS CHAPTER I GENERAL PRINCIPLES Cost accounting attempts to help managers in answer- ing three sorts of questions: first, how may prices be ad- justed to the service rendered; second, does the utmost economy prevail in production and service, and if not how may one trace the waste ; and, third, had certain work best be performed in the establishment or outside? Adjustment of Prices to Services Rendered As illustration of the first of these, need arises for some scientific method of fixing prices of rooms in college dor- mitories and in hospitals so that the prices paid shall be adjusted to the comparative value of the rooms furnished. It may be true, of course, that in many cases prices are determined by what in railroading is called "charging what the traffic will bear." Thus, although it would normally seem that in some cases a higher price ought to be fixed, putting the charge on the same basis as that used for other services would in reality make the charge prohibitive, and so adjustment is made to that fact. In such a case the price must be lower than that which ought ordinarily to be charged, and that reduction in price is really in the z 4 •' • -»♦ ''•;l^"fi."%'-.* '.COar- ACCOUNTING FOR INSTITUTIONS nature of a rebate. If the accounting is serviceable, how- ever, it will make note of both facts — that is, that the actual cost of rendering the service is high in that case, and that the price charged does not bear the same relation to cost that price bears in other cases. Unless the accounting takes note of both facts, it fails to tell the truth. It may indeed happen that the price is lower than normal for reasons of policy. In a certain hospital the prices charged for certain private rooms are really lower than on any basis of cost they ought to be. The managers have established such a scale with the distinct purpose of encouraging persons of means to come to the hospital for treatment; for they be- lieve that the service rendered will be deemed so valuable, and the interest aroused in the hospital so great, that these persons will become valuable friends of the institution and their influence will increase subscriptions and endowment. This may or may not be wise policy, but good accounting requires that some note shall be taken of the fact. Economy of Operations An illustration of the second sort of problem which cost accounting should help to solve is economy in laundry work. If it is found in any institution that the cost for laundry is 20 per cent higher than the average for other institutions, the manager is not doing his duty unless he learns why this is so and whether it can be prevented. The conditions may be such that there is no escape. Then the question arises whether it would be cheaper to have the laundry work done outside. Economy of Results As an illustration of the third sort of problem we may take that which arises in many institutions concerning un- used land. Most institutions have a considerable tract of GENERAL PRINCIPLES 3 land for air, light, and prospect, and much of this could be utilized for raising at least some summer vegetables. In many cases where this has been done the apparent cost of food has been much reduced. Yet it is impossible to know whethe^ the actual cost of food has been reduced unless one can know what is the expense for labor attributable directly to the vegetables raised. If the engineer or other employees have much leisure during the summer and that leisure can be devoted to this use, gardening of this sort is likely to be profitable. Only careful accounting can determine just when it is so under these or any other circumstances. Comparison of Results All three of these purposes of cost accounting demand that costs be known as exactly as possible; and the second of these demands that a manager shall know not only the cost in his own institution but in a great many others, for only then can he make comparisons between his own estab- lishment and others, and learn whether his costs are ex- cessive. One encouraging feature in institutional service as compared with commercial service is the fact that the only rivalry that can be acknowledged — at least with a good face — is rivalry in efficiency. Every good institution is interested in institutional progress, and is glad to conduct experiments and share results with other institutions. In- deed, institutional progress ^would have been far slower if there had not been something of a professional spirit at work. Professional ethics demand that each person in charge of an institution shall have not only something of scientific eagerness to learn how things can best be done, but also altruism enough to help others to benefit by his experience. In order to make possible comparisons of in- stitutions under somewhat similar conditions, a uniform scheme of accounting is essential. This means, moreover. 4 COST ACCOUNTING FOR INSTITUTIONS something more than a uniform scheme of accounts; for even institutions with accounts of identical names may have results which are not at all comparable; uniformity must extend to the content of the accounts even more than to their forms and names. Before results can be made at all comparable, we must be sure that in all institutions under consideration exactly the same kinds of things are charged to each account. Uniformity of Accounts Virtually every institution manager who is subject to trustees or other superiors is eager for additional funds, for he believes that work can be done more economically or at least more satisfactorily with larger capital. The most efficient instrument for inducing trustees to supply needed funds is a statement of financial results which shows not only the exact cost of each kind of service rendered, but also how each cost is related to the corresponding cost in other institutions. Trustees are usually business men who know the value of a dollar. They wish to know definite facts about the yield of the dollarrs entrusted to them, and they are far more interested in these than in any hypotheses and managerial ambitions. Every institu- tion has some advantages over other institutions, and every institution has some handicaps; but the good manager will attempt to learn by concrete figures exactly what are his handicaps and what they cost, and what are the actual sav- ings from his advantages. He should not allow the handi- caps for which circumstances — or the trustees — are responsi- ble to swallow up the gains for which the credit is prop- erly his. Until uniform accounting, or at least something approaching it, becomes common, no manager will be in a position to make clear to his trustees just what are the GENERAL PRINCIPLES 5 handicaps under which he is working and just what are the economies that have resulted from his management. As an illustration, a certain hospital turns away paying patients for lack of room, and yet gives its superintendent private quarters which, if let to private-room patients, would yield several hundred dollars weekly; total costs in this hospital are not only far above its income, but high in comparison with those of other hospitals of its class. Another hospital nearby, practically self-supporting, gives its superintendent quarters worth not half so much; yet the hospital giving its superintendent expensive quarters shows by the books a lower administrative cost than the other. The books very clearly do not show the facts. The objection is not necessarily to the spacious quarters, but to the fact that the accounts take no cognizance, in the ad- ministrative cost, of anything but salary, and therefore the result of this extravagance of space does not appear, and a comparison of the two sets of accounts is sadly mis- leading. Comparisons of accounts when the method of accounting is different are worse than useless, for they may show an advantage where there is really a handicap. It should be understood, moreover, that accounting has nothing whatever to do with questions of policy. To give palatial quarters may be wise, but the purpose of account- ing is to tell about business transactions the truth as ex- actly as it can be learned, and the determination of the truth should be without respect to persons, prejudices, or policies. Determination of Costs — Direct Charges Let us now turn to the methods of learning costs. First, the accounts for each department having an exclusive function should be as far as possible distinct from those for every other department. The steward's department, for 6 COST ACCOUNTING FOR INSTITUTIONS illustration^ is concerned with food in a more or less raw state — except, perchance, so far as food is purchased neces- sarily in a cooked state, as are shredded wheat and nu- merous other cereals. It may chance that in some institu- tion the purchasing is careless and therefore the costs high, and yet the cooking is extremely economical. In such a case, unless a distinction is made between the steward's department and the kitchen department, the gross cost for table board, if only that figure is preserved, may be normal, and so hide the fact that one department is well managed and the other ill. The kitchen should be charged for the cost of cooking food and for that alone; this should in- clude the cost of fuel, labor, repairs, etc. The serving of food, again, should not be confused with purchase and cooking, for in some cases there is very great wasteful- ness in the unfortunate arrangement of the establishment, so that the cost of service brings up the total cost of food in spite of the fact that both the purchasing department and the cooking department are well managed. Costs should be found for each department. The expense of the purely housekeeping items, such as sweeping, dusting, and scrubbing, should not be confused with other expenses. Where some of this work is done by persons employed primarily in other departments, as is often the case in hospitals where the nurses have charge of patients' rooms, an attempt should be made to distinguish between that part of the nurses' wages which is for pro- fessional care of patients and that which is for house- keeping. At least it is true that the cost of taking care of the general rooms, such as halls, stairways, reception rooms, assembly rooms, etc., should be carried distinct from the cost of the care of private rooms. Laundry charges should be carried distinct from all others, and should in- clude fuel, soap, starch, labor, etc. GENERAL PRINCIPLES 7 The cost of the care of grounds should be separately determined ; this would ordinarily include the care of flower beds, the mowing of lawns, shoveling snow from walks, etc. This appears on its face to be a small item, but obviously an institution having large grounds with many walks has a very much heavier charge in this respect than others, and a manager who is judged by his total cost per resident- day is handicapped as compared with a manager who has no expensive grounds to care for; he should be able to point out to the trustees of his institution just what it costs to maintain its external attractiveness. Separate ac- counts should be kept for maintenance of buildings and for maintenance of equipment. Of course, as in all busi- ness operations, separate accounts should be kept for taxes, insurance, water, gas, electric light, legal expenses, etc. Determination of Costs — Indirect Charges Such accounts as those just mentioned may be called "primary accounts.'* They require nothing more than sim- ple bookkeeping. We must next pass to matters less ob- vious, for we must make an analysis of transactions and provide for the distribution of indirect charges. In order that we may know what are the exact costs for various kinds of service, we must learn not only the total direct costs, but the cost of each of many separate items, some of which may be indirect and apparently remote. We must dis- tribute most of what are commonly called "overhead" costs — that is, costs incurred for several services in common — also called "burden," and "joint costs," among the various departments. To say that we must know the difference in cost for employees between a seven-by-seven bed-room and a ten- by-twelve bed-room is not to recommend the seven-by- scven bed-room ; it is only to say that we must know what 8 COST ACCOUNTING FOR INSTITUTIONS we are getting for the money spent. All the costs which are indirectly incurred for any department should be ulti- mately carried to the accounts of that department. It will cost more to do the laundry work in an establishment paying its laundresses such high wages that they can live comfortably in rooms which they must hire in the neigh- borhood at normal city lodging-house prices than in an institution where the laundresses are boarded on the prem- ises; and if the accounts in both of these cases charge to the laundry department only the actual money-wages paid, one will show a high labor cost and the other a cost singu- larly low. Before any comparison can be made between the two cases, therefore, the laundry accounts must be brought to a common basis, and the cost figures for laundry work must include not only the obvious primary costs, like fuel, supplies and wages, but also a charge for laundry space, for laundresses' rooms, for food (including cooking and serving) served to laundresses, for lighting, for heating, etc., and we must realize that the cost of the rooms should include not only their care but a share of insurance, taxes, depreciation, etc., on the cost of the building. This sort of indirect cost prevails throughout most institutions, and the importance of provision for its distribution should not be slighted. Classification of Cost Figures Figures of cost should be classified not on the basis of the objects with which they happen to be identified, but on the basis of the purpose which the expenditure was in- curred to serve. The purpose of an institution is to serve guests, or students, or patients, or inmates. We wish to know, as our final figures, the cost, per capita, for food, for shelter, for laundry, etc., for those residents for whopi the institution is maintained. Services performed for em- GENERAL PRINCIPLES 9 ployees are incidental, as a part of wages, to the prime function of the institution. The accounts should be kept so as to distinguish the incidental from the functional. So the figure of compensation for all employees should in- clude not merely wages but everything else in the nature of compensation, such as board, lodging, and laundry. On the final summary of patient-day costs, or guest-day costs, should appear all the costs for each group of expenses, such as administration, professional care, lodging, board, and laundry; and these are made up in part of items in lieu of wages for employees in several departments. These items not only should get into the departmental costs, and thence indirectly into the patient or guest costs, but should not get into the direct costs for patients, guests, etc. The cost of food for a laundress is not guest-food-cost, but a guest-laundry-cost; and the cost of laundry for a cook is not a guest-laundry-cost, but a guest-cooking-cost. It is absurd that an institution having many servants and a rather scanty commissary should show as high a cost for food as an institution having few servants and a much bet- ter standard of living; and yet, if we fail to distinguish between the board of employees and that of guests, a large number of servants would raise the figure naturally inter- preted to represent the cost of supplying guests with food, without in the least resulting from better or more abun- dant food supplied to guests' tables. Requirements of Cost Accounting This sounds very complicated, and the reader may look with much skepticism upon the desirability of doing so much accounting. It is true that many bookkeepers are not com- petent to devise systems which shall give a great mass of detail without an inordinate amount of time and manu- script. It is very difficult, on the other hand, for a person not familiar with bookkeeping processes to realize that a lO COST ACCOUNTING FOR INSTITUTIONS great deal of information may be recorded and correlated and preserved with very little labor — if the bookkeeping system is adapted to the specific needs of the case. Ade- quate accounts cannot be kept without adequate bookkeep- ing, and no one should think for a moment that a proper system of accounting can be introduced in any sort of in- stitution merely by the addition of a little untrained labor. The person in charge of the accounts must know not only what are the common labor-saving devices of bookkeeping, but also what fundamental accounting principles must be observed in drawing final conclusions from the records. With such supervision, however, it is possible to devise a plan which can be carried out by persons not particularly skilled in the handling of accounts, and to get results, for various institutions, that make possible a really valuable comparison between them. When a good system has once been devised, it is not a laborious task to make proper charges for direct costs or to make proper distribution of secondary costs, and no extensive bookkeeping is involved. An outline of the method is given, in connection with the desired accounts, in the pages following. * Distribution of Space Costs When the primary accounts have been charged with the obvious items of cost, we have merely to subdivide the total of those which stand at the foundation of the whole institu- tion and distribute them on an equitable basis among the various departments. For illustration, insurance on build- ings, taxes on buildings, depreciation of buildings, and repairs of buildings, are shared by the various departments in the ratio of the building space occupied. Commonly the square foot of floor space is a satisfactory unit for distri- bution — unless, indeed, it chances that some stories are higher than others or some buildings are less expensive GENERAL PRINCIPLES II than others. It is obvious that if the first story has a height of twelve feet, the second ten, and the third eight, it is hardly fair to distribute room costs on the basis of floor space alone, for the expense of the structure lies in height quite as well as in horizontal dimension. Ordinarily, too, an upper floor is less desirable than a lower. In the matter of cleaning, window space and wall space may be quite as important as floor space. The actual distribution must be determined in every case by the circumstances of that case, and when the principle has once been recognized there is likely to be very little serious discrepancy as between insti- tutions. Distribution of Food and Service Costs The most complicated figure to distribute between de- partments is likely to be that for food costs — at least in an institution supplying several kinds of diet. In a hospital, for instance, there is likely to be a table for house offi- cers, at which may or may not be served the same sort of food as that served ordinarily to patients in private rooms; next in order is likely to come the regular house diet for patients in wards and for nurses ; next may come the coarser diet for non-professional employees; and last, the fever or liquid diet. Many institution managers will say that the attempt to learn just how much food goes to each of these groups of diet would cost more than the value of the infor- mation would warrant. Others have learned it and profited at small cost, for much of the needed information is — or should be — at hand. In any accounting worthy of the name careful store records are kept. Everything going into the store-room is debited, and everything going out is credited. Many things go out of the store-room for use in all four classes of diet mentioned, and many others go out for the use of only one of them ; but it is always some- 12 COST ACCOUNTING FOR INSTITUTIONS one's business to know the destination of everything issued. The housekeeper or dietitian or someone else must regu- larly provide a list of foods required, as a guide in the preparation of meals, and the only labor necessary for learning costs is that of entering the amount consumed, the price, and the product. The calculation may, of course, be made at convenient intervals in the general office, and each department may then be charged for its share. We may learn kitchen cost by taking the sum of the space cost of the kitchen, cooks' wages, fuel cost, rooms and board of cooks, etc. Serving cost, housekeeping cost, laundry cost, and dormitory costs may be similarly learned. The sum of these gives us the total cost per resident-day, in the terms of cost for each particular service rendered. This is obviously our final figure, the ultimate thing sought — for all the departments are subservient to the residents. As we go along, however, we determine for each depart- ment its own cost, in order that we may know whether it is most economically managed. Subdivision of Accounts * Under the method of primary and secondary accounts outlined above, any number of subdivisions may be made; and even with uniform accounting an institution desiring to trace any detailed costs may make ^s many subdivisions as it likes without destroying the uniformity, if only its subdivisions are based on the uniform plan — that is, are capable of combination to produce a total identical in sig- nificance with that of the institutions which have not made subdivisions. The minute subdivisions would ordinarily be kept for purposes of comparison one year with another within the institution, whereas the figures for groups as a whole would ordinarily be kept for comparison with those for other institutions. It is not ordinarily possible to com- GENERAL PRINCIPLES I3 pare detailed figures with those for other institutions, for conditions are widely different. Total laundry costs per resident-day, for instance, may well be compared between institutions, but the cost of fuel is likely to be useful chiefly for comparison within the institution itself; for one laun- dry may use coal, another wood, another gas, another oil, another electricity, and another steam. Canditions of Effective Cost Comparison Accounting is something more, however, than determin- ing mere financial facts. Statistics are of great importance in making it possible to learn why differences in costs per- sist. With regard to food, for instance, it is true that in- stitutions in some places are able to buy meats much more cheaply than others, but suffer a considerable loss in com- parison with others in the purchase of groceries. Differ- ences are very great with regard to dairy products. If, then, we are going to compare food costs and get results worth anything, we must know something of the condi- tions under which each institution operates. We need to know not only what prices it is forced to pay, but also what is the prevailing tendency in that institution with regard to the kind of diet furnished. For this purpose it is well to keep statistical figures for the average price of several groups of food — such, for instance, as beef, mutton, lamb, fowl, butter, milk, eggs, etc. To these may well be added the average price per pound for certain staple articles like fiour, sugar, tea, coffee. Lastly, in order that the records may show the relative importance of various classes of food in the total cost of diet, the total expenditure in each of many groups should be reported. This suggests the need of maintaining many detailed accounts for food costs in the steward's department. Conclusions from these accounts show surprising differences between different institutions. 14 COST ACCOUNTING FOR INSTITUTIONS If any establishment shows a conspicuously low purchasing power of money, that fact should stand out so clearly that the reason is sure to be investigated. Innumerable other statistics not burdensome to compile are valuable as guides in determining comparative costs. For illustration, the number of pieces of laundry work, dis- tinguishing the character — as by separate count for sheets, towels, pillow slips, etc. — is important if per capita costs are to be compared. The area of garden plots, of lawn to be mown, and of walks to be kept free of snow, are con- venient figures. The area of floors swept weekly per capita gives a hint as to the comparative cost of housekeeping labor. Many of these figures, such as areas and ratios of area, are practically unchanging, and calculations once made are good for months or years. When ratios need to be applied to changing monthly totals, calculating devices like the slide-rule and adding machines may be utilized so as almost to eliminate clerical cost. Institutional Products Question often arises as to the treatment of construc- tion work performed or product raised wifhin the institu- tion itself — as by carpenters or by gardeners or farmers. Shall these be debited to the proper accounts at cost, or at market price (crediting, of course, the producing depart- ments) ? In view of the fact that the purpose of accounting in institutions is usually to get costs, the former is the logical answer ; but, in view of the difficulty, in many cases, of learning costs, the latter is often the practical answer. Possibly the hardest costs to learn in all enterprises are farm costs, for they are singularly interwoven. To learn costs in an institution owning farms might mean a com- plicated accounting system within a system. In such a case, unless the farms are of sufficient importance in themselves GENERAL PRINCIPLES 15 to be worth a complete cost-accounting system, the obvious practical method is to charge departments for products at market prices and credit the farms with the earning. When, however, the product is incidental, like vegetables or fruit raised on land otherwise idle, it is well to charge the cost of cultivation to the accounts representing the product — ^as fresh vegetables, or fresh fruit. Advantages of Comparison The advantages of uniformity should not be neglected. No man ever progressed far if he relied wholly on what he learned by his own experience. It is absurd to spend time and money learning for oneself what one's neighbors learned years ago — or even what they are now learning. If they are conducting experiments in some lines, one can most profitably conduct experiments in another. Then a comparison of notes teaches each what the others have learned. Only with uniformity, however, can one ever com- pare significant notes with one's neighbor and profit by the other's experiments. CHAPTER II THE BALANCE SHEET It has sometimes been said that it is not only unneces- sary but undesirable for institutions having a charitable nature to show capital accounts; for the prime purpose of such institutions is not to show solvency, but to show ac- complishment, and the prime purpose of a balance sheet showing capital accounts is to indicate that the corporation is able, either immediately or ultimately, to pay its debts. One may even go so far as to say that such an institution should always show a deficit, for it always should do a little more than it can afford to do — and so make the public see its needs. This is true, but other considerations make it desirable to show detailed capital accounts. Purpose of the Balance Sheet The purpose of a balance sheet is not merely to show solvency, but quite as much to show accountability, and an institution is responsible not merely to produce results in the way of service and product, but also to show that for everything entrusted to it, especially for endow- ment or other capital funds, it has something of value. In order, moreover, to show whether the amount of capital invested is out of proportion to the amount of product or service rendered, and whether that investment is of a type properly subject to one or another rate of depreciation, it should indicate not only the total amount of capital invest- ment, but the various subdivisions of that investment among i6 THE BALANCE SHEET 17 the various departments of the institution. It has happened often that an institution has suffered a high operating cost because it has been inadequately suppHed with facilities; it has been obliged to pay heavily in wages for work done by hand that might much more economically have been done by machinery. It has occasionally happened, on the other hand, that an institution has enjoyed a very low operating cost because work has been done in large part by expensive equipment employing little hand labor. A proper judgment between these two methods of operation can be made only when interest,* depreciation, and other charges due to cap- ital investment, are considered in the ultimate costs of oper- ation ; and since we must have a basis for figuring interest, depreciation, etc., we must know the value of the equip- ment in each department; this should be shown either on the balance sheet or on a schedule appended to that sheet. For these reasons it is desirable that every institution shall maintain a complete balance sheet indicating what it has to show for all property entrusted to it, what it has invested in various types of institution property, what it has invested in interest- or dividend-bearing securities, and finally what current items go to make a complete statement of resources and liabilities. Publication of Balance Sheets Whether the institution shall publish such a sheet, how- ever, must be determined by policy. If an institution now exempt from taxation, because it is rendering a public serv- ice, is misjudged by a group of citizens who clamor for tax- ation of it, the publication of a balance sheet might be un- wise; similarly if the institution is supported in large part by persons who have no idea of the cost of large enter- prises, publication of the amount of assets — because likely to make people think it much better supplied with funds * See page Z03. l8 COST ACCOUNTING FOR INSTITUTIONS and facilities than it really is — would be unwise; yet, on the other hand, if it is supported by intelligent people who know the nature of its need, the publicaticHi of the full bal- ance sheet might lead to the raising of more adequate funds because of the obvious discrepancy between available capital and the facilities needed for the work undertaken. In gen- eral, however, it pays to be absolutely above-board. Noth- ing goes farther to destroy confidence in an institution than a suspicion that something is under cover. Illustrative Balance Sheet It would be possible, but confusing, to show here a form of balance sheet that should include all items likely to oc- cur for any type of institution ; but since such a form would include for each type of institution many items that would occur in no other case (as, for example, for clubs and hotels, for educational institutions, etc.), such a sheet would be very cumbersome and would look not at all like the sheet for any particular institution. The illustration given on page 28 is for a hospital, and is chosen because hospitals cover more lines of activity than most other types of institution. One can easily see what itetns for any other institution would be substituted for certain items shown here. Suggestions for such substitutions follow the bal- ance sheet. Since, even for one type of institution, details are likely to cumber any statement, items of a similar sort are grouped in the form here shown, and provision is made for a supporting schedule, or appendix, for each group needing further elucidation. The discussion of the items appearing on a hospital bal- ance sheet is intended to indicate the general principles of classification, not only for this type of institution but for all ; and it is therefore of general application. The hospital is chosen simply as the best means of illustrating the princi- THE BALANCE SHEET 19 pies, and all general discussion of these principles will be found in this chapter. Classification of Capital and Expense Accounts The capital items for hospital property are divided, un- der the plan explained in detail in the following pages, into fourteen accounts. These various accounts — summarized on pages 24-26 — are determined by the same sort of classi- fication as that used for current expenses, and every de- partment which has any equipment or property of sufficient value to be really recognizable as belonging to that depart- ment exclusively has accounts both for that property and for current expenses. The division between departments, both for capital and expense items (the order followed here is the logical order for expense accounts rather than for capital accounts, but simplicity will be attained by follow- ing it for capital accounts also), is based on the following principles : (a) Administration The administrative department is charged, both for equipment and for expenses, with the cost of those things which serve the general administrative purposes of the in- stitution as a whole — including those things which serve all departments. (b) Apparatus and Instnunents The charges to the capital account for apparatus and instruments cover everything of the nature of permanent medical and surgical equipment (supplies rapidly consumed are charged to the expense account for this department) ; but only things used directly in the professional care of patients should be charged in this group. As indicated in the table, when the pathological laboratory and the home 20 COST ACCOUNTING FOR INSTITUTIONS nursing department have little equipment, the costs of equipment for them may well be included with the cost of permanent apparatus and instruments; but expenditure for running expenses should be shown separately for each. (c) Dispensary The dispensary, or out-patient department, serves an entirely different type of need from that of the hospital as a whole, and consequently its costs, whether capital or cur- rent, should be separately reported. (d) Emergency Department The emergency department may be similarly situated; but if there is not a separately maintained department, no accounts should be kept for the items naturally falling into this group, for if a distinction cannot be made with fair completeness between emergency work, dispensary work, and ordinary care of patients, the distinction should not be made at all. (e) X-Ray Department The X-Ray department is naturally entirely distinct from the other departments, at least so far as its equipment is concerned ; and it may be easily kept distinct for its cur- rent expenses, if only reasonable care is taken to distinguish its supplies, wages, and other items from those of other departments. (f) Training School The training school is one of the departments hardest to place in a uniform scheme of accounting; for it serves a double function and has connected with it two types of expenditure and at least one type of income. The most logical division of its functions considers anything afforded personally to nurses in training (either wages — when any THE BALANCE SHEET 21 are paid — or clothing, laundry, board, and equipment) as a cost of nursing, and therefore chargeable under the head of professional care of patients; but it considers expendi- ture for purposes of teaching (whether wages of teachers, equipment for class rooms, books, magazines, maintenance — including lighting and heating — of class rooms), though incurred directly as a means of obtaining nurses and giving them compensation, as an educational cost — to be separately reported, so that the purely educational features of the cost of maintaining nurses in training may be compared between different institutions and between different periods in the same institution. Both are costs of nursing, but the cost of the two phases of expense should be shown separately for statistical use. (g) Household Household expenditures are divided into several groups. The housekeeping department is responsible primarily for cleanliness and order, and its expenditures should be dis- tinguished from those for the kitchen, the laundry, and the steward's department, as well as from those for repairs of buildings, for heating, for lighting, etc. ; for in order to make comparisons we must have costs in rather detailed groups. The housekeeping department has charge of the equipment and care of dormitories, dining-rooms, reception rooms, halls, etc., and of tlie cleaning of the house in gen- eral.* * iThe order in which departments are here named is .that used' in the' New York, plan . of hospital accounting, to. which reference wjll be _ made hereafter. Since the author is urging uniformity, he has desired to accept with as little diSinge as possible any plan of - uniformity, • already in- use, that will produce the desired results. The New York plan is excellent as far as it goes. Though the order of accounts is not of much importance, it is of great importance that *in any' establishment the; same order be always followed in a^l lists, records, etc; for the waste of time in hunting for a desired figure when no specific place belongs to that figure is 'serious.' "A more logical order, a(nd that ^-ecommended, is to list the household departments as follows: (i) steward's, (2) kitchen, (3) housekeeping, (4) laundry; and that order is followed in the rest of the text. 22 COST ACCOUNTING FOR INSTITUTIONS (h) Kitchen The kitchen department is concerned solely with the preparation of food, and nothing which is not a cost of cooking should be charged to that department, either for capital or for current expenses. (i) Laundry The laundry department has so distinct a function that there is no danger of confusion between it and others if only one remembers that a charge is made under good ac- counting not on the basis of the article with which the J charge is connected, but on the basis of the purpose which it serves; for example, pails used for scrubbing about the halls are chargeable to Housekeeping Equipment, pails used in the preparation of food are chargeable to Kitchen Equip- ment, pails used in the laundry are chargeable to Laundry Equipment, and pails used in the store-room for handling foods are chargeable to Steward's Equipment; and simi- larly so-called laundry soap used for general cleaning pur- poses is chargeable to housekeeping-department expense, soap used for washing dishes is chargeable to kitchen- department expense, and soap used for laundering is charge- able to laundry-department expense. (j) Steward's Department Just as the kitchen is employed solely in the preparation of food, so the steward's department is concerned solely with purchase and delivery of food. (The store-room de- I livers to the kitchen, the kitchen delivers to the household department, and the household department delivers to the consumer.) Steward's Department Equipment is shown as a capital item on the first half of the balance sheet, but supplies of food are carried among the current items as general material on hand. THE BALANCE SHEET 23 (k) Machinery and Tools The account for machinery and tools should record vir- tually all removable equipment not an essential portion of the buildings or of the equipment used for professional or household purposes; this should be kept separate from the building and improvements because a different rate of depreciation as well as a different rate of insurance is likely to be chargeable. (1) Buildings and Improvements Buildings and improvements should be kept distinct from sites and grounds, for taxes may be at a different rate, and very different factors of appreciation and depre- ciation are likely to affect values; this account should in- clude the cost to the institution (or the presumable value if donated) of its real property in excess of the native value of the grounds, but should not be written up or in- creased in value merely because the assessed or market value has appreciated. Since the balance sheet for an insti- tution is less an indication of solvency than of what the institution can show for the value entrusted to it, cost rather than market value is the figure of real significance. (m) Sites and Grounds Sites and grounds, similarly, should be shown at cost; if anyone wishes to know how far it is true that the insti- tution has property of enhanced value, he may at any time learn the value of the sites and grounds irrespective of any debit to the account representing them on the books; but an effort to make the books show such a value would mean either the confusion of constant changes or else a mislead- ing figure. 24 COST ACGOUNTING FOR INSTITUTIONS Varying Purposes of Asset Statements It should be noted that three distinct purposes of stating assets are hkely to be at one time or another in the mind of the accountant, and the purpose must determine the form of the statement. Ordinarily the assets are those of a "going concern," and the record of property should show the cost of that property to the institution — for only ac- countability for the funds used need be considered on the books. Occasionally, however, the institution needs to bor- row money, with the property as security; since here the important thing is not the cost, but the probable realizabil- ity of the particular property, the statement should put the valuation at a reasonable sale price. Finally, absolute sale of the property as a whole may be contemplated ; here the value of the property in use is the criterion. Truth lies in the proper relation of any fact to other facts, and usually cannot lie in a bald statement of any fact by itself. For this reason three statements of assets for an institution at any time may all be true, though the figures vary widely. For ordinary purposes, however, the true statement is that of cost, and this is what is recommended on books and bal- ance sheets. Summarized List of Capital Accounts Capital Accounts for Institution Property (i) Administrative Equipment Includes office equipment, such as desks, calculat- ing machines, typewriters, telephone switch- boards (if owned), etc. (2) Apparatus and Instruments For medical and surgical uses only. Since the Pathological Laboratory and the Home Nurs- ing Department are likely to have compara- tively inexpensive equipment of this type, the THE BALANCE SHEET 25 amount for them may well be included here. If their equipments are expensive, they should have separate accounts. (3) Dispensary Equipment (4) Emergency Equipment This should be kept separate only if the work is done in distinct quarters with distinct ap- paratus. Otherwise these items are included in Apparatus and Instruments. (5) X-Ray Equipment (6) Ambulance Equipment (7) Training School Equipment (8) Steward's Equipment Storage refrigerators, scales, trucks, etc. (9) Kitchen Equipment This should include cost of ranges, steam tables, boilers (for cooking), ice-chipping machines, potato parers, kitchen utensils, etc. (10) Household Equipment This should include equipment used for dormi- tory and table purposes and for general pur- poses of cleanliness — such as linen, beds, bed- ding, crockery, dormitory and dining-room fur- niture, vacuum cleaners, etc. It is likely to be worth while to subdivide and show dormitory, dining-room, and general equipment separately. (11) Laundry Equipment (12) Machinery and Tools This should include machinery and tools for gen- eral purposes, as boilers, engines, motors, ven- tilating fans, and mechanics' tools. (13) Buildings and Improvements This is kept less as an indication of valuation than as an indication of the cost to the institution of 26 COST ACCOUNTING FOR INSTITUTIONS its property in excess of the native value of the ground. Hence it should be debited for the cost of the "improvements/' commonly so- called, including plumbing and steam-fitting. (14) Sites and Grounds This should register the cost of the land alone. Arrangement of Balance Sheet for Comparative Purposes The balance sheet should make provision for an easy comparison between the present situation and that of a year ago. If the figures for the last year are placed at the left of such a sheet, with a column for increase and one for de- crease immediately following, and then the present figures are placed at the right of the titles of accounts or groups of accounts, the reader will see as the most conspicuous figure on the sheet the present situation, but will find at hand an easy correlation of the present figures with the old. Arrangement of Balance Sheet as to Assets The assets should be divided into several groups. The institutional property should comprise the first group, and should be shown in more or less detail, at least in enough detail to indicate the different types of property owned, such as sites and grounds, buildings, furniture and fixtures, machinery and tools, etc. The second group should include investments, which, in the case of many institutions, would comprise the endowment. The sum of these two groups — that is, properties and investments — would constitute the capital assets (unless there were certain cash funds destined, perhaps, because of restrictions, for capital use). The next main group of assets would be the so-called current assets, comprising any accounts receivable, supplies on hand, cur- rent cash, and accrued or prepaid items. THE BALANCE SHEET 27 Arrangement of Balance Sheet as to Liabilities A similar division should be made for the liabilities. The first capital liability for a corporation having shares would be capital stock. For an endowed institution it would be proprietorship, or book value of property above debts and special funds. Then would follow special funds, bonds and mortgages payable, etc. The current liabilities would be of the ordinary type, such as bills payable, ac- counts payable, and accrued items. These things are shown, without figures, on the sample sheet following (pages 28 and 29). Schedule of Furniture and Fixtures The supporting schedules for details should follow. The first, schedule I, is a list of equipment under the head of furniture and fixtures, as shown (the form varying with the circumstances) on page 30. These figures should be obtained chiefly by inventory, though some items, like calculating machines and refriger- ators, would be valued by an allowance for depreciation subtracted from their original cost or from their last book value. The general treatment of depreciation is discussed on page 104, and on pages 170 to 174. Schedule of Investments It is usually desirable for an institution to report an- nually all property owned by it for investment purposes. This form is intended to give information regarding not only the principal (the book value) of such property, but its market value, the gross income which it produces, any allowances or expenses connected with its ownership, and its final net income. The bookkeeper should clearly under- stand that any charges for taxes, insurance, depreciation, etc., on property held as investment, should be entered not 28 COST ACCOUNTING FOR INSTITUTIONS FORM A BALANCE Last In- De- This Year crease crease Year Capital Assets Hospital Properties, etc. Sites and Grounds (0)* Buildings (B) Furn. & Fixt. (ATSKRFH) (See Schedule I, p. — ) Machinery & Tools (LQ) Apparatus & Instruments (IDEXP) Ambulances, Horses (M) Miscellaneous Total Investments (Schedule II, p. — ) Bonds Stocks Mortgages Receivable Other Investments Total Cash in Capital Fundsf Total capital assets Current Assets Bills Receivable Accts. Receivable (Treas.) Accts. Receivable (Supt.) General matenal on hand (U) Cash — current (Treas.) Cash — current (Supt.) Interest (net accrued) Insurance prepaid Other prepaid items Miscellaneous Total current assets Grand Total Dpfint _ * The initials after the names of the capital asset items are the symbols of the various accounts representing the property. For example, Furniture and Fixtures should include the equipment of the following divisions: Administration, Training School. Steward's. Kitchen. Housekeeoinar. The svmbols are exolained THE BALANCE SHEET 29 SHEET In- crease De- crease This Year Capital Liabilities Capital Account (Proprietorship of property not assigned to special funds) Special Funds (See Schedule III, page -) Bonds Outstanding Mortgages Payable Total capital liabilities Current Liabilities Bills Payable Accounts Payable Advances by patients Interest (net accrued) Other accrued items Miscellaneous Total current liabilities Grand Total Surplus 30 COST ACCOUNTING FOR INSTITUTIONS Schedule I Furniture and Fixtures - Group Total Administrative Ofl&ce Furniture (desks, tables, etc.) Office Devices (typewriters, calculating ma- chines, etc.) Telephone Apparatus Training School Furniture Library Charts, models, etc. Stores Refrigerators Trucks, scales, measures, etc. Kitchen Ranges, boilers, steam tables, etc. Machines (ice-chipping, potato-paring, etc.) Utensils Housekeeping Dormitory Equipment (tables, chairs, beds, bedding, linen, crockery, etc.) Table Equipment (tables, chairs, Unen, crockery, etc.) General Equipment (furniture for general use, appliances for cleaning, vacuum cleaners, etc.) Grand Total as operating expenses of the institution, but as charges against the income of the particular property held. For this reason it is desirable to maintain in the general ledger (or in a subordinate investment ledger) a separate account for the income and for the expenses of each piece of invested property. Then complete record is at hand and statistics may be compiled. As is indicated in connection with the THE BALANCE SHEET 31 bonds appearing on the form shown, any bonds at a premium must be amortized whenever interest payments are received, in order that their book value may be reduced to par at maturity. Any bonds at a discount, unless it is be- lieved that they will not produce par at maturity, should be similarly accumulated, and a sum should be added to their book value sufficient to bring them to par at maturity. Schedule II Investments Property Book Market Gross AUow- Net Value Value Income ances Income Stocks Park Bank $9,000 $13,500 $710 $710 A. B. R. R. I, coo* 1,100 15 15* Bonds H. & F. Ry. 12,543 13,250 600 $55» 545 etc. etc. etc. etc. etc Mortgages etc. etc. etc. etc. etc. Real Estate House, 16 Bee St. 15,000 1,500 500« 1,000 Totals $62,200 $64,550 $4,815 $1,300 $3,515 Less short-term holdings 1,000 1,100 15 15 Full-term holdings $61,200 $63,450 $4,800 $1,300 $3,500 Average percentage of net income — '■ — =5.72%. 61,200 • Held for less than a year. Schedule of Special Funds The schedule of special funds is intended to give a sum- mary statement of the condition of each fund in such a way ^Amortization of premium on bonds. 'Taxes, insurance, depreciation, etc. 32 COST ACCOUNTING FOR INSTITUTIONS -I 11 to 11 OH 3 (2£ II wi " in (Si CO to O to so" d" 8 8 in »o «•■ «♦ 8 8 g 8 R ol lO fO 00 \n ID o lO o >o •^ rf h>. n "H rO «» €^ <» «» <^ s o o o lO Jo « I SI •3 3 a'2 I §« •« fe -0 •S si -3 ^'2 -3 -4-> M f3 I 3 •2 S S I s "11" ill g -d T) ra ^ i^ ir I ■g -C -C H ^ ^ ^ »^ t) t3 1^ THE BALANCE SHEET 33 that all persons interested in the fund, as donors or trustees, may learn exactly what has been done with it for the year in question. As in the balance sheet, the comparison with the preceding year is preferably placed at the left of the statement, and the items pertaining to the immediate year at the right. Since many even of the capital funds will have an occasional unexpended balance, that balance should be reported in a column by itself, and preferably the amount of the fund invested (of which, therefore, the in- come has been received) should also show separately. This gives for each fund three possible figures for the year in question, namely: the amount from which income was re- ceived, the unexpended balance, and the total of the fund. The statement should also show the totals for each group of funds — for instance, the total of the funds restricted to the purchase of hospital property, of the funds restricted to investment, of the unrestricted funds, etc. The total of all the groups will then give the total capital funds. To these are appended the current funds specified, classified on the basis of any restrictions that may be placed upon them. The figure in the last column is susceptible of proof in three ways: it should equal the last-year total plus the in- crease minus the decrease; it should equal the amount this year in use plus the uninvested balance; it should equal the total of the individual funds of the preceding column. \ Pesignation of Accounts by S3niibols It is usually found very convenient, if not absolutely necessary, to have symbols representing the various ac- counts, for then memoranda indicating accounts to be debited or credited may be easily made on various forms and documents. The choice of symbols should be carefully made, or errors will arise from carelessness or confusion. Letters, having mnemonic significance, are preferable to 34 COST ACCOUNTING FOR INSTITUTIONS figures. Those recommended for the property accounts of a hospital are shown below. Throughout this book much emphasis is laid upon the symbols used — not because the symbol itself is of consequence, but because classification of accounts is of utmost importance, and here the symbolism is the expression of the classification. A knowledge of the symbol of an account under this plan instantly and auto- matically shows its place in the general accounting scheme. Symbols for Property Accounts A single capital letter may be used to indicate a prop- erty account, and the letter will always suggest the account to one who has once realized the connection between the symbol and the name of the account. In a few cases the correspondence is not so obvious as might be desired, but in these cases the natural symbol is required for use in another connection where it is likely to be in much more frequent demand, and hence the advantage of the mnemonic aid in that connection will be greater than here. Or, if deemed simpler, to show the relation of the property sym- bol to the department symbol, a symbol may he prefixed to the departmental symbol. Since it is usually unnecessary to distinguish between property, plant, and equipment, we may take E (equipment) as the general symbol of a capital account. If the institution is one which maintains a large number of departments, symbols for the capital accounts may well be related in all cases to the corresponding sym- bols for expense accounts, for example, by the prefix E; for not enough single letters are available. Symbols by both methods are shown below. In the right column are given those related more closely to the expense symbols. (Their significance will be seen only after the expense sym- bols haye been observed — ^as explained on page 66. ) THE BALANCE SHEET 35 Where departments are few, the single letter should be used. Short symbol Combination symbol A Administrative Equipment EA B Buildings and Improvements EB D Dispensary Equipment EPD E Emergency Equipment EPE F Dining Equipment (F suggests feeding, as D is al- ready in use) EDHT H Household Equipment (general, for dining and dormitory are separately shown) EDHZ I Apparatus and Instruments (I suggests instru- ments, as A is already in use) EPM K Kitchen Equipment EDK L Laimdry Equipment EDL M Ambulance Equipment (M suggests ambulance, as A is already in use) EDM N Home Nursing Eqxiipment EPH O Sites and Groimds (O suggests outside, as S and G are needed elsewhere) EO P Pathological Laboratory Equipment EDP Q Machinery and Tools (Q suggests e^ipment, as M and T are needed elsewhere) EHQ R Dormitory Equipment (R suggests rooms, as D is already in use) EDHD S Steward's Equipment EDS T Training School Equipment EDT U Inventories of Material (U suggests a basket, for stores) EU X X-Ray Equipment EPX Basis of Treatment of Accounts Herein In order to avoid confusion, as already suggested, the treatment of accounts in any paragraph in this book is based in large part on the sort of institution with which 36 COST ACCOUNTING FOR INSTITUTIONS the paragraph is primarily concerned; since, however, the chief type of institution chosen for illustration is the hos- pital, in the paragraphs on hospital accounts are discussed all accounts having general application to all institutions, as well as those peculiar to hospitals. Such are accounts for the steward's department, the kitchen department, the housekeeping department. Other accounts of occasional use in hospitals, but of more frequent use elsewhere, are treated in other paragraphs which chance to be devoted pri- marily to the accounts of other institutions (for example, baths, in the paragraphs devoted to accounts for clubs). Similarly, educational institutions may need accounts pri- marily designed for clubs (as the accounts for tennis-court equipment and maintenance). For other institutions than hospitals, therefore, many accounts similar to those already discussed for hospitals, or even identical, are likely to be required; and a few accounts desirable for hospitals, but not mentioned above, may also be worth while. Only in the index is attempt made to bring together, for all, or any, types of institutions, all references to the recom- mended accounts. The arrangement of the text is that which is believed to bring out most clearly the principles. An attempt to discuss in a connected passage all accounts for each type of institution would mean an enormous amount of repetition. The hospital is taken here as the standard type, and variations from it are discussed by themselves. Capital Accounts for Educational Institutions Universities, colleges, and schools will require accounts not even suggested in the discussion of hospital accounts. Such are accounts representing different types of instruc- tion and facilities for study both for students and for in- structors. Below is a list of capital accounts recommended THE BALANCE SHEET 37 (the list is not necessarily complete, but indicates the kind of differentiation to be made). The symbol recommended for each is shown. The significance of the general symbols is as follows : E Property, plant, and equipment (an initial E, then, always indicates a capital account, and the term equipment is used indifferently for property, plant, and equipment) P Professional research S Students' instruction The symbols for subdivision are in the main obvious, but a few which must be somewhat arbitrary (because the letters naturally to be applied are already in use elsewhere) are as follows: B Books (for libraries) G Groimd (for students on the ground or in residence) The following is the list of capital accounts : ESG Equipment for oral instruction to students in residence ESE Equipment for instruction through university extension ESC Equipment for instruction by correspondence ESL Equipment of laboratories devoted to the use of students (including libraries and collections in connection there- with, but not those for general use) EPL Equipment of laboratories for research work by the mem- bers of the teaching staff (or by special investigators) ESB Libraries for the general student body (not in connection with laboratories, and not especially for research by members of the teaching staff or by special inves- tigators) 38 COST ACCOUNTING FOR INSTITUTIONS It may be worth while to subdivide this account as follows; ESBB Books (not including periodicals or musical scores) ESBU Pamphlets ESBP Periodicals, bound and unbound, other than newspapers ESBN Newspapers, bound and unbound ESBG Maps and charts ESBM Musical scores, rolls, and records ESBA Photographs, lantern sUdes, prints, etc. ESBQ General equipment, for storage, adminis- trative, and delivery purposes The amoimt entered to the library accounts should be in all cases, except equipment, the cost of what is added. Replacement and rebinding of books lost or worn is not a capital charge, but a running expense, whereas additions, so long as they are avail- able for use, are what the library has to show for its funds. Depreciation and appreciation are be- yond anyone's power to estimate in any important library, and may be disregarded. Libraries for which no capital accounts have been kept in the past may be roughly represented on the books on the basis of a fair average estimated cost per volume — not for the purpose of valuing the present library (for such a figiure might be an absurdity), but in order that there may be a point of departure, so to speak, for watching its future progress. Gifts should be appraised, and the value should be en- tered to the capital account and credited to an account for Library Gifts. EPB Libraries for the use of the teaching staff or of special investigators engaged in research ESM Museums and other permanent exhibitions (not in con- nection with laboratories) THE BALANCE SHEET 39 ESO Equipment of observatories used by students EPO Equipment of observatories for research by members of the teaching staff or by special investigators. It might be worth while to subdivide this account as follows: EPOA Astronomical apparatus EPOP Photographic apparatus EPOB Books, maps, charts, etc. EPOQ General equipment £HH Equipment in public halls (pianos, organs,, scenery, etc.). The first H of the symbol indicates general "house property." So far as universities, colleges, and schools afford to their residents facilities similar to those afforded by clubs, hotels, etc., to the accounts above named will be added certain departmental accounts indicated below. Equipment Accounts for Hotels and Clubs Hotels and clubs would have to a certain extent the same accounts as hospitals and educational institutions. For example, EDS, steward's equipment, and EDK, kitchen equipment, would be the same. A library, however, would be designated EDB (since D indicates a department of ac- tivity, and only one type will be maintained), rather than ESB or EPB, and an exhibition EDM. In addition, the accounts indicated below are likely to be necessary. The departmental symbols shown for this group of ac- counts are usually suggestive of the initial letters of the de- partments. The following, however, are more or less arbi- trary; but they are in each case made necessary by some other use of the symbol which would naturally be used in this connection, and each suggests a word connected with the department f\inction. 40 COST ACCOUNTING FOR INSTITUTIONS A Boats (suggesting aquatics) F Carting (suggesting freight) I Gymnasium (suggesting, by its shape, straightness and setting-up exercises) J Driving (suggesting Jehu) O Bowling (by its shape suggesting a ball) Q Cards (suggesting queen) R Billiards (suggesting rubber and cushions) V Golf (suggesting, by its shape, an inverted tee) W Baths (suggesting water) Y Bar (suggesting the shape of a wine glass) The following, then, is a list, with symbols, of equip- ment accounts recommended for hotels and clubs : EDA Equipment for the department of boats (This should in- clude the cost of boat-houses, boats, canoes, launches, etc.) EDC Equipment for the department of cigars EDE Equipment for entertainments (properties, etc.) EDF Equipment for the department of transportation (in- cluding cost of draught horses, wagons, harnesses, etc., for cartage and delivery) EDG Equipment for the department of garage (including cost of automobiles and all equipment connected with their use) EDI Equipment of gymnasiimi EDJ Equipment of stable (including the cost of horses, horse- drawn vehicles, harnesses, blankets, etc., for driving or livery purposes, but not including the cost of such equipment for cartage or delivery) EDN Equipment for the department of news-stands EDO Equipment of bowling alleys EDQ Equipment of card rooms EDR Equipment of billiard rooms EDT Equipment for the department of tennis (This should include the cost of alterations of land which serve the pvupose of tennis alone and do not add to the value of THE BALANCE SHEET 41 the land for general use. The cost of special equip- ment, such as nets — center, side and back — should be entered here. No institution is likely to need this symbol for both a tennis department and for a training school for nurses. Hospitals maintaining courts for doctors and nurses would hardly find a separate ac- coimt worth while. Sanatoria, if they had a training school for nurses, might use symbol EDX for tennis.) EDV Equipment for the department of golf (the cost of tees, putting greens, artificial hazards, shelters, etc., and all equipment or improvements on the land which serve golf purposes and would not increase the value of the land for general use. Grading and the cultivation of fair greens may be deemed an addition to the general value of real estate.) EDW Equipment for the department of baths (This includes the cost of all the equipment for swimming pools, Turkish baths, vapor baths, electric or violet-ray baths, and other therapeutic baths. This account should be kept in hospitals maintaining such a department.) EDY Equipment for the bar In many institutions, having but few departments, these symbols could be shortened to a single letter. In every case above, the E is retained to show that the account is for capital items, and the D is retained to show that it rep- resents capital for a department — as distinguished from property or capital independent of departmental use. For example, EA is administrative equipment, but EDA is aquatic equipment; EO is sites and grounds, but EDO is bowling equipment. The titles of accounts given above are often long and awkward in order to suggest the signifi- cance (as a mnemonic aid) of the symbol. In use, their shortening is obvious. 42 COST ACCOUNTING FOR INSTITUTIONS Balance Sheet for Institutions Generally The balance sheet for educational or other institutions would not be essentially different in form from that shown on page 28. The grouping of property accounts would be somewhat different, however. The costs of equipment for purposes of instruction, for example, would preferably form one group. Similarly, for clubs and hotels, the costs of equipment for outdoor or athletic purposes would form a group by itself. CHAPTER III THE STATEMENT OF FINANCIAL TRANSACTIONS FOR THE YEAR The statement which is of most importance in giving a summary view of the transactions of any business organi- zation for any particular period is the statement of income. For institutions which are not primarily profit-making, how- ever, the common type of income statement is not likely to be quite satisfactory. A complete statement of transactions should combine capital and revenue items, but should do this without confusing them. Several related schedules may well supersede the single statement of income. It is obvious that institutions having several sources of income and compelled to meet several kinds of expense should show how far any of the kinds of income are adequate to take care of the expense connected with them. Earnings and Endowments In a hospital, for example, the first fact we wish to know is how far the earnings from the service of patients are adequate to pay running expenses. If we show all items connected with the care of patients in a schedule by them- selves, which we may call the "schedule of earnings," the resulting surplus or deficit gives us the desired figure. We next wish to know how far the income from the endowment of the institution is adequate to make up any deficit in its direct earnings, or how far it will add to the surplus of earnings. So the surplus or deficit of earnings, 43 44 COST ACCOUNTING FOR INSTITUTIONS from the first schedule, should be carried down to the sec- ond schedule — ^which we may call the "schedule of endow- ment income." Any surplus or deficit remaining after in- come from endowment has been considered is the net re- sult of the internal affairs of the hospital. Subscriptions For most hospitals, two other sources of income remain - — annual subscriptions from charitable organizations and individuals, and legacies. It happens that subscriptions are likely to maintain a fairly steady level, and may with some degree of certainty be counted upon by the administrative officers to meet running expenses. Legacies, on the other hand, are extremely variable, and may run very high in seasons of abnormal death rate among the well-to-do, and may run very low even in extremely prosperous seasons if these seasons happen to be seasons of good health. For this reason it seems desirable to make a distinction be- tween these two kinds of income, and to provide separate schedules for them. If we bring down the surplus or deficit from our second schedule, or "endowment income," into a third schedule, which we may call "normal current income," we have a final surplus or deficit resulting from what may be considered the normal transactions of the period under review. Legacies and Other Funds This figure, in turn, should be carried into the fourth schedule, which should cover legacies. Here we enter a field which may be either capital or revenue. This sched- ule will show the final result for the year as affected not only by normal income and expense, but by the two transi- tory and unreliable elements, current and capital legacies. If any legacies have been received subject to the restriction STATEMENT OF FINANCIAL TRANSACTIONS 45 that they shall be used for capital purposes only, it is hardly feasible to consider them as of the same class with unre- stricted legacies, and theoretically they should not go into a schedule which includes current items; but since most persons who are interested to watch contributions to an in- stitution of this sort are not familiar with accounts, and are therefore likely to expect to see even capital legacies placed with the income for the year, it is desirable to place them in this part of the statement — though they should be desig- nated separately. This fourth schedule, since it is not strictly for either income or capital, but combines all kinds of ultimate receipts, should distinguish by separate columns those for current use from those for capital use. Detailed Schedules To these schedules may be appended details for pur- poses of comparison — one institution with another or one year with another; but anyone who has attempted to make comparisons for himself either within an institution or be- tween institutions will recognize the importance of the sum- mary statements, even though details be not shown. Detailed Examination of Schedules Let us now examine these statements in detail. The forms given, on pages 51-54, are for a hospital. Provision is made there for virtually all contingencies. Never could all of them arise at the same time in any institution, but the titles are shown for the sake of completeness. Virtually the same sort of items would appear for any other type of institution, though the titles might be changed in certain cases — as with "State appropriation" substituted for "Sub- scriptions from normal sources." 46 COST ACCOUNTING FOR INSTITUTIONS Schedule A — Earnings In schedule A are shown only those items of earning and of expense which result from the conduct of the insti- tution's prime function — the care of patients. (For a school or college this would be the education of students, and for a club or hotel the entertainment of guests.) Distinction should be made clearly between earnings and income, for the latter term is commonly used to designate not only earnings from the chief business of the enterprise, but also interest and dividends on bonds and stocks held and mis- cellaneous income from chance profits. Any gain arising from sources not directly related to the year under consider- ation should appear on neither the earnings account nor the income account, but on the fourth schedule. Deprecia- tion must be counted as an expense of conducting business, and is therefore chargeable against earnings on this first schedule. In view of the fact that very different policies with regard to the amount of depreciation chargeable in any year prevail in different establishments, however, it is desirable to show depreciation as a separate item; for it would be unfortunate for any institution to have its super- intendent judged by the total charge for* expenses, when that charge included very liberal provisions for deprecia- tion, in comparison with the superintendent of another in- stitution in which the provision for depreciation is very scant. For these reasons, on the revenue account deprecia- tion is shown in the accompanying form as a deduction from an initial surplus or deficit, and is therefore excluded from the first figure of expenses. Obviously if the revenue from the main activity of the institution is in excess of all the expenses, the words "Total deficit" on the form which follows will be canceled, and "Net surplus" will stand as the title; and if the initial surplus is less than the amount of the depreciation, the final designation of the amount of schedule A will be "Net deficit." STATEMENT OF FINANCIAL TRANSACTIONS 47 Schedule B^ — Endowment Income The purpose of schedule B is to show not merely the figures for income, but also the rate of return. In view of the fact that some investments may have been made in the progress of the year, and therefore have borne interest for less than a year, one cannot draw exact conclusions with regard to the average rate of return unless one knows how much investment has borne interest for a short period. Schedule B accordingly shows as its first item the invest- ment previously reported and unchanged, and gives in parentheses the average rate. The next item is the interest charged by the corporation, and therefore earned by the corporation, on property used in the departments and shown on the statement of detailed operating costs under the vari- ous departments. The income from new and changed in- vestments, which, of course, is for less than a year, is sep- arately shown. From the total of this income from invest- ments and property must be subtracted any deficit of earn- ings as shown by schedule A, if any has occurred; or to these will be added any surplus of earnings. The cancella- tion of the unnecessary words on the schedule makes the final figure clear. Schedule C — Normal Current Income Schedule C is likely to be most useful if it covers not only all items of gain from earnings and from investments, but also all sums received from outside in the way of gifts or legacies applied to current uses and normal in amount. Since the purpose of schedule C is to show the ultimate re- sult of the year's work so far as the balance of income and expense is concerned, and since many institutions receive frequent legacies not only available for current expenditure but even intended by the donors to apply to that use, the result of the year's operations is not fairly shown unless the amount of such gifts and legacies actually utilized for cur- 48 COST ACCOUNTING FOR INSTITUTIONS rent purposes is shown on the final schedule of normal cur- rent income and expenditure. The final figure of schedule C indicates whether the institution is running behind on all its normal current income, from whatever source, or is ac- cumulating a fund available either for expansion or for in- creased investment. Institutions, unlike most commercial and manufacturing enterprises, are likely to have funds which may be treated as either capital or current; for they are not primarily engaged in making and distributing profit ; and hence they have not the same need of distributing evenly throughout the years any unlabeled items of income and capital. Since expenses need not necessarily be met out of earnings, and since some contributions may be either income or capital, a certain overlapping of what in ordi- nary business would be deemed either pure income or pure capital is bound to occur. This overlapping should be indi- cated so that one in reading the accounts, or at least in read- ing the final published statement, may see both what is the gross increase in the capital of the enterprise, and how much of those receipts which under certain conditions might have been added to capital have been actually absorbed for current use. The balance sheet, as previously indicated, shows annually the condition of all capital funds; but it cannot show how much property possibly available to add to capital has been absorbed for other purposes. Schedule C should show the actual absorption of legacies for current uses. Corporation expenses should be reported here. Schedule D — Special Items: (a) Available Funds Schedule D is meant to be a statement of the financial transactions for the year, both capital and income. It be- gins with the balance brought down from schedule C. If schedule C has not produced either a mere cancellation of receipts and expenditures on one hand or a deficit on the STATEMENT OF FINANCIAL TRANSACTIONS 49 other, the surplus of normal current income is, of course, available to increase capital, and therefore it may be held either for current use in the subsequent year or as a fund laid aside and destined for capital investment. The sched- ule shown below indicates how much surplus of normal cur- rent income is destined for each of these two possible uses. The second and third columns of the schedule are intended to separate the current from the capital items; and there- fore these amounts, resulting from a division of the surplus of normal current income just indicated, are not only shown, with their total, in the first column, but are extended into the appropriate other columns. As above indicated, legacies and other special contributions may be restricted to investment for capital endowment, they may be available for the purchase of property, or they may be available for current expenses. The sum of these constitutes the amount which it is possible to add to capital ; but if any part of this sum is applied to current expenses, the balance only will be extended into the capital column of the schedule, and the sum deflected to current expense will appear in the current column and will correspond with the sum so named on schedule C. Occasionally an institution disposes of some of its prop- erty at a profit. This gain is clearly not a gain of income in the ordinary sense, because it does not arise from circum- stances of the current year. It should be considered a cap- ital addition, although, of course, unless there were a re- striction on the original property, it may be applied to cur- rent uses if need arises. Similarly, gains may arise from change of investment. These, when added to the possible capital additions already indicated, show all possible addi- tions to capital for the year. It is likely to happen, how- ever, that some capital items have depreciated, and that, although sums are available for capital increase, it is wise 50 COST ACCOUNTING FOR INSTITUTIONS '^ to devote them to making good capital losses. Wherever this has occurred, it is obvious that the increase in property or investment shown by the balance sheet will not be so great as the increase in possible additions to capital shown on schedule D. To explain any such discrepancy, it is de- sirable that those sums necessary to make good losses shall be shown directly on schedule D, and thus indicate the de- • duction from items of possible addition to capital. It is true likewise, of course, that capital property may have increased because the institution has borrowed to make purchases. If that has occurred, the increase in outstanding debt should appear on schedule D as a means of showing the total amount of funds to be accounted for. Then any changes on the balance sheet will be explained by reference to sched- ule D — unless those balance-sheet changes have arisen from J a mere shift of one kind of assets for another, or from a shift of one kind of liability for another. Schedule D — Special Items: (b) Disposition of Funds The second half of schedule D is intended to show how the institution has accounted for the funds which the first half of schedule D shows it responsible for. If the normal current income (schedule C) has shown a deficit, obviously a part of the funds available for current use and shown on the upper half of schedule D will be absorbed in making good this deficit. Any additions to institution property and to institution investment will also absorb certain portions of the increase of funds available for capital use; and if any shrinkages of either property or investment are to be made up from capital funds these will also show. It will be no- ticed that those sums necessary to make good losses are shown on both halves of schedule D ; since it is desirable to show the details regarding the use made of capital funds available, they must appear on one side of the schedule, and STATEMENT OF FINANCIAL TRANSACTIONS 51 FORM B Statement of Financial Transactions for the Year Schedule A — Earnings Expenses, excluding depreciation (see Schedule IV, page — ) $245,000 Revenue from hospital sources (see Schedule V, page — ) 100,000 Initial [surplus] deficit $145,000 Depreciation (see Schedule IV, page — ) 5,000 Total [Net] [surplus! deficit of earnings (see Schedule VI, page — ) $150,000 Schedule B — Endowment Income Income from investments previously reported, and unchanged (5.12%)* $85,000 Interest charged to institution departments on their equipment (3%)t 10,000 Income from new or changed investments (parts of year only) . . . 5,000 Total $100,000 [Surplus] Required to make good deficit of earnings (Schedtile A). 150,000 [Total surplus] Net deficit of endowment income $50,000 Schedule C — Normal Current Income Subscriptions from normal sources (see Schedule VII, page — ) . . $80,000 Legacies and special donations used for current expenses 00,000 Total $80,000 [Surplus] Required to make good deficit of endowment income (Schedule B) 50,000 Balance $30,000 Corporation expenses 5,000 Net [Total] surplus [deficit] in normal current income $25,000 * This does not include income from any f tmds of which the income is not available for current use. t The reason for charging interest to departments is given on page io3. H 52 COST ACCOUNTING FOR INSTITUTIONS 3 6 :? 8 8 8 ID O lO |s »o g I Sq to STATEMENT OF FINANCIAL TRANSACTIONS S3 IS f ^ I i I ^ 1 3 a •2. } I S I > 2 S o o o .^ o o (4-1 ^ CA VM ^ 6.^ p. ^ Tl 2^ ^ ^ d 5 ^ a> t5 Z g rt ^ si •-^ a ++ I I .2 I S I i5 .^ ^ :S - o ^ H 5ft H oiz: CO 4J P 0) O |1 ss ill li! III !-^ ■JJ o « Of» jI ca p log -. « a J! J 8^ S S a -^ •- ^1 all * g O rt «^ 4) Ml II § 3 rt « fl So |l| -^H^ ♦ -^^ « ♦*-*•! > \ 4- 54 COST ACCOUNTING FOR INSTITUTIONS unless they appear also on the other side the schedule will show a discrepancy between the sums to be accounted for and the disposition of such sums. Any sums destined for capital use, but not yet invested, will appear as a balance, in the capital column, as cash with the treasurer. Any sums spent in paying off outstanding debt will appear also in the capital column, for they explain the disposition of capital sums available, and paying debt is the same as making in- vestment. Any sums destined for current use and yet un- expended appear in the current column as increase of cur- rent cash with the treasurer. FOMIC Summary of Financial Transactions for the Year Li A- 4 A 4 Surplus of normal current income $25,000 Legacies and other special contributions 40,000 Net additions to outstanding debt Net shrinkage in total capital in institution property Net shrinkage in total capital investments Net shrinkage in uninvested capital funds Net shrinkage in available current funds * To be accounted for $65,000 Deficit in normal current income Expended in making good losses of capital $10,000 Net shrinkage in outstanding debt Net additions to capital in institution property 15,000 Net additions to capital investments 20,000 Net additions to uninvested capital funds 10,000 Net additions to available current funds f 10,000 Accountability satisfied $65,000 * This may have a negative origin; that is, it may be due to a larger deficit on the balance sheet than that of a year ago. t This may have a negative origin; that is, it may be due to a smaller deficit on the balance sheet than that of a year ago. STATEMENT OF FINANCIAL TRANSACTIONS 55 Summary of Financial Transactions A summary of the financial transactions for the year should show the total changes in each group of property, investments, and liability, without indicating the details. In form, it should show a list of sums to be accounted for, and a list of items which serve that accountability. The two must balance, as shown on page 54. The first three items on the first half of the sheet show direct receipts, and there- fore must be explained in the second half. The other four items show either consumption of property, through opera- tions, or exchange of property : consumption through oper- ations shows in either a reduced surplus of normal current income, or an increased deficit; and exchange of property must show in one of the last «» items of the second half of the sheet. In a similar way, any item on the second half of the sheet is explainable by some item or group of items on the first half. So the statement necessarily balances and summarizes the situation for the year. Detailed Statement of Expenses Schedule IV, the statement of expenses for the institu- tion, is shown in Chapter VII. Its construction is the chief bookkeeping task of the institution, and therefore it may well have treatment by itself. Detailed Statement of Earnings It is important that not only expenses but income shall be subdivided so as to show the result of operations for each type of service. In order that this may be done, numerous revenue accounts should be established. Schedule V provides for the statement of such income accounts in the form recommended for an annual report. The figure for the present year is shown at the right, in a column standing out distinctly by itself, and the figures for last 56 COST ACCOUNTING FOR INSTITUTIONS Schedule V Revenue from Institution Sources Last In- De- This Year crease crease Symbol Year Board of patients in private rooms IRBP Board of patients in wards IRBW Special physicians' fees earned IPSD Special nurses' fees earned IPSN Special orderlies' fees earned IPSO Special laundry charges earned IDL Profit on medical and surgical supplies sold IPM Dispensary fees received IPD Emergency fees received IPE Home nursing fees received IPH X-ray service fees earned IPX Ambulance fees earned IDM Pathological laboratory fees earned IDP Miscellaneous earnings Total earnings IZ 1 year, with the increase or decrease shown by the present year, are at the left. Care should be taken that no income from these sources be credited to expense accounts, for in that case both expense and income will be misrepresented. Sums given to the institution by outside organizations should not, on the other hand, be credited to these income accounts, for such credit confuses the earnings of the insti- tution, from work performed, with benefactions granted to it. Such contributions should be credited to the contribu- tion account, and in no way affect the statement of earn- ings. If, on the other hand, contribution is made to pay for specific service rendered to an individual, as for service rendered to a patient who otherwise would be carried as a STATEMENT OF FINANCIAL TRANSACTIONS 57 free patient, such amount should be credited to income, be- cause it is not a general gift, but is either for the benefit of the individual or is payment for a specific public service rendered. Since the purpose of accounting is to distinguish not only the cost of various kinds of outgo, but the yield of various sources of income, to confuse on the books a pay- ment made for a specific service rendered to an individual and a general contribution for the operation of the institu- tion as a whole is to misrepresent the relation of earnings to supporting contributions. The schedule is on page 56. The symbols, in each case except that for miscellaneous earnings, are merely the I prefixed to the symbol for the ex- pense account of the department. This suggests that the income is a return from the expenditure. The same sort of application of a symbol for income would be made in insti- tutions other than hospitals. The form of schedule would be similar. Detailed Statement of Departmental Eeimings and Ex- penses For any institution in which effort is made to charge fees that shall make any departments self-supporting, and Schedule VI Comparison of Departmental Income and Expense Earnings Expenses Gain Loss Dispensary Ambulance X-Ray service Other departments* $2,715-35 3,540.60 1,285.75 92,458 30 $9,310.15 5,275.10 1,335.90 234,078.85 $6,594.80 1,734.50 50.15 141,620.55 $100,000.00 $250,000.00 $150,000.00 * In order to make this incomplete schedule agree with the deficit shown on form B, figures for the departments not specified in this schedule VI are added. 58 COST ACCOUNTING FOR INSTITUTIONS especially for those attempting to derive a profit from par- ticular undertakings, income and expense should be brought together in a single statement, somewhat as on page 57. For an institution like a school this schedule would as- sume a somewhat different form, because of the overlap- ping of income groups and expense groups. The following incomplete schedule will suggest the principle. Schedule VI Comparison of Divisional Income and Expense Earn- Ex- ' Symbol ings penses Gain Loss Tuition of students ISO $140,000 Instruction SG $170,000 Libraries SB 25,000 Museums SM 20,000 $75,000 Laboratories ISL & SL 5,500 5,000 $500 Correspondence instruc- tion, etc. ISC & SC 4,000 4,200 200 Record of Departmental Income and Expe'nse Institutions having a larger number of departments which are primarily intended to be self-supporting should adopt a system by which the comparison of income and ex- pense is not merely reported in ephemeral form, but is re- corded on the principal books. It is desirable also to relieve department managers of immediate responsibility for cer- tain charges put upon them by superior authority, such as rent, interest, insurance, taxes, depreciation, and repairs, and to have each month a figure that shows the actual direct operating expense of the department. It is also im- portant to see that debits which are mere offsets to credit items, such as rebates, remitted charges, and corrections of STATEMENT OF FINANCIAL TRANSACTIONS 59 errors, are not confused on the books with expenses, and that offsets to expense items are not confused with earn- ings. Care should be taken, finally, to enter credits to a department, except for closing entries, in such form that they shall indicate the volume of business done. Those needs suggest the convenience of three general-ledger ac- counts for each department, as follows : Income, Expense, General. The purpose of the first two has been already indicated. To the last should be debited all charges in- curred under any other authority than that of the depart- ment manager, such as distribution of burden charges, in- terest, depreciation, etc., and to it should be credited any income, if there chances to be any, from other sources than earnings. Finally, to this general account should be closed the other two accounts — Income and Expense. The result is the ultimate surplus or deficit for the department. The keeping of the three accounts preserves for us in permanent form, for immediate or for future reference, these three important annual (or monthly) figures — direct operating expense (for which the manager is responsible), direct oper- ating earnings, final surplus or deficit after all allowances have been made. The figures of the general account are available, of course, for the report comprehended in sched- ule VI. Other Income Accounts Separate accounts should be kept for the various sources of income for the corporation, as follows : Symbol Income from Stocks ICD Income from Outside Interest (bonds, mortgages, etc.) . ICIO Income from Interest on Eqmpment, Charged to De- partments ' ICIH Income from Real Estate ICR 6o COST ACCOUNTING FOR INSTITUTIONS Schedule VII Subscriptions from Normal Sources Group Totals From individuals A. Bee C. Dee E. Eff etc. etc. Total From charitable organizations Hospital Aid Association Morgan Foundation etc. etc. Total From governmental sources ^ Municipal Treasury State Treasury etc. Total From churches First Church Second Church etc. etc. Total Grand Total STATEMENT OF FINANCIAL TRANSACTIONS 6l Symbol Income from Subscriptions, Private ICGP Income from Subscriptions, Charitable Organizations ICGO Income from Subscriptions, Grovemmental ICGG Income from Churches ICGC Income from Miscellaneous Sources ICZ (As symbols, C = corporation, D= dividends, I [not initial] =*■ interest, H =home, G = gifts.) Legacy Accounts Legacies should be originally credited to accounts repre- senting- the particular groups under which they chance to fall. Those belonging to specific funds should be credited to those funds; those added to capital should be credited to Schedule VIII Legacies and Other Special Contributions Received Group Totals Restricted and capital endowment Loring bequest Bell bequest etc. Total Available for purchase of property Spaulding bequest etc. Total Available for current expenses Suffield bequest etc. Total Grand Total 62 COST ACCOUNTING FOR INSTITUTIONS Capital Legacies; those available for current use should be credited to Current Legacies. At the end of the year, Capital Legacies should be closed into Capital Account. If current legacies are later converted to capital use, Current Legacies should be debited and Capital Account should be credited ; but if used for current purposes. Current Legacies should be closed at the end of the year as an income ac- count, and the balance should be transferred to Normal Cur- rent Income. Subsidiary Ledger The form of subordinate ledger recommended later for details of expense is likely to prove serviceable for details of income. The general ledger should show group totals, such as Income from Subscriptions (ICG), but it need not show the subdivisions. These may be recorded in the subordinate ledger. The form and use of that ledger are described on page 1 08. Of course the form would be adapted to this use by the substitution of credit columns for the debit columns shown for the expense ledger. This form of subordinate ledger might atso be used for interest and dividend receipts and for rentals collected — if these items were not too numerous or complicated by too many offsetting charges. Whenever these items are numer- ous, they should be recorded in a subordinate investment ledger of usual form, and should be represented in the gen- eral ledger by controlling accounts of which the balance should agree with the sum of the details of the subordinate ledger accounts. CHAPTER IV THE CLASSIFICATION OF EXPENSE ACCOUNTS Many details of information can be preserved without cumbering the general ledger or making much labor for the bookkeepers. Although about two hundred fifty dif- ferent accounts are here specified, as illustrations, for the running expenses of a hospital (many of which, however, are not required in small hospitals having few depart- ments), not sixty of these would appear under this plan on the general ledger, and many even of these would not be needed in small institutions. Subsidiary Expense Ledger Provision for this large number of detailed accounts without burdening the general ledger is made through a subordinate ledger which contains numerous details for each department, and is the medium through which posting may be made, for a group of such details, to the general ledger. The extreme elaboration of the plan outlined in the following pages is not fatal to its usefulness, therefore, for it is consistent with only a reasonable amount of bookkeep- ing. It must be judged first independently of the book- keeping problems raised — to learn whether it is good in itself. If it is found good, question next arises as to whether it is worth while. 63 64 COST ACCOUNTING FOR INSTITUTIONS Classes of Expense Accounts These expense accounts are of three fundamental sorts: first, the primary accounts, by which expenditures or debts incurred are charged to the accounts with which they are in the first instance directly concerned — such as salaries of nurses, cost of food, purchase of fuel ; second, secondary ac- counts, to which items originally charged to primary ac- counts are later transferred in order that they may be gathered together on a different basis, and may on that basis be distributed to the accounts representing the ultimate pur- pose of the expenditure; third, ultimate accounts showing the summaries of results. The purpose of these three classes is to serve three sorts of comparison; first, detailed comparisons within the insti- tution, as a check on possible wastefulness or as a gauge of special efificiency — for example, fuel costs, postage expenses, laundry wages; second, comparison of larger groups of costs between institutions operating under different condi- tions — for example, total cost of nursing where there is a training school and where there is not, and the cost of cooking where employees are boarded and where they are not; third, final comparisons of all costs per 'principal-resi- dent day for separate classes of principal residents, i. e., pa- tients, students, etc. Posting to Expense Accounts In the following description of the expense accounts it should be noted that to some accounts, the secondary and the ultimate accounts, postings will ordinarily be made only monthly or annually, and then only a few postings will need to be made. In practice, therefore, the plan does not in- volve so much labor as it seems to do. CLASSIFICATION OF EXPENSE ACCOUNTS 65 Basis of Classification For the expense accounts, as well as for the capital ac- counts, a hospital will serve as an excellent illustration. On a later page is given a classified list of the accounts rec- ommended, and a statement of the uses of those for which the use is not obvious.* The principle of classification should be understood before this list is examined, how- ever, or the purport of it will probably be misunderstood. As has been already suggested, one classification is con- cerned with the character of the accounts. In this classifi- cation we find : primary accounts, which are chargeable for expenses incurred for one sole purpose — as fuel for heating, postage for the office, and wages for laundry work; sec- ondary accounts, which record expenses chargeable as a share of one or more prime costs — as cost of board for laundry employees, which must be determined as a pro- portion of the cost of food, of cooking, and of serving for the institution as a whole; and ultimate accounts, showing final costs for the ultimate purposes of the institution. Two other considerations, virtually making new classifications, are noteworthy in connection with the bookkeeping entries which get the figures on the books; primary accounts are usually chargeable at the time an expense is incurred, but may be charged in either the special expense ledger or in the general ledger; secondary accounts are not usually charged when expense is incurred, but by monthly or an- nual distributions, and may be charged in either the special expense ledger or the general ledger ; and ultimate accounts are chargeable only by monthly or annual transfers, and only on the general ledger. The list of accounts given be- • As a statement of the uses of the various accounts for interest, depred- ation, and repairs is necessarily too detailed for repetition, in connection with several departments, in a comprehensive list of this sort, usually only the titles are given here; the detailed discussion will be found on pp. 103-105. 66 COST ACCOUNTING FOR INSTITUTIONS low shows all three classifications — the nature of the ac- count, the method of entry, and the ledger in which it appears. Designation of Classes to Which Accounts Belong This is accomplished by means of symbols; and there- fore a discussion of these symbols should precede the list. Each account, moreover, has its individual symbol (easy to remember because of its mnemonic form) ; and this sym- bol serves the double purpose of classifying the account (showing its relation to the property accounts and to other expense accounts) and of simplifying all records in which the symbol may take the place of the full name of the account. Plan of Symbols The general plan of symbols for specific accounts may well be examined first, for it gives a brief survey of the most important classification. Group Symbols The first of two or more capital letters for a symbol (except E and I — which have already been appropriated for capital accounts and income accounts, respectively) indi- cates a large group of expense accounts as follows: A administration C corporation D department H house or property P professional care of patients (Here P has a larger meaning than in capital or equipment accotmts.) R a summary of residents' (not employees*, but patients*, guests*, students*, etc.) costs T a transfer account for getting detailed accounts into sum- mary accotmts CLASSIFICATION OF EXPENSE ACCOUNTS 67 Symbols Indicating Divisions of Groups An additional capital letter indicates a division of the group letter, and suggests its meaning either by its initial or by a relation equally obvious when once noted. Thus, M suggests materials, and is used for supplies ; N is for insur- ance, because I is already in use; O suggests zero, or low temperature, and hence ice; Q suggests equipment; X sug- gests e;rhaustion ; and Z suggests the tag-end, or remainder. The others, as shown below, are sufficiently obvious. A annual report B buildings, or board, as HMB (maintenance of household buildings), RBW (board of residents in wards) C cubic space D dispensary E electric lighting, or emergency ward, as HE (house electric lighting), and PE (professional care of emergency cases) F fuel G gas H housing, or housekeeping, or home ntu*sing, as CH (corpora- tion rent), DH (housekeeping department), and PH (professional home ntu-sing) I interest K kitchen L legal, laundry, or lawn, as AL (hospital legal expenses), DL (department of laimdry), and HL (lawn) M supplies, or ambulance, or maintenance, as PM (professional supplies), DM (ambulance department), HMB (mainte- nance of household buildings) N insurance O office, or ice, as AO (administrative office) and HO (house- hold ice) P postage, or pathological laboratory, or power, or private rooms, or plumbing, as AP (administrative postage), DP (department of pathological laboratory), HP (house power), RHP (housing of residents in private rooms), and HMP (maintenance of house plimibing) 68 COST ACCOUNTING FOR INSTITUTIONS Q equipment R rent S service, or steward, or surface, as AS (administrative ser- vice), DS (department of steward), and THS (transfer accoimt for expense distributed on the basis of house floor surface) T telephone, or training school, or taxes, as AT (general tele- phone), DT (department of training school), and HT (house taxes) W water, or wards, as HW (household water), and RLW (laim- dry of residents in wards) X X-Ray, or depreciation, as PX (professional use of X-Ray), and HXB (depreciation of house buildings) Z miscellaneous Wherever any letter has more than one designation, as indicated above, the meaning in the particular case will be sufficiently suggested by the other letters with which it is associated : for instance, DL is the Department of Laundry, but HL is the Lawn in connection with the Housing; DM is the Ambulance Department, but HMB is the Mainte- nance of Buildings under Housing costs ; HW is Water for the Household, but RSW is Service to Residents in Wards. Symbols Indicating Subdivisions of Accounts The lower-case letters indicate subdivisions of the cap- ital-letter divisions ; second and third lower-case letters (rare) indicate further subdivisions. As far as possible lower-case letters have the same meaning as capital letters. Those having the same meaning are the following : b board (also books) f fuel (also freight or express) h housing i interest 1 laundry CLASSIFICATION OF EXPENSE ACCOUNTS 69 m supplies o ice (also orderlies and outside) p postage, or private rooms, or power (also special — ^as np, for special nurses) t training (also table) w wards (also stimulants) X depreciation z miscellaneous The only new meanings here with arbitrary (not mnemonic) symbols are p and w; but p has already been used for private room (in which special nurses are em- ployed), and w suggests wine (stimulant). Lower-case letters with no corresponding capital sym- bols are the following:* a d g s u apparatus dormitory, or physician ((toctor) graduate salaries (allied with service) uniforms V inventory If for any reason symbols are at any time changed, great care must be taken to avoid the confusion of over- lapping old with new, and of changing in some places but not in others. The Use of S3niibols in the List of Accounts We may now turn to the full table of expense accounts. The letters in the first column indicate the method of entry: G shows that the account is a group account, rep- resenting the cost of a group of items of which the details are kept in the subordinate expense ledger and the totals are * Many symbols are required for foods, but as they have no general applica- tion elsewhere they are separately listed where they occur — on pages 77-79. 70 COST ACCOUNTING FOR INSTITUTIONS transferred to the general ledger only monthly or annually.' P shows that the account is a primary account and is charged directly — usually through the cash book or the voucher register. S shows that the account is a secondary account, so that usually charges are made to it only by monthly or annual transfers, or that it is an allowance ac- count for the monthly or annual record of depreciation or interest. T indicates that the account is used solely for transfer purposes — chiefly for gathering prime costs to- gether and distributing them to the secondary accounts. R indicates an ultimate account. The symbol directly associated with the account itself, as shown in the second column, indicates not only its gen- eral classification, as already shown, but also its position — whether it is to be kept in the general ledger or in the subordinate expense ledger. If the symbol is composed ex- clusively of capital letters, the account should be preferably in the general ledger; if of capital and lower-case letters, it should be preferably in the subordinate expense ledger only. Classified List of Expense Accounts Administration G AS Administrative Service This group covers compensation for those en- gaged in general administration, and in- cludes all services rendered for them in the way of compensation, such as board, rooms, and laundry. If any considerable part of the time of these persons is given to the work of any special department named below, as, for example, instruction in the training school, the compensation should be appor- tioned. p ASs s ASb s ASr s ASl CLASSIFICATION OF EXPENSE ACCOUNTS 71 salaries board rooms * laundry This includes not only personal and room laimdry of office employees living in the house, but office laundry — towels, for example. G AO Office Expenses P AOf express This includes freight, express, and cartage on all office supplies and on all other supplies not having special accounts designated later. If there is question of an institu- tion's doing its own carting, it is likely to be worth while to keep a special accoimt for all carting, and then monthly to distribute the total charge to the departments concerned. Such an account would have for its symbol AC. S AOh housing * To this account is carried at monthly intervals the share of house expenses, such as fuel, lighting, water, care, etc., which is charge- able to this department. P AOm stationery All stationery used in hospital work, including pens, pencils, mucilage, blank books, etc., with the expense of printing — ^but not in- cluding stationery and printing for the treasurer's office, or printing annual re- ports and notices of meetings, or other corporation printing. • A distinction is made technically in these accounts between rooms and housing. The former is for the use of employees, as a part of their compensation, but the latter is distinctly for hospital purposes. 72 COST ACCOUNTING FOR INSTITUTIONS P AOp postage Postage for office use only, not including post- age on annual reports or on notices of cor- poration meetings. S AOi interest Interest on equipment of office, including tele- phone equipment if not extensive. S AOx depreciation Depreciation on equipment of office, including telephone equipment if not extensive. (See discussion of depreciation, pp. 104-105.) P AOz miscellaneous This may include repairs and replacements of office equipment, insurance on such equip- ment, and traveling expenses. (See discus- sion of repairs, pp. 104-105.) G AT Telephone and Telegraph P ATs salaries If the telephone is served by an employee who does other work also, the wages should be apportioned, board rooms ^ latmdry housing depreciation (if switchboards, etc., are exten- sive) ATz miscellaneous This should include any messenger service for telephone and telegraph purposes, and in- terest, insurance, etc., on equipment if ex- tensive. AL Hospital Legal Expenses Legal fees in connection with hospital opera- tion and hospital bills, but not legal work in connection with corporation funds, legacies, etc. s ATb s ATr s ATI s ATh s ATx CLASSIFICATION OF EXPENSE ACCOUNTS 73 P AZ Miscellaneous Administrative Miscellaneous expenses connected with run- ning the hospital as a whole and not belong- ing to any department or any accounts pre- viously given or given later. These should be few. Professional Care of Patients G PS Professional Services This is intended to cover whatever compensa- tion is given, salaries, board, rooms, laim- dry, etc. If the work of anyone is divided between two or more groups of service, the compensation should be divided. P PSd physicians Usually physicians receive no salary, of course, superintending nurses graduate resident nurses nurses in training special nurses orderlies special orderlies ward employees board p Board of those who serve private-room pa- tients only. PSbw board w Board of those who serve ward patients only. PSbz board z Board of those who serve both private-room and ward patients, rooms p (See board p.) rooms w (See board w.) rooms z (See board z.) laundry p (See board p.) laundry w (See board w.) laimdry z (See board z.) p PSns p PSng p PSnt p PSnp p PSo p PSop p PSw s PSbp S PSrp s PSrw s PSrz s PSlp s PSlw s PSlz 74 COST ACCOUNTING FOR INSTITUTIONS G PQ Equipment for Ntirses P PQu uniforms This includes the cost of uniforms for nurses, less any payments for them made by nurses. P PQb books Reference books and periodicals for nurses — not training-school books and periodicals. P PQa apparatus and instruments used by nurses alone G PM * Medical and Surgical Facilities and Supplies P PMa apparatus and instruments Cost of apparatus and instruments to replace old ones and small items to maintain ef- ficiency at a constant level, including in- surance. This should include expendi- tures for this purpose from any special funds. Additions should be charged to the capital account (I or EPM). P PMm medical and surgical supplies This should include all supplies for this gen- eral purpose, such as medicines, disinfect- ants, alcohol, gauze, bandages, etc., but should not include stimulants. P PMw stimulants Wines, liquors, and other stimulants used for medical purposes. Flavoring spirits, car- bonated waters, etc., should be charged as food. S PMp power Cost of power for running sterilizing plant. S PMo ice Ice for medical purposes, transferred from general ice accoimt. • If a pharmacist is employed, or any one has special care of medicines, ac- counts should be kept for wages, etc., as foUows: PMs, PMb, PMr, and hif laundry should be charged to PMl, CLASSIFICATION OF EXPENSE ACCOUNTS 75 s PMi s PMx G PD P PDs S PDb S PDr S PDl P PDm S PMI laundry For operating room and pharmacy. P PMf express S PMh housing This is for space expenses, such as heating, Hghting, cleaning, etc., for the space occu- pied by store-rooms, pharmacy, and oper- ating rooms (including sterilizing, anaes- thetic and recovery rooms), interest depreciation Dispensary salaries board rooms laimdry supplies Any medicines and supplies not purchased outside but received from the hospital proper should be debited here and credited to PMa, PMm, or PMw. express housing interest depreciation miscellaneous This would include repairs and replacement of equipment, and insurance. G PE Emergency Ward This group will be divided similarly to that for the Dispensary. G PH Home Niu-sing This group will be similarly subdivided, ex- cept that its equipment is normally not kept separate and therefore no account will be kept for interest and depreciation (PHi and PHx). p PDf s PDh s PDi s PDx p PDz 76 COST ACCOUNTING FOR INSTITUTIONS G PX X-Ray Service ' This group will be divided similarly to that for the Dispensary. Departments G DM Ambulance Service This group will be divided like that for the Dispensary. Repairs and insurance should be charged to DMm, however. G DP Pathological Laboratory This group will be divided similarly to that for Home Nm-sing, for as its equipment is usually wisely consolidated with that of the Professional Service Group (account A or EA, or PMa), no interest and depreciation need be entered here (DPi, and DPx). G DT Training School This account is intended to cover the expenses that pertain directly to the maintenance of the training school and have no relation to any other part of the hospital. These ex- penses would ordinarily be the compensation of teachers and the cost of space occupied by the class-rooms and the 6ost of supplies. It seems inadvisable to charge to this ac- count any compensation paid to nurses in training, for that is usually given in return for services rendered in the general hos- pital work. Unless these direct expenses of the training school are kept by themselves and are not confused with expenses for work that serves other purposes, it is difficult to determine the comparative cost of nursing in hospitals which have such schools and in hospitals which have not. P DTs salaries of teachers S DTb board of teachers s DTr s DTI p DTm p DTf s DTh s DTi s DTx p DTz G DS i P DSs CLASSIFICATION OF EXPENSE ACCOUNTS yy rooms of teachers laundry of teachers supplies This should include diplomas and cost of graduating exercises. express housing interest depreciation miscellaneous Steward's Department salaries This includes wages of all persons engaged in ordering, receiving, checking, storing, and issuing food as purchased, or the propor- tionate part of the wages of any persons engaged partly in this work, board rooms laundry bread and pastry Purchased outside, including crackers and other bakers' products. P DSmcf flour * The list of subdivisions of food looks unduly long, but it has been devised with the assistance of several food experts and institution managers. The pur- pose of the subdivision is to give indication of the kind of diet furnished; for without that a judgment of food costs is wholly unwarranted. Much further sub- division is recommended, and that suggested here is the minimum deemed service- able. Some hospitals keep separate costs for over two hundred fifty food staples, and believe the figures worth while. The scheme of symbols is as follows: The symbol for all food supplies begins with DSm — which is normal. The next letter indicates the kind of food, thus: b, bread; c, cereal; d, dairy product; e, eggs; f, fruit; g, groceries; h, (/loney) sweets; i, ice cream; m, meats; n, nuts; p, poultry; s, (sea) fish; t, tea and coffee; v, vegetables. The third lower-case letter (the second after DSm) indicates the form of the food, thus: b, breakfast preparations; c, canned, or cream; d, dried; f, fresh, or fat; j, juice; m, milk; p, preserved; s, soured, or storage. Obviously in making notations on bills, etc., for bookkeeping purposes, it would be absurd to use the full symbol for each supply purchased. Only the letters following the DSm would be used, thus: b, bread; dm, milk; sf, fresh fish. On memoranda not obviously connected with food supplies, however, the full symbol should be used. s DSb s DSr s DSl p DSmb* 78 COST ACCOUNTING FOR INSTITUTIONS p DSmcb breaMast foods and other table cereals p DSmdc cream p DSmdm milk p DSmdp condensed milk p DSmds cheese p DSmdf butter and other table and culinary fats This should include table and culinary oils. p DSmi ice cream Purchased outside. p DSmef eggs, fresh p DSmes eggs, ciilinary Storage eggs not deemed suitable for table service should be entered here. p DSmep egg preparations Desiccated and powdered eggs should be entered here. p DSmff fruits, fresh p DSmfc fruits, canned Fruits preserved by sweetening should not be entered here. DSmfd DSmfp DSmfj DSmvf DSmvc DSmmf DSmmd DSmmc DSmpf DSmpc DSmsf DSmsd DSmsc DSmn fruits, dried fruits, preserved Preserves, jams, jellies, syrups, and crystal- lized fruits, fruit juices vegetables, fresh vegetables, canned meats, fresh meats, smoked, cured, and dried meats, canned poultry, fresh poultry, canned fish, fresh fish, smoked, dried, and pickled fish, canned nuts and nut products CLASSIFICATION OF EXPENSE ACCOUNTS 79 p DSmh p DSmt p DSmg s DSo p DSf s DSh s DSi s DSx p DSz G DK P DKsb P DKsz s DKb s DKr s DKl p DKmf p s s s DKmz DKf DKh DKi DKx sugars, S3rrups (not fruit), molasses, honey, confectionery tea and coffee This should not include coffee substitutes, such as cereal drinks, cocoa, etc. groceries and canned goods not specified ice express housing interest depreciation miscellaneous Supplies not food, and repairs, replace- ments, and insurance of equipment. Kitchen Department wages of bakers wages of other kitchen employees board rooms laundry fuel To this account should be debited not only coal, gas, wood, etc., used in the kitchen, but also at convenient inter- vals a charge for power for steam at steam tables. supplies This should cover not only soap and other supplies consimied in the kitch- en, but replacements, repairs, and insurance of kitchen utensils. It does not include any food or fuel. express housing interest depreciation 8o COST ACCOUNTING FOR INSTITUTIONS G DH Household Department P DHs wages Wages of all help engaged in cleaning, sweeping, dusting, dining-room work, etc. If any are engaged only partly in this work, their wages should be ap- portioned. Under some conditions it may be worth while to maintain a separate accoimt for dining-room ser- vice, and for chamber work; for the requirements of service may be pecu- liar. The new accoimts would be designated DHst and DHsd, and the present DHs would become DHsz. DHbt, DHbd, DHrt, DHrd, DHlt, and DHld wotild also be created. Then DHb would become DHbz, DHr would become DHrz, and DHl would become DHlz. (See also page 89). board rooms laundry supplies d Replacements and repairs of furniture, linen, bedding, etc., for dormitories and patients' sleeping accommodations, including insurance on such equipment. DHmt supplies t Replacements and repairs of dining- room equipment, glassware, crockery, trays, etc., and table linen, including insurance on such equipment. DHmz supplies z Brooms, brushes, scrubbing soap, and all other supplies used in general housekeeping and not included else- where here, replacement and repairs of general fiuniture, and insurance on it. s DHb s DHr s DHl p DHmd CLASSIFICATION OF EXPENSE ACCOUNTS 8i p DHf s DHid s DHit s DHiz s DHxd s DHxt s DHxz G DL P DLs S DLb s DLr s DLl p DLmf DLmz p DLf s DLh s DLi s DLx p DLo express interest on dormitory equipment iQterest on table equipment interest on general housekeeping equip- ment depreciation on dormitory equipment depreciation on table equipment depreciation on general housekeeping equip- ment Laundry wages board rooms laimdry fuel Not only coal, gas, etc., but also a pro- portion of power when steam or elec- tricity is used, supplies Not only starch, wax, bleaching agents, soap, etc., but repairs, replacements and insurance of equipment — but not fuel, express housing interest depreciation outside laimdry work General House and Property Expenses HT Taxes On property occupied by the hospital. Taxes on other property should be charged as debits to the income ac- count of that property, or, if the prop- erty does not produce income, to corporation income. 82 COST ACCOUNTING FOR INSTITUTIONS P HE Electric Lighting P HG Gas Gas used for other than lighting pur- poses should be charged to DKmf or DLmf. P HP Fuel, Oil, and Waste P HW Water P HO Ice The amount is later distributed in part to the Steward's Department and to Medical and Surgical Supplies. S HP Power This account should be charged for any power used for general house ptuposes, such as elevators and heating. P HR Rent To this accoimt should be charged only- rental paid for buildings not owned. P HMB Maintenance of Buildings To this account should be charged the cost of repairs only, but not repairs of plumbing and steam -fitting. Addi- tions and improvements should be charged to capital account (accotmt B, or EB). S HXB Depreciation of Buildings Depreciation of any improvements above the land, including plumbing and steam-fitting. P HL Care of Grounds This includes cost of snow shovelling, lawn mowing, and care of flower beds. P HMQ Maintenance of Machinery and Tools Replacements and repairs only. Addi- tions should be charged to the capital account (account Q, or EHQ). S HXQ Depreciation of Machinery and Tools CLASSIFICATION OF EXPENSE ACCOUNTS 83 P HMP Maintenance of Plumbing and Steam- fitting G HS Boiler-Room Compensation This account covers compensation of en- gineers and firemen. It should be credited for any work done by these men in care of grounds, lepairs of buildings, etc., and the appropriate accounts should be debited. P HSs wages S HSb board S HSr rooms S HSl laundry P HN Insurance This should include insurance on build- ings and their equipment (not depart- mental), and only that portion that falls within the period. When insur- ance is paid for longer terms, the excess shoiild be charged to Prepaid * Insurance, and at proper intervals, as the insurance accrues, should be trans- ferred to this account. To this account should be charged only insur- ance on property used by the hospital. Insurance on property held as invest- ment should be charged to the income of the investment, or to general in- come if the property bears no income. Insurance on property used by de- partments should be charged to the departments — account z or m*. • When account m is primarily for supplies to be consumed, as with PMm and DSm, insurance is carried to z; but when m is primarily a maintenance account, insurance is carried thither. The maintenance account of PM is PMa. 84 COST ACCOUNTING FOR INSTITUTIONS G HZ Miscellaneous P HZf express On any general house and property equipment. P HZz miscellaneous Items pertaining to house and property not elsewhere provided for and not ad- ministrative, professional, or depart- mental, should be charged here. If, for example, the hospital provides local transportation for visitors and employees and does not collect enough from passengers to meet expenses, the deficit should be charged to this ac- count S HIB Interest B On improvements— buildings and groimds. S HIQ Interest Q On machinery and tools. Transfer Accounts T THS Floor Space Cost , To this accotmt are transferred all pri- mary accounts that are to be distrib- uted on the basis of floor-space dimen- sion, such as housekeeping wages, care of groimds, etc. T THC Cubic Space Cost To this accoimt are transferred all pri- mary accounts that are to be distrib- uted on the basis of cubic space, such as heating, maintenance of buildings, etc. T TB Transfer Board To this account are transferred all pri- mary accounts that cover board items, such as food supplies, kitchen wages, etc.; and these are hence distributed CLASSIFICATION OF EXPENSE ACCOUNTS 8S to the various departments, as their employees receive board, and to pa- tients. T TP Transfer Power To this accoimt are transferred all pri- mary accounts that cover power costs, of whatever type; and these are hence distributed to departments on the basis of the use made of power. Resident Accounts R RHP Private-Room Housing To this account is carried the portion of total space cost chargeable to private rooms. R RHW Ward Housing To this account is carried the portion of total space cost chargeable to wards. R RBP Private-Room Patient Board To this account are carried all board costs chargeable to private-room pa- tients. R RBW Ward Patient Board To this accoimt are carried all board costs chargeable to ward patients. R RLP Private-Room Laundry Proportion of laundry costs chargeable to private-room patients. R RLW Ward Laundry Proportion of laundry costs chargeable to ward patients. R RSP Private-Room Professional Service Proportion of professional care of patients chargeable to those in private rooms. R RSW Ward Professional Service Proportion of professional care of patients chargeable to those in wards. 86 COST ACCOUNTING FOR INSTITUTIONS R RAP Private-Room Administrative Costs Proportion of ' administrative costs chargeable to those in private rooms. R RAW Ward Administrative Costs Proportion of administrative costs chargeable to those in wards. Corporation Expenses P CS Corporation Salaries P CM Corporation Stationery Stationery for corporation purposes, such as notices of meetings, solicitation of gifts, including printing (but not an- nual report). P CP Corporation Postage Postage on corporation matters, includ- ing notices of meetings, but not postage on annual report. P CA Annual Report Expense of printing and mailing annual reports, with postage. This is often heavy and should be shown by itself.. P CL Corporation Legal Expenses Legal expenses in connection with invest- ments, donations, legacies, and other corporation matters not connected with the operation of the hospital itself . P CH Corporation Housing Housing expenses for the corporation offices, or rental paid. P CI Corporation Interest Charges Interest on mortgages and loans payable. ■ Interest earned is not to be credited to this interest accoimt, but to the corre- sponding income accoimt. P CZ Corporation Miscellaneous Corporation expenses not otherwise pro- vided for. CLASSIFICATION OF EXPENSE ACCOUNTS 8; Complete Report of Expense Accounts Desirable It is desirable that institutions using this plan of ac- counting shall report all accounts here given, in order that other institutions may have figures for comparison. If in any institution certain accounts have no figures, because no work is done of the sort intended to be covered by the account, the account should preferably appear in the report with no figures extended. This will enable one reading the report to see conditions at a glance. If, for instance, DMr is blank, it should be true that the driver of the ambulance does not have a room on the premises A blank after PSd shows either that there are no resident physicians or that resident physicians receive no pay. If, of course, a whole group of accounts has no figures, as, for instance, those^ for the pathological labo- ratory, it is unnecessary to report the subordinate ac- counts in detail in blank, for a blank for DP alone will serve the purpose. It is desirable that the total of the debit side of the ac- counts named above shall be reported (except so far as any items have been entered as credits merely to oflfset erro- neous debits) ; for since many transfers are made in the closing processes, as described in Chapter VII, reporting only net debits would remove many accounts entirely. The total of the debits, then, will not be the total of hospital ex- penses, but will be far more than that, for many transfers bring some items into several places. The total expenses are shown in schedule IV (page 192). The expense ac- counts named above are intended to show details, and when a detail forms a part of several groups it should be re- ported in all of them. Food, for example, is charged to DS in total; the part consumed by nurses is charged to PSb; and PSb is in turn charged to RSP and RSW. So certain food is charged three times. It ought to be charged three times, however, for we may wish to study it in all three 88 COST ACCOUNTING FOR INSTITUTIONS connections. The total of all accounts in this list, there- fore, is meaningless. In order to check the correctness of the figures, however, from the total of all such debits should be subtracted the total of all transfers; the balance should agree with the expenses shown by schedule IV. The amount to be deducted for such transfers may be deter- mined easily from the journal on which such transfers are made, or from the general ledger. A glance at the skele- ton ledger (page 226) suggests the ease with which it may be learned. If it is objected that no hospital could report so many details, one may point to many railroad reports that give, in small compass, quite as much detail of operating cost as that suggested here. Many hospitals report much more detail in matters of less importance. Subdivision and Extension of Classification It may be desirable in any hospital to determine costs for certain subdivisions not here indicated — for example, in a maternity ward, or in a tuberculosis ward, as subdivisions under a general surgical or medical ward. Obviously in such a case the only alteration required in the plan is the creation of a new general-ledger group account, with its appropriate subdivisions in the expense ledger for wages, board, rooms, housing, etc. In no case is any complication created except that of increasing the number of accounts and the number of distributions of the joint or burden costs. It may be desirable also to keep accounts for some de- partments not here indicated, but considered in this book in connection with the work of other institutions. Espe- cially is this likely to be true of sanitaria. Such departments are those having charge of baths, tennis courts, golf courses, gymnasia, etc. CLASSIFICATION OF EXPENSE ACCOUNTS 89 New York Hospital Plan of Accounting A plan of hospital accounting that is excellent for the care of prime costs — but does not attempt to provide ac- curately for the distribution of items common to various departments, such as board of employees — is in use in many hospitals. It is commonly called the New York Hospital Plan. The basis of the classification of accounts used in this book is intentionally such that hospitals using this clas- sification may make comparisons with hospitals using the New York Plan, for the main divisions are the same. Cer- tain combinations of accounts shown here have the same content as individual accounts or obvious combinations of accounts shown under that plan. Appendix C names (by symbol) the accounts shown in this book which agree in content with the main accounts (indicated by number) of the other plan. Dining-Room Service One peculiarity of a hospital is that the meals of patients are usually served in their rooms or at their bedsides. The dining-room service is for employees. Consequently in the plan outlined for hospitals the cost of dining-room service is a mere incidental of housekeeping, and is distributed in common wth other housekeeping costs. The amount is so small that further refinement of distribution is deemed un- necessary. For many institutions, on the other hand, and sometimes even for hospitals, dining-room service is an important element of cost. Such are colleges, clubs, and hotels. For these either a separate account should be pro- vided (DD), or subdivision should be made of the house- keeping department (DH). If a new department is created it would have its place in the general ledger, and its sub- divisions (DDs, DDb, DDr, DDh, DDl, DDm, DDf, DDi, DDx) would have their places in the subordinate ledger. 90 COST ACCOUNTING FOR INSTITUTIONS Expense Accounts for Educational Institutions For convenience of discussion, institutions other than hospitals may be divided into two classes : colleges, schools, and other educational institutions, on one hand, and hos- telries, clubs, etc., on the other. For educational institutions the important peculiar ex- pense accounts, classified by departments already indicated for the capital accounts of such institutions, are likely to fall in the following groups : G SG Instruction orally for students in residence (Below are indicated subdivisions on the basis of the rank of teachers. In many institutions one account for salaries — SGs — would suffice. In many, on the other hand, subdivision is on the basis of subjects taught (or teaching depart- ments). Such details are usually not worth maintaining on principal books of accoimt, however, for since salaries are continuous they may be learned statistically at any time, A division of cost of supplies, secretarial assistance, etc., between departments is likely to be worth while. Provision is easily made for such subdivision.) salaries of masters and professors salaries of assistant masters or assistant pro- fessors salaries of teachers or instructors salaries of special teachers or lecturers salaries of assistants, demonstrators, etc. secretarial service for teachers rooms for teachers board of teachers laimdry of teachers p SGsm p SGsa p SGsi p SGsp p SGsd p SGss s SGr s SGb s SGI p SGf s SGh s SGi s SGx G SE CLASSIFICATION OF EXPENSE ACCOUNTS 91 SGm supplies (chalk, stationery, etc., for classes) and maintenance of equipment express housing interest on equipment depreciation of equipment Instruction for extension students (This will have practically the same sub- divisions as the accoimt for instruction of students in residence.) G SC Instruction by correspondence (This will have practically the same sub- divisions as the account for instruction of students in residence; but, of course, SCss will have very much more impor- tance, and it would be worth while to maintain an account for postage — SCp.) G SL Laboratories for students' use (The subdivisions of this account will be very much the same as for SG, except that the salaries hardly need subdi- vision.) G PL Laboratories for research (This will have virtually the same subdi- visions as those above; but the only salaries may happen to be for assistants not engaged in teaching. The sjrmbol would naturally be PLs.) G SB Libraries for students' use (The subdivisions will be similar to those above, except that other classes of sal- aries will be substituted for those given in the group of instruction — ^for in- stance: SBsa, administrative officers; SBso, accession department clerks; SBsc, cataloguers and classifiers; SBss, secretarial service for officers; SBsp, 92 COST ACCOUNTING FOR INSTITUTIONS shelf -department clerks; SBsl, loan clerks engaged in the receipt and de- livery of books; SBse, runners and errand boys; SBsr, reference depart- ment clerks; SBsb, bindery employees; SBsz, miscellaneous employees engaged in general service. Binding materials should be charged to SBmb. If, how- ever, much binding is done in the library, a separate department should be created and all costs (interest, de- preciation, etc.) should be charged to it. In any case, records should distinguish the costs of rebinding old bound books from those of binding pamphlets, mag- azines, and newspapers. The cost of rebinding should be carried as one of the regular expenses; but the costs of binding separate parts into a volume should be annually credited to the ex- pense accounts — for they add to the capital value — and debited to the cor- responding capital accounts. If de- sired, all binding costs may be com- bined into one account, SBg, (glue) whether the work is done inside or out- side.) G PB Libraries for research (This account should be treated similarly to the general library account.) G SM Museums and other permanent exhibitions (This should be treated similarly to SB, ex- cept that the exact titles will differ some- what. The principal wages accoimt, SMs, should include only the cost of service for exhibition purposes. The cost of service for mounting, collecting, classifying, etc., CLASSIFICATION OF EXPENSE ACCOUNTS 93 should be charged to capital accounts — pos- sibly with such subdivisions as ESMs for service and ESMm for supplies used. This would distinguish such costs throughout the year; but they should be tdtimately closed out to the general account for museum equipment — ESM.) G SO Observatories for students (The subdivisions here would be similar to those above.) G PO Observatories for research (This would probably require considerable subdivision, such as the following: POso, salaries of observers; POsc, salaries of com- puters; POsp, salaries of photographers; POss, salaries of recording clerks; POsz, salaries of general employees; POb, books; POp, postage; POf, freight; POmp, photo- graphic supplies; POmz, general supplies.) G HH PubKc halls (It is hardly probable that any expense ac- coimts will be required for these except for interest, depreciation, repairs, insurance, taxes, light, and heat — all of which would be charged as space-cost distribution, HHh — with wages of care, HHs, and such supplies as chanced to be consumed, either directly or in maintenance of facilities. Main- tenance of facilities should be charged to HHm^ but maintenance of the building proper should be charged to HMB.) G DI Gymnasium (Salaries might well be divided, e.g. — DIsi, salaries of instructors; DIsa, salaries of attendants and rubbers; DIsz, salaries of general employees; but the time of persons employed in repairing apparatus should be charged to Dim, with other maintenance.) 94 COST ACCOUNTING FOR INSTITUTIONS Expense Accounts for Hotels, Clubs, Etc. The accounts for institutions not engaged in either in- struction or the care of inmates — such as hotels, clubs, etc. — need not usually be complicated by great detail except in those departments already worked out for hospitals or col- leges, as indicated above. The special accounts would be, as suggested by the discussion of capital accounts, as fol- lows : G DE Entertainments (This account would usually contain only the sums paid to entertainers, or for the pur- chase of theatrical properties, etc. If the properties are of permanent value they should be charged to the capital or equip- ment account.) G DV Golf Links (The only subdivision of labor probably neces- sary here is between the administrative and the groimd men; but except in large estab- lishments this woiild not be worth while. If, however, caddies are paid by the institution, their wages should be kept separate.) G DT Tennis Courts (The subdivision would be the same as for golf links. The symbol used here is the same as that for the department of training school in a hospital, but.it is improbable that any institution will require both accounts. If so, DX is available for tennis.) G DW Baths (It is probably worth while to distinguish be- tween the salaries of swimming instructors, DWsi, attendants in bathrooms, DWsa, and general employees, DWsz.) CLASSIFICATION OF EXPENSE ACCOUNTS 95 G DA Boats flf any persons are employed to give instruc- tion in rowing and paddling, their salaries should be distinguished, DAsi, from those of attendants and workmen engaged in keep- ing the eqtdpment in use and in repair, DAsz.) G DO Bowling Alley (The same principles apply here, and below.) G DR Billiard Rooms G DQ Card Rooms G DJ Stable (This account should be carefully subdivided so as to show the various costs for salaries of drivers, of hostlers, and of messengers; for feed; for repairs and maintenance of har- nesses; for repairs and maintenance of ve- hicles; for replacement of robes; for care of horses. Conditions are likely to vary so much that it is hardly worth while to desig- nate the accoimts by name. Each subdivi- sion of service should be given a sjnnbol with a lower-case letter following the depart- mental symbol. See alphabetical list of symbols, page 208, for suggestions.) G DG Garage (The same principles would apply for this as for the stable — distinguishing drivers from mechanicians when the functions are kept apart, and keeping separate oil, gasoline, re- pairs, etc. See alphabetical list of sjrmbols, page 207, for suggestions.) G DF ■ Cartage (This would be subdivided similarly to the accotmt for the stable.) 96 COST ACCOUNTING FOR INSTITUTIONS G DY Bar (Care should be taken that adequate provision is made for maintenance or depreciation of glassware, etc.) G DN News Stand G DC Cigar Stand If a club maintains a library or an exhibition, the ex- pense accounts would be similar to those for the correspond- ing departments of a college. The symbols, however, would naturally be, for the library, DB rather than SB or PB, and, for the exhibition, DM rather than SM. Publicity Expense Accounts Both educational and entertaining institutions arc likely to need one set of accounts not required by hospitals — those connected more or less directly with publicity or the culti- vation of cordial relations with remote communities. This gives rise to three new accounts — Advertising, Hospitality, Publications (not advertising). These might well be car- ried each in a general ledger account, designated as OA, OH, OP, respectively (O suggesting relations with the outside public). Hospitals issuing medical monographs or journals should maintain account OP. Interest, Insurance, Taxes, Etc. Institutions other than hospitals should also count as a cost interest on the value of their land as well as insurance, taxes, etc., already indicated; for with them a wide variety of choice of sites is usually open, and the choice affects cost directly; but most hospitals have their sites prescribed largely by their field of work. A separate account should be maintained for such interest, however, so that compari- sons with institutions under other conditions can be made without confusion. A natural symbol would be HIO (con- trasted with HIB for buildings). CHAPTER V THE METHOD OF DETERMINING COSTS IN DETAIL We may now turn to the methods by which we hope to produce ultimate figures of cost. It may be well to begin at what is chronologically the wrong end, and see what figures we are aiming at, and then look back and see how they may be attained. Our ultimate aim is a statement that may be called the "final summary of institution ex- penses." This shows not only the totals for various groups of expense, but the conversion of all those expenses into a cost per unit. The Cost Unit Since one of the best types of institution that we can use for purpose of illustration is — here, as before — a hos- pital, let us see some imaginary figures for the types of expenditure to be met. Most expenses should be shown for the unit of the patient-day ; but a distinction should be made between ward patients and private-room patients, because the conditions of service are widely different and the expenses are much higher in one than in the other. Many items, however, are not useful statistically on the basis of the patient-day. Ambulance service, for example, is the same for a person brought to the hospital for a two-days* stay as for one brought for a three-months' stay. Not usually are twice as many laboratory tests or examinations made for a patient who stays a month as for one who stays a fortnight. For 97 98 COST ACCOUNTING FOR INSTITUTIONS these various special items of expense, therefore, the unit for which costs are to be figured should be determined solely by the nature of the service rendered. The unit for ambulance service, for example, is a trip; for the dis- pensary it is a treatment ; for the home nursing department it is a visit. Our final statement, therefore, should give us a unit cost for all types of service rendered, divided, however, not only on the basis of the kind of service rendered, but also on the type of patient for whom it is rendered. Any figures less distinct, less specialized than these, fail to serve the purposes which animate us in a plan of uniform accounts; for, unless we have final unit costs, it is impossible to make comparisons between institutions working under varying conditions — as between a hospital where the nursing is done mostly by nurses in training without wages and hospitals employing only graduate nurses, or between schools utilizing the services of scholars for household labor, schools employing only paid laborers who board outside, and schools using only employees boarding on the premises. Expenditures on Account of Employees The obvious difficulty in the way of getting these final figures is to make distinctions, as we go along, between expenditure on account of employees and expenditure on account of the persons for whom the institution is primarily maintained — as patients in a hospital, pupils in a school, guests in a hotel or club. In the first place, no supplies should be issued without a requisition upon the stores de- partment, for otherwise there is no knowing what is their destination. These requisitions accomplish the purpose, without much labor, for everything except foods; but in this respect, since in any large establishment several tables METHOD OF DETERMINING COSTS IN DETAIL 99 are likely to be maintained and many foods are common to them all, care is necessary to see that each table is charged for its actual consumption. Distribution of Food Costs , If proper account is taken of the number of persons sharing in each kind of dietary, so that the figures may show for what the various departments are chargeable on account of board, the accounting may be simple, with a unit cost for each type of table. The actual consumption of food for each type of dietary is determined by a division of all foods consumed into three sorts — ^those peculiar to each type of dietary (called "special food"), those common to several types of dietary but consumed only occasionally (called "common occasional foods"), and those of prac- tically continuous consumption, such as flour, butter, eggs, sugar, etc. (called "common regular foods"). For all spe- cial and occasional foods the mere preparation demands that someone shall note for each meal what is required. For all common regular foods the consumption may be learned from stores records. So full information is at hand. The transfer of these figures of requirement and of stores to sheets recording the consumption of all foods fur- nishes all necessary material for the determination of the cost of food for each type of dietary. In the following chapter will be found forms which simplify the process of recording and calculating these costs. Since the time books will show the number of employees in each department on each dietary, it is a simple matter to determine for each class of table the amount which should be charged to that department for the board of those employees. Distribution of Housing Costs Similarly, the cost of lodging for the various employees should be distributed to the departments responsible for 100 COST ACCOUNTING FOR INSTITUTIONS them. Indeed, a general distribution of all housing costs throughout the institution should be made at least annually. To do this does not require inordinate labor. When once the floor space and cubic space of the rooms occupied by the various departments, and of the quarters used as lodg- ings by employees of the departments, have been calculated, it is easy to determine what proportion of all the costs re- lating to housing should be charged to each department. If the dining-room, for instance, occupies one thousand square feet and the whole establishment occupies fifty thousand square feet, the serving department should bear one-fiftieth of this group of expenses — as well, of course, as an additional share determined by the floor space of waitresses' sleeping rooms. Certain items, like cleaning, should usually be distributed on the basis of floor space; heating, lighting, and building repairs should usually be distributed on the basis of cubic space; but in any par- ticular case it is necessary to consider the circumstances of the institution before the space-cost distribution can be made satisfactorily. It would be unfair, for instance, to charge a department for light on the basis of cubic capacity if in that department light is used only at rare intervals, or only for a desk situated in a corner. Practically all the house and property charges, including heating and lighting, insurance, taxes, rentals, care of grounds, etc., may be dis- tributed on this space-cost plan ; and when once the calcula- tions have been made determining the percentage for each department, no further calculations need be made, except to apply the fixed percentage to the total cost, until some rearrangement of housing has been made. The calculation of these figures, moreover, is not laborious if only one takes advantage of such mechanical devices as the slide rule and computing machines. METHOD OF DETERMINING COSTS IN "DETAIL ' koi' Expenditures for Those Not Employees It is obvious that if we charge to each department the board, lodging, and laundry of its employees — and credit the board account, the housing accounts, and the laundry account for those sums — the amount remaining as a charge to the board account, the housing accounts, and the laundry account, is the amount directly chargeable to the service of those for whom the institution is primarily main- tained — whether patients, guests, students, or what not. This, of course, is the ultimate figure which every one is seeking, in order that comparison may be possible between different institutions; and the method outlined allows for all difference^ of condition not inherent in the situation itself, such as boarding employees in or out, owning or hiring quarters, buying or making electricity, etc. Cost Accounting Methods The bookkeeping methods by which all this can be brought about may be worth summarizing. The various departments of an institution should be given general ac- counts in the general ledger, and for convenience in mak- ing memoranda, etc., each should have its symbol, as al- ready indicated. These departmental accounts may be rep- resented in a subordinate expense ledger containing an ac- count for each type of direct expense pertaining to them — such, for example, as express, stationery, and postage, under office expense. Each of these departmental, or general, accounts would preferably have in this subordinate ledger certain other subdivisions, or secondary accounts, to be used ordinarily only for transfer or closing entries at the end of each month, quarter, or year. As in the ordinary course of bookkeeping, the direct expense accounts, such as have been just enumerated for office expense, are deb- ited from the cash book or the voucher register; and this '102 ' ' COST* ACCOUNTING FOR INSTITUTIONS plan would require no change in the method except the pro- vision of this special expense ledger to show in detail the items shown in lump sum on the general-ledger account. The various items which cannot be easily charged directly to departments as payment is made, such as board, lodging, interest, depreciation, etc., would be charged first to general accounts, or certain subdivisions of those accounts, and would be distributed at the end of any convenient period to the proper departmental accounts. The form and use of this ledger are described and illustrated on pages 108 et seq. Cost Accounting Results The result of all this is the possibility of learning ac- curate costs all along the line — total costs per capita day, costs per capita day for large groups of expense, costs per capita day for small detailed items of expense, and actual amounts of expense for both large and small divisions. These, moreover, would be all put on the same plane, e. g., compensation would be all compensation, whether in wages, board, or what not, and so institutions under different con- ditions in such respects could be compared, and within an institution comparisons could be made of different methods. Only when this sort of thing is done can any valuable comparisons be made, for no two institutions are operated under quite the same conditions. Requirements of Cost Comparisons In the schedule of current expenses shown in the pre- ceding chapter, pages 70-86, it is to be noticed that some items appear for practically all groups of accounts, such as, for example, salaries, board, rooms or housing, laundry, express, interest, and depreciation. As already several times suggested, the cost of no department is adequately shown unless all elements entering into the compensation of em- ployees, whether paid directly or indirectly, are charged METHOD OF DETERMINING COSTS IN DETAIL 103 to that department; for otherwise an institution supplying its employees with a portion of their meals but no sleeping apartments or laundry, an institution furnishing sleeping apartments and board and laundry, and an institution sup- plying none of these but only a direct salary, could not be compared so as to yield results of any value. Transportation Charges Freight and express, though they are usually items of small weight, may now and then appear as of considerable importance — especially in a comparison between two in- stitutions both in the country when one of them buys in the home market and pays local prices and the other buys in the metropolitan market and pays for transportation. Any difference of conditions which has an effect upon costs, in any line of activity, should have an effect also upon the accounts ; and these should indicate all items in the circum- stances which are susceptible of separate statement. For this reason transportation is separately shown here, even though in most cases it is intrinsically of little importance. Interest on Investment Many persons of business experience, and many ac- countants, deny that interest on investment is a cost, and they are unwilling to show interest anywhere on a business statement except as a final deduction from gross profits, or as one element in the final net profit. However advisa- ble may be this handling of interest in businesses of which the prime purpose is the making of profit, wherever we are concerned primarily with service rather than with profit we must recognize the fact that comparative costs may be badly misleading if this element is omitted. Whoever operates with expensive equipment may, if the equipment is well chosen and the direction of labor is efficient, largely reduce his labor cost and save in this way far more than 104 COS'T ACCOUNTING FOR INSTITUTIONS enough to offset the cost of keeping up equipment; but, on the other hand, though the saving arising from expensive equipment may be more than enough to take care of main- tenance and insurance, it may not be enough to make the purchase of the equipment worth while when one allows for interest on the capital so locked up. Although usually an institution does not pay interest upon the property it em- ploys, virtually never is interest negligible ; for either the in- stitution is collecting, from outsiders, for the purchase of equipment, funds which otherwise it might employ in ren- dering a larger service to the community, or else it is spend- ing, for equipment, funds which it might otherwise invest to yield a direct income. It is hardly conceivable that interest on equipment shall be anything else than a cost to any in- stitution, even though the interest is not directly paid out. As already indicated, moreover, only when interest on equipment is counted as a cost can one learn whether one administration is more economical than another in its pur- chase of equipment and expenditure for labor. Depreciation , Depreciation has come in these days to* be universally recognized as one of the costs of doing business. The rate at which it must be figured, however, is a debatable point, and in any given case there may be a dozen opinions equally entitled on the face of things to acceptance. The fundamental principle is that enough must be allowed for annual depreciation to provide for repairs and replacement whenever these are probably to be necessary, and the neces- sity may arise either from wear and tear or from the fact that, with the advance of science and invention, new equip- ment may prove to be so great an improvement over old that an institution that fails to purchase it is not rendering to the community the service rightfully expected of it. METHOD OF DETERMINING COSTS IN DETAIL 105 Additions to Equipment and Replacements Sometimes confusion exists in the minds of persons not familiar with accounting as to the difference between new equipment and replacements. It should be clearly under- stood that the purchase of new equipment to take the place of old which has been worn out or superseded by more recent types is not an addition to the equipment of the in- stitution, for the wearing out of old equipment is just as much one of the costs of doing business as is the payment of wages and the consumption of food. The purchase of new equipment replacing old is nothing but payment for equipment displaced. If, again, certain property in a de- partment has been allowed to depreciate without replace- ment, but some other property in the same department has been increased in value possibly by the installation of better equipment than that worn out or of a larger amount of equipment than that displaced, it may be true that the property of the department as a whole has not depreciated in value, for though some specific property has depreciated other property has more than made up the shrinkage in its own type. Whether, therefore, the property of a de- partment as a whole shall be considered to have depreciated or not is a question not of the decrease in value in any particular bit of equipment, but only of the decrease in the value of the property of the department as a whole. Actual increase should be charged not to replacements, but to the capital account — equipment. Professional Care of Patients The subdivisions of current expense for professional care of patients, as shown in the classifications of the pre- ceding chapter, seem numerous, but if a comparison is to be made between two hospitals, or between different years in the same hospital, one must know what type of I06 COST ACCOUNTING FOR INSTITUTIONS nursing is provided; and any mere lump figure for nurses would leave one very much in the dark. For this reason four groups of nurses' wages are shown, namely: superin- tending, graduate resident, nurses in training, and special nurses. Since the special nurses are usually paid by patients, or at least the hospital is compensated by a special charge for their wages, this does not comprise an ultimate cost; but it should be shown, because the board, rooms, and laundry of such nurses are likely to be supplied by the hospital and charge is made for these; so that necessarily some costs in connection with them get into the hospital books, and therefore all costs in connection with them, even though those costs be refunded, should appear. Since, moreover, our aim is a complete record of current expenses, rather than a mere record of ultimate loss or gain, we should include special nurses' wages in our total costs for the pro- fessional care of patients. If a hospital increases the pro- portion of graduate resident nurses to that of nurses in training, its costs will obviously increase; and only if these two items are separately shown will evidence appear clearly that this shift of ratio has occurred. * Transfers between Departments Transfers between one department and another within an institution are likely to be of frequent occurrence. When- ever these occur, an error will creep into the figures of costs of both departments unless a proper record is made of that transfer. If, for instance, supplies are taken from the general medical stores of the hospital and sent to the dis- pensary, care should be taken that the account for dispensary supplies shall be debited and the account for general medical supplies, for the hospital proper, shall be credited. Detailed entries for the process of closing the books and bringing related items together are indicated in Chapter VII. CHAPTER VI FORMS FOR THE DETERMINATION OF COSTS The forms shown herein are intended to provide the means of getting virtually all the information that is re- quired for a final accurate distribution of general burden cost through the various departments. It is unlikely that in all institutions the managers will think it desirable to carry the subdivisions of accounts as far as has been sug- gested in the foregoing chapters. In that case, many of the forms indicated beyond — such, for instance, as form 25 — will be unnecessary. No attempt has been made, in the forms shown, to indicate those which are essential and those which are merely valuable, for conditions must de- termine that in any case. It is believed worth while for any institution to keep the records completely, and to utilize all the accounts and all the forms (or their equiva- lents) here shown; but if that seems to any managers too great a refinement of method, all the information here recommended may be gathered for certain short periods' throughout the year and may then be used to establish rough proportions and averages ; it will be seen, for instance, that the accounts and forms recommended here, if used for one month in six, or possibly even a fortnight out of each half year — if that fortnight is chosen with care as a fair criterion for judging averages — will enable one to ap- proximate the costs of a year as a whole without undue labor in record making. Then the final summary, schedule IV (page 192), may be filled out with something at least 107 I08 COST ACCOUNTING FOR INSTITUTIONS approaching accuracy. The ideal condition, however, is complete record through the year. The forms have been devised for hospital use, but vir- tually all of them are applicable, with mere changes of names, to other institutions. As a suggestion to managers intending to provide printed copies of any of these forms, the items supposed to be filled in by hand are here in italics and the standard items are in roman. Form D, Expense Ledger This form (page no) shows the method, to which at- tention has already been called, of handling an expense ledger. The purpose of this ledger is to show the details for the various departments without burdening the general ledger with anything but summaries. It will be noticed that every subdivision of a general-department account has in this form D two columns, and that there is an additional pair of columns for totals. The intention is to gather from the cash book, from the journal, and from any other source, such as the voucher register, all items belonging to any sub- division of a department. Then ( i ) the totals for the sub- divisions may be added together to produce the total for the department for the month, and (2) each separate sub- division may be treated cumulatively to produce the total of that subdivision for any group of months, and (3) we may at the same time learn from the general ledger the total for all subdivisions for any group of months. Since credits to expense accounts are unusual, no provision is made for a special column for credits except in total. If any credits occur in any month they are written in the proper column in red ink, and the red ink items are added for the various subdivisions and extended into the total credit column. FORMS FOR THE DETERMINATION OF COSTS 109 Expense-Ledger Entries In the illustration at hand, the first amount entered as a debit total is $85.13, which, as is indicated by the posting check, comes from the addition of the details given on page 105 of the voucher register — these details being $46.10 charged to laundry supplies, $30.50 charged to laundry fuel, $2.05 charged to laundry express, and $6.48 charged to laundry outside work. The voucher register is ordinarily so arranged, through the medium of special columns, as to show a total (footing) for each subdivision (of general- ledger account) that is likely to have direct charges — as, here, the four items shown above. Then the total for each subdivision may be posted from the voucher register directly to the expense ledger, as above, and the sum of the totals may be entered in the first column. The items on the second line of this expense ledger are taken, as is indicated by the posting check, from the cash book; and the $245.75 is made up of $245 in salaries, and 75 cents paid for express. The next line contains the general items, which are, with few exceptions, closing entries for distributing burden or overhead charges among the departments. In this case it is obvious that $17.10, originally charged to salaries of some other department, should be credited to that depart- ment and debited to the laundry, for the item comes not from the cash payroll, but from the journal; that $95 of board cost charged to Transfer Board is hereby transferred to the laundry; that $32 is cost for rooms for laundry em- ployees, $12.60 is laundry cost for laundry employees, $20.25 is laundry fuel cost, $20.09 is the laundry share of general housing costs, $15.70 is interest on equipment, and $18.10 is depreciation. The total of the items from each book, extended into the debit total column, indicates the amount chargeable in no COST ACCOUNTING FOR INSTITUTIONS ^ ^ Q 1 •-5 g e2 u Q a 1 K S i <5 8 8 'g i ^ § % Q 8 1 1 ^ i g § Q 8 2 8 1 1 1 1 ^ d § & § A • <5 ll 1 1 I 1 S"S,8, C? 2 £''8, 5 1 1 1 Ill FORMS FOR THE DETERMINATION OF COSTS 117 I 1 1 1 ^ ^ s q ^ Q ^ S 2 Q »^ § e2 Q 1 i 1 5 i <:5 1 ^ 1 5 5 ^ 1 i is & 1 8 1 1 3 ^ & 2 ? H to is H2 COST ACCOUNTING FOR INSTITUTIONS the general ledger to the laundry department as a whole. The credit of $1.49 is obviously a credit to general supplies which have been transferred from the laundry department to some other. (The detail is shown, of course, in the journal.) Of course the cross footing of the eleven sub- division totals should equal the vertical footing of the gen- eral total. This total is posted hence to the general ledger. It is unnecessary to enter in the first column the total of items from each book, for the sum of the footings of all the other columns will give the total figure ; but the method shown is a check on error. The total of each subdivision is extended, it will be observed, into the total column for that subdivision; and the total debit of all subdivisions, as already noted, is en- tered in the first of the pair of columns headed "Total," whence it is posted to the general ledger (here page 53). It will be noticed, however, that under the "debit" column in each pair of columns for the subdivisions, but not under the column marked "total" in each pair, a double red line is ruled at the end of each month. This double red line indicates that addition will not proceed farther in that column ; but since there are no double rulings in the "total" column of the subdivisions, the total may be made con- tinuous until the closing of the books at the end of the half year or year. Under the debit column in the total group (which is the first pair of columns) the double ruling is provided; for this figure is not continuous; but since it is shown in the general ledger and will appear upon the monthly trial balance, the cumulative figure for the depart- ment as a whole may be found at any time. Expense^Ledger Results The ultimate result of this arrangement is that details arc posted from the voucher register, from the cash book, FORMS FOR THE DETERMINATION OF COSTS 113 and from the journal, to the subdivision accounts in the expense ledger; that these subdivision accounts are kept both monthly and cumulatively until the end of the half year or year ; that the total for the department, which must agree with the total of the subdivisions of the department for any month, is carried monthly to the general ledger, whence it is taken in total and carried to the trial balance : so that we have a statement of condition at the end of each month; that, if we wish to compare individual months, we have the total for each month, both for the subdivisions and for the department as a whole, in the expense ledger; and if we wish the total of any subdivision for any number of months, we get it from the footing (naturally taken each month for test purposes) of the total column of that subdivision. In the end, therefore, we have the total of each subdivision and of the department as a whole for each month, for any number of months, and for the half year or year as a whole. List of Forms for Details of Cost Determination The following forms are presented and discussed in the present chapter : Form 1 Registry Book 2 Daily Patient Ward Report (from nurse in charge) 3 Ward Record (kept by nurse in charge, and checked monthly with Patient Summary) 4 Monthly Patient Summary, all wards (from Daily Patient Ward Reports — Form 2) 4a Annual Patient Summary (from Monthly Patient Summaries — Form 4) 5 Monthly Discharge and Death Record (from Daily Patient Ward Reports — Form 2 — and Registry Book — Form i) 114 COST ACCOUNTING FOR INSTITUTIONS Form 5a Annual Discharge and Death Record (from Monthly Discharge and Death Record — Form 5) 6 Monthly Patient Report ( for trustees, from Monthly Patient Summary — Form 4 — and Monthly Dis- charge and Death Record — Form 5) 6a Annual Patient Report (for trustees, from Annual Patient Summary — Form 4a — and Annual Dis- charge and Death Record — Form 5a) 7 Time Sheet 7x Time Sheet Appendix (for employees whose time is divided) 8 House Tables Requisition ( from Time Sheet — Form 7 — made out in office and sent to housekeeper or dietitian) 9 Ward Diet Requisition (made out by nurses and sent to dietitian) 10 Summary Patient Diet Requisition (made out by dietitian from Ward Diet Requisitions — Form 9 — and sent to housekeeper) 11 Requisition on the Steward's Department (based on House Tables Requisition — Form *8 — -and Sum- mary Patient Diet Requisition — ^Form 10 — and made out by the housekeeper) I2W Weekly Dietary Summary (from House Tables Requisitions — Form 8 — and Summary Patient Diet Requisitions — Form 10) 12 Monthly Dietary Summary (similar to I2w, but adding the last three days and combining the weeks) 13 Calculation of Special Food Costs (from Requisi- tions on Steward's Department — Form 11 — and purchase records of prices of food) ,^ 14W Weekly Summary of Special Food Costs (from FORMS FOR THE DETERMINATION OF COSTS 115 Form Calculations of Special Food Costs — Form 13 — and Weekly Dietary Summary — Form I2w) 14 Monthly Summary of Special Food Costs (similar to 14W, but adding the last three days and com- bining the weeks) 15 Calculation of Occasional Common Food Costs (from Requisitions on Steward's Department — Form 11 — and purchase records of prices of food) i6w Weekly Summary of Occasional Common Food Costs (from Calculations of Occasional Common Food Costs — Form 15 — and Weekly Dietary Summary — Form 12 w) 16 Monthly Summary of Occasional Common Food Costs (similar to i6w, but adding the last three days and combining the weeks) 17 Calculation of Regular Common Food Costs (from inventories, purchase records, and Monthly Dietary Summary — Form 12) 18 Summary of Average Food Costs (from Summary of Special Food Costs — Form 14 — Summary of Occasional Common Food Costs — Form 16 — ^and Calculation of Regular Common Food Costs — Form 1 7 — and Monthly Dietary Summary — Form 12) 19 House Tables Record (from Time Sheet — Form 7) 20 Distribution of Food Costs (from Summary of Average Food Costs — Form 18 — Monthly Patient Summary — Form 4 — and House Tables Record — Form 19) 21 Engineer's Daily Time Card 22 Engineer's Monthly Summary 23 Space-Cost Basis 24 Space-Cost Distribution 25 Monthly Record of Ice Il6 COST ACCOUNTING FOR INSTITUTIONS Form I — Registry Book On the Registry Book attempt is made to give all the information, other than medical, which it is desirable to keep for any one of four purposes: first, identification of the patient; second, financial responsibility; third, general statistical information, including that which will enable one to determine the costs of service ; fourth, physical condition of the patient at discharge. Each patient on entrance is given a number, as shown in the first column. This number is not repeated, even though the patient returns later ; but the fact of return may be shown by an additional memorandum, after the name of the patient, showing the number given to the patient on his first arrival and any subsequent number given him on returns prior to this. The column headed "Notify" con- tains the name of the person who is to be informed in case of emergency. The next column indicates the person financially responsible for the payment of charges, or, if the name is in parenthesis, recommending credit. The next five columns contain records requiring no comment, but they should be filled accurately, so that statistics regarding the social and economic standing of patients may be available. The record of ward, or room, is of importance not merely as a guide in finding the patient, but as an indication of the department of the institution chargeable with the costs of board, etc. In the column for the date of entry the small number at the right and above the date indicates the time of entry (that is, the last meal served before entry). If the same plan is followed after the date of discharge, the difference in dates indicates the total number of days' board, with any fractions of days, chargeable to the patient. This is important for statistical purposes even if it is not used in determining charges to the patient; for example, if the number in the column headed 'Total days" is 21^, it indi- FORMS FOR THE DETERMINATION OF COSTS 117 ■Q ^ 1^ § J, 1 ^1 "s '4 I d S a 1^ 1 1 ^ 1| t 1 «*, f 1 i 1 . t:S ii8 COST ACCOUNTING FOR INSTITUTIONS cates sixty-four meals served — twenty-one days and one meal over. Form 2 — Daily Patient Ward Report Form 2 is a daily report for a ward, and contains all information necessary for the calculations of daily costs and for the completion of the registry record. Since it is to be made out daily, the number admitted, the number FORM 2 Day, January 2, jgi2 Daily Med. A Ward Patient Report Number of patients, morning Number admitted 28 I Number under treatment Number discharged Number died 29 o I Number remaining, evening 28 Special diet days * House diet days * Fever diet days * > ^ /2 25 I Total diet days * 272 DISCHARGES Registry numbers of individual patients Cured Improved Not Improved Died 147 *In dmys and thirds of days (meals). FORMS FOR THE DETERMINATION OF COSTS 119 discharged, and the number died, should be always the number since the report of the preceding day. The second part of this report shows the number of patients in each of the main classes of diet. This figure is used in the dis- tribution of food costs. The last part of the report gives the condition of patients leaving. It gives not the number of patients, but the registry number of each patient, dis- charged as cured, improved, not improved, died. This re- port should be sent by the head nurse in each ward to the office at a specified hour daily, and should cover preferably figures until midnight of the preceding day. Form 3 — ^Ward Record This form is virtually a duplicate of form 2, but it contains the record for all the days of the month on the same sheet, and it should be kept in the ward. At the end of each month, the nurse in charge of each ward should send to the office the final figure for the month on a daily patient report blank (form 2) with the word "daily" changed to "monthly." The office will then have means of comparing its own figures for the summary of all wards with the total of the summaries kept by the head nurses, and, therefore, will see that the monthly ward record kept by the nurse of each ward is kept accurately. Only thus is it possible to know that no discrepancies creep in between the nurses' daily reports and the office monthly report. The only diflference between form 3 and form 2, except for the larger content, is the provision for avoidance of duplication in the total number of patients in the last column. The number of patients at the beginning, of course, should be not the sum of the number of patients for each day, but only the number of patients on the morning of the first day. The number under treatment should be not the sum of the numbers under treatment for all days, but may 120 COST ACCOUNTING FOR INSTITUTIONS I 5 § s i'S- ++ 1 i i 00 1 t^ VO 1 lO 1 •* fo ^° oo c^O J? ^1?"- ^ N "8" ^"=' ^ ^ "^ ^^ % •H {J*^ O C\j o ^ ^>"^ ^ 1 h 11 Under treatment Number discharged Number died Number remaining, evening Special diet days * House diet days * Fever diet days * « f 1 1 FORMS FOR THE DETERMINATION OF COSTS 121 be the average of such numbers. The number remaining at the end of the month is not the sum of the numbers remaining each day, but the number remaining on the even- ing of the last day. On the other hand, the sum of the number under treatment for all days must agree, except for the fractions of days, with the total diet days as shown in the second portion of the record. So far as there is any overlapping of fractions, there will be a slight dis- crepancy; for the purpose of the figure in the first half of the record is to show the average use of the ward by patients (indicating how nearly it is used to full capacity), while the purpose in the second half of the record is to get statis- tical figures for the distribution of food costs. Form 4 — Monthly Patient Summary This summary is made up in the office, and consists principally of a total of the daily ward reports of the month. If all the monthly ward reports, made by the head nurse in each ward, were added together, as they should be for test purposes, the result would be for each day the figure shown here. The figures for the month, on the other hand, are not just the sums of the daily figures ; for, as indicated in the comment on form 3, the number in the hospital at the beginning, the number under treatment, and the number in the hospital at the close, should not be totals. For this summary it is desirable to show the number of diflferent persons under treatment, as the sum of the two preceding items (not the sum of all the days on that line). It is desirable also to show the average number under treatment ; this will be not only the average of the figures of the line above on this summary report, but also (allowing for a slight variation because of dropped or taken fractions) an average of the similar items on the ward records, A com- 122 COST ACCOUNTING FOR INSTITUTIONS & OJ »H H CM Ov N 1 I 0) t-) ti g s I I 3 tl €1 II « o 0) ^ •-3 c 2 iSiS o o I .8 I FORMS FOR THE DETERMINATION OF COSTS 123 e« e« - II 'c3 -SS-8 ^ +3 Xi t>^ f>0 ^~ ^ tvT ^ la y:> 's*- u-> ^n ■* s 'r. &fi p n •s 00 ^ "^ Oi fci ^ M CK g & (vT Q w & 'rt Q 1 4-> 0) H S Specia House Fever ^ r^ »^ I 'd der treatment number, days nder treatmen number, days 11 II • Mi Wi +3 a *D *^ C ** S c s a •^ +3 4J +3 -tt ?J ^ 2 15 M 5 f W 126 COST ACCOUNTING FOR INSTITUTIONS Form 5 — Monthly Discharge and Death Record Since the monthly discharge and death record should be kept with great accuracy, not only for statistical purposes but because of the fact that it deals with persons and not with things, it may well appear on a separate statement rather than as a part of the Monthly Patient Summary.* It is desirable, moreover, to know, in addition to the in- dividual discharge and the condition at discharge, the num- ber of days for which the individual was in residence at the hospital; for if the hospital is one of last resort its proportion of deaths will be high, and the fact that it is of last resort will be somewhat indicated by the fact that the average time of residence within the hospital is short. For each class of patients discharged (cured, improved, not improved, died), therefore, there should be a record of the individual registry numbers of the patients, and the number of days of residence; to these figures should be appended the totals, so that the check on error or omission will be complete. To this general statement should be added three statistical items — the longest stay for any patient discharged during the month (which may be easily learned by running through the days shown under each group) ; the condition of that patient at discharge; and the average stay of all patients discharged during the month (which is found by dividing the total days by the total number of patients). The average stay for each group can be shown easily if desired; but in the forms used here it is shown on the an- nual record only, and is deemed hardly valuable for the monthly record unless peculiar circumstances have arisen. * In some institutions a discharge number is given every patient and recorded on a form consisting of two columns only — the first giving the entry number and the second the discharge number. Entry is made only when a patient leaves or dies. The difference between the last entry number on the Registry Book and the last discharge number on the Discharge Book is the number of patients in the hospital. This is a good check on error, but serves no other purpose. FORMS FOR THE DETERMINATION OF COSTS 127 Si- ■% 5" -§ Pi H to .s3 s? J? •le H il 1! 2 .S5 SI t II s II t 11 !? 11 .s3 MM M M H M •^1 N H H N K, 1 •J a ■§. 5 i I •c *0 60 c a •Si >. 1 I o I- 2 0) 128 COST ACCOUNTING FOR INSTITUTIONS II ;? ? ^ ^h -■2 3§ -% N ^ N ^•^ PW ^^ 1 S? ^ t: 1 a N s iz: •s ^ ^ N ^ rr, > i5 >o O II Q O fljl-t a> '1 a § ^ <§ ^ c2| Q oo 5 '■5 o. ^ T> o , 1— 1 a 1 N 'c^ ^ •S" :? l1 |5 Q ^ 1 a H :5 3 & •s 2-a 1 1 i 1 1 ^ ^ 11 1 3 > < FORMS FOR THE DETERMINATION OF COSTS 129 Form 5a — ^Annual Discharge and Death Record Form 5a is similar to form 5, but substitutes months for days, and gives the average stay by groups (cured, improved, not improved, died). (See opposite page.) Form 6— Monthly Patient Report The superintendent of the hospital should make to the trustees or governing board a monthly report containing a summary of those items concerning which the board will desire information; but this report should be brief and therefore should not contain quite so much information as the superintendent will require for his own guidance. This form is intended to suggest the desirable information. All the figures recorded here are obtainable from reports and records already discussed. (See page 130.) Form 6a — Annual Patient Report This is practically identical with form 6; it differs only in substituting annual for monthly figures. (See page 131.) Form 7 — ^Time Sheet [Illustrated on page 132.] In attempting to divide the cost of board, room, laundry, etc., for employees among the various departments which they serve, it is necessary to have complete information with regard to their assignments. This form is intended to suggest how such information may be kept in connection with the ordinary calculation of payroll, and without much labor beyond that required for the simplest form of payroll. The first column (beyond the name) shows the type of table board served to each employee, and indicates there- fore which of the various rates of board is to be used in charging the department served by the employee. The second column indicates the specific board account charge- able for this employee's board — that is, which departmental board account is so chargeable. All the other columns but I30 COST ACCOUNTING FOR INSTITUTIONS 13 t^-^ Hx:> W-jt^ M<5 p^vo rt £^ ll -§R -5'^ H s& CO "§•2 SrS- :?,^ V'' -■S!3 |& O^ B i Wl B •c 5 ^ eg art t^ +3 -M 5rl J« iH wo c5 55 <" •S rt ^ rt j^ ^^^ rt d o s S a § Isle a> FORMS FOR THE DETERMINATION OF COSTS 131 i II ¥ |i 3 00 V-. iS II :2;;z: .s J 1 iJ I I gig's l^g-l ■8 Si.-B ■" |-3|-3|^'3U III 2 S <;,j »o OH M -M § § § § § ^§s> s> < H H H CO CO CO ^ e:: 1^ ^ ^ ^ -^ ^ CJ - - ^ g- ' .2 ?li g ^%". ^ ^ H PO «V) "I t>* •m cj 4-> a> ^ Th cv. 6 U^w^'o'60'o'o'o S N H C>« N »^ Kh S CO a 0) -«*■ H H H to N N H fi N H H - N H H w ::^:^^;^;^;^:i;^ II HO pq 5 fc eq PQ < c 3 •< 1 1 1 •? a; CO 1 136 COST ACCOUNTING FOR INSTITUTIONS Form 8 — House Tables Requisition The table manager in any institution must know for how many persons he is providing, and therefore the office should notify him for each meal of the number of persons to be served in each group of board. In small institutions with a constant staff this notification need be sent only when changes occur; and in very large institutions, where a difference of two or three persons is negligible, notifica- tion would be sent only when important or cumulative changes have occurred. FORM 8 Meal Br. Date Jan, 2, 1912 House Tables Requisition Group A Group B Group C Total II 39 28 78 Form 9 — ^Ward Diet Requisition Wherever foods of a special type are required, the head nurse in each ward must make a requisition specifying the number of services of special diets (where the type of diet is prescribed) and the special dishes (where the diet is individual). This form is to be sent to the office, or directly to the table manager, for each meal. The illustration of this form will be found, parallel with its counterpart, form 10, on page 137. The latter is similar, except for its greater content, for it summarizes the figures of requisition for all wards. FORMS FOR THE DETERMINATION OF COSTS 137 M z t£ P •^ So .2^ is a u Q P^ 1 ^ M «< 04 > i s >; D cn 1 1? a s Number Each Spe- cial Dish Ok Special diet Special dishes Omelet Chops CO (Z4 is e .« ^ s 00 n1 1 Q « H 1 Q 2 c^ ^ ^ (_) ptf D W 1 0, M (^ ►s H 1 mber h Spe- IDish "^ f^ 3 Cj 2^0 ^ •g ^ -s aldi Omeli Chop ^ 4j --I 1 ^ ^1 i S3 w cS^ w {2 138 COST ACCOUNTING FOR INSTITUTIONS Form 10— Summary Patient Diet Requisition The information contained in form 9 from the various wards should be summarized on a similar form for the table manager. The original of form 9 should then be sent to the serving department for guidance in the distribution of food prepared. (See preceding page.) Form II — Requisition on the Steward's Department If one is to determine accurately food costs, one must know not only how much food of each type goes into each dietary, but also at what cost. Someone must know what is to be withdrawn from stores for each type of dietary; and to preserve these figures in the form of a well-arranged requisition on the steward's department requires no addi- tional labor. Those foods used in one type of dietary only are extended into the appropriate columns for that dietary : the amount for which requisition is made should be ex- tended in the column marked "issued," the amount returned (if any) after the meal has been prepared should be ex- tended in the column marked ^'returned," and the amount consumed should appear as "net." Amounts called for in excess of the amounts actually used must always be re- turned to the store-room and entered upon this requisition sheet. Otherwise there is great danger of loss, or mis- placement, or failure to account for supplies used. If any articles of diet are common to two or more types of dietary, indication of that fact should be made on the requisition; but it is not necessary to divide the total into the amounts required in each dietary, for since such items are to be distributed among the types of dietary monthly on a cal- culated basis, they may be kept together and charged to the common dietary until the monthly figures have been obtained, Such common participation in any foods is in- FORMS FOR THE DETERMINATION OF COSTS 139 dicated on the form by lines extending from the figures through the columns for the dietaries concerned. As in- dicated on the blank, Dietary A, in this particular classifica- tion, comprises special diet and the highest class of table board for employees, such as that for the superintendent, the resident physicians, and head nurses. Dietary B com- prises the general house diet served in wards, and the diet for nurses, orderlies, and other employees above the servant class. Dietary C comprises the diet served to employees of the servant class. Dietary D comprises fever diet only. These subdivisions vary, of course, both in number and content, between institutions. In many institutions food is ordered from the steward's department daily. This simplifies ordering, but it leaves open greater likelihood that food ordered for one dietary shall be used in another without credit. The form shown here allows credits by entries in the columns headed "re- turned," with corresponding debits in the columns headed "issued," for the dietaries taking the unused foods. The form which follows is not intended to displace the common form of requisition for open-stock foods. Spices, flour, sugar, cereals, tea, coffee, etc., are not usually ordered from the steward's department for single meals or days, of course, but in convenient quantities for use in the kitchen as occasion arises ; and they are for use usually in all classes of dietary. They may well be ordered on separate requisi- tion slips, known as open-stock requisitions (possibly desig- nated form iiO) ; they would not, however, enter into the cost calculations, except for checking purposes, for the cost of such open-stock foods is to be learned from inventories checked by the open-stock requisitions. This form 11 should have printed upon it the name of all such common open-stock foods; but since returns are not common, only one column for amounts is necessary. I40 COST ACCOUNTING FOR INSTITUTIONS S s I Q s a1 I (U ^1 a> > fe fe ;§H =3' -3 8 •S I I ■K--1 FORMS FOR THE DETERMINATION OF COSTS 141 Forms i2w and 12 — Dietary Siunmaries Weekly and Monthly It is necessary in distributing food costs at the end of any week, month, or year, to know the total number of meals served in each class of dietary; for only when this is done can distribution be made between the various types of patients and the various departments having employees. The monthly dietary summary should therefore show ex- actly or approximately for each meal of each day the num- ber of persons in each class of dietary. These figures are obtained readily from form 10 (the summary of the patient diet requisition made out from the head nurses* meal slips) and from form 8 (which is the office statement of the number of employees to be given each type of dietary). Since a sheet for a whole month would be too bulky, four weekly sheets and a summary sheet adding the extra days are recommended. , As a means of determining average costs for employees and for patients as well as per capita, it is necessary to know not only the grand total but how many of the people served are patients and how many are employees ; therefore on the last line of form 12 is given the total number of days' board for employees — which, of course, is the total of the columns headed "A house," "B house," and "C house." The figures are repeated for clearness. For check- ing purposes, the number of meals is divided by three to give the total days. The total days here shown for patients classified by dietary should agree with the total days re- ported on form 4 for the corresponding groups. A slight discrepancy might arise from the conversion of fractions, however. The total days for employees should agree with the total shown by form 7. On all forms, as already sug- gested, totals should be taken not only vertically but hori- zontally in order that there may be perfect correctness of 142 COST ACCOUNTING FOR INSTITUTIONS 1 Q « i2 ? O 1 ^ pq H 1 ♦ 1 8, < 1 S5 •*- i 1 01 Q 1 1 mQc&«Qc&«Qc&fflQwmQwmQw«Qw •-< 1 rt N Oh 1 ^j ^J -ij 1 eakf nner pper eakf nner pper eakf nner pper meals days days b S mScgSS^wQ^ 1 »>.rJ-woO s^ a p^ ^"^h^ ^ 3 X II 11 II 2 cq n II H II o PQP300 I 144 COST ACCOUNTING FOR INSTITUTIONS figures. Here, for instance, on the monthly summary the grand total of meals served, 17,579, should be the sum not only of the figures above it in the column for grand total, but also the sum of the four group totals at the left on the same line, for each of these totals is the sum of a column of which the details go to make up the grand total. Since later we shall need to know the sum of certain combinations of groups (for form 16), they are shown here at the bottom of form 12. Proof of correctness is found by subtracting D from the grand total (since it is not in any combination) and multiplying the difference by three (since each group is used three times). Strong temptation occurs in most large institutions to say that two or three persons more or fewer make no differ- ence in food costs and therefore need not be regarded in the figuring. Whether that is true or not, it is a fact that a slight inaccuracy known and neglected leads to a growing tolerance of inaccuracy, and usually results in .inaccuracy that is, or should be, intolerable. An indefinite margin of inaccuracy usually results in worthless figures. For this reason, form I2w is carried out in detail for each meal rather than left with an approximate figure* for each day. With a reasonable degree of accuracy, of course, the latter would serve for most purposes. Then form I2w and form 12 would be combined, with a line for each day. Form 13 — -Calculation of Special Food Costs The calculations of food cost may now begin with those foods entering into one diet only. We already have, on the summary patient diet requisition (form 10), and on the requisition on the steward's department (form 11), all items not open-stock entering into each dietary. If the items actually consumed in each class of dietary, and in that alone, are entered on a new form at the cost known to FORMS FOR THE DETERMINATION OF COSTS 145 i -^ to JJ ^ I -M <> >o *? *? Q g Q < 'd a> a (0 ^ c3 r*- a 1 '^. H < 'O a ^ s (j CJ -g § »o »o 1 K. N. pq 'S g ^ w "* (3 a »o a »0 S" 8 1 <) H 00 < < •s ti 1 1 1 1 J5> ^ 8 •c ^^^. ^ ^ §• Ph -s 1 a *-^ 1 ^> ^ ;20 1 1 eats Chic Beef Beef ;getabl( Celei I ^^ P s fe 1 ^ > > f^ § 146 COST ACCOUNTING FOR INSTITUTIONS the office, the sum of all such items will give the charge to each dietary for the special foods consumed. These items are figured for each meal. As a matter of fact, how- ever, for most meals they are likely to be either few or entirely absent, for most food is either common to all dietaries or to several. If the custom is to fill out form 11 (requisition on the steward's department) only daily, this form 13 will be a daily sheet, of course, and no attempt will be made to calculate on it for individual meals. Forms 14W and 14 — Summaries of Special Food Costs- Weekly and Monthly To these forms are carried from form 13 the total costs of special food for the various dietaries for each meal, and from form I2w and form 12 the number of persons served. A total of these items, for each dietary, for the month, gives the total cost of special food and the total number of meals served for each dietary. A division of the former by the latter gives the average cost of food, for each type of dietary, for the foods peculiar to that dietary. These figures multiplied by three give the* average daily cost. Form 14W, like form I2w, is for the week, and form 14 combines the weeks and adds the extra days to make the month. The averages at the bottom of form 14W may be of service to enable the manager to watch his costs ; but they are not used in the final books, for the monthly averages supplant them, as shown on form 14. If the requisitions on the steward's department (form 11) are made out for a day at a time, form 13 becomes a calculation of daily food cost, and form 14W and form 14 may be combined; for, with only thirty-one items for any month, one sheet may cover it. FORMS FOR THE DETERMINATION OF COSTS 147 FORM 14W Month of January, igi2 Week 1-7 Weekly Summary of Special Food Costs Dietary A B C D Day Meal Cost (Form 13) Cost (Form 13) Cost (Form 13) Cost (Form 13) 1 Breakfast Dinner Supper 2 Breakfast Diimer Supper 3 Breakfast Dinner Supper 4 Breakfast Dinner Supper 5 Breakfast Dinner Supper 6 Breakfast Dinner Supper 7 Breakfast Dinner Supper 8.00 750 1.08 •36 Total Meals served (Form I2w) Average, meal Average, day 148 COST ACCOUNTING FOR INSTITUTIONS FORM 14 Month of January, IQ12 Monthly Summary of Special Pood Costs Dietary A B C D Day Meal Cost Cost Cost Cost (Form 13) (Form 13) (Form 13) (Form 13) 29 Breakfast Dinner Supper 30 Breakfast Dinner Supper 31 Breakfast Dinner Supper , 1-7 a-14 15-21 22-28 Total 166.56 379 50 24.50 27.60 Meals served (Form 12) 2,823 11,385 2,451 920 Average, meal 'O59 • 033 .01 • 03 Average, day .177 .099 ' .03 .09 Form 15— Calculation of Occasional Common Food Costs The cost of foods common to two or more dietaries may be figured for each meal in a fashion similar to that used in finding the special food costs. On this form 15 should be entered, however, only items which, though com- mon to several dietaries, are not common to all meals — such, for instance, as vegetables and fruits. The cost of foods common to all meals, of course, may be taken for longer periods and so simplify the labor of calculation. On this form, therefore, should be entered for any meal all FORMS FOR THE DETERMINATION OF COSTS 149 I I I Is Sir 8i P O a ::: o H O o 4- < + + < -s 8S, ^ M CM & ^ 5i«> i2 5c^^ 5 I I50 COST ACCOUNTING FOR INSTITUTIONS foods common to dietaries A, B, and C, common to A and B, common to A and C (rare), and common to B and C. If ordering is for the day, rather than for the meal, the form would be the same as that shown, but with a larger content. If, on the other hand, prices are constant, because sup- plies have been bought in advance, the labor of calculation may be much simplified by combining many meals in one calculation; e. g., all the items on the form shown as a sample below are likely to have been bought early in the season or by contract, and therefore calculation need not be made oftener than the figures are needed or the price changes. Meats, on the other hand, may need calculation for each purchase. Indeed, if this form is made on a large sheet, with ample spaces vertically to add daily figures of quantities consumed in each combination of dietaries (so that to the 20 lbs. of squash used to-day, e. g., 15 lbs. may be added day after to-morrow, etc.) one sheet may serve for a week or longer. The objection to this method is the awkwardness of the sheet and the difficulty of making corrections in case of error — for, since the items cannot well be labeled, identifica- tion is well-nigh impossible. That is why a separate sheet for each meal or day is recommended here. Forms i6w and 16— Summaries of Occasional Common Food Costs, Weekly and Monthly These summarize the information given for each meal on form 15, but add from form 12 the total number of meals, for the month, served in each group of dietaries. Dividing the total cost by the number of meals gives the average cost per meal for these particular items ; and multi- FORMS FOR THE DETERMINATION OF COSTS 151 FORM i6w Month of January ^ igi2 Week of 1-7 Weekly Summary of Occasional Common Food Costs Day Meal Cost of Food for Dietaries Served in Common Total A+B+C A+B A+C B+C 1 Breakfast Dinner Supper 2 Breakfast Dinner Supper 3 Breakfast Dinner Supper 4 Breakfast Dinner Supper 5 Breakfast Dinner Supper 6 Breakfast Dinner Supper 7 Breakfast Dinner Supper 4 56 1.50 3 50 •85 2 IS 1.88 Totals Meals served (Form I2w) Average per meal Average per day 152 COST ACCOUNTING FOR INSTITUTIONS FORM i6 Month of January, 1912 Monthly Summary of Occasional Common Food Costs Day Meal Cost of Food for Dietaries Served in Common Total A+B+C A+B A+C B+C 29 Breakfast Dinner Supper 30 Breakfast Dinner Supper 31 Breakfast Dinner Supper 1-7 8-14 15-21 22-28 Totals 575 30 iSg.yo 61.15 177-51 1,003.66 Meals served (Form 12) 16,659 14,208 5,274 13,836 Average per meal 'O34 .013 .012 ' -013 Average per day .102 039 .036 'O39 plying this quotient by three gives the average cost per day for these particular items. These forms are designed to follow the plan of a record and calculation of food cost for each meal. Where record and calculation are made only daily, these two forms would be combined, and form 16 would have thirty-one lines — one for each day. If, on the other hand, form 15 were arranged for a week's calculation, form 16 would have but four or five lines. If, finally, form 15 could be made to cover a FORMS FOR THE DETERMINATION OF COSTS 153 month (possible when the dietaries are few and combina- tions infrequent) form 15 would itself serve the purpose of form 16 by the mere addition of the figures for meals served and for averages. Wherever averages are shown, as here, the figures from which they are derived should be shown — as a check on error in calculation or copying. So the number of meals served should be entered here from form 12, indicating that .034 is the decimal expression of the fraction 575-16659. Form 17 — Calculation of Regular Common Food Costs A common type of food is that which is served, either directly or indirectly, for all meals and for all types of dietary — such as flour, sugar, butter, spices, milk, etc. If a proper stores record is kept of the amount on hand at the beginning of the month, the amount bought, and the amount on hand at the end of the month, the amount consumed can be easily determined, and this multiplied by the cost per unit gives the total cost for the month. If we divide this cost by the total number of meals served, indicated by form 12, we shall get the cost per meal; this multiplied by three gives the daily cost. This requires calculation but once a month. Care should be taken, of course, to provide against confusion between open stock in the kitchens and store-room stock. If all food supplies go to the kitchens and are sent on requisition only, the store-room may be treated as an outside store. If, on the other hand, the store-room issues food to diet kitchens, dining-rooms, etc., direct, or without requisitions, either inventories of the store-room must be taken for each calculation of regular common foods, or requisitions from diet kitchens, dining-rooms, etc., must be carried through the cost calculations. In any case, store- room stock should be frequently checked with the purchases, 154 COST ACCOUNTING FOR INSTITUTIONS FORM 17 Month of January, IQ12 Calculation of Regular Common Food Costs (Incomplete Sample) On Hand Begin- ning Bought On Hand End Con- sumed Rate Cost Groceries Flour Sugar etc. Butter Eggs etc. etc. 600 1,000 300 700 300 800 700 03 05 24.00 3500 459 58 Total 51S.58 Number of meals (Form 12) 17,579 Cost per meal . 02g5 Cost per day \ .op the requisitions, and the inventories. This last requirement is mere business sense, and its cost is not a cost of account- ing — though the accountant uses the figures. Form 18 — Summary of Average Food Costs The immediately preceding forms have given the cost per day for each type of dietary as follows: special foods, form 14; occasional common foods, form 16; and those common to all meals, form 17; if we now add together the costs, for each type of dietary, for each one of these types of food, we get the total daily cost for each dietary. The daily cost for patients in private rooms is the cost of FORMS FOR THE DETERMINATION OF COSTS 155 dietary A for the special foods, plus those occasional com- mon costs which concern dietary A, plus the regular common cost. Patients in wards take dietary B for the special foods, and share in the other two classes of costs. Patients on fever diet are served class D special food, but do not usually share in the occasional common diet, though they may share in the regular common diet. Group A of the house- hold is served diet A of the special foods and shares in the other two. Group B of the household is served class B of the special diet and shares in the other two. Group C of the household is served class C of the special food and shares in the other two. This form gathers the various elements of final food cost for each dietary and shows its final figure. The lower half of this form gives us the statistical figures for the total cost of food, the total cost of patient food, and the division of the total cost of patient food be- tween wards and private rooms. These figures are ob- tained as follows : the total cost of food is taken from form 14 (which gives the four types of special food), form 16 (which gives the occasional food), form 17 (which gives the regular food), and form 12 (which gives the total number of persons for whom board was provided). A division of the total cost by the number of persons gives the average cost of all food per capita day. The cost of patient food is determined from the number of persons in each group of patients (form 12), and the total daily cost for that group as shown by the upper half of this form 18. The products of these figures give the cost of patient food for each class of patient, and the sum of the products gives the total cost of patient food. When this is divided by the total number of patients, as indicated in the form (also obtained from form 12), the quotient is the average cost of patient food per patient-day. 156 COST ACCOUNTING FOR INSTITUTIONS >>-M ^Q' Q cri iH ;<2l g OJ >" " ^1 »0 N.00 »<^ K O ?§•§■ §•§'? I?l I?? ?ll ?R I ??l 2 o I o o o Oo O Os H ►"! O ^ o <5 9 s s ^ 2 2 S ex ex CI4 S S S ssa 000 XXX N H fefefa II ^ «5 =S ;s •k ^.2 'S^J <© a ^ »^ i3 c d t? w O O M . . I G ^ w to 1 1 111 ^^ ^ g.2.2 S c5 o •a Cu 53 25 9J *-■ ^ ^ O w ^ ^ 53 TJ < §-0 t^ fo t3 §1 § ^■5 1 4 ro r< H CV| rrj H Crj HH M )i\ H f^^ ^O 12 8 S „ » „| « M 0> gj i 1 li !.4li. 1 If llflllillilll all si-s-s Si-Si's g-g •s -s -s 1 -s II -s 1 -s 1 .J 1 1 1 l64 COST ACCOUNTING FOR INSTITUTIONS Form 23 — Space^Cost Basis \ This form furnishes the basis for the distribution of space costs — that is, the cost of light, heat, cleaning, insur- ance on buildings, taxes on buildings and land, etc. It usu- ally may be made up from the architect's plans, but an exact calculation of space is seldom necessary. In the illus- tration given, rough rectangular dimensions were taken, and then allowances were made (as shown by the column with the heading "out") for jogs, light wells, etc., cut out from the rectangular space. The figures of net floor space are kept as a means of finding average cleaning costs, etc. The benefit of the basement, halls, stairways, etc., is sup- posed to be shared proportionately by all departments, and hence is undistributed. Entire neglect of it in the distribu- tion raises each department's proportional share properly. The amounts in the column headed "undistributed" are therefore subtracted from the net floor space, as indicated on the form. When this undistributed amount has been subtracted from the net floor space, the remainder is the figure on which all items of distribution for floor area must be apportioned to the various departments. This figure multiplied by the height gives for each 41oor the cubic space which is to be used in distribution ; and the net cubic space is found by multiplying the net floor space by the height, for statistical uses in determining the average cost per cubic foot for heating, etc. This form, it will be ob- served, divides the buildings in floors, on the assumption that all rooms on the same floor are chargeable at the same rate for their space cost. Under some conditions this would be varied, for different rooms on the same floor might be chargeable at different rates, and rooms on different floors might be chargeable at the same rate. The aim of this form is to find the bases, whatever they are, for use in form 24. When once calculated, they are permanent. FORMS FOR THE DETERMINATION OF COSTS 165 Cubic Space to Appor- tion uS 0" ^ crJ N «o to to w c* in ^-^ n t*- 00 NO Tf pi i-i vO 10 CI rt 00 10 i-i 00 vo to ^ •-T vo" to to ro w rf to 10 rt fo S -«J •f M »o N i>. r^ to M to N On W M IH M l-l t Floor Space to Ap- portion On a\ t^ ^ ^ ^ '^ *? cT cT pT pT pT C Si N M 00 VO VO 10 10 N N ^ Tt -"i- M M IH t) 'C +J Net Floor Space 10 10 >o m SS'S ^^ ? to to -«? to to tc » 10 10 g 4-> "* ""^ s vO vO w '-•'' 1 Gross Floor Space 10 10 rl- ri- 00 00 00 t-« HH to to -^ rf >* to 00 g + c ^ g S Ph s § 00 CO •c + i'^ X To 0^ K ffl t^ g; v^ § M N i-i W fO •-H b g' It) ^ J •2 1 5 It a o .2 o l66 COST ACCOUNTING FOR INSTITUTIONS Form 24 — Space Cost Distribution This form makes the calculation, for each department in the institution, based on the figures shown in form 23. If several rooms form a group serving the same purpose, it is unnecessary to distribute costs to each room. For this reason columns are provided for "separate floor space" and "combined floor space"; by the use of the combined floor space, one distribution serves the total for any group of rooms of which the space cost is chargeable to the same account. The space of a room treated by itself is extended in the same column as the combined space for groups. The floor space is multiplied by the height, as in the preceding form, and the result gives the combined cubic space. These figures compared with the first-found spaces, as shown on form 23, give the percentage of floor space and of cubic space chargeable to each room or group of rooms. The last column gives the symbol of the account to which charges are to be made for these rooming or housing costs. Where a group of rooms is used in common by two or more groups of persons, as here the lavatory, the bath-room, the linen closet, the clothing room, and the solarium, the division of cost may be on the basis of beds. Here/ for instance, a person occupying a large and expensive private room is chargeable for no larger share of cost of maintaining the clothing room or solarium than one occupying a bed in the lowest-cost ward. This principle is again illustrated in the case of the dining-room, which is used in common by the employees of the housekeeping department, the kitchen department, and the laundry department. Its cost is conse- quently divided among those three departments on the basis of the number of persons boarded for each. Since several accounts have more than one item here, as RHP, RHW, and DKh, a list is made, and filed with this form 24, for the total percentage chargeable to each ac- FORMS FOR THE DETERMINATION OF COSTS 167 §^ I .rC O ONOO f<3 ►H IH H-l 10 HH OOmOOOOOO a> ii 0) O O "-I o g^J^ vB rj 00 5 :^fO vOoot>.rO>-ii-iHHt>.i-i OOhhOOOOOO o.S 3 0^0 M O ONt>. 1^ W M 00 ocTi-rocrtC O O M 00 to 00 o\«ooo -^in w 10 ►-• 00 tOvO t-i COVO ^O C< C< •-• ONW OMOM lOONO^ONt^Ov "^ ^ *?*l >H 00 »-i O •-< M hH C< 53 ;qSpH W N C< N to to fC CO 10 10 >o ton H4 l-i hI M to cj r< t^t>.t>.r^t>*t^^. tO«ON OnO>OnOnOnOn o 0^ I 00 »o <-" to 10 »H r« ^ O 00 O 00 100 Tl- Ttoo O O ri ONCS row iC0»O«O 10 00O^fO»OC.Os 0>«0 OvOvO I-" W ro rf- 00 00 CI w 8 « *-* •'^ 'Z ^ g I CO 1 1 1 §3 1^ 1 n i2 1 OH 1 ^1° 1 "^SS-^^S. ^^ S.v§ 1 II 8§ H d § i 4^ a § §§§§§§ Ov d d d d d •4-N. d d OvtN. H ts. § i •s-l 111 gl i ! si -1 ll:Li:^oM pea 3 1 CLOSING PROCESSES 193 h ^-S 00 ■M a »0 0<5 try 8^ N 01 ' ^ l^-g 1 »l § S'C-C 0^ MOO u-> |o^ N N 8 S2 1 cS §^ S ips udent-] eatmeE sits p i3 -8^3 -5: UK § 8 s 8> ^ s ts. "^ ^ N <^ »o »n ^ e09 § 8 8 8 8 8 8 8 8 i d d d d d d d H ts. »o (VI »o -* fo -^ N ^ H N »r> «*5 ^ S^^QWWX 1 qqqSSSS •0 -M A 1 1 pecial items X Ambulance Pathol. Lab. Training School Dispensary Emergency Ward Home Nursing X-Ray Service 1 c5 H OT •S -2 '^ § Ilia IS i I ^ « « 2 ^ n fe 194 COST ACCOUNTING FOR INSTITUTIONS umns, since in each pair one shows details and the other shows totals, should agree. The lower half of the form, showing items for which the patient-day is not a signifi- cant unit, names the unit of service for each special type of cost, gives the number of services performed during the period, and finally the cost per unit. From the figures on this form, therefore, comparisons may be made between institutions in their details, in their group totals, and in their final totals. It is obvious, also, that, if it is desired to compare figures for groups unlike those shown here, a different combination of details from this schedule into such required groups is likely to serve the purpose. If, on the other hand, details here are not de- tailed enough, recourse may be had to the detailed costs as reported in full on the schedule recommended in Chapter IV. If, for instance, the cost raw of all food consumed (patient or other) were desired for comparison between two institutions, the debit to general-ledger account DS would be taken; but if the cost of food cooked were desired, the total of DS and DK should be taken; but if the total cost of food served to patients were desired, the figure would be as shown in this schedule IV, designated "food supplies." The cost for each patient or employee per capita day may be readily obtained, of course, for any group or subdivision. The schedule is on pages 192-193. Closing Entries for General Ledger Accounts The balances of the expense accounts remaining (ten resident accounts and seven departmental or professional accounts) will now be closed into the final Earnings Ac- count — of which the purpose is indicated on the State- ment of Financial Transactions for the Year (pages 43, 46, and 52). The various accounts for income from hospital sources will also be closed into this account. CLOSING PROCESSES 195 To the Endowment Income Account, in turn, should be credited income from investments and from interest charged the hospital ; and into this account should be closed the balance of the Earnings Account, found as indicated above. To the Normal Current Income Account should be closed the balance of the Endowment Income Account, and to it should be credited any contributions received from outside sources and any legacies assigned to current use. Corporation expenses should be debited to this account. The balance of this account will be transferred to Surplus and Deficit Account. The accounts for other kinds of income and expendi- ture, as suggested by schedule D of the Statement of Finan- cial Transactions (pages 52-53), will be closed, as circum- stances may warrant, into Special Funds, Capital Account, Surplus, etc.; but every item to appear on either the Bal- ance Sheet or the Statement of Financial Transactions should be carried to an account such that the item may be identified and reported when occasion arises. Usually a separate ledger account should be maintained for each group of items shown on any of the schedules here indi- cated — as the four groups of subscriptions shown on sched- ule VII (page 60), and the three groups of legacies shown on schedule VIII (page 61). Closing Entries for Institutions Other Than Hospitals The closing entries for institutions other than hospitals are not usually different in nature or in treatment, for they require the same method of distributing expense burden, administrative costs, and the like, and their transactions should be publicly reported in the same sort of way. A final summary of expenses for an educational institution, for ex- ample, could be provided in a form similar to that of sched- 196 COST ACCOUNTING FOR INSTITUTIONS ule IV (page 192), substituting salaries and other compen- sation of various classes of instructors for compensation of physicians and nurses, adding costs for libraries, museums, etc., and appending laboratory expenses, etc., in place of the cost of special hospital activities. Such a statement might well be combined with schedule VI (illustrated on page 57), so as to show ultimate costs in direct relation with earned receipts. APPENDIX A /. Alphabetical Index of Symbols of Hospital Accounts This index is intended quite as much as a guide to the accounts (a summary view) as to the symbols. A Administrative Equipment AC General Carting (see page 71) AL Administrative Legal AO Administrative Office f freight h housing i interest m supplies P postage X depreciation z miscellaneous AS AdminivStrative Service b board . 1 latmdry r rooms s salaries AT Telephone b board h housing 1 laimdry r rooms s salaries X depreciation z miscellaneous 197 198 COST ACCOUNTING FOR INSTITUTIONS AZ Administrative Miscellaneous B Buildings and Improvements CA Corporation Annual Report CH Corporation Housing CI Corporation Interest CL Corporation Legal Expenses CM Corporation Supplies CP Corporation Postage CS Corporation Salaries CZ Corporation Miscellaneous D Dispensary Equipment DD Serving Department (see page 89) b board f freight h housing i interest 1 laundry m supplies r rooms s salaries X depreciation DH Household Department b board (when not subdivided) bd board of chambermaids bt board of waitresses bz board of other household employees f freight id interest on dormitory equipment it interest on table equipment iz interest on miscellaneous housekeeping equipment 1 laundry (when not subdivided) Id laundry for chambermaids It laundry for waitresses Iz laundry for other household employees md dormitory supplies mt table supplies mz general supplies APPENDIX A 199 r rooms (when not subdivided) rd rooms for chambermaids rt rooms for waitresses rz rooms for other household employees s salaries (when not subdivided) sd salaries of chambermaids st salaries of waitresses sz salaries of other household employees xd depreciation on dormitory equipment xt depreciation on table equipment xz depreciation on miscellaneous housekeeping equip- ment DK Kitchen Department b board £ freight h housing i interest 1 laundry mf fuel mz supplies r rooms sb salaries of bakers sz salaries of other employees X depreciation DL Laundry Department b board f freight h housing i interest 1 laundry mf fuel mz supplies o outside work r rooms s salaries X depreciation 200 COST ACCOUNTING FOR INSTITUTIONS )M Department of Ambulance b board f freight h housing i interest 1 laundry m supplies r rooms s salaries X depreciation z miscellaneous )P ] Department of Pathological Laboratory b board f freight h housing 1 laundry m supplies r rooms s salaries z miscellaneous )S Steward's Department b board f freight '^ h housing i interest 1 laundry mb bread and pastry mcb breakfast cereals mcf flour mdc cream mdf butter and other fats mdm milk mdp condensed milk mds cheese mef eggs, fresh map egg preparations mes eggs, storage DT Af PENDIX A 20I mfc fruits, canned mfd fruits, dried mff fruits, fresh mfj fruit juices mfp fruits, preserved mg groceries and canned goods not elsewhere specified mh sugars, etc. mi ice cream purchased outside nunc meats, canned mmd meats, dried, smoked, cured mnif meats, fresh mn nuts mpc poultry, canned mpf poultry, fresh msc fish, canned msd fish, dried, smoked, pickled msf fish, fresh mt tea and coffee mvc vegetables, canned mvf vegetables, fresh o ice r rooms s salaries V inventory changes X depreciation z supplies not food Department of Training School b board f freight h housing i interest 1 laimdry m supplies r rooms s salaries X depreciation z miscellaneous 202 COST ACCOUNTING FOR INSTITUTIONS E All sjnnbols beginning with E indicate capital accoiints for the departments having as their general symbols the letters following the E. The departments will be found imder the corresponding symbols; but lone E, as well as EPE, may stand for Emergency Ward Equipment; for under one method shown here all capital accoimts are represented by single-letter symbols. (See also page 35.) p Dining Equipment H Household Equipment, General HE Electric Lighting HP Fuel, Oil, Waste HG Gas HIB Interest on Buildings and Improvements (including pltimbing and steam-fitting) HIQ Interest on Machinery and Tools HL Care of Grotmds HMB Maintenance of Buildings HMP Maintenance of Steam-Fitting and Plumbing HMQ Maintenance of Machinery and Tools HN Insurance HO Ice HP Power HR Rent HS Services of Engineer and Firemen b board 1 laundry r rooms s salaries HT Taxes HW Water HXB Depreciation of Buildings, etc. HXQ Depreciation of Machinery and Tools HZ Miscellaneous f freight z other APPENDIX A 203 I All symbols beginning with I indicate income accounts, usually for departments having as their general sym- bols the letters following the I. The departments will be found under the corresponding symbols. But lone I may stand for the capital account for Appa- ratus and Instruments. (See also below.) ICD Income from Stocks ICGC Income from Churches ICGG Income from Subscriptions, Governmental ICGO Income from Subscriptions, Charitable Organizations ICGP Income from Subscriptions, Private ICIH Income from Interest Charged the Hospital ICIO Income from Outside Interest ICR Income from Real Estate K Kitchen Equipment L Laimdry Equipment M Ambulance Equipment N Home Nursing Equipment Sites and Grounds P Pathological Laboratory Equipment PD Professional Care of Patients, Dispensary b board f freight h housing i interest 1 laundry m supplies r rooms s salaries X depreciation z miscellaneous PE Professional Care of Patients, Emergency Ward b board f freight h housing i interest 1 laundry 204 COST ACCOUNTING FOR INSTITUTIONS PH PM PQ PS m supplies r rooms s salaries X depreciation z miscellaneous Professional Care of Patients, Home Nursing b board f freight h housing 1 latmdry m supplies r rooms s salaries z miscellaneous Professional Care of Patients, Medical and Surgical Facilities a apparatus and instruments, repairs and renewals. b board of pharmacists f freight h housing i interest 1 laimdry of pharmacy and pharmacist and operating rooms m medicines, bandages, and other supplies o ice P sterilization r rooms of pharmacists s salaries of pharmacists w stimulants X depreciation Professional Care of Patients, Equipment of Nurses a apparatus and instruments b books u imiforms Professional Care of Patients, Service bp board of those serving patients in private rooms bw board of those serving ward patients APPENDIX A 205 bz board of those serving both classes of patients d salaries of physicians Ip laundry of those serving patients in private rooms Iw laundry of those serving ward patients Iz laundry of those serving both classes of patients ng salaries of graduate nurses np salaries of special nurses ns salaries of superintending nurses nt salaries of nurses in training salaries of orderlies op salaries of special orderlies rp rooms of those serving patients in private rooms rw rooms of those serving ward patients rz rooms of those serving both classes of patients w salaries of ward employees PX Professional Care of Patients, X-Ray Service b board f freight h housing i interest 1 laundry m supplies r rooms s salaries X depreciation z miscellaneous Q Machinery and Tools R Dormitory Equipment RAP Residents, Administration for, in Private Rooms (Patients only) RAW Residents, Administration for, in Wards (Patients only) RBP Residents, Board of, in Private Rooms (Patients only) RBW Residents, Board of, in Wards (Patients only) RHP Residents, Housing of, in Private Rooms (Patients only) RHW Residents, Housing of, in Wards (Patients only) 2o6 COST ACCOUNTING FOR INSTITUTIONS RLP Residents, Laundry of, in Private Rooms (Patients only) RLW Residents, Laundry of, in Wards (Patients only) RSP Residents, Professional Service of, in Private Rooms RSW Residents, Professional Service of, in Wards S Steward's Equipment T Training School Equipment TB Transfer Board Account THC Transfer House Cubic-Space Accocmt THS Transfer House Floor-Space Accoimt TP Transfer Power TX Temporary Depreciation (Lower-case additions indicate the particular prop- erty depreciated. See page 172.) U Material and Stores Inventory X X-Ray Equipment //. Alphabetical Index of Additional Symbols for Institu- tions Other Than Hospitals This index does not repeat the symbols given for hos- pitals, in the preceding list, and common to institutions other than hospitals. It is intended quite as much as a guide to the classification of accounts (a summary view) as to symbols. No attempt is made in this list to include all symbols likely to occur as mere subdivisions of general accounts when such subdivision is obvious or has been already suffi- ciently indicated by the preceding list or in the text. Sym- bols for detailed subdivisions similar in every respect to those already discussed (for example, b for board, r for rooms, h for housing, i for interest, x for depreciation, etc.) apply to subdivisions for most of the group accounts here indicated and therefore do not need repetitioa The only symbols for detailed accounts here indicated are those APPENDIX A 207 for accounts more or less peculiar to the departments, or phases of activity, found in certain institutions and not al- ready sufficiently indicated by somewhat parallel cases in other types of institutions. DA Boats DAsi salaries of instructors in rowing and paddling DAsz salaries of other employees DB Library DBg binding and rebinding costs DBmb bindery supplies DBmz general supplies DBsa salaries of administrative officers DBsb salaries of bindery employees DBsc salaries of cataloguers and classifiers DBse salaries of runners and errand boys DBsl salaries of loan clerks DBso salaries of accession-department clerks DBsp salaries of shelf -department clerks DBsr salaries of reference clerks DBss salaries of secretarial assistants DBsz salaries of miscellaneous employees DC Cigar Stand DD Dining-Room Service This assumes a separate department independ- ent of the housekeeping department. On page 89 is shown the treatment of dining- room service as a subdivision of the house- keeping department. It might then be worth while to divide accoimt f with the others. DE Entertainments DF Cartage Department (Subdivided somewhat as the stable account is subdivided) DG Garage DGmg gasoline DGmo oil 2o8 COST ACCOUNTING FOR INSTITUTIONS DGmt maintenance of tires DGmv maintenance of automobiles, not incltiding tires DGmz general supplies DGsc salaries of chauffeurs (drivers who are also mechanics) DGsd salaries of drivers DGsm salaries of mechanics DGso salaries of attendants DI Gjrmnasiimi DIsa salaries of attendants and rubbers DIsi salaries of instructors DIsz salaries of general employees DJ Stable DJmf feed DJmh maintenance of harnesses DJmr maintenance of robes, etc. DJmv maintenance of vehicles DJmz general supplies, including medicines, etc. DJsd salaries of drivers DJse salaries of messengers, etc. DJso salaries of hostlers DM Exhibitions DN News-stand DO Bowling Alley DQ Card Rooms DR Billiard Rooms DT Tennis Coiuts DV Golf Links DW Baths DWsa salaries of attendants DWsi salaries of swimming instructors, etc. DWsz salaries of other employees DX Tennis Courts (a substitute symbol for DT, when DT is training school) DY Bar E All symbols beginning with E indicate capital accoimts for departments having as their general APPENDIX A 209 sjmibols the letters following the E. The depart- ments will be found under the corresponding sjnnbols. (See also pages 37—41). HH Public Halls HIO Interest on the Value of Sites and Grounds I All symbols beginning with I indicate income ac- counts for departments having as their general symbols the letters following the I. The depart- ments will be found under the corresponding symbols. OA Advertising OH Hospitality OP Publications (not advertising) PB Libraries for Research Work (For subdivisions, see under DB) PL Laboratories for Research PO Observatories for Research POmp photographic supplies POmz general supplies pop postage POsc salaries of computers POsb salaries of observers POsp salaries of photographers POss salaries of secretaries and recording clerks POsz salaries of general employees SB Libraries for Students (Subdivided similarly to DB — libraries for institu- tions not educational) SC Instruction by Correspondence (See subdivisions under SG) SCp postage SE Instruction for Extension Students (See subdivisions under SG) SG Instruction Orally for Students in Residence SGm supplies (chalk, stationery, etc., for classes) and maintenance of equipment SGsa salaries of assistant masters or assistant professors 2IO COST ACCOUNTING FOR INSTITUTIONS SGsd salaries of assistants, demonstrators, etc. SGsi salaries of teachers or instructors SGsm salaries of masters or professors SGsp salaries of special teachers or lecturers SGss secretarial service for teachers SL Laboratories for Students^ Use SM Museimis and Other Permanent Exhibitions SO Observatories for Students APPENDIX B Alphabetical Index of Common Items of Hospital Expense, with the Symbols of Accounts Chargeable Alcohol PMm Ambulance supplies DMm Annual reports (printing and mailing) CA ApoUinaris DSmg Apparatus, replacements only- PMa Barge, cost of nmning HZz Bedding, replacements of DHmd Books, blank for hospital AOm blank, for treasurer's office CM reference (not text books) for nurses PQb text (not reference books) for nurses, : not paid for by nurses DTm Bread, from outside DSmb Brooms DHmz Butter DSmdf Canned goods, not specified elsewhere DSmg Carbonated water DSmg Car fares AOz Care of flower beds HL Care of groimds HL Care of fruit trees DSmff Care of vegetable garden DSmvf Cartage (See page 71, and also. below. Freight) Cheese DSmds Coal, boiler-room HF kitchen use only DKmf laundry DLmf Cream DSmdc Crockery, replacements of, for bed-rooms DHmd for table DHmt 211 212 COST ACCOUNTING FOR INSTITUTIONS Depreciation of buildings HXB equipment, dormitory DHxd equipment, table DHxt equipment, general household DHxz equipment, departmental dept. symbol +x Diplomas DTm Dispensary supplies PDm Egg preparations DSmep Eggs, culinary DSmes fresh DSmef Electric lighting HE Emergency ward supplies PEm Entertainment of nurses in training DTm Express (See Freight) Fertilizer (vegetable garden) DSmvf Fish, canned DSmsc fresh DSmsf smoked, dried, and pickled DSmsd Flower beds, care of HL Freight on building- machinery and ground- maintenance supplies HZf dispensary supplies *- PDf emergency ward supplies PEf furniture replacements DHf home nursing supplies PHf housekeeping supplies DHf kitchen supplies DKf laimdry supplies DLf medical and surgical supplies and alcoholics PMf office supplies AOf pathological laboratory supplies DPf steward's supplies DSf training school supplies DTf X-Ray supplies PXf miscellaneous AOf APPENDIX B 213 Fruits, canned DSmfc dried DSmfd fresh DSmif Fuel (See Coal) Furniture and fixtures, office (replacements) AOz house (bed-room replacements) DHmd (dining-room, table replacements) DHmt (general replacements) DHmz Gas HG Ginger ale DSmg Gloves, surgeons' rubber PMm Graduation expenses DTm Groimds, care of HL Home nursing supplies PHm House and property miscellaneous expenses HZz Housekeeping, bed-room supplies DHmd dining-room, table supplies DHmt general supplies (not laundry, food, kitchen, or boiler) DHmz Ice HO Ice-cream DSmi Instruments, surgical — for nurses PQa for physicians PMa Insurance, hospital buildings (one year's proportion) HN departmental equipment, charged to dep'ts Interest (on mortgages and loans payable) Kitchen utensils — replacements and maintenance Laundry bills (outside) Laundry supplies Lawn-mowing Legal expenses, corporation, in connection with investments, donations and legacies hospital, in connection with col- lection of bills, damage suits, etc. CI DKm DLo DLm HL CL AL 214 COST ACCOUNTING FOR INSTITUTIONS Linen, replacements of, bed-room DHmd table DHmt Machinery, replacements and repairs HMQ Magazines, (not for nurses) AOz . (for nurses) PQb Meat, canned DSmmc dried DSmmd fresh DSmmf Medical supplies PMm Messenger service, not telephone or telegraph AOz telephone and telegraph ATz Milk DSmdm Miscellaneous administrative expense AZ Miscellaneous corporation expense (all expenses not provided for) CZ Miscellaneous house and property expense HZ Newspapers and periodicals (not for nurses) AOz (for nurses) PQb Office supplies (not stationery) AOz Oil, kerosene HP machine HF olive DSmdf Pastry, from outside DSmb Pathological laboratory supplies DPm Periodicals (not for nurses) AOz (for nurses) PQb Plumbing, repairs and replacements HMP Postage, annual repoiL CA corporation (except annual report) CP hospital (not on annual reports or notices of meetings) AOp Poultry, canned DSmpc fresh DSmpf Printing, annual report CA corporation (not annual report) CM hospital (not annual reports or notices of meetings) AOm APPENDIX B 215 Property and house miscellaneous expenses HZz Renewals, house furniture and fixtures, dormitory DHmd table (dining-room) DHmt general DHmz office fumittire and fixtures AOz machinery and tools HMQ surgical apparatus and instruments PMa Repairs of buildings (not including additions or permanent improvements or plumbing) HMB housekeeping property (See Renewals) machinery and tools HMQ plumbing and steam-fitting HMP Reports, annual (printing and mailing) CA Seeds, lawn HL vegetable garden DSmvf Snow-shoveling HL Soap, dish-washing DKm laundry DLm medicinal PMm scrubbing DHmz toilet DHmd Starch, com DSmcb laundry DLm Stationery, corporation CM hospital AOm Steam-fitting, repairs and replacements HMP Stimulants (not flavoring spirits, carbonated waters. ginger ale) PMw Surgical instruments, replacements only PMa Taxes on property used for hospital purposes HT (other taxes charged to the income of the specific property) Telephone rental ATz Tools, repairs and replacements HMQ 2l6 COST ACCOUNTING FOR INSTIl ^UTIONS Uniforms, for ntirses PQu Vegetables, canned DSmvc fresh ^ DSmvf Waste (cotton, for boiler-room use) HF Water HW Wax, laundry DLm Wood, boiler-room and fireplace HF kitchen use only DKmf X-Ray supplies PXm APPENDIX C Comparison of Accounts of the New York Plan of Accounting for Hospitals and the Plan Advocated Herein Ntimber of Accotmt, Symbol of Account, New York Plan Plan Herein I ASs 2 AOf , AOz 3 AOm, AOp, CA 4 ATs, ATz S AL 6 AZ • 7a PSd b PSns c PSng, PSnt d PSnp e PSo f PSop g PSw 8a PQu b PQb c PQa ga PMa b PMm + alcohol c PMw — alcohol loa PDs b PDm iia PEs b PEm 12a PHs b PHm 13a PXs b PXm 217 2l8 COST ACCOUNTING FOR INSTITUTIONS 14a b DMs DMm b *' DPS DPm i6a DTs b DTm 17a b DHs DHmd, DHmt, DHmz i8a DKs b DKmz, DKmf 19a b DLs DLmz, DLmf 20a DSs b: bread DSmb c: milk and cream DSmdm, DSmdc, DSmi DSmds, d: groceries DSmg, DSmfc, DSmfj, DSmfp, DSmfd, DSmvc, e: butter and eggs f : fruit and vegetables g: meat, poultry, and fish 21 33 23 24 25 36 37 DSmcf, DSmcb, DSmdp, DSmh, DSmn, DSmt DSmdf, DSmef, DSmes, DSmep DSmff, DSmvf DSmmf, DSmpf, DSmsf, DSmsc, DSmsd, DSmmc, DSmpc, DSmmd HE HF HG HO HMB, HL HMQ, HSs HMP 3° 31 APPENDIX C 219 28 HR, or distributed to depart- ments (not of importance for comparisons) 29 HN* HZ CS 32 CM, CP 33 CL 34 CI 35 HT 36 CZ . In primary accounts, it will be noticed, the two plans are not essentially different. The really important differ- ences lie in the disposition of those primary accounts — that is, the distribution of them so that ultimately costs of vari- ous elements of service may be put on a unit basis. • This is true only if all insurance is carried to HN, under the plan herein, before it is distributed in part to the departments having insured equipment. If one desires to know the total cost of all insurance, that should be done. That complicates the bookkeeping, however, and puts the emphasis on the expenditure rather than on the service — which sometimes leads to false economy. APPENDIX D The Bookkeeping Entries for Imaginary Transactions in a Hospital In order to illustrate more concretely the actual book- keeping processes, all the entries for a hospital making use of the accounts recommended here (except for a few de- partments which it is assumed not to employ — as an emer- gency department and a department of home nursing — ^and one or two which conditions do not require — because a few employees, boiler-room help, for instance, do not live on the premises) are shown in the following pages. All revenue and expense accounts are designated by symbols only. The figures used are approximate figures for a cer- tain hospital for a year, but they are used here as if for a month. It is assumed that the voucher-register system with many special columns, and a special-column cash book, also with many columns, are used. The amounts shown for the first entry of expenses are supposed to be totals of spe- cial columns in one or the other of these books. Only one posting will be required each month for each account ap- pearing on either of these books. All other entries are supposed to be taken from the journal, and are no more frequent than monthly — unless errors are discovered or ad- justments are needed for new conditions arising. If the closing entries were made only annually, however, and these figures were actually figures for a year, the method would be the same as that shown here. Following these are shown the general ledger and the 220 APPENDIX D 221 subordinate expense ledger. The accounts are designated by symbol only. From these can be seen how complete is the record and how little labor is made by the bookkeeping requirements of the many subordinate accounts. The trial balance is shown as it appears when all other accounts have been closed into the ultimate accounts. Cash 287,750 To IRBP 64,000 IRBW 50,000 IPSN 22,000 IPD 9,000 IDM . 250 IZ 2,500 Subscriptions, etc.* 140,000 We assume that the capital assets are already on the books (shown in accounts having a single capital letter for a symbol), with a credit to the Capital Account (Proprie- torship) amounting to $1,557,500. The following is a single entry, as if in a journal, to express in summary form the debits to various expense ac- counts, from the cash book and the voucher register, and the credit to cash (either direct or from the payment of vouchers payable). * The details of this item should be given in the ledger and in the report, of course, and should be given not on schedule V but on schedules B, C, and D. They are here combined merely to give a working cash item on the books, so that the bookkeeping details to follow shall not proceed with a credit item to cash. 222 COST ACCOUNTING FOR INSTITUTIONS ASs 16,000 AOf 100 AOm 3,500 AOp 300 AOz 40 ATs 2,300 ATz 50 AL 700 AZ 30 PSns 5,800 PSng 6,000 PSnp 18,000 PSnt 2,300 PSo 5,000 PSw 2,500 PQu 2,500 PQb 200 PQa 100 PMa 6,000 PMm 11,000 PMw 2,000 PMf 100 PDs 4,000 PDm 5,000 PDf 50 PDz 25 PXs 800 PXm 500 DMs 1,500 DMm 5,000 DPS 6,000 DPm 1,000 DTs 2,000 DTm 50 DTz 25 DHs 16,000 DHmd 4,000 DHmt 2,000 DHmz 1,000 DHf 200 DKs 6,000 DKmz 1,500 Brought up 141,170 DKmf 500 DLs 5,000 DLm 1,200 DLmf 600 DLo 50 DSs 1,200 DSmb 500 DSmdm 12,000 DSmdf 10,000 DSmef 5,000 DSmff 3,000 DSmfc 100 DSmfd 450 DSmvf 4,500 DSmvc 200 DSmmf 12,000 DSmpf 9,000 DSmsf 6,000 DSmg 10,000 DSz 700 DSf 450 HE 900 HG 700 HF 10,000 HW 500 HO 3,000 HMB ,10,000 HL 2,500 HMQ 1,500 HMP 2,500 HSs 2,290 HN 6,000 HZf 50 HZz 100 OS 2,500 CM 800 CP 300 CA 1,500 CL 500 CZ 1,500 To Cash 270,760 APPENDIX D 223 The following entries are numbered to correspond with the discussion of closing entries on pages 170-187: Closing Entries No. I DKi 300 [ConL] PMo 500 DLi 600 DSo 2,300 DMi 150 to HO 2,800 HIQ DHid 1,200 390 No. 2 DSi 90 AOx 45 DTi 60 HXB 30,000 PXi 150 DHxt 90 To ICIH 34,725 DHxz 1,200 PMx 450 No. 4 DKx 300 HL 25 DLx 600 DSmvf 50 DMx 150 HE 15 HXQ 1,200 ToHS 90 DHxd 390 DSx 90 No. 5 DTx 60 TP 12,400 PXx 150 ToHF 10,000 ToA 45 HS 2,200 B 30,000 HW 200 F 90 H 1,200 No. 6 I 450 DLmf 1,000 K 300 DKmf 300 L 600 PMp 4,000 M 150 HP 7,100 Q 1,200 ToTP 12,400 R 390 S 90 No. 7 T 60 THS 50,675 X 150 ToHW HO 300 200 No. 3 HL 2,525 AOi 45 HMQ 1,500 HIB 30,000 HXQ 1,200 DHit 90 HIQ 1,200 DHiz 1,200 HZ 150 PMi 450 [Cont.] DH* 43,600 • This amount was determined by taking the total DHs, DHmz, DHiz, DHxz. DH£, as shown by the subordinate ledger at this point, and adding an estimated figure for DHb, DHr. DHl. :24 COST ACCOUNTING FOR INSTITUTIONS No. 8 ASr AOh PSrp PSrw PMh PXh DMh DPh DTh DHr DKr DKh DLr DLh DSh RHP RHW ToTHS No. 9 THC To HE HG HP HMB HXB HIB HMP HN No. 9a ASr AOh PSrp PSrw PMh PXh DMh DPh DTh DHr DKr DKh DLr 1,200 2,110 4,000 6,000 3,000 200 300 500 425 3,800 1,350 400 375 415 350 10,270 15,980 87,215 2,500 4,200 9,000 12,000 6,000 500 400 1,400 900 8,000 2,700 800 8oo| 50,675 915 700 7,100 10,000 30,000 30,000 2,500 6,000 [Cont.] DLh 900 [Cont.] DSh 800 RHP 15,000 RHW 21,315 To THC 87,215 This entry may be combined with No. 8, for the debit accounts are the same. No. 10 ASr PSrp PSrw DHr DKr DLr RHP RHW ToDH No. II ASb PSbp PSbw DHb DKb DLb RBP RBW ToDH No. 12 ASl PSlp PSlw DHl DLl DKl RLP RLW ToDL 13 No. TB ToDS DK 50 300 400 230 100 100 1,600 2,000 25 80 100 75 50 50 800 1,000 100 500 600 400 200 200 6,000 9,900 94,500 4,780 2,180 17,900 76,980 17,520 u No. 14 ToDSv No. 15 ASb PSbp PSbw DHb DKb DLb DSb RBP RBW ToTB No. 16 RSP RSW To PS PQ PM 2,000 6,700 6,000 9,000 12,000 3,000 6,000 280 23,510 28,010 57,980 65,900 APPENDIX D 2,000 225 94,500 87,580 2,800 33,500 (At this point the following groups of accounts in the expense ledger— PS, PQ, PM, DH, DK, DL, DS, HS, HZ— should be closed into the corresponding group accounts in the general ledger.) 505 No. 17 RHP 235 RHW 270 ToDH No. 18 RBP 60 RBW 20 ToDS 80 No. i8a DK 20 To RBP ID RBW 10 No. 19 DL 10 ToRLP 5 RLW 5 No. 20 PDz 1,384 DTz 459 PXz 153 DMz 153 DPz RAW RAP 306 24,450 13,090 To AS 26,575 AO 10,340 AT 2,350 AL 700 AZ 30 The general ledger, in skeleton form, showing the ulti- mate expense and income accounts, but not showing the final closing into Earnings, Endowment Income, Normal Current Income, etc., is shown below. As a convenient means of showing many accounts at once, each account, representing a ledger page, is here given a square or block. This should not confuse anyone familiar with the appear- ance of a ledger. 226 COST ACCOUNTING FOR INSTITUTIONS GENERAL LEDGER A B F H I 1.500 45 1,000,000 30.000 3.000 90 40,000 1,200 15.000 450 K L M 10,000 300 20,000 600 5,000 ISO 400.000 40,000 1.200 R S T U X 13.000 390 3,000 90 2,000 60 2,000 5,000 ISO Capital Account I.SS7.S00 Subscriptions, etc. 140.000 Cash 287.750 268.760 IRBP 64,000 IRBW 50,000 IPSN 22,000 IPD 9,000 IDM 250 IZ 2,500 ICIH 34.725 AS 26.575 26,575 AO 10.340 10.340 AT 2.350 2.350 AL 700 700 AZ 30 30 PS 87,580 87.580 PO 2.800 2,800 PM 33.500 33.500 PD 10.459 PX 2.453 DM 7.653 DP 9206 DT 3.979 DS 79.060 2.000 76.980 80 DK 17.500 17.520 20 DH 51,065 43,600 4.780 2.180 SOS DL 17.890 17,900 10 HE 900 IS 915 HG 700 700 HP 10,000 zo.ooo HW 500 200 300 HO 3.000 a.800 200 HP 7,100 7,100 HMB 10,000 10.000 HXQ 1,200 1,200 HXB 30,000 30,000 HL 2.500 25 2,52s HMO i.soo 1.500 HMP 2,500 2,500 HS 2,290 90 2,200 HN 6,000 6,000 HZ 150 150 HIE 30,000 30,000 HIO 1,200 1,200 THS 50,675 50,67s THC 87,215 87,215 TB 94.500 94.500 TP 12.400 13400 APPENDIX D GENERAL LEDGER [Continued] 227 RHP RHW RBP RBW RLP 10,270 IS,000 1,600 23s IS. 980 21,31s 2,000 270 800 10 23.510 60 I.OOO 10 28,010 20 6,000 5 RLW RSP RSW RAP RAW CS 9.900 s S7,98o 65,900 13.090 24.450 2.500 CM CP CA CL CZ 800 300 I, SCO 500 1.500 228 COST ACCOUNTING FOR INSTITUTIONS I a N o < ^ •o ■ U) 6 o' " '? x> o ja o ."^ o < §{? 2g o '^. t o « •* T- -f- -t o T o r^ M n o S lO fO o o c« CO o H CO bo CO Oi , 0. • II K? 1 ro II s Oi 230 COST ACCOUNTING FOk INSTITUTIONS ■♦ 1 ' r -n '-' M M N g Q M " 1 8 cu i Oi Q 1 Q 1 ifl «/» "^ T 1 1 vO 0^ T Q 1 1 1 ^ II »^ o 7 - 1 • 1 H 1 § 1 n e ""'ii (^ ^W M 11 , 11 Q r X 2 CU ol 11 cu APPENDIX D 231 1 s J 1 " 1 n Q " % — -^5^ 't "S v> s i 1 «^ >o li ^ 5 5 (4 p 3 Q § H 9. M U M •o 3 g «i^ H § 1 M 1 3 pT -^ § n 10 ^ U3 H Q i/»0 PI 1 Q fv{ ■■ ' n c« J3 CO r^ Q 5 c< ' M M Q CO Q r« PI 3 *" ~f 3 • 1 M s 1 (O d H CO Q Q Q M pt 1 a" a i a a ^ s fooo . 1 ,3 1 s 232 COST ACCOUNTING FOR INSTITUTIONS ■^ i 1 Q 1 1 1 § 1 1 g 1 -' 1 II a « 1 Q s « «i II 1 T 1 § 1 (^ M rf o M S Q § 2 M ■^ w 1 i Q ■a § 1 S o o o woo o m Q 1 i , 2 . -6 ■ o t_.^ THE LAST DATE THIS BOOK^IS^^E -— £^^ ~~7^ r«r 75 CENTS AN INITIAL FINE "[mre to return Zt^ BE ASSESSED ^"^/^^'^"''^E PENAL.TV THIS BOOK ON "^ "^ °*;| ""s o^ ^"^ ''"""Iv W.Ul. 'NCREASE TO SO «N^^^ ^^^^„ p^V DAY AND TO Sl.uw OVERDUE. OCT 36 193f 250rt'50ft? ^^Teti .^^'o' ■w FEB 9 1956 LD )07H-8,-3*2 268538 UNIVERSITY OF CALIFORNIA LIBRARY iilillliP 'II' lit illlllllll!i!fil!l!l!PiiiWIP!illii| I • llPiiiPill a ^:^m^ ^