VOL I—DESCRIPTIVE TEXT 
 
 A STANDARD METHOD OF 
 ACCOUNTING 
 FOR RETAIL STORES 
 
 FINANCIAL STATEMENTS 
 OPERATING STATEMENTS 
 
 CLASSIFICATION AND 
 DISTRIBUTION OF EXPENSE 
 
 CLASSIFICATION 
 OF MERCHANDISE 
 
 200 FIFTH AVE., NEW YORK CITY 
 
 i? 
 
2731 
 
CONTROLLERS’ CONGRESS 
 
 OF THE 
 
 National Retail Dry Goods Association 
 
 OFFICIAL PUBLICATION 
 
 Volume I—DESCRIPTIVE TEXT 
 
 A STANDARD METHOD 
 OF ACCOUNTING 
 FOR RETAIL STORES 
 
 FINANCIAL STATEMENTS 
 
 OPERATING STATEMENTS 
 
 CLASSIFICATION AND DISTRIBUTION 
 OF EXPENSE 
 
 CLASSIFICATION OF MERCHANDISE 
 
 AMPLIFYING AND REVISING “THE CLASSIFICATION AND DISTRIBUTION 
 OF EXPENSE IN RETAIL STORES” ISSUED BY THE NATIONAL 
 RETAIL DRY GOODS ASSOCIATION IN 1917. 
 
 COPYRIGHTED 1922, BY THE 
 
 CONTROLLERS’ CONGRESS 
 OF THE 
 
 NATIONAL RETAIL DRY GOODS ASSOCIATION 
 
 200 5th AVE., NEW YORK CITY 
 
CONTENTS 
 
 N U5,i s 
 
 i/.I 
 
 1 
 
 <r 
 
 cr 
 
 
 -K 
 
 
 Introduction. 
 
 Publication. 
 
 Part No. I 
 
 Descriptive Text on Balance Sheet. 
 
 Part No. II 
 
 Descriptive Text on Operating Statement 
 
 Definitions. 
 
 Customs and Usages. 
 
 Page 
 
 5 
 
 6 
 
 7 to 11 
 
 12 to 17 
 18 to 20 
 21 
 
 Part No. Ill 
 
 Descriptive Text on Classification and Distribution of Expenses.22 to 31 
 
 Part No. IV 
 
 Descriptive Text on Classification of Merchandise. 32 
 
 
 Part No. V 
 
 Bookkeeping Procedure 
 
 Balance Sheet Accounts 
 Operating Accounts.... 
 
 Expense Accounts. 
 
 Index. 
 
 . 33 to 46 
 .47 to 49 
 . 50 
 
 51 and 52 
 
INTRODUCTION 
 
 Diversity in accounting methods and confusion in terminology among retail stores have brought re¬ 
 tail merchants to the realization that the adoption of standard methods is essential, if the scientific study 
 of the function of retail distribution is to keep pace with the development of scientific methods in other 
 branches of commerce. 
 
 The tendency among retail stores has been to devise new and better systems only as the growth and 
 progress of each business demanded improved routine. The need for standard processes has become more 
 apparent as merchants compare their results with one another. During the past few years when trade 
 associations, or government agencies, have sought comparative statistics from retailers, it has been found 
 extremely difficult to tabulate, accurately, the information obtained, however freely it was furnished, 
 because of the lack of uniformity in the terms used, and the methods employed. 
 
 The modern tendency of the government is to require increasingly detailed reports covering the oper¬ 
 ation of all business enterprises. Out of the need of having such reports on a comparable basis has arisen 
 government prescription of accounting methods in other branches of industry. It is obvious that lines of 
 business which have not voluntarily adopted a uniform system of accounts, acceptable to the government, 
 may have such system required by those less familiar with retail problems. This plan of standardization 
 has been prepared in anticipation of a need which may arise eventually. 
 
 Aside from the sheer practical necessity for standardization there are other equally important reasons 
 for introducing uniform accounting practice among the craft. Trained accountants, entering the retail 
 field for the first time, are bewildered by the diversity of practice. An accepted standard will not only 
 assist the expert in more quickly adapting himself to retail problems, but will be an important factor in 
 training the intelligent beginners within the retail field itself. 
 
 Every enterprising merchant looks forward to the time when his business will have become a larger 
 institution with ever widening sphere of influence. With the standard classification before him he may 
 adjust his accounting system to the greater detail necessary in the larger operation without seriously dis¬ 
 turbing the comparison of previous years. 
 
 It is of even greater importance to the retailer to have a more thorough knowledge of his business, and 
 a record of facts which he can compare with his fellow-merchant. From these comparisons will be developed 
 new standards or measures of performance by which merchants may determine accurately the degree of 
 their own success. 
 
 The report is presented in two volumes—Volume I, the Descriptive Text, and Volume II, the Charts, 
 which will enable the reader to have before him, at the same time, both text and charts. 
 
 The explanatory text and bookkeeping procedure provided in this volume will assist in the interpre¬ 
 tation and application of the Classification described in the Charts contained in Volume II. 
 
 5 
 
PUBLICATION 
 
 This publication is printed by authority of the Board of Directors of the Controllers’ Congress and 
 the National Retail Dry Goods Association. 
 
 The issuing of this publication was made possible by the efforts of the following individuals and 
 courtesy of their respective companies. 
 
 JAY IGLAUER, Chairman 
 
 The Halle Brothers Co., Cleveland ,Ohio 
 
 C. B. CLARK 
 
 The J. L. Hudson Co., Detroit, Mich. 
 ERNEST KATZ 
 
 R. H. Macy & Co., Inc., New York City 
 V. C. KENDALL 
 
 The L. S. Ayres Co., Indianapolis, Ind. 
 JOHN JACKSON 
 
 Strawbridge & Clothier, Philadelphia, Pa. 
 
 MAURICE WRIGLEY 
 
 Jordan Marsh Co., Boston, Mass. 
 
 Accounting Committee 
 
 OF THE 
 
 National Retail Dry Goods Association 
 
 C. E. APPLEGATE, Chairman 
 
 The Lasalle & Koch Co., Toledo, Ohio 
 
 F. H. BEACOM 
 
 The Strouss-Hirshberg Co., Youngstown, Ohio 
 T. L. BLANKE 
 
 Wurzburg Dry Goods Co., Grand Rapids, 
 Mich. 
 
 G. K. CREIGHTON 
 
 E. T. Slattery Co., Boston, Mass. 
 
 W. J. HUNTER 
 
 The Mabley & Carew Co., Cincinnati, Ohio 
 A. J. MARTELL 
 
 Loveman, Joseph & Loeb, Birmingham, Ala. 
 
 S. L. SILVERSTEIN 
 
 The Rosenbaum Co., Pittsburgh, Pa. 
 
 Committee on Standardization 
 of THE 
 
 Controllers’ Congress 
 
 0 
 
PART I 
 
 BALANCE SHEET 
 
 The Balance Sheet consists of account balances remaining open on the ledger after the balances of 
 income and expense accounts have been transferred to Profit and Loss Account, and the resultant balance 
 of that account to Surplus or Investment Account, or after the effect of such a closing of the books has 
 been produced by consolidating those accounts in memoranda only. It thus represents the condition of 
 affairs at a fixed moment of time, denoting position as contrasted with the Operating Statement (Income 
 Sheet), which denotes progress. 
 
 The balances are listed under two principal captions, “Assets,” appearing on the left-hand side of the 
 page, “Liabilities,” on the right. Broadly speaking, it may be said that the assets represent the property 
 of the business, the liabilities, the extent of ownership thereof or interest therein. The assets are a classified 
 fist of things of value, exhibited with due regard to the liquidity of the various classes. The liabilities are 
 a classified list of ownerships or interests with due regard to the priority of their respective claims to the 
 assets. 
 
 BALANCE SHEET ACCOUNTS 
 
 ASSETS 
 
 CURRENT 
 
 CASH 
 
 On Hand 
 
 For deposit 
 Cashiers’ funds 
 
 On Deposit 
 
 Bank accounts (an account with each bank, or one account with a subsidiary bank register.) 
 
 NOTES RECEIVABLE 
 Customers’ notes 
 Accrued interest 
 
 Reserve for possible losses (contra) 
 
 ACCOUNTS RECEIVABLE 
 Charge 
 C. 0. D. 
 
 Layaw T ay or Will-calls 
 Installment and Mortgage 
 Reserve for possible losses (contra) 
 
 MERCHANDISE 
 
 Inventory of merchandise on hand 
 Merchandise paid for in advance 
 
8 
 
 BALANCE SHEET 
 
 U. S. SECURITIES 
 
 Bonds (an account with each issue) 
 
 Certificate of indebtedness 
 
 Accrued interest N 
 
 War savings stamps 
 
 Reserve for possible losses (contra) 
 
 OTHER ASSETS 
 
 Securities owned (An account with each classification or issue) 
 
 Accrued interest 
 
 Stocks owned (An account with each classification or issue) 
 
 Notes receivable—Current and non-current 
 Accrued interest 
 Insurance deposits 
 
 Cash surrender value of life insurance policies 
 Common carrier claims 
 
 Land and buildings—Not used in the operation of the business 
 Personal accounts (A separate account with each individual) 
 
 DEFERRED CHARGES 
 
 Unexpired insurance premiums 
 Prepaid interest on notes payable 
 Supply inventory 
 
 Prepaid expenses (An account with each classification) 
 
 Organization expenses 
 
 PERMANENT 
 
 Land 
 
 Leasehold and improvements to leased buildings 
 Reserve for amortization of lease (contra) 
 
 Buildings 
 
 Reserve for depreciation (contra) 
 
 Machinery and equipment 
 Reserved for depreciation (contra) 
 
 Store furniture and fixtures 
 Reserve for depreciation (contra) 
 
 Office furniture and equipment 
 Reserve for depreciation (contra) 
 
 Delivery equipment 
 
 Reserve for depreciation (contra) * 
 
 GOOD WILL, PATENTS AND TRADEMARKS 
 
DESCRIPTIVE TEXT 
 
 9 
 
 LIABILITIES 
 
 CURRENT 
 
 NOTES PAYABLE 
 
 For money borrowed from banks 
 For money borrowed through brokers 
 For money borrowed from officers 
 For money borrowed from others 
 For purchases 
 Trade acceptances 
 
 ACCOUNTS PAYABLE 
 
 For merchandise and expense purchases 
 For federal sales taxes 
 For unredeemed cash refunds 
 For unredeemed gift certificates 
 
 Leased section accounts (An account with each section) 
 Personal accounts (An account with each individual) 
 
 ACCRUED ACCOUNTS 
 
 Taxes, Real and Personal—City, County and State 
 Pay roll 
 
 Interest on notes payable 
 Rent 
 
 Expenses (An account with each classification) 
 
 FUNDED INDEBTEDNESS 
 
 Mortgages 
 
 Bonds (an account with each classification or issue) 
 
 RESERVES 
 
 For federal income taxes 
 For contingencies 
 
 PROPRIETARY INTERESTS 
 (If a Corporation) 
 
 CAPITAL STOCK 
 
 Preferred—Authorized 
 Less: Unissued 
 Common—Authorized 
 Less: Unissued 
 
 PROFIT AND LOSS—SURPLUS 
 
 Surplus 
 
 Undivided profits 
 
 
 (If a partnership or sole proprietorship) 
 
 INVESTMENT ACCOUNTS 
 
 An account with each partner 
 
 PROFIT AND LOSS—CURRENT ACCOUNT 
 
10 
 
 BALANCE SHEET 
 
 ASSETS 
 
 The following divisions are provided to set forth the nature and comparative degree of liquidity of 
 
 the various classes of Assets. 
 
 CURRENT ASSETS 
 
 Current Assets consist of Cash and those items which may be readily converted into cash and 
 are continually changing through the carrying on of the business. Usually these consist of Cash, 
 Notes and Accounts Receivable, Inventories and Government Securities. 
 
 CASH 
 
 This account represents the balance of cash on hand and in banks at the date of the Balance Sheet. 
 
 NOTES RECEIVABLE 
 
 This account represents the face value of all evidences of indebtedness (except as below provided) 
 which are the property of the business and which are considered collectible. This account does not 
 include investments, for which other provision has been made. 
 
 ACCOUNTS RECEIVABLE 
 
 This account includes all amounts owing to the business upon accounts with solvent trade debtors, 
 except claims evidenced by notes, etc., provided for in the preceding account. 
 
 MERCHANDISE . 
 
 This account includes the cost or market value, whichever is the lower, of merchandise on hand, 
 purchased for resale and merchandise paid for in advance, in the regular course of business. For full 
 discussion, see text accompanying item No. 13, “Inventory at End of Period,” on the Operating 
 Statement. 
 
 U. S. SECURITIES 
 
 This account represents the cost or market value, whichever is the lower, of United States Govern¬ 
 ment Securities on hand at date of Balance Sheet. 
 
 OTHER ASSETS 
 
 All other Assets have been provided for under this group, such as securities of other corporations 
 and sundry notes and accounts receivable, other than those arising in the ordinary transactions of 
 the business. 
 
 DEFERRED CHARGES 
 
 This group of accounts consists of expenses paid in advance, chargeable to subsequent periods, 
 and to this extent represent an Asset. They include the prepayment of Insurance, Taxes, Rent, Sup¬ 
 plies and Organization Expenses. 
 
 PERMANENT ASSETS 
 
 This item represents the cost of all interests in land, buildings, leaseholds, machinery, fixtures 
 and equipment on hand at the date of Balance Sheet, with proper provision for depreciation, obsole¬ 
 scence and amortization thereof. 
 
 GOOD WILL, PATENTS AND TRADEMARKS 
 
 This account represents the cost or amortized valuation of any assets acquired, which can be 
 classified under this caption. 
 
DESCRIPTIVE TEXT 
 
 11 
 
 LIABILITIES 
 
 The following divisions are provided to set forth the nature of the various classes of Liabilities 
 and the priority of their respective claims against the Assets. 
 
 CURRENT LIABILITIES 
 
 Current Liabilities consist of notes and accounts payable, and of items accrued in anticipation 
 of payment. 
 
 NOTES PAYABLE 
 
 This item represents the amount of indebtedness evidenced by notes at the date of the 
 Balance Sheet, except funded debts. 
 
 ACCOUNTS PAYABLE 
 
 This item represents all Liabilities incurred by the business upon open accounts. 
 
 ACCRUED LIABILITIES 
 
 This item represents the amount of liabilities accrued, and consists of such items as taxes, pay¬ 
 roll, interest, rent, advertising, traveling expenses, water and other services, which have been ren¬ 
 dered the business previous to the date of the Balance Sheet, but which on that date are not due and 
 are unpaid, and for which no invoice has been rendered. 
 
 FUNDED INDEBTEDNESS 
 
 This item represents the long term indebtedness of the business, and has been divided into mort¬ 
 gages and bonds. 
 
 RESERVES 
 
 This account represents the amount of surplus set aside for federal income taxes, contingencies 
 and the liquidation of losses not otherwise provided for, or other items the actual amount of which 
 are not determinable at the date of the Balance Sheet. 
 
 CAPITAL STOCK 
 
 This account represents the amount of stock authorized, having a par value, less the par value 
 of redeemed or unissued stock. In the case of stock issued of no par value, it represents the cash, or 
 its equivalent, received in payment of stock issued. 
 
 The purchases of its own stock by a corporation should be carried as “Treasury Stock,” under 
 other assets. The laws of the various states are not uniform in regard to the retirement of stocks, 
 and Treasury Stock should be treated accordingly. 
 
 PROFIT AND LOSS—SURPLUS 
 
 This account represents the amount of paid-in surplus and the undistributed earnings of the 
 business at the date of the Balance Sheet. 
 
 CAPITAL OR INVESTMENT ACCOUNTS 
 
 These accounts represent the net investment at the date of the Balance Sheet of the partners or 
 sole proprietorship of a business not incorporated. 
 
 PROFIT AND LOSS—CURRENT 
 
 This account represents the net profit or loss of the business for the current period. 
 
PART II 
 
 OPERATING STATEMENT 
 
 INCOME (l) 1 
 
 Caption only. 
 
 SALES (2)1 
 
 Caption only. 
 
 GROSS SALES (3), 
 
 The total of all sales as defined under “Definitions,” less any discounts granted to customers or em¬ 
 ployees, but before any returns or allowances are taken into account, constitute the Gross Sales of the 
 business. 
 
 Gross Sales is the first item on the Operating Statement because it is the natural point of departure 
 for a logical analysis of profit and loss, the negotiation of sales at a favorable rate being the principal busi¬ 
 ness of, and source of profit to, the retailer. 
 
 This account should be credited at selling price with all sales of merchandise purchased for resale at 
 a profit, of merchandise manufactured in whole or in part by the retailer for sale at a profit, with alteration 
 charges collected from customers and receipts of restaurants and personal service departments, and only 
 those. 
 
 Specifically, it should not include sales which are in effect reclamations of expense such as sales of waste 
 paper, sales which are in effect reductions of assets other than merchandise, such as sales of discarded fix¬ 
 tures or other equipment, or interdepartmental transfers of merchandise which are reductions of inventory 
 in the department issuing and either increases in inventory in the department receiving or additions to an 
 asset or expense account. Neither should it include excise taxes collected from customers, as these should 
 be reserved until their due date in specific liability accounts, one for each class of tax. 
 
 Amounts charged customers for transportation of merchandise to distant points should not be included 
 in Gross Sales, but should be treated as a reduction of expense. 
 
 This account may, and should be, subdivided into its constituent elements, Gross Cash Sales, Gross 
 Charge Sales and Gross C. O. D. and Layaway or Will Call Sales. These in turn should be shown by de¬ 
 partments in a subsidiary record if the business is departmentized. 
 
 GROSS SALES—LEASED SECTIONS (5) 
 
 Gross Sales from leased sections should be shown separately on this fine. 
 
 There is good reason for this position. Leased Section operations are similar in kind to the operations 
 which are the stores principal line of activity. The profits which accrue from them are mainly profits on 
 the sale of merchandise at retail, although that merchandise is not the property of the store. This being 
 the case, it is preferable to exhibit such profits in a position where they can be readily combined with the 
 merchandising profits on own goods to give a total which is-representative o/ the profits on all sales at re¬ 
 tail within the same store rather than to include them with Other Incofne. 
 
 12 
 
DESCRIPTIVE TEXT 
 
 13 
 
 RETURNS AND ALLOWANCES (4) 
 
 This account furnishes the means of exhibiting separately the effect upon the business of goods re¬ 
 turned for credit by customers and allowances made to them during the period. 
 
 No other reductions from Gross Sales should be included in the classification. Specifically, customers’ 
 and employees’ discounts should not be charged here, as they have already been deducted from the sale, 
 and such sales are therefore net when credited to Gross Sales. 
 
 In considering returns and allowances, it must be borne in mind that the expenses of the business are 
 in large part determined by the volume of Gross Sales. Consequently, returns and allowances represent 
 a loss greater than that involved in the mere cancellation or reduction of selling price previously credited 
 to Gross Sales. Thej r reflect in addition an element of expense which produces no immediate return and 
 which must necessarily be included as a cost of obtaining the sales which “stay sold.” 
 
 RETURNS AND ALLOWANCES—LEASED SECTIONS (6) 
 
 Returns and Allowances of leased sections should be shown separately on this line. 
 
 NET SALES (7) 
 
 This is the principal income item out of which must be met all items of cost or expense. This being 
 the case, it is taken ‘as 100%, or the figure upon which all subsequent percentages are calculated. 
 
 COST OF SALES (8) 
 
 INVENTORY AT BEGINNING OF PERIOD (9) 
 
 This item on the Operating Statement of any fiscal period corresponds exactly with item 13 on the 
 Operating Statement of the preceding period. A full discussion will be found under item 13. 
 
 PURCHASES—NET (10) 
 
 This account is debited in the first instance with the invoice cost of all merchandise purchased for 
 resale, less trade discounts which are an integral part of the purchase price, but before deducting cash dis¬ 
 counts which are conditional upon the date of settlement.* 
 
 Purchases should be charged both with the cost of materials bought for manufacturing departments 
 and with the manufacturing payroll and other expense. 
 
 Transfers to a selling department should be made at total cost, the selling department taking credit 
 for sales, when made, at full retail price. The selling departments thus absorb the operations of the manu¬ 
 facturing departments completely. 
 
 Import duties and other charges on foreign merchandise, such as commissionnaires’ fees, insurance, 
 etc., are a part of the cost of such merchandise and should be charged to Purchases. 
 
 This account is credited with all merchandise returned to manufacturers and with all allowances re¬ 
 ceived from them on account of unsatisfactory merchandise. 
 
 FREIGHT, EXPRESS AND CARTAGE INWARD (11) 
 
 This account is charged with all inward transportation costs since they are demonstrably an additional 
 cost of merchandise rather than an expense. 
 
 From the merchandise standpoint, the delivered cost of his goods is what a merchant needs most to 
 know in determining the retail price at which he will mark them. The cost of identical goods to merchants 
 located at different distances from the central market is not the same and mark-up comparisons between 
 them will be misleading unless the variable factor of transportation is included in their merchandise costs. 
 
 •In some businesses, there is set up a standard rate of cash discount which the departments are required to obtain on their purchases. In case they do 
 not obtain it, they are charged with the difference between the required discount and the discount allowed, or available discount so-called. It is not to be 
 understood that the Committee recommends this practice, but, where it is followed, it is recommended that this difference, commonly called "Loading,” be 
 charged to purchases, since credit for all cash discounts, whether they be actually obtained from the manufacturer or charged to departments, is taken only 
 after Gross Cost of Merchandise Sold, item 14, is arrived at, appearing in Discount Earned on Merchandise Purchases, item 15. 
 
14 
 
 OPERATING STATEMENT 
 
 From the expense standpoint, transportation costs are not responsive to management policies as are 
 the controllable expenses, such as wages and advertising. Neither are they relatively fixed in amount as 
 are other expenses, such as rent, etc. In fact, they are quite unlike the expenses of the business in that they 
 are entirely dependent and consequent upon the movement of merchandise inward, fluctuating in exact 
 proportion to the volume of goods received. Therefore, aside from the incorrectness of including them in 
 expenses, it would be inexpedient to do so, if only for the reason that expenses would thereby be increased 
 by an element which the expense management could not control and for which it could not be held respon¬ 
 sible. 
 
 Inventory treatment of this item will be dealt with under item 13, Inventory at End'of Period. 
 
 TOTAL INVENTORY AND PURCHASES (12) 
 
 This item is Inventory at Beginning of Period plus Purchases—Net, and Freight, Express and Cartage 
 Inward. 
 
 INVENTORY AT END OF PERIOD (13) 
 
 Inventory at End of Period should be the inventory of merchandise on hand, taken at cost or market, 
 whichever is lower. This conforms to the best accounting practice and is in accord with the requirements 
 of the Treasury Department which permits either of two methods; i. e., (a) cost, or, (b) cost or market, 
 whichever is lower, provided the same method is followed in subsequent years. In the retail business, 
 certainly, the latter method is the more conservative, in fact, it is the only safe one to follow if an overstate¬ 
 ment of profits is to be avoided. 
 
 Now, under the Retail Inventory Method, depreciation is automatically taken into account through 
 markdowns, so that the inventory at end of the period is really depreciated inventory. 
 
 This is not the case under the cost inventory method, where, by use of a code system, the inventory 
 is figured at billed cost. Under that method, the utmost care must be exercised to see that the figure used 
 
 is either cost or market, whichever is lower, if the merchant is following that method. The instructions 
 
 are specific and only one of these two figures will be permitted by the government. The depreciation which 
 the merchant who operates under the retail inventory method obtains automatically is denied to the mer¬ 
 chant who operates under the cost method, inasmuch as the burden of proof is on him to substantiate 
 that any figure other than cost used in his inventory is an actual market figure at inventory time—that 
 is, it is offered for sale in the ordinary wholesale market at the rate at which the inventory is taken. Only 
 one exception to this rule is made in favor of the merchant who operates on the cost inventory method. 
 This exception is, that, where the retail price at inventory time is less than the cost price originally paid for 
 an article, the retail price may be used as cost in inventory. 
 
 Under the Cost Inventory Method, therefore, inventory at end of period should consist of: 
 
 (a) Merchandise on hand at (a) cost, or (b) cost or market, whichever is lower, according to the 
 
 method used by the merchant. Materials on hand in manufacturing departments should 
 
 be included. 
 
 (b) Average rate of Freight, Express and Cartage Inward for the period, wherever the figure 
 is obtainable, applied to (a). 
 
 (c) Manufacturing payroll and materials involved in work in process, unfinished jobs which 
 have not been transferred from a manufacturing to a selling department. 
 
 (Note) The amount obtained by applying to (a) above the average rate of Discounts Earned on 
 Merchandise Purchases, item 15, should be deducted from item 15.* 
 
 Under the Retail Inventory Method, recommended by the Association and approved by the Treasury 
 Department, inventory at end of period should consist of: 
 
 (a) The cost equivalent of the retail value of the merchandise on hand. This cost equivalent 
 is obtained by applying to the retail value of the inventory the complementary cost rate of 
 the average percentage of purchase mark-up; i. e., the percentage rate reached by subtract¬ 
 ing the latter from 100% (see complete description of the Retail Inventory Method under 
 Definitions). 
 
 _ *Where the practice of charging to purchases the difference between required and available discounts is followed, the average rate of such diSerence 
 applied to (a) is a proper addition to the inventory itself. 
 
DESCRIPTIVE TEXT 
 
 15 
 
 (b) Materials on hand in manufacturing departments. 
 
 (c) Manufacturing payroll and materials** -involved in work in process, unfinished jobs which 
 have not been transferred from a manufacturing to a selling department. 
 
 (Note) The amount obtained by applying to (a) above the average rate of Discounts Earned on 
 Merchandise Purchases, item 15, should be deducted from item 15. 
 
 GROSS COST OF MERCHANDISE SOLD (14) 
 
 This item is Total Inventory and Purchases less Inventory at End of Period. 
 
 DISCOUNT EARNED ON MERCHANDISE PURCHASES (15) 
 
 Some businesses treat their cash discounts on merchandise purchases as a reduction of the cost of those 
 purchases, while others consider them as “Other Income” and credit them as such at the bottom of the 
 Operating Statement after Net Operating Profit (or Loss) is determined. 
 
 The opposing views are presented in the discussion on Discounts under Customs and Usages and, 
 therefore, will not be dealt with here. Suffice it to say that there is a decided division of opinion which 
 necessitates the accounting treatment of this item as shown on the Operating Statement. The location 
 of item 15 permits of either application. The merchant who has operated on an “Other Income” basis for 
 discounts may take item 14, Gross Cost of Merchandise Sold, add thereto item 17, Alteration Costs, to 
 obtain a working “Cost of Sales” for the purpose of controlling his department managers as formerly, and 
 for that purpose alone. It must always be clearly borne in mind, however, that the “Cost of Sales” so ar¬ 
 rived at is for internal management purposes only and is not Cost of Sales as defined in this report under 
 item 26. Regardless of discount treatment for departmental control, item 26 should be calculated, as 
 should all the items on the Operating Statement, in accordance with instructions in order to serve the main 
 object of this program of standardization; i. e., a common basis for comparison of the operating reports 
 of retail stores. This account, therefore, consists of—(a) Discounts Earned on Merchandise Purchases, 
 LESS, (b) amount obtained by applying average rate of (a) above to value of merchandise on hand. (See 
 item 13.) The amount so deducted should be carried over into the next fiscal period in a reserve account, 
 the entry then being reversed. 
 
 NET COST OF MERCHANDISE SOLD (16) 
 
 This item is Gross Cost of Merchandise Sold less Discount Earned on Merchandise Purchases. 
 ALTERATION COSTS (17) 
 
 This item represents cost of alteration sales included in Gross Sales, item 3. 
 
 Materials used, wages and other expenses of alteration rooms should be included here. The sum of 
 these items constitutes an additional cost of merchandise, since a sale in which alterations are involved is 
 not complete until they are finished and accepted by the purchaser. In so far as the position of this item 
 on the Operating Statement is concerned, there is a distinction between the costs which it represents and 
 the other additions to merchandise cost. Item 11, Freight, Express and Cartage Inward, represents an ad¬ 
 ditional cost incurred in the movement of merchandise inward and the placing of it in stock while the costs 
 represented by item 17 do not originate until the merchandise begins to move outward. 
 
 MERCHANDISE COSTS—OWNED DEPARTMENTS (18) 
 
 This item is Net Cost of Merchandise Sold plus Alteration Costs. 
 
 MERCHANDISE COSTS—LEASED DEPARTMENTS (19) 
 
 This item represents the cost of sales before considering expenses in leased sections as reflected in 
 special ledger account. 
 
 **The reason for treating manufaeturing pay-roll and materials separately is that it is inadvisable to attempt to include manufacturing departments in 
 the percentage of purchase mark-up calculation under the Retail Inventory Method. The chief difficulty lies in the fact that there is a fundamental differ¬ 
 ence between charges to Purchases for a Selling Department and those for a Manufacturing Department. When purchases for a selling department are en¬ 
 tered at cost and retail in the stock records, the marked-up price or Retail is placed on the merchandise tag attached to the merchandise and in consequence 
 there is a basis of comparison at retail between merchandise and stock records at inventory time. 
 
 But, when pay-roll and materials are charged to Purchases against a manufacturing department, it is not known in what finished form they will be work¬ 
 ed up nor at what retail that finished form will sell. Consequently, any mark-up placed upon them would be only an estimate, the correctness of which there 
 would be no subsequent opportunity of verifying since it would have been applied in bulk while the finished product would be transferred by the job or piece 
 
16 
 
 OPERATING STATEMENT 
 
 *TOTAL MERCHANDISE COSTS (20) 
 
 This item is the total of items 18 and 19. 
 
 OPERATING EXPENSES—OWNED DEPARTMENTS (21) 
 
 This item represents a class of accounts so important that they merit special treatment and have 
 received it elsewhere in this report in the study entitled “Classification and Distribution of Expense. ,, 
 For the purposes of the Operating Statement, it is sufficient to say, that the caption of this item covers all 
 expenses of the business, whether direct or indirect, which are chargeable to owned departments. 
 
 OPERATING EXPENSES—LEASED DEPARTMENTS (22) 
 
 This item represents expenses similar to those discussed under item 21. but chargeable to leased 
 departments. 
 
 OPERATING EXPENSES—TOTAL (23) 
 
 This item is the total of items 21 and 22. 
 
 COST OF SALES—OWNED DEPARTMENTS (24) 
 
 This item is Merchandise Costs—Owned Departments plus Operating Expenses—Owned Depart¬ 
 ments. 
 
 COST OF SALES—LEASED DEPARTMENTS (25) 
 
 This item is Merchandise Costs—Leased Departments plus Operating Expenses—Leased Depart¬ 
 ments. 
 
 COST OF SALES—TOTAL (26) 
 
 This item is the total of items 20 and 23 and also of items 24 and 25. 
 
 OPERATING PROFIT OR LOSS (27) 
 
 This item is Net Sales (item 7) less Cost of Sales — Total (item 26) 
 
 OTHER INCOME AND LOSSES (28) 
 
 Caption only. 
 
 OTHER INCOME (29) 
 
 This item represents non-operating income from sources other than the ordinary operations of the 
 business as represented by the preceding items. The following are typical “Other Income” accounts. 
 
 CREDITS 
 
 RENT CHARGED TO DEPARTMENTS. 
 
 LESS: RENT PAID OR ACCRUED... ]. 
 
 RENTAL PROFIT.•. . 
 
 Representing excess of rent charged to departments and included in item 23, Operating Expenses, over rent paid or accrued. 
 
 TELEPHONE RENTAL, representing amounts received from telephone companies in payment for space occupied by pay- 
 stations in the store. 
 
 INTEREST CHARGED TO DEPARTMENTS and included in item 23. 
 
 DISCOUNT EARNED ON OTHER THAN MERCHANDISE PURCHASES 
 SALES OF BOXES, WASTE, ETC. 
 
 INTEREST ON RECEIVABLES 
 
 ♦For internal operating purposes, or for comparisons with past operations, where the merchant desires to obtain the equivalent of that which is 
 sometimes termed “Gross Profit”, a figure comparable to this may be obtained by subtracting item No. 20 from item No. 7, which may be called “Gross 
 Income from Merchandising”. 
 
DESCRIPTIVE TEXT 
 
 17 
 
 INTEREST ON SECURITIES—GOVERNMENT 
 INTEREST ON SECURITIES—OTHER 
 DIVIDENDS FROM INVESTMENTS 
 MISCELLANEOUS 
 
 OTHER LOSSES (30) 
 
 This item represents non-operating losses. 
 
 OTHER INCOME OR LOSSES—NET (31) 
 
 This item is Other Income less Other Losses. 
 
 NET PROFIT OR LOSS (32) 
 
 This item is Operating Profit or Loss plus or less Other Income or Losses—Net. 
 
 PROVISION FOR FEDERAL INCOME TAXES (33) 
 
 These taxes are not an expense but rather a sharing of profits with the government. This item there¬ 
 fore represents that proportion of item 32, Net Profit which will satisfy the requirements of the government 
 as specified in the tax laws applicable to the period. 
 
 BALANCE TO CURRENT PROFIT AND LOSS (34) 
 
 This item is Net Profit or Loss less Provision for Federal Income Tax and represents the net accretion 
 or impairment of capital for the period. 
 
OPERATING ACCOUNTS 
 
 DEFINITIONS 
 
 STOCK TURNOVER 
 
 Stock turnover is the figure arrived at by dividing the average inventory at retail for the period under 
 consideration into the sales for the same period, or by dividing the average inventory at cost into the cost 
 of sales. In the interests of uniformity, it is recommended that the first, or retail method be adopted when¬ 
 ever the retail inventory method is used. 
 
 AVERAGE INVENTORY 
 
 The average inventory, either cost or retail, for a given period is determined by adding together the 
 total amounts of all the inventories recorded within such period, including the initial inventory, and divid¬ 
 ing the figure so arrived at by the number of inventories so recorded. For example: Add together the 
 initial inventory and the inventories recorded at the end of each week during the year and divide their sum 
 by 53; or add together the initial inventory and the inventories recorded at the end of each month and 
 divide their sum by 13. The second method, while more practicable than the first, is not as accurate, since 
 exceptionally high or low inventories occurring at times other than the end of a calendar month will not 
 be included in the calculation and hence will not affect the average. 
 
 The larger the number of recorded inventories within the period the more nearly will the resultant 
 average inventory approximate the truth and the more accurate will be the turnover arrived at by 
 using it as a divisor. 
 
 SALE 
 
 A sale is a transaction whereby, in exchange for cash or a promise to pay either expressed or implied, 
 title to merchandise bought by the merchant for resale at a profit or manufactured by him either in whole 
 or in part for sale at a profit, passes to a purchaser. The definition in the Uniform Sales Act reads: “A 
 sale of goods is an agreement whereby the seller transfers the property in goods to the buyer for a consid¬ 
 eration called the price.” 
 
 RETURNS 
 
 A return is a transaction whereby, in exchange for the physical return of and title to merchandise 
 previously sold, the merchant refunds the purchase price to the customer or credits his account. 
 
 ALLOWANCES 
 
 An allowance is a reduction which the merchant for any reason may find it expedient to make in the 
 price of the merchandise involved in any sale previously concluded. 
 
 CUSTOMERS’ AND EMPLOYEES’ DISCOUNTS 
 
 Customers’ and Employees’ Discounts are reductions in the price of merchandise agreed upon between 
 buyer and seller before the conclusion of the sale, and actually granted in the transaction in which title 
 passes, becoming thereby a part of the original purchase transaction. 
 
 18 
 
DEFINITIONS 
 
 19 
 
 RETAIL INVENTORY METHOD 
 
 The retail method of taking inventory has been laid down by the government in TREASURY 
 DECISION 3058 issued August 16, 1920, and in a letter to the National Retail Dry Goods Association 
 relative thereto sent from the Treasury Department January 21, 1921.* 
 
 »(T. D. 3058; 
 
 INCOME TAX 
 
 Section 203, Revenue Act of 1918: Inventories of Retail Dry Goods Dealers 
 
 “TREASURY DEPARTMENT 
 
 To Collectors or Internal Revenue and Others Concerned: 
 
 Office of Commissioner of Internal Revenue 
 
 Washington, D. C. 
 
 Regulations 45 are hereby amended by inserting Article 1588, reading as-fpllows: 
 
 Article 1588. _ Inventories of Retail Dry Goods Dealers. (1) Retail dry goods dealers who employ the ‘retail method, ’ which is essentially a ‘cost’ method 
 of valuing inventories, will be permitted to make their returns upon that basis, provided (a) that the use of such method is designated upon the return, (b) 
 that accurate accounts are kept, and (c) that such method be adhered to in subsequent years, unless a change is authorized by the Commissioner. The ‘re¬ 
 tail method’ consists in computing the ‘cost’ of goods on hand fiom the ‘percentage of purchase mark-up’ and the ‘retail value’ of goods on hand. 
 
 (2) A taxpayer employing the ‘retail method’ of valuing inventories shall maintain and preserve in permanent form, for the inspection of internal 
 revenue officers, the accounts and records of each year, together with a schedule of ail mark-downs in each department, and such mark-downs shall not be 
 included in the computation of the retail value of goods on hand unless the goods so marked down have been actually sold. 
 
 (3) The following general plan of taking an inventory by the ‘retail method’ will, it is believed, be found readily adaptable to the requirements of 
 most retail dry goods dealers: 
 
 (A) The percentage of purchase mark-up is computed as follows: The value of all merchandise, as received, is recorded by departments at two prices, 
 (a) invoice cost plus transportation, and (b) original retail sale price. These cost and retail values are accumulated as recorded during the year. The total 
 retail value minus the total cost value equals the total purchase mark-up, which divided by the total retail value gives the percentage of purchase mark-up. 
 
 (B) The retail value of goods on hand is computed as follows: A record is kept of (a) the amounts of all sales at retail, (b) any variations from the 
 inventory prices of the preceding year of goods carried over from that year, and (c) any variations from the original sale prices, such as subsequent mark-ups 
 or mark-downs (note paragraph 2). The retail value of the opening inventories plus the retail value of the purchases (plus or minus the algebraic sum of all 
 subsequent mark-ups, and mark-downs in the case of goods actually sold) minus the retail value of the sales equals the retail value of the book inventory of 
 goods on hand. Physical inventories by departments are taken of goods on hand at retail at the close of the taxable year, and the retail value of the book 
 inventory of goods on hand is adjusted accordingly. 
 
 (C) The cost of goods on hand is computed by subtracting from one hundred per cent, the percentage of purchase mark-up, which gives the percentage 
 of cost, and multiplying the retail value of goods on hand by such percentage of cost. 
 
 (Signed) PAUL F. MYERS, 
 Acting Commissioner of Internal Revenue. 
 
 Approved: August 16, 1920. 
 
 S. P. Gilrert, Jr. 
 
 Acting Secretary of the Treasury.” 
 
 “TREASURY DEPARTMENT 
 
 Washington, January 21, 1921. 
 
 National Retail Dry Goods Association, 
 
 200 Fifth Avenue, 
 
 New York, N. Y. 
 
 Sirs: Reference is made to your letter of January 13, 1921, relative to Tieasury Decision No. 3058, issued August 16, 1920 (Article 1588—Inventories 
 of Retail Dry Goods Dealers), asking for further details as to proper procedure within the meaning of the Regulations. 
 
 Your questions are taken up and answered in the order you have presented them: 
 
 1. The use of the retail method is by the decision confined to retail dry goods dealers. Other organizations and individual stores who conduct retail estab¬ 
 lishments and follow essentially the retail method of dry goods stores, may be allowed this method upon application to the Bureau of Internal Revenue. 
 
 2. The designation of the method as a ‘cost’ method. It was not intended that the apparent limitation should be inflexible. It is recognized that on a con¬ 
 stant or rising market the retail method is approximately a ‘cost’ basis and that on a falling market it results in a reduction to ‘cost or market, whieh- 
 evei is lower.’ 
 
 3. Preserving records. There must be a permanent form of recording by departments, purchases showing the firm name, date of invoice, invoice cost, and 
 retail sales price. A permanent record must be kept of the accumulation of all department purchases, mark-downs, sales, stocks, etc. It must be borne 
 in mind that undei no circumstances will arbitrary standard percentages of purchase mark-up be allowed in the determination of the ‘cost’ or ‘cost or 
 market’ value of retail inventories, but that such percentage must be the purchase mark-up percentage disclosed by the department records of the fiscal 
 period for which the return is made. 
 
 4. Ooening Inventory. In section ‘A’ the words ‘the value of all merchandise as received’ is inclusive of inventory at the beginning of the peiiod. The pur¬ 
 chase mark-up must be computed as follows: 
 
 Cost: Inventory at cost at beginning 
 
 Purchases at cost 
 Transportation 
 
 Retail: Inventory at sales price 
 Purchases at sales price 
 
 5. Appreciation in retail values of goods on hand. Within the meaning of the Article, it is proper to include as a part of ‘original retail sales price’ the actual 
 increase in the original sales price which has been brought about by market conditions or by incorrect pricing when the goods were put into stock. 
 
 For the convenience of the examining officer, a special form should be provided; complete information by items of the increased form the original retail 
 must be shown; reference, if possible, must be made to the original invoice; entry and the reason for the increase freely explained. All such amended 
 retail increases must be approved by the buyer of the department and merchandise manager or other responsible official and they should be so filed that 
 quick reference to them may be made. Entry of such increased retail properly belongs in department purchase books, although it may be set up as a sep¬ 
 arate item in the accumulated records of the department. The same forms that are used to record such price increases should not be used for mark- 
 downs and in no instance will a etore be allowed to include as retail increases a mark-up which has been taken as a correction or cancellation of a mark-down; 
 such mark-up must be regarded and treated in all cases as opposite to mark-down. 
 
 6 . Proper mark-downs substantiated by record of facts will be permitted. The decision is not intended to disturb the procedure in stores which have prop¬ 
 erly handled mark-downs, but instances where arbitrary reductions from retail values have been made because of the desire to provide for depreciation 
 and obsolescence with no actual offering to the public of the goods on which the mark-downs were claimed, cannot be recognized. Under no circumstances 
 will a store be allowed to depreciate its stock in any way except by the offering of it to its customers at such reduced prices. The procedure of stores in 
 regard to mark-downs will be deemed proper if in any fiscal year or period of that year the goods so marked down are in proportion to current sales, to 
 stock on hand, to mark-down of preceding months of preceding year, or if evidence can be submitted as to market changes which have forced a reduction 
 in retail prices necessary to bring about a parity with the selling price of the same goods which have been purchased or could be purchased at a reduced 
 cost. 
 
 In conclusion it should be noted that a store who has employed its retail method in the past, may now specify in the return that such method is used, 
 as a basis on valuing inventories, regardless of the fact that in past years it reported on a ‘cost’ or ‘cost or market whichever is lower’ basis. However, the 
 use of the retail method will not be recognized unless it has been correctly followed throughout the entire fiscal or calendar year period for which the return 
 is made. 
 
 Respectfully, 
 
 (Signed) WM. M. WILLIAMS 
 
 Commissioner. ’ ’ 
 
20 
 
 OPERATING ACCOUNTS 
 
 The Government’s requirements are met by the following formula: 
 
 RETAIL INVENTORY METHOD 
 
 FORMULA 
 
 - 
 
 (1) 
 
 Cost 
 
 (2) 
 
 Retail 
 
 (3) 
 
 Mark-up 
 
 (4) 
 
 %0f 
 
 Mark-up 
 
 1 Opening Inventory (lines 9 and 10 of preceding period). 
 
 2 Purchases. 
 
 3 Freight Express and Cartage, Inward. 
 
 4 Additional Mark-Ups, less additional Mark-Up Can¬ 
 
 cellations. 
 
 XXX XX 
 
 XXX XX 
 
 • . • • • 
 
 XXX XX 
 
 XXX XX 
 
 XXX XX 
 
 XXX XX 
 
 5 Total of Inventory, plus Additions. 
 
 . 
 
 . 
 
 . 
 
 . 
 
 6 Net Sales. 
 
 7 Mark-Downs, less Mark-Down Cancellations. 
 
 XXX XX 
 
 XXX XX 
 
 . 
 
 XXX XX 
 
 XXX XX 
 
 XXX XX 
 
 XXX XX 
 
 8 Total Retail Deduction (sum of items 6 and 7). 
 
 XXX XX 
 
 . 
 
 XXX XX 
 
 XXX XX 
 
 9 Resultant Retail Inventory (Retail Inventory on line 
 
 5, Column 2, minus item 8). 
 
 10 Calculation of Cost Percentage: 
 
 (a) Total Percentage. 100% 
 
 (b) Percentage of Mark-Up (line 5, Col. 4).% 
 
 XXX XX 
 
 . 
 
 XXX XX 
 
 XXX XX 
 
 (c) Percentage of Cost [ (a) minus (b) ].% 
 
 11 Cost Inventory (item 10 (c) applied to item 9)....... . 
 
 12 Resultant Mark-Up and Percentage (item 9, minus 
 
 item 11). 
 
 XXX XX 
 
 XXX XX 
 
 XXX XX 
 
 XXX XX 
 
 XXX XX 
 
 13 Gross Cost of Merchandise Sold (difference between 
 Cost Inventories on lines 5 and 11). 
 
 .... .. 
 
 XXX XX 
 
 XXX XX 
 
 XXX XX 
 
OPERATING ACCOUNTS 
 
 CUSTOMS AND USAGES 
 
 In the descriptive text accompanying item 15 on the operating statement, it is stated that some busi¬ 
 nesses treat their cash discounts on merchandise purchases as a reduction of the cost of those purchases, 
 while others consider them as “Other Income” and credit them as such at the bottom of the operating 
 statement after Net Operating Profit (or Loss) is determined. 
 
 Business men who use the first method support it by citing, first, its admitted soundness from the 
 standpoint of accounting theory, and, second, its advisability from the merchandising standpoint by reason 
 of the fact that the crediting to departments of everything that they earn constitutes the most effective 
 incentive for department managers, particularly where they operate under some bonus or profit-sharing 
 method. They say that the best way to make a merchant out of a department manager is to cause him to 
 operate with a complete instead of only a partial knowledge of the facts. 
 
 On the other hand, those who consider discounts as “Other Income,” while they show no disposition 
 to question the accounting correctness of the other method, do challenge its expediency in no uncertain 
 way. They advance the argument that discounts are the store’s “anchor to windward,” safe-guarding it 
 as a business entity against the merchandising mistakes of department managers whose abilities vary 
 widely both as between individuals and as between different years in the same individual’s career. This 
 argument, of course, applies increasingly with the size of the business and the degree of departmentization 
 within it. Moreover, they quote many of the most prominent merchants of the country to the .effect that 
 their success has been built on the careful reservation of their cash discounts. 
 
 Their opponents grant that, in so far as mark-up is concerned, the retail price of the merchandise 
 should be determined without deducting the discount from the invoice cost, but claim that the admitted 
 advisability of this does not vitiate their other arguments. 
 
 Whatever the numerical strength of the opposing factions on this question, the fact remains that there 
 is a decided division of opinion which necessitates the accounting treatment of this item as shown on the 
 Operating Statement. The location of item 15 permits of either application. 
 
 21 
 
PART III 
 
 CLASSIFICATION AND DISTRIBUTION OF EXPENSE 
 
 DESCRIPTIVE TEXT 
 
 The Classification and Distribution of Expense is one of the important, if not the most important, 
 items entering into the accounting of retail stores, and unless properly handled, may vitally affect the net 
 results of a department or business. 
 
 Operating conditions in localities and individual stores vary greatly: therefore, in order to provide 
 methods that would be generally adaptable, there must be flexibility. In this publication, therefore, the 
 expenses have been minutely subdivided as to selling, service, manufacturing and alteration departments. 
 
 This expense classification has been compiled for the smaller store which desires a simple, practical 
 distribution of expense, as well as for the larger store which requires a detailed distribution of expense. 
 The small and large classifications have been so arranged as to dovetail into each other. 
 
 The expense classification has been so drafted that it is possible for any store, regardless of size, to 
 accomplish any or all detail desired. As the purpose of the small stores first accounting procedure is the 
 result of the business as a whole, so we have used this as the basis of the expense classification and gradu¬ 
 ally expanding until the classification is completely departmentized. Departmental classification of ex¬ 
 penses is the outgrowth of a classification that pertained to the business as a whole, without regard for 
 departments. 
 
 FACTORS 
 
 The two principal factors of expense classification and distribution are as follows. 
 
 FIRST FOURTEEN (14) NATURAL DIVISIONS 
 SECOND FIVE (5) FUNCTIONAL GROUP CLASSIFICATIONS 
 
 The Natural Divisions of Expense are those divisions or accounts to which expense is naturally classi¬ 
 fied or charged. 
 
 The Functional Group Classifications of Expense represents the grouping of the Natural Divisions 
 as they may apply to the functional operations of a store. 
 
 These factors are referred to in the above order, as in charging or classifying an item of expense the 
 Natural Division is usually first determined or known, before it is classified as to which function of the 
 store it may apply. 
 
 It is essential that stores should be departmentized, and in classifying and distributing an item of 
 expense, the Natural Division determines the class of expense and is only a factor in departmental expenses 
 in so far as maintaining detail analysis is concerned. 
 
 NATURAL DIVISIONS 
 
 The Fourteen (14) Divisions of Expense are natural or major divisions into which all items of expense 
 normally fall and are as follows: 
 
 • 
 
 01 SALARIES AND WAGES 
 02 RENTALS 
 03 ADVERTISING 
 04 TAXES 
 05 INTEREST 
 06 SUPPLIES 
 
 22 
 
DESCRIPTIVE TEXT 
 
 23 
 
 07 SERVICE PURCHASED 
 08 UNCLASSIFIED 
 09 TRAVELING 
 
 10 COMMUNICATION 
 
 11 REPAIRS 
 
 12 INSURANCE 
 
 Vl3 depreciation 
 14 PROFESSIONAL SERVICES 
 
 The Fourteen (14) Divisions are arranged in order of their relation to a business from the viewpoint 
 of the volume of expenditure and are the basic accounts for distribution of expenses. These accounts 
 afford a simple classification of expense for the small store which can be expanded to suit the volume of 
 business of the individual merchant or his own desire for detailed analysis. 
 
 The numbers shown opposite each of the divisions are the basic numbers used in the numbering plan 
 herein employed. 
 
 The major items of expense, properly chargeable to the respective captions of the Fourteen (14) Natural 
 Divisions, are summarized as follows: 
 
 SALARIES AND WAGES (01) 
 
 Salaries and Wages include all compensation to employees for salaries, wages, commissions, bonuses, 
 P. M.’s and suppers. 
 
 RENTALS (02) 
 
 Rentals include all rents paid for premises occupied and interest on valuation of owned premises, or 
 if premises are leased and the business has made improvements, both rents paid and interest on investment 
 therein should be considered as rental. The rate of interest on owned premises should be based upon six 
 percent (6%) for the purpose of comparison. Taxes and Insurance should be charged to their respective 
 accounts when premises are leased, subject to the payment of these items, or when they are owned. 
 
 The charts of expense accounts provide for the charging of rents to selling, alteration and manufac¬ 
 turing departments, windows and to garage if you maintain your own delivery equipment, for the purpose 
 of simplicity. Rents for outside buying offices should be accordingly charged. 
 
 If any of the premises owned or leased are rented, the income and expense should be handled as a 
 separate operating unit and not under this caption. 
 
 ADVERTISING (03) 
 
 Advertising includes all newspaper, periodical and program space, street-car cards, billboards, catalogs, 
 circulars, electric signs, novelties and contributions that have a direct advertising value. 
 
 TAXES (04) 
 
 Taxes include all city, county and state taxes on land, buildings, fixtures and equipment and mer¬ 
 chandise, moneys, accounts, etc., state excise or corporation, federal capital stock, state taxes of outside 
 buying offices and licenses. 
 
 INTEREST (05) 
 
 Interest is included on the net investment in the business, except that on owned land and buildings or 
 the improvements on leased premises which has been provided for under rent. 
 
 The interest on merchandise should be computed on the average cost inventory at the end of the 
 period; fixtures and equipment on the depreciated value at the beginning of the period; on all other assets 
 used in the regular operation of the business, including cash, customers and employees’ notes and accounts, 
 merchandise in transit and paid for in advance, deferred charges and any other operating assets, less lia¬ 
 bilities and reserves, but excluding capital stock, investment accounts of owners, and profit and loss or 
 surplus. 
 
 Liabilities having been deducted in computing net assets, the interest on borrowed capital, either 
 notes or accounts should be included under this caption. All interest earned on notes or accounts in the 
 regular course of business should be credited to interest on notes and accounts referred to in the pre¬ 
 ceding paragraph. 
 
 Interest earned on investments outside of the regular operations of the business should not be included 
 under this caption. 
 
 The interest computations should be based upon six percent (6%) for the purpose of uniformity and 
 comparison. 
 
24 
 
 CLASSIFICATION AND DISTRIBUTION OF EXPENSE 
 
 SUPPLIES (06) 
 
 This division includes all supplies used in operating the business, including all items classed as supplies 
 and water, coal, gas and publication subscriptions. 
 
 SERVICE PURCHASED (07) 
 
 This division is provided to take care of light, heat and power and delivery, only when this class of 
 service is purchased from outside sources. 
 
 UNCLASSIFIED (08) 
 
 Divisions not definitely provided for under other captions are herein included and comprise classified 
 advertising, memberships and dues, entertainment, welfare, inspection fees, carfare, cashiers’ shortages, 
 errors, donations (cash), unauthorized purchases, discount not taken or not allowed, etc. 
 
 TRAVELING (09) 
 
 Traveling expenses incurred in connection with operating the business, including buying and selling. 
 COMMUNICATION (10) 
 
 This division includes all postage, (except parcel postage on packages,) telephone, telegrams and cable 
 charges. 
 
 REPAIRS (11) 
 
 Repairs to buildings, fixtures, equipment, power plant and delivery equipment should be included in 
 this account and consists of all ordinary repairs to buildings and equipment, for which depreciation has 
 not been provided for. New equipment or improvements that are proper charges to capital assets should 
 not be herein included. 
 
 INSURANCE (12) 
 
 This division includes all forms of insurance covering losses sustained from fire, liability, sprinkler 
 leakage, use and occupancy, life and theft. 
 
 DEPRECIATION (13) 
 
 Depreciation includes the amount considered as covering amortization, wear, tear and obsolescence 
 of buildings, leasehold, fixtures and equipment. Under this caption is also included losses resulting from, 
 or reserve provided for bad accounts. 
 
 PROFESSIONAL SERVICES (14) 
 
 This division includes all legal, accounting, secret service and advertising professional services pur¬ 
 chased, credit information and collection costs. 
 
 The dual numbering system has been adopted, as it affords an expansion to ninety-nine (99) sub¬ 
 divisions for each division if desired. 
 
 The subdivisions of each Natural Division are shown by Chart 16, Volume II, in numerical order, 
 divided into three (3) classes of stores, so as to provide for the small and the large store. This chart will 
 assist the small store in the allocation of items of expense to the proper account and furnishes the relation 
 of accounts of the different classes of stores, one to another. 
 
 It is suggested that the numbering plan herein used be adopted; expanding when necessary, or using 
 such subdivisions as meet the individual conditions, as this will place all stores, large or small, on a stand¬ 
 ardized basis and work for uniformity. The basis of Successful standardization in accounting in other 
 classes of business has been the general adoption of a fixed numbering plan by which the accountant be¬ 
 comes as familiar with the number as with the name of the account. 
 
 Where a complete numbering system is already in operation or w r here in a small business a more simple 
 system is preferred, the store’s own numbering plan may be continued, provided, that whenever reports 
 or figures are prepared for comparison with other stores, reference is made in such reports to the standard 
 numbers as required in this classification. In this connection Charts 16 and 17 have been prepared, 
 so that a store may place their own account number opposite the respective division or subdivision. 
 
DESCRIPTIVE TEXT 
 
 25 
 
 “ 77 ;- 
 
 FUNCTIONAL GROUP CLASSIFICATIONS 
 
 i 
 
 The Five (5) Group Classifications of Expense follow closely the natural functions of a store, as follows: 
 A ADMINISTRATIVE 
 
 0 OCCUPANCY (including LIGHT, HEAT AND POWER) 
 
 P PUBLICITY 
 t| ^ B BUYING 
 
 S SELLING (including DELIVERY) 
 
 The Five (5) Group Classifications are arranged in sequence of the usual organization procedure. 
 The letters shown opposite each functional group are the designated symbols for each group classi¬ 
 fication and should be prefixed to all items of expense charged direct to selling departments. 
 
 In alloting numbers and letters throughout the entire expense classification it has been the purpose 
 to avoid duplications and have each symbol represent an individual item, grouping or designation without 
 confliction. 
 
 ADMINISTRATIVE (A) 
 
 This function covers all of the General Administrative Expenses of a store and includes Executive 
 Offices, Accounting Offices, Credit Offices, Superintendency and General Store Expenses. 
 
 OCCUPANCY (0) 
 
 Items applicable to maintaining the premises occupied, including fixtures and equipment, have been 
 grouped under the Occupancy function and include rentals of buildings or interest on owned premises, 
 taxes, insurance, depreciation, light, heat and power, and cost of maintaining all buildings and fixtures, 
 so that they may be used for retail purposes. 
 
 PUBLICITY (P) 
 
 Under this function is included all items pertaining to newspaper, circular, bill board and other forms 
 of advertising, interior, exterior and window displays. 
 
 BUYING (B) 
 
 Included under this function are all items pertaining to the buying of merchandise and includes mer¬ 
 chandising offices, outside buying offices, merchandise comparison office, receiving, marking and stock rooms. 
 
 SELLING (S) 
 
 This function covers all of the expenses necessary in the selling of the merchandise from the time it 
 is received in the department up to and including the cost of delivery to the customer and including any 
 adjustments made thereafter. 
 
 This grouping of expense expenditures is in accordance with the operating functions of a retail store 
 and affords easy comparison and effective control. 
 
 Merchants will find these functional groupings especially suited to any retail store, regardless of size, 
 and as the small store develops, or greater detail is desired, the respective groups can be expanded into 
 their subdivisions. 
 
 The subdivisions or departments into which the Five (5) Group Classifications may be respectively sub¬ 
 divided, classified as to four (4) classes or sizes of stores, are shown on Chart 9 and allow for flexi¬ 
 bility between the classes to meet individual operating conditions. The numbers shown opposite the de¬ 
 partments applicable to the Five (5) Group Classifications are suggestive only. 
 
 All selling, manufacturing, alteration and service departments should be numbered from 1 up, in groups 
 according to classes, allowing sufficient numbers for future expansion. The numbers allotted to each 
 department, when prefixed to the expense division or subdivision number, will serve to identify the expense 
 item with its exact location in the expense classification. In charging direct expenses to selling depart¬ 
 ments, the letter designating the group classification should be prefixed, so as to properly collate all items 
 under the Five (5) Functional Group Classifications without redistribution. 
 
26 
 
 CLASSIFICATION AND DISTRIBUTION OF EXPENSE 
 
 ALTERATION AND MANUFACTURING 
 
 The Alteration and Manufacturing Department expenses should be distributed in accordance with 
 the Fourteen (14) Natural Divisions, but are not applicable to the Five (5) Functional Group Classifications. 
 
 A distinction should be drawn between Alteration and Manufacturing Departments. Alteration 
 Departments are those where the operation is in effect; merely the completion of a sale; Manufac turing 
 Departments are those in which either material or labor, or both, are added to”the value of the merchandise, 
 or are used in the creation of new merchandise. The Alteration Departments are chargeable to “CosUof 
 Sales’' and the Manufacturing Departments to “Inventory” through the Purchase or Transfer Account. 
 
 The letter “W” has been designated for this group of departments. 
 
 DISTRIBUTION AND PRORATION 
 
 All expenses should be charged direct, wherever possible, to the selling departments to which they 
 apply, keeping in mind that the Five (5) Functional Group Classifications should be preserved. 
 
 The Natural Divisions and Functional Group Classifications of Expense are consolidated so as to obtain 
 a departmental distribution, as well as detail analysis, and in this connection Charts 10, 11, 12, 13, 14 and 
 15, Volume II, have been prepared to exhibit the complete Chart of Expense Accounts, as they apply to 
 each subdivision or department of the respective group classification. In connection with the charts above 
 referred to, Chart 17, Volume II, Alphabetical Classification of Expense Accounts, will afford a ready 
 reference for the distribution of expense items. 
 
 All expenses are chargeable either, to operating or selling departments, or to service or non¬ 
 selling departments. Charges to service or non-selling departments are then redistributed to the operating 
 or selling departments on either a cost or a prorated basis. For example, should the Circular Advertising 
 (Publicity) Department prepare advertising matter specifically for the Millinery Department, the total 
 cost of that circular should be ascertained and accordingly charged to the Millinery Department, thus 
 eliminating this cost from the total operating expense of the Circular Advertising Department. 
 
 Chart 18 has been compiled so as to cover distribution of all direct and prorated expenses by classes of 
 stores, providing simple bases of proration for the small store and more elaborate proration for those 
 stores that desire intricate detail. 
 
 The following examples of classification of department expenses show the application and method 
 of the numbering plan herein used. 
 
 B 409-2 
 
 B Buying (Group Classification) 
 
 4 Millinery (Selling Department) 
 
 09 Traveling (Natural Division) 
 
 2 Traveling—Buying (Subdivision) 
 
 2406-7 
 
 . 24 Operating (Occupancy-Service Department) 
 
 06 Supplies (Natural Division) 
 
 7 Supplies—Operating (Subdivision) 
 
 6211-7 
 
 62 Garage and Automobiles (Selling-Service Department) 
 
 11 Repairs (Natural Division) 
 
 7 Repairs—Automobiles (Subdivision) 
 
 In connection, with the distribution applicable to the small store, where the Fourteen (14) Natural 
 Divisions are used only, the Functional Group Classifications or subdivisions do not apply, and the appli¬ 
 cation is very simple; in the case of Class “A” Stores, the operation is practically the same as the exam¬ 
 ples shown, with the exception that there are virtually no subdivisions of the natural divisions. 
 
DESCRIPTIVE TEXT 
 
 27 
 
 CHARTS 
 
 In presenting the expense classification, the plan of charts, as shown in detail in Volume II, were 
 decided as being the most complete and comprehensive form, as each chart places before the eye all detail 
 pertaining to the respective unit of the entire plan. 
 
 The purposes of the respective charts are as follows: 
 
 CHART No. 7. Comparative Statement of Expenses. This statement is to show the detail of expenses 
 of a business as a whole, bj r the Fourteen (14) Natural Divisions and the Five (5) Functional Group Classi¬ 
 fications, for the current month and year to date, with the previous year comparisons. Separate statements 
 should be used for owned and leased departments. 
 
 CHART No. 8. Chart of the Natural Divisions of Expense as they appear in the Five (5) Functional 
 Group Classifications. This chart is to show which of the natural divisions are applicable to the group 
 classifications. 
 
 CHART No. 9. Chart of Functional Group Classifications of Expense and Subdivisions thereof. This 
 chart is to show the subdivisions or departments which apply to each group classification. This chart 
 provides for four (4) classes of stores, and a merchant can decide which class could best be adapted to his 
 business. It is not necessary to use each class in its entirety, but any part of one class may be used with 
 the other class according to the desire for detail. 
 
 CHARTS Nos. 10, 11, 12, 13 and 14. Chart of Expense Accounts. These charts set forth the natural 
 divisions of expense as they apply to each subdivision of the functional groups. There is a chart for each 
 group. 
 
 Three (3) classes of stores have been provided on these charts, and a merchant can select the accounts 
 best adaptable to his business. 
 
 A store that desires departmental results will be able to compile their complete chart of accounts from 
 these charts. 
 
 Class “D” stores have not been provided for on these charts, as a store that desires this detail can 
 compile the desired accounts from the Class “C” classification. 
 
 CHART No. 15. Chart of Expenses ordinarily chargeable direct to Selling Departments. This chart 
 shows the accounts which apply to items that should be charged direct to selling departments and is sub¬ 
 sidiary to Charts 10, 11, 12, 13 and 14. 
 
 In charging expenses direct to selling departments the letters A, 0, P, B and S should be prefixed to 
 the department number so that the five (5) functional groups of expenses may be maintained. 
 
 CHART No. 16. Numerical Classification of the Natural Divisions of Expense. This chart shows 
 in numerical form the Fourteen (14) Natural Divisions of Expense and their subdivisions, classified into 
 three (3) classes of stores and so arranged that whenever greater detail is desired the accounts in use can 
 be referred to under the respective class of store and the expansion in the classification can be readily made, 
 as the account numbers in each class of stores are shown opposite each other. 
 
 CHART No. 17. Alphabetical Classification of Expense Accounts. This chart or index affords an 
 alphabetical reference to charts 10, 11, 12, 13, 14 and 15 and includes all items of expense which may or 
 may not be directly mentioned in the Charts of Expense Accounts. 
 
 This chart should be very helpful in distributing expenses, when the account to which it may be appli¬ 
 cable is in question. 
 
 CHART No. 18. Distribution and Proration of Indirect Expenses. This chart is provided to show the 
 bases of proration to the selling departments of the expenses of the service departments. 
 
 Four (4) classes of stores have been provided, but if in compiling your chart of expense accounts you 
 have taken accounts from more than one class of stores, you should follow the same plan in selecting your 
 bases for proration of indirect expenses. 
 
 CHART No. 19. Alteration and Manufacturing “W” Division. The expense accounts of the 
 Alteration and Manufacturing departments are shown by this chart. 
 
 CHART No. 22. Source of Information for Expense Distribution. This chart is prepared so as to 
 convey the bookkeeping procedure, in connection with recording of expenses, in accordance with the 
 plan outlined herein. 
 
CLASSIFICATION AND DISTRIBUTION OF EXPENSE 
 
 28 
 
 FLOOR SPACE RENTALS 
 
 The importance of establishing a satisfactory degree of comparison in operating costs of stores, and 
 the relatively high proportion of such costs appearing under the caption of OCCUPANCY suggest the 
 desired method of treating particularly upon the largest item placed under the latter heading; namely, 
 that of RENTALS. 
 
 A clear statement of the principle of rentals in relation to standardized accounting for retail stores 
 will serve as a guide in its application. The amount charged to RENTALS should represent the amount 
 paid as rent for the properties used in the conduct of the business, or the occupancy value of such properties; 
 the latter on the theory that real estate profits are quite distinct from merchandising profits. Only by the 
 inclusion in the expenses of a merchandising business of rentals on owned properties used in that business 
 can the merchant determine the amount of profits arising out of merchandising operations. 
 
 It is suggested that consideration be given to the following: 
 
 First. The rental value of similar properties in the immediate vicinity. 
 
 Second. A proper return upon the apparent real estate value of the properties. 
 
 In cases wherein there is a difference between the values disclosed by 1 and 2 as above, it would in 
 most cases be proper to establish a figure compromising between the two, for the following reasons: 
 
 May represent a temporary condition due to extreme business conditions or 
 to unusual leasing conditions in the vicinity, and therefore would not in itself be 
 suitable for a basis, or may disclose an amount at variance with the leasing 
 conditions in the immediate vicinity. 
 
 There are, generally speaking, three classes of operators as follows: 
 
 A. Those leasing all properties used. 
 
 B. Those owning all properties used. 
 
 C. Those leasing part and owning part. 
 
 Only classes B and C, as above, present any problem in determining the total rentals, and these only 
 in the matter of the properties which are owned. 
 
 In some extreme conditions the amount paid under a lease may fail to represent an amount even 
 approximating the value of the premises. In such cases, if the variation be of sufficient amount to justify 
 the procedure, a value may be arrived at as in the case of owned properties, and the amount of the excess 
 credited to a special lease account appearing under “Other Income" on the Operating Statement. 
 
 After deciding upon the amount to be charged to RENTALS for all properties used, the next process 
 should be to determine the relative values of different parts of the properties. In this connection, con¬ 
 sideration should be given to the following: 
 
 A. Value of the Show Windows. 
 
 B. Value of the Street Floor. 
 
 C. Value of the Basements and Upper Floors. 
 
 D. Relative values of most favorable locations. 
 
 (A) The floor space valuation of the show windows should be determined by its display value, but 
 only in proportion to the location valuation placed on the entire street floor. 
 
 The floor space rental established is charged to Rentals 02-1 under the Window Department in the 
 Publicity group. 
 
 (B) The value of the street floor is affected by the following considerations: 
 
 1. Exposure or frontage. 
 
 2. Number and locations of entrances. 
 
 3. Number of stories. 
 
 4. Layout of ground plan. 
 
 5. Number and location of elevators. 
 
DESCRIPTIVE TEXT 
 
 29 
 
 (C) The values of basements and upper floors are more readily determinable after the windows and 
 street floor have been assigned a value. Basements suitable for and used as merchandising space should 
 be accorded a higher value than if used for non-selling purposes. Usually the floors decrease in value accord¬ 
 ing to their height above the ground. In this matter the adequacy of the elevator service is of prime consid¬ 
 eration. 
 
 Generally speaking, the assignment of values inside the store building are arbitrary, but a fair dispo¬ 
 sition of the matter may be made if due consideration be given to all of the factors. The particular depart¬ 
 ments carried bear on the subject, inasmuch as certain departments are more favorably located above 
 the street floor. 
 
 (D) It is considered fair and proper in many well regulated stores to recognize the value of certain 
 parts of floors with a higher rental charge than other spaces not so favorably situated. These zones of 
 higher value are usually easily located, and the matter of fixing the amount of variation should not be 
 difficult. Departments located on important aisles or in places where customers congregate, and spaces 
 close to elevators are examples. 
 
 Argument is made that a store may be laid out so that all departments may be assigned locations 
 equally desirable, provided that in the plans proper consideration be given to the relation of departments 
 to one another. It is held that in every store there is an ideal location for each department, and that no 
 effort should be spared in determining and assigning these locations. The proponents of this theory claim 
 that there should be no difference recognized in rental value of space used in selling, but that all area used 
 in selling should be charged at the same rate. 
 
 As rental is to be charged to selling, alteration, manufacturing and window departments only, it is 
 advisable to establish a per square foot rental on the various locations and floors, excluding windows, as 
 this has been previously determined, and after measuring the spaces occupied by the selling, alteration 
 and manufacturing departments, the rental applicable to each can be readily computed. In establishing 
 the per square foot rental charge it should be remembered that in eliminating the service departments, 
 the rentals of the space occupied by the other class of departments must be increased. 
 
 The application of the foregoing is more simple than may appear; in fact, the time necessary to com¬ 
 plete all of the calculations and measurements is found to be remarkably little even in stores of larger size. 
 For purposes of correct comparability the rental question is worthy of the particular attention directed 
 to it. 
 
 For the guidance of those who have heretofore charged rentals upon some purely arbitrary basis, such 
 as sales, attention is called to the necessity under this plan of providing for the recording and adjustment 
 of departmental changes whenever they occur. 
 
 WINDOW RENTAL 
 
 The expenses in connection with the window display department, which include all operating expenses, 
 inclusive of floor space rent, as shown by Chart 12, are chargeable to the selling departments on the basis 
 of arbitrary values of each window or case, according to display value. 
 
 The arbitrary values of each window or case should be based upon the display value of one to another, 
 and for example consider a store that has five windows, the best of which is arbitrarily valued at $5.00 
 per day and the others based upon their display value, as compared to the $5.00 per day window, are val¬ 
 ued at two at $4.00 and two at $2.00 per day. The windows were used by selling departments during the 
 entire thirty days of the month as follows: 
 
 Department 
 
 Window 
 
 No. op 
 
 Rate 
 
 
 No. 
 
 No. 
 
 Days 
 
 Per Day 
 
 Total 
 
 4 
 
 1 
 
 10 
 
 $5.00 
 
 $50.00 
 
 8 
 
 1 
 
 8 
 
 5.00 
 
 40.00 
 
 3 
 
 1 
 
 4 
 
 5.00 
 
 20.00 
 
 1 
 
 1 
 
 8 
 
 5.00 
 
 40.00 
 
 7 
 
 2 
 
 12 
 
 4.00 
 
 48.00 
 
 5 
 
 2 
 
 9 
 
 4.00 
 
 36.00 
 
 1 
 
 2 
 
 9 
 
 4.00 
 
 . 36.00 
 
30 
 
 CLASSIFICATION AND DISTRIBUTION OF EXPENSE 
 
 10 3 
 
 8 
 
 4.00 32.00 
 
 9 3 
 
 22 
 
 4.00 88.00 
 
 6 4 
 
 10 
 
 2.00 20.00 
 
 4 4 
 
 12 
 
 2.00 24.00 
 
 2 4 
 
 8 
 
 2.00 16.00 
 
 8 5 
 
 20 
 
 2.00 40.00 
 
 5 5 
 
 10 
 
 2.00 20.00 
 
 Total. 
 
 . 150 
 
 $510.00 
 
 On the above basis the total arbitrary value charged to selling departments amounted to $510.00, 
 
 which is equivalent to 100%, and accordingly proportioned to selling departments as follows: 
 
 Department 
 
 Arbitrary 
 
 
 No. 
 
 Value 
 
 Percent 
 
 1 
 
 $76.00 
 
 14.90% 
 
 2 
 
 16.00 
 
 3.14% 
 
 3 
 
 20.00 
 
 3.92% 
 
 4 
 
 74.00 
 
 14.51% 
 
 5 
 
 56.00 
 
 10.98% 
 
 6 
 
 20.00 
 
 3.92% 
 
 7 
 
 48.00 
 
 9.41% 
 
 8 
 
 80.00 
 
 15.69% 
 
 9 
 
 88.00 
 
 17.26% 
 
 10 
 
 32.00 
 
 6.27% 
 
 
 $510.00 
 
 100.00% 
 
 The percentages opposite each department designate the portion of time that they used the window 
 
 space, based upon the arbitrary display values of the windows to each other. The percentage having been 
 determined, the next procedure is to distribute the total expenses of the window department to the selling 
 departments, and the following example is offered, considering that the total expense actually incurred 
 
 amounted to $400.00. 
 
 
 
 Department 
 
 Percent 
 
 
 No. 
 
 Used 
 
 Total 
 
 1 
 
 14.90% 
 
 $59.60 
 
 2 
 
 3.14% 
 
 12.56 
 
 3 
 
 3.92% 
 
 15.68 
 
 4 
 
 14.51% 
 
 58.04 
 
 5 
 
 10.98% 
 
 43.92 
 
 6 
 
 3.92% 
 
 15.68 
 
 7 
 
 9.41% 
 
 37.64 
 
 8 
 
 15.69% 
 
 62.76 
 
 9 
 
 17.26% 
 
 69.04 
 
 10 
 
 6.27% 
 
 25 08 
 
 
 100.00% 
 
 $400.00 
 
 If the window rentals are handled in accordance with the above plan, no loss or profit will accrue to 
 the business, as the actual expenses incurred will be charged to the selling departments. 
 
 ALTERATION AND MANUFACTURING DEPARTMENTS 
 
 In the operation of these departments, in accordance with the plan suggested herein, which provides 
 that they operate on aii actual cost basis and that no profit or loss accrue to them, the following procedure 
 is suggested: 
 
DESCRIPTIVE TEXT 
 
 31 
 
 ALTERATION DEPARTMENTS 
 
 In the case where these departments work exclusive for one selling department the procedure is simple, 
 as all expenses actually incurred are charged to Alteration Coste under the caption '‘Cost of Sales” of the 
 respective selling department, in the departmental record, and in the general ledger to one account com¬ 
 prising all departments. 
 
 Where an alteration department does work for more than one selling department it is necessary to 
 maintain a cost record, either actual costs as near as same can be determined, or estimated costs, which 
 can be established for a period on each class or kind of alterations. Records should be kept by the alter¬ 
 ation departments covering the work done for each selling department, based upon the cost of each alter¬ 
 ation made and the total amount applicable to each selling department computed in percentage, as its 
 ratio in percent bears to the grand total of all costs completed during the period by the alteration department. 
 
 The total of the expenses of the alteration department can be transferred to the respective selling 
 departments, apportioned on the basis of the percentages. 
 
 The inventory of material and supplies should be taken at the end of each month or period, if the 
 actual expenses are desired. 
 
 The charges made to customers for alterations, which are termed “Alteration Sales,” are to be include 
 in the selling department’s sales (but are to be excluded in computing the retail inventory of the selling 
 department), as the selling department will be charged with all alterations made and is therefore entitled 
 to the income from this source. 
 
 MANUFACTURING DEPARTMENTS 
 
 The manufacturing departments should be operated on a cost to manufacture basis. In order to accu¬ 
 rately determine the results of manufacturing it is necessary to devise a cost s ystem , so that all completed 
 product manufactured can be transferred to the selling departments, either retail or jobbing, at_costi in 
 transferring to retail selling departments,'tUyou"are" on the retail method, the transfers can be retailed 
 the same~as~purchases made through outside sources. 
 
 All expenses in connection with the manufacturing departments should be charged to their inventory 
 as all costs, as computed, should include material, labor and overhead expense. 
 
 An inventory of all material, supplies, work in process and completed product, not transferred, should 
 be taken periodically, and the difference determined between actual and book inventories adjusted by 
 transfer to the selling departments, that received their product during the period. The accuracy of the cost 
 records, which are a basis of your selling price, can be ascertained. 
 
 In compiling this report no provision has been made for forms in connection with the books themselves 
 or departmental records, as this was considered a separate task for later procedure. 
 
PART IV 
 
 CLASSIFICATION OF MERCHANDISE 
 
 The application of the Standardization plan to merchandise classification follows in a general way the 
 principles of the expense plan. 
 
 While differences in physical layout and personnel organization occasion somewhat varying merchandise 
 groupings in different stores, there are, nevertheless, certain natural tendencies in the development of a 
 logical merchandise classification. These tendencies have been followed as closely as possible in the plan. 
 
 Comparison between store merchandise operations by departments requires that there shall be similar 
 departmental grouping of merchandise. Without this the final results when compared may disclose dif¬ 
 ferences which, while they appear to be brought about by merchandise policies and methods, may be largely 
 due to varying tendencies introduced by dissimilar groupings. 
 
 The accompanying merchandise classification chart presents the schedules as they may be adopted 
 according to existing requirements and future developement of the individual store. It provides for the 
 trade a standard plan which, when adopted, together with the expense classification, will bring about final 
 profit and loss figures by departments which will serve as a satisfactory basis for comparison of operations. 
 
 It is not intended that the schedules of either merchandise or expense need be selected with regard to 
 each other. For example, a store desiring a larger departmental classification of merchandise need not change 
 the existing expense classification unless this is desired. The general principles of standardization are served 
 if consistency is observed in the adoption of either merchandise or expense as a unit of the plan. 
 
 32 
 
PART V 
 
 BALANCE SHEET ACCOUNTS 
 
 BOOKKEEPING PROCEDURE 
 
 The explanatory detail appearing under this caption is to assist the bookkeeper in making the book 
 entries. It is advisable to have the general ledger divided in a manner so that the financial statements 
 can be readily prepared from the Trial Balance. Chart number twenty-one included in Volume II will 
 assist you in devising your general ledger, as well as furnish information as to the source of entries and 
 the ultimate results. 
 
 ASSETS 
 
 Cash on Hand 
 
 Debit with: Credit with: 
 
 (1)—Total amount of cash received. (1)—Total amount of cash deposited. 
 
 Balance—Represents the undeposited cash on hand. 
 
 Cashiers’ Funds 
 
 Credit with: 
 
 (1)—If the fund be decreased, credit this 
 account with the amount by which it is 
 diminished. 
 
 Represents the amount of the fund which is set aside to meet currency disburse¬ 
 ments and supply store cashiers. 
 
 Debit with: 
 
 (1) —Amount of fund created to meet currency 
 
 disbursements. 
 
 (2) —Increases in the fund originally created. 
 
 Balance 
 
 Cash on 
 
 Debit with: 
 
 (1) —Total amount of cash deposited. 
 
 (2) —Collections made by the bank. 
 
 (3) —Interest earned on bank balances. 
 
 Balance—Represents the available balance i 
 
 Deposit 
 
 Credit with : 
 
 (1) —Total amount of checks issued. 
 
 (2) —Exchange and other collection charges 
 
 made by the bank. 
 
 (3) —Other proper bank charges. 
 l the banks. 
 
 Notes Receivable 
 
 Debit with: 
 
 (1)—Face value of notes received of customers 
 in the usual course of business. 
 
 Credit with: 
 
 (1)—Face value of notes of customers paid, 
 discounted or otherwise disposed of. 
 
 Balance—Represents the face value of notes on hand. (If the Notes Receivable Dis¬ 
 counted account be used, the balance of this account, less the balance of the 
 Notes Receivable Discounted account, will represent the notes on hand. Notes 
 that have been proven uncollectible should be written off). 
 
 Accrued Interest 
 
 Debit with: Credit with: 
 
 (1)— Am ount, of interest accrued on notes (1) —Interest received on notes receivable, 
 
 receivable on hand. 
 
 Balance—Represents the amount of interest earned on notes receivable, unpaid. 
 
 33 
 
34 
 
 BALANCE SHEET ACCOUNTS 
 
 Reserve for Possible Losses on Customers’ Notes 
 
 Debit with: 
 
 (1)—All losses sustained on account of cus¬ 
 tomers’ notes receivable. 
 
 Credit with: 
 
 (1)—Estimated amount of losses on custom¬ 
 ers’ notes receivable sustained during an 
 accounting period. 
 
 Balance—Represents the available reserve for losses. 
 
 Accounts Receivable—Charge Accounts 
 
 Debit with: 
 
 (1) —Total charge sales. 
 
 (2) —Freight, expressage and parcel post charge¬ 
 
 able to customers. 
 
 (3) —Transfers from C. 0. D., Layaway and 
 
 Installment accounts, when changed to 
 open accounts. 
 
 Credit with: 
 
 (1) —All moneys received from customers to 
 
 apply on account, plus the discounts 
 allowed. 
 
 (2) —Allowances to customers for goods 
 
 returned and claims allowed. 
 
 (3) —Uncollectible accounts written off. 
 
 (4) —Transfers to C. 0. D., Layaway and 
 
 Installment accounts, when changed from 
 open accounts. 
 
 Balance—Represents the amount due and collectible from customers, and should agree 
 with the results of trial balance compiled from the customers ledgers. 
 
 Accounts Receivable—C. O. D. Accounts 
 
 Debit with: 
 
 (1) —Total C. 0. D. sales. 
 
 (2) —Freight, expressage and parcel post 
 
 chargeable to customers. 
 
 (3) —Transfers from Charge, Layaway and 
 
 Installment accounts, when charged to 
 C. 0. D. accounts. 
 
 Credit with: 
 
 (1) —All moneys received from customers to 
 
 apply on C. 0. D. accounts, plus the dis¬ 
 counts allowed. 
 
 (2) —Allowances to customers for goods re¬ 
 
 turned and claims allowed. 
 
 (3) —Uncollectible accounts written off. 
 
 (4) —Transfers to Charge, Layaway and In¬ 
 
 stallment accounts, when changed from 
 C. 0. D. accounts. 
 
 Balance—Represents the amount due from customers, and should agree with the results 
 of a trial balance compiled from the C. 0. D. ledgers. 
 
 Debit with: 
 
 Accounts Receivable—Will-Call or Layaway Accounts 
 
 Credit with: 
 
 (1) —Total Will-Call or Layaway Sales. 
 
 (2) —Freight, expressage and parcel post charge¬ 
 
 able to customers. 
 
 (3) —Transfers from Charge, C. 0. D. and 
 
 Installment accounts when transferred to 
 Layaway accounts. 
 
 (1) —All moneys received from customers to 
 
 apply on Will-Call, or Layaway accounts, 
 including discounts. 
 
 (2) —Allowances to customers for goods re¬ 
 
 turned and claims allowed. 
 
 (3) —Uncollectible accounts written off. 
 
 (4) —Transfers to Charge, C. 0. D. and In¬ 
 
 stallment accounts, when changed from 
 Will-Call or Layaway accounts. 
 
 Balance—Represents the amount due from customers, and should agree with the results 
 of a trial balance compiled from the Will-Call or Layaway ledgers. 
 
BOOKKEEPING PROCEDURE 
 
 35 
 
 Accounts Receivable—Installment Accounts 
 
 Debit with: 
 
 (1) —Total installment sales. 
 
 (2) —Freight, expressage and parcel post charge¬ 
 
 able to customers. 
 
 (3) —Transfers from Charge, C. 0. D., and Lay¬ 
 
 away accounts, when transferred to In¬ 
 stallment accounts. 
 
 (4) —Interest charged on Installment accounts. 
 
 Credit with: 
 
 (1) —All moneys received from customers to 
 
 apply on account, plus discounts allowed. 
 
 (2) —Allowances to customers for goods re¬ 
 
 turned and claims allowed. 
 
 (3) —Uncollectible accounts written off. 
 
 (4) —Transfers to Charge, C. 0. D. and Lay¬ 
 
 away or Will-Call accounts, when changed 
 from Installment accounts. 
 
 Balance—Represents the amount due from customers, and should agree with the results 
 of a trial balance compiled from the Installment ledgers. 
 
 Debit w t ith : 
 
 (1)—All losses sustained on account of cus¬ 
 tomers’ accounts receivable. 
 
 Reserve for Possible Losses on Customers’ Accounts 
 
 Credit with: 
 
 CD- 
 
 Estimated amount of losses on customers’ 
 accounts receivable sustained during ac¬ 
 counting period. 
 
 Balance—Represents the available reserve for losses. 
 
 Merchandise on Hand—Inventory 
 
 Debit with: 
 
 (1) —Value of merchandise on hand at begin¬ 
 
 ning of the period. 
 
 (2) —Cost of all merchandise received. 
 
 (3) —Freight, expressage and parcel post, in¬ 
 
 cluding cartage, on merchandise pur¬ 
 chases. 
 
 Credit with: 
 
 (1) —Cost of merchandise sold. 
 
 (2) —Cost of merchandise returned to vendors, 
 
 and allowances made. 
 
 Balance—Represents the value of merchandise on hand at the end of the period. 
 
 Note: Divergence from this practice is noted in the fact that some accountants prefer to maintain 
 the following separate accounts: 
 
 Inventory at the beginning of period (To remain unchanged during the period). 
 
 Purchase Account (To which Debit items No. 2 and 3, and Credit items No. 1 and 2, shown above, 
 apply). 
 
 Manufacturing Inventory 
 
 Debit with: 
 
 Credit with: 
 
 (1) —Amount of Material purchased. 
 
 (2) —Amount of Labor and Expenses incurred 
 
 in manufacturing. 
 
 (1)—Amount of Merchandise manufactured and 
 transferred at cost to Selling Depart¬ 
 ments. 
 
 Balance—Represents amount of Material and Goods in Process not having been transferred to 
 the Selling Departments. 
 
 Note: This forms a part of the Inventory of Merchandise on Hand account on the Balance 
 Sheet, but to be kept separate on the ledger. 
 
 Debit with : 
 
 (1)—Moneys advanced on contracts for the 
 purchase of merchandise. 
 
 Advances on Merchandise Purchases 
 
 Credit with: 
 
 Balance 
 
 (1)—Amount of advances on shipments made, 
 transferring the charge to “Inventory of 
 Merchandise on Hand” account. 
 Represents amount of money advanced on purchase contracts. 
 
36 
 
 BALANCE SHEET ACCOUNTS 
 
 United States Bonds 
 
 Debit with: 
 
 (1)—Cost of bonds purchased. 
 
 Credit with: 
 
 (1)—Cost of bonds disposed of. The difference 
 between the cost and selling price should 
 be charged or credited to “Other Income” 
 account. 
 
 Balance—Represents the cost of bonds on hand. 
 
 Note: If the number of transactions in U. S. Bonds be large, this account, as designed, will be en¬ 
 tirely inadequate, for the reason that when large numbers of bonds are charged to this account at cost it 
 becomes very difficult to reconcile the balance shown by the account with the actual count of the bonds 
 on hand, each bond probably having been taken into the account at a different cost, while the bond bears 
 only the par value. This complication arises also in the event of sale when it becomes necessary to deter¬ 
 mine the profit or loss on the sale. It is, therefore, recommended that each bond be entered separately, 
 identified by serial number, and that the actual count be made according to the serial numbers of the bonds, 
 and not the face or par value; or that the cost of each bond be written on the bond; or, preferably, that 
 the bonds be charged and credited to this account at face value and not at cost, the difference being credited 
 or charged to an account termed “Reserve for Discount on U. S. Bonds.” 
 
 Certificates of Indebtedness 
 
 Debit with: 
 
 (1)—Cost of certificates of indebtedness pur¬ 
 chased. 
 
 Balance—Represents the cost of certificates 
 
 (1)—Cost of certificates of indebtedness dis¬ 
 posed of. The difference between the 
 cost and selling price should be charged 
 or credited to “Other Income” account, 
 of indebtedness on hand. 
 
 Accrued Interest 
 
 U. S. Bonds and Certificates of Indebtedness 
 
 Debit with: 
 
 (1) —Amount of interest accrued on U. S. 
 
 Bonds. 
 
 (2) —Amount of interest accrued on certifi¬ 
 
 cates of indebtedness. 
 
 Credit with : 
 
 (1) —Interest received on U. S. Bonds. 
 
 (2) —Interest received on certificates of in¬ 
 
 debtedness. 
 
 Balance—Represents the amount of interest earned but unpaid. 
 
 Debit with: 
 
 (1)—Cost of War Saving Stamps purchased 
 
 Balance- 
 
 War Savings Stamps 
 
 Credit with: 
 
 (1)—Cost of War Saving Stamps disposed of. 
 The difference between the cost and sel¬ 
 ling price, representing interest, should be 
 credited to “Other Income” account. 
 Represents the cost of War Savings Stamps on hand. 
 
 Reserve for Possible Losses on U. S. Securities 
 
 Debit with: 
 
 (1)—All losses sustained on U. S. securities. 
 
 Credit with: 
 
 (1)—Estimated amount of losses on U. S. se¬ 
 curities sustained during the accounting 
 period. 
 
 Balance—Represents the available reserve for losses. 
 
BOOKKEEPING PROCEDURE 
 
 37 
 
 Securities Owned—Other Corporations 
 
 Debit with: 
 
 (1)—Cost of securities of other corporations 
 purchased. 
 
 Credit with: 
 
 (1)—Cost of securities of other corporations dis¬ 
 posed of. The difference between the 
 cost and selling price should be charged or 
 credited to “Other Income” account. 
 
 Balance—Represents the cost of securities of other corporations on hand. 
 
 Notes Receivable—Non-Current 
 
 Debit with 
 
 (1)—Face value of notes received other than 
 from customers. 
 
 Credit with: 
 
 (1)—Face value of non-current notes paid, 
 discounted or otherwise disposed of. (See 
 note above under “Notes Receivable.”) 
 
 Balance—Represents the face value of non-current notes on hand. 
 
 Accrued Interest 
 
 Debit with: 
 
 (1)—Amount of interest accrued on non-current 
 notes receivable. 
 
 Credit with: 
 
 (1)—Interest received on non-current notes 
 receivable. 
 
 Balance—Represents the amount of interest earned but unpaid. 
 
 Insurance Deposits 
 
 Debit with: 
 
 (1)—Credits in the hands of mutual insurance 
 agencies. 
 
 Credit with: 
 
 (1)—Withdrawal of funds. 
 
 Balance—Represents funds on deposit with mutual insurance agencies. 
 
 Cash Surrender Value of Life Insurance Policies 
 
 Credit with: 
 
 Debit with: 
 
 (1)—That portion of the premium paid equal 
 to the increase in the cash surrender value 
 of the policy as compared with the value 
 at the time of the previous premium pay¬ 
 ment. 
 
 Balance—Represents cash surrender value of life insurance policies 
 
 (1)—Cash received at the maturity or surrender 
 of the policy. 
 
 Debit with: 
 
 (1)—Amount of claims made against common 
 carriers for loss or damage in transporta¬ 
 tion. 
 
 Common Carrier Claims 
 
 (An Account with each Transportation Company) 
 
 Credit with: 
 
 (1) —Amount of claims cancelled or reduced. 
 
 (2) —Amount of claims paid. 
 
 Balance—Represents amount of claims due from common carriers. 
 
38 
 
 BALANCE SHEET ACCOUNTS 
 
 Land and Buildings — 
 
 Debit with: 
 
 (1) —Cost of land and buildings purchased. 
 
 (2) —Carrying charges on non-income produc¬ 
 
 ing lands. 
 
 (3) Cost of additions to buildings. 
 
 Balance—Represents value of investments 
 ation of the business. 
 
 Vot used in Operations 
 
 Credit with: 
 
 (1) —Cost value of land and buildings appro¬ 
 
 priated for operating purposes. 
 
 (2) —Amount realized from sales. 
 
 in land and buildings not used in the oper- 
 
 Personal Accounts—Officers, 
 
 TDebiTxwith: 
 
 (1)—Total charges to officers, stockholders and 
 employees. 
 
 Balance—Represents the amount due, and 
 ance compiled from the ledgers. 
 
 Stockholders and Employees 
 
 Credit with: 
 
 (1) —All moneys received from and other credits 
 
 to officers, stockholders and employees, 
 including discounts. 
 
 (2) —Uncollectible accounts written off. 
 should agree with the results of a trial bal- 
 
 Unexpired In suj 
 
 Debit with: 
 
 (1)—Insurance premiums paid. 
 
 Balance—Represents the cost of insurance 
 
 ranee Premiums 
 
 Credit with: 
 
 (1)—The amount of premiums accrued, 
 unexpired. 
 
 Prepaid Interest 
 
 Debit with: 
 
 (1)—Interest paid in advance. 
 
 Balance—Represents the amount of prepaid 
 Note: For balance sheet purposes, include und 
 
 on Notes Payable 
 
 Credit with: 
 
 (1)—Amount of interest accrued, 
 interest on notes, 
 er “Prepaid Expenses/’ 
 
 Supply I 
 
 Debit with: 
 
 (1)—Cost of supplies purchased in large quan¬ 
 tities. 
 
 Balance—Represents the cost of supplies o 
 Note: Supplies purchased in small quantities s 
 account. 
 
 nventory 
 
 Credit with : 
 
 (1)—Cost of supplies used during the period. 
 
 n hand. 
 
 lould be charged directly to the appropriate expense 
 
 Debit with: 
 
 Prepaid Expenses 
 
 Credit with: 
 
 (1)—Expenditures made for expenses that may 
 be spread over a period of time, or with 
 any debit made for any other reason that 
 may be amortized through charges made 
 to expense or other income accounts at 
 intervals over a period of time. An appro¬ 
 priate account to be opened with each 
 such expenditure, loss or debit. 
 
 Balance—Represents the amount of prepaid 
 
 (1) —The pro-rata proportion chargeable to 
 expense or other income account. 
 
 expenses. 
 
BOOKKEEPING PROCEDURE 
 
 39 
 
 Organization Expenses 
 
 Debit with: Credit with: 
 
 (1)—Cost of organizing and preparing an (1)—Pro-rated amount for the period, 
 
 enterprise to do business and produce 
 income. 
 
 Balance—Represents the unmatured balance of organization expenses. 
 
 Land 
 
 Debit with: 
 
 (1) —The purchase contract price of the land. 
 
 (2) —Cost of surveying, title insurance, record¬ 
 
 ing fees, broker’s commission, taxes owing 
 at date of purchase. 
 
 (3) —Cost of local improvement taxes and 
 
 assessments. 
 
 (4) —Cost of carrying charges until buildings 
 
 are erected. 
 
 Balance—Represents the cost value of land owned 
 
 Credit with: 
 
 (1)—Cost of land sold. 
 
 1 / 
 
 / 
 
 Debit with: 
 
 (1) —Cost of leasehold. 
 
 (2) —Cost of improvements to and betterments 
 
 on leased buildings. 
 
 Leasehold and Improvements to Leased Buildings 
 
 Credit with: 
 
 (1) —Cost of leasehold at the expiration of the 
 lease. 
 
 (2) —Cost of improvements and betterments at 
 the expiration of the lease. 
 
 Balance—Represents the cost value of leasehold and improvements to leased buildings. 
 
 Reserve for the Amortization of Leasehold 
 
 Credit with: 
 
 (1)—A periodical allowance spread over the life 
 of the lease. 
 
 Debit with: 
 
 (1) —Cost of leasehold at its expiration. 
 
 (2) —Cost of improvements and betterments at 
 
 the expiration of the lease. 
 
 Balance—Represents the reserve for amortization of leasehold and improvements to leased 
 buildings. 
 
 Debit with: 
 
 Buildings 
 
 Credit with: 
 
 (1) —Actual cost of buildings purchased or (1)—Cost of buildings abandoned, destroyed, 
 
 constructed. replaced or sold. 
 
 (2) —Improvements and additions. 
 
 (3) —Cost of replacing buildings, or material 
 
 parts thereof, destroyed by fire, wear, tear, 
 etc. 
 
 Balance—Represents the cost value of buildings owned. 
 
 Note: Improvements include the enlargement or improvement of existing structures. 
 
 Additions include additional structures not taking the place of anything previously existing. 
 Replacement is either the re-erection of an entire structure, or the construction of some specific and 
 material portion of it, such as a new roof. 
 
 Repairs are chargeable to “Occupancy” expense or to “Other Income.” 
 
40 
 
 BALANCE SHEET ACCOUNTS 
 
 Reserve for Depreciation of Buildings 
 
 Debit with: Credit with: 
 
 (1)—Amount of depreciation taken on articles (1)—A periodical allowance for depreciation, 
 
 discarded, destroyed or sold. 
 
 Balance—Represents the reserve for depreciation of buildings. 
 
 Machinery and Equipment 
 
 Debit with: 
 
 (1) —Cost of machinery and equipment pur¬ 
 
 chased, and installation thereof. 
 
 (2) —Cost of additions or alterations, provided 
 
 original efficiency is thereby increased. 
 
 (3) —Cost of replacing any article previously 
 
 charged to this account. 
 
 (4) —Improvements and additions. 
 
 Credit with: 
 
 (1)—Cost of machinery and equipment dis¬ 
 carded, destroyed or sold. 
 
 Balance—Represents cost value of machinery and equipment on hand. 
 
 Debit with: 
 
 (1)—Amount of depreciation taken on articles 
 
 Reserve for Depreciation of Machinery and Equipment 
 
 Credit with: 
 
 (1)—A periodical allowance for depreciation. 
 
 discarded or sold. 
 
 Balance—Represents the reserve for depreciation of machinery and equipment. 
 
 Store Furniture and Fixtures 
 
 Credit with: 
 
 (1)—Cost of articles discarded, destroyed or 
 sold. 
 
 Debit with: 
 
 (1) —Cost of store furniture and fixtures pur¬ 
 
 chased. 
 
 (2) —Cost of replacing any article previously 
 
 charged to this account. 
 
 (3) —Improvements and additions. 
 
 Balance—Represents the cost value of store furniture and fixtures on hand. 
 
 Reserve for Depreciation of Store Furniture and Fixtures 
 
 Credit with: 
 
 (1)—A periodical allowance for depreciation. 
 
 Debit with: 
 
 (1)—Amount of depreciation taken on articles 
 discarded, destroyed or sold. 
 
 Balance—Represents the reserve for depreciation of store furniture and fixtures. 
 
 Office Furniture and Equipment 
 
 Debit with: 
 
 (1) —Cost of office furniture and equipment 
 
 purchased. 
 
 (2) —Cost of replacing articles previously 
 
 charged to this account. 
 
 (3) —Improvements and additions. 
 
 Credit with: 
 
 (1) —Cost of articles discarded, destroyed or 
 sold. 
 
 Balance—Represents the cost value of office furniture and equipment on hand. 
 
BOOKKEEPING PROCEDURE 
 
 41 
 
 Reserve for Depreciation of Office Furniture and Equipment 
 
 Debit with: Credit with: 
 
 (1)—Amount of depreciation taken on articles 
 
 (1)—A periodical allowance for depreciation. 
 
 discarded, destroyed or sold. 
 
 Balance—Represents the reserve for depreciation of office furniture and equipment. 
 
 Delivery Equipment 
 
 Debit with: Credit with: 
 
 (1) —Cost of all substantial property, direct or 
 
 auxiliary, used in connection with the 
 delivery of goods, both inward and out¬ 
 ward. 
 
 (2) —Cost of replacing articles previously 
 
 charged to this account. 
 
 (1)—Cost of articles discarded, destroyed or 
 sold. 
 
 (3)—Improvements and additions. 
 
 Balance—Represents cost value of delivery equipment on hand. 
 
 Reserve for Depreciation of Delivery Equipment 
 
 Debit with: Credit with: 
 
 (1)—Amount of depreciation taken on articles 
 
 (1)—A periodical allowance for depreciation. 
 
 discarded, destroyed or sold. 
 
 Balance—Represents the reserve for depreciation of delivery equipment. 
 
 Good Will, Patents and Trademarks 
 
 Debit with: Credit with: 
 
 (1)—Cost of good will, patent rights and 
 trademarks acquired. 
 
 (1) —Cost of good will written off. 
 
 (2) —Cost of patent rights expiring, or a 
 
 periodical allowance for amortization. 
 
 (3) —Cost of trademark becoming worthless, 
 
 or a periodical allowance for amortization. 
 Balance—Represents the cost value of good will, patents and trademarks. 
 
42 
 
 BALANCE SHEET ACCOUNTS 
 
 LIABILITIES 
 
 Notes Payable 
 
 For Money Borrowed from Banks 
 
 Debit with: Credit with: 
 
 (1)—The face value of all notes redeemed. (1)—Face value of notes issued to banks, bank¬ 
 
 ers or trust companies. 
 
 Balance—Represents the face value of notes outstanding due banks. 
 
 Notes Payable 
 
 For Money Borrowed Through Brokers 
 
 Debit with: Credit with: 
 
 (1)—The face value of all notes redeemed. (1)—The face value of notes issued for money 
 
 borrowed through brokers. 
 
 Balance—Represents the face value of notes outstanding for money borrowed through 
 brokers. 
 
 Debit with: 
 
 (1)—The face value of all notes redeemed. 
 
 Notes Payable 
 
 For Money Borrowed from Officers 
 
 Credit with: 
 
 (1)—Face value of notes issued to officers. 
 
 Balance—Represents the face value of notes outstanding due officers. 
 
 Debit with: 
 
 (1)—The face value of all notes redeemed. 
 
 Notes Payable 
 
 For Money Borrowed from others 
 
 Credit with: 
 
 Face value of notes issued to others. 
 
 (D- 
 
 Balance—Represents the face value of notes outstanding due others. 
 
 Notes Payable 
 For Purchases 
 
 Debit with: 
 
 (1)—The face value of all notes redeemed. 
 
 Credit with: 
 
 (1)—Face value of notes issued to vendors. 
 
 Balance—Represents the face value of notes outstanding due vendors. 
 
 Trade Acceptances Payable 
 
 Debit with: 
 
 (1)—The face value of all trade acceptances 
 redeemed. 
 
 Credit with: 
 
 (1)—The face value of trade acceptances given _ 
 
 Balance—Represents the face value of trade acceptances outstanding. 
 
BOOKKEEPING PROCEDURE 
 
 43 
 
 Accounts Payable for Merchandise and Expense Purchases 
 Debit with: Credit with: 
 
 (1) —Amounts allowed by vendors for goods (1)—The face value of all purchase invoices. 
 
 returned and other allowances made. 
 
 (2) —Freight and express chargeable to vendors. 
 
 (3) —All moneys paid to vendors to apply on 
 
 account, including discounts. 
 
 (4) —The face value of notes and trade accept¬ 
 
 ances given vendors. 
 
 Balance—Represents the amount owing to vendors for purchases, and should agree 
 with the results of a trial balance compiled from the creditors’ ledgers. 
 
 Accounts Payable for Federal Sales Taxes 
 
 Debit with: 
 
 (1)—All moneys paid to the U. S. Collector of 
 Internal Revenue, including penalties and 
 interest. 
 
 Credit with: 
 
 (1) —The amounts due as Excise Taxes. 
 
 (2) —Penalties and interest assessed, if any. 
 
 Balance—Represents the amount of unpaid federal sales taxes. 
 
 Debit with: 
 
 (1)—The face value of all cash sale refund 
 credits redeemed. 
 
 Accounts Payable 
 For Unredeemed Cash Refunds 
 
 Credit with: 
 
 (1)—The face value of all cash sale refund 
 
 credits issued to customers. 
 
 Balance—Represents the face value of cash sale refund credits outstanding. 
 
 Accounts Payable for Unredeemed Gift Certificates 
 
 Debit with: 
 
 (1)—The face value of all gift certificates 
 redeemed. 
 
 Credit with: 
 
 (1)—The face value of all gift certificates 
 issued. 
 
 Balance—Represents the face value of gift certificates outstanding. 
 
 Accounts Payable—Leased Section Accounts 
 
 Credit with: 
 
 (1) —All moneys paid lessee on account of 
 
 contract. 
 
 (2) —Expenses chargeable to lessee. 
 
 (1)—The amount of net profit, or percentage of 
 net sales, due lessee per contract. 
 
 Balance—Represents the amount owing lessee. 
 
 Note: It is recommended that a separate account be kept with each lessee. 
 
 Accounts Payable—Personal Accounts 
 
 Debit with: 
 
 (1) —All cash withdrawal of funds on deposit 
 
 or credits. 
 
 (2) —Other chargeable items. 
 
 Balance—Represents the amount owing 
 
 Credit with: 
 
 (1) —Salary credits or deposits made. 
 
 (2) —Other credit items. 
 
 on personal accounts. 
 
44 
 
 BALANCE SHEET ACCOUNTS 
 
 Accrued Taxes—Real and Personal 
 
 Debit with: Credit with: 
 
 (1)—Amount of tax bills when paid. (1)—Estimated proportion of taxes for the 
 
 period. 
 
 Balance—Represents the amount of estimated taxes accrued, but not due. 
 
 Debit with: 
 
 (1) —All moneys paid for salaries and wages. 
 
 (2) —Amounts chargeable to employees for 
 
 other purposes. 
 
 Balance—Represents the amount of wages accrued, but not due 
 
 Accrued Pay Roll 
 
 Credit with: 
 
 (1) —Cost of labor and fixed salaries and wages 
 for the period. 
 
 Accrued Interest on Notes Payable 
 
 Debit with: Credit with: 
 
 (1)—The amount of interest paid. (1)—The amount of interest accrued for the 
 
 period. 
 
 Balance—Represents the amount of interest accrued, but not due. 
 
 Debit with: 
 
 (1)—Amount of rent when paid. 
 
 Accrued Rent 
 
 Credit with: 
 
 (1)—A periodical proportion of rent accrued. 
 
 Balance—Represents the amount of rent accrued, but not due. 
 
 Accrued Expenses 
 
 Credit with: 
 
 (1)—Amount of unpaid expenses at close of 
 accounting period. 
 
 Debit with: 
 
 (1) —All moneys paid on account of such ex¬ 
 
 penses, including discounts. 
 
 (2) —Allowances and other deductions from 
 
 such expenses. 
 
 Balance—Represents the amount of expenses accrued, but not due. 
 
 Funded Indebtedness—Mortgages 
 
 Credit with: 
 
 (1)—The principal sum of each mortgage 
 given. 
 
 Balance—Represents the amount owing on account of the principal of mortgages given. 
 
 Debit with: 
 
 (1)—Payments on account of the principal 
 
 Debit with: 
 
 (1)—The amount of bonds retired. 
 
 Funded Indebtedness—Bonds 
 
 Credit with: 
 
 (1)—The amount of bonds issued. 
 
 Balance—Represents the amount of bonds outstanding. 
 
BOOKKEEPING PROCEDURE 
 
 45 
 
 Reserved for F< 
 
 Debit with: 
 
 (1) —Amount of Federal Income Taxes reserved 
 
 in excess of actual amount payable, if any. 
 
 (2) —All moneys disbursed in payment of Fed¬ 
 
 eral Income Taxes. 
 
 Balance—Represents the amount of Feder 
 
 jderal Income Taxes 
 
 Credit with: 
 
 (1) —The estimated amount of Federal Income 
 
 Taxes accrued at the close of each account¬ 
 ing period. 
 
 (2) —Amount of Federal Income Taxes payable 
 
 in excess of actual amount reserved for, 
 if any. 
 
 al Income Taxes payable. 
 
 Reserve for 
 
 Debit with: 
 
 (1)—All losses sustained on account of con¬ 
 tingencies not otherwise provided for. 
 
 Balance—Represents the available reserve 
 
 Contingencies 
 
 Credit with: 
 
 (1)—An estimated amount to cover contingent 
 losses. 
 
 for contingencies. 
 
 Preferred Capital 
 
 Debit with: 
 
 (1)—Par value of preferred shares retired. 
 
 Balance—Represents the par value of sin 
 
 Stock-Authorized 
 
 Credit with: 
 
 (1)—Par value of preferred shares authorized. 
 
 ares authorized. 
 
 Preferred Capital 
 
 Debit with: 
 
 (1)—Par value of preferred shares authorized. 
 
 Balance—Represents the par value of shares 
 
 Stock—Unissued 
 
 Credit with: 
 
 (1)—Par value of preferred shares issued. 
 
 3 unissued. 
 
 Debit with: 
 
 (1)—Par value of common shares retired. 
 
 Common Capital Stock—Authorized 
 
 Credit with : 
 
 (1)—Par value of common shares authorized. 
 
 Balance—Represents the par value of shares authorized. 
 
 Debit with: 
 
 (1)—Par value of common shares authorized. 
 
 Common Capital Stock—Unissued 
 
 Credit with: 
 
 (1)—Par value of common shares issued. 
 
 Balance—Represents the par value of shares unissued. 
 
 Surplus 
 
 Debit with: 
 
 (1) —Dividends declared by the board of direc¬ 
 
 tors. 
 
 (2) —Net loss as shown by profit and loss 
 
 account, after closing entries for the 
 period have been made. 
 
 Credit with: 
 
 (1) —Amount of paid-in surplus. 
 
 (2) —Appreciation of permanent assets. 
 
 (3) —Net profit as shown by the profit and loss 
 
 account, after closing entries for the period 
 have been made. 
 
 Balance—Represents the accumulated net profits to and including the last closing period, 
 less any dividends paid. 
 
46 
 
 BALANCE SHEET ACCOUNTS 
 
 Undivided Profits 
 
 Debit with: 
 
 (1) —Extraordinary items of expenses and 
 
 extraneous losses. 
 
 (2) —Balance of all expense accounts, and ac¬ 
 
 counts showing losses, at each closing 
 period. 
 
 Credit with: 
 
 (1) —Items of extraordinary income and extra¬ 
 
 neous profits. 
 
 (2) —Balance of all accounts showing income or 
 
 profits, at each closing period. 
 
 Balance—Represents the net profit or loss for the period. 
 
 Investment 
 (Or Capital Accounts) 
 
 Debit with: 
 
 (1) —Withdrawals by partners, or sole pro¬ 
 
 prietor. 
 
 (2) —Extraordinary items of expenses or extra¬ 
 
 neous losses. 
 
 (3) —Expenses in connection with outside in¬ 
 
 vestments. 
 
 (4) —Net loss as shown by profit and loss 
 
 account, after closing entries for the 
 period have been made. 
 
 Balance—Represents the net investment, 
 
 Credit with: 
 
 (1) —In^stment. 
 
 (2) —Items of extraordinary income or extra¬ 
 
 neous profits. 
 
 (3) —Interest allowed on investment. 
 
 (4) —Net income from outside investments. 
 
 (5) —Salaries of partners, or sole proprietor, if 
 
 a personal account is not kept. 
 
 (6) —Net profit as shown by profit and loss 
 
 account, after closing entries for the 
 period have been made. 
 
 capital, of each partner or sole proprietor. 
 
 Profit and Loss—Current Account 
 
 Debit with: 
 
 (1)—Balance of all expense accounts, and ac¬ 
 counts showing losses, at each closing 
 period. 
 
 Balance—Represents the net operating profit 
 
 Credit with: 
 
 (1)—Balance of all accounts showing income or 
 profits, at each closing period. 
 
 loss for the period. 
 
PART V 
 
 OPERATING ACCOUNTS 
 
 BOOKKEEPING PROCEDURE 
 
 The book entries are a very important factor in obtaining the desired results, and in this connection 
 Chart number twenty-one, Volume II, and the following text will be of material assistance. 
 
 INCOME 
 
 (See also descriptive text accompanying items 2-7 inclusive of Operating Statement. 
 
 Separate accounts should be maintained for leased sections). 
 
 Cash 
 
 Sales 
 
 Debit with: 
 
 (1) —Balance of account “Returns and Allow¬ 
 
 ances on Cash Sales.” 
 
 (2) —Balance transferred to Profit ,and Loss—’ 
 
 Current Period. 
 
 Credit with: 
 
 (1) —Gross Cash Sales of merchandise. 
 
 (2) — Gross Cash Sales of restaurant. 
 
 (3) —Gross Cash Sales of personal service de¬ 
 
 partments. 
 
 (4) —Gross Cash Sales of alteration rooms. 
 
 Returns and Allowances 
 
 (Cash Sales) 
 
 Debit with: 
 
 (1) —Amounts refunded cash customers for 
 
 merchandise returned. 
 
 (2) —Amounts allowed cash customers on mer¬ 
 
 chandise not returned. 
 
 Credit with: 
 
 (1) —Balance transferred to Cash Sales. 
 
 Charge Sales 
 
 Debit with: 
 
 (1) — Balance of account “Returns and Allow¬ 
 
 ances on Charge Sales.” 
 
 (2) — Balance transferred to Profit and Loss — 
 
 Current Period. 
 
 Credit with: 
 
 (1) — Gross Charge Sales of merchandise. 
 
 (2) — Gross Charge Sales of restaurant. 
 
 (3) — Gross Charge Sales of personal service 
 
 departments. 
 
 (4) — Gross Charge Sales of alteration rooms. 
 
 Returns and Allowances 
 
 (Charge Sales) 
 
 Debit with: 
 
 (1) — Amounts credited charge customers for 
 
 merchandise returned. 
 
 (2) — Amounts allowed charge customers on 
 
 merchandise not returned. 
 
 Credit with: 
 
 (1)— Balance transferred to Charge Sales. 
 
 C. O. D. and Will Call 
 Or Layaway Sales 
 
 Debit with: 
 
 (1) —Balance of account “Returns and Allow¬ 
 
 ances on C. 0. D. and Will Call Sales.” 
 
 (2) —Balance transferred to Profit and Loss— 
 
 Current Period. 
 
 Credit with : 
 
 (1) —Gross C.”0. D. or Will Call Sales of mer¬ 
 
 chandise. 
 
 (2) —Gross C. 0. D. or Will Call Sales of altera¬ 
 
 tion rooms. 
 
 47 
 
48 
 
 OPERATING ACCOUNTS 
 
 Returns and Allowances 
 
 (C. 0. D. and Will Call or Layaway Sales) 
 
 Debit with: 
 
 (1) —Amounts refunded C. O. D. and WILL 
 
 CALL customers for merchandise 
 returned or credited them for merchandise 
 not accepted. 
 
 (2) —Amounts allowed C. 0. D. and WILL 
 
 CALL customers on merchandise not 
 returned. 
 
 Credit with: 
 
 (1)—Balance transferred to C. O. D. and WILL 
 CALL Sales. 
 
 COST OF SALES 
 
 (See also descriptive text accompanying items 8-26 inclusive of Operating Statement). 
 
 Net Cost of Merchandise Sold 
 
 Debit with: 
 
 (1)—Gross cost of merchandise sold. 
 
 Credit with: 
 
 (1)—Balance transferred to Profit and Loss— 
 Current Period. 
 
 Discount Earned on 
 
 Debit with: 
 
 (1) —Amount transferred to special reserve 
 
 account representing discount on inven¬ 
 tory at end of period. 
 
 (2) —Balance transferred to Profit and Loss— 
 
 Current Period. 
 
 Merchandise Purchases 
 
 Credit with : 
 
 (1) —Amount transferred from special reserve 
 
 account representing discount on inven¬ 
 tory at beginning of period. 
 
 (2) —Discounts earned on merchandise pur¬ 
 
 chases during period. 
 
 Debit with: 
 
 (1) —Cost of materials used. 
 
 (2) —Wages. 
 
 (3) —Other Expenses. 
 
 Alteration Costs 
 
 Credit with: 
 
 (1)—Balance transferred to Profit and Loss— 
 Current Period. 
 
 Merchandise Costs—Leased Departments 
 
 Debit with: 
 
 (1)—Cost of Leased Section Sales. 
 
 Credit with: 
 
 (1)—Balance transferred to Profit and Loss— 
 Current Period. 
 
 EXPENSES 
 
 (See also descriptive text accompanying items 21-23 inclusive of Operating Statement, and Classification and Distribution of Expenses. 
 
BOOKKEEPING PROCEDURE 
 
 49 
 
 Operating Expenses 
 
 Debit with: Credit with: 
 
 (1)—All operating expenses. (1)—Amounts charged customers or others for 
 
 expense incurred such as transportation 
 charges to distant points. 
 
 (2) —Transfers to Manufacturing Workroom, 
 
 Alteration Rooms and Leased Sections. 
 
 (3) —Balance transferred to Profit and Loss— 
 
 Current Period. 
 
 OTHER INCOME AND LOSSES 
 
 (Accounts appropriate to any extraordinary operations of the business should be set up and closed out at the end of the period to Profit and Loss— 
 Current Period). (See also descriptive text accompanying items 29-31 inclusive of Operating Statement). 
 
 

 
 
 PART V 
 
 CLASSIFICATION AND DISTRIBUTION OF EXPENSE 
 
 BOOKKEEPING PROCEDURE 
 
 In a small business, where detail is not desired, the expense accounts mlty be kept in the general ledger 
 according to the Fourteen (14) Natural Divisions and closed to profit and loss at the end of the accounting 
 period. 
 
 The larger business requires more detail and it is desirable, when the business is departmentized and 
 expenses kept by the Fourteen Natural Divisions, grouped under the Five Functional Group Classifications, 
 to maintain a subsidiary expense record, which balances with a single controlling account in the general 
 or private ledger. 
 
 This subsidiary record should be divided so that the direct expenses can be charged direct to the selling 
 departments and the indirect expenses to the service departments, but keeping the Five Functional Group 
 Classifications intact. In posting items of Expense, the specific accounts in the subsidiary record should 
 be debited with the separate items as they occur, and the totals of expense should be posted at periodic 
 intervals, preferably monthly, to the controlling account in the general ledger. Chart number twenty-two, 
 in Volume II, has been prepared so as to portray the source of information for expense distribution. 
 
 Expense accounts should be credited only with recoveries, made through the disposal of items pre¬ 
 viously charged to expense accounts. Receipts from salvage of items not charged to expense should not 
 be credited to expense accounts. 
 
 If any of the service departments do work for other service departments, such as care of collectors' 
 machines by the garage and automobile department, the latter should be credited through a Transfer 
 Account (this account has not been provided in the Chart of Expense Accounts), and the account under 
 credit offices charged. This transfer account should be only used for credits which consist of a consolidation 
 of expenses covered by the charge, such as the one referred to above. Transfer of supplies or individual 
 items should be credited to the account to which they were charged. 
 
 Alteration and Manufacturing expenses should be charged to their respective departments in a sepa¬ 
 rate group under direct expenses. This group has been designated by the letter “W”, so they can be seg¬ 
 regated, being a charge to cost of sales and inventory, respectively. 
 
 At the end of the accounting period, the total of the expense account in the general ledger is transferred 
 to Profit and Loss, thus automatically closing all the accounts in the subsidiary expense record. 
 
 50 
 
INDEX 
 
 Pages 
 
 Accounts Payable. 9, 11 43 
 
 Accounts Receivable.7, 10, 34 
 
 Accrued Accounts. 9 
 
 Accrued Expenses. 9, 44 
 
 Accrued Interest.7, 8, 9, 33, 36, 37, 44 
 
 Accrued Liabilities. 11 
 
 Administrative Expenses. 25 
 
 Advances on Merchandise Purchases. 7, 35 
 
 Advertising Expense. 23 
 
 Allowances—Sales.13, 18, 47, 48 
 
 Alteration Costs.16, 48 
 
 Alteration Departments.26, 30, 31 
 
 Amortization Reserves. 8,39 
 
 Assets. 10,33 
 
 Average Inventory. 18 
 
 Bad Accounts or Debts.7, 8, 34, 35 
 
 Balance Sheet Accounts. 7, 33 
 
 Balance Sheet Forms (Charts 1, 2 and 3, Vol. II) 
 
 JBonds.8, 9, 44 
 
 Bookkeeping Procedure.33, 47, 50 
 
 Bookkeeping Procedure (Charts 21 and 22, Vol. II) 
 
 Buildings. .8, 38, 39 
 
 Buying Expenses. 25 
 
 Capital or Investment Accounts. 11 
 
 Capital Stock.9, 11, 45 
 
 Cartage. 13 
 
 Cash. 7, 10 
 
 Cash on Deposit. 7, 33 
 
 Cash on Hand. 7,33 
 
 Cash Sales. 47 
 
 Cash Surrender Value of Life Insurance Policies. 8, 37 
 
 Cashiers’ Funds. 7, 33 
 
 Charge Accounts. * . 7, 34 
 
 Charge Sales. 47 
 
 Charts of Expense Accounts—Purposes of each. 27 
 
 Classification and Distribution of Expense.22, 50 
 
 Classification of Merchandise.... 32 
 
 Classification of Merchandise (Chart 20, Vol. II) 
 
 Common Capital Stock.9, 11, 45 
 
 Common Carrier Claims. 8, 37 
 
 Communication Expense. 24 
 
 Contents. 3 
 
 C. O. D. Accounts.,.7, 34, 47 
 
 Cost of Merchandise Sold. 16 
 
 Cost of Sales...13, 15, 16, 48 
 
 Current Assets. 10 
 
 Current Liabilities. 11 
 
 Customs and Usages—Operating Accounts. 21 
 
 Customers’ and Employees’ Discounts. 18 
 
 Pages 
 
 Deferred Charges. 8,10 
 
 Definitions. 18 
 
 Delivery Equipment. 8, 41 
 
 Delivery Expense. 25 
 
 Depreciation Expense. 24 
 
 Depreciation Reserves.7, 8, 9, 11, 34, 35, 39, 40, 41, 45 
 
 .Discount Earned.15, 17, 48 
 
 Distribution and Proration of Expenses. 26 
 
 Dividends. 17 
 
 Expenses.16, 22, 26, 49, 50 
 
 Expense Account Index (Charts 16 and 17, Vol. II) 
 
 Expense Accrued. 9, 44 
 
 Expense Classification and Distribution (Charts 8 to 19, 
 inclusive, Vol. II) 
 
 Expense Statement Forms (Chart 7, Vol. II) 
 
 Express, Freight and Cartage. 13 
 
 Factors of Expense. 22 
 
 Federal Sales Taxes . 9, 43 
 
 Freight, Express and Cartage. 13 
 
 Functional Group Classification of Expense.. 22, 25 
 
 Funded Indebtedness....-.9, 11, 44 
 
 Gift Certificates... 9, 43 
 
 Good Will, Patents and Trademarks.8, 10, 41 
 
 Gross Sales. 12 
 
 Group Classification of Expense—Functional.22, 25 
 
 Income.12, 47 
 
 Income and Expense Statement Forms (Charts 4, 5 and 
 6, Vol. II) 
 
 Income Taxes—Federal or State.9, 11, 17, 45 
 
 Improvements to Leased Buildings. 8, 39 
 
 Installment Accounts. 7,35 
 
 Insurance Deposits. 8, 37 
 
 Insurance Expense.i. 24 
 
 Interest Accrued.. .7, 8, 9, 33, 36, 37, 44 
 
 Interest Charged to Departments.17, 23 
 
 Interest Earned. 17 
 
 Interest Expense. 23 
 
 Interest Prepaid. 8, 38 
 
 Introduction. 5 
 
 Inventories.. .7, 10, 13, 14, 18, 19, 20, 35 
 
 Investment or Capital Accounts. 9, 46 
 
 Land and Buildings.8, 38, 39 
 
 Layaway Accounts.7, 34, 47 
 
 Leased Sections or Departments...9, 12, 13, 43 
 
 Leasehold. 8, 39 
 
 Liabilities.9, 11, 42 
 
 Light, Heat and Power. 25 
 
INDEX—Continued 
 
 Pages 
 
 Machinery and Equipment. 8, 40 
 
 Manufacturing Departments.26, 30, 31 
 
 Manufacturing Inventory. 35 
 
 Merchandise Classification. 32 
 
 Merchandise Cost.15, 16, 48 
 
 Merchandise Inventory.7, 10. 13, 14, 19, 20, 35 
 
 Merchandise Paid for in Advance. 7 
 
 Merchandise Purchases.9, 13, 14, 43 
 
 Mortgages. 9, 44 
 
 Natural Divisions of Expense. 22 
 
 Net Operating Profit or Loss. 16 
 
 Net Profit or Loss. 17 
 
 Net Sales..... J3 
 
 Nominal Accounts. 9 n 
 
 Notes Receivable.7, 8, 10, 33, 37 
 
 Notes Payable. 9, 11, 42 
 
 Numbering System of Expense Accounts. 26 
 
 Occupancy Expenses. 25 
 
 Office Furniture and Equipment. 8, 40 
 
 Operating Accounts.18, 21, 47 
 
 Operating Expenses. 16, 49 
 
 Operating Statement. 12 
 
 Operating Statement Forms (Charts 4, 5 and 6, Vol. II) 
 
 Organization Expenses. g 39 
 
 Other Assets. g jq 
 
 Other Income. 16 jy ^g 
 
 Other Losses. 16 jy 
 
 Owned Sections or Departments. 12 
 
 Pages 
 
 Real Estate Owned.8, 38, 39 
 
 Rent Accrued. 9, 44 
 
 Rent Paid. 17 
 
 Rental Charged to Departments. 17 
 
 Rental Profit. 17 
 
 Rentals Expense. 23 
 
 Rentals—Floor Space. 28 
 
 Rentals—Window. 29 
 
 Repairs Expense. 24 
 
 Retail Inventory Method.19, 20 
 
 Returns and Allowances.13, 18, 47, 48 
 
 Reserves—Amortization. 8, 39 
 
 Reserves—Contingencies.9, 11, 45 
 
 Reserves—Depreciation.8, 39, 40, 41 
 
 Reserves—Income Tax.9, 11, 45 
 
 Reserves—Possible Losses—Notes and Accounts.7, 8, 34, 35 
 
 Salaries and Wages Expense. 23 
 
 Sale of Boxes, Waste, Etc. 17 
 
 Sales.12, 18 
 
 Securities Owned. 8, 10 
 
 Selling Expenses. 25 
 
 Service Purchased Expense. 24 
 
 Stock Turnover. 18 
 
 Stocks Owned (Securities). 8, 37 
 
 » - 
 
 Store Furniture and Fixtures. 8, 40 
 
 Supplies Expense. 24 
 
 Supply Inventory. 8, 38 
 
 Surplus.9, 11, 45 
 
 Payroll Accrued. 
 
 Permanent Assets. 
 
 Personal Accounts. 
 
 Preferred Capital Stock. 
 
 Prepaid Expenses. 
 
 Prepaid Interest. 
 
 Professional Services Expense. 
 
 Profit and Loss—Current. 
 
 Profit and Loss—Net. 
 
 Profit and Loss—Operating—Net. 
 
 Profit and Loss—Surplus. 
 
 Proprietary Interests. 
 
 Publication. 
 
 Publicity Expenses. 
 
 Purchases. 
 
 Purposes of each Chart of Expense Accounts 
 
 .... 9,44 
 .... 8 , 10 
 8, 9, 38, 43 
 
 ...9, 11,45 
 
 . 8,38 
 
 . 8,38 
 
 . 24 
 
 9, 11, 17, 46 
 
 . 17 
 
 . 16 
 
 ...9, 11,45 
 
 . 9 
 
 . 6 
 
 . 25 
 
 9, 13, 14, 43 
 . 27 
 
 Taxes Accrued. 44 
 
 Taxes Expense. 23 
 
 Traveling Expense. 24 
 
 Telephone Rental (Income). 17 
 
 Trade Acceptances. 9, 42 
 
 Treasury Stock. ; . 11 
 
 Unexpired Insurance Premiums. 8, 38 
 
 Undivided Profits. 9,46 
 
 Unclassified Expense. 24 
 
 United States Securities.8, 10, 36 
 
 Unredeemed Cash Refunds. 9,43 
 
 War Savings Stamps. 8, 36 
 
 Will Call Accounts.7, 34, 47 
 

 
 
 
 
 
 
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