THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES This book is DUE on last date stamped below SOUTHERN BRANCH UNIVERSITY OF CALIFORNIA LIBRARY LOS ANGELES. CALIF. Library LI orary ol of Pur: ness Administration 'ty of California Los Angelea 4, California SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING ^e Qraw-Ml Book (a Tn& PUBLISHERS OF BOOKS F O R^ Electrical World *? Engineering News -Record Power v Engineering and Mining Journal-Press Chemical and Metallurgical Engineering Electric Railway Journal v Coal Age American Machinist v Ingenieria Internacional Electrical Merchandising v BusTransportation Journal of Electricity and Western Industry Industrial Engineer SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING BY RAYMOND D. WILLARD, B.C.S. C. P. A. MASSACHUSETTS ASSOCIATE AMERICAN INSTITUTE OF ACCOUNTANTS. FELLOW CERTIFIED PUBLIC ACCOUNTANTS OF MASSACHUSETTS, INCORPORATED. MEMBER NATIONAL ASSOCIATION OF COST ACCOUNTANTS. LECTURER ON SYSTEM BUILDING NORTHEASTERN COLLEGE. MEMBER OF THE FIRM OF ROBERT DOUGLAS & COMPANY, CERTIFIED PUBLIC ACCOUNTANTS. FIRST EDITION SECOND IMPRESSION 079 L l I U 4 McGRAW-HILL BOOK COMPANY, INC. NEW YORK: 370 SEVENTH AVENUE LONDON : 6 & 8 BOTJVERIE ST., E. C. 4 1922 COPYRIGHT, 1922, BY THE MCGRAW-HILL BOOK COMPANY, INC. Bus. Admin. Library F PREFACE ff) This book is a treatment of the subject of system building "1 and constructive accounting, arranged in regular gradations \from the fundamental principles of system work to the ad- vanced problems of design and installation. The wide range of topics necessary to be considered in teach- ing such a course makes extremely difficult the selection of read- Q ing assignments for the student from the publications now avail- ^ able. The author therefore has endeavored to prepare a volume intended to illustrate, by analysis of systems now in use, some of the problems involved in system work so arranged that a pro- gressive course of study may be followed. The systems and subject matter in this volume are used by the author in teaching the course in system building at North- ^ eastern College School of Commerce and Finance, and are an "x arrangement of data accumulated during the several years which -3 the college has offered the course. The data have been supplemented by new charts and forms so ^ that a logical, progressive study of the subject can be made. While the volume is intended primarily as a text book for ' courses in system building, its usefulness is not necessarily lim- ited to the student, and it is hoped that the experienced practi- tioner will find helpful suggestions and the basis for the dis- cussion of various system problems. Systems dealing with analyzed costs and burden distribution are only briefly touched upon in the closing chapters, as cost ac- counting furnishes a subject so far in advance of the first prin- ciples of system work that the entire subject cannot be consid- ered in a single volume. R. D. WlLLARD. CONTENTS PAOB INTRODUCTION v CHAPTER I. GENERAL DISCUSSION 1 Importance of System Work in Connection with Busi- ness Activities. Result of Too Much System. II. PROBLEMS IN DESIGNING 3 The Various Steps Incident to Designing and Installa- tion. Plan of Operation. Results Desired. III. PRELIMINARY INVESTIGATION AND STUDY 6 Detail of and Programs to be Followed in Pre- liminary Investigation. IV. REPORTS 12 Importance of Reports and General Outline to be Used in Preparation. V. COMMERCIAL PAPERS AND PAPER MAKING . . . .14 Classification and Sizes. Suggestions for Selection of Paper for Different Uses. VI. RULING AND PRINTING 24 Instructions for Preparation of Forms and General Rules for Submitting Copy to Printer. VII. PACKFORD AUTO SALES COMPANY 28 General System and Plan. VIII. PACKFORD AUTO SALES COMPANY (Continued) ... 32 Forms. IX. PACKFORD AUTO SALES COMPANY ( Continued ) ... 88 Assets and Liabilities. Preparation of Balance Sheets. X. PACKFORD AUTO SALES COMPANY (Continued) ... 97 Income Accounts. Preparation of Profit and Loss Statements. XI. PACKFORD AUTO SALES COMPANY (Concluded) ... 99 Expense Accounts. Preparation of Profit and Loss Statements. XII. CENTRAL GROCERY COMPANY 107 General Discussion. Personnel and Method of Opera- tion. XIII. CENTRAL GROCERY COMPANY (Continued) .... 109 Forms. vii via C'HAPTPR XIV. XV. XVI. XVII. XVIII. XIX. XX. XXI. XXII. XXIII. XXIV. XXV. XXVI. XXVII. XXVIII. XXIX. XXX. XXXI. XXXII. CONTENTS CENTRAL GROCERY COMPANY (Continued) .... Assets and Liabilities. CENTRAL GROCERY COMPANY (Continued) .... Income Accounts. Preparing the Statement of Revenue and Expenses. CENTRAL GROCERY CO-MPANY (Concluded) .... Commercial Expense Accounts and Closing Entries. THE BOYLSTON CLUB General Discussion. THE BOYLSTON CLUB (Continued) Forms. THE BOYLSTON CLUB ( Continued ) Assets and Liabilities. Preparation of Balance Sheet. THE BOYLSTON CLUB (Continued) Income Accounts. Preparation of Operating State- ments. THE BOYLSTON CLUB (Concluded) Expense Accounts. Preparation of Operating State- ments. CENTRAL LEATHER COMPANY General Discussion. CENTRAL LEATHER COMPANY (Continued) .... General Ledger Accounts. INSTITUTIONAL ACCOUNTING BAY STATE HOSPITAL General Plan. BAY STATE HOSPITAL (Continued) Forms. PAOE 125 138 140 148 150 189 204 206 225 236 240 242 244 250 BAY STATE HOSPITAL (Continued) Treasurer's Ledger. BAY STATE HOSPITAL (Continued) 258 Superintendent's Ledger. Assets and Liabilities. BAY STATE HOSPITAL (Continued) 261 Operating Accounts. BAY STATE HOSPITAL (Continued) 267 Adjusting and Closing Entries. BAY STATE HOSPITAL (Continued) 281 Preparing Reports. BAY STATE HOSPITAL (Concluded) 284 Annual Reports. INDEX 297 CHAPTER I GENERAL DISCUSSION There is probably no branch of accounting work which fur- nishes a broader field for the exercise of constructive ability and business analysis than that of designing and installing account- ing systems for various lines of business activity. There is probably no branch where the requirements are more exacting in order that the efforts of the systematizer may meet with success. Not only must he be thoroughly grounded in a knowledge of fundamental accounting principles but he must have a thorough understanding of the various intricacies involved in everyday business operations. A system properly designed will furnish the executive with a chart by which to steer his business course ; if improperly designed it will be merely a record of past events, in which case it shows only the financial standing of the business as of a given date, frequently so long after the events have transpired as to be of no value whatever. The usefulness of any system depends solely upon its design and the care with which the various steps have been worked out. The fundamental principles of system building as applied to various classes of business are first of all a comprehensive plan of operation for securing a required result with the least amount of waste in energy, time and money. The successive steps, and importance of each section or depart- ment in any business can be illustrated in two examples, viz.: A. In a retail or wholesale business the departments are usu- ally classified under five headings : Purchasing and Receiving Selling Delivery Administration Financial. 1 2 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING B. In manufacturing another element becomes essential, that of keeping account of the cost of converting material into a fin- ished product. The major departments would be : Purchasing and Receiving Manufacturing Selling Delivery Administration Financial. With these elements in mind, after a due amount of review, any other business variation can be worked out. Every individual case is bound to vary ; there are no two con- ditions exactly the same. Yet in some situations where different concerns are in identically the same business and doing approxi- mately the same volume of business it is possible to use the same general principles in a system. This would occur in such groups as retail businesses, insurance brokers, hotels, and in lines of manufacturing where an allied association helped to secure a uniform method of accounting. The successful system builder must decide how to secure re- sults in the most direct and simple manner. Too many records or an excess of forms can complicate matters to the entire confu- sion and ultimate ruin of a system. Theory is ideal, but actual practice displays what is best needed. Frequently a business is loaded with a system entirely too cumbersome or the details are carried to such a fine degree that it requires too much expense in comparison to what the business can stand and the results obtained. In cases of this kind much wealth is wasted and there are instances on record where a cum- bersome, costly system has actually wrecked the business. Designing a system for an entirely new concern requires con- siderable care and more thought than working upon a going business where records are available and the situation in hand means more often merely revising the system already in use. CHAPTER II PROBLEMS IN DESIGNING The work of designing a system seems to fall naturally into five distinct steps, each of which is important and each of which furnishes a study in itself. The various steps incidental to the designing and installing of an accounting system for a fairly large trading or manufac- turing concern may be listed as follows : 1. The preliminary investigation. 2. The study of the problem and determination of methods to be used to obtain desired results. 3. The drawing up of a list of accounts to be used together with the general functions of each. 4. The designing and ruling of the forms to be used with instructions for printing, ruling and binding. 5. The drawing up of a report and set of instructions for the conduct of the accounting system to cover the following points: a A list of the ledger accounts to be used with the functions of each. b Instructions for the operation of the accounting system, c Instructions for the operation of the mechanical routine of the business. d A list of the accessories to be used. It should be borne in mind that all of the steps listed above are not necessarily included in every case which the system builder undertakes. In all probability all of these points will be covered only in cases where an entire system is to be installed for a new business. In the great majority of cases the systematizer is called upon to make over and improve methods already in use. Every situation needs careful review and a consideration of the possible developments later on. The following guide may be taken as existing principles to be encountered in actuating any system : The plan, idea or purpose Personnel of the organization Forms and equipment Method of procedure The details of routine Record of results. 3 4 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING THE PLAN, IDEA OR PURPOSE System, building in respect to the various kinds of businesses may very often affect only some division or department. A system may be planned to take care of the activities and results of a division in the business organization for handling sales only. Again the entire purpose of a system might involve the depart- ment of bookkeeping or accounting. In other situations a com- plete system would be under consideration to take in every activity of the business and the consequent results. No matter what the situation is there must be some definite plan together with some particular idea and a fixed purpose for accomplishment. PERSONNEL OF THE ORGANIZATION The directing head of an organization naturally must be en- tirely in accord with whatever plan is worked out. With this directing influence equally sincere co-operation must radiate on the part of all heads of departments and so along down among their subordinates or co-workers; in other words, it requires team-work to insure the best results. Other factors are necessary, such as the capacity to understand the system and the selection of correct intelligence to carry it into execution. There are occasions where the personnel is such as to necessitate having and adopting a system to fit the people, yet more often entire success is secured by the co-operation of all heads of departments. FORMS AND EQUIPMENT The stationery consisting of blanks in various designs and shapes, in single sheets or in manifold sets, cards, folders, books, binders and equipment, such as files, machines and other ap- paratus should be drafted and selected with the idea of securing the best possible arrangement without extravagance, unnecessary waste, and always with the idea in mind to secure a satisfactory result in the most direct manner. Forms and equipment are always necessary, yet there is always some danger of overloading the system with too many forms or too much detail. The expense of operation according to the situation in hand should always be considered. PROBLEMS I\ /)#,S7GA 7 /A T G 5 METHOD OF PROCEDURE This takes into consideration the manner in which the system should be handled ; and the time and energy properly placed so as to evenly divide the day, week or month into a nicety of accomplishment. It is not always possible to actually secure entire co-operation in working out every detail of a system; nevertheless, a well-planned system will usually forestall develop- ments of that kind. Methods also embrace proper handling of files, machines and apparatus such as apply to office work. THE DETAILS OF ROUTINE It is always desirable, and should be adopted as standard practice, to establish typewritten instructions as to the use and intended course to be followed by each of the forms affecting different subjects or departments, even though the form or blank is self-explanatory. Routine can also be treated by charts show- ing the course and methods of handling the forms, showing where they are to originate and the source of information. RECORD OF RESULTS Recording the results is one of the most vital parts of any system. Whether required daily, weekly, monthly or for any other period the records can be made to serve the same purpose as a weather vane. Complete information, such as stock on hand, determining the sales by departments or sales territory, keeping account of advertising expenditures by periods or to date, the volume of production and the cost of operation, meaning not only the cost of manufacturing but also the cost of conducting various departments, comes under this heading of records. Records should embrace all manner of valuable information so as to enable the managing head of a concern to properly direct or establish new policies. One of the most valuable records or record summaries is the monthly trial balance, which, if properly de- signed, can show a statement of condition, detail of operations, comparisons with previous periods and various statistics in con- venient form for determination of future activities. This brings forward another qualification quite essential to the successful systematizer. which is ability to forecast the future of the business with some degree of accuracy and provide for its widening field of endeavor. CHAPTER III THE PRELIMINARY INVESTIGATION AND STUDY It is of course obvious that before the systematizer can take even the first steps toward outlining the system to be used in any particular case, he must investigate the business in question and as far as possible familiarize himself with the details of its opera- tion. This necessitates frequent visits to the place of business of the client, interviews, and in the case of large businesses, con- sultations with the heads of the various departments. If possible, before the system builder visits the client for the first time he should have outlined in his mind a fairly definite plan of action. By so doing he will save time and trouble and will make a more favorable impression upon the various persons with whom he comes in contact. The following is an outline of points which might be covered in the preliminary investigation of a fairly large trading concern or institution such as a club, hotel, hospital or private school. It is not contemplated that all the points outlined would necessarily have to be covered on any given assignment. The detail necessary would depend upon the size of the business and the nature of the work to be performed. General. 1. Make or procure a plan of the building or buildings, showing the location of the various departments. 2. The system builder should familiarize himself in a general way with the commodities handled, how they are purchased or manufactured, and their use in the hands of consumers. 3. The system builder should obtain a list of the ledger ac- counts now in use, and have a clear understanding of their functions. 4. Obtain copies of the forms now in use and their purpose. Purchases. 1. Is there, or should there be, a separate pur- chasing department? If not, by whom and how are purchases ordered ? 2. How are the needs of the various departments made known to the purchasing department ? THE PRELIMINARY INVESTIGATION AND STUDY 7 3. What check does or should the purchasing department employ to prevent double orders? 4. Should records of all quotations be kept on file and how are quotations solicited? 5. What form of purchase order is to be used how numbered, how many copies? What is done with the various copies? 6. What record of goods ordered is kept in the purchasing department ? 7. How and by whom are incoming goods received what records of goods received should be kept? 8. How are goods received checked against purchase orders and invoices? 9. How are goods to be stored ? 10. How are goods to be requisitioned by the various departments? 11. Is express, freight and carting to be considered a part of the cost of goods purchased ? 12. What method of recording purchase invoices should be used are individual creditors' accounts to be kept? 13. What method of paying invoices is to be adopted ? 14. Are there many purchase returns and allowances ? 15. Are salesmen to be informed as to the cost of commodities? Receiving and Stock Keeping. 1. How and by whom are incoming goods received, what records of goods received should be kept ? 2. How are goods received checked against purchase orders? 3. How should invoices be checked for quantities, prices, ex- tensions, etc. ? 4. How are goods to be stored? 5. If goods are to be kept under one managing head what form of stock ledger should be used ? 6. How are goods to be requisitioned by the various departments? 7. Are salesmen to be informed as to the cost of goods, what form of cost or price book is to be used ? 8. Is express, freight and carting to be considered a part of the cost of goods purchased? 9. Are there many purchase returns, if so, what form should be used, how handled on the stock record? 8 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING 10. What provision is made for recording claims against the carrier ? 11. How often is a physical inventory taken, method of taking, how priced and figured, what style of blank best suited ? 12. Are there many sales returns and allowances ? Inventories. 1. Should a going inventory be kept how and by whom how controlled by the general books how checked with goods actually on hand ? 2. How often should a physical inventory be taken what method of costing should be adopted ? Sales. 1. How are sales to be classified? 2. What is the organization of the sales department ? 3. How many salesmen how distributed as to territory how selected or trained how paid? 4. What records should be kept of individual salesmen's sales, expenses, etc.? 5. How are salesmen to be kept in touch with changes in prices and terms new commodities new customers? 6. How and by whom are prices and terms made ? 7. How are orders to be made out how many copies what is done with the various copies? 8. Are orders OK'd for credit before being filled by whom? 9. What is the routine of filling orders what provision is made for orders received for goods not in stock ? 10. Organization of shipping department what records are kept are goods rechecked before shipping? 11. What method of billing and recording sales is to be adopted, monthly or daily bills mechanical method of billing how are sales recorded how are postings made to customers' accounts? Credit Department. 1. Is there a separate credit depart- ment? 2. How are delinquent customers followed up ? 3. Are losses on account of bad debts heavy or not ? 4. Is the concern inclined to be lenient with delinquent customers ? Accounting Department. 1. Personnel of accounting de- partment. THE PRELIMINARY INVESTIGATION AND STUDY Q 2. How often should profits be arrived at how often should the books be closed? 3. How are the costs of sales arrived at costing each sale estimating costs physical inventory ? 4. What internal check is provided for cash receipts and disbursements ? 5. Are all cash receipts to be deposited how break the finan- cial day ? 6. Is an imprest cash fund to be maintained how operated amount of fund how often replenished? 7. Who has authority to make and sign checks? 8. What subsidiary records are to be kept how are they con- trolled on the general books ? 9. How often are trial balances to be taken ? 10. What statistical records are necessary how kept ? Payroll. 1. What method of paying employees is in use monthly weekly daily hourly piecework bonus system ? 2. How are the payroll records written up? 3. How is the payroll made up what internal check is provided? 4. What lists of employees are kept and by whom? Administration. 1. What administrative departments are there principal officers and their duties? 2. Are there meetings of the heads of departments if not, what steps are taken to insure co-operation between departments ? 3. How is the incoming mail handled is there a mail clerk? 4. Who has charge of the outgoing mail how are outgoing letters copied and filed? 5. The system builder should obtain a list of the names of the principal employees and should try to learn something of the personality of each one, his interest or lack of interest in the business, his methods of working, his readiness to respond to suggestion, his judgment, responsibility, etc. It is important that the system builder try to adapt his methods to the personal peculiarities of those with whom he comes in contact, in order that his work may progress smoothly, pleasantly, and with the best possible results. With regard to the above, it should always be borne in mind that in every individual case the system builder must adapt his method of procedure to fit the needs of the case in question. One 10 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING of the most common faults of the average systematizer lies in th fact that he lacks perspective, and consequently overloads a business with a system altogether too big and cumbersome to meet its needs. Thousands of dollars have been wasted in in- stalling systems which after a few months are discarded or changed materially because they prove to be too difficult of opera- tion for the business for which they were designed. " Over- systematization " has often caused the profession of accounting to fall into disrepute among business men, and its evils can hardly be over-stated. Make your system fit the business and not, as is too often done, the business fit the system. Having completed the preliminary examination, before step two can be accomplished, it is necessary to review the problem as disclosed by that investigation in order to determine what is required and what is necessary to accomplish the results desired, before starting on the actual work of design. This preliminary study may be classed under seven general heads or questions. 1. How often is it necessary to close the books in order to obtain the results which we desire and how much detail work is added if we make actual closings at shorter intervals than is now being done ? 2. How shall we arrive at the cost of goods sold ? This is an important point inasmuch as the profit or loss for the period under review is dependent to a very large extent upon the accuracy of the cost charge against sales. Should the cost of sales be determined by physical inventory at the end of the period, by costing each sale as it is made or by making an esti- mate of cost by deducting the average rate of profit from the amount of sales ? This latter method is rather crude in its opera- tion, unsatisfactory in its results, and should be used only in exceptional cases. 3. Is petty cash to be employed, if so what amount ? Are all cash receipts to be deposited? What record of deposits should be kept, that is, pass book or duplicate deposit slips? The latter method is most advisable and whenever it is possible to do so all cash receipts should be deposited in total. 4. What distribution of purchases and expenses is to be made and what expense accounts are necessary in the general records? What forms are necessary for recording distributions? 5. What subsidiary ledger is it necessary to keep ? Without THE PRELIMINARY INVESTIGATION AND STUDY 11 question in almost every business of medium size subsidiary ledgers for accounts receivable and accounts payable are necessary. 6. On or about what day of the month is the trial balance drawn off? What time of the month are the statements available and what executive reports can be made from the trial balance as taken from books at the present time ? 7. Consider carefully all employees who are to have anything to do with the system. Measure as accurately as possible each employee's qualifications and limitations. Visualize the work which he is now doing and determine tentatively where he will fit into the general scheme under the system which you propose to submit. CHAPTER IV REPORTS The report on a system designed as the result of a preliminary investigation is, so far as arrangement is concerned, a matter of individual taste. There are, however, several important features which should be covered in order that the executive to whom it is submitted may have before him a comprehensive outline of the plan to be followed. These features are : 1. A more or less detailed outline of the changes which are to be made, the reason therefor, and the results to be obtained. 2. A list and description of the various forms to be used, to- gether with more or less detailed instructions for their operation, the amount of instructions necessary for each depending upon the importance of the form and the particular purpose for which it is to be used. 3. A list of the general ledger accounts properly classified and arranged in order, so that by the preparation of a monthly trial balance we will have the assets and liabilities segregated from the income and expense items in order to work out a balance sheet and a profit and loss account. 4. A set of instructions for the operation of the ledger accounts. 5. A list of the accessories to be used. This report might also include, or be accompanied by, a chart of organization showing the personnel in all departments with the duties assigned to each. It is also important that the forms which have been designed for use in connection with the system should be made up in proper form for the ruler and printer, and be presented with the finished report. It will be seen from the above that it is contemplated that the system builder having made his investigation, studied the prob- lem and determined upon a course of action, proceeds to place his ideas on paper and submit them for approval, or, in the event 12 REPORTS 13 that he is to go ahead with the installation, to have his plans so worked out that he or his assistants who may be assigned to the work, can proceed with the actual installation without further discussion or study. In order to visualize different system problems we will take specific examples and discuss the features peculiar to each and the desirability of making use of the different principles in various situations. We will first take a fairly elementary set of accounts designed to include all of the necessary forms and instructions for a medium-sized business, followed by other sets, each illus- trating variations or elaborations of the fundamental principles. The problems will be arranged in progressive order, and in the final chapters we will have established a groundwork upon which to build our cost accounting systems, and a more advanced discussion of system questions. CHAPTER V COMMERCIAL PAPERS In preparing the forms to accompany a report it is important that the paper to be used should be selected with care and with a general knowledge of the purposes to which the different kinds of paper are adapted. PAPER AND PAPER MAKING The principal kinds of paper used in business are ledger, bond, onion skin, book paper, cover stock and manila. It is desirable that the accountant should be qualified to specify the kind, quality and weight of paper when drawing up forms for the client. Commercial papers are of two general kinds, ledger and bond, but the system builder should also familiarize himself with the miscellaneous papers necessary in accounting systems, under which head are included onion skin, book paper, cover stock and manila. The general elements entering into the manufacture of paper are rags and sulphite or wood fiber. Paper made entirely of rags is the best and has the longest wearing qualities. Paper cuttings, that is, trimmings from larger sheets, are turned back into the manufacture of paper of the same kind, and if the original paper consisted entirely of rags, a like grade is the result of the second process of manufacture. Wood fiber is made of spruce, hemlock and poplar, the pulp being treated with acid which furnishes the ready identification as to the substance of which the paper is made. The small quan- tity of acid which remains in the wood fiber paper causes it to turn yellow on exposure, colored ink to fade and the paper to be brittle. The principal difference between ledger and bond paper is that the fibers in bond paper are longer than those found in ledger. This condition is regulated in the process of manu- facture. The length of fibers also has a bearing on the surface 14 COMMERCIAL PAPERS 15 which can be given the paper, although the effect of long or short fibers on the surface is very slight. If the pulp is allowed to remain in the beaters during the process of manufacture for a long time short fibers in the paper result and it is possible to have a very smooth surface if the paper is calendered a sufficient number of times. The paper resulting from this process is ledger paper with which we are all familiar and is of a fair tensil strength with a smooth glazed surface. If the pulp is allowed to remain in the beaters for a short time, the fibers are longer and if calendered fewer times a rougher sur- face results, giving us the bond paper, generally used for letterheads. Ledger and bond paper represent the finer grades of so-called writing paper, used chiefly for recording and accounting work. They should be tough and durable and flexible enough to crease repeatedly without cracking. They should be of uniform texture and of uniform thickness and smoothness on both sides to rule well and to be able to withstand several erasures without blot or absorption of ink. When uncolored the best papers are of a bright clean whiteness which will not fade, diminish in tone, or grow yellow with age. Linen rag is the only basic material yet found which, when properly employed, will give these essential qualities. In propor- tion to the diminution of the linen rag fibers will come a corresponding decrease in one or more of these important characteristics. SELECTION OF PAPER FOR SYSTEM WORK The general uses which may be made of each kind of paper fall naturally into two classes, ledger paper being for books, and bond paper for letterheads, billheads and small forms. In selecting paper for loose-leaf books, a slightly heavier grade should be used than that necessary for bound books of the same size. In designing forms due care should be given to see that the size of the form can be cut economically from a standard size sheet turned out by the paper manufacturers; that is in many cases we will find that had we designed a form slightly larger or smaller we could have cut two pages from one sheet, whereas, the 16 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING form as planned necessitates waste when cut from standard size sheets. The following is a list of the standard sizes and weights of ledger and bond papers : SIZE WEIGHTS PER REAM TBADE NAME OF 500 SHEETS Cap 14x17 14, 16, 18 & 20 Double Cap 14 x 34 32, 36 & 40 17x28 20, 24, 28, 32, 36 & 40 Double Double Cap 17 x 56 80 28x34 64, 72 & 80 Crown 15x19 20, 22 & 24 Double Crown 19 x 30 40, 44 & 48 Demy 16 x 21 20, 22, 24, 26, 28 & 30 Double Demy 16 x 42 56 & 60 21 x 32 48, 56 & 60 Folio 17 x 22 16, 18, 20, 22, 24, 26, 28 & 30 Double Folio . 22 x 34 32, 40, 48 & 56 Medium 18 x 23 28, 32, 36, 38 & 40 Double Medium 18 x 46 72 & 80 23x36 64, 72 & 80 Royal 19 x 24 20, 24, 28, 32, 36, 40 & 44 Double Royal 19 x 48 88 24x38 56 & 88 Super Royal 20 x 28 36 & 54 Imperial 23 x 31 72 Elephant 23 x 28 65 Columbier 23 x 34 80 When specifying paper stock for the printer or ruler it is necessary to state the desired quality, size and weight. For example, specifications reading " Rule and print like copy on ledger, 17x22-28 " instructs the ruler or printer to use ledger paper cut 17 inches by 22 inches, and weighing 28 pounds to the ream of 500 sheets. The Writing Paper Manufacturers Association has recently adopted a method of specifying commercial papers by "sub- stance numbers." A table has been issued in which a number is given to each of the standard weights and sizes. By stating the proper substance number the purchaser clearly indicates the weight desired. The systematizer, having decided on the quality and weight of paper stock to be used for any particular form, should specify the size from which it can be cut most economically. It is neces- sary to allow from %" to %" on each side of a form for cutting and trimming, more for smaller forms than for larger. The fol- lowing table gives the sizes of standard sheets when cut into halves, quarters and eighths: COMMERCIAL PAPERS 17 PAPER HALF SIZE QUAKTER SIZE EIGHTH SIZE 14 x 17 Cap 8i/ 2 x 14 7x8% 4} x 7 16x21 Demy 10% x 16 8 x 10y 2 5*4 x 8 17 x 22 Folio 11 x 17 8% x 1 1 5y 2 x 8/ 8 18x23 Medium Iiy 2 xl8 9 x Ily 2 5% x 9 19x24 Royal 12 x 19 9% x!2 6 x 9'/> 17x28 Double Cap ... 14 x 17 8y 2 xl4 7 x 8y 2 20x28 Super Royal .. 14 x 20 10 x 14 7 x 10 21x32 Double Demy .. 16 x21 10y 2 x 16 8 x 22x34 Double Folio .. 17 x 22 11 x 17 8%xll 23x31 Imperial 15>x23 Hy 2 xl5J/ 2 7%xliy 2 23x36 Double Medium. Iiy 2 xl8 9 xlly 2 The use of the foregoing table is illustrated by means of the following simple problem: A concern orders 12,000 copies of a certain form, size S l / 2 x 11. Allowing one-eighth of an inch on each side for trimming, from what standard size can this order be cut most economically ? The printer can, of course, figure out for himself what size stock to use provided he is given information as to the quality and weight desired. It is frequently the custom to specify, say 17 x 28 - 32, not intending that this size and weight must of necessity be used, but that these figures shall serve merely as a standard or comparative basis. Knowing the required weight the printer can easily figure out what size he can use most economi- cally. For example, if the specifications for a certain form call for paper 14x17-14, the printer may find that he can cut this form with the least possible waste from sheets 17 x 28. He will use 17x28-32 which is double 14x17-16 in size and weight, and obviously, of the same comparative weight. LEDGER PAPERS The difference between ledger and bond paper is nowadays one of name rather than of quality. Expert paper men them- selves say that they frequently have difficulty in distinguishing between ledgers and bonds of the same quality and weight. Ledger papers, except the cheaper grades, come in three colors : white, buff and blue. Ledger papers in common use range in comparative weights from 17x22-16 to 17x22-30; 17x22 (Folio) is usually specified for bound and loose-leaf office books and forms, and 14x17 (Cap) for billheads, letterheads, requi- sitions, checks, etc. For the ordinary office books and forms it is customary to specify 17x22-26 or 28 for bound books and 17x22-30 for 18 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING loose leaf sheets. On the narrower forms, say 10 inches or less, 17x22-20 or 24 for bound books and 17x22-24 or 26 for loose-leaf may be used. For ring binders in which permanent forms are to be kept a fairly heavy, good quality ledger should be used, say 17x22-22 or 24. The lighter weight ledgers are sometimes used for letter- heads, billheads, etc., but they are not considered as satisfactory as bonds because of their liability to crack when folded. Following is a schedule of some of the standard makes of ledgers : Whiting (Whiting Paper Co.) Weston Linen (Byron Weston Co.) Scotch Linen (Parsons Paper Co.) Record (Whiting) Defiance (Byron Weston) Defendum ( Parsons ) Reliance (American Writing Paper Co.) Sterling (Whiting) Title (Whiting) The higher priced papers may be used for forms where great strength, durability and erasing qualities are desired, also for law blanks, public records, etc. The cheaper grades have less strength and poorer writing sur- face than the corresponding weights in the higher priced papers. They may be used for internal forms not frequently referred to, cost ledgers for small manufacturing concerns, goods received sheets, delivery sheets and other records where considerable weight is required. BOND PAPERS Bond papers are known as unglazed, glazed, linen or laid, ac- cording to the finish. The "unglazed" or "ledger" finish is obtained by running the paper through the calenders several times, and a glazed bond is practically the same as a ledger of the same weight. The "laid" and "linen" effects are obtained by submitting the paper to very heavy pressure, each sheet being placed between a smooth surface and a piece of linen cloth woven in the pattern which it is desired to impress upon the paper. Bonds come in great variety of colors, differing for different makes and grades. Bond is supplied in white, blue, russet, opaline, green, tan, celestial, olive, pearl, primrose, buff, orange, COMMERCIAL PAPERS 19 quaker gray, gray, pink, melon and cherry. Besides these there are lavender, cream, golden rod, canary, azure, etc. Uniformity of color is one of the most serious of the paper manufacturers' problems, and the same colors vary widely in different makes. The cheaper grades of bonds are not as strong, and do not have the enduring qualities of the better grades; neither are they uniform in color, quality or thickness. Following is a list of some of the best known brands of bonds : Crane's Safety and Parchment Bond (Crane Co.) Parsons' Bond (Parsons) Imperial (Whiting) Coupon (American Writing) Old Hampden (Parsons) Defiance (Byron Weston) Roman (American Writing) Titan (American Writing) Textile (Whiting) Tokio (Crocker McElwain Co.) Certificate (Crocker McElwain Co.) Hammermill (Hammermill Paper Co.) For large and medium sized forms, letter and billheads, etc., it is customary to specify 17 x 22 - 20 or 14 x 17 - 14 or 16. For smaller forms, 17x22-16 may also be used when it is desired to take from 1 to 5 carbon copies. ONION SKIN Onion skin is simply light weight bond. It comes glazed and imglazed and in a variety of colors including blue, canary, cherry, opaline, pink, green and golden rod. It varies in weight from 17x22-8 to 17x22-10 and 17x22-liy 2 - For commercial purposes the cheaper grades (unglazed) are used. Onion skin is frequently used as the third or third and fourth sheets in manifold work, the first two sheets being 17 x 22 - 16 or 20. It should always be used in cases where more than five copies are desired. MISCELLANEOUS Cover Stock. Cover stock comes in a variety of colors in- cluding blue granite, canary, cherry, dark blue, drab, fawn, gold, lilac, melon, moss rose, nile green, orange, pearl, robin's egg blue, rose, buff, scarlet, tea and terra cotta. It comes in the following comparative weights and sizes : 20 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING 20x25-22, 32, 48 & 60 22x28-32, 48, 58 & 70 25x38-40, ?0 & 60 As in the case of ledgers and bonds, it is usually wrapped 500 sheets to the ream. Manila Tag. Manila tag stock commonly comes in the fol- lowing weights and sizes: 22Vox28i/ 2 -100, 120, 140 & 160 24 x36 -100, 120, 140, 150, 160, 175 & 200 Index Bristol. Bristol or card index stock commonly comes in: 20i/> x24%- 70, 90 & 110 22yox28%- 90, 100, 110, 120, 140, & 180 251/2 x 30y 2 -110, 140, 170 & 220 It is usually wrapped in packages of 100 sheets each. The standards colors are white, buff, blue, salmon, cherry, green and canary. For ordinary index purposes 100, 110 or 120 pound stock is used. Paper is an exceedingly difficult commodity to judge. Paper experts readily admit their inability to judge paper without submitting it to various mechanical tests. No mill can make two lots of paper exactly the same in thickness, finish, strength or color. Tensile strength, surface finish, uniformity of thickness and color are the major factors in the construction of blanks and leaves used in accounting work. Considerable care should be exercised in the selection of paper to be used in the more im- portant records of original entry, such as cash books, voucher or check registers, journals, minute records, pay rolls, balance sheets, profit and loss statements, and also in books of record, such as ledgers, stock records, inventory records, etc. Paper as above stated is made up in a very wide range of grades and weights which for convenience may be classified into the following headings: Ledger Paper 3 weights . . Heavy Medium Light Bond Paper 4 weights .... Heavy Medium Light Extra Light COMMERCIAL PAPERS 21 Manila Paper 4 weights .. Heavy Medium Light Medium Light Transparent Paper Light weight Semi Transparent Tissue . . Extra Light weight Folder Stock > _. j ht Extra Heavy or Tag Stock } leights Heavy Medium Light Press Board ) Extra Heavy Guides J Heavy Medium Card Stock 4 weights .... Extra Heavy Heavy Medium Light Carbon Paper by grades . . Typewriter Use Pen & Ink Use Pencil Use The quality of paper to be used depends upon the kind of record or blank and its importance in the system designed. The greatest test any paper can have is that of use. Good paper is to be recommended, either ledger or bond, in making all forms or books where the record is kept for reference indefinitely. Medium quality serves the purpose in many instances for routine work, while the cheaper grade of paper is used more or less for the gathering of temporary data. The quality sometimes depends upon the client's own taste or selection. COLOR OF PAPER Under this heading only the most popular colors should be con- sidered, and care should be used to avoid odd tints which are not only hard to secure in some localities, but hard to match on reorders. For all books or records that are used frequently or continually buff color is easy on the eyes and does not show soil as readily as white. Selection of colors may be made from the following: Ledger paper, buff, white and blue. Bond paper, buff, white, lemon, pink, blue, green, yellow, canary, russet and golden rod. Manila paper, natural or white, yellow and pink. Transparent paper, natural or white. 22 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING Semi transparent tissue, white. Folder stock, natural (similar to buff), and blue. Pressboard, gray and brown. Guide stock, natural (similar to buff), buff, blue and salmon. Card stock, buff, white, lemon, cherry, blue, salmon and green. THICKNESS OF PAPER There is always some variation in the finish of papers made at different times or in different lots. This manufacturing condi- tion results in a similar variation in the number of sheets the papers will stack to the inch. A smooth, hard finished paper will always measure more sheets to the inch than a medium or rough paper of the same weight. Plain sheets will stack a few more sheets to the inch than printed sheets. The following table is therefore approximate, merely to assist in determining various capacities after paper has been printed : PAPER Ledger Heavy APPROXIMATE NUMBER OF SHEETS PER INCH 175 215 275 275 355 440 575 275 355 500 80 100 130 200 40 55 1000 cards 16V_> inches 1000 " 14 1000 " 11 1000 " 9V, " Medium Light Bond Heavy Medium Light Extra Light Manila, Heavy *' Medium Transparent Folder Stock Extra Heavy " Heavy .... " Medium .. " Light Guides Heavy .... " Medium Cards Extra Heavy Heavy .... Medium .... Lieht . CARBON PAPER In system building there are many opportunities for planning and using manifold sets of blanks. In selecting or recommending carbon paper for manifold work, care should be used to study the situation and the uses to which the carbon is put. If pen and ink is to be used not only is a carbon suitable for pen work necessary, but a manifold pen point or manifold fountain pen is quite COMMERCIAL PAPERS 23 essential. The ordinary soft flexible pen will not secure good re- sults. The same idea applies to pencil work. The ordinary thick pencil carbon such as used in duplicate sales books, dupli- cate or triplicate bill of lading forms, etc., will not result in good clear copies. The pen or pencil, if held as nearly perpen- dicular as possible, will secure the best results. With typewriter manifold work a light weight fine quality carbon with a hard surface will secure satisfactory results. In the case of very heavy manifold sets the platen on the machine will affect the clearness of copies; hard platens secure the best results where more than four copies are required. Heavy Thick Carbon. This grade of carbon is used princi- pally with duplicate sales books, duplicate bill of lading forms, duplicate city delivery blanks, and all ordinary duplicate work where low grades of paper are used. Pen Carbon. This is a medium weight carbon of good quality with sensitive surface. It is used in both pen and pencil work for sets of blanks made in duplicate, triplicate and quadruplicate. Typewriter Carbon. There are several different makes of good typewriter carbon on the market ; the actual quality to be used, likewise the actual weight and finish, will depend upon the number of copies required. With heavy carbon work, good results depend upon the selection of the proper weight, thickness and finish of the paper and the proper weight and finish of the carbon paper, also the kind of platen upon the machine. CHAPTER VI RULING AND PRINTING Having a thorough knowledge of our paper problems, we next consider the various rulings. Certain fundamental rules govern the preparation of forms which must be observed in order to insure success. The number and design of forms required for a general ac- counting system is, of course, influenced by the accounts which must be kept in order to record the facts according to the plan we have formulated. The preparation of forms to be used with accounting systems usually involves an original design by the accountant in charge, and in order to have at least a working knowledge of how to accomplish the result, it is necessary that we have in mind a few rules in connection therewith. Forms are usually sketched out in a rough pencil copy, so that the accountant can visualize the sheet in its completed state. The actual ruling of the form is generally done by one of his assistants. Headings are usually printed over the columns and certain spaces are necessary to accommodate columns of figures, the printed headings, etc. The printing trade follows what is known as the American point system, one point representing one seventy-second of an inch. The following list gives the names of the old bodies and their designation by points. 3y 2 Point, Brilliant 4 '/.j " Diamond 5 " Pearl 6V6 " Agate 6 Nonpareil 7 " Minion 8 " Brevier 9 " Bourgeois 10 " Long Primer 11 ' Small Pica 12 ' Pica 14 ' 2 line Minion or English 15 ' 3 line Pearl 16 ' 2 line Brevier 18 ' Great Primer 24 RULING AND PRINTING 25 20 22 24 28 30 33 36 40 42 44 48 54 60 72 2 line Long Primer or Paragon 2 line Small Pica 2 line Pica 2 line English 5 line Nonpareil 4 line Brevier 2 line Great Primer Double Paragon 7 line Nonpareil 4 line Small Pica or Canon 4 line Pica 9 line Nonpareil 5 line Pica 6 line Pica The approximate number of words in a square inch under the point system is shown in the following table : 14 Point, Solid 11 12 u 14 12 Leaded 11 10 Solid 21 10 Leaded 16 8 Solid 32 8 Leaded 23 6 Solid 47 6 Leaded 34 In order that the finished form may be pleasing to the eye it is necessary to follow a more or less general color scheme in ruling. The combinations most generally used are red and blue, and brown and green, the former being used almost entirely on white paper, while the latter is favored by some when used on buff. The selection of color is more or less optional but it is well to make the selection so it can be followed throughout the system. A form is usually set off by a border or distinct arrangement of lines around the body of the sheet. The lines generally 'used .-Blue Fig. 1 for borders are classed as follows: Four line fancy for large forms, three line fancy for medium sized forms, and double red for small forms. A four line fancy is ruled with two red lines, about 1/16 of an inch apart with two blue lines, one just inside of each red line. This results in a red border, lined with blue with a white space showing in the center. (See Fig. 1.) 26 SYSTEM BUILDING AMD CONSTRUCTIVE ACCOUNTING A three line fancy is made with two red lines with one blue in the center without the white space. The double red is easily understandable. Except when used with double red, it is cus- tomary to have vertical border lines and the border lines at the bottom of the page of somewhat lighter construction than the border at the top, that is, if a four line fancy is used at the top of the box heading, a three line fancy would be proper for the vertical borders and double lines at the bottom. If a three line fancy is used at the top of a page, double red lines would be suitable for the vertical borders and the bottom. The idea of this border scheme is to give the sheet in the space where the hand written work is placed distinctive setting off from the main heading. The vertical rulings within the borders which separate the main divisions of the page should be fairly promi- nent, the next division less prominent, and the unit lines in the money columns of faint blue. The horizontal lines below the box headings are usually of faint blue lines, every fifth line being made heavier than the others in order that these lines may be followed across a wide page. The spaces between horizontal lines should be ruled off according to the point system, that is, seven point ruling would represent spaces 7/72 of an inch be- tween each horizontal line. The spacing of the ordinary type- writer is six lines to the inch or 12/72. Vertical unit money columns are ordinarily ruled % of an inch. This ruling, however, may be varied by 72nds of an inch. It is customary in ruling the unit lines, wherever four lines are placed, to make the third unit heavier than the others; the principle being to have the heavy unit lines represent the division between hundreds, thousands, etc., taking the place of decimal points. In designing forms for the printer or ruler, the punchings and perforations are indicated by black ink and also if lines are to be printed on the form instead of ruled they are indicated by black ink. Some accountants show the punching and ruling on their forms in pencil, indicating on each line the color which is to be used in the finished form. Others rule their forms in colored ink. Either plan is practical and satisfactory results are obtained from each. It is always well, however, to have the printed headings on the design show in ink, as the printer receives the form after the ruling has been done and constant handling RULING AND PRINTING 27 of copy necessary in the ruler's office often blurs the printing if made in pencil and in some cases entirely obliterates it. This makes it necessary for the accountant to go over the work a second time or obtain unsatisfactory results from his printing. It is sometimes necessary to indicate the punching to fit certain binders and in this connection difficulty is frequently experienced in determining the distance from top and bottom of the page to the punching. A simple rule which may be followed is as follows : "Take one less than the number of holes, multiply by the space between the holes, deduct the result from the height of the form and divide by two. The answer gives the distance from the top of the page to the punching and from the bottom of the page to the punching, center to center." CHAPTER VII PACKFORD AUTO SALES COMPANY GENERAL SYSTEM AND PLAN The system of accounts used by the Packford Auto Sales Com- pany has been selected as a typical illustration of a business having a large volume of small items from which there is little profit and a small volume of large items from which the greater part of the income is derived. A complete set of forms is included and it is our purpose to discuss in detail the operation of the accounting system. In connection with each form we will consider its purpose, the source of information, the number of copies, mechanical work of preparation and how the copies are distributed. This discussion will be followed by a chart of accounts and an explanation of the purpose of each account together with the functions of any account peculiar to this business or operated in a way not clearly evident from its name and location in the chart. . It is presupposed that the preliminary investigation, design of the system and installation have already been completed, but in order that we may be in possession of all of the facts relating thereto we will review in brief some of the particular points brought out by the preliminary investigation. The Packford Auto Sales Company is a Massachusetts corpora- tion doing business in Boston. Its chief business is the sale of Packford motor cars, Packford trucks, and parts and equip- ment pertaining thereto. It has the exclusive agency for this line of cars for Boston and vicinity and maintains a service sta- tion for repairs and the sale of parts and supplies. The company is not, however, a branch of the Packford Motor Company as is often the case in the automobile business. The company rents a two-story building on Commonwealth Avenue, Allston. The first floor contains the salesrooms with the offices and stockroom in the rear. The repair shop occupies the entire second floor. The concern also owns a four-story building on Newbury Street, Boston, which it uses as a public garage. Here 28 PACKFORD AUTO SALES COMPANY 29 it has facilities for the storage of about two hundred and fifty care. The executive officers of the company are the president, vice- president and manager, secretary and treasurer. The president is not actively concerned in the management of the business ; he acts as an adviser and has general supervision over financial matters. The vice-president and manager is the chief executive officer. He is responsible for the general conduct of the business, and has charge of the sales force, and exercises general super- vision over the various departments. The secretary and treasurer is at the head of the office force. He takes charge of the corre- spondence, approves all disbursements, signs checks, etc. In addition to the secretary and treasurer, the clerical work of the office requires the services of three bookkeepers, a cashier, a billing clerk and two stenographers. There are five regular salesmen whose duty it is to follow up prospective customers, make arrangements for demonstra- tions, etc. The stockroom is in charge of a superintendent, who has three assistants under him. He has general charge of the purchase and sale of all parts, supplies and equipment, including not only running parts, but accessories such as tires, tire chains, lamps, windshields, etc. These parts and supplies are issued upon re- quisition to the garage and repair department and are sold over the counter to customers. All sales made in this department are costed from information contained on perpetual inventory cards. The superintendent of the stockroom, with the approval of the manager, makes all purchases of needed supplies and is, in effect, the purchasing agent. The repair department is located on the second floor. It is in charge of a superintendent who has under him an assistant superintendent and, during the busy season, about sixty-five men. This is the only service station for the Packford cars for Boston and vicinity. This necessitates the keeping of a complete line of running parts for these particular cars and trucks. Repairs are also made on other kinds of cars, particularly second-hand cars taken in exchange, although the company does not pretend to operate a general repair department. The repair department also makes all needed repairs to the company's livery, service, and demonstration cars. These re- 30 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING pairs are charged to the proper accounts at regular selling prices as it is desired to know the full volume of business done by this department. This does not affect final profits in any way except in certain minor instances when a charge is made to an asset account, in which case there is a slight anticipation of profits. The repair department also includes equipment for making tire repairs, in charge of a competent tire repair man. The garage superintendent has under him two assistant super- intendents during the day, a night superintendent, eight em- ployees during the day and ten during the night. There are also two chauffeurs for livery service and an operator for the service car which is provided with elevator service. At the Commonwealth Avenue building there are also two chauffeurs known as demonstrators who are used for demon- strating cars to prospective customers and who are occasionally used for livery service. There are also several floor men doing the cleaning and sweeping, polishing the stock cars, and who are of general service about the sales room. LIST OF FORMS PURCHASE RECORDS Purchase Requisition Purchase Order Voucher (Remittance Advice) Voucher (Office Copy) Voucher Register Voucher Index CASH RECEIPTS Cash Received CASH DISBURSEMENTS Currency Voucher Traveling Expense Voucher Check Check Register Daily Cash Report SALES RECORDS Sales Ticket Stock Requisition Repair Tag (2 sides) Supplementary Repair Tag Sales and Cost Journal Sales Returns and Allowances Monthly Bill Repairs and Supplies (original and duplicate) Garage Service Slip Garage Service Sheet (2 sides) Garage Monthly Bill FORM No. 1 2 3 4 5-L and 5-R 6 8 9 10 11 12 13 14 15 16 17 L & R 18 10 20 21 22 PACKFORD AUTO 8 ALE 8 COMPANY 31 GENERAL RECORDS Car Register (bound book) 23 Garage Directory Card (2 sides) 24 Index for above 25 Garage Register (bound book) 26 Time Card (2 sides) 27 Pay Roll 28 Inventory Card Analysis of Fixed Assets (bound book) 30 Insurance Register Customers' Ledger General Ledger General Journal (bound book) 34 Trial Balance Book for General Ledger Stock Form FINANCIAL STATEMENTS Monthly Balance Sheet (2 sides) 35 Monthly Trading and Profit and Loss Statement (2 sides) 36 Monthly Analysis of Selling and Administrative Expenses *7 CHAPTER VIII PACKFORD AUTO SALES COMPANY FORMS Punch Order Mo Dept I ate Serial Mo The following orticlesare required by this department [ Ordered from Ordered bij Delivered Purpose f or which required ob tto Date of flequisi ioo| Present 3toc i Approved For*, Ho 1 THE PACKFORD AUTO 6ALES CO ^ KH REQUISITION Form 1 Form i Purchase Requisitions and Form 2 Purchase Order. Purchase requisitions are in pad form, numbered by the printer, each department being furnished with a pad. A requisition is prepared for each purchase, except purchases of gasoline, oils and cars. A requisition is made out in duplicate by any one in the department and approved by the depart- ment head. The original requisition is sent to the stockroom where a pur- chase order (form 2) is made out in duplicate, the original is forwarded to the vendor and the duplicate arranged in alphabeti- cal order and retained on an arch file in the stockroom with the purchase requisition attached. The duplicate purchase requisi- tion is held in the department as a memorandum of items ordered. When invoices are received they are immediately sent to the superintendent of the stockroom for comparison with the dupli- cate of the purchase order retained in his files. The invoice is stamped with a rubber stamp, designed as follows : Order No Requisition No Date Goods Rec'd . . Goods Rec'd by . . . . Prices O. K Extensions 0. K. . . 32 PACKFOIW AUTO SALES COMPANY 33 The superintendent of the stockroom fills in the requisition num- ber and purchase order and also OK's the prices. The purchase requisition and purchase order are now fastened to the invoice and filed in an unfilled invoice file. These papers are held until the goods are received by the stockroom, from which point they are distributed to the departments making the requisitions. Original Purchase Order Ho. ornc, 5 THE PACKFORD AUTO 5ALC SCO 1091 COMMONWEALTH AVE BOSTON MASS 293 NEWDUflY ST To Date Please enter our order for the following goods described below and chorqe to our account Terms Quantity Description Price Total SHIP VIA FOB. Kindlg acknowledge order and state when shipment will be made APPROVED BY ORDERED BY PLEASE PLACE OUR ORDER MO Oh IttVOlCE PACKAGES AND CORRESPONDENCE Form 2 When the goods are received in the stockroom they are un- packed, counted and compared with the invoices, and the clerk making the comparison places his initials in the stamp impression opposite the item "goods received by." The invoice is then sent to the office where the extensions are OK'd and the invoice handled through the accounts. The purchase requisition is re- turned to the department ordering the goods where the super- intendent acknowledges receipt in the proper space on the requisition and returns same to the stockroom superintendent to be filed with the purchase order in the permanent completed order file. Credit memorandums for the return of merchandise to vendors in this system are the regular stock form kept in the 34 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING Form Ho J VOUCHER ho CHECK Ho. MONTH NAME DATE PAID ADDRESS DATE ITEMS DEDUCTIONS At-iounT THE PACK FORD AUTO SALES Co DEALERS In PACKTORD MOTOR CARS PACKFORD HOTOR TRUCKS AUTOMOBILE SUPPLIES AMD ACCMSORIES Sole Agents Ibr Boston and Vicinity OFFICE AMD SALESROOMS 1091 COMMONWEALTH AVE GARAGE: 293 MEW BURY ST WE ENCLOSE OUR CHECK IN PAYMENT OFTHE ABOVE ITEM5 IF HOT CORRECT, RETURN BOTH VOUCHER Ann CHECK WITH FJCPLAHATION . IF ACCEPTED in PAYI-IENT OF THIS VOUCHER. COPY OF WHICH is on FILE AT OOH OFFICE. MO RECEIPT IS NECESSARY OTHER THAU PROPER EMUORSCnCnT OF THE CHECK THE PACKFORD AuTO SALES Co Form 3 Fbrm rto * VOUCHER Ma CHECK Mo. DOHTH MAHE DATE PAID ADDRESS DISTRIBUTION DATE 1TEH3 CCAUCTionb AMOUrtT COfWECT PAYnEHT AUTHORIZED ACCOUMTAMT Form 4 PACKFORD AUTO SALES COMPANY 35 stockroom where they are filled out by the superintendent when- ever purchases are returned, showing selling price as well as cost, and are approved by the secretary and treasurer. The original is passed to the billing clerk and the duplicate retained by the stockroom superintendent. Forms 3 and 4 Voucher (Remittance Advice) and Voucher (Office Copy). Voucher (remittance advice) and voucher (office copy) are the original and duplicate of the voucher prepared in connection with the voucher register. These forms are made up in pads of 50 sets and are filled out when making a remittance to a creditor. When the approved invoices are received from the stockroom superintendent they are filed in an audited invoice file until the payment date. When payments are to be made the approved invoices are arranged by vendors in chronological order and vouchers are prepared, one for each vendor, showing the voucher number, name, address, etc., and the invoices attached to the voucher. The original is put aside to be used as a memorandum for mak- ing checks. The distribution is put on the duplicate, which is approved by the treasurer who authorizes payment, and it is returned to the bookkeeper who prepares the check to be for- warded to the vendor. During the interim between approval and payment all unpaid vouchers are kept in an unpaid vouchers file. When payments are to be made the vouchers are withdrawn, the check prepared and forwarded with the original voucher (remittance advice) to the vendor; the duplicate voucher (office copy) is filed in numerical order after the check number has been inserted thereon and the date of payment noted in the voucher register. In this particular system the vouchers are filed numerically. There is, however, another method of filing which is alphabetical. The numerical arrangement facilitates the work of auditing but necessitates keeping an index of the vouchers in order that those from any vendor may be located. Either method may be used, but probably the more common is the numerical arrangement with the index, see form 6. Form 5 Voucher Register. A voucher register without a purchase or accounts payable ledger may be used to advantage where the number of creditors is small, where the bills are paid 36 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING s i a it " < = = = = j J"| 'FH si c r j J U, jj| s M o> r | ?i-- : -^* !? ^ .j = ! u. o ^o3 I *- d P |P = Q h r\ ire Form being that some additional information is shown, analyzing the expenses of the trip. Form 10 Bank Check. This form does not differ materially from the ordinary bank check and is shown with the forms 1091 COMMON WEALTH AVE BOSTON MA5&., 192 Pay to the order of Dollars in payment of Voucher Mo. To CITY TRUST COMPANY BOSTOM MASS copy of which is presented herewith THE PACK FORD AUTO SALES Co . Treasurer Form 10 simply to illustrate the type of check used with this system. The canceled checks are filed attached to the paid vouchers. Form ii Check Register. Particular attention is called to this form inasmuch as the columns at the right of the page are PACKFORD AUTO SALES COMPANY 43 44 SYSTEM BUILDING AND COXtSTltL'CTIVE ACCOUNTING intended to obviate the necessity of keeping check books with stubs. The amount of cash received which is to be deposited as shown by the cash received sheet is entered in the deposit column. The amount of the checks drawn as shown by the check register is entered in the check column. The balance on hand at the beginning of the day plus the deposit minus the checks, equals the balance on hand at the close of day. This corporation has two banks, -the office receipts and dis- bursements being kept in one and the garage receipts and disbursements in the other. Therefore, the sum of the two deposit columns will equal the total amount of receipts for the day. The total of these columns at the end of the month would equal the total receipts for the month. The amount of the check column on this sheet is distributed in the check column, according to the bank on which the check is drawn. The check register sheets are kept in the pinch back binder with the cash received sheets during the month, and are per- manently filed in an extension post binder. In order to transfer funds from one bank to the other, which is frequently necessary, entries are made as follows : In the Journal De-bit Exchange checks (B-17) Credit Vouchers payable (E-5) In Check Eegister Debit Vouchers payable (E-5) Credit Cash (A-l) In Cash Receipts book Debit Cash (A-l) Credit Exchange checks (B-17) The check for exchange of funds would be drawn on one bank and deposited in the other, the above cash entries being made when check was handled. Form 12 Daily Cash Report. This form is made out in triplicate daily, the sheets being numbered when made out and dated in the space provided. The original is sent to the vice- president and manager; the duplicate to the secretary and treasurer; and the triplicate retained by the bookkeeper who prepares the form. The information is compiled from the cash received sheets PACKFORD AUTO SALE8 COMPANY 45 and the voucher register. The miscellaneous receipts are arrived at by an analysis of the sundry credit column in the cash receipts book; miscellaneous disbursements are obtained by an analysis of the sundry debits column in the voucher register. By referring to the form it will be noticed that it is provided with three amount columns, the first being the receipts and dis- Fortn rv> IZ THE PACKFORD AUTO SALES CO No BAILY CASH RETORT "\92 ; SUMMARIZED AHALYSJS For this Dale on(i) 1st. OF MONTH TO DATE lurrent Yeav Previous Year REfFlPTfi: Customers Cnf,h Sa)e*> Mi-w-pllnnpoiui (Show Pc=loils) Total RpffTptA RnlnnrP per la=,t Report Pronf Tatals niSRDRSEMEHTS Parkford Motor f.o: rnv-i Trurks Port* nnrl ftupolies Other Trade C.rpriitorS: ( Shew IletaiK) Pm, Roll Miscellnncou* (5hr,w nptfnl=,) Total ni^hur^empntA finlanrp ot flo,e nffhisdntp Prno-f T,yrnl& Distribution of Ca&h Balance C-itij T^.ist C.f. _ MI ft First Notional Bonk Totnl n=i nbcve 4 Form 12 bursements for the day covered by the report, the second column for the amount of receipts and disbursements from the first of the month to date in the current year, and the third column for the same information covering the corresponding period last year. At the bottom of the sheet the bank balance is analyzed, the information being taken from, the bank balance columns on the check register, form 11. 46 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING Form 13 Sales Tickets. The sales tickets are made up in pads of one hundred, to be filled out in triplicate, and are num- bered by the printer. Each sales clerk is provided with a pad. Whenever a sale is made, a sales ticket is headed with the ^"=i3 SALES TICKET" ~ THE PACK FORD AUTO SALES Co 1091 COMMONWEALTH Avt Telephone Connections BOSTON MASS., 193 _ ADDRE5S Goods received os above. Coet of Tires Eqvipm't Fts.6: SUP. Salesman Form 13 date and name in the spaces provided ; in the event that it is a cash sale, the word "cash" is inserted in lieu of a customer's name. The original copy of the sales ticket is forwarded to the office, the duplicate is passed to the customer, and the triplicate retained in the book as a permanent record. In the office the originals are placed on a spindle file during the day, and at the close of the day are turned over to the superintendent of the stockroom for costing from the perpetual inventory cards. After the sales tickets have been costed they are passed to the billing clerk for billing, and then returned to the book- keeper for entry in the sales and cost journal. Sales of cars are not entered on sales tickets, each sale being PACKFORD AUTO SALES COMPANY 47 treated as a special transaction, and so entered in the sales and cost journal from a duplicate of the sales agreement prepared on a letterhead when the sale is made. Form 14 Stock Requisition. This form is used by all of the departments; each department is provided with a pad Dote Requisitioned for Rep. Tag Mo. Garaqe no. Quantity Required Deecnptioo Quantity Delivered Ordered by De|iveYey Received by re no* TOE; PACKFORD AUTO SALES CO Form 14 blocked by the printer to contain one hundred sheets, which are numbered when printed. Only one copy of a requisition is pre-. pared by the clerk desiring to draw material from the stock- room. The requisition is forwarded to the stock clerk and there filled, the party requiring the material giving his receipt, and the requisition is filed in numerical order in the stockroom as a record of delivery of the material. Form 15 Repair Tags. These tags are numbered by the printer, and the supply of tags is kept in the office. Whenever a car is brought into the repair shop the superin- tendent obtains a tag from the office and notes thereon the repairs which are to be made and fills up the form as follows: The date the car is received into the shop ; the owner's name and address ; the make and number of the car ; the manufacturer's number, which is the number on the motor; and procures the signature of the owner authorizing that the repairs be made. The tag is attached to the car and the entries thereon are made as the repairs progress. In the labor section of the card, the entries are made by the foreman in charge of the men working on the car, showing 48 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING DATE RECD NAM \2J REPAIR TAG MO- DATE F) WISHED \Cx 3UAMT1TY ITEM REQ HO. CHARGE COST FORWARDED fAR-MAHF ANH H(\ MFGF MATU S MO. RE OF REPAIRS TO BE rt AD I HEREBY AUTHORIZE THE PACKFORD AUTO SALES CO TO MAKE; THE; REPAIRS OUTLIMED ABOXC ftir,NA-niRF LABOR DATE WORKMAN'S NAME TIME OtARGE COST EQl aUANTlTY TOTAL IlPMEnT, PARTS AMD ITEM T> SUPPLIES EQ MO. CHARGE COST TOTAL OR FORWARDED RECAPITULATION CHARGE COST LABOH TIRES PARTS AMD SUPPLIES EQUIPMENT TOTAL TOTAL Obverse Form 15 Reverse the date the work was performed, the name of the workman, and the time spent on the ear. If more space is necessary, form 16 is used, heading up the tags as required. PACKFORD AUTO SALES COMPANY 49 No entries are made in the charge or cost columns in the labor section at this time, but when the repairs are completed the superintendent enters on the tag the charge to the cus- tomer, which is obtained by multiplying the total number of hours expended on the work by the standard rate per hour charged for repairs. At this time the superintendent of the repair department also enters the cost of the workmen's time as determined by the hourly wage paid each workman. It may be well to state at this time that repair sales cover labor and materials only, there being no overhead charge added. If equipment, parts or supplies are used in the repairs, a requisition for the material is made on form 14 and sent to the stockroom. The tag is also sent to the stockroom with the requisition. In the stockroom the superintendent upon receiving the requisition makes the entry on the tag under the section headed "equipment, parts and supplies" for the quantity. He also notes the item and the requisition number covering the stock issued in the proper spaces as his authority for issuing the materials, and notes the repair tag number on the requisition. When the repairs are completed, the superintendent of the repair department hands such tags as carry items of equip- ment, parts and supplies to the superintendent of the stock- room for entering the cost of these items from the card in- ventory. The superintendent of the stockroom also notes thereon the charge to be made to the customer, and as the labor items have been computed before the tag was sent to him, he fills in the recapitulation of charges and costs at the bottom of the tag and forwards it to the billing clerk. When repairs are paid for in cash, the repair tag is used as a sales slip and is handled as a cash sale. Repairs on cars owned by the company are made in the same way, except that the amount is charged to an expense or asset account, as the case may be, instead of charging to the customer through accounts receivable. The accounts which might be charged for this service are as follows: New cars, account B-l ; demonstration cars, account B-4 ; sell- ing expense, account L-15; demonstration expense, account L-4; second-hand cars, account B-3 ; livery car repairs to miscellaneous 50 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING garage expense, account N-15; repairs to service cars to service car expense, account M-10. After the billing clerk has prepared the invoice to the cus- tomer, the repair tags are passed to the bookkeeper for sum- marizing in the sales and cost journal, form 17. Form 1 6 Supplementary Repair Tags. This form is in- tended to be used when the spaces provided on both sides of the regular repair tags have been completely filled and more space v_y SUPPLEMENTARY REPAIR TAG Annmnrtft To RF.P TAG NO TOTAI Form 16 is necessary in order to record either labor, or equipment, parts and supplies used in repairing the car. In the event that addi- tional space is needed for both labor and material, two cards, form 16, are used, one being headed "labor" and the other "material." Form 17 Sales and Cost Journal. The current sheets for this form are kept in a pinch back binder in the same cover with the current sheets for sales returns and allowances. The permanent file for this record is an extension post binder. When the billing clerk has entered the sales slips, repair tags, etc., on the bills, he turns all the memoranda over to the book- PACKFORD AUTO SALES COMPANY 51 \ a 52 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING keeper who arranges together all charge slips, credit memoranda, etc., and numbers the entire slips for the day with a numbering machine. The sales memoranda above referred to are numbered for an entire month; that is, at the beginning of each day's business the bookkeeper starts in with the number following that on which he closed the previous day's business. At the beginning of each month he starts again with number 1. After the memoranda have been numbered, they are entered in the sales and cost journal as follows: The day, the number put on by the bookkeeper with the numbering machine, the original number which has been placed on the forms by the printer (the bookkeeper before numbering arranges each series of memoranda in numerical order in order to prove that all have been accounted for), the name of the customer and the amount of the slip which constitutes the charge to accounts receivable. If there is any item not charge- able to accounts receivable, it is entered in the sundry debits column, noting against the item the account to be charged. These two columns constitute the only debit columns in the book. The other columns are all credits to the center of form 17-R, which up to this point does not differ materially from an ordinary sales journal except that there are two debit columns and several credit columns. The balance of form 17-R is the cost journal, each column operating as a debit to cost of sales and a credit to the asset accounts. The credits to the various sales accounts are distributed in the proper columns as is indi- cated by the heading of each. In making the entries in the cost section of this sheet the information is taken from the same slips except that the cost of cars which are sold is obtained from the car register, as is also the item of freight. The columns in the cost section of the journal as above stated are both debits and credits, so that two postings are necessary at the close of the month. In handling the cash sales, the slips representing cash sales for the day are numbered last. These slips are summarized and one entry is made for the charge to cash sales. This makes necessary the analysis of the cost of cash sales slips, so that the cost may be distributed in the cost section of the sheet. In operating the repair department, the practice followed PACKFORD AUTO SALES COMPANY 53 in this system is to charge all of the labor in the repair depart- ment to the direct labor account (P-l) considering the entire amount as a direct labor charge. In summarizing the cost of sales in the sales and cost journal, only that portion of the labor applied to jobs is taken up. This will leave a balance in the direct labor account which it is assumed is lost time or labor not chargeable to repairs. This balance is carefully reviewed in order to determine that it is correct and actually represents time lost. At the close of the month form 17 is totaled and the equality of debits and credits in the sales journal section proved. The totals of the columns are then posted as follows: The accounts receivable column is posted to the debit of ac- counts receivable account, A-5 (a). The sundry debits column is posted in detail to the accounts affected, or if desired the column may be analyzed and one posting made to each account. The sales columns are pasted to the credit of the following accounts : New cars J-l New trucks J-2 Second-hand cars J-3 Demonstration cars J-4 Freight sales J-14 Parts and supplies J-5 Car equipment J-6 Gasoline and oil J-8 Tires J-7 Repairs J-10 The amount shown by the total of the repairs column is only the labor, the parts and supplies being entered in the column so headed and posted to the credit of J-5, and the equipment entered in the column so headed, and posted to the credit of account J-6. The cost section of the journal is posted as above stated to the debit and credit of the various accounts affected. The totals of the columns are posted as follows: New cars debit K-l, credit B-l New trucks debit K-2, credit B-2 Second-hand cars debit K-3, credit B-3 Demonstration cars debit K-4, credit B-4 Cost of freight sales debit K-14, credit B-14 Parts and supplies debit K-5, credit B-5 Car equipment debit K-6, credit B-6 Tires debit K-7, credit B-7 Repairs debit K-10, credit P-l 54 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING As above stated, inasmuch as the repair sales column includes only labor, the repairs cost column also includes only labor and is credited to the direct labor account. It will be noted by referring to the form that there is no provision for costing sales of gasoline and oil. The cost of these sales is determined by a physical inventory. At the close of each month this cost is obtained by deducting the amount on hand from the sum of the amount on hand at the beginning of the month, plus the purchases during the month. The charge to cost of sales account K-8 is made by a journal entry and is not entered in this book, although the sales section provides for entering the sales. For the details of this journal entry, see monthly adjusting entries, p. 101. Form 1 8 Sales Returns and Allowances. These forms are retained during the month in the same pinch back binder as the sales and cost journal. At the close of the month they are filed in a special binder. The sales returns and allowances are charged directly to the sales accounts, there being no sales returns accounts in the general ledger. From an inspection of the form and a review of the detail of operations for form 18 it will be seen how this form applies. The postings are the reverse of those made for sales. At the close of the month the sheets are footed and the totals posted to the various ledger accounts as follows : Accounts Receivable credit A-5 Parts and Supplies debit J-5 Car Equipment debit J-6 Tires debit J-7 Repairs debit J-10 The sundry column is analyzed and posted to the debit of the sales accounts which are affected by returns during the period. At the extreme right of the form are columns intended to operate against the cost section of the sales and cost journal, and each column posted twice as follows: Parts and Supplies debit B-5, credit K-5 Car Equipment debit B-6, credit K-6 Tires debit B-7, credit K-7 Repairs debit P-l, credit K-10 The sundry column is intended to carry the cost of those items not provided with the special columns, and is posted in detail to the accounts affected. PACKFOIW AUTO SALES COMPANY 55 56 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING There is a particular feature in connection with the operation of sales returns and allowances which is peculiar to this busi- ness ; that is, the item of tire adjustment. The theory of tire adjustment is as follows: If a tire is guaranteed for, say, three thousand miles, and runs only two thousand miles, the adjustment is made on the three thousand mile basis and a charge of two-thirds of the price of the new tire is made against the customer. The dealer turns the tire over to the manufacturer and receives the same credit which he has allowed the customer. The bookkeeping to record this transaction is as follows: A sales slip is made for the new tire at the selling price, and is entered in the sales journal in the proper column. There is noted on the sales slip the adjustments which have been made and the bookkeeper makes an entry in the journal as follows : Dr. Vouchers Payable } > Amount of the adjustment Cr. Accounts Receivable ) This entry operates to reduce the liability of the company to the vendor of the tires and to reduce the amount of accounts receivable due from the customers, thus balancing the trans- action. When a part is returned and not replaced, the entry is to charge the sales account affected and credit the customer, enter- ing the proper amount in the cost section for the cost. This operates to restore the item to the asset account. In the event that the Packford Auto Sales Company is to be reimbursed for its expenditures by the vendor, or that an allowance is to be made, an entry is made in the journal charg- ing vouchers payable and crediting the asset account affected. This operates to remove the item from the inventory and to reduce the company's liability to the vendor. In the event that a new tire is given for a defective one, the sale is not reversed. No sales ticket is made, but a journal entry is made charging vouchers payable and crediting the asset account (B-7) for the tire. Form 19 Monthly Repair Bill. This form is made in dupli- cate, the entries being taken daily from the various forms re- ceived by the billing clerk; that is, the charge sales slips, the PACKFORD AUTO SALES COMPANY repair tags, and the credit memoranda. The bills are kept dur- ing the month in a drawer file. At the close of the month the recapitulation is made at the bottom of the bill, and the original sent to the customer. The duplicate is filed in a correspondence file, in which each cus- tomer is provided with a manilla folder in which his bills are segregated. The folders are arranged in alphabetical order, MONTHLY REPAIR DILL THE PACKFORD AUTO SALES COMPANY 1091 COMMONWEALTH AVE BOSTON 192 REPAIRS AMD SUPPLIES FOR THE MONTH ENDING DATE SALES OR CREDIT MO. ITEM CREDITS 1 1 ^ ^1 ~~ """"11 1 1 TOTAL CHARGES & 1 TDTAl . f.REDlTS 1 tSFT THARGF.S ft 1 Form 19 one year's bills being filed in each folder, and at the close of the year they are filed away in bundles as a part of the perma- nent record. The total of the bills is reconciled with the ledger postings made through the sales journal during the month and the total of the statements proved with the control accounts in the general ledger. The bills are then forwarded to the customers in the usual way. Form 20 Garage Service Slips. These forms are made up in pads and numbered by the printer. They are blocked in sets of three, and are issued in triplicate, the original being passed to the garage office, the duplicate to the customer, and the 58 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING triplicate retained in the salesman's book. After the garage service slip has served its purpose, it is filed away in a box or in bundles. The detailed explanation of the use of the slips is included under a description of form 21. rwn,n ' SERVICE SLIP THE FACKFOHD A. 5. Co GARAGI 293 NEWBURY ST. Telephone Connections RnftTftN MAR.S 192 M MMBM i Wnshinrjnnrl Relishing Liveru firrvice 3 4 5 Gamine anlfi (3> 6 Hi) 7 fttornap a 9 Ift 1 1 Stinctru Sn)e 12 13 14 IS 5alesrnan'8 ho Ho Form 20 Form 21 Garage Service Sheet. This sheet is made out in duplicate, a sheet for each customer. The superintendent of the garage enters on the garage service sheet the charges as the service slips, form 20, are turned in at the close of each day. At the end of the month the charges are computed and the total made up. During the month the service sheets are kept in a drawer file. The numbers are printed on the form when it is made up, so that the garage superintendent must of necessity account for all the slips which have been issued to him. "When the sheets are completed, or at the end of the month, they are turned over to the billing clerk, who makes the monthly garage bill. You will note by referring to the form that the rates for various services are printed on the back. PAVKFORD AUTO SALES COMPANY 59 MAM5 CAR-M/ Kmr THE PACKFORD AUTO SALES Co. GARAGE SERVICE SHEET MONTH ENDtnt ADDRESS WE AMD NO. OF STORAGE rLOOR .^p^ CE: Nft DATE SUF no STi \".Ao ?Si G/M-S|]CHAR(iF rr^sos >>4AR(iC3 GKAUGCS 1 2 1 1 r i [ ** 3fc^_ 1 ' "' 1 ~~ ~ ^_ 1 h B I" A] \ 1 II II TOTAL CHAP3E FOR MONTH FOLIO MUMBER Form 21 (Obverse) SCHEDULE OF RATES STORAGE FULL: Touring Cars I 30.00 per month Limousines $ 3500 per month Trucks S 35.00 per month TRAnSlErtT 1. 50 per day PLAIN: All Cars *20.00per month DAY IO.OOper month MIGHT !5.00per month DEAD > 1 0.00 pr month WA5H1HG AOD POD5HinC - L50 LIVCRY Car and Chauffeur 7 passengers * 4.00 per hour Car anly $10.00 dag Car and Chauffeur 5 passengers *300perhour Chauffeur only S 0.75 per hr Form 2 1 ( Reverse ) 60 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING A more detailed description of the operation of this form is included in the instructions for operating form 22, which is merely a summary of form 21, gathering the information so that the customer may have in compact form the details of the charges against him. Form 22 Garage Bill. As stated under the explanation of form 21, this form is not absolutely necessary, as it is similar (GARAGE: BILL) THE. FACKroRD AUTO SALES 1091 Commonwealh Ave., BOSTON GARAGE SERVICE TOR THE MOMTH ENDIHG Storage; Gasoline Oil Livery Sundry Charges time $1.50 Form 22 to form 21, but is intended to present in a condensed form the charges against a customer during the month. The billing clerk makes out the bill, form 22, for each customer from the informa- tion shown on form 21, which is attached. The bills and the service sheets are turned over to the sales record bookkeeper and he separates the original and duplicate of form 21, retains the duplicate and passes the original bill to the mail clerk for mailing. The duplicate bills are arranged in alphabetical order, and the totals are posted to the debit of the customers' accounts in the garage accounts receivable ledger. The folio used for this posting is entered from the ledger to the proper space on form 21. The number of form 21 is used as a reference in the accounts .receivable ledger. "While posting these bilk to the customers' accounts the clerk PACKFORD AUTO SALES COMPANY 61, must make an analysis of the charges. A sheet of analysis paper of the same size as form. 21 is used and the columns headed as follows : Sheet No. Total Charge Storage Washing and Polishing Gas and Oil Sundry Sales Sundry Service The columns are footed and the equality of the total and distribution proved. One entry is then made in the sales and cost journal for the footings of the analysis sheet. The total charges to the customer are entered in the accounts receivable column and the analysis columns are distributed to the different sales accounts through the proper columns as follows : Washing and Polishing J-12 Gas and Oil J-8 Livery J-13 Sundry Service J-15 Sundry Sales J-9 The posting is then made direct from the sales and cost journal to the proper controlling accounts in the general ledger. This entry in the sales and cost journal is made after the regular sales and costs have been entered. Thus, there are two credits to the sales accounts, one of which is from the regular sales, the other from the garage sales. The object of this method of handling is to ascertain the income from each source. After the postings have been made forms 21, 22 and the analysis sheets are filed in a permanent canvas-covered extension post binder. Form 23 Car Register. This is a bound book of one hun- dred pages and constitutes a record of the cars and trucks owned. A separate section is set aside for each class of equipment, that is, new cars, new trucks, second-hand cars, etc. The entries are made by the bookkeeper who has charge of the voucher register at the time the purchase is vouchered. Entries are placed on every other line, thus allowing sufficient space for memoranda regarding any particular item. The car register can be verified by a physical inventory of cars on hand. No postings are made from this book. The operation is as follows : 62 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING PACKFORD AUTO SALES COMPANY 63 The column headed "date of invoice" is intended to carry the date the car is purchased or date of transfer, if a car is trans- ferred from one classification to another. The second column shows either the name of the party from whom the car was bought or the account from, which it was transferred. The description is intended to be brief, for example, touring car, runabout, etc. The manufacturer's number, date of arrival, freight charge and invoice price are self-explanatory. The group of columns headed "extra equipment and repairs" are intended to carry only such repairs as increase the value of a car. The abbreviations SS or RT No. indicate the service sheet or repair tag number, covering the added equipment or repairs. The balance of the sheet, including the total cost column, is not filled out until the car is sold and at that time the freight is not included in the total cost, as there is a separate account in the general ledger carrying freight, but in the selling price column the freight is included. ? i I OWNER'S HWIE ADDRESS TYPt or CAW DATE PROMISED HC& HO DATE ENTERED SPACE "0 DATE STOBA6C ExnntS tlAHE OF CHAUFFEUR I i 1 E ADDRESS 6wR pERaons AUTHARIZED TO oeHATECAR REMARKS ( Obverse ) Form 24 ( Reverse ) Form 24 Garage Directory Card. This form is used to enable the floor man to locate any particular car. The cards are kept in a rack, one rack being provided for each floor, although all racks are located in the garage office. The first two lines show the owner's name and address; the rack in which the card is filed indicates the floor, and the location of the card in the rack shows the space occupied by the car on that floor. The cars are located by the assistance of form 25, in the event that the exact location of the car is not known. Form 25 Index for Garage Directory Card. This is a 3"x 5" card kept in a drawer file, arranged alphabetically, the purpose being to locate the space in which a truck or car is kept. It will be noted that form 24 is intended to show not only 64 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING the location of the car in the garage, but the person authorized to operate it, while form 25 is used for the purpose of definitely locating a car in the garage. NAME ADDRESS TEL MAKF or CAB RE.R Na Finrtp STALL No. REMARKS: Form 25 Form 26 Garage Register. This is a bound book and is required by law. It is not intended for transients, but for reg- ular storage customers and is supposed to be signed by the operator. The information contained therein shows the time of Form tlo.l'u GARAGE REGISTER DATC REGISTER NO aLETTER.IFAMY TIMEOFEMTft IMG GARAGE TIMEOFLEAV- IflG GARAGE OPERATOR'S OR CHAUFFEUR'S MAHE AM. pn A.M. P.M. , ^^^ i *H . - '-^ Form 26 entering and leaving the garage during the day and is required in order to enable the officials to definitely trace the movements of any particular machine. Form 27 Time Card. This is a standard stock form of time card with the heading of "Packford Auto Sales Company" printed thereon. There are two time clocks, one located in the garage and one in the office. PACKFOBD AUTO SALES COMPANY 65 The pay week ends Thursday night, the men receiving their wages on Saturday up to and including the previous Thursday. A set of cards is made up for each clock and is placed in the out rack Thursday night for use Friday morning. When the THF FACKFORD AUTO SALES Co WCEK EKD1HG 192 Mo NAME a MORNING AFTERNOON OVERTIME i IN OUT m OUT in OUT ncrt. TUE. WED THU FW SAT St'M TOTAL TIME RATE: MRS 1 TOTAL WAGES FOR WEEK THIS 5fDC OUT Form 27 (Obverse) Form 27 (Reverse) cards have served their purpose in preparing the payrolls they are filed away in bundles. It does not seem necessary to go into further details in regard to the operation of the time-card system, as the method of operation is according to the almost universal plan. Form 28 Payroll. This is a standard form of payroll and except for the end of the pay week, does not differ materially from the ordinary payroll sheet. In the actual operation of the form the names are entered by groups, that is, the direct labor of the repair department is grouped together and a space is then left on the sheet or in the book and the indirect labor entered. There are separate classifications or groupings for the garage, superintendence, salesmen, demonstrators, officers, office clerks, livery and service. The purpose of this separation by groups is to classify the wages paid by departments and to assist in making the charges to the corresponding operating accounts. 66 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING The total time which an employee has worked through the week is multiplied by his rate per hour and the amount earned placed in the proper column. The deductions, if any, are entered in the deduction column and the net amount extended in the column so headed. Each section is then totaled and two vouchers prepared, one for the garage payroll and the other for the PACKFORD AUTO SALES COMPANY 67 general payroll and two checks are drawn, one on each bank. An entry is made in the voucher register, which operates as a credit to vouchers payable and a charge to the labor account. The checks are cashed and the pay envelopes made up. After the employees have been paid off, the sheets are kept in a ring binder. No receipt is taken from the employee, each name being checked by the paymaster when the envelope is given out. ^\ Form ho M Dote Price hDate FVice Unit Locotic n 1 Date 1a Mm II ORDERED RECEIVED .SOLD Dote g! NO JJLOri SBJS Od Mo Uuon Hoi* Solf Me, Qion Bol tbte SolciM^j Qwan Do) Dot* 6otp ho Quon Bol Form 29 Form 29 Inventory Card. This form is kept in the stock- room by the stock clerk. One card is used for each item of stock, the name of the item being placed on the tab. The cards are grouped in the files by main divisions as shown in the classification of parts and supplies. Each main division is subdivided, the subdivisions being arranged alphabetically. A physical inventory of stock is made each time the quan- tity of any particular unit falls to the minimum. When the card does not agree with the physical inventory, an analysis is made to locate the discrepancy and the card is adjusted in red ink. The mechanical operation of the form is to enter the date, order number and quantity ordered from the duplicate pur- chasing order. The receiving information is taken from the approved invoice, and the selling information is entered from the sales slips or material requisitions. 68 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING In regard to the price, it is intended to consume the units at each old price before issuing units at a more recent price. The reverse side of the card is ruled for sales columns only. Form 30 Analysis of Fixed Assets. This form is a bound book, its purpose being to record the purchase, depreciation and disposal of assets. The book is divided into sections in accord- ance with the classification of assets as follows: Garage Building and Equipment Repair Shop Equipment. Office Furniture and Fixtures Livery and Service Cars Each item under the different headings is numbered, and all numbers are placed on the asset either with a brass tag or stamp. At the time of opening this record all assets on hand at that time must be entered, after which the items are entered when purchases are made, the information being taken from the vouchers. The operation of the form is perhaps best explained by means of a problem. We will, therefore, make entries in the left-hand page as follows: Date, January 1, 1911; No. 1, omitting the description and from whom purchased. We will consider the cost of this asset $864.00; estimated life, four years; the expiration of estimated life, January 1, 1915; annual rate of depreciation, 25%; monthly depreciation, $18.00. Second item: date, September 1, 1911; No. 2; cost $1,500.00; estimated life, five years ; expiration of estimated life, September 1, 1916; annual rate of depreciation, 20% ; monthly depreciation, $25.00. Third item: March 1, 1912; No. 3; cost $1,200.00; estimated life, five years; expiration of estimated life, March 1. 1917; annual rate of depreciation, 20% ; monthly depreciation. $20.00. In the right-hand page of the book we will consider item No. 1 was disposed of September 1, 1915, being discarded. In the monthly depreciation column enter $18.00; reserved to date, $864.00. The period from January 1, 1911, to September 1, 1915. is fifty-six months, but inasmuch as the estimated life was con- sidered to have expired January 1, 1915, we reserve only $864.00, or the total cost. For the period from January 1, 1915, to September 1, 1915, the depreciation is adjusted, as will be explained later. PACKFORD AUTO SALES COMPANY UJ ce o- o u. o as -5 4- 70 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING Item No. 2 was disposed of July 1, 1915, by sale and in the monthly depreciation column we enter $25.00, and in the reserve to date $1,150.00, which is ascertained by multiplying the num- ber of months from September 1, 1911, to July 1, 1915, by $25.00, the monthly depreciation. Deducting $1,150.00, the reserve to date, from $1,500.00, the cost, we ascertain the present book value to be $350.00, which is inserted in the present book value column. We received from this sale $500.00 which is placed in the imount realized column. The difference between the present oook value and the amount realized is $150.00, which is entered in the credit column under the heading ' ' adjustment reserve for depreciation." This record is footed in pencil each month, as the monthly depreciation column in the left-hand page will change each time an asset is acquired or disposed of, and as the footing of this column is used as a basis for the monthly journal entry which charges the operating accounts for depreciation of assets. In order to avoid the necessity of repeating the headings of the columns in explaining the problem, we will assign letters to the different columns as follows: Monthly Depreciation (left-hand page) A Adjustment of Reserve for Depreciation Cr. B Monthly Depreciation (right-hand page) C Reserved to Date D Present Book Value E Amount Realized if Any F Adjustment of Reserve for Depreciation Dr. G Adjustment of Reserve for Depreciation Cr. H Between January 1, 1911, and September 1, 1911, the monthly journal entry for depreciation was a debit to account N-15 and a credit to G-10 for $18.00, the total of column A. At Sep- tember 1, 1911, when item No. 2 was purchased, the monthly depreciation column footed $43.00, so that from September 1, 1911, to March 1, 1912, the entry was a debit to N-15 and a credit to G-10 for $43.00. On March 1, 1912, item No. 3 was purchased and the footing of the monthly depreciation column was $63.00. The entry from March 1, 1912, to January 1, 1915, was a debit to N-15 and a credit to G-10 for $63.00. At January 1, 1915, item No. 1 had reached the end of its estimated life, and at that time an amount of $18.00 was inserted PACKFORD AUTO SALES COMPANY 71 in column B, which column is used only when an asset exceeds its estimated life. When -the end of its estimated life is reached we enter the same amount as shown in column A in column B, still charge operating expense for depreciation of the items, but stop the credit to the reserve account, crediting the adjust- ment of reserve for depreciation. From January 1, 1915, to July 1, 1915, the date on which item No. 2 was sold, the entry was, therefore, a debit to N-15 for $63.00, the total of column A, a credit to G-10 for $45.00, the difference between column A and column B, and a credit to M-18 for $18.00, the total of column B. At July 1, 1915, item No. 2 was sold and the first entry on the right-hand page was made. The amount $25.00 was at that time inserted in column C. From July 1, 1915, to September 1, 1915, when item Xo. 1 was discarded the entry was a debit to N-15 for $38.00, the difference between column A and column C ; and a credit to G-10 for $20.00, column A minus B minus C ; credit M-18 $18.00, the total of column B. After September 1, 1915, the entry would be simply debit N-15 for $20.00, column A minus C ; and credit G-10 for $20.00, column A minus B minus C. As stated above, columns A, B and C are footed in pencil at the end of each month and postings for depreciation are made, using the above general formula to the various accounts as follows: EXPENSE RESERVE Garage Building & Equipment X-0 G-l Repair Shop Equipment P-lo G-2 Office Furniture & Fixtures M-15 G-3 Livery Cars N-15 G-10 Service Cars M-10 G-10 In preparing the monthly profit and loss account, the adjust- ment of reserve for depreciation, account M-18, is considered sundry income. In regard to the use of columns G and H, the following rule would govern. If column F is greater than column E enter the difference in column H. If column E is greater than column F enter the difference in column G. At the time item No. 2 was sold, of course, the following entries should be made : In the cash book you would charge cash $500.00 and credit livery cars, C-10, $500.00. 72 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING In the journal the entries would be: Debit G-10 $1,150.00; credit C-10 $1,000.00, and credit M-18 $150.00, the total of column H. In order to show the entries under varying conditions let us assume that car No. 2 was sold for $250.00, in which case there would be an entry in column G for $100.00. The entries then would be in the cash book ; debit cash $250.00 ; credit livery cars, C-10 $250.00. The journal entry would be: Debit G-10 for $1,150.00, debit M-18 for $100.00, the total of column G ; and credit C-10 for $1,250.00. Assume that car No. 2 was sold for $350.00, thus equalizing the present book value. No entries would be made in columns G or H, but the entries recording the sale would be as fol- lows: Cash book, debit cash $350.00 ; credit livery cars, C-10, $350.00. In the journal the entry would be : Debit G-10 $1,150.00; credit C-10 $1,150.00. Whenever an item is disposed of and there is ' an amount inserted in column B against this item, the amount is crossed out when the sale is made. Form 31 Insurance Register. This is a standard stock form arranged in a bound book. A separate section is set aside in the book for each expense classification and the proper heading entered in the space provided for this information. The stock cars are all covered by one blanket policy. The demonstration, livery and service cars each have a separate policy. There is also a separate policy for the garage building, for the repair shop equipment, for the office equipment and for the stock. When a premium is paid the amount is charged to insurance premiums prepaid account B-12. The policy is then entered under the proper expense classification in the insurance register showing the information as indicated by the headings of the columns. The premium paid is entered in the column so headed This amount is then divided by twelve to obtain the monthly charge to expense, and the quotient distributed in each of the monthly columns. At the close of each month the footing of the corresponding month's column under each classification forms the basis of a PACKFORD AUTO SALES COMPANY 73 74 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING journal entry charging expense and crediting insurance pre- miums prepaid, account B-12. The expense accounts to which the insurance is charged by the monthly journal entry are as follows : Stock Cars L-12 Demonstration Cars L-4 Livery Cars N-15 Service Cars M-10 Garage Building N-9 Repair Shop Equipment P-15 Office Equipment M-15 Stock L-15 As stated above, the expense accounts are charged for the amount of the insurance expired during the month, as shown by the footing of the monthly column in the insurance register and the prepaid insurance account B-12 credited for the total amount charged. Form 32 Customers Ledger. This is a stock form loose- leaf ledger sheet adopted by this concern as a customers or accounts receivable ledger. Four binders are used; one for current or active accounts and one for transfer accounts with general customers, and two are used in the same manner for the garage accounts. Postings are made to the debit of this record from the sales and cost journal. The credits are taken from the cash receipts book and sales returns and allowances, and in some cases from the journal. At the close of each month, after all the postings have been made, trial balances are taken and compared with the controlling accounts in the general ledger. The accounts are balanced, the book ruled up, and the balances brought forward once each year when the general ledger is closed. It will be noted by referring to the form that there is but one balance column. In the event that a customer has a credit balance it is inserted in the balance column in red ink. Form 33 General Ledger. This is a stock form loose-leaf general ledger sheet. The current sheets are kept in one binder, and when the sheets are filled they are transferred to a per- manent transfer file. The chart of accounts (see page 83) is used as an index and the accounts are arranged in the general ledger according to the chart with letter tabs showing the classification. PACKFOKD AUTO SALES COMPANY 75 afj 11 8 r<> -O- Arrrnerf Lnhnr nn Ror>nir Pro paid It^ms-. In^iirnnrc Prominent TPQ FWiflht Total Trndinq and Workinq ( i Totol Current find Trndmq ft Wnrkmq Garcigp Rnildinq and Equipment nfFireFurniturf and Ruturpc, c j Livery ftnd fiprvire f.rir<4 Totol F.xfd Goodwill ond fnvpeitmtnt^ rj rir>r,Hwill find r,nntrfict& Totnl Gnadwill Totol Assets Form 35 (Left) month and is the balance of account K-10. Lost time is the bal- ance remaining in account P-l. Indirect labor is the balance of account P-2, power P-8, supplies used P-ll and miscellaneous expense P-15. A footing is made of the total sales and total expenses and the profit or loss inserted on the left- or right-hand page as the case may be. A proof total is made for this section en the line indicated. PACKFORD AUTO SALES COMPANY 79 SALES COMPAHY MONTHLY BALANCE SHEET (Continued) I9a LIABILITIES AMOUMT PREV OUS YEAR INCREASE DECREASE o r.urrpnt Hr-tpe\ Pnunhlp Ai H.torl Vnurhprs Pni.nhV Pnrkfnrrt MofrMr Cn niv.dpndc. ( } ArrTuorl Hmt\: VuVino*, Tnxp Intp^p<;t nn Mnf-p=. Prmnhlp D Tntfll f.nrrcnt Flxprl ./'"Y.j VJ Totnl Fixed Rp^ervec, i nppr-in+ir>n of Cinrnqp Hid A- Fnijin't n *-*r n+inn of Rpomr Shnn Foi'in't ripprpont-mn of Offirp Furn ft Fixt 1 irsft on Rnrf Actouola o Totnl RpipTUf-^, Totnl Fixed ond Reserves fr.pifnl- Tnpi + n) fifnrk (~j Prnflt nnd Losi ( } TfTTAI 1 IABIL1TIFR Form 35 (Right) The next section of the statement covers garage sales and costs. The sales are as shown by the balances of accounts J-8, 9, 11, 12, 13 and 15. The costs are taken from the following accounts; gasoline and oil K-8, sundry sales K-9, labor N-l, superintendence N-2, power, heat and light N-8, maintenance N-9, tools and supplies used N-ll, salaries of livery chauffeurs N-13 and miscellaneous expense N-15. 80 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING PACKFORD AUTO MONTHLY TRAD IMG AMD COST OF SALES CURRErtT MONTH CURRENT YEAR TO DATE SAME PERIOD LAST YEAR INCREASE DECREASE H-w Cors <^\ NpwTmr.k?; (J Sprnnrl HnoH fnrfi Tlpnnr,nc.+ Tn-tinn C.nt'. C.nr Fquipment Tires f*\ -\J^ Totnl Cost of Sales f\ Profit on Snips ~^J^ Pror;f Totnl S Repnir Dept Exprnsrc,'. Tlirprt l.nhor rhavgprf tr,,lobs \nA\rer.\ Lnbnr Power ii.pplips lUpd 1 nf,t Time (Tliv-ert Lnhnr) Mi?,(-pl)nnpriijr .Snpevintenrlpnrp Pnwpr Hpril nnd LinM MniAtennnrp ftnpplipci i,. Total Snips vv Proof Tata la Rppnir Snlp=,: ij Totnl LobS on Rppoir Deot. Salpi Proof Totals Gnrrvfip Snlp^i- Gn^nlinp nnd Oil Surclrij finlpc, .Storrnp Wrt^hinq nnrt Poli^hinrj 1 ivPrij ^>. v-J Tntn! Sole?, 1 o^s on fiarane Snleq Pr,-rf Tvtols 3 t.il E^S Pr-vT ^ Seller /^N (hrni down) W Dthpr Inrr.ine !nfprevt Fnrnmq 1 . fn_',h niir.mmt rn Purr hc,<-,pc, Profits nn Frp.ght 5=inlp=, ?T " MisreDnneciIr 7 Inrrrnp v^ Tntn) Inrornp NET LnSS Form 36 (Right) of the accounts J-14, J-16, J-17, J-18 and M-18, if the account shows a credit balance, is inserted and the total income deter- mined. The total selling expenses and demonstration expenses are taken from form 37 (see instructions for use of form 37) and inserted in the proper space on the left-hand page. The other expenses are then entered from the balances of the expense 82 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING PACKFORD AUTO .SALES COMPANY ANALYSIS OFSF.I.I.mr, f\Hn AnMINl.STRATIVF. F.XPF.NSF. , . , 11? SELLING EXPENSE CURRENT MONTH CURRENT YEARTOBATE SAME PERiOD USTYEAR INCREASE DECREASE -0- .Snl^c,mnn'i So?fiTif><\ Advprtisinq Demonstration Fjl)inn Exppnc.p f\ \J Total Se))mo Fxnpn,p ABniNlSTRATIVE EXPEMSE Officer's Salons Teleohone nnrl Tplenrnnh Posing J ' Trnvelmq Fxr>n=ip ntfirp Si?oo]ie<; ll'.pd OffireC lerks Sn)an<. RY8TEM BUILDING AND CONSTRUCTIVE ACCOUNTING GOODWILL AND INVESTMENTS D-o Goodwill and Contracts CURRENT LIABILITIES E-4 Notes Payable E-5 Audited Vouchers Payable E-6 Packford Motor Company E-7 Customers' Deposits E-8 Dividends E-10 Wages Accrued E-13 Taxes Accrued E-16 Interest Accrued on Notes Payable FUNDED DEBT, MORTGAGES, ETC. F-l F-2 F-3 RESERVES G-l Reserve for Depreciation of Garage Building and Equipment G-2 Reserve for Depreciation of Repair Shop Equipment G-3 Reserve for Depreciation of Office Furniture and Fixtures G-5 Reserve for Loss on Bad Accounts G-10 Reserve for Depreciation of Livery and Service Cars CAPITAL ACCOUNTS H-l Capital Stock H-2 Surplus H-3 Profit and Loss SALES ACCOUNTS J-l New Cars J-2 New Trucks J-3 Second-hand Cars J-4 Demonstration Cars J-5 Parts and Supplies J-6 Car Equipment J-7 Tires J-8 Gasoline and Oil Garage J !) Sundry Sales Garage J-10 Repair Sales J-ll Storage Garage J-l 2 Washing and Polishing Garage J-l 3 Livery Garage J-14 Freight Sales J-15 Sundry Garage Revenue J-l 6 Interest Received J-l 7 Cash Discount on Purchases J-l 8 Miscellaneous Income COST OF SALES K-l New Cars K-2 New Trucks K-3 Second-hand Cars K-4 Demonstration Cars K-5 Parts and Supplies K-6 Car Equipment K-7 Tires K-8 Gasoline and Oil Garage K-9 Sundry Sales Garage K-10 Repair Sales K-14 Freight Sales PACKFORD AUTO SALES COMPANY 87 SELLING EXPENSES L-l Salesmen's Salaries L-2 Commissions L-3 Advertising L-4 Demonstration P^xpense L-6 Salesmen's Traveling Expenses L-7 Salesroom Expense L-l 2 Insurance on Stock Cars L-13 Free Repairs and Replacements L-14 Freight and Express on Parts and Equipment L-15 Miscellaneous Selling Expense GENERAL ADMINISTRATIVE EXPENSES M-l Officers' Salaries M-2 Telephone and Telegraph M-3 Postage M-4 Entertainment M-5 Loss on Bad Accounts M-6 Traveling Expense M-8 Heat and Light M-9 Rent M-10 Service Car Expense M-ll Office Supplies Used M-13 Office Clerks' Salaries M-l 5 Miscellaneous Office Expense M-16 Interest Paid M-l 7 Cash Discounts on Sales M-18 Adjustment of Reserve for Depreciation GARAGE EXPENSES N-l Labor N-2 Superintendence N-8 Power, Heat and Light N-9 Maintenance N-ll Tools and Supplies Used N-l 3 Salaries of Livery Chauffeurs N-l 5 Miscellaneous Garage Expense REPAIR DEPARTMENT EXPENSES P-l Direct Labor P-2 Indirect Labor P-8 Power P-ll Tools and Supplies Used P-15 Miscellaneous Repair Department Expense CHAPTER IX ASSETS AND LIABILITIES The asset accounts in this particular system are arranged in four definite groups, viz.: Current Assets Trading and Working Assets Fixed Assets Goodwill and Investments The liabilities are grouped under main headings, classified as : Current Funded Debt and Mortgages Reserves Capital This classification or arrangement has been found to be very satisfactory for garage and automobile sales companies and illustrates one of the variations which must be made from standard in order to meet the requirements of a particular business. In systems following, other classifications will be illus- trated and discussed. It is intended to summarize in brief the entries to and the operation of each of the accounts shown in the chart illustrated in graphic form on page 84. Those which are of the ordinary type and with no special features are touched upon briefly. Some of those peculiar to this line of business are explained in full. Account A- 1 Cash in Banks. Debit with all money on de- posit at the time of opening the account; at the end of each month with the total cash received during the month as shown by the footing of the "amount of remittance" column in the cash receipts book. Credit at the close of each month with the total of the check payments for the month as shown by the footings of the "amount of check" column in the check register. The balance represents the cash on deposit in the banks. This balance should, of course, agree with the sum of the balances 88 ASSETS AND LIABILITIES 89 shown in the bank balance columns in the check register which should be reconciled with the statement received from the bank. Account A-2 Imprest Fund. Debit for the amount of check drawn to establish the fund ; if the fund is increased, with the amount of such increase. Credit if the fund is decreased, with the amount of such decrease. The balance represents the amount of the fund. Account A-3 Garage Change Fund. This fund is similar to, and is kept in the same way as the imprest fund, account A-2. Account A-4 Notes Receivable. Debit for the amount of notes receivable taken from the customers as shown by the entries in the journal. Credit for payments received on account of notes due from customers as shown by an analysis of the sundry credits column in the cash receipts book. The balance represents the amount of notes receivable out- standing due from customers. Account A-5 (a) Accounts Receivable General. Debit at the time the system is installed with the total of accounts re- ceivable outstanding; at the end of each month with the foot- ing of the corresponding column in the sales and cost journal ; with any other debits which there may be to this account in other books of original entry. Credit at the end of each month with the footing of the corresponding column in the cash receipts book ; with the foot- ing of the corresponding column in the sales returns and allow- ances book ; with any credit there may be to this account in the voucher register ; with any other credits which there may be to this account in other books of original entry. Balance reprasents the amounts due from general customers. Account A-5 (b) Accounts Receivable Garage. This ac- count is operated in the same way as A-5 (a). Account A-y Deposits with Manufacturers. Debit with deposits made by the Packford Auto Sales Company with the Packford Motor Company as a guarantee. Credit with deposits returned by the manufacturers. The balance is a current asset and represents the amount of cash on deposit with the manufacturers. Account A-i6 Interest Accrued on Notes Receivable. 90 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING Debit at the end of the first month with the amount of interest accrued on notes receivable on hand. At the close of each successive month debit or credit the account, as the case may be, with such an amount as will cause the account to show the proper balance ; the offsetting debit or credit for these entries is account J-16. The balance represents the interest accrued to date and unpaid on notes receivable. Account B-i New Cars. Debit for the cost of new cars on hand when the account is opened; at the end of each month for the cost of new cars purchased during the month as shown by the footing of the corresponding column in the voucher register ; for the cost -of any items of equipment which have been added to the cars which increase the value as shown by information taken from the sundry debits column of the sales journal. Credit at the end of each month for the cost of new cars sold as shown by the footing of the corresponding column in the cost journal. At the same time, debit cost of new cars sold (K-l). The balance represents the cost of new cars on hand. Account B-2 New Trucks. Represents new trucks on hand and is operated in the same way as account B-l, the informa- tion being taken from the same books of original entry. Account 6-3 Second-Hand Cars. Debit for the cost of second-hand cars on hand at the time the account is opened; at the end of each month for the cost of second-hand cars acquired during the month as shown by the footing of the corresponding column in the voucher register; for the cost of demonstration cars transferred to the account as shown by the journal entry making such transfer; for the selling- price of any equipment added to the cars which increases their value as shown by the information in the sundry debits column of the sales and cost journal ; for the cost of repairs to second- hand cars as shown by the sales and cost journal. Credit at the end of each month for the total cost of second- hand cars sold as shown by the footing of the corresponding column in the cost journal. At the same time, debit cost of second-hand cars sold (K-3). The balance represents the cost of second-hand cars on hand. ASSETS AND LIABILITIES 01 Account B-4 Demonstration Cars. This account is han- dled the same as account B-3, except that it is charged for the freight on the cars which are transferred to the demonstration account. Credits are from the same source as those for second-hand cars, account B-3. The balance represents the cost of demonstration cars on hand. Account B-5 Parts and Supplies. Debit for all purchases of parts and supplies during the month as shown by the foot- ing of the corresponding column in the voucher register. Credit for the cost of parts and supplies sold as shown by the corresponding column in the cost journal; for the cost of parts and supplies delivered to the garage on requisition as shown by the journal entry made from the summary of such requisitions. At the same time, debit account B-9. Balance represents the cost of parts and supplies on hand. This account is brought into agreement with the physical in- ventory taken at the close of each year, the offsetting debit or credit necessary for this adjustment being to account H-3. Account B-6 Car Equipment. This account is operated in the same way as account B-5, the information being taken from the same sources. Account B-7 Tires. This account covers the item of tires and is operated the same as account B-5, the information being taken from the same sources. Account B-8 Gasoline and Oil. Debit for purchases dur- ing the month as shown by the footing of the corresponding col- umn in the voucher register. Credit at the end of the month with the cost of gasoline and oil sold as determined by deducting the amount on hand as shown by a physical inventory from the debit balance of the account, at the same time debiting K-8. Balance represents cost of gasoline and oil on hand. Account B-g Sundry Purchases Garage. Debit for the parts and supplies transferred from the stockroom to the garage on requisition as shown by the entry, crediting account B-5, made from the summary of requisitions. If there have been purchases especially for the garage as shown by the analysis of the sundry debit column in the 92 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING voucher register, these items should be posted to the debit of this account. Credit for the cost of parts and supplies used, which is determined by deducting the amount as shown by the physical inventory of parts and supplies on hand from the debit balance of this account, at the same time debiting account K-9. Balance represents parts and supplies on hand at the garage. Account B-io Accrued Labor on Repairs. Debit for the amount obtained by summarizing the labor section on the repair tags attached to cars still in process of repair, credit K-l. The account is debited or credited to bring it into balance with the summary detailed above so that the balance will repre- sent the amount of labor accrued on cars, the repairs on which are still uncompleted. Account B-n Tools and Supplies on Hand. Debit for the cost of tools and supplies purchased as shown by the sundry debits column in the voucher register. At the beginning of the year the total cost of tools and sup- plies for the year is estimated, and at the end of each month a credit to this account is made for one-twelfth of the estimated amount; the offsetting debit being to M-ll, N-ll and P-ll. At the end of the year a physical inventory is taken and the credit in the month of December is of such an amount as will agree the balance of the account with the inventory. Account B-I2 Insurance Premiums Prepaid. Debit with the amount of insurance premiums paid during the month as shown by the sundry debits column in the voucher register. Credit for the amount of insurance expired during the month as shown by the footing of the corresponding month's column in the insurance register. Balance represents the amount of insurance premiums prepaid. Account B-I3 Taxes Prepaid. During the period from April 1 to October 1 the various expense accounts are charged and account E-13 is credited for one-twelfth of the estimated amount of taxes for the year; from October 1 to April 1 the same expense accounts are charged, but the offsetting credit is to account B-13. At October 1, when the taxes are paid, account B-13 is debited for taxes prepaid for the balance of the year, at which time AStSETkl AND LIABILITIES 93 account E-13 is charged with such an amount as will balance the account. From October 1 to April 1 the various expense accounts are charged and this account credited for one-twelfth of the taxes for the year, so that at April 1 the account will be in balance. The balance represents the taxes prepaid. The distribution of this account is indicated in monthly adjusting entry No. 7. Account B-i4 Freight Prepaid on Cars. Debit for the freight paid on new cars acquired as shown by the corresponding column in the voucher register. Credit for freight on new cars sold as shown by the cor- responding column in the cost journal. Balance represents the freight on new cars which are on hand to be sold. Account B-iy Exchange Checks. This account is charged and credited for the same amount at the time funds are trans- ferred from one bank to another, and is merely a transit or wash account and does not appear in the trial balance. Account C-i Garage Building and Equipment. Debit for the cost of the garage building and equipment and for such additions as may be made as shown by the voucher register. Credit for items sold or disposed of. Balance represents the cost of garage building and equipment. Account C-2 Repair Shop Equipment. Operated in the same manner as account C-l except that it represents repair shop equipment. Account C-3 Office Furniture and Fixtures. This account covers the office furniture and fixtures and is operated the same as account C-2. in the above C accounts reference should be made to the analysis of fixed assets record, form 30, and the explanation of the form. Account C-4 Lively Cars. This account is operated in the same way as account B-3 and the source of the debits and credits is the same. The balance represents the cast of cars assigned to livery service. Account D-5 Goodwill and Contracts. This account does not differ materially from the ordinary goodwill account, except that in this particular case the cost of obtaining contracts with 94 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING the manufacturers for handling their cars is charged directly to this account and apportioned over the life of the contract. Account E-4 Notes Payable. This is the ordinary notes payable account and the entries are taken from the cash receipts and cash disbursements records, and, in some cases, from the journal. The balance represents the amount of notes payable out- standing. Account E-5 Audited Vouchers Payable. Debit with the footing of the corresponding column in the check register (not to include payments to Packford Motor Company). Credit from the corresponding column in the voucher register. Debit or credit from the journal for any entries affecting the liability to vendors. Balance represents the accounts payable outstanding. Account E-6 Packford Motor Company. This account is operated in the same way as account E-5 except that it segre- gates the account with the Packford Motor Company from the other accounts payable. Account E-7 Customers' Deposits. When a customer takes delivery of a car which he has purchased and on which he has been required to make a deposit and pays the balance of the purchase price, account E-7 is charged, and the cus- tomer's account (A-5) credited, for the amount of his deposit. If the deposit is forfeited, account E-7 is charged, and miscel- laneous income, account J-18, credited for the amount forfeited. When the customer purchases a car he is required to make a deposit as an evidence of good faith. This deposit is credited to account E-7. Account E-8 Dividends. This is an ordinary dividend ac- count. Debit for dividends paid to the stockholders in accordance with the declaration. Credit for the amount of dividends declared as shown by the records. The balance represents the amount of dividends declared and payable to stockholders. Account E-io Wages Accrued. The account is used at the close of each month to bring on the wages accrued from the last pay day to the close of the month. The account is ad- ASSETS AND LIABILITIES 95 justed so that the balance will represent the amount accrued and unpaid at the end of each month, but is not closed by a reversing entry at the beginning of the next month. Account E-i3 Taxes Accrued. The explanation of the operation of this account has been given in connection with taxes prepaid, account B-13. Account E-i6 Interest Accrued on Notes Payable. This account is used at the close of each month to bring on the interest accrued and unpaid on notes payable to date. An entry is made in the journal to adjust the balance of this ac- count so as to represent the amount of interest accrued on notes outstanding at the close of the month. G Accounts. All of the G accounts are the ordinary reserves for depreciation and losses, and no detailed explanation seems necessary in order to understand their operation. The balances are, or should be, all credits, the result of the monthly adjust- ing entries bringing on and charging to expenses of the month the depreciation and estimated losses for the period. H Accounts. The H group of accounts are the ordinary cap- ital, surplus and profit and loss accounts, and no detailed expla- nation is necessary. The capital stock account represents the stock of the cor- poration outstanding at the close of any period. The surplus represents the accumulated undistributed earnings at the close of a period, and the profit and loss account represents the profit or loss during the period. It will be noted that the asset and liability accounts included in the chart under letters A to H inclusive are arranged in the same relative order as the monthly balance sheet, form 35. At the close of each month a trial balance of the general ledger is taken, from which form 35 is prepared. The method of taking this trial balance and preparing the form is described in Chapter VIII covering use of the forms. The detail work in making up this form may be summarized as follows: The previous year's figures are taken from the monthly bal- ance sheet which was made up in the prior year and in all prob- ability have been inserted before the close of the month. The current assets on the balance sheet are taken from the balances of the asset accounts, A-l, 2, 3, 4, 5, 7 and 16. The trading and working assets are the balances of accounts B-] to 96 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING 14, inclusive. The fixed assets are the balances of accounts C-l, 2, 3 and 10, and goodwill is the balance of account D-5. The current liabilities are represented by the balances of accounts E-4, 5, 6, 7, 8, 10, 13 and 16 ; the reserves by accounts G-l, 2, 3, 5 and 10; and the capital group by the balances of accounts H-l, 2 and 3. At the close of each month, the various operating accounts are not closed to profit and loss, therefore, the figure inserted on the monthly balance sheet as profit or loss would be the differ- ence between the debits and credits in form 37 rather than the balance of account H-3. CHAPTER X INCOME ACCOUNTS There are no sales returns and allowances accounts provided in the general ledger, all returns and allowances being charged directly to the sales accounts. Account J-i New Cars. Credit at the end of each month with the total sales of new cars as shown by the footing of the corresponding column in the sales journal. Debit for any allowances made to customers on new cars sold as shown by the journal entries, and when the books are closed with the balance of account K-l. The balance represents the gross profit on sales of new cars, and is closed into profit and loss. Account J-2 New Trucks Account J-3 Second-Hand Cars Account J-4 Demonstration Cars Are all handled in the same way, and receive debits and credits from the same sources as account J-l. The balance in each case is the gross profit or loss from each class of sales. Account J-5 Parts and Supplies. Credit for the parts and supplies sold as shown by the footing of the corresponding column in the sales journal. Debit with the footing of the corresponding column in the sales returns and allowances book, and when the books are closed with the balance of account K-5. Balance represents gross profit or loss on parts and supplies sold. Account J-6 Car Equipment Account J-y Tires Account J-io Repair Sales Account J-i4 Freight Sales Are all operated in the same way, and receive debits and credits from the same source as account J-5 and the balances represent gross profit or loss for each class of sales. 97 98 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING Account J-8 Gasoline and Oil Garage. Credit for the footing of the corresponding column in the sales journal (charge sales made at the office) ; for the footing of the corresponding column in the cash received book (cash sales) ; for the total of the corresponding column on the summarized analysis of garage service sheets (garage sales). Debit for any allowances which have been made to customers as shown by either the sales returns and allowances book or by the journal entries, and when the books are closed with the balance of account K-8. Balance represents gross profit or loss on sales of gasoline and oil. Account J-g Sundry Sales Garage Account J-n Storage Garage Account J-I2 Washing and Polishing Garage Account J-I3 Livery Garage Account J-i5 Sundry Garage Revenue The above accounts all represent garage income. Credit with the footings of the corresponding columns in the summarized analysis of garage service sheets. Debit for any allowance made on account of these sales, and when the books are closed with the balances of the corresponding K accounts. Balance of each account represents the gross profit or loss from sales. At the close of each month after the trial balance of the general ledger has been taken, a trading and profit and loss statement, form 36, is made up. The method of arriving at figures for the current month has already been described on page 76 in connection with the preparation of a trial balance in the description of the forms. The balances of the J accounts, representing sales and income, are transferred to the right-hand page of form 36 opposite their proper headings. By having the chart, page 84, at hand when the form is referred to, the method of preparing the in- come side of the statement is clearly evident without detailed explanation. CHAPTER XI EXPENSE ACCOUNTS COSTS K ACCOUNTS These accounts are set up by posting as debits the correspond- ing columns in the sales and cost journal. They are credited from the sales returns and allowances book for the cost of such items as have been returned by the customers. The balance of each, represents the net cost of sales, and is closed into the corresponding sales account under the J classification. SELLING EXPENSES L ACCOUNTS These accounts are all expenses incident to sales and are charged with the various expenditures as shown by the voucher register or by journal entries transferring expenses. Nearly all of the debits are taken from special columns in the voucher register, and it does not seem necessary to describe in detail the operation of each account. In the case of demonstration expense, account L-4, it is charged with the wages of operators, gasoline and oil used, repairs, de- preciation, insurance, registration, etc., and salesroom expense, account L-7, includes the cost of decorations, supplies used on cars, and a proper proportion of rent, heat and light. GENERAL ADMINISTRATIVE EXPENSES M ACCOUNTS The accounts in this group are all expenses pertaining to the general administration of the business and receive their debits from the voucher register and the journal entries. Account M-5 Loss on Bad Accounts. Debit at the close of each month for the estimated amount of losses, the offsetting credit being to account G-5. Account M-8 Heat and Light. Debit for the entire cost of heat and light, and at the end of the month the total debits during the month are distributed to the departmental expense accounts; L-7 for selling, M-15 for general and P-15 for the 99 100 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING repair department, on an arbitrary basis according to the num- ber of square feet occupied by each department. Account M-g Rent Is distributed to the same expense ac- counts on the same basis as outlined for heat and light, account M-8. Account M-io Service Car Expense Includes the wages of operators, gasoline and oil, repairs, insurance and registra- tion. Account M-n Office Supplies Used Is debited at the same time that account B-ll is credited, for the cost of office supplies used during the period as determined by means of a physical inventory. Account M j i8 Adjustment of Reserve for Depreciation. Reference should be made to the analysis of fixed assets, form 30, in order to clearly understand the operation of this account and the source of its debits and credits. The balance is a sundry gain or loss. GARAGE EXPENSES N ACCOUNTS This group carries the expenses of the garage showing the amount expended under each classification. The balance of each account is closed into profit and loss. REPAIR DEPARTMENT EXPENSES P ACCOUNTS The expenses of the repair department are classified under this group and the balances are closed into profit and loss. Account P-i Direct Labor. Debit at the end of each month with the footing of the corresponding column in the voucher register ; with any adjustments made in the case of repair sales, credit account K-10. Credit at the end of each month from the cost journal for the amount of labor charged to repairs; for the amount charged to account B-10, representing the accrual of labor on repairs still unfinished. The balance represents the cost of lost time, or of direct labor not charged to repair work, and at the end of the period is closed into profit and loss. The balances of accounts in the L, M, N and P groups are transferred to the expense section of form 36 in preparing the monthly statements. EXPENSE ACCOUNTS 101 During the year the balances of the K group of accounts can be transferred direct to the cost section of form 36. It is obvious that it would be improper to prepare a monthly trading and profit and loss statement for December before all of the adjustments had been made, and as is usually the case the adjustments naturally are followed by the closing of the books, and under the instructions for the operation of the K accounts it will be noted that the balance is closed directly to the J or sales and income accounts, leaving the net balances to be transferred to profit and loss. With this in mind, it is evi- dent, therefore, that in preparing the monthly trading and profit and loss statement for December it will be necessary to take the balances from both the K and J groups before closing the former to the latter. It is necessary that . this be carefully followed out, otherwise the comparative figures for the last month in the year would be very seriously disarranged. In considering the functions of the various accounts it has not been considered necessary to go into great detail in con- nection with those whose place in the scheme of operation is obvious from the name and location in the chart of accounts. While this system is not considered a model, it does bring out many features which are not found in everyday commercial ac- counting, and seems to overcome some of the difficulties which are encountered in the operation of a business such as this. By referring to the monthly adjusting entries on the succeed- ing pages and tracing these entries through, no difficulty should be experienced in visualizing the operation of the entire ac- counting system. PACKFORD AUTO SALES COMPANY MONTHLY ADJUSTING ENTRIES 1. Cost of Gasoline and Oil Sales (K-8) To Gasoline and Oil (B-8) Cost of gasoline and Oil sold month ending On hand first, of month gals, at Add Net Purchases Deduct On hand last of month gals, at 2. Cost of Sundry Sales Garage (K-9) To Sundry Purchases Garage (B-9) Cost of sundry sales at garage for month ending On hand first of month Add Net purchases Deduct On hand last of month 102 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING- 3. Accrued Labor on Repairs (B-10) Direct Labor (P-l) To Accrued Labor on Repairs (B-10) Direct Labor (P-l) To adjust the balance of the Accrued Labor on Repairs ac- count so that its balance will represent tb.3 accrued labor on uncompleted repair jobs as of this date. 4. Wages Accrued (E-10) Office Clerks' Salaries (M-13) Garage Labor (N-l) Garage Superintendence (N-2) Direct Labor (P-l) Indirect Labor (P-2) To Wages Accrued (E-10) Office Clerks' Salaries (M-13) Garage Labor (N-l) Garage Superintendence (N-2) Direct Labor (P-l) Indirect Labor (P-2) To adjust the Wages Accrued account so that its balance will represent the amount of accrued but unpaid \vages ae of this date. 5. Tools and Supplies Used Garage (N-ll) Tools and Supplies Used -Repair Shop (P-ll) To Tools and Supplies on hand (B-ll) One-sixth of the estimated cost of tools and supplies used for the six months ending . G. Insurance on Stock Cars (L-12) Demonstration Expense (L-4) Service Car Expense (M-10) Maintenance Garage ( N-9 ) Miscellaneous Garage Expense (N-15) Miscellaneous Repair Shop Expense (P-15) Miscellaneous Office Expense (M-15) Miscellaneous Selling Expense (L-15) To Insurance Premiums Prepaid (B-12) To bring onto the books the cost of insurance expired dur- ing the month as per the Insurance Register. Note: Insurance on furniture and fixtures is divided, 65% to Miscellaneous Selling Expenses and 35% to Miscellaneous Office Expenses, in proportion to the approximate cost of furniture and fixtures on hand. 7. Miscellaneous Selling Expense (L-15) Demonstration Expense (L-4) Service Car Expense (M-10) Miscellaneous Office Expense (M-15) Maintenance Garage ( N-9 ) Miscellaneous Garage Expense (N-15) Miscellaneous Repair Shop Expense (P-15) To Taxes Prepaid (B-13) Taxes Accrued (E-13) To bring onto the books the cost of taxes applicable to the month. 8. Interest Accrued on Notes Receivable (A-16) Interest Received (J-16) To Interest Accrued on Motes Receivable (A-16) EXPENSE ACCOUNTS 103 Interest Received (J-16) To adjust the balance of the Interest Accrued on Notes Re- ceivable account so that its balance will represent the amount of interest accrued on notes receivable as of this date. 9. Interest Paid (M-16) Interest Accrued on Notes Payable (E-16) To Interest Paid (M-16) Interest Accrued on Notes Payable (E-16) To adjust the balance of the Interest Accrued on Notes Payable account so that its balance will represent the amount of interest accrued on notes payable as of this date. 10. Maintenance Garage (N-9) To Reserve for Depreciation of Garage Building and Equipment (G-l ) Adjustment of Reserve for Depreciation (M-18) To bring onto the books the proper charge for estimated depreciation of the garage building and equipment for the month. 11. Miscellaneous Repair Shop Expense (P-15) To Reserve for Depreciation of Repair Shop Equipment (G-2) Adjustment of Reserve for Depreciation (M-18) To bring onto the books the proper charge for estimated depreciation of Repair Shop machinery and equipment for the month. 12. Miscellaneous Selling Expense (L-15) Miscellaneous Office Expense (M-15) To Reserve for Depreciation of Office Furniture and Fixtures (G-3) To bring onto the books the estimated depreciation of furni- ture and fixtures for the month. Note: The depreciation of furniture and fixtures is divided, 65% to Selling Expenses and 35% to Administrative Ex- penses in proportion to the approximate cost of furniture and fixtures on hand. 13. Service Car Expense (M-10) Miscellaneous Garage Expense (N-15) To Reserve for Depreciation of Livery and Service Cars (G-10) To bring onto the books the estimated depreciation of service and livery cars for the month. 14. Loss on Bad Accounts (M-5) To Reserve for Loss on Bad Accounts (G-5) One-half of one percent of the net charge sales for the month. 15. Salesroom Expense (L-7) Miscellaneous Office Expense (M-15) Miscellaneous Repair Department Expense (P-15) To Heat and Light (M-8) Rent (M-9) To distribute heat, light and rent to the proper depart- mental expense accounts. 104 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING PACKFORD AUTO SALES COMPANY SEMI-ANNUAL CLOSING ENTBIES 1. Profit and Loss (H-3) Tools and Supplies on Hand (B-ll) To Profit and Loss (H-3) Tools and Supplies on Hand (B-ll) To adjust the balance of the Tools and Supplies on Hand account so that its balance will represent the cost of tools and supplies on hand as per inventory. 2. Cost of Repair Sales (K-10) To Repair Department Expenses: Direct Labor Lost Time (P-l) Indirect Labor (P-2) Power (P-8) Tools and Supplies (P-ll) Miscellaneous Expense (P-l 5) To close the balances of the Repair Department expense accounts into Cost of Repair Sales. 3. Sales of New Cars ( J-l ) New Trucks (J-2) Second-Hand Cars (J-3) Demonstration Cars (J-4) Parts and Supplies (J-5) Car Equipment (J-6) Tires (J-7) Gasoline and Oil (J-8) Sundry Sales Garage (J-9) Repair Sales (J-10) Freight Sales (J-14) To Cost of Sales of New Cars (K-l) New Trucks (K-2) Second-Hand Cars (K-3) Demonstration Cars (K-4) Parts and Supplies (K-5) Car Equipment (K-G) Tires (K-7) Gasoline and Oil (K-8) Sundry Sales Garage (K-9) Repair Sales (K-10) Freight Sales (K-14) To close the cost of sales for the period into the corre- sponding sales accounts. 4. Sales of New Cars (J-l) New Trucks (J-2) Second-Hand Cars (J-3) Demonstration Cars (J-4) Parts and Supplies (J-5) Car Equipment (J-6) Tires (J-7) Gasoline and Oil (J-8) Sundry Sales Garage (J-9) Repair Sales (J-10) Freight Sales (J-14) EXPENSE ACCOUNTS 105 To Profit and Loss (H-3) Sales Second-Hand Cars (J-3) Repair Sales (J-10) To close the gross profit on sales into Profit and Loss. 5. Storage (J-ll) Washing and Polishing (J-12) Livery (J-13) Sundry Garage Revenue (J-15) To Profit and Loss (H-3) To close the garage revenue for the period into Profit and Loss. 6. Profit and Loss (H-3) To Garage Expenses: Labor (N-l) Superintendence (N-2) Power, Heat and Light (N-8) Maintenance (X-9) Tools and Supplies (N-ll) Salaries of Livery Chauffeurs (N-13) Miscellaneous Expenses (N-15) To close the garage expenses for the period into Profit and Loss. 7. Interest Received (J-16) Cash Discount on Purchases (J-17) Miscellaneous Income (J-18) Adjustment of Reserve for Depreciation (M-18) To Profit and Loss ( H-3 ) To close the extraneous income for the period into Profit and Loss. 8. Profit and Loss (H-3) To Selling Expenses: Salesmen's Salaries (L-l) Commissions (L-2) Advertising (L-3) Demonstration Expense (L-4) Salesmen's Traveling Expenses (L-6) Salesroom Expense (L-7) Insurance on Stock Cars (L-12) Free Repairs and Replacements (L-13) Freight and Express on Parts and Equipment (L-14) Miscellaneous Expense (L-15) To close the selling expenses for the period into Profit and Loss. 9. Profit and Loss (H-3) To General Administrative Expenses: Officers' Salaries (M-l) Telephone and Telegraph (M-2) Postage (M-3) Entertainment ( M-4 ) Traveling Expenses (M-6) Service Car Expense (M-10) Office Supplies Used (M-ll) Office Clerks' Salaries (M-13) Miscellaneous Office Expense (M-15) To close the general administrative expenses for the period into Profit and Loss. 106 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING 10. Profit and Loss (H-3) To Loss on Bad Accounts (M-5) Interest Paid (M-16) Cash Discount on Sales (M-17) Adjustment of Reserve for Depreciation (M-18) To close the extraneous charges for the period into Profit and Loss. 11. Profit and Loss (H-3) Surplus (H-2) To Surplus (H-2) Profit and Loss (H-3) To close the net profit or loss for the period into Surplus. CHAPTER XII THE CENTRAL GROCERY COMPANY PERSONNEL AND METHOD OF OPERATION In discussing the system used by the Packford Auto Sales Company each detail has been taken up with the idea of form- ing a groundwork of fundamental principles whereon to base our study of system work. The system now to be considered is one designed for a wholesale grocery company, the condi- tions of which, so far as transactions are concerned, are directly opposite from those found in the Packford Auto Sales Company. In this business the number of items from which the in- come is derived is large while the profit realized on each item is small. With this in mind, it is evident that a different treat- ment must be given to some of the records in order to avoid cumbering the general ledger with a multiplicity of accounts, which would involve so much detail that monthly statements could not be prepared in time to be of any value to the execu- tives. In the previous system all of our accounts were contained in the general ledger. In this system we take up a new phase of accounting where only controlling accounts are operated in the general ledger and a series of analysis sheets are main- tained, called general records, wherein the detail making up each control account is tabulated. When compared with the Packford Auto Sales Company sys- tem, a different arrangement and classification of accounts in the chart is noted. While the fundamental principle of obtain- ing monthly statements from the trial balance still maintains, there is another arrangement used in the classification of assets and liabilities which more nearly approaches the form of bal- ance sheet approved by the Federal Reserve Board. The personnel of the organization is composed of a president, who is also the purchasing agent, and a treasurer, who attends to the usual duties assigned such an officer, such as credits, 107 108 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING collections and banking. He also sees that the monthly state- ments are prepared and attends to salesmen's route lists. The office personnel is made up of a chief clerk, who makes all postings to the sales ledgers, checks the statements and takes the sales ledger trial balances; an order clerk who figures the orders; one billing clerk; a salesmen's record clerk; a stenog. rapher; and a bank and cash records clerk. The purchase in- voices and general ledger are handled by a chief accountant who has three assistants. The corporation operates, beside the home office, a branch store which is in charge of a store manager, who has as assistants a chief bookkeeper and four clerks. There are a number of salesmen who go out from both the home office and the branch store, taking orders from the customers and forwarding them to the office for routine handling. The accounting at the branch is conducted on the same sys- tem as the home office, there being a control account in the home office ledger which is offset by a control account in the branch ledger; thus for all practical purposes the two stores operate as individual companies. CHAPTER XIII THE CENTRAL GROCERY COMPANY FORMS It has not been considered necessary to include a copy of every form used in the business as many of the general forms, such as purchase orders, sales orders, etc., would in general be a duplica- tion of those shown in the Packford set. There are included, however, some of the forms peculiar to this company, and it is intended to discuss them in brief in order that we may have before us a general outline of the account- ing system. FORM No. 100 Record of Collections 111 Record of Audited Invoices 112 Record of Cash Received 113 Record of Checks Drawn 114 Summary of Postings to Accounts Receivable 115 Journal 116 Private Ledger 117 Statement of Assets and Liabilities 118 Statement of Revenues and Expenses 119 Salesman's Order 120 Accounts Receivable Ledger 121 Daily Report of Sales and Profits Form 100 Sales Ledger Collections. It will be seen by re- ferring to this form that the rulings are the same as the debit side of a cash book. The form is written up from the collections as received in the form of direct remittances from the customers or collections from the salesmen, making distribution of the credits and charges to the proper ledger accounts. At the close of the day form 100 is totaled and the equality of debits and credits proved. The total amount of cash collected is reconciled with the actual cash received as entered in the record of cash received, form 112. Form in Record of Audited Invoices. This form does not differ materially from the voucher register described under the preceding system, except that the various expenses are charged in groups and a number column is provided under each expense 109 110 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING THE CENTRAL GROCERY COMPANY 111 112 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING heading. The use of this number column will be explained in detail under the description of the accounts. At this time it is necessary to take only one illustration to show the method of handling expenses brought out in this system. In the column headed ''selling expense" a classification of selling expenses is made up, using numbers as 1, 2, 3, etc. Whenever an item is entered in this column, against the item is entered the number of its classification and postings are made in detail from the column to the analysis sheet referred to in the preceding chapter. At the close of the month this form is footed, the equality of debits and credits proved, and the total of each column posted to the corresponding general ledger account. The miscellaneous column is posted in detail to the proper general ledger accounts. The result of this method of treatment is that we have one account in the general ledger called selling expense, the details of which are kept on analysis sheets entirely apart from the ledger. This enables us to close the general ledger and take a trial balance practically on the first of the month, leaving the detail of bringing up the analysis until a later date, giving ample time to perform the analysis work correctly and also making available for the executives the necessary information in con- nection with the business at a time when most valuable to them. Form 112 Record of Cash Received. This form follows out the same purpose which we have already discussed, the only variation being in the headings of the various columns. The bank deposits are distributed on this sheet and carried to the record of checks drawn, form 113. At the close of the month the sheet is totaled, the equality of debits and credits proved, and the footings of the columns posted to the correspond- ing general ledger accounts. The general ledger credit column and miscellaneous charges column are posted in detail, or analyzed and one posting made to the general ledger accounts. Form 113 Record of Checks Drawn. While this form is very similar to the same record used by the Packford Auto Sales Company, the use made of it differs quite materially. As will be noted by referring to the chart of accounts, page 126, this company operates two banks and it is necessary to dis- tribute the checks drawn to the proper bank. A sheet of form 113 is used for each bank so that at tht close of the month it is THE CENTRAL UHOVERY COMl'ANY 113 114 KYUTEM BUILUINU AND CONSTRUCTIVE ACCOUNTING necessary either to add the two bank sheets together in order to obtain the total credit to cash, and the debit to the various ac- counts, before making any postings to the controlling accounts, or make two postings. As stated in connection with form 112, the bank deposit is distributed on the record of cash received and carried from there directly to the record of checks drawn sheet in the column headed "total deposits." The net amount of check column on this form is footed each day and the total of the day's business extended in the total checks drawn column. The balance at the beginning of the day, plus the total deposits as taken from the record of cash received and entered in the deposit column, minus the checks drawn as found by the total of the day's business in the net amount of check column, gives the balance at the beginning of the new day. By reviewing the two forms the method of operation will be readily seen and the point to be kept particularly in mind is that at the close of the month either a summary of the bank sheets must be made or two postings to the control account are necessary in order to accumulate the debits and credits. Form 114 Summary of Postings to Accounts Receivable. This is a new form not used in the Packford Auto Sales Com- pany and is intended to be a proof of the daily postings to the several subdivisions of the accounts receivable. There are four separate sales ledgers represented by one accounts receivable account in the general ledger. This form is used in order to obtain a daily balance and proof of each sales ledger separately. The total of all sheets should agree with the general ledger control account covering accounts receivable*. A separate sheet should be headed for each sales ledger. The method of operation is clearly indicated by the printed headings. The column at the left of the sheet with the numerals represents the days of the month. The sales book, journal and cash book are summarized to obtain the charges to the different accounts. The ascertained total is entered in the proper columns and added horizontally to obtain the charge for the day. The various credits found in the collection books, credit memoranda, and journal are summarized by days and added across to obtain the total credits. The balance at the close of the previous day, plus the total charges, minus the total credits, gives the balance THE CENTRAL GROCERY COMPANY 115 116 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING PJ 22 THE CENTRAL GROCERY COMPANY 117 at the close of the day, and the four balances added together should agree with the balance as taken from the general ledger control. It should be stated at this point that the accounts receivable 118 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING ledger where this system is used is kept by mechanical methods, and it is very easy to obtain the balance due from customers at the close of each day's business. The balance obtained from the posting machine is compared with the balance as shown by the summary and, of course, should be in agreement. THE CENTRAL GROCERY COnfAtTY STATEnEMT Or LIABILITIES FOR THE PER OD EMD MG KCT MADE OF ACCOUnT OTAL 1 TAIL AL. l.lAKH.ITir-g Sundiij nntf L} skRuoL*,^ I--:--:-. : ^ = H nivinFnn^f/u.MT ',; nivirt^rvl U2 X~^i IS* ( / w *- "^ rj.piTAL Arr.nunT/i 'tii P,*, onrf L> T^I ) l,^h,),f, la PROFIT AMD L06S .Vt Sr.l.A "0 ITH TO DATS "" M in 1 YtAK rDTt f '"' "' 5nk '" r,.. p m f,t S.I.. Profit x^x. itf Tntnl f.nmmrrnnl Kinfnftff ^^ ( ^ k_^*) E Ili-r Prnf.l liii. Pr^f.l ntvi [-<,<. F,,t n( P.r.ad Form 117 (Left) The particular benefit derived from this method of accounting is that the trial balance of the subsidiary accounts receivable ledger is always in agreement with the control in the general ledger, obviating the necessity of detailed checking to locate variations at the close of the month. Form 115 Journal. The form of journal used in this sys- THE CENTRAL GROCERY COMPANY 119 tern is a three-column sheet. The first column is used for the detail of either debits or credits, and the other two columns are used as in any journal. Only the total debits and credits are posted to the general ledger, the detail being inserted for posting to the subsidiary ledgers or to the analysis sheets. Form 116 Private Ledger. This form is inserted as a sam- THE CENTRAL GROCERY COnPArtY STATEMENT Of ASSETS TOR THE PERIOD END flG I9E ID 3 t 3 l IL 21 5 at MAnEOPACCOVrtT r.AS4 ArrnimTS Off.re FunH nOTFS RF.mVABl F r.L.B nrnrrA'NntF* K,,nri<;, Mnt G5 tint.,; R.r.,vnhl, n* rr .^t,A Accounrs RFrnvAni F L,=. fl EiVi.int onAccn.mt Rf,voh]i. invrnrnBY Arrniin Ua THIS YEAR LA3T YtAR ::: T ^5E u f.! it &-, B 74 n 77 imniTfjBriNn ruTURra I P S ^ Pas! Ilnt^d CM.rk^ =RFFAin F.XPFn.SES llMdmUaia (-.ntnlnQ,,,. Form 117 (Right) pie and does not differ materially from the ordinary ledger sheet, except that it provides for both the account name and number. It will be noted that there is only one balance column. The name of the account and its location in the chart or classification should indicate whether a debit or credit balance, or, if desired, red ink may be used for credit balances. 120 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING Form 117 Statement of Assets and Liabilities. This state- ment, while similar to the one used in the preceding system, is made up in such a way that it eliminates the necessity of draw- ing off a trial balance from the general ledger in a separate book. This form together with the statement of revenues and expenses, form 118, is intended to be the trial balance of the general ledger. The accounts are arranged in the same order as the chart of accounts which is set up with particular reference to classification. The form is ruled with four money columns, the first two carrying figures this year, the others for the same in- formation last year. The detail column is to be used for in- serting the balance of the different accounts under each main heading, as, for instance, under the cash accounts the balance of accounts 1, 2 and 3 would be inserted in the detail column, then the sum of the three amounts would be entered in the total column. The four small columns headed "%" are to be used in this form for figuring the percentage of the various classes of assets to the total assets and the various classes of liabilities to the total liabilities. The account numbers are clearly indicated so that there should be no difficulty in transferring the balances shown in the general ledger to the statements. The only difficulty which might be experienced in making up the form is the fact that the reserves for the various asset accounts are deducted therefrom instead of being shown on the liability side of the balance sheet. A more complete detail of the various accounts will be given in describing the functions and operation of the general ledger. In the statement of liabilities the last item, profit and loss, ac- count 163, is the amount needed to balance the income and ex- pense sides of the profit and loss statement, form 118. If the same figure is used both in the statement of assets and liabilities and in the statement of revenues and expenses, the correctness of the trial balance is proved and at the same time the result of the operations during the period determined. At the bottom of the liability sheet is a summary of the profit and loss statement containing the same information in condensed form as is shown on form 118. This has been placed on form 117 for convenience only, and enables the executive when re- viewing the statement to have before him on one sheet the THE CENTRAL GROCERY COMPANY 121 makeup of his profit and loss, showing the totals of the various items of expense. Form 118 Statement of Revenues and Expenses. This form is the profit and loss section of the trial balance and carries 122 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING the same information with respect to the current year and the previous year as the statement of assets and liabilities, form 117. The profit and loss statement is worked out by inserting the balance of the various revenue and expense accounts, making indicated additions and deductions in arriving at the profit for THE CENTRAL GROCERY COMP/W STATEMENT OF REVENUES AND EXPErtSES FOR THE PERIOD ENDING \3i <3 & Ar OLIfT 71 AT % Ar MT 7i ' An OOMT 7l nrnnmons Ffinn C.RO** PWVIT 42 nprchandi'ir Divnunt IJt rjiifnof Oiirnrri _ . 24 f- M'\7 ^_ilJ Tnlnl nrrl.,itinns _ . fO -J .? i4 fih.pp.l^ F>n.-nSf ss *if L f TnTnl rnntfncr^ml F \QtQJf nhn., D.^^^t ' J -^ !M,r.l R. r .iwl s~~\ t s ff- c^ 4 ^ i 1 HH Tnf/,1 S.^r u T. *^ii .SL'Mniry l nsxra lr,f,r.- z: c o o g \ J ^ V z .. UJ " o E C cq i u Z i H i \ i / / H O X 1 u E to 1 E i K k J the salesmen have not ordinarily drawn the full amount of salaries or commissions due them. The total of this trial balance should agree with the controlling account in the general ledger and the total shown in the statement of liabilities is the balance of account 121. 124 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING Form 1 19 Salesman's Order. This form is made out in duplicate by the salesman. The original is forwarded to the office and the duplicate retained in the salesman's order book. By referring to the form it will be seen that at the extreme right there are two columns headed "Salesmen must not use these columns." The first column is intended to carry the charge to the customer and is figured by a clerk assigned to that work in the office. The right-hand column is to be used for the cost, which is taken from the going inventory sheets. Form 120 Accounts Receivable Ledger. This form is ruled so as to utilize all available space on the sheet, there being two debit columns, two credit columns, and two balance columns ; the idea is to reduce as much as possible the size of the ledger. The sheet used for the mechanical posting is the same as the form submitted except that the money columns are without units and there is only one set of columns to a sheet instead of two. .DAILY REPOHT OF SALES AHD Form 121 Form 121 Daily Report of Sales and Profits. A new fea- ture of this system is the daily report on the sales and profits. This report is made up daily for the benefit of the executive offi- cers of the company and is prepared by summarizing the sales and cost of sales for each salesman. The percentage column is intended to show the percent of gross profit earned by each salesman each day. The total enables the executive to keep in touch with the business from day to day and also to note whether the percentage of gross profit earned is sufficient for the company to operate successfully. CHAPTER XIV THE CENTRAL GROCERY COMPANY ACCOUNTS ASSETS AND LIABILITIES Particular attention is called to the arrangement of the ac- counts in the following chart which may be set up as a model, not only on account of the fact that it is in accordance with the requirements of the banks but also from the fact that it illus- trates the fundamental principles of chart making. The simplest and most logical rule in arranging a chart of accounts is to resort to the numerical arrangement, working on the nine digits. This scheme of arrangement enables the system builder to add to his original lay-out an indefinite number of accounts through the use of the decimal point and letters without disarranging his chart. As a specific example of what is meant by this scheme we will take the accounts receivable which in this chart is No. 21. We will suppose that the volume of business in this concern is such that it is necessary after some years of operation to increase the number of sales ledgers from one to three. This under ordi- nary circumstances would necessitate rearranging the chart of accounts to take in the additional controlling accounts to operate the ledgers. The problem where the numerical arrangement is used is very simple, for if we consider 21 to be the number indicating accounts receivable we can add as many subsidiary ledgers as we like by calling the first one account 21.1, the second 21.2, the third 21.3 and so on. As a further illustration we will consider that it is desired to divide ledger number one into different sections. In this situa- tion, the first section would be 21.1 A and the next 21.1B, etc. It will readily be seen that this arrangement is capable of un- limited expansion without in any way disarranging the original chart. The scheme of adhering to the nine digits is thus explained. 125 126 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING We will consider the specific example before us, the Central Grocery Company. Each main group is assigned a number from 1 to 9. For the cash accounts the nine digits are used and the accounts numbered 1 to 9 inclusive or as many of these numbers as may be necessary. Notes receivable begins with 11 and the numbers to and including 19 may be used ; the accounts receivable starting with 21 and using to 29 inclusive, thus through the various classifications of the asset accounts, giving 9, 99 or 999 possible groups for assets. Starting the liabilities at one again and adding ciphers we have for the first main group notes payable 101, accounts payable 111, salesmen's ledger 121, accrued expenses 131, etc. By this method therefore we have 9, 99 or 999 possible classifications on the liability side which permits unlimited expansion through the use of the decimal system above outlined. The same plan is followed in the income and expense section, starting with account 201 for sales and allowing our 9 groups in the income section and if we had a sufficient number of accounts we would start with 301 for the expenses. In this particular- system, however, it is not necessary on account of the small number of ledger accounts operated. On the page immediately following the chart of accounts will be found the form which should be used in specifying to the printers the binders which are required for various forms. In each case the marking should be clearly indicated as well as the size of the sheet. On page 129 are also shown the specifications for the special tab division leaves to be used as an index to the general ledger. The numbers on the tabs indicate the accounts in the particular classification. THE CENTRAL GROCERY COMPANY CHART OF ACCOUNTS CASH ACCOUNTS 1 Office Fund 2 The First National Bank of Mobile 3 Mobile National Bank 4 NOTES RECEIVABLE 11 Customers' Notes 12 Sundry Notes less 16 Notes Receivable Discounted THE CENTRAL GROCERY COMPANY ACCOUNTS 127 ACCOUNTS RECEIVABLE 21 Sales Ledgers less 27 Discount on Accounts Receivable 28 29 INVENTORY ACCOUNTS 31 Merchandise less 37 Discount on Merchandise 38 39 FURNITURE & FIXTURES 41 Furniture & Fixtures less 48 Depreciation on Furniture & Fixtures 49 OUTSIDE INVESTMENTS 51 52 53 MISCELLANEOUS 01 Salesman's Collections 62 Postdated Checks 63 Suspense 64 Transportation Claims 65 66 PREPAID EXPENSES 71 New Building Account 72 Unexpired Insurance 73 Unexpired Interest 74 Unexpired Taxes 75 Catalogue 76 77 NOTES PAYABLE 101 Bank Discounts 102 Sundry Notes 103 ACCOUNTS PAYABLE 111 Purchase Ledger 112 Sundry Accounts less 117 Discount on Accounts Payable 118 SALESMEN'S LEDGER 121 Salesmen's Salaries 122 128 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING DIVIDEND ACCOUNT 138 Dividend RESERVE ACCOUNTS 151 Reserve for Bad Accounts 152 Reserve against Merchandise 153 154 CAPITAL ACCOUNTS 161 Capital Stock 162 Surplus 163 Profit & Loss 164 SALES 201 Sales 201 Less Returned 201 Net Sales 221 Cost of Sales DEDUCTIONS FROM GROSS PROFIT 241 Cash Discount on Sales 242 Merchandise Discount 243 Freight Outward 244 Cartage Outward 245 246 247 COMMERCIAL EXPENSES 251 Selling Expense 252 Shipping Expense 253 Office Expense 254 General Expense 255 256 SUNDRY GAINS 261 Purchase Discount 262 Special Discount on Merchandise 263 Sales Discount Not Taken by Customers 264 Interest Received 265 Rent from Sub-tenants 266 267 268 269 270 SUNDRY LOSSES 281 Interest Expired 282 Bad Accounts Estimated 283 New Building Proportion 284 Depreciation on Furniture & Fixtures 285 286 287 288 289 THE CENTRAL GROCERY COMPANY ACCOUNTS THE CENTRAL GROCERY CO. BINDERS 1 Binder with Private Lock 2 inch for sheet 11x12, marked 129 GENERAL LEDGEB THE CENTRAL GROCERY Co. 1 % Sectional Post Corduroy Binder for sheet 11x14, marked posts to left AUDITED INVOICES RECORD THE CENTRAL GROCERY Co. 1 % Sectional Post Corduroy Binder for sheet 11x14, marked posts to left. GENERAL RECORDS THE CENTRAL GROCERY Co. SPECIAL TAB DIVISION LEAVES GENERAL LEDGER Size 11 x 12 Buff POSITION COLOR POSITION COLOR Cash Accounts 1 Green Dividends 4 Red 1-9 138-139 Notes Reserve Receivable 2 Green Accounts 5 Red 10-19 loO-li>9 Accounts Capital Receivable 3 Green Accounts 6 Red 20-29 160-169 Inventory Sales Accounts 4 Green Accounts 7 Red 30-39 200-239 Furniture Ded. from & Fixtures 5 Green Gr. Profit 8 Green 40-49 240-249 Outside Expenses 9 Green Investments 6 Green 250-259 50-59 Miscel. Gains 1 Red Assets 7 Green 260 279 60-69 Prepaid Losses 3 Green Expenses 8 Green 280-299 70-79 Notes Payable 9 Red Journal 5 Buff 100-109 130 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING POSITION COLOR POSITION COLOR Accounts Payable 110-119 1 Red Trial Balance 7 Buff Salesmen's Ledger 121 2 Red Salesmen's Accounts 9 121-1 &c Buff Accrued Expenses 130-137 3 Red To be punched to fit General Ledger Binder. SPECIAL TAB DIVISION LEAVES GENERAL RECORDS Size 11x14 Buff POSITION COLOR POSITION COLOR Cash Mobile Nat. Received 1 Green Bank 3 Green First Nat. Accounts Bank 2 Green Receivable 4 Green In describing the functions and operations of the various general ledger accounts we will take up in detail only those which seem to be out of the ordinary or which have some special method of operation. The others will be mentioned only in a gen- eral way. Accounts i, 2 and 3 Cash Accounts. These are ordinary imprest cash and bank accounts. The imprest fund balance remains the same unless the fund is increased or decreased during the period. The bank accounts are debited with cash received and credited with cash paid out, the balance representing the amount on hand in the bank. This balance should be reconciled with the statement received from the bank, taking into consideration the checks outstanding. Account ii Customers Notes. Debit for notes taken from customers, the offsetting credit being to accounts receivable or a sales account. Credit with cash received from customers in settlement of notes. The balance represents the amount of notes receivable due from customers. Account 12 Sundry Notes. Debit with amount of notes re- ceived from persons other than customers, the offsetting credit being to cash or an income account as the case may be. THE CENTRAL GROCERY COMPANY ACCOUNTS 131 Credit with amounts received in settlement of sundry notes. The balance represents sundry notes due from various persons. Account 1 6 Notes Receivable Discounted. This account should have a credit balance and is intended to represent the contingent liability of the concern for notes, both customers and sundry, which have been discounted at the bank but which have not as yet been paid. The operation of the account is as follows : Whenever a note receivable is discounted at the bank an entry is made in the cash book debiting cash and crediting notes re- ceivable discounted for the face of the note. The discount is of course worked out through the interest and discount account. When the note is paid at the bank and advice is received to that effect, a journal entry is made debiting account 16, notes receivable discounted, and crediting account 11, customers notes, or account 12, sundry notes, as the case may be, for the face of the note so paid. The balance of this account represents the amount of notes which have been discounted at the bank and which are still unpaid. In preparing the monthly statement of assets and liabilities the balance should be deducted from the sum of the debit balances of accounts 11 and 12. Account 21 Accounts Receivable. This account is the or- dinary sales ledger or accounts receivable account and does not require special explanation. Account 27 Discount on Accounts Receivable. While this account is comparatively simple in its operation it is perhaps well to explain somewhat in detail the purpose for which it is intended and its mechanical operation. In a business where the customers are entitled to the cash dis- count, should they pay their bills within a specified time, it seems logical that the concern granting this discount can expect as a return for merchandise sold, only the sum of the net sales less the possible discount. If some of the customers are less fortunate than others and are unable to discount their bills it does not seem logical that the business should estimate its returns from the sales as the amount of such sales less only discount actually taken. It seems rather, so far as the income from sales is con- cerned, that we should set up as probable income the amount which would be realized if all customers took advantage of the 132 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING discount and that the amount which is not taken should be in- cluded in our income from sources outside of trade operation, or sundry gains. Another point which seems to support this theory is that our item of net sales, that is gross sales less returns and allowances less discount, if only discount actually taken be considered, would show a wide fluctuation if all our customers in one period were able to take their discount while in the preceding or succeeding period they could not do so to the full extent. It is obvious from even the most casual observance of this feature that if we consider net sales as 100% in computing our income and expense percentages a wide fluctuation in these items would result if we did not take steps to stabilize the basis used as 100%. With the above in mind, therefore, we contemplate taking into account the entire discount which might be allowed on sales, which we charge to account 241 and credit to account 263. At the close of the first period account 27 is set up by crediting 1%, the discount allowed by this concern, of the amount of ac- counts receivable due from customers and subject to cash discount as shown by an analysis of account 21. This amount is charged to sales discount not taken by customers, account 263, and credited to account 27. At the end of each succeeding period account 27 is adjusted so that the balance will represent 1% on the amounts due from customers and subject to discount, the offsetting debit or credit being in each case to account 263. In preparing the monthly statement of assets the credit balance of account 27 is deducted from the debit balance of account 21, thus showing as an asset only the amount due from customers less discounts. Account 31 Merchandise. This is an ordinary merchandise account and requires no detailed explanation. The balance at the beginning of the period represents inventory on hand at that time. Purchases during the year are debited and cost of sales credited to the account, so that, in theory at least, at the close of each year the balance should represent the physical inventory. As a matter of fact, some adjustments are necessary at each closing in order to reconcile the balance with the actual inventory taken. Account 37 Discount on Merchandise. By referring to the explanation given under account 27 it will be noted that in THE CENTRAL GROCERY COMPANY ACCOUNTS 133 this system we give recognition to the discounts both income and expense in a different manner than perhaps they are ordinarily considered. This account operates in much the same manner as account 27 and is used so that only the discount earned on merchandise sold will be included as income in the period under review. This account is credited at the close of a period with 1^%, the average discount 011 purchases, of the balance in account 31, the offsetting debit being to account 261. The balance represents the amount of purchase discounts applicable to merchandise which has not yet been sold, and is therefore not taken into the profits of the period. This entry is not reversed, but the balance is adjusted at the close of each succeeding period, the offsetting debit or credit in each case being to account 261. In preparing the statement of assets at the close of the period the credit balance of account 37 is deducted from the debit bal- ance of account 31. Account 41 Furniture and Fixtures. This is the ordinary property account representing the investment in furniture and fixtures. It is charged with the original investment at the time of opening the account and then with purchases of permanent furniture and fixtures. The credits to the account would be for items of equipment sold or otherwise disposed of, the balance representing the net cost of such equipment on hand. Account 48 Depreciation of Furniture and Fixtures. This is the reserve for depreciation of furniture and fixtures, and at the close of each month it is credited for 1/12 of the estimated annual depreciation, the offsetting debit being to account 284. The balance of the account represents the amount reserved to date, and in preparing a statement of assets is deducted from the debit balance of account 41. Account 61 Salesman's Collections. This account is charged with the amount of collections reported by the salesman, and is credited for the cash received from the salesman on account of collections from customers. The balance represents collections reported by the salesman for which remittance has not yet been received. The balance is considered a miscellaneous asset and is so shown in preparing the statement of assets. Account 62 Postdated Checks. A situation which seems to 134 8YHTEM BUILDING AND CONSTRUCTIVE ACCOUNTING be peculiar to this particular business is that a considerable number of postdated checks are received which logically should not be credited to the customers' accounts until they are de- posited and collected by the bank. In order to take care of this situation two columns have been provided in the cash receipts book (see form) so that when a postdated check is received from a customer it is entered in the sales ledger column, but instead of being extended in the net amount received column it is extended in the postdated checks column under the charges section of the sheet. This operates to set up a miscellaneous asset representing checks on hand which are postdated. When the check is deposited it is again entered in the record of cash received, this time in the postdated checks credit column, and then extended in the net amount received column. The postdated check credit column will offset the debit previously set up, thus transferring the amount from the postdated checks account to the cash account. The balance of this account would represent postdated checks on hand. Account 63 Suspense. This account is established to carry such accounts receivable as are considered doubtful of collection and is the step taken preceding the transfer of such accounts to the reserve for losses on bad debts. In other words when an account contained in the sales ledgers, account 21, becomes doubt- ful of collection it is transferred to account 63, suspense. Efforts are still made to effect a collection, but if the account is finally determined to be uncollectible, it is charged against the reserve for loss on bad debts, the credit being to suspense instead of direct to accounts receivable. The reason for thus separating doubtful accounts is in order to have in the books such an arrangement of accounts as will enable the preparation of financial statements showing current assets and current liabilities without the necessity of making numerous adjustments or deductions for doubtful items. It also brings all doubtful accounts together for more frequent reviewing than is given the regular accounts receivable. Account 64 Transportation Claims. This account repre- sents the amount of accounts receivable due from transportation companies on account of claims which are separated from ac- counts receivable so that the accounts receivable sales ledger will THE CENTRAL GROCERY COMPANY ACCOUNTS 135 represent sales to customers made in the regular course of busi- ness as distinguished from other transactions, and which may not be so good. The latter are usually classed as sundry assets. Accounts 71 to 75 Inclusive. These accounts are the ordi- nary prepaid and deferred expense accounts and do not need detailed explanation, except, perhaps, in the case of account 71. At the time this corporation opened the branch store it was necessary to construct one or two small buildings adjoining the property which they leased in order to store their equipment, etc. Inasmuch as they would not be able to realize anything from their investment when the lease expired it was considered advisable to prorate the expense of these buildings over the life of the lease. The cost was therefore debited to this account and at the close of each period an adjustment is made, debiting to expenses of the period the proportion distributable to it. Ac- count 71 is credited, the offsetting charge being to account 283. The balance of this account represents the cost of the buildings still to be written off over the life of the lease and is shown as a prepaid expense on the monthly statement. Perhaps it would be well to state that account 75, catalogue, represents the expense of advertising matter incurred during a given period but not charged to operations as the advertising matter has not all been used at the close of the period. The balance of the account represents the estimated value of catalogues or advertising matter on hand at the close of the period. Account 10 1 Bank Discounts Is the ordinary notes pay- able account except that only borrowings from the bank are shown therein. All other loans negotiated through the use of notes are included in account 102, sundry notes. The balance of these accounts represents the liability of the corporation to creditors on account of notes payable outstanding. Account in Purchase Ledger Is the ordinary accounts payable account representing amounts due creditors for purchases and expenses. Credit at the close of the month with the amount of purchases as shown by the footing of the ledger column in the record of audited invoices. Debit at the close of the month for the cash payments on account of accounts payable as shown by the footing of the corresponding column in the record of checks drawn. 136 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING The balance represents the amount due creditors. Account 112 Sundry Accounts. In designing any system of accounts it will be found that numerous small purchases are made for which in many cases checks are drawn, but which are considered so small that it is inadvisable to open a ledger account with the vendors. This brings up a rather difficult situation as the system builder has the option of opening a series of ledger accounts with creditors from whom a small number or perhaps only one purchase is made, or of devising some other means of meeting the situation. By referring to the record of audited invoices form it will be seen that a sundry column has been provided. It is intended, whenever an invoice is received from a creditor with whom we do not wish to open a ledger account, that the amount of the invoice shall be entered in the sundry column instead of the ledger column. The invoice is then passed through the usual channels and when the check is drawn the amount is entered in the sundry charges column in the record of checks drawn, form 113, instead of the ledger column, the theory being that the credit from the audited invoices record is offset by the debit from the record of checks drawn, so- that at the close of any period no balance re- mains in the account. To review briefly, therefore, account 112 is credited for the amount of purchases from vendors with whom we have no ledger account as show'n by the footing of the sundry column in the audited invoices record. Debit with the amount of checks drawn in settlement of such invoices as shown by the footing of the corresponding column in the record of checks drawn book. The balance of the account represents the. unpaid sundry bills. Account 117 Discount on Accounts Payable. This is the third of the special accounts peculiar to this concern used in allocating discounts to their proper periods. Debit at the end of the period with 1M>% f the amount due creditors as shown by the balance of account 111, the offsetting credit being to account 261 . The balance represents the amount of purchase discounts taken into account on unpaid creditors balances. This balance is ad- justed at the close of each period so thatrit will represent of the balance in account 111. THE CENTRAL GROCERY COMPANY ACCOUNTS 137 It will be seen by reviewing the discount accounts and the corresponding reserves that no anticipation of profits or discount results as the discount finally taken into profits is only that which has been earned on the merchandise sold. Account 121 Salesmen's Salaries. This account is a con- trolling account in the general ledger for the salesmen's accounts in the salesmen's ledger. Credit for the salaries and commissions earned, distribution being made in the salesmen's ledger ; debit for cash paid to the salesmen on account of salaries and commissions. The balance represents the liability on account of amounts due the salesmen. Account 138 Dividend. This account is the ordinary divi- dend account, credited for the .amount of dividends declared, the offsetting debit being to surplus, and debited for cash paid as dividends. The balance represents unpaid dividends. Account 151 Reserve for Bad Accounts. -At the close of each month an adjusting entry is made debiting account 282 and crediting account 151 for 1/12 of the estimated losses on account of bad debts for the year. The account is -debited with such accounts as are definitely ascertained to be worthless. The balance represents the reserve against probable losses from bad accounts receivable. Account 152 Reserve Against Merchandise. This account is intended to be used for setting aside a part of the surplus to cover possible loss from inventory shrinkage. Accounts 161 to 163 Capital Accounts. The capital ac- counts for this business do not require detailed explanation as their method of operation conforms to the usual capital stock, surplus and profit and loss accounts. CHAPTER XV INCOME ACCOUNTS In considering the accounts included in the income section of the system it seems advisable to take in not only the accounts showing income from operations, but also those deductions which are directly allocable to a particular source of income, arriving at a point, which, in this particular instance we may definitely term sales profit. The reason for this is that before we can make disbursements to cover commercial expenses it is necessary that we realize from our operations something above the cost of the commodity which we handle. If reference is made to the statement of revenues and expenses, form 118, it will be seen that in working down to the sales profit we give consideration to discounts and freight and carting outward in addition to the cost of the merchandise. Account 201 Sales. Credit with the total amount of salesi to customers as shown by the footing of the corresponding column in the sales record. Debit for the amount of sales returns and allowances as shown by the footing of the corresponding column in the sales returns and allowances book. The balance represents the net sales for the period. In preparing'the statement of income and expenses the footing of the credit side is inserted opposite the word "sales," the debit footing opposite the words "less returned," the balance opposite the words "net sales." In other words, we simply analyze our ledger balance, getting the total credits and total debits, working out the difference on the statement in order that we may have before us the amount of sales which have been returned. Account 221 Cost of Sales. Debit with the cost of mer- chandise sold, as shown by the footing of the corresponding column of the cost summary, which is prepared on analysis sheets. Credit for cost of sales returns as shown by the footing of the corresponding column on the returns analysis sheet. 138 INCOME ACCOUNTS 139 The balance represents the cost of goods sold during the period. In preparing the statement of revenues and expenses the debit balance of account 221 is inserted in its proper place on the statement and deducted from the balance of account 201 shown as net sales, thus arriving at the gross profit on sales. Account 241 Cash Discount on Sales. Debit monthly with 1% of the net sales for the period, the offsetting credit being to account 263. At the end of the period the balance of this account is closed to profit and loss and represents the amount of discounts which would have been allowed on sales had all customers been able to take advantage of the discount privilege. Account 242 Merchandise Discount. Debit from the cash received book with the amounts deducted by customers on account of merchandise discounts or allowances. At the end of the period the balance of this account is trans- ferred direct to profit and loss and represents the amount of merchandise discounts allowed to customers on sales during the period. Account 243 Freight Outward Account 244 Cartage Outward These accounts do not need special explanation as their pur- pose is obvious from their titles. The balances at the close of the period are closed direct into profit and loss. In preparing the statement of revenues and expenses the balances of accounts 241 to 244 inclusive are inserted opposite their proper names on the statement and the sum of these ac- counts obtained in the space marked "total deductions." The amount of deductions thus ascertained is taken from the gross profit determined above and the resulting difference is the sales profit, or, in other words, the amount of profit realized from the sale of commodities. It is, of course, obvious that the executive will give careful attention to this amount, being careful to note that the per- centage and amount are each high enough to cover the commer- cial expenses and leave a net profit which will represent a fair return on capital invested. CHAPTER XVI COMMERCIAL EXPENSE ACCOUNTS In discussing the commercial expense accounts, 251 to 254 inclusive, one of the peculiar features of this system is brought out. As outlined in discussing form 111, it is intended to have only four general classifications for the expenses of the business ; selling, shipping, office and general. Four accounts are established in the general ledger which at the close of each month are charged with the total expenditures in that group as shown by the footing of the corresponding column in the record of audited invoices, form 111. The form under each group has a column headed "No." which is intended to carry the number of the subsidiary account. It should be understood, however, that a subsidiary ledger is not contemplated. The subsidiary accounts are operated on analysis sheets and as a specific example we will take the first commercial expense account which in the general ledger is number 251, selling expense. It would seem advisable for us to know the amount expended for salesmen's salaries, traveling expenses, advertising, etc., so that in case the selling expense item should show a material in- crease or decrease we may trace such variation to its source. In order to accomplish this without encumbering the general ledger with a multiplicity of small accounts we analyze the charges to the main control account. Sheets of analysis paper the size of the books in this set are headed in this case, "selling expense." The columns are headed 1, 2, 3, etc., and in the example which we are considering, column 1 would be salesmen's salaries; col- umn 2, traveling expense ; column 3, advertising expense ; etc. Whenever an entry is made in the record of audited invoices the number corresponding to the account on the analysis sheet is inserted in the number column under the proper heading. At the close of the month, or at other convenient times during the month, all items in the selling expense column in the record of 140 COMMERCIAL EXPENSE ACCOUNTS 141 audited invoices are posted to the analysis sheet, thus arranging and classifying the expenses in this section. The principal advantage derived from the use of this method is that the general bookkeeper is enabled to prepare his monthly trial balance and operating statement without waiting for his assistants to post to a large number of subsidiary accounts. The record of audited invoices can be written up, posted in total, and the general ledger thus made available for the imme- diate work of preparing financial statements. The subsidiary records can be made up so that by the time the executive desires more complete information on any particular point it is available for him. Another point which seems to show the advantage of this method of operation is that the number of accounts contained in the general ledger is very small, making for greater efficiency in the general ledger work, which must of necessity be the case if the records are to be used to good advantage. In preparing the statement of revenues and expenses the balances of accounts 251 to 254 are inserted in the proper spaces on form 118 and summarized to obtain the total commercial ex- penses, which amount is deducted from the sales profit, giving us the operating profit for the period. SUNDRY GAINS Account 261 Purchase Discount. Debit at the end of the period with 1^2% of the balance of account 31, the offsetting credit being to account 37, the purpose being to take out of the income for the period the amount of discount on merchandise still to be sold. Credit from the bank record with amounts deducted on ac- count of discounts taken when remitting to creditors ; at the end of the first period with 1%% of the balance of account 111, the offsetting debit being to account 117 and representing the amount of discounts not taken on bills still outstanding. At the end of each succeeding period adjust account 117 by a debit or credit to this account. At the close of the period the balance is closed direct to profit and loss and represents the amount of discounts earned during the period. The question may be raised as to why the purchase discount 142 SYSTEM BUILD/NO AND CONSTRUCTIVE ACCOUNTING earned is not credited to cost of sales, and the answer is that it is considered a capital earning obtained only by prompt settlement of accounts. If necessary to borrow outside capital from banks and others in order to discount, the interest paid is an offset to the discount earned. Account 262 Special Discount on Merchandise. This ac- count is intended to show special discounts made by creditors on purchases during the period. The balance is closed to profit and loss. Account 263 Sales Discount Not Taken by Customers. Debit during the period with the amount of cash discounts taken by customers in settlement of their accounts, as shown by the footing of the corresponding column in the cash received book ; at the end of the period with 1% of the balance of account 21 subject to cash discount, the offsetting credit being to account 27 as shown by the description of that account. Credit monthly with 1 % of the net sales during the period, the offsetting debit being to cash discount on sales, account 241, as outlined in the description of that account. The balance is closed to profit and loss and represents the sales discount not taken by customers. Account 264 Interest Received. This account is credited with such interest as may be received on deposits with the banks, from notes receivable, or from customers on overdue ac- counts as shown by the footing of the corresponding column in the record of cash received. The balance is closed to profit and loss. Account 265 Rent from Sub-Tenants Is credited with rent received for space in the building which has been sublet. The balance represents rent income and is closed to profit and loss. It will be noted that the rent income is treated as a sundry gain instead of as a credit against the commercial expenses where the charge for rent paid is made. This method of handling seems to be correct as it would tend to make our comparisons from period to period of less value if we credited our expense account with such an item, the amount of which would be contingent upon whether we were able to sublet space or not. In preparing the statement of revenues and expenses for the period the sundry gains are inserted in their proper space and the total of sundry gains obtained. COMMERCIAL EXPENSE ACCOUNTS 143 SUNDRY LOSSES Account 281 Interest Expired. Debit at the close of each month with the interest which has expired during the month, the offsetting credit being to account 73. The balance is closed to profit and loss. Account 282 Bad Accounts Estimated. Debit at the close of each month with 1/12 of the estimated loss on bad accounts for the year, the offsetting credit being to account 151. The balance represents estimated loss on bad accounts for the year and is closed to profit and loss. Account 283 New Building Proportion. Debit at the close of each month with 1/12 of the amount to be written off during the year, the offsetting credit being to account 71. The balance represents the proportion of the cost of the new building written off over the year and is closed to profit and loss. Account 284 Depreciation Furniture and Fixtures. Debit at the close of each month with 1/12 of the estimated deprecia- tion of furniture and fixtures for the year, the offsetting credit being to account 48. The balance represents the amount of depreciation on furni- ture and fixtures and is closed into profit and loss. In preparing the statement of revenues and expenses the sundry losses are inserted in their proper space and the total obtained. The difference between the total sundry gains and total sundry losses is ascertained and represents either a net sundry gain or a net sundry loss for the period, which amount is added to or deducted from the operating profit, giving the net profit or loss to date. The net profit or loss is inserted in the statement of liabilities as the balance of account 163, and should balance the liabilities with the assets. A review of the statements of assets and liabilities, revenues and expenses, together with a study of the forms should clearly show that the necessity for taking the trial balance as a separate record is entirely obviated. On the following pages are shown the semi-annual closing entries. 144 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING CLOSING ENTRIES 31 Merchandise (New Inventory) 221 Cost of Sales 31 To Merchandise To close out the merchandise account setting up the new inventory and charging the balance to cost of sales 201 Sales 221 To Cost of Sales To transfer the balance in cost of sales account into the sales account 201 Sales 163 To Profit & Loss To transfer the gross profit on sales into the profit and loss account 163 Profit & Loss 241 To Cash Discount on Sales 242 Merchandise Discount 243 Freight Outward 244 Cartage Outward To transfer the debil balances in the ubove deductions from profit accounts into prout and loss 163 Profit & Loss 251 To Selling Expense 252 Shipping Expense 253 Office Expense 254 General Expense To transfer the debit balances in the above operating ex- pense accounts into profit and loss 261 Purchase Discount 262 Special Discount on Merchandise 263 Sales Discount Not Taken by Customers 264 Interest Received 265 Rent from Sub-tenants 163 To Profit & Loss To transfer the credit balances iu the above sundry gain accounts into profit and loss 163 Profit & Loss 281 To Interest Expired 282 Bad Accounts Estimated 283 New Building Proportion 284 Depreciation Furniture & Fixtures To transfer the debit balances in the above sundry loss accounts into profit and loss 163 Profit & Loss 162 To Surplus To transfer the net profit for the period to surplus 162 Surplus 153 To Reserve for Federal Taxes To set up the Federal taxes for the year as figured 162 Surplus 138 To Dividend To set up liability for dividends declared, CLOSING ENTRIES 145 In order that the operation of the various discount and reserve for discount accounts- may be clearly understood a sketch of each is shown on the following pages with the debits and credits to each set up in ledger form. CASH DISCOUNT ON SALES Dr. Cr. Monthly with \% of net sales (Cr. At end of period balance trans- Sales Discount Not Taken by ferred to Profit & Loss Customers ) No balance MERCHANDISE DISCOUNT Dr. Cr. From Cash Received with amounts At end of period balance trans- deducted by customers on account ferred to Profit & Loss of merchandise discounts No balance PURCHASE DISCOUNT Dr. Cr. From Bank Record with amounts deducted on account of discounts when remitting to creditors At the end of the period this account is debited or credited with such an amount as will adjust the balance of the reserve for discount on inventory so as to represent l l /2% of the inventory account. It is also debited or credited with such an amount as will adjust the reserve for discounts on accounts payable so as tc represent 1 l /2% of the accounts payable balance. No balance SALES DISCOUNT NOT TAKEN BY CUSTOMERS Dr. Cr. With the discount allowed to cus- Monthly with 1% of net sales tomers in settlement of their ac- (Dr. Cash Discount on Sales) counts At the end of the period this account is debited or credited with such an amount as will adjust the reserve for discount on accounts receivable so as to represent 1% of the customers debit balances. No balance 146 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING RESERVE FOB DISCOUNT ON ACCOUNTS RECEIVABLE Dr. (Jr. At end of period with 1% of cus- tomers debit balances (Dr. Sales Discount Not Taken by Custom- ers) Balance represents amount which is estimated will be deducted by customers on account of cash discount when paying the bal- ances carried at the end of the period ; this balance to be adjusted at the end of each successive period. RESEBVE FOB DISCOUNT ON MERCHANDISE INVENTORY Dr. Cr. At end of period with \ l / 2 % of balance in merchandise inventory account (Dr. Purchase Discount) Balance represents amount of purchase discounts applicable to merchandise which has not yet been liquidated into cash, and is therefore not taken into the profits of the period ; this balance to be adjusted at the end of each successive period. RESEBVE FOB DISCOUNTS ON ACCOUNTS PAYABLE Dr. Cr. At end of period with iy a % of creditors credit balances (Cr. Pur- chase Discount) Balance represents amount of purchase discounts taken into profits on unpaid creditors balances; balance to be adjusted at end of each successive period. The journal entries making the adjustments in the accounts above outlined are as follows: 241 Cash Discount on Sales 263 To Sales Discount Not Taken by Customers 1% of net sales for the period Net Sales = 1% 242 Merchandise Discount 21 To Sales Ledgers Merchandise discount deducted by customers 111 Purchase Ledger 261 To Purchase Discount Discounts deducted when remitting to creditors CLOSING ENTRIES 147 37 Reserve for Discount on Merchandise Inventory 261 Purchase Discount 37 To Reserve for Discount on Merchandise Inventory 261 To Purchase Discount To adjust reserve so as to represent lVa% of balance in merchandise inventory account Balance in account 27 Reserve for Discount on Accounts Receivable 263 Sales Discount Not Taken by Customers 27 To Reserve for Discount on Accounts Receivable 263 To Sales Discount Not Taken by Customers To adjust reserve so as to represent 1% of debit balances in customers accounts subject to discount Debit balances in customers accounts = 1% . = 261 Purchase Discount 117 Reserve for Discount on Accounts Payable 261 To Purchase Discount 117 To Reserve for Discount on Accounts Payable To adjust reserve so as to represent 1%% of credit bal- ances in creditors accounts CHAPTER XVII THE BOYLSTON CLUB GENERAL DISCUSSION The principles of accounting for clubs and similar organiza- tions are practically the same as those for a trading concern. The principal, or in fact, the only difference is that the club is not primarily a moneymaking affair, as the members may be considered the customers of the enterprise. The membership of the Boylston Club is between four and five thousand. It is a social organization holding public meetings from time to time. The members elect annually a board of governors from which board are elected a president, two vice-presidents, a treasurer, secretary and an executive committee of fifteen. The president is the presiding officer at all meetings and has the appointing of various sub-committees, all the members of which, however, are members of the executive committee. These officers and commit- tees serve without pay, although committees are allowed sums each year to cover expenses. There is a civic secretary appointed by the executive committee who gives his entire time to the club and is paid a salary. The comptroller and manager are also full time officers drawing salaries. The comptroller is in charge of the accounting and cost de- partments. The manager is in charge of the various departments through which services are rendered to the members. The house department is divided into two sections, general department and rooms department. The chart of organization following clearly indicates the duties of each executive head. 148 THE BOYL8TON CLUB 149 MEMBERS OF THE BOYL5TOM CLUB Form 31 CHAPTER XVIII THE BOYLSTON CLUB FORMS Form i Purchase Order. The purchase order used in the Boylston Club system is similar to that used by the Packford Auto Sales Company shown on page 33. It is made out in triplicate by the clerk in charge of the stores department and is signed by the manager. The purchases are divided into three main classes as follows : 1 General Supplies 2 Food Supplies 3 Purchases by Various Committees General supplies include three classes as follows : (a) Supplies Used in the Various Departments, such as linen and glassware, supplies for the manager, accounting department, etc. (b) Supplies To Be Used at the Bar (c) Cigars These purchases originate with the head stores clerk who is under the direction of the manager. The purchase order blanks are numbered in sets of three by the printer. When the order has been properly made out by the head stores clerk and signed by the manager, the original is forwarded to the vendor. The duplicate is forwarded to the comptroller, and the triplicate held by the clerk as his record of supplies ordered. The comptroller files the copy sent to him alphabetically, according to creditors. The invoice when received by the comptroller is compared with the duplicate purchase order which is removed from the file at this time. If the invoice is found to be correct it is filed with the purchase order attached in an unfilled invoice file to await the arrival of the goods. The goods when received are delivered to the receiving department. Food supplies are ordered direct by the steward under the direction of the manager, no order blank being made out. All 150 THE BOYLSTON CLUB 151 goods are delivered to the receiving department with a memoran- dum. In the receiving department the -goods are compared with the memorandum and those of a permanent nature are sent to the stores department. Those of a perishable nature are sent to the kitchen. At the end of the day all memorandum slips are sent to the manager's office where after an inspection is made they are sent to the comptroller who compares the memorandum of goods received with such invoices as have been received at that time and arranges the bills to await payment. Where bills have not been received the memorandum slips are filed according to creditors to await the arrival of the bills. Ice and fuel are received on continuing orders covered by monthly bills which are approved by the manager and turned over to the comptroller. Purchases made by committees do not usually have a purchase order, the invoice in almost every instance being received by the committee members or chairman. The invoice bearing the ap- proval of the committee is passed to the manager, who approves the same and passes it to the comptroller for payment. In the receiving department when clean linen is received from the laundry it is sorted by departments and compared with the laundry memorandum, then distributed to the departments. The memorandum slips are sent through the manager's office to the comptroller, there to be kept on file until the bill is received from the laundry and comparison of the bill and memorandum slips made. Form 2 Form 2 Stores Requisition. A supply of this form is fur- nished to each department, the only difference being that the heading is printed with name of the department. The form 152 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING which is used to remove general supplies from the stores depart- ment is made out by the chief clerk of the department requiring the supplies, in duplicate ; the original is forwarded to the stores department and the duplicate retained by the clerk as his record of supplies withdrawn. The original when received by the inventory clerk of the stock room is first used as a basis for delivering the supplies to the department making requisition. After the goods have been de- Received from. . tht following described goods red with Invoice Form 3 livered and signed for, the inventory clerk fills in the cost in the proper space, taking the information from his inventory card, form 25. At the close of each day the originals are sent to the accounting department where they are filed by departments until the end of the month. At the close of each month the requisi- tions received in the accounting department are totaled and form the basis of a journal entry charging the various departments represented by ledger accounts 120 to 127 inclusive, 130, 131, 133, 140 and 141 and crediting the various inventory accounts numbered 20 to 23 inclusive. Periodically a physical inventory is taken and the going or perpetual inventory adjusted in accordance therewith. This adjustment involves general ledger accounts 20 to 23 inclusive, the offsetting debit or credit being to the departmental operating accounts. Form 3 Goods Received Slip. This form is the memoran- THE BOYLSTON CLUB 153 dum made out in the receiving department in duplicate for each lot of goods received, except newspapers and food supplies de- livered direct to the kitchen. The slips are numbered consecu- tively in sets of two. The original is sent to the manager 's office 1 n 1 3. Amrtnnft DlSTIMBUTlOn 1" EM AM OUNT [ Res uront Expense - "lonth of | n fovor of Uor Expense " PAID DATE 192 fHFfK NO :: Amount of ChecK & Discount % $ Total as above ft - DISTRIBUTION At OUNT -- Pa JTO)1 Gd nero) Stores :: Rm Expense V, me Room T" gor Boom Bor Der Shop Expense Me nagement Salaries & Expenses Bov iliofl Expense Ac ountinq Expenses "Cc undry He at, Light -ftwer M nntenonce ot Bo'ldmij Mew spaper-PericxJicols Exp Hou ,e Expense Cca ittees Expense ' 5cn JTJJ Debits n Form 4 (Reverse) and then to the comptroller. The duplicate is sent to the stores clerk in order that he may make the necessary entry on the inventory card. The comptroller compares the slip with the invoice in the invoice file and if found correct, the invoice is approved and filed ready for passing through the voucher register. 154 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING Form 4 Voucher Jacket. This form is printed on both sides, the outside being ruled and printed for the expense distribution, the inside to contain a summary of the different invoices. The vouchers are numbered, beginning with one the first of each month. Approved invoices are vouchered three times each month, the 10th, 20th and last day of the month. Whenever rorm H--00 192 y cot ion by Classification Approved by Comptroller Approved by Form 4 (Obverse) invoices are to be vouchered they are arranged according to creditors and all invoices from one creditor entered on a voucher, form 4. The invoices are summarized and then distributed on the outside of the voucher. The distribution side of the voucher, form 4-R, may need some slight explanation. Charges to asset and controlling expense accounts are shown in the left hand column in one amount opposite the account to be charged. The expenses are then listed in the right hand column showing the detail of the various subsidiary expense accounts to be charged. The theory is that each item is shown twice, first in the amount column representing the charge to the general ledger departmental account, then in the items column showing amounts to be charged to the detailed subsidiary expense accounts. When the distribution has been completed the voucher is in order for payment. It is signed by the bookkeeper and the distribution is approved by the comptroller. If the voucher is paid as is usually the case, an entry is made in the check register, THE BOYLSTON CLUB 155 the voucher marked in the proper space with the date paid, check number, etc., and filed away numerically. If however, the voucher is not paid at the time it is prepared it is simply listed in the voucher register and filed away with the unpaid vouchers awaiting payment. Form 5 Voucher Register. The pages of the voucher reg- ister are numbered beginning with one each month and constitute a record of all purchases and expenses. The entries are made from the approved vouchers before the checks are drawn. Every entry is a credit to vouchers payable in the column so headed and the amount is distributed through the various debit columns as indicated by the accounts shown on the voucher jacket. The accounts on the voucher jacket have corresponding columns in the voucher register or in the event that a special column is not provided the amount is entered in the sundry debits column, showing the number of the account so charged. The date paid and check number are entered when the check is drawn. No individual accounts are kept with creditors, the unpaid items in the voucher register representing the balance of the vouchers payable account in the general ledger. At the close of each month the voucher register is footed and the equality of debits and credits proved. The special columns are posted in total to their corresponding ledger accounts. The sundry column is posted in detail or may be analyzed and one posting made to each account. The accounts ordinarily charged through the sundry debits column, that is those not provided with a special column, are as follows : 32 General house furnishings 33 Rooms furnishings 34 Paintings, books and bric-a-brac 35 Accounting department furniture and fixtures 36 Restaurant furniture and fixtures 40 Bar furniture 42 Cigar counter and fixtures 43 Billiard and pool room equipment 44 Barber shop equipment 45 Bowling alleys equipment 46 Newspaper and periodical counter and equipment 47 Machinery "When purchases are made which are intended to increase the permanent supply of china, glass ware, etc., the following ac- counts would be charged through the sundry debits column : 156 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING ta < \ S s 5 - ui c : J u :_\ g ^ 1C 3 1 =: = SE y g:| < K 3 3C kj _f or z: ^j => a 17 K 1 g 4 j Z\ zi t- c o <^ it: _ K a x o j - o > / > 1 :5l - li 2 5> ~ \ 5S - \ i^ o / fe il E s it u iS u . 1 U 5 J. _ 7 i < - H >. s kl .- i E I S S | ^ i c v> X J K ; L J c 2 - -u " fc i (C m u ij (- 2^ " D C 10 5 a g CC (M t - B o pi u g to 3: !o| ~ o o X ^ z: o o UJ T O ? U ii_ o o z H O A Z-. ^ p H cc e L (0 (C < c a E / THE BOYLSTON CLUB 157 37 Restaurant china and glass ware 38 Restaurant linen 39 Restaurant silver and cutlery 41 Bar glass ware Form 6 Voucher Index Card. This form is intended to be used to locate vouchers covering invoices from any particular creditor. It is the same general form as shown with the Pack- ford Auto Sales Company system and is arranged in the file alphabetically according to creditors. Form 7 Analysis of Departmental Expenses. A section of this record is set aside for each department and in the proper space at the top of the sheet the department name is entered, as, restaurant, bar, cigars, billiards and pool, rooms, barber shop and bootblack, bowling, newspapers and periodicals, gen- eral house expenses and committee expenses. When an entry is made in the voucher register charging any of the departmental expense controlling accounts in the general ledger, ]20 to 127 inclusive, 140 and 141, an entry must also be made in the analysis of departmental expenses, form 7, in the corresponding section. The date, voucher number, and amount of voucher are entered in the columns so headed. The columns to the right of the amount column are headed with the numbers of the subsidiary accounts under each main group, as, for example, in the case of account 120, the headings of the columns will be 1, 2, 3, etc., corresponding with the sub- sidiary departmental expense accounts shown on pages 185 to 187 inclusive, subsidiary account number 1 being food supplies used; 2, salaries; 3, board of employees; etc. At the close of the month the book is footed by departments and the distribution proved with the total. It will be noted that all of the subsidiary accounts in each group would not be charged through the voucher register, some of the debits originating in the journal. The accounts which would ordinarily be charged from the voucher register in each group are as follows: 120 4, 6, 7, 11, 12, 13, 19 1214, 6, 9, 10, 16 122 4, 10 1233, 4, 5. 11 1246, 7, 13 1255, 7, 13 126 4, 5, 11 1271, 4, 10 1405, 6, 7, 10, 11, 12, 13, 16 1411, 2, 3, 4, 5, 6, 7 158 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING ANALYSIS OF DEPARTMENTAL EXPENSES DEPARTMENT MONTH OF 192 j - \ 4 j \ \ 1 J -) / 3 t^ g o - i t / 1 : < I 1 V ^ / LJ > UJ (^) LJ CC 3C CO < LJ THE BOYLSTON CLUB 159 The information entered on the form is used in connection with the preparation of the monthly operating statements of the departments. Form 8 Cash Received. The sheets are written up each day and are numbered as used, beginning with one the first of each month. All funds received are deposited. The columns are used as follows : Form of remittance is intended to show whether the amount received is in cash, check, money order, express order, etc. The "debit cash" column is for the total amount received, and at the close of the month the footing of this column is posted to the debit of account 1. The other columns on the form are all credits and are used to distribute the remittances received. Column headed "members house accounts" is for entering collections of current house charges. It is posted in detail to the accounts in the members' ledger and at the close of the month the total is posted to the credit of account 4 in the general ledger. The column headed "members' annual dues" is for amounts paid in settlement of dues received in the month in which they fall due. The amounts are posted in detail to the members' cards, forms 28 and 29, and at the close of the month the total is posted to the credit of account 80 in the general ledger. The column headed "members' assessments" is used for amounts received on account of assessments paid during the month in which they fall due. The amounts are posted in detail to forms 28 and 29, and at the close of the month the total is posted to the credit of account 87. The column headed "initiation fees" is for entering such fees when received, and at the close of the month the total is posted to the credit of account 90. The column headed "employees' benefit fund" is used for entering amounts which are received to apply on this account. At the close of the month the total is posted to the credit of account 88. It may be stated at this time that when the amount is con- siderable, or in any event at the close of the month, a check is drawn for the total amount of this column and turned over to the trustees of the employees' benefit fund. This transac- 160 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING tion operates to credit cash, the offsetting debit being to em- ployees' benefit fund, account 17. The column without a heading may be used for any account for which a large number of entries are received and is headed as needed. The private ledger column is to be used for any account not covered by the special columns, the accounts for which it is most used being 5 and 6. At the close of the month the column is posted in detail to the credit of the corresponding ledger accounts, or, it may be analyzed and one posting made for each account. Cash sales column is for entering the total amount received from cash sales as shown by the report from the bookkeeping department, and is the actual cash sales regardless of the amount of cash taken in. The two columns at the extreme right of the page headed "cash variations over-under" are to be used for entering the difference between the actual cash sales as entered in the pre- ceding column and the amount of cash collected, the purpose being to determine the amount of variation in the cashier's cash during each month. At the close of the month the total of the cash sales is posted to the credit of account 150. At the close of the month two postings may be made to the cash variation account, 144, or the net difference between the columns may be determined and only one posting made. Form 9 Currency Voucher Form 10 Voucher Check Are the ordinary currency or petty cash voucher and the voucher check. The forms are not shown and no particular explanation seems to be necessary as a sample voucher is in- cluded with the Packford Auto Sales Company system and full details of operation are outlined. Form ii Check Register. The sheets are numbered each month and are written up by the cashier under the direction of the comptroller. It is intended that the check register will be operated as a record of cash disbursements, and also as a bank statement. The columns are used as follows: The column headed "particulars" is not ordinarily used, but is intended for describing special items which are not posted through the voucher register, such as allowances or discounts THE BOYLSTON CLUB 161 oc CO t-J o 162 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING of an unusual nature, and for all cases where "particulars" are desirable. The "check no." and "voucher no." columns are self-explan atory. The total amount of the check is entered in the credit column so headed and at the close of the month the total of this column is posted to the credit of account 1. The discount on any account paid is entered in column so headed and at the close of the month the total of the column is posted to the credit of account 160. The column headed "vouchers payable" is to be used for entering payments of items which are covered by vouchers and would be the sum of the amount of check and the discount columns. At the end of each month the footing of this column is posted to the debit of account 60. The column headed "members' ledger" is not ordinarily used as very few payments to members are made. In the event that a payment should be made the column would, of course, be posted in detail to the members' accounts in the members' ledger, and at the close of the month the total of the column would operate as a debit to account 4. The column headed "private ledger" is used for checks issued in payment of items not passed through the voucher register, such as a transfer of cash to accounts 15, 16 and 17. The items appearing in the column at the close of the month are posted in detail to the debit of their corresponding general ledger accounts. The three columns at the extreme right of the page are for the bank statements. The deposits are entered daily from the cash received sheet, form 8, which is the amount of cash received for the day. The withdrawals column is used for the checks drawn during the day as shown by the entries in the amount of check column. The balance is determined by adding to the balance at the close of the previous day the deposits for the current day, and deducting the withdrawals. This balance should agree with the balance of account 1 in the general ledger, which at the close of the month should be reconciled with the statement received from the bank. Sales Records. The forms used by all of the departments for recording sales are similar as will be noted by referring to the THE BOYLSTOX CLUB 163 various samples on the succeeding pages and the system is in a general way the same in each department. Wherever differences occur, they will be explained in detail. The sales tickets for each department are printed in different colors and have a different series of numbers. Form 12-3 Restaurant. When a meal is ordered the member makes out and signs the sales ticket in duplicate. As the waiter goes into the kitchen he passes a checker, to whom he gives both copies. The checker numbers the tickets, starting with one each day, and returns the original to the waiter, retaining the duplicate. The waiter gives the original sales ticket to the chef, and when the order has been filled he stops at the checker's desk and the items on the tray are compared with the duplicate sales ticket held by the checker. If the check is to be paid in cash, the waiter takes the cash to the checker in charge of the cash register and marks the sales ticket "cash." The original sales tickets are sent by the chef in the kitchen to the general manager's office at the close of each day, where they are inspected and then forwarded to the bookkeeping de- partment. In the bookkeeping department the tickets are sorted into two groups, representing charge sales and cash sales, and each .group is listed on an adding machine showing sales in each class each day. The duplicate tickets which are retained by the checker are listed by him on form 13-a, of which there are three sets, series 1 to 250, 251 to 500, and one lot in blank. The sheets, form 13-a, are totaled by the checker and sent to the bookkeeping department at the close of each day, where the totals are compared with the total of the original sales tickets determined by the adding machine list, and any varia- tions are located and adjusted. The duplicate sales tickets are filed away by the checker in bundles for each day, the bundles being retained for three months, after which they are destroyed. The check sheets are filed in the bookkeeping department, the sheets from each department being kept separate. The total of the sales as determined from the check sheets 164 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING and verified by the sales tickets is made the basis of an entry in the record of daily business, form 17, which operates to credit the various sales accounts and to debit account 4 for charge BOYLSTOM CLUB RESTAURANT WAITER Ho . .CLUB LOMCHEOHS .CLUB DIMMERS MEMBER SIGH HERE BOYLSTOM CLUB RESTAURANT NO WAITER NO DATE . GRILL ROOM MEMBERS SIGH HERE Form 12A Form 12B BOYLSTOM CLUB BOYLSTOM CLUB RESTAURAMT WAITER MO BAR WAITER No. DA Nr> Dote EMPLOYEES' TABLE, POPTM ' ^^ J -^1_ ^r; ^ r 1 1 . "" ^mn^^ i HEMBER SIOM HERE TOTAL Mr SIGH HERE For m Mo IZ-C Fom HO IZ-d Form 12c Form 12o sales and account 150 for cash sales. For a description of form 17 see page 170. The charge sales tickets are turned over to the bookkeeper THE BOYLSTON CLUB 165 in charge of the members' ledger for posting in detail to the debit of the members' house accounts. The cash sales tickets and adding machine tape are turned over to the cashier to assist him in making the cash book entry and reconciling with the amount of cash received from the cash registers. The original sales tickets are retained in the bookkeeping department for three months and then destroyed. Form i2-b Grill Room. This sales ticket is used in the grill room, the system being the same as for the restaurant, described under 12-a. Form i2-c Employee's Table. The various employees of the club receive their meals at the restaurant, if desired, with- out charge. The sales ticket, form 12-c, is made out in dupli- cate in the same way as for members, but in addition the name of the department where the person is employed is also shown. The waiter has the tickets numbered, and the checker retains the duplicate as in the case of a paying member. The original is forwarded to the kitchen, where, at the end of the day, it is sent to the manager's office for inspection, then to the bookkeeping department, where the various tickets are sorted by departments and listed on the adding machine. The adding machine lists are arranged to show the total for each department, and the grand total of all departments. The duplicate sales tickets are listed on a separate check sheet by the checker. Each sheet is totaled and sent to the bookkeeping department, where it is compared and reconciled with the adding machine total of all departments. The original tickets and the adding machine tape are filed away until the end of the month, when a summary is pre- pared which forms the basis of a journal entry charging the various operating departments, and crediting the restaurant revenue, account 100, for the meals of employees. The check sheets are filed away with the other restaurant check sheets. Form i2-d Bar. While the general system for handling sales at the bar is much the same as for food sold in the restau- rant, a somewhat different manner of treatment is necessary for part of the sales inasmuch as some are at the bar and others are at the tables in the restaurant. When sales are made at the bar the clerk in charge makes 166 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING out a sales ticket in duplicate. Both copies, which have been signed by the member, are passed to the checker, where they are numbered beginning with 1 each day. The original is re- turned to the clerk in charge of the bar and the duplicate is listed by the checker on his check sheet. If the sale is for cash, both copies of the sales ticket are stamped "cash" and the amount of sale is rung up in the cash register. For sales made at the restaurant the waiter goes to the bar clerk, who makes out the ticket and the member's signature is BOYLSTOM CLUB CIGARS WAITER Ha MO- MEHBERSSIGM HERE. Mr. BOYLSTOn CLUB ROOMS Date ROOM Ma. .DAYS .WEEKS . MONTHS SIGH HERE Form 12E Form 12o obtained by the waiter, who delivers the duplicate to the bar checker and the original to the clerk in charge of the bar. With this slight variation in the preparation of the sales ticket, the routine is the same as for the restaurant tickets. The entry in the record of daily business, form 17, operates to credit account 101 and debit account 4 for charge sales and 150 for cash sales. Form i2-e Cigars. In handling charge sales at the cigar counter the routine of making out sales tickets is the same as at the bar, the originals being forwarded to the bookkeeping THE BOYLSTON CLUB ' 167 department, where they are totaled and compared with the check sheet which is made out by the head cigar clerk, there being no checker. For cash sales no tickets are made, the amount of the sale being passed through the cash register. The sales at the cigar counter are checked each day by the cashier and reported to the bookkeeping department, where an entry is made in the record of daily business, form 17, which operates to credit account 102 and charge accounts 4 and 150. Form i2-f Billiards and Pool. The sales tickets in the bil- liard room show in addition to the regular information the num- ber of the table and are also provided with a space for insert- ing a timeclock stamp. These sales tickets are not made in duplicate. The tickets are signed by the member, or in the event of pay- ment being received in cash the sales ticket is marked "cash" and the amount received rung up in the cash register. At the close of each day the check sheet is prepared by the clerk in charge of the billiard room. The tickets for this department are numbered by the printer ; the check sheets have no numbers, the same being entered by the clerk as he uses the sales tickets, and it is the duty of the bookkeeping department to see that all sales tickets are accounted for either as charge or cash sales. From this point the routine of handling is the same as in other departments. Form i2-g Rooms. The sales ticket for rooms is made up whenever a member vacates a room and is signed at that time. These tickets are not made in duplicate and at the end of each day the check sheet is made up by the head room clerk. Each ticket is listed on the check sheet and handled as in the other departments. If a member is to occupy a room permanently he is rendered a bill at the end of the month and at that time is asked to sign the sales ticket. Form i2-h Barber Shop. The sales tickets from the barber shop are handled in the same way as sales tickets at the bar. The routine of accounting is the same as for all other departments. Form i2-i Bowling. The sales tickets in the bowling alleys are prepared in the same way as the billiard room, one copy 168 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING of the sales ticket being made out from the tally sheet and signed by the member. The numbers are printed on the sales tickets and the bookkeeping department verifies the fact that all numbers have been accounted for. THE BOYLSTON CLUB 169 Form i2-j Newspapers and Periodicals. The sales tickets at the news-stand are handled the same as the sales tickets at the bar. The routine of accounting is the same as for other departments. Form 13-3 Restaurant Check Sheet. The check sheet forms have been described in connection with the sales tickets so that no further detail seems necessary, except a general review of the form in order that we may be familiar with its outline. The form of check sheet in each department is the same, except where the sales tickets have been numbered by the printer when the check sheets do not show numbers. Form 14 Room Register. This form is the ordinary hotel register, having space provided for the signature, membership number, room number, date when the room was taken, and date when vacated. The rooms may be taken by the day, week or month, and whenever a room is occupied by a member, a room index card, form 15, is prepared. BOYLSTOrt CLUB ROOn INDEX CARD ROOM Mo RATE PER WEEK. MONTH NAME MEMBERSHIP Mo. DATE OCCUPANCY BEGAN DATE OCCUPAMCY ENDED TOTAL TIME TOTAL CHARGC *. Form 15 Form 15 Room Index Card. This form is made out when- ever a room is rented and if it is to be occupied permanently the rate per week or per month is inserted. The cards are kept in the room rack at the main desk, 170 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING there being a space provided in the rack for each room; the vacant spaces in the rack indicate rooms not occupied. When a member vacates a room the index card is removed and the rooms charge ticket, form 12, is prepared for his signa- ture. The amount of the charge entered on the sales ticket is the same amount as shown at the bottom of form 15. Form 16 Housekeeper's Daily Report. The daily report prepared by the housekeeper is forwarded to the bookkeeping HOUSEKEEPER'S REPORT ROOMS MOT OCCUPIED . FIFTH FLOOR SIXTH FLOOR SEVENTH FLOOR EIGHTH FLOOR Form 16 department and operates as a check on the actual business done in the rooms department. The report is submitted each morning and shows the rooms not occupied. It is checked with the room rack at the main desk by the bookkeeper and compared with the sales tickets for rooms turned in by the rooms department clerk. Form 17 Record of Daily Business. Two sheets are used each month, one for recording the summary of the cash sales in each department and one for recording the charge sales. The original charge sales tickets from each department and the original cash sales tickets from each department, except cigars, barber shop and papers, are delivered to the bookkeeping department each morning. Cash sales of cigars, barber shop and newspapers are reported by the cashiers. The sales tickets are listed on the adding machine showing the total cash sales and the total charge sales in each depart- ment. These totals are compared with the check sheets received from the various departments and the differences reconciled. The amounts on the adding machine tape then form the basis THE BOYLSTON CLUB 171 for two entries, one on each record of daily business sheet ; one operates to credit accounts 100 to 107 inclusive, representing the revenue accounts of the different departments, and charging account 4 for the charge sales, the other covering cash sales, credits the same revenue accounts but charges account 150. At the close of each month form 17 is footed and the total of each column posted as above. After the daily entry is made in this form the cash sales slips are sent to the cashier, where they are retained for three 172 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING months and then destroyed. The charge sales slips are turned over to the bookkeeper for posting to the debit of the members' accounts in the members' ledger. Form 18 Members' Daily Charges. The daily charge sales to members average from 350 to 550 items. Form 18 is printed on card stock and is intended to be used for accumulating the daily charges to members. A column is provided on the card Form 18 (Obverse) Form 18 (Reverse) for each month and the days of the month are indicated. A new card is made out at the beginning of each year. The sales tickets when received by the bookkeeper are sorted alphabetically according to members, then each member's tickets, if more than one in a day for a member, are totaled and the total entered on his card, form 18, which is arranged alpha- betically. The postings are proved each day in order to avoid the necessity of rechecking the large number of accounts to obtain a trial balance. The method of proving is as follows: While the postings are being made the cards are set out from the file and after the posting has been completed the cards to which postings have been made are gone over and THE BOYLSTON CLUB 173 the total postings for the day listed on the adding machine. This total is compared and reconciled with the total of the charge sales tickets as shown by the check sheet, and the adding machine tape from the tickets themselves. At the close of the month the charges during the month are totaled and that total posted from the card to the debit of the members' account in the members' ledger. Form 19 Members' Ledger. The members' ledger is a loose leaf book arranged alphabetically, the form being worked in two HEinBERS' LES6ER MAME ADDRESS vj DUES AMD ASSESSMENTS HOUSE CHARGES DATE ra. DEBITS DATE rot CRUl TS DATE FOL DEBITS DATE TO. CRtDITS J 01 ^ ^~~_ t= * ' .. ^ - ^ > ^^ ' ^- Form 19 sections, one of which is for posting dues and assessments and the other for house charges. The entries in the dues and assessments section are taken from the membership expiration index, form 28, and the directory of members, form 29. The credits are from the cash receipts book. The entries in the house charges section of the ledger are posted from the daily charges cards, form 18, once each month. The credits are obtained from the cash receipts book. At the end of each month the members' accounts are balanced and a trial balance drawn off, which should agree with the balance of account 4 for house accounts, 5 for dues, and 6 for assessments. The trial balance book for this ledger, form 20, is provided with three columns, one corresponding to each controlling account. Form 20 Trial Balance Book for Members' Ledger. This book is provided with short sheets so as to avoid the necessity of rewriting the members names more than once a year. The trial "balance is drawn off at the close of each month from the members' ledger, form 19, and the totals of the columns 174 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING THE BOYL8TON CLUB 175 proved with the balance of the controlling accounts in the gen- eral ledger. Form 21 Members' Monthly Bill. The monthly bill to members is prepared from the members' ledger and whenever THE BOYLSTON CLUB MR. Ho. House CHARGES PREVIOUSLY RENDERED i>_ HOUSE CHARGES FOR CURRENT MOUTH _.._ *_ ANNUAL DUES To. .&_ TOTAL Members slips may be obtained from the Cashier upon request on payment of this occount If payment is mode by moil, detach this stub and send with thecU to Ihe Boy Iston Club Mo. HOUSE CHARGES PREVIOUSLY RENDERED House CHARGES FOR CURRENT MONTH ANNUAL DUES TOTAL Form 21 dues expire in the current month, from the expiration index, form 28. When the bill is paid the stub is used as a memorandum for entering payment in the cash book. Assessments are not billed on this form, but a special notice is mailed and a receipt given for the payment on an ordinary receipt form. If, however, an assessment is unpaid at the close of the month in which made, it is added to the bill. In the event that amounts due from members are not paid at the end of three months, a journal entry is made charging account 84 for unpaid dues, and 85 for unpaid assessments, and crediting accounts 5 and 6 in the general ledger, and the members' account in the members' ledger. The member, of course, is deprived of his membership privileges if it is necessary to cancel charges against him. Form 22 Journal. The journal used in this system is in two separate books, the first being an ordinary two-column journal, and containing only correcting and closing entries. The second book is form 22, which is intended to carry the monthly adjusting entries. This form is provided with short sheets so as to obviate the necessity of rewriting the entries from month to month, and each entry is so arranged that it may be used as either a debit or credit to the accounts affected. Form 23 Payroll Book. A section of the payroll book is re- served for each operating department, and also for the depart- ments represented by general ledger controlling accounts 130, 131 and 140. Whenever a man enters the employ of the club a memorandum is sent by the head of the department to the bookkeeper. Each day a list is sent to the bookkeeper showing the employees absent, and when the payroll is prepared, the total number of days absent during the week is entered in the proper column. The payroll is prepared each Saturday morning, and includes the time up to the previous Thursday morning. The columns are used as follows: The rate per day, week or month is inserted in the rate column, and if the employee is a member of the benefit associa- tion the amount which he is to pay to the fund each week is entered in the column headed "benefit fund." The columns to this point are general information, and as the book is provided with short sheets, it is unnecessary to repeat the information from week to week. When the payroll is being made up the date is inserted at the head of the column ; the days absent, as shown by the daily reports, entered opposite the employee's name; the total salary which is to be drawn is entered in the total column ; the amount of his weekly contributions to benefit fund is entered in the column headed "B. F. "; and the net amount due extended in the column so headed. THE BOYLSTON CLUB 177 178 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING THE BOYLSTON CLUB 179 The columns are footed for each department and form the basis of an entry in the voucher register charging payroll, account 65, and crediting vouchers payable for the total amount which is to be drawn. The total of the benefit fund column is the amount retained from the employees, and is posted through the cash received book, form 8, to the credit of account 88. At the close of the month the payroll book is cross added to obtain the total salaries to date, the total benefit fund credit, and the net cash received by the employees. When the last day of the month does not fall on Thursday, the bookkeeper goes over the payroll book and accrues the salaries for that portion of the week or month since the last payroll day, and enters the amount in the column headed "accrued." The totals for the month are made up by depart- ments using the column headed "total salaries for the month." The total salaries for the month which is the total salary column, plus the accrual, minus the accrual in the previous month, forms the basis of a journal entry charging the various departmental accounts 120 to 127 inclusive, 130, 131, 133 and 140, and crediting payroll, account 65. DIRECTORY OF EMPLOYEES MAME ADDRESS DATE EMPLOYED . DEPARTMEHT DUTIES REFERENCES Form 24 Form 24 Directory of Employees. This form is made up from information furnished by the heads of departments at the time the man is employed, and is kept in the manager's office, arranged alphabetically. It is intended to furnish information in connection with each one of the employees. Whenever an employee is discharged or leaves, the fact is reported to the manager, and the card is removed from the file and the date and reason for his leaving entered on the back. 180 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING Form 25 Inventory Card Form 26 Insurance Register Form 27 Membership Ticket These forms do not require detailed explanation, being simply stock forms without special ruling or printing. MEMBERSHIP EXPlRATlOrt IMDEX MAME . DATE ELECTED FOR ANNUAL DUES Form 28 Form 28 Members Expiration Index. This form is made out whenever a member is elected. It is filed according to the month in which the membership expires, the cards in each month being arranged alphabetically. At the close of each month, when the members' bills are being prepared, the dues expiring in that month are added to the bill. When the cash is received an entry is made in the cash book showing the name and amount. These items are posted from the cash book to the card, form 28, and also form 29. At the end of the month in which payments should be made the expiration index is reviewed, and unpaid cards removed therefrom. The cards which have been removed, showing that the members did not pay their dues within the month following the expiration of membership, form the basis for posting to the members' ledger, form 19, in the dues section. After the postings have been made to the members' ledger the cards are summarized and the summary forms the basis of a journal entry charging account 5, members' unpaid dues, and crediting account 84, reserve for members' unpaid dues, for the total dues remaining unpaid thirty days after bill has been rendered. When the dues are finally paid, that is in the second or third month after the bill has been rendered, an entry is made in the cash book, in the column headed "private ledger," which debits cash and credits account 5; this entry is posted to the THE BOYLSTON CLUB 181 corresponding account in the members' ledger, and entries are made on the cards, forms 28 and 29. From the above explanation it will be seen that the mem- bers' unpaid dues account in the general ledger contains only those dues unpaid thirty days after bills have been rendered. Form 29 Directory of Members. The directory is made out DIRECTORY OF MEHBERS NAMF Ho. HOME ADDRESS Tfet. OCCUR Buisit vrinN IFIflfr AnnRF.ftfl TEL CNTE DATE DATE FOR YE/ ?c-n Ry ELCCTU RESIGNED OR DROPPED ANNUAL DUES u? PAI n ASSESSMENTS DATE AMOUMT PAID Form 29 when a member is elected and it is kept on file in the book- keeping department, arranged alphabetically. When an assessment is voted members are notified of the amount and when the same is due. When assessments are paid the entry in the cash received book operates to credit account 87. The items appearing in the assessment column of the cash re- ceipts book are posted to the card, form 29. At the end of the month the directory is reviewed, and the cards showing unpaid assessments are removed from the file, and postings are made to the members' ledger in the assessments section. When the posting has been completed the cards are summarized and the summary forms the basis of a journal entry charging account 6, members' unpaid assessments, and crediting account 85, reserve for members' unpaid assessments. When these overdue assessments are finally paid, that is, in the second or third month after notification has been sent, the entry in the cash book in the column headed "private ledger" operates to credit account 6. Postings are also made from the cash book to the credit of the members' accounts in the members' ledger, and a notation of the date of payment is made on form 29 and the card returned to the file. A book directory of members is also prepared and kept in the manager's office. Form 30 Assessment Receipt Book Form 31 Chart of Organization Form 32 Departmental Income and Expenses Form 33 Monthly Income and Expense Statement Form 34 Monthly Balance Sheet The above forms do not require special explanation, as they are similar to those discussed in connection with previous systems. Form 35 Newspapers and Periodicals Received and Re- turned. The newspapers and magazines sold at the news-stand rc.m nojs -. ,_. flEWSPAPERa AMD rERIODlCAUS HAMF RECEIVED PRICE: RETURNED NUMBER SOLD TOTAL SELLING PRICE DATE Hui-IBER COST SEU-IM6 DATE NUMBER ^J ~~ ' L^ J ' '* ' .. ^*^ Form 35 are not considered purchased until sold, and therefore a special method of accounting is necessary in order to keep a careful record of the department. The cash sales are rung up in the cash register and reported to the bookkeeper each day by the cashier. Charge sales are handled by charge tickets made out in single copies, which are sent to the manager's office for inspection, then to the book- keeping department, where they are totaled and compared with the check sheet made out by the head clerk in charge of the news-stand. This summary as previously outlined, operates to charge account 4 and credit account 107. When papers and magazines 'are delivered, form 35 is used to show the date and quantity received and the cost and selling price. If the paper or periodical is returnable, when the unsold copies are returned an entry is made in the returned section of the sheet and number sold extended in the proper column, which, multiplied by the selling price, shows the total amount to be accounted for by the news-stand. THE BOYLSTON CLUB 183 Whenever papers are delivered the messenger or driver takes a receipt, a copy of which is sent to the bookkeeper, where form 35 is made up. When the papers are returned the receipt is taken from the driver, and original sent to the bookkeeping department, where an entry is made on form 35 in the returned section. When the invoice is received from the news agency, it is com- pared with form 35 and if correct is approved and passed through the voucher register in the usual way. Where papers, etc., cannot be returned, a charge is made for the cost through the voucher register direct to the news-stand and the unsold copies instead of being returned are distributed to various charitable institutions. When the profit and loss account is made up, an inventory is taken at the news-stand showing all papers on hand. The number of papers sold is determined by comparing the in- ventory with form 35, and those which have not been charged against the news-stand form the basis of a journal entry, charg- ing account 127 and crediting account 60. This entry is reversed at the beginning of the next period. LIST OF GENERAL LEDGER ACCOUNTS CURRENT ASSETS Acct. No. 1 Cash in Bank 2 Petty Cash Fund 3 Change Fund 4 Members' House Accounts 5 Members' Unpaid Dues 6 Members' Unpaid Assessments OUTSIDE INVESTMENTS 15 Fund for Redemption of Debentures 16 Building Fund 17 Employees' Benefit Fund INVENTORIES 20 General Stores 21 Restaurant Stores 22 Wine Room 23 Cigar Room FIXED ASSETS 30 Land 31 Building 32 General House Furnishings 33 Rooms Furnishings 34 Paintings, Books and Bric-a-brac 35 Accounting Department Furniture & Fixturea 184 SYSTEM BUILDINO AND CONSTRUCTIVE ACCOUNTING Acct. No. 36 Restaurant Furniture & Fixtures 37 Restaurant China & Glassware 38 Restaurant Linen 39 Restaurant Silver and Cutlery 40 Bar Furniture 41 Bar Glassware 42 Cigar Counter and Fixtures 43 Billiard and Pool Room Equipment 44 Barber Shop Equipment 45 Bowling Alleys Equipment 46 Newspapers and Periodicals Counter and Equipment 47 Machinery PREPAID ASSETS 50 Unexpired Insurance 51 Prepaid Taxes 52 Unexpired Licenses CURRENT LIABILITIES 60 Accounts Payable ACCRUED LIABILITIES 65 Payroll (Accrued Salaries) 66 Accrued Taxes 67 Accrued Interest on Mortgage Payable 68 Accrued Interest on Debentures FIXED LIABILITIES 75 Mortgage Payable 76 Outstanding Debentures RESERVE ACCOUNTS 80 Members' Dues Unapportioned 81 Reserve for Depreciation of Building 82 Reserve for Depreciation of Furniture and Equipment 83 Reserve for Members' Doubtful Accounts 84 Reserve for Members' Unpaid Dues 85 Reserve for Members' Unpaid Assessments 86 Reserve for Redemption of Debentures 87 Assessment Fund 88 Employees' Benefit Fund CAPITAL ACCOUNTS 90 Initiation Fees 91 Surplus 92 Profit and Loss REVENUE ACCOUNTS 100 Restaurant Revenue 101 Bar Revenue 102 Cigars Revenue 103 Billiards and Pool Revenue 104 Rooms Revenue 105 Barber Shop and Boot Blacking Revenue 106 Bowling Revenue 107 Newspapers and Periodicals Revenue 108 Dues Apportioned DEPARTMENTAL EXPENSES 120 Restaurant Salaries and Expenses 121 Bar Salaries and Expenses THE BOYL8TON CLUB 185 Acct. No. 122 Cigars Salaries and Expenses 123 Billiards and Pool Salaries and Expenses 124 Rooms Salaries and Expenses 125 Barber Shop and Boot Blacking Salaries and Expenses 126 Bowling Salaries and Expenses 127 Newspapers and Periodicals Salaries and Expenses 130 Management Salaries and Expenses 131 Accounting Department Expenses 132 Laundry 133 Heat, Light and Power 134 Maintenance of Building GENERAL EXPENSES 140 General House Expenses 141 Expenses of Committees 142 Interest on Mortgage Payable 143 Interest on Outstanding Debentures 144 Cash Variations 150 Cash Sales 160 Cash Discount on Purchases 161 Interest on Bank Balances SUBSIDIARY DEPARTMENTAL EXPENSES RESTAURANT 120 1 Food Supplies Used 2 Salaries 3 Board of Employees 4 Ice 5 Laundry 6 Fuel 7 Stationery and Printing 8 Depreciation of China and Glassware 9 Depreciation of Linen 10 Depreciation of Silver 11 Soap and Washing Compound 12 Uniforms and Repairs 13 Sundry Repairs 14 Depreciation of Furniture and Fixtures 15 Portion of Management Salaries and Expenses 16 Portion of Accounting Department Expenses 17 Portion of Heat, Light and Power 18 Portion of Maintenance of Building 19 Miscellaneous Expenses BAR 121 1 Supplies Used 2 Salaries 3 Board of Employees 4 Ice 5 License 6 Stationery and Printing 7 Depreciation of Glassware 8 Laundry 9 Sundry Repairs 10 Uniforms and Repairs 11 Depreciation of Furniture and Fixtures 12 Portion of Management Salaries and Expenses 13 Portion of Accounting Department Expenses 186 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING Acct. No. 14 Portion of Heat and Light 15 Portion of Maintenance of Building 16 Miscellaneous Expenses CIGABS 122 1 Supplies Used 2 Salaries 3 Board of Employees 4 Stationery and Printing 5 Depreciation of Fixtures 6 Portion of Management Salaries and Expenses 7 Portion of Accounting Department Expenses 8 Portion of Heat and Light 9 Portion of Maintenance of Building 10 Miscellaneous Expenses BILLIARDS AND POOL 1231 Salaries 2 Board of Employees 3 Stationery and Printing 4 Uniforms and Repairs 5 Repairs to Equipment 6 . Depreciation of Equipment 7 Portion of Management Salaries and Expenses 8 Portion of Accounting Department Expenses 9 Portion of Heat and Light 10 Portion of Maintenance of Building 11 Miscellaneous Expenses ROOMS 124 1 Housekeeping Supplies Used 2 Salaries 3 Board of Employees 4 Laundry 5 Depreciation of Linen 6 Stationery and Printing 7 Uniforms and Repairs 8 Depreciation of Furnishings 9 Portion of Management Salaries and Expenses 10 Portion of Accounting Department Expenses 11 Portion of Heat, Light and Power 12 Portion of Maintenance of Building 13 Miscellaneous Expenses BAKBER SHOP AND BOOT BLACKING 1251 Supplies Used 2 Salaries 3 Board of Employees 4 Laundry 5 Stationery and Printing 6 Depreciation of Linen 7 Uniforms and Repairs 8 Depreciation of Equipment 9 Portion of Management Salaries and Expenses 10 Portion of Accounting Department Expenses 1 ' Portion of Heat and Light 12 Portion of Maintenance of Building 13 Miscellaneous Expenses THE BOYL8TON CLUB 187 BOWLING Acct. No. 126 1 Supplies Used 2 Salaries 3 Board of Employees 4 Stationery and Printing 5 Repairs to Equipment 6 Depreciation of Equipment 7 Portion of Management Salaries and Expenses, 8 Portion of Accounting Department Expenses 9 Portion of Heat and Light 10 Portion of Maintenance of Building 11 Miscellaneous Expenses NEWSPAPERS AND PERIODICALS 127 1 Supplies Used 2 Salaries 3 Board of Employees 4 Stationery and Printing 5 Depreciation of Equipment 6 Portion of Management Salaries and Expenses 7 Portion of Accounting Department Expenses 8 Portion of Heat and Light 9 Portion of Maintenance of Building 10 Miscellaneous Expenses GENERAL HOUSE EXPENSES 140 1 Supplies Used 2 Portion of Management Salaries and Expenses 3 Board of Employees 4 Laundry 5 Stationery and Printing 6 Postage 7 General House Repairs 8 Portion of Maintenance of Building 9 Depreciation of General House Furnishings 10 Books and Bric-a-brac Used 11 Newspapers and Periodicals 12 Uniforms and Repairs 13 Telephone and Telegrams 14 Portion of Accounting Department Expenses 15 Portion of Heat, Light and Power 16 Miscellaneous Expenses COMMITTEE EXPENSES 141 1 Board of Governors 2 Membership 3 Entertainment 4 Art and Library 5 Publicity 6 Civic Secretary 7 Other Organizations FORMS PURCHASE RECORDS Form No. Purchase Order 1 Stores Requisition 2 Goods Received Slip 3 Voucher Jacket 4 Voucher Register 5 Voucher Index Card 6 Analysis of Departmental Expenses 7 188 8YHTEM BUILDING AND CONSTRUCTIVE ACCOUNTING CASH RECEIPTS Cash Received 8 CASH DISBURSEMENTS Currency Voucher 9 Voucher Check 10 Check Register 11 SALES RECORDS Charge Tickets Restaurant 12-a Grill Room 12-b Employees' Table 12-c Bar 12-d Cigars 12-e Billiards and Pool 12-f Rooms 12-g Barber Shop 12-h Bowling 12-i Newspapers and Periodicals 12-j Check Sheets Restaurant 13 -a Bar 13-b Cigars 13-c Billiards and Pool 13-d Rooms 13-e Bowling 13-f Room Register 14 Room Rack Index Card 15 Housekeepers' Daily Report 16 Record of Daily Business 17 Members' Daily Charges 18 Members' Ledger 19 Trial Balance Book for Members' Ledger 20 Members' Monthly Bill 21 GENERAL RECORDS General Ledger Trial Balance Book for General Ledger Journal 22 Pay Roll Book 23 Directory of Employees 24 Inventory Card 25 Insurance Register 26 Membership Ticket 27 Membership Expiration Index 28 Directory of Members 29 Assessment Receipt Book 30 Appropriations Book Chart of Organization 31 Departmental Income and Expenses 32 Monthly Income and Expense Statement 33 Monthly Balance Sheet 34 Newspapers and Periodicals Received and Returned 35 CHAPTER XIX ASSETS AND LIABILITIES Account i Cash in Bank. This is the ordinary cash in banks account. All cash is deposited the same day as received, and all payments are by check except petty cash disbursements, which are made from an imprest fund of $300.00, this being the esti- mated amount of such payments for a month. The account is charged with cash received and credited with check payments. The balance represents the amount of cash in bank and at the close of the month should be reconciled with the balance shown by the bank, and should also be in agreement with the bank balance column in the check register, form 11. Account 2 Petty Cash Fund. This is an imprest fund, op- erated in the usual manner, replenished whenever necessary, or in any event at the close of each month. Account 3 Change Fund. This account represents the change funds on hand in the various departments. There is a cash register provided in each department with a change fund, the total of all departments amounting to $150.00, and with the petty cash fund, account 2, is shown in the balance sheet as a part of the general cash although represented by a separate account in the general ledger. Members' Accounts. The charges to members are made in three ways, or in other words, ascertained from three different sources ; first, for services rendered, that is, rooms, meals or other privileges granted in the different departments; second, annual dues ; and third, assessments levied for raising funds to be used for specific purposes. In theory the services are charged to account 4, dues to account 5 and assessments to account 6. As a matter of fact, however, these accounts receive charges only for accounts the payment of which is delayed, except in the case of account 4, for services, which is charged with the total amount due from the members. Account 4 Members' House Accounts. Debit at the end of the month with the total services or sales to the members during the month as shown by the summary of sales or record of daily business. 189 190 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING Credit at the end of each month for the total cash received during the month in settlement of house charges as shown by the corresponding column in the cash book. The balance represents the amount due from members on their house accounts. The bills which are rendered to the members should be paid during the succeeding month and if not paid the members' names are posted and their credit suspended. If, after sixty days, a member's account is still unpaid and efforts to collect have been unsuccessful, he is dropped from the membership and the amount due from him charged off. The balance of this account controls that section of the mem- bers' ledger covering house charges accounts. Account 5 Members' Unpaid Dues. In the accounting de- partment there is kept a file of the members, form 28, arranged in the order in which their membership expires. On the first of each month the cards expiring during the month are reviewed and to the monthly bill of the members whose memberships ex- pire in that month is added the item of dues. When the bill is paid, credit through the cash book is made to income account 80. At the end of the month those not paid are summarized and the summary forms the basis of a journal entry charging members' unpaid dues, account 5, and crediting reserve for members' unpaid dues, account 84. During the second month if the member pays his bill a credit is made through the cash book private ledger column to account 5, and at the end of the month a journal entry is made for all of the accounts of this class paid during the month which oper- ates to debit account 84, reserve for members' unpaid dues, and credit 80, members' dues unapportioned, which is an income account. If at the end of three months the members' dues are still un- paid a journal entry is made charging reserve for members' unpaid dues, account 84, and crediting members' unpaid duas, account 5. This journal entry operates to charge to the reserve such dues as are unpaid at the close of the third month at which time a member forfeits his membership. The balance of account 5 represents the amount of dues un- paid more than thirty days old. Account 6 Members' Unpaid Assessments. This account ASSETS AND LIABILITIES 191 is handled in the same way as account 5 except that it covers assessments instead of dues. There must be a two-thirds vote in order to authorize an assessment. No entry is made when an assessment has been au- thorized except to note the same on the directory of members, form 29, and notices are mailed to members. When an assessment is paid the cash received on account of the assessment is credited to account 87, assessment fund. At the close of the month following the assessment, those assessments which are still unpaid are summarized and form the basis of a journal entry charging account 6, members' unpaid assessments, and crediting account 85, reserve for members' unpaid assessments. When these assessments are finally paid the credit through the cash book private ledger column is to account 6, and at the close of the month all such assessments paid during the month are summarized and form the basis of a journal entry charging account 85, reserve for members' unpaid assessments, and credit- ing account 87, assessment fund. In the case of both account 5 and account 6 the detailed post- ings are made from the cash book to the members' ledger and to the members' directory. Account 15 Fund for Redemption of Debentures. In re- cent years the club has erected a new building, and to finance the construction issued debenture notes, which, when issued, operated to credit the liability account, 76, outstanding deben- tures. The terms under which these notes were issued require the setting aside of a certain sum each year to redeem the notes. The mechanical operation of setting aside this cash is to credit cash through the check register for the check drawn to the order of the trustees, and charge account 15. The funds are invested under the direction of the executive committee and the income from the investments is charged to account 15, the credit being to account 86. Account 15 is credited for amounts withdrawn to pay off the notes; that is, when the notes are paid an entry is made charging account 76, outstanding debentures, and crediting account 15, fund for redemption of debentures. Account 1 6 Building Fund. This account represents a fund accumulated for the construction of the building. The funds 192 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING were raised from various sources, such as subscriptions, con- tributions, etc., and when the cash was received it was turned over to the building trustees and an entry made crediting cash and charging account 16. The account is credited for amounts withdrawn to pay for construction, the charge being to account 31. In this connection it might be stated that the cash did not pass through the club books after being placed in the fund but the reports of payments by the building trustees were used as the basis of a journal entry charging building account 31 and credit- ing the fund. Account 17 Employees' Benefit Fund. A brief description of this account has been given in connection with the payroll form. When a man enters the employ of the club he may join the benefit association if he so desires. If he joins, a certain portion of his salary is withheld, varying with the amount of salary he receives. Also, at the holiday season the members of the club are asked to contribute to build up the fund. When amounts are received from the members for the fund the cash so received is turned over to the trustees of the fund and a journal entry made charging account 17, employees' bene- fit fund, and crediting account 88, employees' benefit fund. The amount reserved from the pay of the employees is handled as follows: When the payroll is made up an entry charging payroll and crediting cash for the total amount of the payroll is put through. The amount to be placed in the fund is withdrawn and turned over to the trustees, the same journal entry being made as to transfer contributions to the trustees. The funds are invested by the trustees and periodical reports rendered. The income from the investment of this fund is charged to account 17, the offsetting credit being to account 88. When an employee is sick he receives benefits and the amounts paid out are reported by the trustees, at which time a journal entry is made charging the reserve, account 88, and crediting the fund, account 17. When an employee leaves the service he may withdraw 40% of the amount which he has paid in, the entry being a debit to account 88 and a credit to account 17. ASSETS AND LIABILITIES 193 The debit balance of account 17 represents the amount of fund in the hands of trustees for the employees' benefit and should equal the credit balance of account 88 which is the offsetting reserve. Account 20 General Stores. Debit with all purchases of general supplies used in the various departments as shown by the corresponding column in the voucher register. This includes such items as china, glass, silver, kitchen utensils and linen used in the restaurant, supplies for the barber shop, housekeeping department, stationery, and other supplies used by the manage- ment and accounting department. Supplies are withdrawn by requisition for the different de- partments and at the close of the month the requisitions are analyzed by departments and a monthly journal entry is made, see journal entry 21, debiting the various departments and credit- ing account 20. The departmental accounts charged through this journal entry are expense accounts 120 to 127 inclusive, 130, 131, 140 and possibly 141. The balance of account 20 represents the cost of general sup- plies on hand and is reconciled with the going inventory, which is kept in the stores department at the end of each period. Account 21 Restaurant Stores. This account is operated in the same general way as account 20, except that it applies to restaurant stores consisting mainly of food supplies. The ac- count is debited for all such supplies purchased as shown by the corresponding column in the voucher register. Perishable supplies do not pass through the stores department, but are delivered at the kitchen. They are, however, charged to this account. Canned goods, etc., are kept in the stores depart- ment and are issued on requisition. To arrive at the cost of supplies used a physical inventory is made of the supplies on hand in the kitchen and an entry is then made charging account 120 and crediting account 21 for the difference between the amount on hand at the beginning of the month, plus the purchases, and the amount on hand at the close of the month as shown by the physical inventory. Account 22 Wine Room. This account is operated in the same general way as accounts 20 and 21. Purchases for the wine room are charged to this account through the special column in the voucher register and are withdrawn from stores on re- 194 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING quisition. At the end of the period a physical inventory is taken of the supplies on hand and an entry charging the cost of supplies used to account 121 and crediting account 22 is made. If the percentage of cost of sales to sales shows any appreciable variation from month to month, indicating that mer- chandise is not being accounted for, tests of quantities sold are made to locate the shortage. The balance of this account represents the cost of wine room supplies on hand. Account 23 Cigar Room. This account is operated in the same way as accounts 21 and 22 ; that is, the cost of sales is determined by the physical inventory and such cost is charged through a journal entry to operating account 122. Account 30 Land. This account represents the cost of land owned by the club and was charged with the original purchase price. Account 31 Building. This account represents the cost of the building. The depreciation on the building is written off at the rate of 2% per year, the entry being a debit to operating account 134, maintenance of building, and a credit to reserve for depreciation of buildings, account 81. Account 32 General House Furnishings. This account rep- resents the cost of the furniture in the general rooms open to members, but does not include the furniture in the office, dormi- tories, or restaurant. The depreciation on this class of equip- ment is written off at the rate of 10% per year, the charge being to general house expense, account 140, and the credit to reserve for depreciation of furniture and equipment, account 82. Account 33 Rooms Furnishings. This account covers the furniture in the dormitories but does not include linen and sup- plies. The depreciation is written off at the rate of 15% per year, the charge being to account 124, rooms salaries and ex- penses, and the credit to account 82, reserve for depreciation of furniture and equipment. Account 34 Paintings, Books and Bric-a-Brac. This ac- count is charged with the cost of paintings acquired and for the cost of books and bric-a-brac originally installed in the club. No further charges are made to this account for books purchased unless bought with the intention of increasing the permanent supply. New books purchased which do not increase the per- ASSETS AND LIABILITIES 195 manent supply are charged through the voucher register to gen- eral house expenses, account 140. No depreciation is taken on this account. Account 35 Accounting Djepartment Furniture and Fix- tures is an ordinary furniture and fixtures account, charged with the cost of furniture acquired and credited with the cost, less depreciation, of furniture disposed of. Depreciation is written off at the rate of 10% per year, being charged to operating account 131, accounting department ex- penses, and credited to the reserve, account 82. Account 36 Restaurant Furniture and Fixtures. This ac- count represents the cost of the furniture and fixtures in the restaurant and kitchen. Depreciation is written off at the rate of 10% per year, being charged to account 120, restaurant sal- aries and expenses, and credited to reserve for depreciation of furniture and equipment, account 82. Account 37 Restaurant China and Glassware. This account is charged with the cost of china, etc., originally purchased for the restaurant. No further charges are made to this account, all future purchases being charged to the expense account, 120. For the first two years the cost of the original equipment pur- chased is written down by journal entry to one-half its first cost so that after the second year the balance of this account repre- sents one-half the cost of the china and glassware originally pur- chased for the restaurant. Account 38 Restaurant Linen. This account is operated in the same way as account 37 and after two years the balance represents one-half the cost of the linen originally purchased. Account 39 Restaurant Silver and Cutlery. This account is operated in the same way as accounts 37 and 38. After the second year the balance represents one-half the cost of the silver and cutlery originally purchased for the restaurant. Account 40 Bar Furniture. This is an ordinary furniture and fixtures account containing the cost of the bar furniture. Depreciation is written off at the rate of 10% per year, the charge being to account 121, bar salaries and expenses, and the credit to reserve for depreciation of furniture and equipment, account 82. Account 41 Bar Glassware. This account is operated in the same way as accounts 37, 38 and 39, and after the second year 196 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING represents one-half the cost of the glassware originally purchased for the bar. Account 42 Cigar Counter and Fixtures. This is an ordi- nary fixture account, charged with the cost of the cigar counter and fixtures. Depreciation is written off at the rate of 15% per year, the charge being to account 122, cigars salaries and expenses, and the credit to reserve for depreciation of furniture and equipment, account 82. Account 43 Billiard and Pool Room Equipment Account 44 Barber Shop Equipment. Account 45 Bowling Alleys Equipment Account 46 Newspapers and Periodicals Counter and Equipment Account 47 Machinery Are the same as account 42, each representing the furniture and equipment of the department. Depreciation is charged off at the rate of 10% for accounts 43, 44, 46 and 47, and 5% for account 45. The depreciation so charged off is debited to oper- ating accounts 123, 125, 126, 127 and 133. Account 50 Unexpired Insurance. This account is charged through the voucher register with the amount of premiums paid on the insurance policies taken out. It is credited by means of a journal entry with the cost of insurance expired during the period, the offsetting debit being to account 134. The balance represents the amount of prepaid insurance. Account 51 Prepaid Taxes. This account is brought on to the books at the time the taxes are paid in October, at which time the entry for the payment in the check register operates to charge accrued taxes, account 66, for the amount accrued to date and account 51, prepaid taxes, for the balance. During the last half of the year the monthly adjusting entries charging account 134 and crediting account 51, entirely eliminate the balance, so that at April 1 no balance remains in the account. Any balance in this account during the year represents the amount of taxes prepaid. Account 52 Unexpired Licenses. This account is operated in the same way as account 51, the original cost of the licenses being charged to account 52 and adjusted at the close of each period. Account 60 Accounts Payable. This is an ordinary ac- ASSETS AND LIABILITIES 197 counts payable account, credited with the total of the corre- sponding column in the voucher register and charged with the total of the corresponding column in the cash paid book. Under this system a regular accounts payable purchase ledger is not operated, the detail of the accounts payable being taken from the open items in the voucher register. Account 65 Payroll (Accrued Salaries). Debit this ac- count through the voucher register with the total amount of the payroll. Credit through journal entry with the distribution of payroll to the expense accounts in the various departments as shown by the entry prepared from the payroll book, form 23. The balance of this account after the distribution has been made represents the amount of accrued wages and salaries and is carried on the balance sheet as a current liability. Account 66 Accrued Taxes. This is the ordinary accrued taxes account. It is brought on to the books at the end of each period through adjusting entries, charging taxes accrued during the period to account 134. When the taxes are paid a part of the payment is applied to account 66, thus eliminating the amount accrued, the balance of the amount being charged to account 51. The balance of this account represents the accrued liability on account of taxes. Account 67 Accrued Interest on Mortgage Payable. This account is brought on to the books through adjusting entries in the journal which operate to charge account 142 and credit account 67 for the interest expired during the period. When- ever payment of interest is made to the mortgage holder, the payment is charged to this account. The balance of the account represents the amount of unpaid interest accrued on the mortgage to date. Account 68 Accrued Interest on Debentures. This account is operated in the same way as account 67, the offsetting charge being to account 143, and the balance representing unpaid interest accrued on debentures to date. Account 75 Mortgage Payable. This account was credited at the time the mortgage was assumed with the amount of the mortgage. It is charged with payments made to reduce the mortgage and the balance represents the liability of the club on the mortgage. 198 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING Account 76 Outstanding Debentures. This is a liability account representing the debenture notes which have been issued to pay for the construction of the building less payments thereon, and is shown on the balance sheet as a fixed liability. Account 80 Members' Dues Unapportioned. In consider- ing this account the main point which should be emphasized is the method of distributing income from dues over the various months of the year so that each period will receive its proper share. Manifestly, if a large number of memberships expired in one month and few in another and the income from dues was taken directly to income the statement of operations would show a large income in one month and a very small income in another. The result of this condition, provided expenses re- mained normal, would be that the operations would show a marked deficit in the months in which little income was re- ceived. To avoid this condition the dues when collected are credited to account 80 and then apportioned as equitably as possible over the different months of the year. This account is credited from the cash received book with the total amount of cash received on account of annual dues falling due and paid in the current month. It is credited for amounts transferred from account 84, through journal entry represent- ing cash received on account of annual dues falling due in the previous months, and not paid until the current month. At the close of each month this account is charged with 1/12 of the estimated annual revenue from membership dues, the object, as stated above, being to transfer income from dues equitably over the year. When account 80 is charged the off- setting credit is to account 108, dues apportioned. At the end of the year the balance remaining in this account is carried as a reserve. Account 81 Reserve for Depreciation of Building Account 82 Reserve for Depreciation of Furniture and Fix- tures These are the ordinary depreciation reserve accounts, credited each month with the amount of depreciation charged to oper- ations during the period and charged with the depreciation reserved on items sold or replaced. Account 83 Reserve for Members' Doubtful Accounts. At the end of each month this account is credited with 1/12 ASSETS AND LIABILITIES 199 of the estimated losses on account of members' doubtful ac- counts for the year, the offsetting debit being to account 91. The account is charged for the actual accounts not collected, the offsetting credit being to account 4. At the end of the year if the balance of this account is a debit, indicating that accounts charged off have been in excess of the amount reserved, the balance is charged to surplus as the reserve for losses of this kind is set up from surplus instead of being charged to operations. If there is a credit balance indi- cating that an excess amount has been reserved for losses, the balance is allowed to remain. Account 84 Reserve for Members' Unpaid Dues. At the close of each month this account is credited for the amount of dues falling due in the current month which are still un- paid, the offsetting debit being to account 5. It is charged with the amount of cash received on account of previously unpaid dues, the offsetting credit being to account 80. It is also charged with the unpaid dues of members who have been dropped, the offsetting credit being to account 5. At the end of the period the credit balance of this account should equal the debit balance of account 5. Account 85 Reserve for Members' Unpaid Assessments. This account is operated in the same way as account 84, the income account being 87, and at the end of the month the credit balance of account 85 should equal the debit balance of account 6. Account 86 Reserve for Redemption of Debentures. Credits to this account are made by journal entry charging sur- plus at the same time funds are turned over to the trustees and charged to account 15. The purpose of this account is to set aside from surplus a reserve for the redemption of the out- standing debenture notes to insure retirement in accordance with the agreement under which the notes were issued. Account 87 Assessment Fund. When assessments have been levied and are paid the amount received on account of the assessment is credited to account 87, the offsetting debit being to cash. The account is also credited through journal entry for the members' unpaid assessments, the offsetting debit being to account 6. The account is charged for assessments unpaid 200 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING on account of members dropped, the offsetting credit being to account 6. It is charged for the amount of cash paid out on account of the purpose for which the assessment was made. Any unex- pended balance remaining in the account is closed into surplus, account 91. Account 88 Employees' Benefit Fund. This account is an offset to account 17 representing the cash on account of the benefit fund in the hands of the trustees. Neither account 17 nor 88 appear in the balance sheet. Account 90 Initiation Fees Account 91 Surplus Account 92 Profit and Loss These are regular surplus accounts, the amount received for initiation fees being kept in a separate account from the gen- eral surplus. The profit and loss represents the result of the operations for the period which has not yet been closed to surplus. Account 91 is charged for amounts transferred to account 86, and when the books are closed at the end of each six months period it is charged or credited with the net loss or gain from the operations of the period. It is credited for amounts transferred from account 87, and when debenture notes are paid with the amount of such pay- ments, the offsetting debit being to account 86. The credit balance of this account represents accumulated profits to date. The profit and loss account, 92, is credited at the end of each six months period for any profit there may have been from the operation of the various departments of the club, the credits being in the form of closing entries from accounts 100 to 107 inclusive, and at the end of each six months period for the balance of accounts 108, 160 and 161. The account is charged at the end of each six months period for any losses which have been sustained in any of the depart- ments, the offsetting credit being to accounts 100 to 107 inclu- sive; for the general house expenses as shown by account 140; for the expenses of committees, account 141 ; for cash varia- tions, account 144; and for interest charges for the period, accounts 142 and 143. ASSETS AND LIABILITIES 201 Statement of Assets and Liabilities. The statement of assets and liabilities is prepared at the close of each month after all adjusting entries have been posted and the profit and loss ac- counts made up. The information necessary for the statement is taken direct from the trial balance. The location of the various accounts in the statements is clearly indicated from the location in the chart of accounts, the same designations being used in each. The sum of accounts 1 and 2 is inserted as cash on hand, no separation being shown. The reserve for depreciation of permanent assets is deducted from the corresponding asset. The surplus account is analyzed in detail on the balance sheet showing the balance of the ac- count at the beginning and the amounts added on account of initiation fees and from assessments transferred. The deductions from surplus are also shown in detail and consist of the amount taken from surplus and set up as a reserve for doubtful accounts. The net increase or decrease in surplus is worked out and extended as an addition to or deduction from the balance of surplus at the beginning of the period to arrive at the total surplus. The balance of surplus at the close of the period represents net earnings, initiation fees and assessment fees to date less any amounts transferred to reserves. BOYLSTON BALANCE ASSETS Current Assets Cash in Bank and on Hand .Members' Accounts Receivable House Accounts Unpaid Dues Unpaid Assessments Less Reserve for Doubtful Accounts Inventories General Stores Restaurant Stores Wine Room Stores Cigars Room Stores Unexpired Insurance Unexpired Licenses Prepaid Taxes Total Current Assets Permanent Assets Land Buildings Less Reserve for Depreciation Furniture and Fixtures General House Accounting Department Rooms Department Restaurant Bar Cigar Department Billiards and Pool Room Barber Shop Bowling Alleys News Stand Machinery Less Reserve for Depreciation Paintings, Books and Bric-a-brac Total Permanent Assets Capitalized Expenditures Restaurant China and Glassware Restaurant Linen Restaurant Silver and Cutlery Bar Glassware Total Capitalized Expenditures Building Fund Fund for Redemption of Debentures Total Assets ** * ** * ** * *** ** **** #* f**** ** CLUB SHEET 19- LlABILITIES Current Liabilities Accounts Payable Accrued Items Wages and Salaries J*>, Taxes Interest on Mortgage Interest on Debentures **# *** Total Current Liabilities Capital Liabilities Mortgage Note Debenture Bonds Less Unpaid Subscriptions #**# #* Total Capital Liabilities General Reserves Unapportioned Annual Dues Members' Unpaid Duos Members' Unpaid Assessments Assessments Funds Fund for Redemption of Debentures Total General Reserves Surplus Balance of Surplus Account * Balance of Initiation Fees Account Add Net Profit for per Income & Expense State- ment Initiation Fees for Assessments Transferred Less Net Loss for - - as per Income & Expense State- ment **** ** Amount Reserved for Mem- bers' Doubtful Accounts *** ** Net Increase Decrease in Surplus for ending * ** Total Surplus Total Liabilities CHAPTER XX INCOME ACCOUNTS The accounts numbered 100 to 107 inclusive represent income from the members and are credited at the end of each month for the total amount of business in each department as shown by the record of daily business. When the statements are made up the income as shown by accounts 100 to 107 inclusive is partially offset by the expenses of the departments as shown by accounts 120 to 127. At the end of each six months period the debit balances of accounts 120 to 127 are closed into accounts 100 to 107 inclusive, and the balances of the latter accounts closed into profit and loss. A detailed explanation for all of the revenue accounts seems to be unnecessary. We will, however, consider the details of the restaurant account in order that we may have an under- standing of the principles involved. Account 100 Restaurant Revenue. This account represents the restaurant revenue from members and from charges made to other departments for meals served to employees. The ac- count is credited at the end of each month with the total gross revenue as shown by the footing of the corresponding column in the record of daily business. The account is charged with the expenses of operating the restaurant as shown by the debit balance of account 120. At the close of the six months period the balance of account 100, after being charged with expenses, account 120, represents the profit or loss in the restaurant during the period and is closed into profit and loss. Account 108 Dues Apportioned. Credit at the close of each month for 1/12 of the estimated annual income from members' dues. At the close of each six months period the balance of the account represents income from dues and is closed into profit and loss. Income and Expense Statements. In the preparation of the monthly income and expense statements the revenue as shown 204 INCOME ACCOUNTS 205 by the balances of the above accounts before deducting expenses is transferred from the trial balance to the various departmental statements. No attempt is made at this point to prepare a con- solidated or general income and expense statement, although as a matter of fact, it could be prepared by taking the net balance of the revenue accounts and showing the same in the income section of the combined income and expense statement, pages 219 and 220. A detailed outline for the preparation of the monthly income and expense statements will be given following the explanation of the expense accounts. CHAPTER XXI EXPENSE ACCOUNTS The accounts numbered 120 to 127 inclusive are general ledger accounts to take care of the departmental expenses, and each is a controlling account for the analysis of departmental expenses represented by subsidiary accounts which have been assigned numbers with a decimal. At the end of each month the controlling accounts are charged with three items: 1. The total wages and salaries for the month as shown by the monthly distribution of the payroll, (credit account 65) ; 2. For the total supplies used in the depart- ment, (credit accounts 20 to 23 inclusive) ; 3. For expenses chargeable directly to each department as taken from the voucher register and from the monthly journal entries. The debit balances of these accounts represent expenses for the period and at the end of each six months are shown in the statements of income and expenses and are closed into the department income accounts. As in the case of the income accounts, the detailed explanation of each of these departmental expense accounts does not seem necessary. We will, however, consider the restaurant expense accounts in order that the method of operation may be clearly understood. Account 1 20 Restaurant Salaries and Expenses. This is the general ledger account to take care of the departmental expenses and is a controlling account for the analysis of restau- rant expenses, represented by subsidiary accounts number 120-1 to 120-19 inclusive. Each time a charge is made to the controlling account, 120, in the general ledger, a posting is also made to the proper sub- sidiary account in the 120 group. Debit at the end of each month with the total wages and salaries in the restaurant for the month as shown by the journal entry distributing the payroll; for the first two years with 1/12 of the annual depreciation estimated at 25% on china and 20fi EXPENSE ACCOUNTS 207 glassware, linen, silver and cutlery (see detail of accounts 37, 38 and 39) ; for 1/12 of the annual cost of license fees; for 15% of the cost of heat, light, power and protection; for 15% of the cost of maintenance of building ; 30% of the cost of laundry ; 20% of management salaries and expenses; for 20% of the accounting department salaries and expenses (see journal entries 21 to 29 inclusive, page 224) ; and also for expenses chargeable directly to the department as shown by the voucher register. The debit balance of this account represents the departmental expenses for the period and appears on the income and expense statements as a deduction from revenue. The balance of the account is closed into the revenue account at the end of the six months period, and any balance then remaining in the revenue is transferred to profit and loss. Account 130 Management Salaries and Expenses. Debit at the close of each month for the salary of the manager, his assistant, and the clerks in his department, as shown by the journal entry distributing the payroll ; for expenses chargeable to the manager 's department as shown by the voucher register ; for supplies requisitioned from the general stores as obtained from the summary of stores requisitions, and shown by the journal entry distributing such requisitions; for a portion of the cost of heat, light and power; a portion of the cost of maintenance of building ; a portion of the depreciation of furni- ture and equipment; and for the board of employees in the department as shown by the summary of employees ' meal tickets. The debits in this account represent the total expenses of the manager's department for the month and at the close of each period the account is distributed over the revenue-producing departments, in proportion as follows: Account 120 Restaurant 20% Account 121 Bar 15% Account 122 Cigars 10% Account 123 Billiards and pool 5% Account 124 Rooms 15% Account 125 Barber shop and boot blacking 5% Account 12fi Bowling 5% Account 127 Newspapers and periodicals 5% Account 140 General house expenses 20% Total 100% The above distribution is clearly indicate/! in the monthly journal entries numbered 21 to 29 inclusive. 208 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING Account 131 Accounting Department Expenses. This ac- count is charged from the payroll distribution for the salaries of the comptroller, bookkeepers, etc. (credit account 65) ; for the supplies used (credit account 20) ; for direct expenses as shown by the voucher register; and for a portion of heat, light and power; and a portion of maintenance of building. The balance of this account represents the total expenses of the department for the month and is distributed over the oper- ating departments as shown by journal entry 29, page 224. Account 132 Laundry. Debit for the total of the corre- sponding column in the voucher register for the cost of laundry services. The balance of this account is distributed over the depart- ments as shown by journal entry 27, page 224. Account 133 Heat, Light and Power. Debit for the salaries of the engineer, firemen and helpers as shown by the monthly distribution of payroll and for any direct expense including fuel used as shown by the voucher register. The balance of this account is distributed over the depart- mental accounts as shown by monthly journal entry 25, page 224. Account 134 Maintenance of Building. This account is charged through journal entry for taxes, insurance and depre- ciation and also for any direct expenses as shown by the voucher register. The balance of the account represents the total expenses of building maintenance and is distributed over the departmental accounts as shown by journal entry 26, page 224. Account 140 General House Expenses. Debit for general house salaries including door man, check boys, telephone oper- ators, porters, etc., from the journal entry making distribution of the payroll; for supplies requisitioned as shown by the summary of requisitions; for direct expenses as shown by the voucher register; and for a portion of the management, account- ing, laundry, heat, light and power, and maintenance of build- ing accounts as shown by monthly journal entries 21 to 29 inclusive, page 224. The balance of this account represents the total expense of operating the general house department and is shown on the monthly statement as the general house overhead expense, de- EXPENSE ACCOL 7 NT8 209 ducted from profit on the statement and is closed into profit and loss. Account 141 Committee Expenses. This account is charged for the direct expenses incurred by the committees as shown by the voucher register and for supplies used by committees. The balance of the account is shown as a general overhead expense and in preparing the monthly statements is handled the same as account 140. Account 142 Interest on Mortgage Payable Account 143 Interest on Outstanding Debentures These are the ordinary interest expense accounts and are operated as such. They are shown in the monthly statements under the heading "other expenses" and the balances are closed into profit and loss. Account 144 Cash Variations. A brief explanation of this account has been given in describing the cash received book, form 8. The account is debited or credited with the cash varia- tion as shown by the corresponding columns in the cash book, and the balance of the account represents sundry income or expense as the case may be due to cash variations and is closed into profit and loss. Account 150 Cash Sales. This is a transit account, charged at the end of each month with the total cash sales as shown by the record of daily business, and credited for the total of the corresponding column in the cash receipts book which should balance the account. Account 1 60 Cash Discount on Purchases Account 161 Interest on Bank Balances These accounts are the same as are found in the ordinary trading concerns; operated in the same way, and require no detailed explanation. Subsidiary Departmental Expense Account and Statements. The subsidiary departmental expense accounts shown in the chart do not appear in the general ledger, but are an analysis of the various departmental expenses shown in total by the balance of the controlling account. The entries in the voucher register and journal are analyzed on form 7 in accordance with the subsidiary departmental expense accounts listed, and the details transferred to the monthly income and expense state- ments. 210 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING In preparing the monthly income and expense statements the revenue in each department is entered in the departmental statement as indicated in the preceding chapter. The monthly statement prepared for the restaurant will be outlined somewhat in detail although it does not seem necessary to consider each of the other departments as the procedure is the same. The cost of food supplies used in the restaurant is taken from journal entry 1 and salaries from journal entry 2. The detail of the general expense is obtained from the analysis sheet, form 7, and corresponds with the subsidiary accounts, as follows : 3 Board of Employees 4 Ice 6 Fuel 7 Stationery and Printing 8 Depreciation of China and Glassware 9 Depreciation of Linen 10 Depreciation of Silver 11 Soap and Washing Compound 12 Uniforms and Repairs 13 Sundry Repairs 14 Depreciation of Furniture and Fixtures 19 Miscellaneous Expenses The indirect expenses representing apportionment of man- agement, accounting, laundry, heat, light and power, and main- tenance expense are the balances of subsidiary accounts 15 to 18 inclusive and represent the amounts distributed through journal entries 25 to 29 inclusive. EXPENSE ACCOUNTS BOYLSTON CLUB ANALYSIS OF DEPARTMENTAL INCOME AND EXPENSES MONTH OF 19 RESTAURANT 211 Current Month Current Year to Date Same Period Last Year Revenue From Members Board of Employees Total Revenue Food Supplies Used Salaries and Wages General Expenses Board of Employees Ice Fuel Used Stationery and Printing Depreciation of China and Glass- ware Depreciation of Linen Depreciation of Silver Soap and Washing Compound Uniforms and Repairs Sundry Repairs Depreciation of Furniture and Fixtures Miscellaneous Expenses Indirect Expenses Management Salaries and Ex- penses 20% Accounting Department Expenses 20% Laundry 30% Heat, Light, Power and Protec- tion 15% Maintenance of Building 15% Total Supplies and Expenses Net Profit 212 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING BAB Current Month Current Year to Date Same Period Last Year Revenue From Members Supplies Used Salaries and Wages General Expenses Board of Employees Ice License Stationery and Printing Depreciation of Glassware Uniforms and Repairs Depreciation of Furniture & Fix- tures Sundry Repairs Miscellaneous Expenses Indirect Expenses Management Salaries and Ex- penses 15% Accounting Department Expenses 15% Laundry 10% Heat, Light, Power and Protec- tion 5% Maintenance of Building 5% Total Supplies and Expenses Net Profit EXPENSE ACCOUNTS ClGAKS 213 Current Month Current Year to Date Same Period Last Year Revenue From Members Supplies Used Salaries and Wages General Expenses Board of Employees Stationery and Printing Depreciation of Fixtures Miscellaneous Expenses Indirect Expenses Management Salaries and Ex- penses 10% Accounting Department Expenses 10% Maintenance of Building 5% Total Supplies and Expenses Net Profit Current Month Current Year to Date Same Period Last Year Revenue From Members Salaries and Wages General Expenses Board of Employees Supplies Used Stationery and Printing Uniforms and Repairs Repairs to Equipment Depreciation of Equipment Miscellaneous Expenses Indirect Expenses Management Salaries & Expenses 5% Accounting Department Expenses 5% Heat, Light and Protection 5% Maintenance of Building 5% Total Expenses Net Profit EXPENSE ACCOUNTS ROOMS DEPABTMENT 215 Current Month Current Year to Date Same Period Last Year Revenue From Members Salaries and Wages General Expenses Board of Employees Housekeeping Supplies Used Depreciation of Linen Stationery and Printing Uniforms and Repairs Depreciation of Furnishings Miscellaneous Expenses Indirect Expenses Management Salaries and Ex- penses 15% Accounting Department Expenses 15% Laundry 30% Heat, Light, Power and Protec- tion 25% Maintenance of Building 25% Total Expenses Net Profit 216 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING BARBER SHOP Current Month Current Year to Date Same Period Last Year Revenue From Members Salaries and Wages General Expenses Board of Employees Supplies Used Stationery and Printing Depreciation of Linen Uniforms and Repairs Depreciation of Furnishings Miscellaneous Expenses Indirect Expenses Management Salaries and Ex- penses 5% Accounting Department Expenses 5% Laundry 20% Heat, Light and Protection 5% Maintenance of Building 5% Total Expenses Net Profit EXPENSE ACCOUNTS BOWLING 217 Current Month Current Year to Date Same Period Last Year Revenue From Members Salaries and Wages General Expenses Board of Employees Supplies Used Stationery and Printing Repairs to Equipment Depreciation of Equipment Miscellaneous Expenses Indirect Expenses Management Salaries and Ex- penses 5% Accounting Department Expenses 5% Heat, Light and Protection 5% Maintenance of Building 5% Total Expenses Net Profit 218 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING NEWSPAPERS AND PERIODICALS Current Month Current Year to Date Same Period Last Year Revenue From Members Supplies Used Salaries and Wages General Expenses Board of Employees Stationery and Printing Depreciation of Fixtures Miscellaneous Expenses Indirect Expenses Management Salaries and Ex- penses 5% Accounting Department Expenses 5% Maintenance of Building 5% Total Supplies and Expenses Net Profit EXPENSE ACCOUNTS BOYLSTON CLUB MONTHLY INCOME AND EXPENSE STATEMENT MONTH OF 19 219 Current Month Current Year to Date Same Period Last Year INCOME Net Profit from Departments Restaurant Bar Cigars Billiards and Pool Rooms Barber Shop Bowling Newspapers and Periodicals Total Net Profit from De partments Other Income Annual Dues Discounts Received Interest on Bank Balances Total Other Income Total Income GENERAL EXPENSES General House Expenses Salaries and Wages Board of Employees Supplies Used Stationery and Printing Postage General House Repairs Depreciation of House Furnish- ings Books and Bric-a-brac Newspapers and Periodicals Uniforms and Repairs Telephone and Telegrams Miscellaneous Expenses Carried forward 220 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING MONTHLY INCOME AND EXPENSE STATEMENT MONTH OF 19 (Cont.) Current Month Current Year to Date Same Period Last Year GENERAL EXPENSES (Cont.) Brought forward General House Expenses (Cont.) Management Salaries and Ex- penses 20% Accounting Department Expenses 20% Laundry 1 0% Heat, Light, Power and Protec tion 30% Maintenance of Building 30% Expenses of Committees Board of Governors Membership Entertainment Art and Library Publicity Civic Secretary Other Organizations Other Expenses Interest on Mortgage Payable Interest on Debentures Cash Variations Total General Expenses Net Profit Loss EXPENSE ACCOUNTS 221 After the departmental operating statements have been made up and the net profit or loss in each department ascertained, the amount of such profit or loss is transferred from the depart- mental statement to the general statement. If a department shows a loss instead of a profit, such loss is indicated in red ink. The reason for preparing a departmental statement and tak- ing the information from the departmental statement to the general statement instead of using the ledger balances is that the statements are prepared monthly while the books are closed only semi-annually, therefore it would be very difficult to take the information direct from the trial balance inasmuch as the expenses in each department would not be closed to the revenue account. In other words, at the end of six months it would be possible to prepare general statements direct from the ledger using the balance of the departmental account to show the profit or loss in the department, but as this is possible or con- venient only once in six months the practice of preparing depart- mental statements first and taking the information therefrom to the general statement has been adopted. The other income on the general statement is taken from the balances of the corresponding general ledger accounts; the in- come from dues from journal entry 12; discounts received from account 160; and interest on bank balances from account 161. The general house expenses are taken from the analysis sheet, form 7, and the proportion of overhead is taken from journal entries 25, 26, 27, 28 and 29. The expense of committees is the balance of account 141, analyzed on form 7. The other expenses are interest on mort- gage payable from account 142, interest on debentures from account 143, and cash variation from account 144. The net profit or loss for the period is ascertained, which amount is inserted in the statement of assets and liabilities. It will be noted that the monthly operating statements allow for comparison with the same period last year which comparison may be used as a guide in conducting the affairs of the club. The monthly adjusting entries are shown on the following pages: 222 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING BOYLSTON CLUB MONTHLY JOURNAL ADJUSTING ENTRIES 1 Restaurant Salaries and Expenses (120) To Restaurant Stores (21) Cost of food supplies used during the month 2 Bar Salaries and Expenses (121) To Wine Room Stores (22) Cost of wines used during the month 3 Salaries and Expenses ( 122 ) To Cigar Room Stores (23) Cost of cigars and tobacco used during the month 4 Maintenance of Building (134) To Reserve for Depreciation of Building (81) One-twelfth of estimated annual depreciation u Restaurant Salaries and Expenses (120) To Restaurant China and Glassware (37) Restaurant Linen (38) Restaurant Silver and Cutlery (39) One-twelfth of annual depreciation estimated at 25% Note: The above entry is made monthly until the asset accounts involved stand on the books at one-half the original charges to these accounts; thereafter they are not adjusted, all supplies requisitioned from stock being charged directly to the restaurant ex- penses account. 6 Bar Salaries and Expenses ( 121 ) To Bar Glassware (41) One-twelfth of annual depreciation estimated at 25% Note: The above entry is made monthly until the asset account involved stands on the books at one-half the original charge to this account; thereafter it is not adjusted, all supplies requisitioned from stock being charged directly to the bar expenses account 7 Maintenance of Building (134) To Unexpired Insurance (50) That part of the cost of insurance policies outstand- ing applicable to the current month 8 Maintenance of Building (134) To Prepaid Taxes (51) Accrued Taxes (66) To charge into the expenses for the current month the taxes applicable to it Restaurant Salaries and Expenses (120) Bar Salaries and Expenses (121) To Unexpired Licenses (52) One-twelfth of the annual cost of license fees 10 EXPENSE ACCOUNTS 223 11 Interest on Debentures (143) To Interest Accrued on Debentures (68) Interest on debentures accrued for the month 12 Members' Dues Unapportioned (80) To Members' Dues Apportioned (108) One-twelfth of estimated annual revenue from mem- bership dues 13 Surplus (91) To Reserve for Members' Doubtful Accounts (83) One-twelfth of estimated loss for the year on account of bad debts 14 Members' Unpaid Dues (5) To Reserve for Members' Unpaid Dues (84) The annual fees falling due during the month and re- maining unpaid at the end of the month 15 Reserve for Members' Unpaid Dues (84) To Members' Dues Unapportioned (80) To transfer the amount of the payments for the month on account of previously unpaid annual dues to the members' dues Unapportioned account 10 Members' Unpaid Assessments (6) To Reserve for Members' Unpaid Assessments (85) The amount of the assessments falling due during the month but remaining unpaid at the end of the month 17 Reserve for Members' Unpaid Assessments (85) To Assessment Funds (87) To transfer the amount of the payments for the month on account of previously unpaid assessments to the as- sessment funds account 18 Reserve for Members' Unpaid Dues (84) To Members' Unpaid Dues (5) To charge against the reserve for unpaid dues the total amount of annual dues previously charged to members who have been dropped from membership during the month 19 Reserve for Members' Unpaid Assessments (85) To Members' Unpaid Assessments (6) To charge against the reserve for unpaid assessments the total amount of assessments previously charged to members who have been dropped from membership during the month 20 Newspapers and Periodicals Salaries and Expenses (127) To Accounts Payable (60) To adjust the newspapers and periodicals revenue ac- count so that it will contain the proper charge for the cost of periodicals sold but for which no liability has been brought upon the books 224 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING >H J a H X O dxg 11103 Ji| W S OPS 3 |3 4 UBJ^ - ^ " 1 ^ J 1 ^=\ TOTAL CHECKED BY SHIP OUR L CCU1I mm COST TOTA Ptffs LOT no TAN MMl AR ED WITH CE COST PEI or FREIGHT L COST PER ) OH IMVEMT an LB Form 2 amount of freight on the shipment. This entry operates to charge purchases account C-l for the cost of goods in transit, plus the estimated freight, and credit account F-l for the invoice payable, and account F-7 for the estimated amount of freight. During the next month, when the freight is actually paid, it is charged through the voucher register against account F-7. Form 8 Sales and Cost Journal. The sales and cost journal described in connection with the Packford Auto Sales Com- pany was used for posting to the detailed sales and cost ac- counts. In this system the columns are posted only to and including the cutting department. The balance of the columns, headed "strips," "ends," "shanking," "butts," "shoulders," "bends," "backs" and "miscuts." are not posted to the general ledger accounts but are used in making up statements of opera- tions to show the revenue received from each class of leather turned out by the cutting department. At the end of the month the journal is footed and the columns posted as follows: CENTRAL LEATHER COMPANY 231 232 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING- CENTRAL LEATHER COMPANY 233 Accounts Receivable, debit account B-3 Cash Sales, debit account B-l Leather Revenue, credit account J-2 Leather Cost, debit account J-3, credit account C-l Cutting Department Revenue, credit account J-2 Cutting Department Cost, debit account J-3, credit account C-2 As stated above, the balance of the columns on this form are not posted to ledger accounts. The amounts entered in the columns are an analysis of the totals in the leather and cutting department columns. CENTRAL LEATHER CO CUTTIflG DEPI - STOCK REQUISITION DATE. THE FOLLOWING STOCK HAS BEEN DELIVERED TO THE CUTTine DEPARTMENT FROM LOT MO. COST PER LB DELIVERED BY ENTERED ON INVENTORY Form 24 Form 24 Stock Requisition. This requisition is kept in the stockroom and is made out each time a supply of material is turned over to the cutting room. The summary of stock requi- sitions forms the basis of a journal entry transferring from account C-l to account J-l the material which is transferred from the stockroom to the manufacturing or cutting department. Form 25 Direct Labor Time Card. This time card is made out by the superintendent of the cutting department and shows the employee's name and number. The operations in the room are classified and opposite each classification is the time the work was begun, finished and elapsed time, which, multiplied by the rate, gives the cost for time worked. In the event that the work is paid on the piece work basis, the number of pieces times the rate gives the cost. The time card is forwarded to the office and entered on the payroll, serving both as a basis for paying the employee and computing the cost of work performed in the cutting depart- ment. Form 26 Daily Cutting Report. This form is made out by the foreman of the cutting room, and in the column headed 234 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING "product" the items turned out are listed with the pounds of leather used, the lot from which used, and the cost as shown by the invoice plus the freight. The product is entered in the proper column with the average """""* CENTRAL LEATHER CO. CUTTING DEPARTMENT -TIME CARD nTF Nrt R.-rr BEGUM rmiSHCD ELAPSED Tine COST TIME WORK PIECE WORK Ho COST currmo TRIMMING SORVIMO PACWnG TOTALS CMTERED OH PAYROLL Form 25 weight from which the charge is computed. The charge is that proportion of the original cost allocated to each kind of mate- rial turned out, plus the labor and overhead charged in manu- facturing or cutting. At the close of the month the reports are summarized and form the basis of a journal entry debiting ac- count C-2 and crediting J-l. CENTRAL LEATHER COMPANY 235 s 1 o U H s ^ K g u U5 oE (- 1 / _j i 1- I K o Kl ri \ i mfl \ UI tc * 1 z f- 3 a u i ( CHAPTER XXIII GENERAL LEDGER ACCOUNTS The general accounts used in this system do not differ mate- rially from the ordinary asset and liability and revenue and expense accounts, therefore no detailed explanation seems neces- sary. Attention has already been called to the variation from standard practice in the classification of accounts but other than this no special mention need be made except in the case of those accounts peculiar to the business. Account C-i Purchases (Leather). All purchases of leather, including freight, are charged to this account at the close of the month from the voucher register. At the close of the month the account is credited for the cost of leather sold before sorting and cutting, and for the cost of leather turned over to the cut- " ting department, the offsetting debit being to accounts J-3 and J-l respectively. Account C-2 Finished Goods Cutting Department. This account is charged for the finished goods turned out by the cut- ting department, as shown by the daily cutting reports, which include material, labor and overhead. The charge also includes a loading to bring the price to what the sales department would pay if the goods were purchased outside, so the cutting depart- ment should show a profit. The offsetting credit is to account J-l. Account C-3 Work in Process Cutting Department. This account represents the work in process in the cutting de- partment at the end of the month. No debits or credits are made to this account during the month, but at the close of each period a physical inventory of the work in process in the cutting department is taken and the balance of account C-3 adjusted in accordance therewith, the offsetting debit or credit being to account J-l. Account D-i Insurance Unexpired. This account is charged for the cost of all insurance premiums paid and at the close of the month a journal entry is made crediting the account with 236 GENERAL LEDGER ACCOUNTS 237 the insurance expired during the month, and making charges to the following expense accounts: Insurance on merchandise is divided between account J-l and account N-ll ; insurance on buildings, account R-2 ; furniture and equipment, account J-l and account N-9 ; liability, account J-l and account N-10; burglary, account N-13; trucks and wagons, account P-7. The balance represents the unexpired insurance premiums which have been paid. Account D-2 Taxes Prepaid. This account does not require special explanation except to furnish the expense accounts to which the taxes are distributed. The tax on personal property is distributed % to account J-l and 14 to account P-8; merchandise and equipment to account N-12; real estate to account R-3; corporation tax to account N-14 ; income tax to account N-15. Account F-7 Freight on Goods in Transit. A brief outline of this account has been given under the description of the voucher register, form 4. Debit with that portion of freight paid on shipments which were in transit at the clese of the previous month as will balance the item shown by the details of shipments in transit entered in the voucher register. Any variation in the estimate is taken up in the current month. Credit for estimated freight on merchandise in transit at the close of the month as shown by the voucher register. The balance represents freight unpaid on goods in transit. Account H-5 Loss and Gain Cutting Department. This account represents the loss or gain each month in the cutting department, as indicated by the balance of account J-l. At the end of the year the balance of account H-5 is transferred to surplus. Account J-i Cutting Department. Debit for work in proc- ess at the beginning of the period ; for the cost of leather turned over to the cutting department as shown by the summary of requisitions (credit C-l) ; for direct labor as shown by the voucher register and the journal entries bringing on accrued wages; for departmental expenses as shown by the footing of the special column in the voucher register; for tools and sup- plies used (credit A-7) ; and for indirect labor. 238 SYMTEM BUILDING AND CONSTRUCTIVE ACCOUNTING The overhead expenses apportioned to this account are deter- mined as follows: Insurance on merchandise in the cutting department is based on the average inventory. Depreciation of machinery and equipment is based on an esti- mated life of twelve years. It is charged each month with one-half of the expired liability insurance (the balance is charged to account M-10). Three-eighths of the monthly bill for lighting. This bill is dis- tributed through the voucher register; three-eighths to the cut- ting department, three-eighths to account N-5, and one-fourth to account L-4. The heat is supplied by an outside company. The bill is received monthly, distributed through the voucher register, and charged three-eighths to account J-l, three-eighths to account N-6, and one-fourth to account L-5. The rent each month is figured on a basis of $4,000 a year, being an estimated amount, and is charged to account J-l and credited to account S-3. Charge this account at the end of each month for taxes on merchandise and equipment based on the value of merchandise and equipment in the department. Kepairs to equipment in the cutting department are charged direct through the voucher register. Credit at the end of each month with the finished product turned over to the sales department as shown by the summary of form 26 (debit account C-2) at the cost of the finished product as determined from the cutting reports plus the load- ing; for the work in process at the end of the period as shown by the physical inventory (debit account C-3). The balance represents the profit or loss in the cutting de- partment and is transferred to account H-5. At the close of the year the balance of H-5 represents the net profit or loss from the cutting department operations for the year and is transferred to account H-4. Careful attention should be given to the balance of account H-5 before closing, for if there should be a large inventory of finished stock on hand unsold an antici- pation of profits would result unless an adjustment is made for the loading added to the cost of the cut stock transferred from account J-l. GENERAL LEDGER ACCOUNTS 239 Account J-2 Sales. Credit for the total sales as shown by the footing of the corresponding columns in the sales journal. Debit for the sales returns as shown by the footing of the corresponding column in the sales returns book. The balance during the year represents the net sales for the period. At the close of the year the balance of account J-3, cost of sales, is closed into account J-2 ; the balance then represents the gross profit on sales and is closed into profit and loss. GENERAL AND MANUFACTURING EXPENSES The group of accounts shown in the chart as "N" accounts are the general expenses of the business not chargeable directly to selling, office or administration. The accounts in the "0" group are kept in the subsidiary ledger, the controlling account for which is J-l. When an entry is made in the general ledger charging account J-l for material, labor or expense an entry is also made in the proper "O" account. It is not intended that refinements of cost accounting should be considered in studying the system of the Central Leather Company as it is evident that many of the accounts are very crude in their operation. The reason for including the set at this time is to illustrate the principle of distributing purchases and sales in the original records, using that information in part for posting to general ledger accounts and in part merely for statistical purposes. CHAPTER XXIV INSTITUTIONAL ACCOUNTING There are three more or less distinct classes of accounting designed to care for the different classes of institutions, known as public, semi-public and private. The accounts themselves do not differ very materially from, those found in a trading con- cern except that the assets are usually represented by funds in the hands of committees or trustees, or invested in securities, while the capital is composed of the funds themselves. The public institutions are usually supported by the munici- pality and are conducted by a board of trustees. The semi-public institution is one which is supported par- tially by private donations and partially by paying occupants. A private institution is one which is supported entirely by private endowment or donations. Institutional accounting is more or less technical in its char- acter, and the fundamental principles underlying any system of accounts for an institution contemplate the segregation of income from principal. Throughout all of the transactions a distinction must be made between income which operates to increase principal, and income which may be used for operating purposes. In a general way this may be stated as governed by the same laws and rules under which an executor or admin- istrator operates in making his accounting to the courts. The subject of institutional accounting is most interesting, but on account of its rather technical nature is not generally understood. One of the reasons for this fact may be that a large majority of the institutions are for charitable purposes and the amount of money which they have available to expend for accounting or system work is very limited, which results in only a small number of accountants being employed or having a knowledge of the work. In any institutional system it is generally necessary to oper- ate a set of controlling accounts as the treasurer is usually a man with private interests who devotes only a small portion of 240 INSTITUTIONAL ACCOUNTING 241 his time to the institution. These controlling accounts are kept in the treasurer's or controlling ledger, which is written up once or twice each year. The operations of the institution controlled by the treasurer's ledger are recorded in a subsidiary ledger, called superintend- ent's, foreman's, or matron's ledger, depending upon the title given to the active head of the institution. All of the transactions relating to investments, funds, etc., are recorded in the treasurer's ledger and he disburses to the superintendent or head of the institution varying amounts at different times to meet current expenses, the method of making such disbursements depending upon the system used in the par- ticular institution. The treasurer's ledger has a control account for the super- intendent and likewise the superintendent has a control account in his ledger showing his transactions with the treasurer. At the close of the year the superintendent's ledger is closed and the transactions transferred in total to the treasurer's ledger where operating accounts are maintained in the same form. While the general principles underlying institutional account- ing are the same for each class, probably the semi-public insti- tution presents the more complicated problem, and in order that we may have a clear understanding of the various opera- tions a set of accounts designed for this class of institution has been selected for detailed study. CHAPTER XXV BAY STATE HOSPITAL GENERAL PLAN The Bay State Hospital is a semi-public institution supported by contributions, the income from certain endowment funds which are either restricted, that is, used for specific purposes, or general, and from amounts paid for services. The income from general funds is applied to the current operating expenses so far as is necessary, the balance being credited to the surplus account as a reserve against future periods. The treasurer, who is elected by the trustees, devotes very little time to the institution and at the close of each year em- ploys some one to review the transactions of the superintendent, make the necessary adjusting and closing entries, bring the re- sult of the operations into his ledger, and prepare the state- ments and reports. The hospital itself is in charge of a superintendent who op- erates a ledger provided with detailed expense accounts. At the close of each year the expense accounts are distributed to the different departments or wards which produce income. A more or less elaborate set of operating statements is prepared by the superintendent under the direction of the accountant employed by the treasurer. These statements form the basis of the treasurer's annual report, which is explained in Chapter XXXII. All of the transactions by the superintendent are controlled by the treasurer, and the disbursements by both the treasurer and the superintendent are approved by the board of trustees. The superintendent incurs various expenses during the month and at the close of the month forwards the bills to the board of trustees. The bills are reviewed by the trustees and passed to the treasurer, who draws a check to the order of the superin- tendent in settlement, charging superintendent's account in his ledger and crediting cash. The superintendent receives the check, credits the treasurer's account in his ledger and charges 242 BAY STATE HOSPITAL 243 the various operating accounts for the disbursements which he has made. At the close of any period the balance of the two controlling accounts should be in agreement, the treasurer having in his ledger in total the transactions which are detailed in the super- intendent's ledger. CHAPTER XXVI FORMS AND RECORDS The complete list of forms used in the system of the Bay State Hospital is shown on page 249, but as most of the forms CASHIER HER AS FOLLOW BAY STATE HOSPITAL OUT-PAT1EKT DEPARTMEUT DAILY CASH STATEMENT "WITH FIMD OSH # ___ BF.PRESFNTIHCi THF Dlfff RECEIPTS I HO DEPARTMEUT AT10UMT GENERAL SURGICAL 4 DRESSINGS 4 GEHCIAL MEDICAL etc AMI CAR THROAT Ann MOSt HUM GYNECOLOGICAL BRTHOPEDIC HEHR9LOGICAL X-RAY KKMM KltTU. HEDICAL SUPPLIES TOTAL CORRECT AMD ENTERED NCRSE in CASHIER Form 9 have already been considered in previous systems only those peculiar to the institution will be described in detail. Form 9 Outpatient Department Daily Cash Statement. 244 FORMS AND RECORDS 245 This form is made out in duplicate by the nurse in charge of the outpatient department, and is sent to the cashier at the close of each day. As the outpatient department is divided into BAY STATE HOSPITAL NUMBER NAME FILE BEHIND WARD ADDRES5 BILL TO ADDRESS ADMITTED DISCHARGED HATE RATE CHANGED IM HOSPITAL. w n CHARGES CREDITS DATE ITEMS W I) RATE AMOUNT DATE ITEMS AMOUNT DATE ITEMS AMOUNT ^ 1 __u Form 11 two- sections, one in the hospital and one as a dispensary, two sheets are used' for each day's business. The nurse in charge of the department enters the number of patients,' classifying the treatment received, and showing the amount of cash paid by the patient. The original report is sent to the cashier with the cash and forms the basis for the cash book entry, crediting the proper BAY STATE HOSPITAL PATIENT'S CHARGE NO X-RAY DATE PLEASE CHARGE Form 13 income account (19) and charging cash, account 1. See chart of accounts, page 250. Form 1 1 Patient's Charge Card. This is a 4x6 card kept in the hospital office and shows a complete record of the time the patient is in the haspital with the rate charged, and the total amount to be entered in form 18, patient's charge book. Form 13 X-Ray Charge Card Is used in all departments, 246 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING a different color being provided for each, and shows the charge against the patient for x-ray services regardless of the ward in which he may be located. This form is one of the original records used in making entries in the patient's charge book. no. BAY STATE HOSPITAL PATIEttT CARD - GENERAL INFORMATION WARD .^ _^__ _ - AGK CIVIL COtinlTIOH BIRTHFtACE i OCCUPATION _^_________^^_ RESIDENCE ' rnon DR DIAGNOSIS on ADMission RELATIVE ADDRESS OF RELATION WHAT RELATION _ DIAGNOSIS On DISCHARGE COnDITIOn on DISCHARGE DATE OF DISCHARGE Form 20 Form 20 Patient Card General Information. This form is used as a record of information from all patients entering the hospital. The cards are kept in an alphabetical file in the main office and show detailed information regarding each patient. Form 24 Storeroom Requisition Surgical Supplies. This requisition is used when supplies are to be withdrawn from the storeroom. A form is prepared for each department along the same lines as the ordinary stores requisition. It is made out by the head of the department requiring supplies and is filed in the storeroom. FORMS AND RECORDS 247 The requisitions are summarized and form the basis of a charge to the different departments for supplies used. Form 28 Head Nurse's Daily Report. This form is used by the head nurse for preparing the report of patients in the hospital each day and the number of nurses. The name and case number of each patient admitted or discharged is entered in the proper space. The number of patients the previous day For DEn Urt n MO 24 BAY STATE HOSPITAL SURGICAL SUPPLIES 19 STORE ROOM ISSUED TO T . APPT IOVED ^> ^^ ^ " >v> -^_ "'""""' ~^*~ -^ Form 24 is entered at the head of the report, and to this number is added the number admitted. The number discharged during the day is deducted, thus arriving at the number to be carried forward to the next day. The number of patients in the hospital during the day is used to ascertain the patient days in each ward, a daily report being made for each ward. The same method of preparing the report with respect to the nurses is followed, the total hours worked being divided by the number of hours considered to constitute a day determines the number of nurse days in each ward. The patient days and nurse days thus determined are used as the basis for distribut- ing the general expenses to the different wards, and while the report is more or less statistical, much use is made of it in studying the result of operations. Care is necessary in its preparation, as the operations of the different wards are seri- ously affected by errors. 248 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING FORMS AND RECORDS 249 LIST OF FORMS SUPERINTENDENT'S OFFICE PURCHASE RECORDS FORM No. Purchase Requisition 1 Purchase Order 2 Goods Received Sheet 3 Voucher Jacket 4 Voucher Register 5 CASH RECEIPTS AND PAYMENTS Cash Receipts 6 Cash Payments 7 Petty Cash Voucher 8 Outpatient Department Daily Cash Statement 9 CHABGE RECORDS Weekly Bill 10 Patient's Charge Card 11 Operations Charge Card 12 X-Ray Charge Card 13 Pathological Laboratory Charge Card 14 Apothecary Charge Card 15 Telephone Charge Card . 16 Special Nursing Charge Card 17 Patients' Charge Book 18 Patients' Charge Trial Balance 19 GENERAL ACCOUNTING RECORDS Patient Card General Information 20 Storeroom Requisition Kitchen Supplies 21 Stationery and Printing 22 Medical Supplies 23 Surgical Supplies 24 Appliances and Instruments 25 Housekeeping Supplies 26 Apothecary Requisition 27 Head Nurse's Daily Report 28 Daily Ambulance Record 29 General Journal 30 Superintendent's Ledger 31 Superintendent's Ledger Trial Balance 32 CHAPTER XXVII BAY STATE HOSPITAL TREASURER'S LEDGER LIST OF ACCOUNTS 1 Treasurer's Account with Superintendent 2 General Cash 3 Special Endowment Funds 4 Endowed Bed Fund 5 Hospital Earnings 6 Contributions 7 Income from Investments 8 Income from Special Endowment Funds 9 Income from Endowed Bed Fund 10 Sites and Grounds 11 Buildings 12 Furniture and Fixtures 13 Machinery and Tools 14 Apparatus and Instruments 15 Ambulances, Horses and Equipment 16 Mortgages Receivable 17 Securities Owned 18 Treasurer's Accounts Receivable 19 Interest Accrued 20 Hospital Expenses 21 Capital (Hospital Properties and Equipment) 22 Special Endowments 23 Endowed Bed Fund Account 24 Surplus and Deficit The functions of the accounte peculiar to this system are as follows : Account i Treasurer's Account with Superintendent. Debit with cash paid to the superintendent (credit account 2) ; at the end of the year for the hospital receipts as shown by the annual report (credit account 5). Credit with cash received from the superintendent (debit ac- count 2) ; for uncollected accounts receivable at the close of the year (debit account 24) ; for the total expenses during the year as shown by the annual report (debit account 20). If the balance of this account is a debit it represents the amount due the treasurer from the superintendent. If a credit, the amount is due from the treasurer to the superintendent in order to make up the operating deficit in the superintendent's accounts. 250 BAY STATE HOSPITAL 251 Account 2 General Cash. Debit for cash received from con- tributions (credit account 6) ; for income from endowment funds (credit account 8 or 9) ; for cash received from the super- intendent (credit account 1) ; for all other miscellaneous cash receipts. Credit for investments made (debit account 16 or 17) ; for purchases of permanent equipment (debit account 12, 13, 14 or 15) ; for cash paid to the superintendent (debit account 1) ; and for all miscellaneous cash payments. The balance represents the cash on hand in the general fund. Account 3 Special Endowment Funds. Debit when amounts are received the principal or income from which is to be set aside for special purposes (credit account 22). The entries in this account are not ordinarily put through the cash book for the reason that the special endowments are rarely received in cash. The balance of this account is an asset and should equal the credit balance of account 22. Account 4 Endowed Bed Fund. This account is a special endowment fund operated the same as account 3. It is charged with cash or property the income from which is donated to maintain certain beds. It has been found necessary to make this separation of special endowments in order to have a proper accounting of the amounts donated for this purpose. The offsetting credit is to account 23. Account 5 Hospital Earnings. This account is used only at the end of the year. Debit for hospital expenses during the year (credit ac- count 20). Credit for the total hospital receipts of the year as shown by the annual report (debit account 5). The balance is the surplus or deficit for the year, and is transferred to account 24. Account 6 Contributions. Credit for contributions when they are received (debit account 2 if cash or account 17 if securities). The balance before the books are closed represents the total receipts from contributions during the year, and is transferred to account 24. 252 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING The contributions are usually applicable to the current ex- penses and for this reason are handled as above. Account 7 Income from Investments. Credit this account with the income from mortgages, securities and real estate (debit account 2). Debit for accrued income acquired if any at the time securi- ties are purchased. The balance of the account represents income from invest- ments and at the close of the year is transferred to account 24. Account 8 Income from Special Endowment Funds. Credit for income received from the special endowment funds (debit account 2). Debit for accrued income acquired, if any, at the time securi- ties are purchased. The balance at the close of the year represents the amount of income earned from the special endowment investments and is closed into account 24. Account 9 Income from Endowed Bed Fund. Credit for income received from the endowed bed fund investments (debit account 2). Debit for accrued income acquired, if any, at the time se- curities are purchased. The balance represents the amount of income earned from the endowed bed fund investments and is closed into account 24. Account 10 Sites and Grounds. Debit for the cost of land purchased and for the appraised value of land donated without restrictions. This is a fixed asset account and represents lands owned by the hospital. Account ii Buildings. Debit for the cost of buildings pur- chased or erected (credit account 2), or for the appraised value of buildings donated (credit account 21). Credit at the end of the year for the estimated amount of depreciation (debit account 24). The balance is an asset and represents the present value of buildings owned. Account 12 Furniture and Fixtures. Debit for the cost of general office furniture and equipment, and for equipment in the wards (credit account 2 for items purchased and account 21 for items donated). BAY STATE HOSPITAL 253 Credit for the estimated amount of depreciation during the year (debit account 24). The balance is an asset representing the present value of the furniture and fixtures on hand. Account 13 Machinery and Tools. Debit for the cost of machinery and tools in the heat, light and power plant, also for the permanent equipment in the kitchen (credit account 2 if bought for cash, and account 21 if donated). Credit for the estimated amount of depreciation during the year (debit account 24). The balance represents the present value of the machinery and tools on hand. Account 14 Apparatus and Instruments. Debit for the value of permanent (3 years) apparatus (credit account 2 if purchased for cash or account 21 if donated). Credit at the end of the year for the estimated amount of depreciation (debit account 24). The balance represents the present value of permanent ap- paratus and instruments on hand. Account 15 Ambulances, Horses and Equipment. Debit for the cost or value of the ambulances, horses and equipment (credit account 2 or account 19). Credit at the end of the year for the estimated amount of depreciation (debit account 24). The balance represents the present value of ambulances, horses and equipment on hand. Account 1 6 Mortgages Receivable. Debit for the cost of mortgages purchased (credit account 2). Credit for cost of mortgages sold. (Profit OF loss from sale of mortgages is debited or credited direct to account 24). The balance represents the cost of mortgages owned by the institution. Account 17 Securities Owned. This account represents the cost of securities held by the trustees and is operated in the same way as account 16. Account 1 8 Treasurer's Accounts Receivable. This ac- count is not used extensively. It represents amounts due to the treasurer possibly on account of the sale of securities, mort- gages, etc. It does not include the amounts due from patients. Account 19 Interest Accrued. This account is used at the 254 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING end of the year to bring on the interest accrued on investments at that time. At the beginning of the new period a reversing entry is made eliminating the balance brought forward. Account 20 Hospital Expenses. Debit for the total ex- penses during the year as shown by the superintendent's annual report (credit account 1). The balance of this account represents the expenses at the hospital during the year and is closed to account 5. Account 21 Capital (Hospital Properties and Equipment). Credit for the estimated or appraised value of property or items of permanent equipment donated (debit account 10, 11, 12, 13, 14 or 15). The balance represents that part of the permanent capital and equipment which has been donated. Account 22 Special Endowments. Credit for special en- dowments received (debit account 2 or 3). If the endowment is received in cash it is necessary to debit account 2. The cash would in all probability be invested in securities which would be turned over to the trustees, charging account 3. In any event the transfer of the endowment in the form in which re- ceived or in some other form to the trustees must be made so as to transfer the amount through account 2 to account 3, thus equalizing the balances of accounts 22 and 3. Account 23 Endowed Bed Fund. Credit for cash or prop- erty donated to maintain certain beds. Account 23 is maintained as endowments are received for the maintenance of certain beds and it has been found necessary to keep these funds entirely apart. If under the terms of the gift the income may at any future period be used as the trustees consider advisable the amount is transferred from account 23 to account 22 and the fund from account 4 to account 3. Account 24 Surplus and Deficit. Debit at the end of the year for the operating deficit as shown by the annual report (credit account 5) ; for the annual depreciation charged off (credit account 11, 12, 13, 14 or 15). Credit for contributions received (debit account 6) ; for in- come received from investments (debit accounts 7, 8 and 9) ; for the net profit from operations for the year as shown by the annual report. The balance represents the accrued surplus or deficit to date. BAY STATE HOSPITAL 255 BAY STATE HOSPITAL LIST OF LEDGER ACCOUNTS SUPERINTENDENT'S LEDGER Superintendent's Account with Treasurer ASSETS 1 Superintendent's Cash 2 Petty Cash Fund 3 Accounts Due from Patients INVENTORIES 4 Medical Supplies 5 Surgical Supplies 6 Appliances and Instruments 7 Crockery and Kitchen Supplies 8 Housekeeping Supplies 9 Printing and Stationery 10 Coal 11 Food Supplies PREPAID ITEMS 12 Insurance Unexpired LIABILITIES 13 Vouchers Payable 14 Sundry Accrued Liabilities RECEIPTS 15 Board of Private Room Patients 16 Board of Ward Pay Patients 17 Board of Friends or Parents 18 Special Nursing 19 Outpatient Department 20 Operations 21 X-Ray 22 Miscellaneous EXPENSES ADMINISTRATION 23 Salaries Officers and Clerks 24 Stationery, Printing and Postage 25 Telephone and Telegrams PROFESSIONAL CARE OF PATIENTS Salaries and Wages 26 Supt. of Nurses, Assistants and Instructors 27 Nurses 28 Orderlies Medical Supplies 29 Drugs 30 Alcohol, Wines and Liquors 31 Rubber Goods 32 Miscellaneous 256 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING Surgical Supplies 33 Gauze 34 Bandages 35 X-Ray Supplies 36 Apparatus and Instruments 37 Absorbent Cotton 38 Ether 39 Rubber Goods Outpatient Department 40 Salaries and Wages DEPARTMENT EXPENSE Pathological Laboratory 41 Salaries and Wages 42 Supplies Apothecary Department 43 Salaries and Wages Nurjcs' Home 44 Salaries and Wages Housekeeping 45 Salaries and Wages 46 Dry Goods 47 Soap 48 General Supplies Kitchen and Dining Room 49 Salaries and Wages 50 Supplies Laundry 51 Salaries and Wages 52 Supplies Food 53 Butter 54 Cereal, Rice, Meals, etc. 55 Coffee, Tea, Cocoa and Chocolate 56 Eggs 57 Fish 58 Flour 59 Fruit 60 Meat 61 Milk 62 Potatoes 63 Poultry 64 Sugar 65 Vegetables 66 Sundries GENERAL HOUSE AND PROPERTY EXPENSE Heat, Light and Power Plant 67 Salaries and Wages 68 Coal 69 Electrical Supplies 70 Repairs and Renewals 71 Oils, Waste, etc. BAY STATE HOSPITAL 257 Repairs to Buildings 72 Salaries and Wages 73 Supplies Care of Buildings and Grounds 74 Salaries and Wages 75 Supplies 76 Gas 77 Water 78 Insurance 79 Conveyances 80 General Expense 81 Cost of Nurses EXPENSES BY UNITS 82 Medical Wards 83 Surgical Wards 84 Maternity Wards 85 Private Patient Wards 86 Outpatient Department CHAPTER XXVIII SUPERINTENDENT'S LEDGER ASSETS AND LIABILITIES The first account in the superintendent's ledger is with the treasurer and inasmuch as this is only a controlling account the number "0" is assigned to it. Debit for cash paid by the superintendent to the treasurer (credit account 1) ; at the end of the year for the total expenses during the year (credit accounts 81 to 86 inclusive) ; for uncol- lected accounts due from patients (credit account 3). Credit for cash received from the treasurer (debit account 1) ; at the end of the year for the total receipts from operations (debit accounts 15 to 22 inclusive). The balance of this account, either debit or credit, should agree with the controlling account in the treasurer's ledger. Account i Superintendent's Cash. Debit for cash received from the treasurer (credit account 0) ; for cash received from patients on account of services rendered (credit account 3) ; for cash received from sundry sales (credit account 19). Credit for cash paid to the treasurer (debit account 0) ; for cash paid on account of current vouchers (debit account 13). The balance represents cash on hand in the superintendent's fund. Account 2 Petty Cash Fund. Debit for the total amount of the fund when established, the imprest cash system being used (credit account 1). The balance represents the amount of the petty cash fund. Account 3 Accounts Due from Patients. Debit at the end of the month for the total charges to patients as shown by the patients charge book (credit accounts 15 to 22). Credit for cash received in payment of charges against pa- tients (debit account 1). For bad accounts charged off (debit account 0). The balance represents amounts due from patients on account of services rendered. 258 SUPERINTENDENT'S LEDGER 259 Accounts 4 to ii Inventories. The inventory accounts are brought on at the end of the year when a physical inventory is taken. Accounts 4 to 11 are charged for the amount of the physical inventory in each department, the corresponding op- erating accounts being credited. Account 12 Insurance Unexpired. This account is brought on only at the end of the year and is charged for the amount of insurance premiums unexpired at that time (credit ac- count 78). Account 13 Vouchers Payable. Debit through the cash book for the amount of checks issued in payment of vouchers payable (credit account 1). Credit for the total expenditures for the month as shown by the voucher register. The balance represents vouchers payable outstanding. Account 14 Sundry Accrued Liabilities. This is an ordi- nary account and is used only at the end of the year for the purpose of bringing into account the accrued wages, salaries, etc. STATEMENTS In preparing the statement of assets and liabilities shown on page 286 the balances shown in the treasurer's ledger are used in connection with the balances shown in the superintendent's ledger, or in other words, the treasurer's account with the super- intendent is analyzed into its component parts in order to pre- pare a detailed balance sheet. The capital assets are taken from the treasurer's ledger ac- counts 10 to 15. Under the group called "Investments" the treasurer's ledger accounts 16 and 17 are taken for the general fund investments, and accounts 3 and 4 are analyzed for the special endowment funds. Under the current assets, cash in hands of treasurer is the balance of account 2 in the treasurer's ledger ; cash in hands of superintendent, the balance of account 1 in the superintendent's ledger; petty cash fund the balance of account 2 in the superintendent's ledger; accounts due from patients, the balance of account 3 in the superintendent's ledger; sundry accounts receivable the balance of account 16 in the treasurer's ledger; general material on hand the sum of the balances of accounts 4 to 11 in the superintendent's ledger; 200 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING accrued interest on investments the balance of account 19 in the treasurer's ledger; unexpired insurance the balance of ac- count 12 in the superintendent's ledger. Under the liabilities all accounts under capital liabilities are taken from the treasurer's ledger. Under the current liabilities, vouchers payable is the balance of account 13 in the superin- tendent's ledger, and sundry accrued liabilities the balance of account 14 in the superintendent's ledger. The surplus or deficit accoun^ is the balance of account 24 in the treasurer's ledger, and represents the accumulated surplus or deficit to date. CHAPTER XXIX OPERATING ACCOUNTS Accounts 15 to 22 Revenue. Accounts 15 to 22 are all reve- nue accounts showing the distribution of income to the depart- ment or ward where earned. These accounts are credited at the end of the month with the footing of the corresponding column in the patient 's charge book, form 18, and if there have been cash sales, for the amount of such sales as taken from the cash book. At the end of the year the balances in these accounts should be closed into the controlling account for the department or ward. The expense accounts operated in the system follow the same general plan as any business and all of the accounts are con- tained in the ledger. The main groups, without numbers, in the following chart may be termed controlling accounts, although this designation is somewhat- misleading. The plan followed is during the year to charge the expenses to the different accounts which are numbered according to the classification, and at the end of the year before final distribution is made to close the balances of the numbered accounts back into the main accounts which do not carry numbers. For example, during the year expenses incident to administration would be charged to accounts 23, 24 and 25. At the end of the year these three accounts would be closed into one account called "Administration." It will be noted by referring to the chart that under profes- sional care of patients there are four general groups, salaries and wages, including accounts 26 to 28; medical supplies, ac- counts 29 to 32; surgical supplies, accounts 33 to 39, and out- patient department account 40. At the end of the year the numbered accounts are first closed back to their main accounts. That is, accounts 26 to 28 are first closed to salaries and wages, then after distributions have been credited, the balances are closed to professional care of patients. 261 262 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING In describing the functions of the various expense accounts the main groupings will be disregarded. The principle on which the ledger is operated should, however, be kept in mind espe- cially when considering the adjusting and closing entries. Account 23 Salaries Officers and Clerks. Debit at the close of each month for the salaries of the general administra- tive officers and clerks which include the superintendent, his assistants, and the accounting department salaries as shown by the voucher register; at the end of each month for the amount of accrued salaries, the offsetting credit being to account 14. The balance of the account represents the salaries and wages paid the general administrative officers and at the end of the year is closed into administration. Account 24 Stationery, Printing and Postage. Debit at the end of each month with the total amount expended for sta- tionery, printing and postage as shown by the corresponding column in the voucher register. Credit at the end of the year with the supplies on hand (debit account 9). The balance represents the expenses incurred for stationery, printing and postage and is closed into administration. Account 25 Telephone and Telegrams. Debit at the end of each month for the total expense of telephone and telegrams as shown by the corresponding column in the voucher register and also for the salary of the telephone operator. The balance of the account represents the expense of tele- phone and telegrams and is closed into administration. This same principle is followed in all the expense accounts which close by charging at the end of the period into the main account for the division. General Account Administration. Debit with the balances of accounts 23, 24 and 25; with a proportion of the heat, light and power, repairs to buildings, care of buildings, gas, water and insurance. The balance of the account is then distributed over accounts 81 to 86 inclusive. Accounts 26 to 28 Salaries and Wages. Debit from the voucher register at the end of the month for the total expense of the particular class for the month ; at the end of the year for the accrued wages (credit account 14). OPERATING ACCOUNTS 263 At the end of the year the balances of these accounts are closed into salaries and wages, which in turn is closed to pro- fessional care of patients. Accounts 29 to 32 Medical Supplies. Debit for the pur- chases of medical supplies during the period as shown by the voucher register. Credit at the end of the year for the supplies on hand as shown by physical inventory (debit account 4). The balances of accounts 29 to 32 are closed into medical supplies, which in turn is closed into professional care of patients. Accounts 33 to 39 Surgical Supplies. These accounts are in the same class and are handled in the same way as accounts 29 to 32, except that the debit for supplies on hand at the end of the year is to accounts 5 and 6. At the close of the year the balances of these accounts are closed into surgical supplies, which in turn is closed into professional care of patients. Account 40 Outpatient Department. Debit for salaries and wages in the outpatient department and the dispensary. At the close of the year the balance of the account is closed to the outpatient department account, which in turn is closed into professional care of patients. General Account Professional Care of Patients Is charged with the balances of accounts 26 to 40 inclusive ; with a pro- portion of the expense of housekeeping, laundry, heat, light and power, repairs to buildings, care of buildings, gas, water and insurance, in the same way that the general administration account is charged, and the balance is then distributed to ac- counts 81* to 86 inclusive. Accounts 41 and 42 Pathological Laboratory. Debit from the voucher register for the salaries and supplies and for the accrued wages. Credit for the supplies on hand at the end of the year as shown by the physical inventory (debit account 6). At the end of the year accounts 41 and 42 are closed to the pathological laboratory account, which, after being charged with a proportion of the general overhead, is closed into the depart- ment expense account. 264 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING Account 43 Apothecary Department Salaries and Wages. Debit for the amount of salaries and wages paid in the de- partment. At the end of the year the balance of account 43 is closed into apothecary department, which is then charged for a proportion of the general overhead and closed to the department expense account. Account 44 Nurses' Home Salaries and Wages. Debit for the salaries and wages of the attendants at the nurses' home and for the accrued salaries at the close of the period. The balance of the account is closed into nurses' home, which in turn is charged direct to account 81. Accounts 45 to 48 Housekeeping. Debit from the voucher register for the purchases and expenses during the month. At the end of the year the inventories are adjusted through account 8 and the balances closed into housekeeping, which is charged with a proportion of the kitchen and dining room expense, food, laundry, heat, light and power, repairs to build- ings, care of buildings, gas, water and insurance. The debit balance of housekeeping is then distributed in accordance with journal entry 28. Accounts 49 and 50 Kitchen and Dining Room. Debit from the voucher register with the wages and expenses during the month and at the end of the year for the accrued salaries and wages. The supplies on hand are adjusted through account 7 with the physical inventory of supplies on hand and the accounts are then closed into kitchen and dining room account, which is charged with a share of the laundry, heat, light and power, repairs to buildings, care of buildings, gas, water and insurance. The balance of the account is then distributed over operating accounts 81 to 86 inclusive. Accounts 51 and 52 Laundry. Debit through the voucher register for the salaries, wages and the supplies purchased. At the end of the year it is adjusted for accrued wages and for supplies on hand. The balances of the accounts are closed into the laundry account, which is charged with a proportion of food, heat, light and power, repairs to buildings, care of buildings, gas, water and insurance. OPERATING ACCOUNTS 265 The balance of the account is then distributed in accordance with journal entry 24. Accounts 53 to 66 Food. Debit through the voucher reg- ister for the supplies purchased. Credit at the end of the year for the supplies on hand (debit account 11). The balances are then closed into food and the food account distributed over the operating accounts in accordance with journal entry 22. Accounts 67 to 71 Heat, Light and Power. Debit through the voucher register for the salaries and wages and for the supplies used ; at the end of the year for the accrued salaries (credit account 14). Credit at the end of the year for the supplies on hand (debit account 10). There is no provision for laundry supplies, oil, waste, etc., in the inventory accounts. These items are considered expenses when purchased and are not inventoried. The balances of accounts 67 to 71 are closed to the heat, light and power account, which is charged with a proportion of the repairs to buildings, care of buildings, gas, water and insurance. The balance is distributed to the various operating accounts in accordance with journal entry 18. Accounts 72 and 73 Repairs to Buildings. Debit through the voucher register for the salaries, wages and supplies. The balances are then closed to the repairs to buildings ac- count, which is distributed in accordance with journal entry 16. Accounts 74 and 75 Care of Buildings and Grounds. Debit through the voucher register with the salaries and sup- plies, also for the accrued wages. There is no provision for an inventory of supplies on hand. The balances of these accounts are closed into care of build- ings and grounds, which is distributed to the operating de- partments in accordance with journal entry 14. Accounts 76, 77 and 78 Gas, Water and Insurance. These accounts are charged through the voucher register for the cost of the items when purchased. Account 78 is adjusted at the end of the year for insurance prepaid, the debit being to ac- count 12. The balances of the accounts are distributed to the various 266 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING operating accounts in accordance with journal entries 10, 11 and 12. Account 79 Conveyances. Debit for the salaries of the ambulance drivers, stable and garage expense and repairs to equipment. The balance represents the cost of upkeep of equipment and is closed to account 80. Account 80 General Expense. This account is carried on the books to take care of any general expense not provided for elsewhere. It is charged at the close of the year with the bal- ance of account 79 and is then distributed over accounts 81 to 86 inclusive in accordance with journal entry 46. Account 8 1 Cost of Nurses. This is used only at the end of the year to assemble the cost of nurses and the balance is dis- tributed to the wards, accounts 82 to 86 inclusive, on the basis of the nurse days in each ward. Accounts 82 and 86 Expenses by Units. These accounts are used only at the end of the year and are charged with the proper proportion of the operating expenses of the hospital. In other words, in the final analysis the expense of operating the hospital is apportioned to the five departments or wards in order to determine whether each is self-supporting or not. CHAPTER XXX JOURNAL ENTRIES The various transactions incident to the operation of the hos- pital during the year are recorded in the superintendent's ledger. No effort is made to record transactions in the treas- urer's ledger other than those affecting investments such as the purchase or sale of securities, mortgages, etc., and the recording of income received from investments either directly or from the trustees of the various funds. Entries are made in the treasurer's cash book for amounts paid to the superintendent to meet current expenses, but as a general rule no postings are made until the close of the year. The particular problem involved in the closing of the ac- counts at the end of the year is in connection with the super- intendent's ledger. By reviewing the functions of the various accounts in the preceding chapters, it will be noted that the general plan is to analyze the various expenses during the year and at the close of the period to distribute them directly when possible, or in the form of overhead when the expense should be assumed by all departments. It is quite evident that very careful attention must be given to the problem in order to distribute these expenses equitably over the departmental accounts. The journal entries shown on pages 273 to 280 with the explanation for each should be care- fully studied in order to have in mind the full details of the distribution on which depends the accuracy of the annual re- ports discussed in chapter XXXI. Journal entry 1 is made only at the close of the year and is for the purpose of bringing on to the books the revenue earned in the year which has not been billed to the patients. The charges to the patients' accounts are made only at the time the bill is rendered, therefore earnings are not taken into the in- come account until the bill is made. We find ourselves con- fronted with the situation at the close of the period of having various amounts due from patients which have not been billed, 267 268 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING and consequently not included in our income. The patients' charge cards are summarized and form the basis of journal entry 1 charging account 3 in the superintendent's ledger and crediting the different income accounts. Journal entries 2, 3, 4, 5, 6, 7 and 8 are for the purpose of bringing on to the books the physical inventory of various sup- plies. The inventory accounts numbered 4 to 11 in the super- intendent's ledger are used only at the close of the year at which time a physical inventory is taken in each department, the operating account credited and the inventory account charged for the physical inventory on hand. Therefore, the basis of the above journal entries is the physical inventory. Journal entry 9 bringing on the accrued salaries is for the purpose of charging the operating accounts with the expense incurred during the year, and affects all salary accounts enu- merated in the chart from 23 to 81 inclusive. In preparing the figures for journal entries 10 and 11 we note that some of the departments are charged direct. This means in the case of gas and water that the supply is metered for those departments, the reading of the meters forming the basis of the charge. The gas and water accounts in the general ledger are analyzed to determine the amount of such direct charges. The balance of the account, as noted in the explana- tion, is distributed on the basis of the patient days. The head nurse's daily reports, form 28, are summarized so that we have the total patient days and the total nurse days for each ward. In making distributions on the basis of the patient days the amount to be distributed is divided by the total patient days. The quotient thus obtained is multiplied by the number of patient days in each ward, thus determining the amount of expense chargeable to the ward. The same method of computation is used for distributing charges on the basis of nurse days except that the total nurse days and the nurse days in each ward are used instead of the patient days. Journal entry 12 closes the insurance expense, account 78, charging the various departments for the insurance expired during the year and charging the unexpired premiums to the prepaid account, 12. The method used in arriving at the amount to be charged each JOURNAL ENTRIES 261) department is to divide the total insurance expense, that is the amount of insurance expired during the year, by the total valua- tion of the hospital and multiply the quotient thus obtained by the valuation assigned to each department. Journal entry 13 is perhaps unnecessary in that the care of buildings expenses could be distributed from the subsidiary accounts as well as from the general account. However, inas- much as the system outlined contemplates closing expense ac- counts to general accounts, the journal entry is used in all cases. Journal entry 14 distributes the care of buildings and grounds to the various operating departments and is on the basis of the floor space occupied. The method used is to divide the cost of care of buildings and grounds by the total floor space in the institution and multiply the quotient thus obtained by the floor space in each department. Journal entry 16 distributes the building repairs to the op- erating accounts and is a direct distribution. The repairs ac- count in the superintendent's ledger is analyzed and each department charged for the repairs made during the year. Journal entry 17 closes to the general account the subsidiary accounts in connection with heat, light and power. It will be noted that this is the first distribution of an account which has previously received a debit for other than direct expenses. The heat, light and power account contains two classes of debits. The first are the direct charges incident to supplying heat, light and power to the institution and are cov- ered by accounts 67 to 71 in the superintendent's ledger. These subsidiary accounts are closed into the general account "heat, light and power," which is then charged as will be noted from the preceding journal entries with a proportion of the general overhead, which constitutes the second class of debits to the account. Expressing this thought another way, we find by referring to journal entry 9 that the salaries accrued on account of heat, light and power are charged through this journal entry to account 67. This is a direct charge and one of the first class of debits. By referring to journal entries 10, 11 and 12, we find that heat, light and power has been charged through these entries with gas, water and insurance, and from the chart of accounts we do not find subsidiary accounts for these items 27.0 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING listed. In other words, these three items, gas, water and in- surance, are a part of the general overhead and are charged to the general account, "heat, light and power," constituting the second class of debits. The same principle applies not only in connection with this particular account but with all of the accounts which are dis- tributed. The important fact to be brought out is that the ad- justments enumerated in the journal entries must be followed in logical sequence, and must of necessity be posted to the con- trolling accounts before some of the succeeding journal entries can be correctly made. Journal entries 14 and 16 charge heat, light and power with a proportion of the care of buildings and repairs ; journal entry 18 distributes the total heat, light and power account after all adjustments have been posted to the operating accounts and it would be manifestly incorrect if we worked out the data for journal entry 18 before all of the adjustments included in journal entries 1 to 17 inclusive had been posted to the gen- eral accounts. Putting the problem another way, in working out the annual adjusting entries each entry as made must be posted before the analysis of the general ledger accounts affected can be made, in order to have the succeeding journal entries correct. This prin- ciple should be kept carefully in mind, and as a suggestion, in order that the problems may be fully understood, it would be well if a sheet of analysis paper were used and the various operating accounts charted so as to show at what point the various accounts have been charged with overhead and the rate of distribution. The heat, light and power account is distributed over the operating departments on the basis of kilowatt hours. The engi- neer estimates the total amount of current generated. He also estimates the cost of power furnished to the laundry and the kitchen. He estimates as correctly as possible the cost per kilowatt hour of all current generated and the amount of cur- rent consumed by each department. After these estimates have been made we proceed to distribute the cost of lighting on the basis of the kilowatt hours as shown by journal entry 18 and the cost of power as shown by journal entry 19. The balance of the account is then considered to JOURNAL ENTRIES 271 represent the cost of heating and is distributed on the basis of the space occupied by each department. Here again, we meet with the problem in distribution out- lined above, which is that each journal entry must be posted or carefully recorded before the next journal entry can be made. It is necessary before making journal entry 20 to post or otherwise determine the balance remaining in the account after journal entries 18 and 19 have been prepared, or our distribu- tion in journal entry 20 will be incorrect. Journal entry 20 closes the heat, light and power account and we have distributed the cost of this item over the various operat- ing accounts, the result being that in the final analysis we have all of our expenses included in unit accounts 81 to 86 inclusive. Journal entry 21 closes the subsidiary food accounts into the general account, and journal entry 22 distributes the cost of food to the operating accounts. This distribution, as will be noted, is made on the basis of quarterly tests of food supplied to the various departments. Journal entry 23 closes unit accounts 51 and 52 into the gen- eral laundry account which has previously been charged with a proportion of the general overhead as shown by journal entries 9, 10, 11, 12, 14, 16, 18, 19 and 20. The laundry account is distributed through journal entry 24, the basis used for this distribution being the number of pieces of laundry for each department, determined by periodical tests. Journal entry 25 closes the direct expenses of the kitchen and dining room to the general account, and journal entry 26 dis- tributes the cost of kitchen and dining room expense for the year to the operating accounts and is on the same basis as the food distribution. Journal entry 27 closes the subsidiary housekeeping accounts to the general account, and journal entry 28 distributes the general account to unit accounts 81 to 86 inclusive. It will be noted from the explanation that the charge to the cost of nurses is for the actual housekeeping expenses. This is determinable as a nurses' home is maintained and the house- keeping expenses of the same are in no way confused with the housekeeping expenses of the hospital. Journal entry 29 closes the salaries and wages of employees in the nurses' home into the cost of nurses' account. 272 SYUTEM BUILDING AND CONSTRUCTIVE ACCOUNTING Journal entries 30, 31, 32 and 33 transfer the various sub- sidiary accounts to the -corresponding general accounts. Journal entry 34 distributes the general account called de- partment expense to the wards. It will be noted that the out- patient department has not been charged inasmuch as this de- partment does not use either the pathological laboratory or the apothecary department which are considered department ex- penses. The basis for distribution in journal entry 34 is that of patient days. Journal entry 35 closes the subsidiary accounts to the gen- eral outpatient department account. Journal entry 36 closes subsidiary accounts 33 to 39 into gen- eral surgical supplies account, and journal entry 37 distributes the cost of surgical supplies to the wards. It will be noted that account 82, medical wards, is not charged with a portion of the surgical supplies expense, as it is consid- ered that this ward does not use surgical supplies. If a patient requires surgical care, he is assigned to the surgical ward and not to the medical ward. Journal entry 38 closes the subsidiary medical supplies ac- count and journal entry 39 distributes the cost of medical sup- plies to all the wards. It will be noted that the basis for distributing medical sup- plies is that of patient days. Journal entry 40 closes subsidiary accounts 26 and 27 to the cost of nurses. It will be noted that account 28, orderlies, is charged to professional care of patients in journal entry 41, while the salaries of the superintendent of nurses, assistants and instructors, and the salaries of nurses are charged direct to the cost of nurses. Journal entry 42 distributes the expense of orderlies and interns, which has previously been closed to professional care of patients, to the wards with the exception of the outpatient department, account 86, which does not incur expense of this kind. Journal entry 43 closes subsidiary accounts 23, 24 and 25 to administration, and journal entry 44 distributes administration to the five hospital departments and also to the cost of nurses. The basis for distribution is an arbitrary charge of 25% to the cost of nurses and the balance on the basis of patient days, JOURNAL ENTRIES 273 the number of treatments in the outpatient department being considered equivalent to the patient day. Journal entry 45 closes to general expense the cost of con- veyances as shown by account 79, and journal entry 46 dis- tributes general expense on the basis of 15% to the cost of nurses and the balance to the five departments. Journal entries 48 and 49 are the closing entries for the super- intendent 's ledger transferring the balance in the income and expense accounts to the superintendent's account with the treasurer. The treasurer, in order to agree the balance of his account with the superintendent's, must of necessity enter the total income and the total expenses of the hospital in his account with the superintendent, at the same time crediting account 5 for the earnings and charging account 20 for the expenses, thus bringing on to his books in total the result of operations for the year as recorded in detail in the superintendent's ledger. BAY STATE HOSPITAL ADJUSTING AND CLOSING ENTRIES L Accounts Due from Patients To Board of Private Room Patients Board of Ward Pay Patients Board of Friends or Parents Special Nursing* Outpatient Dept. X-Ray Miscellaneous To bring on to the books accrued income not charged to patients 2 Medical Supplies To Drugs Alcohol, Wines and Liquors Rubber Goods Miscellaneous Medical Supplies on hand as per inventory 3 Surgical Supplies Appliances and Instruments To Gauze Bandages X-Ray Supplies Apparatus and Instruments Absorbent Cotton Ether Rubber Goods Pathological Dept. Supplies Surgical Supplies on hand as per inventory 274 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING 4 Crockery and Kitchen Supplies To Kitchen and Dining Room Supplies Laundry Supplies Kitchen, Dining Room and Laundry supplies on hand as per inventory 5 Housekeeping Supplies To Housekeeping Dry Goods Soap General Supplies Housekeeping Supplies on hand as per inventory 6 Printing and Stationery To Stationery, Printing anJ Postage- Stationery and Postage on hand as per inventory 7 Coal To Heat, Light and Power Coal Fuel on hand per inventory 8 Food Supplies To Butter Cereal, Rice, Meals, etc. Coffee, Tea, Cocoa and Chocolate Eggs Fish Flour Fruit Meat Milk Potatoes Poultry Sugar Vegetables Sundry Food Supplies Food supplies on hand as per inventory 9 Salaries and Wages Officers and Clerks Supt. of Nurses, Assistants and Instructors Orderlies Nurses Pathological Dept. Apothecary Dept. Nurses' Home- Housekeeping Kitchen and Dining Room Laundry Heat. Light and Power Repairs to Buildings Care of Buildings and Grounds To Sundry Accrued Liabilities To bring on to the books salaries and wages accrued and not paid 10 Pathological Dept. Cost of Nurses Medical Wards Surgical Wards Maternity Wards JOURNAL ENTRIES 275 Private Patient Wards Outpatient Dept. Kitchen and Dining Room Laundry . Heat, Light and Power To Gas To distribute cost of gas used for the year ; direct to kitchen and dining room, laundry, power plant, pathologi- cal dept. and nurses' home balance on patient days 11 Pathological Dept. Apothecary Dept. Cost of Nurses Kitchen and Dining Room Laundry Heat, Light and Power Medical Wards Surgical Wards Maternity Wards Private Patient Wards Outpatient Dept. To Water To distribute cost of water for the year; direct to patho- logical dept., apothecary dept., cost of nurses, kitchen and dining room, laundry, heat, light and power balance on patient days 12 Insurance Unexpired Administration Pathological Dept. Apothecary Dept. Cost of Nurses Kitchen and Dining Room Laundry Heat, Light and Power Medical Wards Surgical Wards Maternity Wards Private Patient Wards Outpatient Dept. To Insurance To distribute cost of insurance for year on basis of valua- tion 13 Care of Buildings and Grounds To Care of Buildings and Grounds Salaries and Wages Supplies To transfer balance of latter accounts 14 Administration Pathological Dept. Apothecary Dept. Cost of Nurses Kitchen and Dining Room Laundry Heat, Light and Power Medical Wards Surgical Wards Maternity Wards Private Patient Wards 276 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING Outpatient Dept. To Care of Buildings and Grounds To distribute cost of care of buildings and grounds on basis of space occupied 15 Repairs to Buildings To Repairs to Buildings Salaries and Wages Supplies To transfer balances of latter accounts 16 Administration Pathological Dept Apothecary Dept. Cost of Nurses Kitchen and Dining Room Laundry Heat, Light and Power Medical Wards Surgical Wards Maternity Wards Private Patient Wards Outpatient Dept. To Repairs to Buildings To distribute cost of repairs to buildings direct charges 17 Heat, Light and Power To Heat, Light and Power Salaries and Wages Coal Electrical Supplies Repairs and Renewals Oil, Waste, etc. To transfer balances of latter accounts 18 Administration Pathological Dept. Apothecary Dept. Kitchen and Dining Room Laundry Medical Wards Surgical Wards Maternity Wards Private Patient Wards Outpatient Dept. To Heat, Light and Power To distribute cost of electric lighting for year on basis of kilowatt hours 19 Kitchen and Dining Room Laundry To Heat, Light and Power Cost of power furnished to kitchen and laundry for the year apportioned by engineer 20 Administration Pathological Dept. Apothecary Dept. Kitchen and Dining Room Laundry Medical Wards JOURNAL ENTRIES 277 Surgical Wards Maternity Wards Private Patient Wards Outpatient Dept. To Heat, Light and Power To distribute cost of heating and ventilating for year on the basis of space occupied 21 Food To Butter Cereal Coffee, Tea, Cocoa and Chocolate Eggs Fish Flour Fruit Meat Milk Potatoes Poultry Sugar Vegetables Sundry Food Supplies To transfer balances of latter accounts 22 Administration Professional Care of Patients (House Officers) Housekeeping Kitchen and Dining Room Cost of Nurses Medical Wards Surgical Wards Maternity Wards Private Patient Wards Outpatient Dept. (Employees) To Food To distribute cost of food for the year on the basis of quarterly test of food supplies to various departments 23 Laundry To Laundry Salaries and Wages Supplies To transfer balances of latter accounts 24 Administration Pathological Dept. Apothecary Dept. Kitchen and Dining Room Cost of Nurses Medical Wards Surgical Wards Maternity Wards Private Patient Wards Outpatient Dept. To Laundry To distribute cost of laundry for the year on basis of periodical tests of number of pieces laundered for various departments 278 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING 25 Kitchen and Dining Room To Kitchen and Dining Room Salaries and Wages Supplies To transfer balances of latter accounts 26 Administration Professional Care of Patients (House Officers) Housekeeping Cost of Nurses Medical Wards Surgical W 7 ards Maternity Wards Private Patient Wards Outpatient Dept. To Kitchen and Dining Room To distribute the cost of kitchen and dining room expense for the year, same basis as food distribution 27 Housekeeping To Housekeeping Salaries and Wages Dry Goods Soap General Supplies To transfer the balances of latter accounts 28 Cost of Nurses Medical Wards Maternity Wards Private Patient Wards Outpatient Dept. To Housekeeping To distribute the housekeeping expenses for the year direct to cost of nurses balance on basis of patient days 29 Cost of Nurses To Nurses' Home Salaries and Wages To transfer the balance of the latter account 30 Apothecary Department To Apothecary Dept. Salaries and Wages To transfer the balance of the latter account 31 Department Expense To Apothecary Dept. To transfer the balance of the latter account 32 Pathological Laboratory To Pathological Laboratory Salaries and Wages Supplies To transfer the balance of the latter accounts 33 Department Expense To Pathological Laboratory To transfer the balance of the latter account 34 Medical Wards Surgical Wards Maternity Wards JOURNAL ENTRIES 279 Private Patient Wards To Department Expense To distribute the cost of pathological dept. and apothecary dept. on the basis of patient days 35 Outpatient Department To Outpatient Department Salaries and Wages To transfer the balance of the latter account 36. Surgical Supplies To Gauze Bandages X-Ray Supplies , Apparatus and Instruments Absorbent Cotton Ether Rubber Goods To transfer the balances of the latter accounts 37 Surgical Wards Maternity Wards Private Patient Wards Outpatient Dept. To Surgical Supplies To distribute the cost of surgical supplies for the year direct to outpatient dept. and private patient wards balance on patient days 38 Medical Supplies To Drugs Alcohol, Wines and Liquors Rubber Goods Miscellaneous To transfer the balances of the latter accounts 39 Medical Wards Surgical Wards Maternity Wards Private Patient Wards Outpatient Dept. To Medical Supplies To distribute the cost of medical supplies used on the basis of patient days 40 Cost of Nurses To Salaries and Wages Supt. of Nurses, Assistants and Instructors Nurses To transfer balances of latter accounts 41 Professional Care of Patients To Salaries and Wages Orderlies To transfer balance of latter account 42 Medical Wards Surgical Wards Maternity Wards Private Patient Wards To Professional Care of Patients To distribute the expense of orderlies and interns on the basis of patient days 280 SYMTEM BUILDING AND CONSTRUCTIVE ACCOUNTING 43 Administration To Administration Salaries and Wages Stationery, Printing and Postage Telephone and Telegrams To transfer the balances of the latter accounts 44 Cost of Nurses Medical Wards Surgical Wards Maternity Wards Private Patient Wards Outpatient Dept. To Administration To distribute the expense of administration for the year; 25% to cost of nurses balance on basis of patient days 45 General Expense To Conveyances To transfer the balance of the latter account 46 Cost of Nurses Medical Wards Surgical Wards Maternity Wards Private Patient Wards Outpatient Dept. To General Expense To distribute the general expenses for the year; 15% to cost of nurses balance on basis of patient days 47 Medical Wards Surgical Wards Maternity Wards Private Patient Wards Outpatient Dept. To Cost of Nurses To distribute the cost of nurses for the year on the basis of nurse days 48 Board of Private Patients Board of Ward Pay Patients Board of Friends or Parents Special Nursing Outpatient Dept. Operations X-Ray Miscellaneous To Superintendent's Account with Treasurer To transfer the hospital earnings for the year 49 Superintendent's Account with Treasurer To Medical Wards Surgical Wards Maternity Wards Private Patient Wards Outpatient Dept. To transfer the hospital expenses for the year CHAPTER XXXI PREPARING REPORTS The annual reports are prepared from two sources ; first from the superintendent's ledger, showing the detailed operations of the hospital during the year, and then from the treasurer's ledger, showing in detail the accounting of the officer charged with the responsibility of administering the affairs of the insti- tution. Manifestly it is quite impossible to close the treasurer's ledger, much less prepare the annual report, until all of the transac- tions recorded in the superintendent's ledger have been adjusted and his reports prepared and reconciled. It will be found by referring to the explanation of the accounts in the treasurer's ledger that certain accounts therein are debited or credited with amounts as shown by the superintendent's annual report. The annual reports therein referred to are shown in detail on pages 286 to 295. The superintendent's balance sheet, exhibit B, page 288, is nothing more nor less than a trial balance taken from the super- intendent's ledger after closing and shows the cash and other assets on hand, the liabilities outstanding, and an analysis of the superintendent's account with the treasurer. In the sample of exhibit B submitted on page 288 this analysis of the superintendent's account with the treasurer is grouped with the liabilities inasmuch as the operations of the hospital invariably result in a profit, at least in the superintendent's ledger, and at the close of the year a balance is due from the superintendent to the treasurer, or, in other words, there is a liability of the superintendent to the treasurer. If the opera tions of the hospital resulted in a lass, or the treasurer did not reimburse the superintendent for all of his expenditures, thus making a debit balance in the superintendent's account with the treasurer, the analysis of the account would be grouped with the assets, inasmuch a the debit balance would represent an amount 281 282 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING due the superintendent from the treasurer, or an account receivable. In the analysis of the superintendent's account with the treasurer reference is made to hospital earnings, exhibit C, and hospital expenses, exhibit D. These exhibits are made up after adjusting, but before the income and expense accounts are closed or, in other words, in preparing exhibits the journal entry closing the income and expenses to the treasurer's ac- count is analyzed into its component parts. Exhibit C is the balance of accounts 15 to 22, exhibit D is made from the bal- ances of accounts 82 to 86 after all adjustments for the year have been made. The other item in the analysis of the superintendent's account with the treasurer requiring explanation is the loss on bad accounts, and by referring to the explanation of account 3 in the superintendent's ledger we find that account 3 is credited for bad accounts charged off, the offsetting debit being to ac- count 0, superintendent's account with the treasurer. The in- formation for this item, therefore, would be taken direct from the superintendent's account with the treasurer and would rep- resent the total amount due from patients determined to be uncollectible and charged off during the year. In the treas- urer's ledger the charge is to surplus and deficit, account 24. These three exhibits, B, C and D, constitute the principal reports prepared by the superintendent and are those which tie in with the treasurer's report and upon which he is first de- pendent for making his closing and reports. The different schedules, 1 to 7 inclusive, shown on pages 290 to 295 are subsidiary to exhibit D, schedule 1 showing in detail the cost of operations classified according to the ledger accounts. The total of this schedule should agree with the total cost of operations shown on exhibit D. Schedules 2 to 6 inclusive show the details of items charged to the wards in the form of debits to accounts 82 to 86 inclusive and the total of each schedule should agree with the cost of operations charged to each ward in exhibit D. Schedule 7 shows in detail the items making up the cost of nurses and is an analysis of the debits to account 81. The total cost of nurses as shown on schedule 7 should agree with the balance of account 81 in the superintendent's ledger. The dis- PREPARING REPORTS 283 tribution at the bottom of the page is the apportionment of the cost of nurses to the different wards on the basis of nurse days and is recorded in journal entry 47. The amounts thus appor- tioned on the basis of nurse days are transferred to schedules 2 ID 6 inclusive, constituting the cost of nurses in each ward for tlie year. These schedules are prepared from the ledger accounts using as a subsidiary source of information the voucher register and analysis sheets. When the various exhibits and schedules have been prepared from the superintendent's ledger the work of adjusting and closing the treasurer's ledger and preparing the annual report is taken up. CHAPTER XXXII ANNUAL REPORTS The treasurer's annual report naturally divides itself into two distinct sections; the first includes the balance sheet, ex- hibit A, shown on page 286 and referred to in chapter XXXI. This exhibit is supported by schedule 1, which is a copy of the information shown in the superintendent's balance sheet, exhibit B, supplemented by details taken from treasurer's account 24. The schedule is in fact nothing more nor less than an analysis of the surplus and deficit account in the treasurer's ledger show- ing the income received in addition to the current operations of the hospital and expenses in addition to those covered by the superintendent's reports. The second section of the treasurer's annual report sup- plementing the first is prepared by the treasurer and sets forth the result of the year's work as administrator of the funds of the institution. This section of the report should show in more or less detail the various changes in the investments made dur- ing the year with the resulting profit or loss, which is sum- marized in exhibit A, schedule 1. This general review of the changes should be supported by a schedule of the securities, mortgages, etc., on hand at the beginning and end of the year and possibly showing the cost or book value and the current market value in order that comparisons may be made to deter- mine whether the investments should be held or disposed of to the best advantage. The superintendent's report to the treasurer furnishes the hasis for part of the manuscript in the treasurer's report which would outline in brief some statistics in connection with the year's work, showing the number of patients in the different wards and possibly supported by vital statistics showing the result of some of the cases. The treasurer's report as a general rule is submitted to the board of trustees of the institution and at the time the report is submitted the treasurer is called upon for various suggestions 284 ANNUAL REPORTS 285 and for his opinion as to matters of policy in the conduct of the institution and is sometimes called upon to account for the conduct of the business during his administration. It frequently occurs in a case of this kind that the superintendent is asked for suggestions. The detailed information contained in the superintendent's schedules, which are made a part of the treasurer's report, is made use of to determine whether the cost of operating certain wards is excessive, or may serve as a guide for the regulation of expenses to be incurred during the coming year. On account of the nature of the institution and the source from which its support is derived, careful management must of necessity be the rule in order to avoid incurring expenses which will result in a serious deficit from operations. In the preparation of the treasurer's report and the closing of his ledger, while in many ways purely mechanical bookkeep- ing work, a thorough knowledge of accounting principles is necessary and a complete understanding of the treatment to be given various classes of income is highly essential in order to have the report properly prepared and in such form as can be submitted to the board of trustees so as to be intelligible to them. 286 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING ASSETS Capital Assets Sites and Grounds Buildings Furniture and Fixtures Machinery and Tools Apparatus and Instruments Ambulances, Horses, and Equipment Total Capital Assets Investments From General Funds Mortgages Bonds Stocks From Special Endowment Funds Mortgages Bonds Stocks From Endowed Bed Fund Mortgages Bonds Stocks Total Investments Current Assets Cash in Hands of Treasurer Cash in Hands of Superintendent Petty Cash Fund Accounts Due from Patients Sundry Accounts Receivable General Material on Hand Accrued Interest on Investments Unexpired Insurance Tocal Current Assets Deficit (see Schedule 1) BAY STATE EXHIBIT BALANCE SHEET *** * *** ** ** ** ** ** ** * ** ** ** ** ** ** * * ** ** ** ** ** ** *** ** ** #* ANNUAL REPORTS 287 HOSPITAL A ,19.... LIABILITIES Capital Liabilities Capital (Hospital Properties and Equipment) General Endowment Fund *** #* Special Endowment Funds *** ** Endowed Bed Funds *** ** Total Capital Liabilities **** ** Current Liabilities Vouchers Payable ** ** Sundry Accrued Liabilities * ** Total Current Liabilities ** ** Surplus (see Schedule 1) ** ** 288 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING BAY STATE HOSPITAL EXHIBIT A SCHEDULE 1 SURPLUS AND DEFICIT ACCOUNT. . . . 19. . CHABGES Deficit December 31, 19 Hospital Expenses for the Year (see Exhibit D) Uncollectible Accounts Charged Off Depreciation of Capital Assets Charged Off Losses on Investments Sold Losses Due to Adjustments of Investments Total Charges CREDITS Surplus December 31, 19 Hospital Earnings for the Year (see Exhibit C) Donations Received for Current Purposes Income from General Endowment Fund Investments Income from Special Endowment Funds Profit on Sale of Investments Total Credits Net Deficit (or Surplus) for the Year BAY STATE HOSPITAL EXHIBIT B SUPERINTENDENT'S BALANCE SHEET 19 . ASSETS Cash Petty Cash Fund Accounts Due from Patients Inventories Medical Supplies Surgical Supplies Appliances and Instruments Crockery and Kitchen Supplies Housekeeping Supplies Printing and Stationery Coal Food Supplies Unexpired Insurance Total Assets *** ** *** ** *** * ** ** ANNUAL REPORTS 289 LIABILITIES Vouchers Payable **** ** Sundry Accrued Liabilities *** ** Superintendent's Account with Treasurer Balance December 31, 19 Cash Received from Treasurer Hospital Earnings for the Year (see Exhibit C) ***** ** Less Cash Paid to Treasurer Loss on Bad Accounts Hospital Expenses for the Year (see Exhibit D) ***** ** Total Liabilities HOSPITAL EARNINGS FOR THE YEAR ENDING.. ..,19.. Board of Private Patients Board of Ward Pay Patients Board of Friends or Parents Special Nursing Dispensary Operations X-Ray Miscellaneous Total Earnings for the Year BAY STATE HOSPITAL EXHIBIT D SUMMARY OF APPORTIONMENT OF COST OF OPERATIONS TO UNITS OF SERVICE ONE YEAR ENDING 19. ... PATIENT DAYS NUMBER AVERAGE COST Medical Wards Surgical Wards Maternity Wards Private Wards Outpatient Department Total Cost of Operations 290 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING BAY STATE HOSPITAL EXHIBIT D SCHEDULE 1 STATEMENT OF COST OF OPERATIONS FOR THE YEAR ENDING 19 .... ADMINISTRATION EXPENSE Salaries Officers and Clerks Stationery, Printing & Postage Telephone & Telegraph (including wages) Total Administration Expense PROFESSIONAL CARE OF PATIENTS Salaries & Wages Supt. of Nurses, Assistants and Instructors Nurses Orderlies Medical Supplies Drugs **** ** Alcohol, Wines & Liquors *** ** Rubber Goods Miscellaneous *** ** Surgical Supplies Gauze Bandages **** ** X-Ray Supplies Apparatus & Instruments **** ** Absorbent Cotton *** ** Ether *** ** Rubber Goods *** ** Miscellaneous **** ** **** ** Outpatient Department Salaries & Wages Total Professional Care of Patients DEPARTMENT EXPENSE Pathological Laboratory Salaries & Wages Supplies Apothecary Department Salaries & Wages Nurses' Home Salaries & Wages ANNUAL REPORTS 291 EXHIBIT D SCHEDULE 1 (CoNT.) Housekeeping Salaries & Wages Dry Goods Soap General Supplies *** ** Kitchen & Dining Room Salaries & Wages **** * Supplies **** ** **** ** Laundry Salaries & Wages Supplies Food Butter **** ** Cereal, Rice, Meals, etc. Coffee, Tea, Cocoa & Chocolate **** ** Fish Flour Fruit Meat Milk Potatoes Poultry Sugar Vegetables Sundries Total Department Expense GENERAL HOUSE & PROPERTY EXPENSE Heat, Light & Power Plant Salaries & Wages Coal Electrical Supplies Repairs & Renewals Oils, Waste, etc. Repairs to Buildings Salaries & Wages Supplies Care of Buildings & Grounds Salaries & Wages Supplies Gas Water Insurance Conveyances General Expense *** ** Total General House & Property Expenses Total Operation Expense **"* 292 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING BAY STATE HOSPITAL EXHIBIT D SCHEDULE 2 COST OF OPERATION OF MEDICAL WARDS FOR THE YEAR ENDING 19. ... PEB AMOUNT PATIENT DAY Food Kitchen Expense House Officers Nurses Schedule 7 Orderlies Housekeeping Salaries & Wages Laundry Medical Supplies General Supplies Dry Goods Gas Water Pathological Department Apothecary Care of Buildings Heating & Ventilating Electric Lighting Insurance Repairs to Buildings Administration General Expense ***** ** BAY STATE HOSPITAL EXHIBIT D SCHEDULE 3 COST OF OPERATION OF SURGICAL WARDS FOR THE YEAR ENDING. . . . 19. . AMOUNT PER PATIENT DAT Food Kitchen Expense House Officers Nurses Schedule 7 Orderlies Housekeeping Salaries & Wages Laundry Medical Supplies Surgical Supplies General Supplies Dry Goods Gas Water Pathological Department ANNUAL REPORTS 293 AMOUNT PER PATIENT DAY Apothecary Care of Buildings Heating & Ventilating Electric Lighting Insurance Repairs to Buildings Administration General Expense ***** ** * *** BAY STATE HOSPITAL EXHIBIT D SCHEDULE 4 COST OF OPERATION OF MATERNITY WARDS FOR THE YEAR ENDING 19 .... AMOUNT PER PATIENT DAY Food Kitchen Expense House Officers Nurses Schedule 7 Housekeeping Salaries & Wages Laundry Medical Supplies Surgical Supplies General Supplies Dry Goods Gas Water Pathological Department Apothecary Care of Buildings Heating & Ventilating Electric Lighting Insurance Repairs to Buildings Administration General Expense ** ** ** * * * * ** * ** ** * ** ** *** * ***** ** BAY STATE HOSPITAL EXHIBIT D SCHEDULE 5 COST OF OPERATION OF PRIVATE PATIENT WARDS FOR THE YEAR ENDING 19. ... Food Kitchen Expense AMOUNT **** ** ** ** PER PATIENT DAY *** *** 294 SYSTEM BUILDING AND CONSTRUCTIVE ACCOUNTING PER AMOUNT PATIENT House Officers Nurses Schedule 7 Orderlies Housekeeping Salaries & Wages Laundry Medical Supplies Surgical Supplies General Supplies Dry Goods Gas Water Pathological Department Apothecary Care of Buildings Heating and Ventilating Electric Lighting Insurance Repairs to Buildings Administration General Expense DAY *** ** **** * ** ** * **** ** ** ** *** ** *** ** ** #** *** *** ** ** ** ** *** ** ***** ** BAY STATE HOSPITAL EXHIBIT D SCHEDULE 6 COST OF OPERATION OF OUTPATIENT DEPARTMENT FOR THE YEAR ENDING . . . . 19 . . Officers & Assistants House Officers Nurses Schedule V Laundry Medical Supplies Surgical Supplies General Supplies Dry Goods Gas Water Care of Buildings Heating & Ventilating Electric Lighting Insurance Repairs to Buildings Administration General Expense Food Kitchen & Dining Room Expense House Salaries & Wages AMOUNT **** ** *** ** **** ** ** ** *** ** *** *** * ** ** *** **** *** *** ** *** ** PEE TBEAT- MENT * ** ** ** ***** * ANNUAL REPORTS 295 BAY STATE HOSPITAL EXHIBIT D SCHEDULE 7 COST OF NURSES FOR THE YEAR ENDING 19 PER AMOUNT NUBSE DAY Salaries & Wages Supt. of Nurses & Assistants Instructors Nurses Food for above Kitchen Expense Laundry **** ** Dry Goods *** ** Gas ** ** General Supplies *** ** Water Care of Buildings **** ** Heating & Ventilating **** ** Electric Lighting Repairs to Buildings *** ** Insurance *** ** Administration General Expense *** ** **** * * * DISTRIBUTION Medical Wards Surgical Wards Maternity Wards Private Wards Outpatient Department ** Nurse Days ** a it **** * ** <( * * ***** Nurse Days INDEX Accounting department, preliminary investigation of, 8 institutional, 240 Accounts, The Central Grocery Company, 125 chart of, The Central Grocery Company, 126 ledger, Packford Auto Sales Company, 84 commercial expense, The Cen- tral Grocery Company, 140 cost, Packford Auto Sales Com- pany, 99 expense, The Boylston Club, 206 garage expense, Packford Auto Sales Company, 100 general administrative, Packford Auto Sales Company, 99 ledger, Central Leather Company, 236 income, The Boylston Club, 204 The Central Grocery Com- pany, 138 Packford Auto Sales Com- pany 97 list of general ledger, The Boylston Club, 183 ledger, Central Leather Com- pany, 226 ledger, Packford Auto Sales Company, 83 operating, Bay State Hospital, 261 receivable, summary of postings to, The Central Grocery Company, 114 selling expense, Packford Auto Sales Company, 99 superintendent's ledger, list of, Bay State Hospital, 255 Accounts, treasurer's ledger, list of, Bay State Hospital, 250 Adjusting and closing entries, Bay State Hospital, 273 entries, monthly, The Boylston Club, 222 Administration, preliminary investi- gation of, 9 Advice, voucher remittance, Pack- ford Auto Sales Company, 35 Allowances and returns, sales, Pack- ford Auto Sales Company, 54 Analysis of departmental expenses, The Boylston Club, 157 of expenses, Packford Auto Sales Company, 83 of fixed assets, Packford Auto Sales Company, 68 Annual reports, Bay State Hospital, 284 Assets, The Central Grocery Com- pany, 130 analysis of fixed, Packford Auto Sales Company, 68 and liabilities, The Boylston Club, 189 preparation of statement of, The Boylston Club, 201 statement of, The Central Grocery Company, 120 superintendent's ledger, Bay State Hospital, 258 Packford Auto Sales Company, 88 Audited invoices, record of, The Central Grocery Company, 109 B Balance sheet, monthly, Packford Auto Sales Company, 77 297 298 INDEX Bank check, Packford Auto Sales Company, 42 Bar sales ticket, The Boylston Club, 165 Barber shop sales ticket, The Boyls- ton Club, 167 Bay State Hospital, adjusting and closing entries, 273 annual reports, 284 daily cash statement, 244 general information patient card, 246 plan, 242 head nurse's daily report, 247 journal entries, 267 list of forms, superintendent's office, 249 operating accounts, 261 patient's charge card, 245 preparing reports, 281 statements, 259 storeroom requisition, 246 superintendent's ledger, assets and liabilities, 258 list of accounts, 255 treasurer's ledger, list of ac- counts, 250 x-ray charge card, 245 Bill, garage, Packford Auto Sales Company, 60 members' monthly, The Boyls- ton Club, 175 monthly repair, Packford Auto Sales Company, 56 Billiards and pool sales ticket, The Boylston Club, 167 Binders, The Central Grocery Com- pany, 129 Bond papers, 18 Bowling sales ticket, The Boylston Club, 167 Boylston Club, The, analysis of de- partmental expenses,- 157 assets and liabilities, 189 cash received, 159 chart of organization, 149 check register, 160 currency voucher, 160 directory of employees, 179 Boylston Club, directory of mem- bers, 181 expense accounts, 206 forms, 150 general discussion, 148 statements, 221 goods received slip, 152 housekeeper's daily report, 170 income accounts, 204 insurance register, 180 inventory card, 180 journal, 176 list of forms, 187 general ledger accounts, 183 members' daily charges, 172 expiration index, 180 ledger, 173 monthly bill, 175 membership ticket, 180 monthly adjusting entries, 222 income and expense state- ments, 209 newspapers and periodicals re- ceived and returned, 182 payroll book, 176 purchase order, 150 record of daily business, 170 restaurant check sheet, 169 room index card, 169 register, 169 sales records, 162 tickets, bar, 165 barber shop, 167 billiards and pool, 167 bowling, 167 cigars, 166 employee's table, 165 grill room, 165 newspapers and period- icals, 169 restaurant, 163 rooms, 167 statement of assets and liabili- ties, preparation of, 201 stores requisition, 151 trial balance book for members' ledger, 173 voucher check, 160 INDEX 299 Boylston Club, voucher index card, 157 jacket, 154 register, 155 Business, record of daily, The Boyls- ton Club, 170 C Car register, Packford Auto Sales Company, 61 Carbon paper, 22 Card, direct labor time, Central Leather Company, 233 garage directory, Packford Auto Sales Company, 63 index for garage directory, Packford Auto Sales Com- pany, 63 inventory, The Boylston Club, 180 Packford Auto Sales Com- pany, 67 patient's charge, Bay State Hospital, 245 general information, Bay State Hospital, 246 room index, The Boylston Club, 169 time, Packford Auto Sales Com- pany, 64 voucher index, Packford Auto Sales Company, 38 x-ray charge, Bay State Hos- pital, 245 Cash received, book, Packford Auto Sales Company, 39 The Boylston Club, 159 record of, The Central Gro- cery Company, 112 report, daily, Packford Auto Sales Company, 44 statement, daily, Bay State Hospital, 244 Central Grocery Company, The, accounts, 125 assets, 130 binders, 120 Central Grocery Company, chart of accounts, 126 closing entries, 144 commercial expense accounts, 140 daily report of sales and profits, 124 income accounts, 138 journal, 118 liabilities, 135 list of forms, 109 personnel and method of opera- tion, 107 private ledger, 119 record of audited invoices, 109 of cash received, 112 of checks drawn, 112 sales ledger collections, 109 salesman's order, 124 statement of assets and liabili- ties, 120 of revenues and expenses, 121 summary of postings to ac- counts receivable, 114 sundry gains, 141 losses, 143 tab division leaves, 129 Central Leather Company, daily cutting report, 234 direct labor time card, 233 general and manufacturing ex- penses, 239 discussion, 225 ledger accounts, 236 goods received sheet, 229 list of forms, 229 ledger accounts, 226 sales and cost journal, 230 stock requisition, 233 voucher register, 229 Charge card, patient's, Bay State Hospital, 245 x-ray, Bay State Hospital, 245 Charges, members' daily, The Boyls- ton Club, 172 Chart of accounts, The Central Grocery Company, 126 300 INDEX Chart of accounts, Packford Auto Sales Company, 84 of organization, The Boylston Club, 149 Check, bank, Packford Auto Sales Company, 42 register, The Boylston Club, 160 Packford Auto Sales Com- pany, 42 sheet, restaurant, The Boylston Club, 169 voucher, The Boylston Club, 160 Checks drawn, record of, The Cen- tral Grocery Company, 112 Cigars sales tickets, The Boylston Club, 166 Classification, departmental manu- facturing, 2 wholesale, 1 Closing and adjusting entries, Bay State Hospital, 273 entries, The Central Grocery Company, 144 Collections, sales ledger, The Central Grocery Company, 109 Color of paper, 21 Commercial expense accounts, The Central Grocery Company, 140 paper, 14 Cost accounts, Packford Auto Sales Company, 99 and sales journal, Central Leather Company, 230 Packford Auto Sales Com- pany, 50 Cover stock, 19 Credit department, preliminary in- vestigation of, 8 Currency voucher, The Boylston Club, 160 Packford Auto Sales Com- pany, 41 Customers ledger, Packford Auto Sales Company, 74 Cutting report, daily, Central Leather Company, 234 D Daily business, record of, The Boyls- ton Club, 170 cash report, Packford Auto Sales Company, 44 statement, Bay State Hos- pital, 244 charges, members', The Boyls- ton Club, 172 cutting report, Central Leather Company, 234 report, head nurse's, Bay State Hospital, 247 housekeeper's, The Boylston Club, 170 of sales and profits, The Cen- tral Grocery Company, 124 Departmental classification manu- facturing, 2 wholesale, 1 expenses, analysis of, The Boylston Club, 157 Designing, problems in, 3 steps in, 3 Direct labor time card, Central Leather Company, 233 Directory card, garage, Packford Auto Sales Company, 63 index for garage, Packford Auto Sales Company, 63 of employees, The Boylston Club, 179 of members, The Boylston Club, 181 Discussion, general, Central Leather Company, 225 Division leaves, tab, The Central Grocery Company, 129 E Employees, directory of, The Boyls- ton Club, 179 table sales tickets, The Boylston Club, 165 Entries, adjusting and closing, Bay State Hospital, 273 closing, The Central Grocery Company, 144 INDEX 301 Entries, journal, Bay State Hospital, 267 monthly adjusting, The Boy 1s- ton Club, 222 Expense accounts, The Boylston Club, 206 commercial, The Central Grocery Company, 140 garage, Packford Auto Sales Company, 100 selling, Packford Auto Sales Company, 99 statements, monthly income and, The Boylston Club, 209 voucher, traveling, Packford Auto Sales Company, 41 Expenses, analysis of, Packford Auto Sales Company, 83 of departmental, The Boyls- ton Club, 157 general and manufacturing, Central Leather Company, 239 statement of revenues and, The Central Grocery Company, 121 Expiration index, members, The Boylston Club, 180 Forms and equipment, 4 The Boylston Club, 150 list of, The Boylston Club, 187 The Central Grocery Com- pany, 109 Central Leather Company, 229 Packford Auto Sales Com- pany, 30 superintendent's office, Bay State Hospital, 249 G Gains, sundry, The Central Grocery Company, 141 Garage bill, Packford Auto Sales Company, 60 Garage directory card, Packford Auto Sales Company, 63 index, Packford Auto Sales Company, 63 expense accounts, Packford Auto Sales Company, 100 register, Packford Auto Sales Company, 64 service sheet, Packford Auto Sales Company, 58 slips, Packford Auto Sales Company, 57 General administrative accounts, Packford Auto Sales Com- pany, 99 and manufacturing expenses, Central Leather Company, 239 discussion, 1 The Boylston Club, 148 Central Leather Company, 225 information patient card, Bay State Hospital, 246 journal, Packford Auto Sales Company, 76 ledger, Packford Auto Sales Company, 74 accounts, list of, The Boyls- ton Club, 183 Central Leather Company, 236 plan, Bay State Hospital, 242 preliminary investigation, 6 statements, The Boylston Club, 221 system and plan, Packford Auto Sales Company, 28 Goods received sheet, Central Leather Company, 229 slip, The Boylston Club, 152 Grill room sales tickets, The Boyls- ton Club, 165 H Head nurse's daily report, Bay State Hospital, 247 Housekeeper's daily report, The Boylston Club, 170 302 INDEX Income accounts, The Boylston Club, 204 Packford Auto Sales Com- pany, 97 The Central Grocery Com- pany, 138 and expense statements, monthly, The Boylston Club, 209 Index card, room, The Boylston Club, 169 voucher, The Boylston Club, 157 Packford Auto Sales Com- pany, 38 for garage directory card, Pack- ford Auto Sales Company, 63 members expiration, The Boyls- ton Club, 180 stock, 20 Information, general, patient card, Bay State Hospital, 246 Institutional accounting, 240 Insurance register, The Boylston Club, 180 Packford Auto Sales Com- pany, 72 Inventories, preliminary investiga- tion of, 8 Inventory card, The Boylston Club, 180 Packford Auto Sales Com- pany, 67 Investigation of inventories, pre- liminary, 8 preliminary, 6 report of, 12 Invoices, record of audited, The Central Grocery Company, 109 Journal, The Boylston Club, 176 The Central Grocery Company, 118 entries, Bay State Hospital, 267 Journal, general, Packford Auto Sales Company, 76 sales and cost, Central Leather Company, 230 Packford Auto Sales Com- pany, 50 Labor time card, direct, Central Leather Company, 233 Ledger accounts, general, Central Leather Company, 236 chart of, Packford Auto Sales Company, 84 list of, Central Leather Com- pany, 226 general, The Boylston Club. 183 Packford Auto Sales Com- pany, 83 collections, sales, The Central Grocery Company, 109 customers, Packford Auto Sales Company, 74 general, Packford Auto Sales Company, 74 members', The Boylston Club, 173 private, The Central Grocery Company, 119 stock, 17 superintendent's, assets and lia- bilities, Bay State Hospital, 258 list of accounts, Bay State Hospital, 255 treasurer's, list of accounts, Bay State Hospital, 250 trial balance book for members, The Boylston Club, 173 Liabilities, The Central Grocery Company, 135 Packford Auto Sales Company, 94 Liabilities and assets, The Boylston Club, 189 preparation of statement of, The Boylston club, 201 INDEX 303 Liabilities and assets, statement of, The Central Grocery Com- pany, 120 superintendent's ledger, Bay State Hospital, 258 List of accounts, superintendent's ledger, Bay State Hospital, 255 treasurer's ledger, Bay State Hospital, 250 forms, The Boylston Club, 187 The Central Grocery Com- pany, 109 Central Leather Company, 229 Packford Auto Sales Com- pany, 30 superintendent's office, Bay State Hospital, 249 of general ledger accounts, The Boylston Club, 183 of ledger accounts, Central Leather Company, 226 Losses, sundry, The Central Grocery Company, 143 M Manila tag stock, 20 Manufacturing and general ex- penses, Central Leather Company, 239 business, classification by de- partments, 2 Members' daily charges, The Boyls- ton Club, 172 directory of, The Boylston Club, 181 expiration index, The Boylston Club, 180 ledger, The Boylston Club, 173 trial balance book for, The Boylston Club, 173 monthly bill, The Boylston Club, 175 Membership ticket, The Boylston Club, 180 Method of operation and personnel, The Central Grocery Com- pany, 107 Method of procedure, 5 Monthly adjusting entries, The Boylston Club, 222 balance sheet, Packford Auto Sales Company, 77 bill, members', The Boylston Club, 175 incomei and expense statements, The Boylston Club, 209 repair bill, Packford Auto Sales Company, 56 statements, Packford Auto Sales Company, 77 N New concern, system for, 2 Newspapers and periodicals received and returned, The Boyls- ton Club, 182 sales tickets, The Boylston Club, 169 Nurse's, head, daily report, Bay State Hospital, 247 O Office copy, voucher, Packford Auto Sales Company, 35 Onion skin paper, 19 Operating accounts, Bay State Hos- pital, 261 Operation, method of, and personnel, The Central Grocery Com- pany, 107 Order, purchase, The Boylston Club, 150 Packford Auto Sales Com- pany, 32 salesman's, The Central Gro- cery Company, 124 Organization, chart of, The Boylston Club, 149 Packford Auto Sales Company, analysis of expenses, 83 analysis of fixed assets, 68 assets, 88 bank check, 42 304 INDEX Packford Auto Sales Company, car register, 61 cash received book, 39 chart of ledger accounts, 84 check register, 42 cost accounts, 99 currency voucher, 41 customer's ledger, 74 daily cash report, 44 garage bill, 60 directory card, 63 expense accounts, 100 register, 64 service sheet, 58 slips, 57 general administrative accounts, 99 journal, 76 ledger, 74 system and plan, 28 income accounts, 97 index for garage directory card, 63 insurance register, 72 inventory card, 67 liabilities, 94 list of forms, 30 of ledger accounts, 83 monthly balance sheet, 77 repair bill, 56 statements, 77 payroll, 65 purchase order, 32 requisition, 32 repair tags, 47 reserves, 95 sales and cost journal, 50 returns and allowances, 54 tickets, 46 selling expense accounts, 99 stock requisition, 47 supplementary repair tags, 50 time cards, 64 traveling expense voucher, 41 voucher index card, 38 office copy, 35 register, 35 remittance advice, 35 Paper and paper making, 14 Paper, carbon, 22 color of, 21 onion skin, 19 selection of, 15 size of, 16 thickness of, 22 weight of, 16 Papers, bond, 18 commercial, 14 ledger, 17 . Patient card, general information, Bay State Hospital, 246 Patient's charge card, Bay State Hospital, 245 Payroll, Packford Auto Sales Com- pany, 65 book, The Boylston Club, 176 preliminary investigation of, 9 Periodicals and newspapers, The Boylston Club, 169 received and returned, The Boylston Club, 182 Personnel and method of operation, The Central Grocery Com- pany, 107 of the organization, 4 Plan and system, General, Packford Auto Sales Company, 28 general, Bay State Hospital, 242 idea or purpose, 4 Pool and billiards sales ticket, The Boylston Club, 167 Postings to accounts receivable, summary of, The Central Grocery Company, 114 Preliminary investigation, account- ing department, 8 administration, 9 credit department, 8 general, 6 inventories, 8 payroll, 9 purchases, 6 receiving and stock keeping, 7 sales, 8 study of, 10 Preparation of statement of assets and liabilities, The Boyls- ton Club, 201 INDEX 305 Preparing reports, Bay State Hos- pital, 281 Principals in actuating systems, 3 Printing and ruling, 24 Private ledger, The Central Grocery Company, 119 Problems in designing, 3 Profits and sales, daily report of, The Central Grocery Company, 124 Purchase order, The Boylston Club, 150 Packford Auto Sales Com- pany, 32 requisition, Packford Auto Sales Company, 32 Purchases, preliminary investigation of, 6 R Received and returned newspapers and periodicals, The Boyls- ton Club, 182 Receiving and stock keeping, pre- liminary investigation of, 7 Record of audited invoices, The Cen- tral Grocery Company, 109 of cash received, The Central Grocery Company, 112 of checks drawn, The Central Grocery Company, 112 of daily business, The Boylston Club, 170 Register, car, Packford Auto Sales Company, 61 check, The Boylston Club, 166 Packford Auto Sales Com- pany, 42 garage, Packford Auto Sales Company, 64 insurance, The Boylston Club, 180 Packford Auto Sales Com- pany, 72 room, The Boylston Club, 169 voucher, The Boylston Club, 155 Central Leather Company, 229 20 Register, Packford Auto Sales Com- pany, 35 Remittance advice, voucher, Pack- ford Auto Sales Company, 35 Repair bill, monthly, Packford Auto Sales Company, 56 tag, Packford Auto Sales Com- pany, 47 supplementary, Packford Auto Sales Company, 50 Report, daily cash, Packford Auto Sales Company, 44 cutting, Central Leather Company, 234 sales and profits, The Central Grocery Company, 124 head nurse's daily, Bay State Hospital, 247 housekeeper's daily, The Boyls- ton Club, 170 Reports, preparing, Bay State Hos- pital, 281 annual, Bay State Hospital, 284 on investigation, 12 Requisition, Purchase, Packford Auto Sales Company, 32 stock, Central Leather Com- pany, 233 Packford Auto Sales Com- pany, 47 stores, The Boylston Club, 151 storeroom, Bay State Hospital, 246 Reserves, Packford Auto Sales Com- pany, 95 Restaurant check sheet, The Boyls- ton Club, 169 sales tickets, The Boylston Club, 163 Returns and allowances, sales, Pack- ford Auto Sales Company, 54 Results, record of, 5 Returned newspapers and periodi- cals, The Boylston Club, 182 Revenues and expenses, statement of, The Central Grocery Company, 121 306 INDEX Room index card, The Boylston Club, 169 register, The Boylston Club, 169 sales tickets, The Boylston Club, 167 Routine, details of, 5 Ruling and printing, 24 S Sales and cost journal, Central Leather Company, 230 Packford Auto Sales Com- pany, 50 and profits, daily report of, The Central Grocery Company, 124 ledger collections, The Central Grocery Company, 109 preliminary investigation of, 8 records, The Boylston Club, 162 returns and allowances, Pack- ford Auto Sales Company, 54 tickets, The Boylston Club, bar, 165 barber shop, 167 billiards and pool, 167 bowling, 167 cigars, 166 employee's table, 165 grill room, 165 newspapers and periodicals, 169 restaurant, 163 rooms, 167 Packford Auto Sales Com- pany, 46 Salesman's order, The Central Groc- ery Company, 124 Selection of paper, 15 Selling expense accounts, Packford Auto Sales Company, 99 Service sheet, garage, Packford Auto Sales Company, 58 slips, garage, Packford Auto Sales Company, 57 Size of paper, 16 Statement of assets and liabilities, The Central Grocery Company, 120 preparation of, The Boylston Club, 201 daily cash, Bay State Hospital, 244 of revenues and expenses, The Central Grocery Company, 121 Statements, Bay State Hospital, 259 General, The Boylston Club, 221 monthly, Packford Auto Sales Company, 77 income and expense, The Boylston Club, 209 Steps in designing, 3 Stock keeping and receiving, prelimi- nary investigation of, 7 requisition, Central Leather Company, 233 Packford Auto Sales Com- pany, 47 Stores requisition, The Boylston Club, 151 Storeroom requisition, Bay State Hospital, 246 Study of preliminary investigation, 10 Summary of postings to accounts receivable, The Central Grocery Company, 114 Sundry gains, The Central Grocery Company, 141 losses, The Central Grocery Company, 143 Superintendent's ledger, assets and liabilities, Bay State Hos- pital, 258 list of accounts, Bay State Hospital, 255 office, list of form, Bay State Hospital, 249 Supplementary repair tags, Packford Auto Sales Company, 50 System and plan, general, Packford Auto Sales Company, 28 building, general discussion, 1 for new concern, 2 Systems, principals in actuating, 3 INDEX 307 Tab division leaves, The Central Grocery Company, 129 Tag stock, manilla, 20 Tags, repair, Packford Auto Sales Company, 47 supplementary repair, Packford Auto Sales Company, 50 Tickets, membership, The Boylston Club, 180 sales, Packford Auto Sales Com- pany, 46 Time card, direct labor, Central Leather Company, 233 Packford Auto Sales Com- pany, 64 Traveling expense voucher, Pack- ford Auto Sales Company, 41 Treasurer's ledger, list of accounts, Bay State Hospital, 250 Trial balance book of members' ledger, The Boylston Club, 173 Voucher check, The Boylston Club, 160 currency, The Boylston Club, 160 Voucher currency, Packford Auto Sales Company, 41 index card, The Boylston Club, 157 Packford Auto Sales Com- pany, 38 jacket, The Boylston Club, 154 office copy, Packford Auto Sales Company, 35 register, The Boylston Club, 155 Central Leather Company, 229 Packford Auto Sales Com- pany, 35 remittance advice, Packford Auto Sales Company, 35 traveling expense, Packford Auto Sales Company, 41 W Weight of paper, 16 Wholesale business, classification by departments, 1 X x-ray charge card, Bay State Hos- pital, 245 UNIVERSITY OF CALIFORNIA LIBRARY Los Angeles This book is DUE on the last date stamped below. MAR 1 3 196 APR 3 13 AUG 1 Form L9-32m-8,'58(5876s4)444 Library Graduate So^ol of Business Administration TT>: Tflity of n >^ i fornia Aiigeles 24 "nil fornia A />/" '""Hill Hill Illlll BRANCH UNIVERSITY OF CALIFORPHA LIBRARY LOS ANGELES, CALIF.