H F UC-NRLF Accounting Students' Series Syllabus of Bookkeeping BY Samuel F. Racine Certified Public Accountant 1920 Accounting Students' Series Syllabus of Bookkeeping BY Samuel F. Racine Certified Public Accountant 1920 vC->" * * *j6 ^P COPYRIGHT 1918 BY SAMUEL F. RACINE COPYRIGHT 1920 BY SAMUEL F. RACINE 425608 PUBLISHED BY THE WESTERN INSTITUTE OF ACCOUNTANCY COMMERCE AND FINANCE LEARY BLDG. SEATTLE, WASH. Accounting Students' Series Graded Corporation Problems, 1914 and 1918; containing the most severe C. P. A. examination problems used up to the year of publication, 1914; since revised and brought down to date, 1918. Guide to the Study of Accounting, 1916; similar to the preceding Guide to the Study to Accounting, but practically a new book, owing to the advent of new books of recognized authority. Guide to the Study of Auditing, 1916. The publication of a new Montgomery's Auditing required that the original Guide to Auditing be rewritten, hence the 1916 book. Practical Problems, Series "A," 1916 ; containing the great majority of the C. P. A. examination questions used in the State of Washington. This book has been revised three times. Accounting Principles, 1917. A new book originally writ- ten in 1913, containing much subject matter not found in other books on accounting. Assuredly it contains more information than any other single book on the subject. Annuity Studies, 1918 ; a set of rules easy to understand, with problems on annuities. PREFACE This book is so original and so new and unusual in form and purpose that we hardly expect it to meet with universal favor ; however, the Western Institute of Accountancy, Commerce and Finance has been using it in its class rooms for a considerable period and has found it just the thing for its purposes. It is intended to serve as a basis for a lecture course for students who are just starting the study of accounting. It has been found too advanced for bookkeeping students. In the classrooms of the Western Institute of Accountancy, Commerce and Finance, the instructors lecture on a chapter, demonstrating and illustrating where possible ; using the text as a guide but amplifying it wherever possible. They even go so far as to give suggestions and information on the questions fol- lowing each chapter ; care being taken to cover the whole ground thoroughly and minutely. The students are provided with copies of the Syllabus with which they follow the lecture and in which they make notes of points not shown in the text or for the purpose of amplifying the notes already given. They also use it for the purpose of studying and solving the questions at the end of each chapter. Like all new books, the Syllabus, no doubt, is incomplete. It, however, provides a start and we hope will ultimately be a book worth while. While little is claimed for it, much is hoped for it and we offer it to you in the belief that you will at least try it with your classes as we have done, before you cas + it aside. If you will try it, we feel sure you will find it a new and effective means of teaching bookkeeping. There are but three ways to learn anything, seeing — doing — hearing. Seeing bv reading, and doing bv thinking or workine. were the only practical methods open to the bookkeeping student ; the Syllabus now provides a means whereby lectures may be given which makes the third method of learning — hearing — possible, also by the aid of the numerous demonstrations provided by the Syllabus, which require the use of a blackboard, seeing, is used as well, as an assistant ; furthermore that greatest of all means of learning — doing — applying the information gained bv seeing and hearing — is brought to those who use the Syllabus by the aid of the numerous practical questions contained therein, therebv making this work complete as a means of reaching the minds of the students, some of whom learn by seeing; others by hearing, and still others by doing. SYLLABUS OF BOOKKEEPING INDEX. 1. Definition 7 2. Object 7 3. Principles 8 A. Single Entry 8 B. Double Entry 8 4. Methods 10 A. Recording Accounts Due 10 B. Recording Indebtedness 10 C. Recording Investment 10 D. Recording Changes in Net Worth 11 E. Controlling Property 11 5. Accounts Representing Property 14 A. Current 14 B. Fixed 14 C. Passive 14 6. Accounts Representing Liabilities '. 14 A. Current 14 B. Fixed or Funded 14 C. Contingent 15 7. Accounts Representing Credits to Revenue 17 A. Ordinary Business Profit 17 B. Extraordinary Profit 17 8. Accounts Representing Debits to Revenue 20 A. Offset to Sales 20 B. Elements of Cost, Direct 21 C. Elements of Cost, Indirect 21 D. Elements of Trading 22 E. Elements of Administration 22 F. Extraordinary Expenses or Losses 23 9. Subsidiary Accounts 27 A. In General 27 B. Offsets 28 C. Adjuncts 29 10. Mixed Accounts 31 A. Defined 31 B. Merchandise 31 C. Interest and Discount 31 D. Freight and Express 32 E. Plant 32 F. Goodwill 33 G. Treasury Stock 34 SYLLABUS OF BOOKKEEPING 11. Analysis of Specific Accounts 37 A. Purchases 37 B. Sales 37 C. Inventory 37 D. Cash 38 E. Investments 39 F. Organization Expense , 40 G. Machinery 40 12. Collective Accounts 44 A. Cash Sales 44 B. Cash Purchases 44 C. Controlling Accounts 44 D. Trial Balance 45 13. Capital and Revenue 50 A. Importance 50 B. Definition 50 C. Distinction 51 D. Operation , 51 E. Exceptions 52 14. Accounts Showing Progress 56 A. Trading Accounts 56 B. Profit and Loss Accounts 58 C. Administration Section or Account 58 D. Manufacturing Accounts 59 E. Net Profit 59 F. Appropriation Account 59 G. Miscellaneous 59 H. Forms 59 I. Deficiency Account 62 J. Disposition of Profits 62 15. Accounts Showing Effect 65 A. Statement of Affairs 65 B. Statement of Assets and Liabilities 66 C. Balance Sheets ^ 16. Original Records 74 A. Journals 74 B. Sales Books 75 C. Purchase Books 75 D. Cash Records 76 17. Miscellaneous Books of Account 80 A. Final Records 80 B. Original and Final Records 81 C. Special Classified, Tabular or Columnar Journal 82 SYLLABUS OF BOOKKEEPING 11. Analysis of Specific Accounts 37 A. Purchases 37 B. Sales 37 C. Inventory 37 D. Cash 38 E. Investments 39 F. Organization Expense 40 G. Machinery 40 12. Collective Accounts 44 A. Cash Sales .' 44 B. Cash Purchases 44 C. Controlling Accounts 44 D. Trial Balance 45 13. Capital and Revenue 50 A. Importance 50 B. Definition 50 C. Distinction 51 D. Operation , 51 E. Exceptions 52 14. Accounts Showing Progress 56 A. Trading Accounts 56 B. Profit and Loss Accounts 58 C. Administration Section or Account 58 D. Manufacturing Accounts 59 E. Net Profit 59 F. Appropriation Account 59 G. Miscellaneous 59 H. Forms 59 I. Deficiency Account 62 J. Disposition of Profits 62 15. Accounts Showing Effect 65 A. Statement of Affairs 65 B. Statement of Assets and Liabilities 66 C. Balance Sheets 66 16. Original Records 74 A. Journals 74 B. Sales Books 75 C. Purchase Books 75 D. Cash Records 76 17. Miscellaneous Books of Account 80 A. Final Records 80 B. Original and Final Records 81 C. Special Classified, Tabular or Columnar Journal 82 ' "''SYLLABUS OF BOOKKEEPING 1 BOOKKEEPING 1. DEFINED: A means of recording information in a systematic manner. 2. OBJECT: A. To record information for the purpose of: 1. Recording accounts due. Illustration — "A" owes "B" $10.00. "B" will have an account showing this item. 2. Securing a record of indebtedness. Illustration — "B's" account in "A's" books. 3. Recording the investment. Illustration — The account of the proprietor in a business. 4. Recording changes in net worth. Illustration — A Profit and Loss Account. Gross Profit on Sales. Cr. Expenses, Dr., and Net Profit, Dr. 5. A control of Property. Illustration — Machine account representing a list of adding ma- chines in stock, carried at cost price by an adding machine manufacturer. ^'-Demonstration— The John Doe Adding Machine Company ships to their branch office in Spokane 10 model E machines which have a list price of $250.00 each. The entry is : Spokane office consigned stock $ 2,500.00 Spokane office consignment account, or consignment sales $ 2,500.00 The Spokane Branch reports the sale of three machines. If the Executive office keeps the books for the branch, the entry will be : Spokane office consignment account....$ 750.00 Spokane office consigned stock $ 750.00 To correct stock control, and Spokane Account Receivable $ 750.00 Sales $ 750.00 SYLLABUS OF BOOKKEEPING 3 A 3. PRINCIPLES: A. Single or Simple Entry. 1. Where ledger only is kept; debit individuals with amount he owes or receives ; credit individuals with amounts we owe or he has paid. 2. Where daybook only, or daybook and cash book are used in addition to the ledger ; debit and credit as above, but debits in ledger will equal debits in books of original entry and credits in ledger will equal credits in books of original entry. Illustration — If the total debits in day book and credits in the cash book total $4,510.00. and they are the source of all debit items in the ledger, the total debits posted to the ledger will equal $4,510.00 also. B. Double Entry. 1. Theoretical Double Entry. Note — All entries other than to personal accounts are but the record of a change in the net worth of the proprietor, hence : Rule — Debit the proprietor with all items which reduce his net worth and credit him with all items which increase it; credit- ing or charging the person or thing which produced the change with the complement of the amount. Note — In double entry, debits and credits must equal. j 2. Practical Double Entry. Note— The same rule applies, but in lieu of a direct entry to the proprietor's account an entry is made to some account of a group of accounts which are placed on the books to represent the vari- ous activities, properties, or responsibilities of the proprietor. Illustration — Sales, expenses and purchases represent his activi- ties. Inventories, land, and cash represent his properties. Notes payable, etc., represent his responsibilities. SYLLABUS OF BOOKKEEPING 3 Q QUESTIONS 1. Define bookkeeping and state a number of objects of keeping books. 2. What manner of record would be made to record the following: a. The amount due from a customer? b. The amount owed a customer? c. An investment of $2,000.00 in a business? 3. The Porpoise Adding Machine Company ships adding machines to its branch office, maintaining a control of the stock on hand at the branches by the aid of monetary controlling accounts. How would it record the shipment of machines to the branches ; also how would the disposal of machines by the branch be recorded ? 4. Outline the principles of single entry bookkeeping? 5. How does single entry differ from double entry? 6. How may the accuracy of the postings to a single entry ledger be proved where a day book and a cash book are used as original records ? 7. What are the principles of double entry? 8. How is the equilibrium of debits and credits maintained in double entry ? 9. What accounts represent the activities of the proprietor and what ones represent his responsibilities? 10. Prepare a problem, the solution of which will illustrate some point brought out in this lesson. SYLLABUS OF BOOKKEEPING 4 A 4. METHODS: A. Recording Amounts Due. Illustration — Ledger account with credit and debit sides ; the account heading showing the name of the debtor and the account containing a number of debit items with the payments of a por- tion thereof. B. Recording Indebtedness. Illustration — Same as "A," but excess of items on credit side. C. Recording Investments. 1. Sole trader. Illustration — The Capital account of "A" consists of an invest- ment of $8,000.00. 2. Partners. a. Where no predetermined amount is invested or required. Illustration — "A" and "B" each invest $10,000 in a business : "A" invests $1,000.00 more in thirty days. All items are recorded in the same accounts. b. Where amount of capital has been agreed upon. Illustration — "A" and "B" each agree to invest and maintain a capital of $10,000.00. This item, only, appears in each investment account, and in the case of profits or investments in excess of the amount agreed upon, or deficiencies of investments, the items are carried in a separate "Personal Account" to the credit or debit of the partner. "Demonstration — "A," "B" and "C" each agree to invest $25,000.00 in a business. "A" invests $25,000.00, but "B" and • "C" invest but $20,000.00 each. How should their accounts treat the deficiency? Answer — "B" and "C" personal debit $5,000.00 each. 3. Corporation. a. Capital Stock Account. Note — Identity of individuals is lost; instead thereof, the stock they hold is represented on the books t This is due to the control of the company by the stock instead of by the individuals. IPP* Demonstration — The John Doe Corporation is formed by J no. Doe and J. Smith with a capital of $15,000.00. Doe takes 100 shares, and Smith, 50 shares. How would the accounts appear? Answer — Capital Stock account in General Ledger, credit $15,- 000.00. Individual names do not appear. In some other record, usually a Stock Ledger, the record of individual holdings is kept. Note — Loans from, or advances to, stockholders or officers are recorded separately. Illustration — Doe borrows $100.00 of the company and Smith loans $400.00 to the company. Personal accounts appear in the ledger for these items. They are not included as Accounts Receivable or Accounts Payable, however, on account of pos- sible misrepresentation of a balance sheet. 10 SYLLABUS OF BOOKKEEPING 4D D. Recording Change in Net Worth. 1; By crediting the proprietors direct as in single entry, after ascertaining the change in net worth by comparing the net worth at the end of a fiscal period with the net worth at the beginning of the period. Illustration — The net worth of P. Smith of June 30th is $14,- 000.00. On January 1st, his net worth was but $10,000.00. An increase of $4,000.00 has resulted. This is added to the credit side of his investment account. Note — Additional investments, appreciations of properties, and profits from outside sources must be deducted from the final net worth, and withdrawals and losses from outside sources must be added, to ascertain the true profit of the business. Note— When the statement of assets and liabilities, with the proprietorship added, balance, the statement is in double entry form, and double entry books may be opened by entering all items therein ; or single entry books may be changed to double entry by entering in the ledger all items on the statement which are not in the books. 2. By keeping accounts with the different elements of a business transaction and summarizing the information they contain from time to time as the information is desired. Illustration — "A" sells goods to "B" for $500.00 at an expense of $50.00. The component parts of the transaction are a sale and an expense. Accounts will be kept for "Sales" and "Ex- penses." Ultimately these accounts will be summarized, with many other items and accounts, to show the profit or loss of the period. E. Controlling Propertv. 1. By an account containing a record at cost price. Note — Property account of a real estate office shows each tract, at cost, with additions thereto, at cost. The cost of each tract sold is credited to this account, and the balance of Property Account represents the cost of the property remaining unsold. !W Demonstration — The property account of the Acme Realty Company shows tract "A" $5,000.00, "B" $900.00, "C" $1,000.00, "D" $500.00. Tract "A" is sold for $5,500.00, and tract "B" at $800.00. Credit the property with the book value in each case and adjust the difference by an entry to "Gross Profit on Real Estate Sales." 2. By an account containing a record at an arbitrary price. Illustration — A branch office is charged with goods at an arbi- trary percentage from selling price; this enables the executive office to keep a control of the stock and also sets a margin of profit within which the branch must keep its expense to show a profit. Note — Executive office must recast the figures to determine true profits. 3. By an account containing a record at selling price. Illustration — Same as above, but now branch office books will not show profits or losses on sales. Note — This form of control is seldom used by branches except where branch accounts are kept on Executive office books as in 2 A 5. Its practical use is in connection with department stores, where auxiliary records, carried at selling price, control the stock of each department. 11 SYLLABUS OF BOOKKEEPING 4 Q QUESTIONS 1. Smith, White and Brown agree to engage in business for a certain period and to invest $40,000.00, $50,000.00 and $10,000.00 respectively. Instead, however, they bring into the concern $30,000.00, $60,000.00 and $5,000.00 respectively. How should their accounts appear in the ledger? 2. Explain how accounts with stockholders are kept by a corporation? 3. Peter Simpson's records show the following assets and liabilities as of Jan. 1st : Cash $ 2,500.00 $ Accounts Receivable 10,000.00 Plant 5,000.00 Inventory 5,000.00 Accounts Payable 12,000.00 Six months later the following figures are found to be correct : Cash $ 2,000.00 $ Accounts Receivable 12,000.00 Plant 10,000.00 Inventory 4,500.00 Accounts Payable 10,000.00 (a) What profit did he make during the period? (b) What particular items absorbed the profit? (c) Had the $5,000.00 increase in the plant accornt been but a recorded change in market values of the plant land, what would the profit of the business have been? (d) Suppose his drawing in excess of salary were $25,000.00, what would his profits be, giving consideration to (c) also? (e) How would this change in net worth be recorded in his books bearing in mind that they are kept by single entry? 4. Peter Simpson (question 3) wishes to keep his books by double entry. How may this be accomplished? 5. On January 1st, a certain merchant had assets and liabilities as follows: Cash, $5,000.00; Horses and Wagons, $2,000.00; Real Estate, $3,000.00; Inventories, $8,000.00; Accounts Receivable, $12,000.00; Accounts Pay- able, $9,000.00; Notes Payable, $3,000.00. During the year, he received $4,000.00 from the estate of a deceased uncle which he invested in the business ; he increased his real estate account $5,000.00 to give effect to an increase in its value due to the construction of a new waterway, by the port, which made the property much more valuable. He drew out, as salary, $150.00 per month and also for personal use $1,000.00. At the end of the year, he had: Cash, $8,000.00; Horses and Wagons. $2,000.00, less 10% depreciation; Real Estate, $8,000.00; Inventories, $10,000.00; Accounts Receivable, $15,000.00; and owed on notes $4,000.00, and on open accounts $6,O0O.OO. What profit did he receive from the business during the year? 6. A jeweler keeps a stock record of* his goods with a monetary con- trolling account therefor in his ledger. Prepare journal entries to record the following : (a) Purchase for cash of four diamond rings @ $350.00 each. (b) The sale of one of the rings @ $400.00. Note — Use accounts : Cash, Inventory at cost, Gross Profit. 7. The John Doe Real Estate Company acquired a tract of ground for $30,000.00. They expended $10,000.00 upon it and then divided it into lots upon which they placed market values as follows : No. 1, $3,000.00 No. 2, $3,500.00; No. 3, $4,000.00; No. 4, $4,500.00; No. 5, $5,000.00 No. 6, $5,500.00; No. 7, $6,000.00; No. 8, $6,500.00; No. 9, $7,000.00 No. 10, $7,500.00; No. 11, $7,500.00. They sold tracts Nos. 1, 3, 4, 5, 8 and 11 at the above prices, and Nos* 2 and 6 at a discount of 10% from list price. Ascertain the cost of each tract by finding the ratio that the total cost of all the tracts bears to the total market price of all the tracts and applying the ratio to the market price of each tract, and open a 12 1 SYLLABUS OF BOOKKEEPING 4 Q journal and a ledger with accounts for each tract, cash, discount, and gross profit on real estate sales. The expenses of the selling organization are as follows : Salaries $3,000.00 Commission 6,000.00 Rent and Incidentals 4,000.00 All of these were paid in cash. After journalizing the above, make journal entries to transfer the gross profit and the expense accounts to a profit and loss account. 8. The Elgin Manufacturing Company operates a branch store in Seattle to which it bills its product at the following arbitrary prices : No. 1 $4.00 No. 2 ,.._ 4.50 No. 3 4.75 The inventory of the branch shows the following : 500 No. 1 , $2,000.00 600 No. 2 ■. 2,700.00 800 No. 3 , 3,800.00 The costs of the goods, including freight to the branch, are No. 1, $3.60; No. 2, $4.10; No. 3, $4.40. At what value must the inventory be computed for the purpose of determining the true profits of the branch? During the year the branch sold 10,000 No. 1 @ $4.50; 6,000 No. 2 @ $5.00; and 5,000 No. 3 @ $5.25, and reported a net profit of $5,000.00. What was the gross profit of the branch as determined (a) by the branch books, (d) by the executive office books; also (c) what was the actual net profit of the branch? 9. The Toochi Trading Company bills goods to one of its branches as follows : 4,000 Commodity "A" @ 4.10 $16,400.00 5,000 Commodity "B" @ 4.40. 22,000.00 6,500 Commodity "C" @ 5.00 32,500.00 The branch reports sales for cash as follows : January 500 Commodity "A" @ 4.20. $2,100.00 400 Commodity "B" @ 4.50 1,800.00 200 Commodity "C" @ 4.75 950.00 $4,850.00 A check in full is received from the branch. When goods are shipped to the branch, the executive office debits Branch Office Stock, and credits Branch Office Sales. What entries should be made to record the January sales, (a) for the purpose of the financial records, (b) for the purpose of stock control? 10. The Bon Ton Department Store keeps a control of the stock in each department by the aid of auxiliary records wherein all goods are charged to the departments at unit selling prices. They keep the auxiliary books in balance by a credit to Adjustment Account. At the beginning of a particular period, Department "A" was charged with $8,000.00. It reported sales as follows : Regular price of Regular Special special sales 1st $450.00 $200.00 $240.00 2nd 300.00 100.00 125.00 3rd 400.00 300.00 350.00 4th 250.00 * 110.00 150.00 5th 150.00 100.00 125.00 6th 800.00 1,000.00 1,250.00 On the third, price changes were reported on certain goods of which they had 400 units in stock of from 40c to 65c. Required, entries in the auxiliary stock control records. 13 SYLLABUS OF BOOKKEEPING 5 A ACCOUNTS REPRESENTING PROPERTY: A. Current Assets. Defined — Assets which are for the temporary use of the business, representing cash or items which were acquired for the purpose of conversion into cash. 1. Quick Assets. Defined — Cash or its equivalent. Illustration — Cash, Bond investments. 2. Working Assets. Defined — Assets dealt in, or required in manufacturing. 'Illustration — Merchandise inventories, raw material, supplies. Note — Current assets should be recorded at cost price including infreight and duty. 3. Deferred Assets. Defined — Offsets to accruing liabilities. Illustration — Prepaid Insurance. B. Fixed Assets. Defined — Assets acquired for the permanent use of the business. Illustration — Plant, Machinery, Horses. Note — Fixed Assets are recorded at cost and are reduced from time to time by an amount representing the proportion of the cost consumed through use of the article in the production of other things. C. Passive Assets. Defined — Intangible Assets. Illustration — Goodwill. Note — Passive assets are recorded at cost, but, as in most cases they cannot be used in the production of other articles, no allowance need be made to record the value consumed as is true of fixed assets. ACCOUNTS REPRESENTING LIABILITIES: A. Current. Defined — Liabilities maturing within the year or current fiscal period. Illustration — Accounts Payable. B. Fixed or Funded. Defined — Accounts which, according to their terms of issue, mature after one year (I. C. C. Ruling). Illustration — First Mor'eage Bonds Payable. 14 SYLLABUS OF BOOKKEEPING 6 C C. Contingent. Defined — Liability, the amount or certainty of which is not definite. Illustration — Accommodation Indorsement, Guarantees, Bills Re- ceivable Discounted. Note — Certain contingent liabilities are of such a nature that they cannot be lccorded in the books or, as in the case of legal claims pending, it is inadvisable to so record them ; others may and should be recorded. ^Demonstration — "A" sells "B" a bill of goods, taking in payment thereof a 6% note of $2,000.00 due in thirty days. This note he discounted at the bank at 6%. Required entries in detail to cove ■ the receipt of the note ; the receipt of the cash when it was discounted ; the return of the cash to the bank, the note having been dishonored ; and, the ultimate payment of the note by the maker thereof. WHT"D emonstration — Suppose the note had been paid promptly at maturity? 15 SYLLABUS OF BOOKKEEPING 6 Q QUESTIONS 1. Define : *- A. Current Assets. B. Quick Assets. C. Working Assets. D. Deferred Assets. E. Fixed Assets. F. Passive Assets. 2. Classify the following: Plant. Machinery. Goodwill. — Horses in hands of dealer. Horses used for farm work. Cash. Accounts Receivable. Securities. Land. - Inventories. Prepaid Rent. Stock in a subsidiary company. 3. Give examples of assets which are usually fixed, but which may be current ; also a number which are usually current but may be fixed. 4. Give examples of: (a) Cur-ent Liabilities, (b) Fixed Liabilities, (c) Contingent Liabilities. 5. Alvin Jones, requiring a considerable amount of cash, discounts, at 8%, the following notes at the bank : T. E. Johnson Due in 45 days— Interest 5%— $500.00 A. M. Jackson Due in 30 days— Interest 8%— 600.00 S. A. Stone Due in 20 days— Interest 7%— 600.00 Johnson and Stone paid their notes at maturity, but Jackson failed to do so with the result that Jones was compelled to pay the bank instead. Required entries in detail for the above. 6. Prepare a problem, the solution of which will illustrate some point or points brought out in this or preceding lessons. 16 SYLLABUS OF BOOKKEEPING 7 A 7. ACCOUNTS REPRESENTING CREDITS TO REVENUE: A. Ordinary Business Profit. 1. Sales, Regular a. In general. Note — Sales are divided to correspond with divisions of accounts receivable except as in "f". b. Divisional. Illustration — Hay and Feed, handled by the same department. Note — Usually recorded in same books. c. Departmental. Illustration — Wholesale and Retail ; Expense pertaining to each being kept entirely separate as when they are handled through different organizations. Note — Invariably recorded entirely separate. d. Districts. Note — City, country, or according to street and numbers. e. Salesmen. f. Controlled. Sales price is divided into cost and gross profit. (See 4 E 1.) 2. Sales, Salvage. Note — A credit to cost, in general, on large work ; but where salvage is but a saving of scrap as in a manufacturing jeweler's shop when, although it amounts to a considerable sum, the saving per job is small, it is a credit to Net Profits. 3. Sales, By-products. Note — A separate source of income but in the regular line of business. Cost of preparing salvage for sale as a by-product is usually summarized with this account to ascertain the profit on the sale of by-product. Note — A by-product represents salvage to which labor or other material has been applied. B. Extraordinary Profit. 1. Cash Discount on Purchases. Note — This, in general, is a capital earning and is not a deduc- tion from the cost of goods. Note — Inventories are usually taken at prices which do not con- sider the cash discount; hence cash discount should not be considered as a reduction of cost. An exception to this rule is found, at times, in retail clothing stores where cash discount is an exceptionally large item and where invoices are entered net. In this case, if the store is unable to pay in time and secure the discount, they debit the amount of discount they are compelled to pay to Discount Lost. 2. Earning from Outside Investments : Example — Dividends ; Interest. Note — See "Accounting Principles" for treatment of dividends from companies operating wasting assets. Illustration — During a period of ten years, a mine which cost $100,000.00 declares dividends of $150,000.00 and is then aban- doned ; but $50,000.00 of the dividends is earnings. 17 SYLLABUS OF BOOKKEEPING 7 B3 3. Earning from special property acquired for the use of the business. a. Buildings. Illustration — Where a building has been erected for the use of a business and where each department is charged with an amount to represent the rental thereon, the building account receives credit for the rental charged and in turn is charged with the taxes, maintenance, etc. Usually a slight profit results. b. Sinking cmd Reserve Fund Assets. Defined — Income from assets acquired for the purpose of assur- ing the accumulation of a desired amount of cash by a certain date, or when wanted. Example — Income from a Sinking Fund, or Reserve of Surplus for Fire Losses. Note — Often the income from Sinking or Reserve Fund Invest- ments is credited direct to the Reserve of Surplus, but as this procedure does not allow the showing of the total earnings for the period under review, it is gradually being discontinued. 18 SYLLABUS OF BOOKKEEPING 7 Q QUESTIONS 1. Into what groups may sales be divided and with what should the classi- fication correspond? 2. Into what subdivisions may the sales be divided in : a. Department stores? b. Large automobile accessory houses? c. Wholesale groceries? 3. Distinguish between salvage and by-products. 4. Describe a number of ways of handling Discounts on Purchases. 5. Explain how a building account may be operated where the owners thereof operate a highly departmentalized organization. 6. The Equator Heating Apparatus Co. acquires a large building in which to conduct its operations. It charges its various departments with rent as follows : "A" $4,000.00 "B" _ _ 3,000.00 "C" - 3,000.00 "D" 2,500.00 The expenses incidental to the building are : Taxes $2,500.00 Depreciation 5,000.00 Repairs 1,500.00 Interest actually paid 1,200.00 Insurance 1,000.00 Explain how these items would be dealt with in the accounts ; show the Real Estate Income Account in detail and ascertain the profit derived on the building. Is this a true profit, or is it but the result of an overcharge to the various departments? 7. Into what groups should inventories be divided? 8. Prepare a problem, the solution of which will illustrate some point, or points, brought out in this or preceding lessons. 19 SYLLABUS OF BOOKKEEPING 8 A 8. ACCOUNTS REPRESENTING DEBITS TO REVENUE: A. Offsets to Sales to Produce Gross Profit. 1. Inventories : See 3 B 2 Accounts representing proprietor's wealth. 4 E 1 Accounts controlling property at cost price. 4 E 2 Accounts controlling property at an arbitrary price on branch books. Note — Goods must be revalued for inventory pur- poses. 4 E 3 Accounts controlling property on branch books at selling price. Note — See note above. 5 A 2 Working Assets. 7 A 1 b Divisional. Note — Divisicnpl sales accounts require like divi- sion of inventories to facilitate summarizing. 7 A 1 c Departmental. Note — Same as above. 7 A 2 Salvage in stock. 7 A 3 By-products in stock. 7 B 1 Discounts on Purchases not considered. 2. Purchases : See 3 B 2 Accounts representing component parts of a busi- ness transaction. 4 E 1 Accounts controlling property at cost price. Note — In these cases (4 E 1-2-3) purchases and original inventories must be combined to show the total to be accounted for. Illustration — The Real Estate account represents tract "A" costing $500.00, tract "B" costing $600.00, and tract "C" costing $700.00. Tract "D" is pur- chased at a cost of $800.00. The $800.00 must be debited to the real estate account also. 4 E 2 Arbitrary price used in Branch office records only. 4 E 3 Selling price used in Branch office records only. 7 A 1 b Divisional. 7 A 1 e Departmental. 3. Infreight : a. Included in cost of goods direct, as where price records, etc., used when inventorying, shows values at delivered price. b. Kept in a separate account for purpose of apportionment over goods sold and goods on hand where the price rec- ords do not include the freight and where, in order to determine the amount of freight that relates to the inven- tory, the above apportionment must be made. 1W Demonstration — Freight to the amount of $3,000.00 is paid during a certain fiscal period. The purchases amount to $6,900.00; and the current inventory at cost price amounts to $4,000.00. Required the amount of freight that may be assumed as an inventory. 4. Duty: Note — Usually included in the list price of goods direct, although method 8 A 3 b may be used if desired and if all goods are imported. 20 SYLLABUS OF BOOKKEEPING 8 B B. Elements of Cost, Direct. 1. Material. Note — Cost of material used is found by deducting the current inventory of raw material from the total of the raw material inventory of the beginning of the year and the purchase of raw material, or in some cases by charging out each article con- sumed separately. 2. Labor, Direct. Note — Direct Labor Account should show total expended for direct labor during the period. The cost accounts usually dis- tribute this item over the work performed. Care must be taken that the labor distributed to jobs is credited to some other account either in separate cost books, or in the same books. (Labor Applied, Cr., is suggested.) 3. Direct Expenses. Note — Expenses relating to special jobs are charged directly to the job in the cost amounts. This account is required to verify the distribution of the amounts. The Direct Expenses Applied must equal the Direct Expense account of the period. C. Elements of Cost, Indirect. 1. Where the cost department uses but one rate of oncost. a. Labor, Indirect. b. Depreciation. Note — Depreciation is but an arbitrary charge made to record the value of the plant and machinery consumed in operations. Plant and machinery accounts are analogous to a deferred charge to operations, but are fixed assets instead of current assets. Note — We suggest that, where the charges for depreciation which have been made in the past are not a reasonable charge for the use of the property and the values at which it has been carried on the books are incorrect, an appraisal of the property be made and the amount thereof be used as the basis of com- putation for the charges of the prior years. This will necessi- tate that the appraised value be treated as the residual value, and the computations be made in the reverse of the usual order, to secure the proper cost and the proper charges for depre- ciation. c. Superintendence. d. Rent. i. Paid to outsiders. 2. Arbitrarily charged. (See 7 B 3.) e. Light. f. Heat. g. Factory Expense. 2. Where the cost department uses more than one rate of oncost. a. Nondepartmental. Note — Accounts the same as before would be used, but would be grouped to crrrespond with the charge for oncost that was sup- posed to care for their distribution to the cost accounts. b. Departmental. Note — Tn this case the freneral books will show all expenses according to departments and the amount charged to each de- partment will be distributed to that department by the aid of one or more rates of oncost. 21 SYLLABUS OF BOOKKEEPING 8 D D. Elements of Trading. 1. Cost of sales — Turnover. Note — Found as in 8 B 1. 2. Selling Expense. a. Salesmen's Salary, i. City. 2. Country. Note — To correspond with an often used apportionment of Sales. b. Salesmen's Commission. Note — The commission due each salesman is usually summarized on a report of sales and this report is then paid. It acts as a voucher covering the payment. c. Salesmen's Travelling Expenses, i. Cash. 2. Mileage Books. Note — Where mileage books are used, it is customary to charge Travelling Expense amount with the cash rate per mile and to credit "John Jones Mileage Account". A saving of about one- half cent per mile results from the use of the books, and when a book is used the salesman's mileage book account will show a profit. This profit should be closed into a Profit on Mileage Books account, which in turn is closed into travelling expense. A separate account should be kept for each book used. d. Bad Accounts, Estimated. Note — This is but an arbitrary charge made at the end of each fiscal period to record the anticipated loss on bad accounts. e. Credit Department Expense. Note — If the credit department handles credits exclusively, its expense may be treated as an element of trading, but, as in general, the credit department also has other duties, it is treated as an element of administration. f. Outfr eight. Note — This account should contain expenditures for freight or express made on special orders, or for delivering goods. g. Store Expense. Note — This item should be kept in a number of various accounts, each representing an element of expense. Their number de- pending on the scope of the business. E. Elements of Administration. 1. Salaries, Management. a. In general. b. Partners. c. Directors. 2. Salaries, Office. 3. Depreciation, Office Furniture. 4. Printing and Stationery. 5. Postage. 6. Rent. 7. Unapportioned Expense. Note — The quantity and names of the above items may bf changed to meet the requirements of each business. 22 SYLLABUS OF BOOKKEEPING 8 F F. Extraordinary Expenses or Losses. 1. Discount on Sales. a. True Cash Account. b. Fictitious Cash Account. Example — A flour mill adds 5.26% to a reasonable selling price to get its actual selling price, from which a discount of 5% is granted for prompt payment. This is but a scheme to keep down the amount of Accounts Receivable by influencing collec- tions. See also Accounting Principles. 2. Interest on Borrowed Money. a. Paid in Current Period. b. ^Written Off from Deferred Assets. See 5 A 3. /. Equal annual charge method of amortization. Note — This is permitted by the Interstate Commerce Com- mission. 2. Effective Interest Method. Note — This is the true interest method *See "Accounting Principles — Bond Interest Amortization" for a complete discussion of the principles of amortization. 3. Fire Losses. Note — A Fire Loss Adjustment account should be opened and the book value of all destroyed property transferred thereto. Expenses incidental to the fire are charged to the account. Re- coveries from insurance companies are credits. The balance of the acccrnt is charged off as an extraordinary loss. a. Covered by Insurance Policies. Note — In case of total loss, the balance of the policy is cancelled r. Co-insurance Clause: (a) 8o% ; (b) go%. 1W Demonstration — Company "A" has the following property: Plant No. 1 $10,000.00 No. 2 20,000.00 No. 3 30,000.00 all insi red under an 80% co-insurance clause policy. The com- pany has placed only $40,000.00 of insurance. Plant No. 2 is destroyed by fire. What amount can be recovered from the insurance company, and hew should the portion of the loss borne by the company, if any, appear in the accounts? 2. Divided Policies. Defined — A policy which apportions the risk to certain properties. &9# 'Demonstration — Suppose the policy mentioned under 8 F 3 a 1 had contained the clause "It is hereby agreed and declared that in the event of fire this insurance shall contribute and pay in the proportion that the v?lue in e?ch of the sections, buildings or localities hereinbefore described shall bear to the value in all of such sections, buildings or localities at the time of such fire." What amount would have been recoverable? 3. Valued Policies. Note — In Washington, in case of total loss, the full amount of a fire insurance policy covering real estate must be paid even though it might have been possible to prove that the property was not actually worth the amount of the policy. 4. Contribution under General Average in Marine Insurance. Example — Share of payment made to cover jettisoned cargo. 23 SYLLABUS OF BOOKKEEPING 8F3aS 5. Particular Average Losses. Note — These losses are losses incidental to the nature of the goods and are usually not covered by insurance. In many cases they are treated as an element of cost. Example — A shipment of cabbage spoils in transit on account of heat in the vessel. Not Covered by Insurance Policies. Note — Large companies having scattered properties carry their own insurance except possibly on their most important prop- erties, such as their factory, or their largest ships. A periodical charge is made against operating to represent insurance, and losses as they occur are charged against the credit accumulation of these amounts. Losses in excess of the accumulation are charged off as extraordinary losses. 24 iV~ tc " 'ICO ; " ■ ! ! SYLLABUS OF BOOKKEEPING 8 Q QUESTIONS 1. If the sales of an organization are divided as to Engines, Boilers, and Miscellaneous Machinery, under what heads would you list 10 8x10 Horizontal Eclipse Engines 4 Upright Boilers 3 100 H. P. 500 V. Motors 400 lbs. Brass Filings? 2. Ascertain the gross profit of a company under the following conditions : Inventory at beginning of year $45,000.00 Purchases 95,000.00 Stock at branch office, at branch office figures which are 25% more than cost 6,000.00 Sales 110,000.00 Stock on hand 30,000.00 3. Under what conditions is it desirable to include Infreight with the purchases, and when is it preferable to keep it in a separate account? 4. The beginning inventory and the purchases total $109,000.00. The infreight is $12,000.00. What amount of freight may be treated as being a portion of the final inventory if the list price of the final inven- tory, exclusive of freight, is $43,000.00? 5. A manufactory expends $15,000.00 for direct labor during a particular period. This labor is charged to various job accounts as the work progresses. What advantage is derived by crediting some account other than Direct Labor? 6. Explain various methods of ascertaining the cost of material con- sumed. 7. Into what groups or divisions should labor be divided? 8. Distinguish between direct and other expenses. 9. Give examples of indirect elements of cost. 10. What difference exists in the method of keeping accounts where but one rate of oncost is used, and where departmental cost or more than one rate is used? Why is this difference in the accounts required? 11. Give arguments for and against including an arbitrary amount, repre- senting interest on invested capital, as an element of cost. 12. Under what account headings should selling expense be divided? 13. What is wrong with the method usually adopted, of charging the total cost of a mileage book direct to some selling expense account instead of working it out, as used, by the aid of a mileage account? 14. Under what divisional heads should administrative expenses be shown? 15. Distinguish between true and fictitious cash discount. 16. Explain how a discount on bonds sold may be spread over the accounts of a number of years to equalize the interest charges of the various years affected. 25 SYLLABUS OF BOOKKEEPING 8 Q 17. Following is a balance sheet of the John Doe Manufacturing Company as at the date of a fire which destroyed the premises : Dr. Cr. Real Estate $ 100,000.00 Buildings 175,000.00 Plant and Equipment 250,000.00 Inventories 500,000.00 Accounts Receivable 350,000.00 Cash in Banks 75,000.00 Cash on Hand _ 5,000.00 Interest and Insurance Prepaid 7,500.00 Capital Stock $ 300,000.00 Accounts Payable 150,000.00 Notes Payable 650,000.00 Taxes and Interest accrued 15,000.00 Surplus 347,500.00 $1,462,500.00 $1,462,500.00 They collected 80% on the buildings, 95% on the plant and equipment, and 75% on the inventories ; and expended $5,000.00 in clearing the premises. The balance of the assets is lost. Required, the Fire Loss Adjustment Account in detail; also a balance sheet after the account is closed. 18. What is the effect of a co-insurance clause in a policy? 19. In the demonstration, 8 F 3 a 1, suppose plant No. 3 had been de- stroyed, what would have been the amount of loss suffered by the company ? 20. (a) Company "B" operates a number of branches upon which it carries its own insurance. How should they operate the insurance account to properly charge each branch with the amount they would have to pay as insurance premiums? (b) Suppose an insurance reserve operated by Company "B" amounted to $40,000.00, and a loss of $30,000.00 was suffered. How would it be handled in the books? (c) Suppose the loss was $50,000.00 What would be done with the $10,000.00 not covered by the reserve? 21. Prepare a problem the solution of which will illustrate some point or points in this or preceding lessons. 26 .. I SYLLABUS OF BOOKKEEPING 9 A 9. SUBSIDIARY ACCOUNTS: A. In General. 1. Defined : A Subsidiary Account is one which is auxil- iary to, though not necessarily dependent upon, nor es- sential to, some other account. 2. Creation. a. By opening a new account. ^^Demonstration — An insurance account shows a balance of $126.00, debit, at the end of a certain year. It is ascertained that $18.00 of this represents insurance paid in advance. A Subsidiary Account is created by the journal entry. Dr. Insurance paid" in advance $18.00 Cr. Insurance $18.00 b. By bringing down the balance in the major account. Note — This method is preferable as it does not require journal entries or a new account. WB Demonstration — In the preceding demonstration $108.01) . represented the charge for insurance for the current year. This amount may be transferred to Profit and Loss, directly, leaving a balance of $18.00 in the Insurance Account, representing pre- paid insurance. This balance, for the purpose of closing the books, is a Subsidiary Account. c. By opening a new account. Note — The subsidiary account in this case is opened to contain some items which, although they relate to the major account, it is not desired to record therein for the reason that the major account would be disturbed thereby and the original information might become lost. Example — Reserve for Depreciation, which is an offset to the machinery account. Premium on Capital Stock, which is an adjunct to Capital Stock Account or to Surplus. 27 SYLLABUS OF BOOKKEEPING 9 B B. Offsets to Major Accounts. 1. Insurance Paid in Advance. 2. Expenses Incurred in Advance of Sales. 3. Discounts on Bonds. 4. Suspense Accounts. 5. Accrued Expense. 6. Reserve Accounts. a. Reserve jor Depreciation of Machinery. Note — This account is created to separate the provision for depreciation from the machinery account until the accurate amou nt thereof can be ascertained. WW" Demonstration — Company "M" operates two properties valued at $100,000.00 and $200,000.00 respectively; Property No. 1 depreciated at 10% annually and Property No. 2 at 15%. How should the depreciation be recorded in the books so that the cost of the property will not be disturbed? b. Reserve for Bad Debts. i. Based on total of accounts outstanding. Note — See "Accounting Principles — Reserve for Bad Debts" for defects of this method. 2. Based on total time sales. Note — Preferable, as it makes a charge against the opera- tions of the period in which the sale is made. c. Reserve for Cash Discounts. Note — Not a proper account. (See "Accounting Principles — Reserve for Cash Discounts.") d. Reserve for Repairs. Note — Repairs are not the subject of a reserve, for the reason that accidents do not accumulate. e. Reserve for Renewals. Note — Losses through wear accumulate, hence renewals may be the subject of a reserve. Note — Reserves for Renewals may be kept separate from Re- serves for Depreciation if desired. This assures that losses of one kind will not be covered by reserves provided for losses of the other kind. f. Reserves for loss on Deteriorated Stock. WWDemonstration — In three successive fiscal years a manu- facturing corporation values its supplies, etc., in hand, at cost, with deduction for deterioration as follows : At the end of the first year 5% ; at the end of the second year 10% ; at the end of the third year 15%. With the inventory taken on this basis, the profit for the second year did not equal the dividends de- clared and surplus was intrenched upon ; in the third year the dividend paid was so much in excess of profits that the surplus was entirely exhausted and a debit balance created in the profit and loss account. In auditing the books, how would you treat the above condi- tion in your report? (111.) g. Reserve for damages to Leased Property. WW Demonstration — A firm of brickmakers, under the terms of their twenty years' lease, agree that at the close of the term they will level the ground, cover it with soil, and generally restore it to its previous conditions for agricultural purposes. a. How would you deal with this liability in the accounts of the firm? b. Assume that five years of the term have expired and none of the work done and no provisions made, flow would you adjust matters? (Penn.) 28 SYLLABUS OF BOOKKEEPING 9 C C. Adjuncts. 1. Divisions of the Cash Account. a. Bank. 1. Individual. 2. Divisional. Note — This may be a. to provide accounts in different cities, or, a. to provide special funds as for paying dividends or paying purchases and expenses from separate accounts where there are a number of departmental cashiers. b. Petty Cash. c. Imprest Cash. Note — Difference between Petty Cash and Imprest Cash. JSIote — Imprest System allows all receipts to be deposited in the bank and facilitates internal check, preventing lapping system. 2. Adjuncts to other accounts. a. Premium on Bonds. Accumulated interest to date of sale of bond must be adjusted to ascertain the true amount of the premium or discount. b. Premium on Stock. Note — It is permanent surplus not intended for dividends although available as such. Note — Sale of stock at a premium does not produce profit for the company. Note — Stock is issued in this manner to equalize the value of old stock and the selling price of the new, or in case of new double liability organizations, to produce additional working capital without incurring the additional liability. c. Advertising Appropriations. Note — Advertising appropriations unexpended represent charges made against a particular year which were not expenditures of that year and which are therefore in fact additional surplus. This account therefore is an adjunct to surplus. 29 SYLLABUS OF BOOKKEEPING 9 Q QUESTIONS 1. What is the object of subsidiary accounts, and how are they created? Give pro forma entry to place a subsidiary account on the books ; also . explain how the same result may be secured without the aid of such an entry. 2. Give a number of offsets ; adjuncts. 3. A $1,000.00 bond dated June 1st is sold on July 10th for $1,100.00. What is the amount of the premium? 4. Stock of the Bjax Company is sold at a premium. To what account should the premium be credited? What is the purpose of the sale of capital stock at a premium? 5. What advantage is derived by separating a Reserve for Depreciation of Machinery Account from the Machinery Account? 6. How would you proceed to ascertain the proper credit to Reserve for Bad Debts at the end of a given year? 7. Distinguish between repairs and renewals, and explain why one of them is the proper subject of a reserve and the other is not. 8. What advantage is derived by separating the Reserve for Renewals from the Reserve for Depreciation? 9. What is the purpose of (a) a Reserve for Loss on Deteriorated Stock; (b) a Reserve for Damages to Leased Properties? 10. Prepare a problem illustrating some point or points covered by this or preceding lessons 11. Into what groups may a cash account be divided and subdivided and what is the purpose of each subdivision. 12. Distinguish between petty cash and imprest cash. 13. The following among other accounts appear in a trial balance of a manufacturing concern. How would you group them to show net and gross results of each major item; also which of the items are adjuncts or offsets to accounts which do not appear in the list? Plant $100,000.00 Wages due and unpaid....$ 450.00 Prepaid Insurance 150.00 Advertising appropriations Expenses incurred in ad- unused 7,800.00 vance of sales 7,900.00 Bonds Payable 100,000.00 Discount on Bonds 10,000.00 Expenses accrued and Cash 8,000.00 unpaid 500.00 Bank 14,800.00 Premium on Bonds 400.00 Petty Cash 400.00 Premium on Stock 9,000.00 Accounts Receivable 15,000.00 Reserve for renewals of Raw material 94,000.00 machinery 800.00 Partly manufactured Reserve for Bad Debts.... 750.00 goods 10,000.00 Reserve for Loss on De- Finished goods 14,000.00 teriorated Stock 850.00 Reserve for damage to leased property 4,500.00 Accounts Payable 28,000.00 Capital 100,000.00 Surplus 11,200.00 30 SYLLABUS OF BOOKKEEPING 10 A 10. MIXED ACCOUNTS: A. Defined. (See "Accounting Principles — Mixed Accounts.") B. Merchandise. 1. Objection thereto. (See "Accounting Principles — Merchandise Accounts.") a. Contains two or more classes of items. b. Does not display a result. 2. Preferable accounts. a. Purchases b. Sales. c. Inventory. WG* Demonstration — By analysis, the debit side of merchandise account shows purchases, $60,000; returns to us, $4,000; entries offsetting errors in sale extensions, $2,000; trade discounts to customers, $13,500; balance, profit, $27,000; the credit side shows sales, $90,000; returns by us, $5,000; allowances to us, $1,500; inventory at close of year, $10,000. Suggest such changes in the method of recording the foregoing statement as would readily show (a) the net amount of purchases; (b) the net amount of sales; (c) the percentage of profit. C. Interest and Discount. 1. Objection thereto. a. Contains numerous classes of items. b. Name is a misnomer as applied to the items it contains. 2. Substitutes therefor. a. Interest and Bank Discount, Dr. b. Interest on Loans, Dr. c. Cash Discount on Purchases, Cr. d. Cash Discount on Sales. e. Interest on Investment of Partners. 31 SYLLABUS OF BOOKKEEPING 10 D D. Freight and Express. 1. Objections thereto. a. Contains dissimilar items. b. Result is misstatement. 3. Substitutes therefor. a. Freight on Purchases, In Freight, Dr. b. Freight on Sales, Out Freight, Cr. c. Express on Sales, Dr. or Cr. d. Express on Purchases, Dr. E. Plant Account. 1. Objections thereto. a. Too broad a term. b. Improperly used. i. May contain dissimilar items. Example, Machinery and Buildings. 2. Articles contained therein may be subject to different rates of depreciation. 3. Often used to cover Watered Stock. 2. Defects may be overcome. a. By the use of specific accounts for component parts thereof. Examples — Plant Buildings, Generators, Transformers, etc. Note — Each account should contain some specific class of article, all subject to the same depreciation, at cost price, including the expense of making ready for operation. b. By the use of an equipment ledger. Illustration — A plant ledger usually contains a complete history of each individual article, with its size, capacity, expected life, etc. Columns may be provided as follows : Debit Side — Date, Information, Plant, Renewals, Deprecia- ation. Credit Side — Date, Information, Plant, Reserve for Renewals, Reserve for Depreciation. 32 SYLLABUS OF BOOKKEEPING 10 F F. Goodwill. 1. Objections thereto. a. Often improperly used, i. To cover watered stock. Example— $100,000 worth of stock is issued for $25,000 worth of property, and the balance is thrown into goodwill. 2. To place an arbitrary value on the books. BjP Demonstration — A merchant, who has been in business for twenty years, decides to put a valuation on the goodwill of his business and carry it as an asset on his ledger, the entry being to charge Goodwill and credit Surplus. Another merchant five years later buys the entire business, including the goodwill, and after making a careful inventory finds that the actual net re- sources exclusive of goodwill, amount to $5,000 less than the sum he paid for it. Discuss the subject of goodwill in respect to the above case, and state the correct manner of dealing therewith. (111.) 2. Proper contents thereof. a. Purchase price of goodwill paid for in cash. i. The purchase of anticipated excess profits, as the present worth of a terminable annuity or as a lump sum payment. Example — Goodwill based on (1) the present worth of excess profits for the next three years, or (2) based on a year and a quarter purchase of average profits in excess of 6%. a. Upon the acquisition of a new or additional business. b. Upon the withdrawal of a partner whose interest is purchased. Note — In this case only the portion acquired from the with drawing partner is placed on the books of the new partnership 2. The capitalized earnings in excess of a reasonable earning on the stock of the company. Note — Where irredeemable stock is given for goodwill, the amount thereof will be the present worth of an interminable annuity which will produce the amount of the excess earnings. 3. Substitutes therefor in objectionable cases. a. Discount on Stock. 33 SYLLABUS OF BOOKKEEPING 10 G Treasury Stock. 1. Objection thereto. a. Not specifically used. j. Might contain Unissued Stock. 2. Might contain Unsubscribed Stock. 2. Proper contents thereof. a. Reacquired stock which has been issued at some prior date at par value. 3. Preferable accounts. a. Donated Stock. b. Forfeited Stock. Note — In Washington, Forfeited Stock must be sold, away from the offices of the company, to the person who will take the least amount thereof and pay the amounts due thereon. The balance of the stock reverts to the original owner so that the company can make nothing on the transaction. c. Purchased Stock. Note — The purchase of stock by a corporation, in many states, is considered illegal, except where it is necessary to do so to protect the company from loss, for the reason that it reduces the capital of the company without a compliance with the laws covering the reduction of the capital stock of a corporation. i. Should be entered at cost as it is but an investment. Demonstration — A company has acquired at $90.00 per share, 100 shares of its own capital stock of the par value of $100.00 per share. Its Balance Sheet shows Treasury Stock $9,000.00. Is this correct? If so, why. If not, state how you would adjust the books. (N. Y.) 34 SYLLABUS OF BOOKKEEPING 10 Q QUESTIONS 1. Why are mixed accounts used? 2. Mention a number of objections to the following account headings stating what other account heading would be preferable and why: a. Merchandise ; b. Repairs and Improvements ; c. Interest and Discount ; d. Freight and Express ; e. Plant; f. Goodwill ; g. Treasury Stock. 3. A merchandise account contains the following items : Into what sub- divisions should they be grouped to properly show the results of operations ? Inventory beginning of period $ 40,000.00 Inventory end of period 28,000.00 Purchases 120,000.00 Sales 165,000.00 Freight to purchasers 4,000.00 Freight to ourselves 12,000.00 Freight allowed us by shippers on goods bought F. O. B. our city 750.00 Express on purchases 500.00 Allowances 900.00 Returned goods to us 500.00 Goods returned by us 950.00 Gross profit 16,800.00 a. What is the amount of the net purchases? b. What is the amount of the net sales? c. What is the cost of sales — the turnover? 4. The Interest and Discount account of a certain firm shows the follow- ing items. How should they have been shown ? Bank discount paid $ 850.00 Interest paid on loan _ 1,600.00 Interest received on liberty bonds 1,200.00 Cash discounts on purchases 1,600.00 Cash discounts on sales _ 1,205.00 Interest on partners investments 6,000.00 Trade discounts on purchases 5,000.00 5. Why is it desirable to distinguish between In freight and Out freight? 6. a. Why is the term "Plant" usually undesirable for use in a ledger, and under what conditions is its use permissable? b. Mention a few of the most important objections to its use. 7. What is Watered Stock? 8. As an illustration of the information usually contained in a plant ledger, draw a form for the use of a manufacturing plant. 9. a. What is the purpose of a Goodwill account and what are the objections thereto? b. Under what conditions is its use proper and advisable? 10. The Jones Manufacturing Co., a partnership, acquired the Eureka Manufacturing Co., paying cash $10,000.00 for goods which had an inventory value of $9,000.00 and which were subject to liabilities of $2,000.00; simultaneously partner "A" withdrew from the firm, the remaining partners paying him, as his share, one-third of a year and a half's purchase of the profits of the last thjee years for his goodwill. The profits for the first year were $12,000.00; second year, $14,000.00; third year, $13,400.00. What is the proper debit balance of the good- will account? 35 SYLLABUS OF BOOKKEEPING 10 Q 11. If, in question 10, the investment in the business has averaged $12,000.00 and the Eureka Company had earned an average of $5,000 per year, which reasonably could be expected to continue indefinitely, to the benefit of its purchasers, and it were contemplated that a corporation be organized which would give stock for goodwill of an amount which will produce the equivalent of the earnings thereof at 5% dividends, what will be the amount of the stock given for the goodwill? For the purpose of this problem presume that the goodwill earns all profits in excess of 7% on the investment. 12. Distinguish between unissued and ' unsubscribed stock. 13. What may be properly included in the Treasury Stock account. 14. Why is it not well to confuse Donated Stock, Forfeited Stock and Purchased Stock? 36 / SYLLABUS OF BOOKKEEPING 11 A 11. ANALYSIS OF SPECIFIC ACCOUNTS: A. Purchases. 1. Should contain goods purchased for resale, only, with credits for returned goods. Balance should be net pur- chases. 2. Infreight and Duty. Note — These accounts often are kept separately for the purpose of apportionment over turnover and inventory. 3. Subdivisions thereof. See 8 A 2. B. Sales. 1. This account should include all sales of stock purchased for purpose of resale with debits for overcharges and returns. The balance will be net sales. 2. Sales of fixtures should not be included. 3. Approval Sales. ^^Demonstration — A phonograph house sends out many rec- ords on 24 hours' approval. These sales are kept in memoran- dum form by the aid of an Approval Sales Register. Column headings are Number, Name, Address, Amount, Dr., Returns, Cr., Cash Cr., Charges Cr., Number of Charge to customer. This is the basis of the Charge to Accounts Receivable. 4. Consignment Sales. Note — Although consignment sales may be included with the regular sales, it is preferable to keep them separate until the sale actually is made. In either case, they are deducted from the Accounts Receivable and removed from the books at closing date unless they have been recorded in memorandum accounts only as, " Dr. J. Jones Const, a/c $ 100.00 Cr. Consignment Sales $ 100.00 C. Inventory. 1. The inventory should be charged with the cost of all stock on hand, at any particular balancing period, which had been purchased with a view of reselling. 2. A separate account should be opened for each inventory. 3. Valuing Stock. a. Consigned goods. b. Freight to Branches. c. Intercompany profits. . i. Partly finished goods. 2. Finished goods. d. Without an inventory. Note — Sales divided by 100% plus the per cent of gross profit on turnover, to get 1% of the cost of goods sold. Original in- ventory, plus purchases, less cost of sales gives new inventory. 37 SYLLABUS OF BOOKKEEPING 11 C e e. Uncompleted contracts. Note — Conservative accounting does not permit the taking of a profit until all contingencies have been provided for. /. Fluctuation in values. 1. Cost should rule for purpose of ascertaining profit. 2. Market may rule as upon the sale of a business. 3. Purchases at different prices may be valued at prices ruling on last purchases equaling stock on hand. WW Demonstration — There are 1,000 articles on hand and the last purchases were as follows : Nov. 1st, 400 @ $10.00 Dec. 1st, 400 @ 9.00 Dec. 20, 400 @ 9.50 The stock should be taken as of 200 @ $10, 400 @ $9.00, 400 @ $9.50: total 1,000. 4. Averages of stock cards may be used. See Accounting Prin- ciples. D. Cash. 1. In General. 2. Bank Accounts. 3. Trust Funds. Note — Should be kept separate to reduce liability of trustee. 4. Certificates of Deposits. Note — Should be kept separate ; Account interest bearing. 5. I. O. U's. (See Accounting Principles.) 6. Order Method. a. Defined: A method of handling cash payments by giving orders on the company's treasurer, payable through the Collection Department of a bank instead of through the paying teller. b. Advantages. 1. Enables a concern to have a number of parties disbursing funds ivithout increasing the risks of fraud, as only one per- son or set of signatures is able to withdraw funds from the company's bank account. The others only make drafts on the Treasurer xvho issues checks to the bank in payment of those which are bona fide. 2. Enables a company of small means to carry on a larger busi- ness ivithout "kiting" checks. c. Disadvantages. 1. Throws the possibility of loss through dishonest employees onto the customers of the concern. 38 SYLLABUS OF BOOKKEEPING 11 E E. Investments. 1. In General. a. Separate accounts for each at cost price, also for income produced. Account heading should indicate nature of investment, maturity dates, income dates, interest rates, etc. b. Appreciation should be ignored. c. Downward fluctuation should be provided for if per- manent. 2. Investments in Real Estate. a. Non-profit bearing. Note — Carrying charges may be included in accounts. b. Profit bearing. c. Acquired by Dykeing or Fills. Note — Cost included all expense of reclaiming. 3. Investments in Stock. a. To secure control of other organisations. Note — Should be entered at book value to facilitate preparation of Consolidated Balance Sheets. WW Demonstration— SOURDOUGH COMPANY— BALANCE SHEET. Cheechako Co. stock, 900 Bonds payable $100,000.00 shares at cost $ 99,000.00 Capital stock 200,000.00 Cash 101,000.00 Inventory (Purchased of outsid- ers) 56,000.00 (Purchased of Sub. Co. at 10% increase over cost) 44,000.00 $300,000.00 $300,000.00 Note — Cheechako stock should be entered at book value as de- termined by the books of the Cheechako company. No profit Should be taken on inter-company transactions. b. To produce revenue. i. Is a current asset and subject to all rules that relate thereto. c. Stocks of companies operating wasting asset. Note — Value thereof must be reduced annually to cover capital returned as dividends although individuals or corporations not holding it for purpose of control often do not do this. 4. Investments in Bonds. a. Purchase price is rarely par. b. Accumulated interest is often purchased with the bond and must not be included in the bond account. c. Premium or Discount must be amortized to give true interest returns. HF Demonstration — Required entries covering the issuance of the following bonds, and also the entries covering the first two annual interest payments : (a) Three, 4% first-mortgage bonds sold at 90 and redeemable at par, netting the investor 5%. (b) Two, 6%, second-mortgage bonds, sold at 110, redeemable at par, netting the investor 5%. (c) Five, 5%, third-mortgage bonds, sold at par, redeemable at a premium, netting the investor 6%. (d) Eight, 4%, Collateral trust bonds, sold at 85, redeemable at a premium, netting the investor 7%. d. Market quotation will not provide properly for approach of par value at maturity. e. Purchases for resale are treated as ordinary current assets ar.d are not amortized. 39 SYLLABUS OF BOOKKEEPING 11 F F. Organization Expense.' 1. Includes all legal or other expense incidental to organ- ization. 2. May include all interest falling to period of construction. 3. Does not include discount on stock. 4. Is offset by earnings during period of incipiency. 5. Is sometimes apportioned over all the properties. Note — Erroneous from Federal Tax standpoint. 6. Often is spread over earning of first few years as a charge to surplus. 7. Is a capital asset and need not be depreciated. G. Machinery. 1. Articles prepared for use of firm. Note — They should not be carried in excess of cost. Cost usually is not presumed to include a portion of manager's or superintend- ent's salary unless an extra amount is paid them, as this has a tendency to disturb the figures covering current operation. 2. Moving and Altering. Note — In general, this is not a proper charge to the account as the value or life of the property is seldom increased. The cost thereof should be charged off immediately, although it may be spread over a few years ; however, when working out a policy of expansion or when speeding up production, moving and alter- ing may represent capital expenditures. 3. Replacements. a. Distinguish betzueen Repairs, Renewals and Replace- ments. Note — Repairs are the result of accidents. Renewals are the result of wear. Replacements are substitution of articles. b. Result of. Note — The cost of one article with its provision for depreciation is removed and the cost of another article takes its place. c. Extensive Replacements. Note — Additional profit is expected, hence loss on old property may be spread over a number of years, or if desired, may be treat ed as part of the cost of the new property. k^ demonstration — A suburban traction company after equip- ping its lines at a very considerable expense for overhead trolley and operating same for several years, decides to adopt the third rail system. Extensive changes are necessary in changing power houses, rearranging tracks, and altering cars, involving an ex- penditure of $25,000. In addition, considerable machinery and rolling stock, the original value of which had been treated as a capital outlay and was carried on the books at a valuation of $25,000 is rendered obsolete and is disposed of for $3,500, showing a loss of $21,500. The profits from operation for the year are . $18,000. State how you would recommend that the matter be dealt with in the company's accounts and whether the company may pay a dividend. (111.) 40 SYLLABUS OF BOOKKEEPING 11 Q QUESTIONS 1. What may be properly included in the Purchase Account? 2. Outline a desirable method of recording in-freight, and duty so that the amount relating to the inventory may be ascertained readily. 3. Under what conditions should the Purchase Account be subdivided and with what accounts should the subdivisions agree? 4. 1 he following items are found in a sales account : Sales of merchandise to customers for cash $ 4,800.00 Sales of merchandise to customers on account 14,600.00 Sales of machinery on account. 1,200.00 Sales cf Corporation Stock 500.00 What adjustments should be made before closing the books? 5. Explain how Sales On Approval may be handled. 6. A balance sheet contains the following : J Jones, Capital $ $ 6,850.00 Inventory, Mdse 2,600.00 Cash 1,875.00 Accounts Receivable, Actual Sales 3,000.00 Accounts Receivable, Approval Sales 1,064.00 Accounts Receivable, Consignment 2,000.00 Consignment Sales 2,000.00 Notes Receivable 1,000.00 Furniture and Fixtures 2,375.00 Expense Inventory 108.00 Accounts Payable 2,672.00 Notes Payable 2,500.00 $ 14,022.00 $ 14,022.00 What adjustments are necessary to correct the Balance Sheet, and what is Jones' net worth if the average profit on his goods sold or sent out on approval or on consignment is 25% of the selling price which is used when billing, and if the inventory contained only such goods as are actually in stock? 7. The Western Hardware Co. regularly ships goods to the Western Metal Co. on consignment. What entry should be "made for the fol- lowing bill of goods ? 4— Concrete Mixers @ $480.00 $ 1,920.00 1—15 h. p. 500 V. D. C. Motor 250.00 Shortly afterwards one of the concrete mixers is returned, the bal- ance are sold with the approval of the Western Hardware Co. at an expense of $100.00 which they agree to stand. What entries are required to cover the return of the mixer; the sale of the others, and the collection of the amount due? 8. Which of the following should be included in the merchandise inven- tory of an automobile accessory house? Tires, wrenches, mirrors, typewriters, tubes, demountable rims, coats, gloves, electric wire, oil, grease, stationery, desks. 9. Why is it necessary to act with care when determining the items to be included in an inventory? 10. Under what conditions would you separate your assets into more than one inventory? 11. John Doe finds among others, the following items in his inventory. How should thev be valued? Brushes cost" $18.00, Freight $1.00, Duty 50c. Paint received on consignment at a guaranteed price to the owner of $2.50 per gallon ; freight paid 30c. Paint similar to above but at Branch Office with freight paid thereon at 40c. Oil at branch billed to them at 85c ; they paid freight 5c, cost Executive Office 65c f. o. b. their store. 41 SYLLABUS OF BOOKKEEPING 11 Q 12. How would you proceed to value goods lost in a fire, the inventory on January 1st, purchases, and sales being known? Book records concerning a number of prior years are available also. 13. "A" undertakes to construct a building for "B" for $12,000.00. He estimates the total cost to him as $10,000. When the building is three-fourths done, he closes his books for the calendar year. He acknowledges expenditures to date, not in his original estimates, of $850.00; also, that additional expenditure of $500.00, not included in the estimate, will be required to complete the work. What profit may he take at this time? 14. You are called upon to determine the profits of a business, also the value, for the purpose of paying off a retiring partner. After con- siderable difficulty you have satisfied all parties except on the follow- ing. What stand are you going to take and what will be the effect on the profits, also on the sale price? Pig bristles, cost, $500.00, cost to replace $1,400.00. Sale price retail $1,600.00, and have offer to buy entire lot at $1,450.00. Automobile, (delivery) cost $2,500.00, offered $1,250.00 in .ex- change for new car. No value to continuing partner but good as any for the retiring partner who offers $800.00 for it; book valiK is $1,600.00; by spending $300.00 on it, it might sell for $1,300.00 at an expense of 10% commission. Neither partner is willing to advance the $300.00 necessary to repair it. Forty units of Commodity M, market price 40c, retail sale price 80c, recent purchases: Nov. 20, 20c @ 85c; Dec. 1st, 30c @ 65c. 15. The stock card of a certain article shows as follows: What value should be used for inventory purposes? Used Purchases Dec. 1 20 at .80 $16.00 Dec. 4 15 at .60 9.00 Dec. 10 Dec. 15 10 at .55 5.50 Dec. 20 Balance Average 20— $16.00 .80 35— 25.00 .71 31— 22.16 .71 41— 27.66 .67 30— 20.29 .67 4 at .71 $2.84 11 at .67 7.37 16. What reasons can yon advance for separating the cash account? Into what subdivisions is it practicable to subdivide it, and how do your reasons affect each? 17. What properly may be included under the heading, Investments, and how should items be valued for the purposes of the account in a balance sheet, also what information should be shown in the ledger account to facilitate the proper handling of the account? 18. Outline the principles of valuation which affect each of the following accounts but which do not affect the others : a. Real Estate, b. Corporation Stocks, c. Corporate Bonds. 19. "A" corporation pays $125.00 per share for all of the stock of a certain corporation which had a book value of $110.00 per share on the first of the year and which has earned $5.00 per share since. At what amount should it be shown on the books of "A" corporation to facilitate the preparation of consolidated balance sheets? 20. Is stock, held by one corporation in another corporation which it controls, a fixed or a current asset ? 21. Why is it often necessary to reduce the book value of stock in a company which operates a wasting asset, by at least a portion of each dividend received? 22. A company purchases $8,000 of bonds paying $8,200.00 on September 1st. Interest payable January 1st and July 1st. What amounts should appear in the various accounts required? 42 SYLLABUS OF BOOKKEEPING 11 Q 23. A 7% bond is sold at $105.00, netting the investor 6y 2 %. Required: Journal entries to record the accounts affected during the first three years. 24. The market quotations concerning the bonds mentioned in question 23 for each of the three succeeding years are 104, 104^4 and 10434. How much do these quotations differ from the amortized book values? 25. Had the bonds referred to in question 22, been purchased for immedi- ate resale, how would the accounts have appeared in the books? 26. Which cf the following properly may be included in the account Organization Expense . a. Incorporation expense. b. Interest for 1 year on bonds, paid in advance. The period of construction is 10 months. c. Discount and Expenses on selling preferred stock. d. Interest on money earned during the period of construction, the money not being required immediately in the business. e. Rent paid in advance on land covering a two-year period. 27. Mention a number of ways of disposing of the Organization Expense account. 28. Which of the following properly may be included in the Machinery account ? a. One-half of engineer's salary during construction. He is regu- larly employed in the plant, although during the period of con- struction a slight bonus was granted him. b. A particular machine is found to be poorly placed and is moved ; certain changes also are made to facilitate operations. Extensive changes are made in another machine to increase its output. d. In accommodating the plant to increased efficiency due to war work, certain machines, satisfactory for normal production, are removed and sold. The cost of removing is $300.00, and the difference between book value and scrap value is $2,000.00. It is conceded that the article had been depreciated sufficiently during its life and that the book value for normal purposes was not excessive. 29. A machine is destroyed by fire and a new one is purchased ; a certain part or portion of the new one wears out rapidly and a new portion is acquired ; also an accident occurs which necessitates the purchase of a considerable number of new parts ; furthermore, while preparing the machinery for operations after the accident a new device is built into it which makes it possible to do an additional operation. Explain wherein there is a repair, a renewal, or a replacement in each of the above mentioned items. 30. A machine costing $2,000.00 which had been carried on the books for a numbe • cf years, during which time depreciation thereon had been reserved to the amount of $800.00, was replaced by a new machine at a net cost of $1,800.00, $1,000.00 having been allowed on the old machine. What entries? 31. Had the entire plant referred to in question 30, been overhauled, in order to accommodate it to a new order of things such as war work, or increasing requirements of production, how would you have handled the loss on the machine? 43 SYLLABUSOF BOOKKEEPING 12 A 12. COLLECTIVE ACCOUNTS: A. Cash Sales Account. 1. Definition. a. An account operated in a ledger to contain cash sales, and to facilitate the distribution of such sales through the regular sales book. 2. Purpose. a. To facilitate the distribution of sales in a sales book. b. To relieve the cash book of extra columns which would be necessary were the distribution of sales made therein. 3. Operations. a. Account "Cash Sales" is opened in ledger. Debits are posted from Sales Book. Credits, to balance, from Cash Book. b. The account usually is kept in the Accounts Receivable Ledger but may be kept in the General Ledger. Note — If kept in Accounts Receivable ledger, the Accounts Re- ceivable Controlling account must be debited and credited with total s from Cash and Sales books. 1WD emonstration — Draw a form of Sales book with the fol- lowing headings : Date, Information, Cash Sales Dr., Miscel- laneous Accounts Dr., Folio, Distribution Columns "A," "B," "C," "D," "E," also a cash book containing Cash Sales Cr., and illustrate operation of the account. 4. Effect on Books. a. Cash Book now requires only one column instead of numerous columns. b. An extra column (Debit) is required in the Sales Book to offset the distributed credits to accounts affected. Illustration — Sales are distributed to Mdse., Tires, Bicycles and Motorcycles. The Cash book will require but one column instead of four, and the Sales book, one extra column for the debit. B. Cash Purchases. Note — Same object, method and effect as above, except that account relates to purchases instead of sales. C. Controlling Accounts. 1. In General. a. Object. i. To allow numerous accounts of a class to be represented by one account. a. For purposes of condensing information. b. To facilitate work. i. To reduce the number of accounts in a particular book, allowing two or more books to be used. 2. To allow Accounts Receivable to be balanced separately. 3. To enable additional bookkeepers to work. b. Method of Operation. 1. When posting, item must be posted to the controlling account and also to the individual's account, cither directly or in totals. 2. When balancing, the total debits to the subsidiary ledger must equal total debits to controlling account ; likewise total credits to subsidiary ledger will equal total credits to controlling account and the balance of the controlling account will equal the total of the balances of the accounts in the subsidiary ledger. 44 SYLLABUS OF BOOKKEEPING 12 C 2 2. Accounts Receivable Account. a. Object. i. To take the place of numerous accounts with customers which are removed to another binder or kept in a separate book. b. Indexing. . i. Loose Leaf. a. In General. The leaves should be Hied in absolute alphabetical order in preference to giving them a serial number under each index, tab, or sheet. 2. Bound Books. Index with ample number of blank spaces, a. Graves Index provides the first three letters. 3. Miscellaneous. See 7 A 1 d Districts. 7 A 1 e Salesmen. c. Sundry Debtors Ledger. 1. With index. 2. With numbers referring to alphabetical file of invoices. Note — This method is ideal for handling "Will Calls." d. Statement Ledger. Operation — Post debits to statement in duplicate, credits to ledger, then before sending out statements, total debits on state- ment and enter in ledger, simultaneously entering credits and unpaid balance of prior months on statement and proving its balance by comparing statement with ledger. e. Assigned Accounts. Note — Entered on separate, different colored sheets in the same ledger. Credits entered in separate columns in Cash Book to facilitate payments to assignee. /. Foreign. Operation — Additional columns are kept, enabling transactions to be posted in both currencies. Note — Used only where sales are billed in foreign currency. 3. Plant Account. a. Object: To keep a detailed record of each article of the plant, to facilitate the analysis of the plant account, and to make a study of the individual articles possible. Note — Plant account is not always a controlling account for the reason that items therein do not represent specific things. 4. Capital Stock Account. a. Nature: It is an account zvhich shows stock authorised. b. Object: It usually controls the stock ledger, but the figures used represent shares instead of dollars. 5. Investment Accounts. a. Use: May be a collective controlling account where numerous investments are carried in the one account, and the details are carried in a separate book. Illustration — Jones and Carr have numerous investments, each of which has separate accounts in the ledger, one for prin- cipal and another for the income. In order to place these ac- counts more closely under the control of an officer, they are placed in a separate ledger. Note—See HE. 45 SYLLABUS OF BOOKKEEPING 12 C 5 b Divisions of. i. Par value and Discount or Premium is often recorded sepa- rately for purposes of amortisation. Illustration — $1,015.00 is paid for a City of Seattle 4% Improve- ment Bond. The entry is : City of Seattle 4% Imp. Bond. Prem. Principal Amortization Principal 15 1000 Note— See 9 B 7. 2. Income is recorded separately. Note — Often controlled by separate account in ledger. Example — Same as 12 C 5 b 1, but 3 columns are required. 6. Note Receivable Accounts a. Individual Notes, i. Operation. A. Debits entered in Notes Receivable Register in order of the receipt of the notes. Note — Total of Notes Receivable Register is basis of entry. Dr. Notes Receivable. Cr. Accounts Receivable, enabling one listing of notes to suffice. See 17 B 1. B. Credits require numerous columns so total payments of month will not be confused with payments of prior months where trial balance is proved by totaling debits and credits for the month. (Six Column Trial Balance, 12 D 2 c I A.) b. Installment Notes, i. Operation. A. May be kept same as individual notes. B. May be recorded in loose leaf or card ledgers alphabet ically. Note. — Same as Accounts Receivable. C. Combined Account form may be used. Illustration — . JOHN JONES. Notes Acc't Rec. Rec. Jan. 1 Type #4/148763. $105.00 Notes Acc't Rec. Rec. Tan. 2 Cash $ 10.00 Note 95.00 Feb. 2 Cash $25.00 2.00 2 Notes 2/2 $25.00 3/2 25.00 4/2 25.00 5/2 20.00 4 Repairs 2.00 Note — Combined form is preferable, as it allows interest com- putation to be made and entered in the Accounts Receivable columns. c. In General. i. Protest fees are added to Notes Receivable Account. Note — This is contrary to most authors who demand that the overdue note be closed into the Accounts Receivable. 7. Subscription Account. a. Object. i. To reduce number of accounts in ledger. b. Operation. 1. Installment. Note — Ordinary ledger is used, or combined ledger form may be used combining stock ledger and subscription ledger in one account where certificates of stock are given only as payments are made. 2. Call. Note — When call is made Subscription account is credited and Call No is debited ; the Call account now becoming a Collective account. Note — The Call record usually takes the form of a list of names with amounts to be paid with credits thereon. 46 SYLLABUS OF BOOKKEEPING 12 C 8 8. Dividends Payable. a. Object. 1. To record persons entitled to dividends with amounts due each, also number of check issued in payment. b. Operation: Same as Call Account (12 C 7 b 2). 9. Expense Account. a. Object. i. Controlling Expense Account permits one account to answer for many and eliminates extra columns from books of original entry, symbols being used to indicate which special account is to be used. b. Operation, i. Columnar. Ledger Sheet contains column for each subdivision and the total. Illustration — Manufacturing Expense Account. Date and Voucher No. A B C D E Total 2. Auxiliary Ledger. Note — Form same as above but kept in a separate ledger. 10. Salary Account. a. Object. i. To keep records from employees. b. Operation. i. Lock ledger is used. 2. Cash is deposited in separate bank account. 3. Check from special bank account is issued to general cash to cover advances to employees of cash or goods. 11. Accounts Payable. a. Individual. 1. Subdivisions. A. City. B. Country. . C. Foreign. Note — Requires combined form of ledger and separate books of original entry for each country dealt with. b. Group (Vouchers Payable). 1. Object. A. Allows one account to represent many. B. Permits original entry to be used as final entry also. 12. Suspense Accounts. a. Object. 1. Removes dead items from active accounts. b. Component Parts. 1. Accounts Receivable. 2. Bills Receivable. A. Note is usually attached to suspense ledger page. 13. General Ledger. a. Object. 1. Separates operating and constantly changing accounts from those of a fixed permanent nature, keeping much information t private in a Private Ledger. Note—See 17 A 2 b. b. Operation. 1. Requires separate columns in some books of original entry. 2. Private entries are recorded in Private Cash book and Journal. Note—See 17 A 2 b 3. 3. General Ledger is closed into private ledger at end of each fiscal period. It is opened again at the beginning of the new period. 47 SYLLABUS OF BOOKKEEPING 12 D D. Trial Balance. 1. Object. a. To prove accuracy of posting. Note — Does not detect posting to wrong account of offsetting error. 2. Method. a. Footings. J. Advantages. A. Easy to draw off. B. Amount may be ascertained by taking totals of account on last trial balance, after deducting items ruled off, plus totals of all books of original entry to find total new trial balance should show. Differences represent amount of error. Note — No account may be ruled out except immediately after balancing. b. Balances. i. Advantages. A. As soon as balance is proved, the figures may be used for statistical purposes. c. Clwrges and Credits. 1. Operation. A. Six column form is used enabling each account and page to be proved separately. Illustration — Page 1: Current Folio Name Beginning Entries Ending Proof Dr. Cr. Dr. Cr. Dr. Cr. 40 Purchases 600 200 10 690 50 Sales 800 40 740 1500 60 Plant 800 100 900 61 Expense _.. 300 47 347 64 Cash 400 550 247 703 66 Proprietorship 2400 2400 2000 937 3900 6837 3200 997 2640 6837 Pages 2-12: Sundry Accounts ...1200 740 680 1260 3200 1677 3900 8777 3200 1677 3900 8777 B. In locating errors, check direct from books of original entry to Trial Balance, saving one checking. 2. Advantages. A. Proof is direct to items affected only. B. Old postings or balances do not cause any trouble. C. In systems of internal check, it shows just what entries have been made affecting each account and reports may be prepared to explain them in detail. Note — Of particular use in conducting branch offices. 48 SYLLABUS OF BOOKKEEPING 12 Q QUESTIONS 1. What is a collective account? 2. A certain concern separates its sales into 10 different groups. What expedient may it adopt to overcome the necessity of having ten col- umns in the cash book? Explain fully, covering all operations. 3. Explain fully the operation of controlling accounts including the changes in the books necessary where they are used as well as their advantages and disadvantages. 4. What disadvantages accrue where more than one account is placed on each page in an accounts receivable ledger ? 5. What advantages or disadvantages have loose leaf books in com- parison with bound books? 6. Under what conditions is the use of a Sundry Debtors Ledger ad- visable, and how would you arrange to find the items therein when wanted ? 7. Explain the operation of a statement ledger and give a practical example of its use. 8. What changes or manner of record would you make in your books of account to record the assignment of a number of accounts? 9. An exporting house bills its goods to customers in South American countries in their own currency and usually receives remittances in their currency. Explain how the ledgers may be operated to facilitate rendering statements in the foreign currency and also to make it pos sible to keep the accounts as part of the regular books of account? 10. Under what condition may a plant account be a controlling account, and why is it desirable that it be operated as such? 11. Explain how the Capital Stock account may be operated as a con- trolling account. 12. What suggestions would you make to a manufacturer who makes a great many investments outside of his regular business and who wishes to know the result thereof from time to time? 13. What reason can you advance for showing the premium or discount on a bond separately in the accounts? 14. How would you arrange for the recording of the income on each bond in an investment ledger? 15. Prepare a form of register for use in recording a great number of notes, payments on which are usually by installments. 16. Under what conditions is it advisable to keep a customers' note ac count on the same sheet with his open account? 17. Under what conditions is it advisable to use a subscription account? 18. A corporation sells a portion of its stock, accepting notes ; another portion on open account but with stated periods between payments ; and another portion subject to the call of the directors. What journal and ledger entries should be made : a. When each of the three classes of accounts are opened? b. When an installment note is paid? c. When a payment is made on open account? d. When a certificate of stock is issued? e. When. a call is made for 20% of the subscription? f. When the call is paid? 19. Company "X" has 5000 stockholders. Explain fully your procedure in recording and paying a dividend. 20. Company "Z" has 47 expense accounts. Explain how the details may be handled without necessitating individual columns for each in the books of original entry. 21. How would you proceed where you desired to keep the payroll away from most of the employees, and when payment is to be made by check ? The employees buy goods from the company, also have numer- out advances of cash. 22. Company "M" buys a large amount of goods from all parts of the world. A considerable portion of the bills are paid promptly, others run along from month to month. How may they care for these numerous invoices? 23. Give a few legitimate examples of the use of a suspense account. 24. Explain how a general ledger may become a subsidiary ledger. 25. Illustrate a number of methods of taking a trial balance and explain the advantage of each. 49 SYLLABUS OF BOOKKEEPING 13 A 13. CAPITAL AND REVENUE: A. Importance of Topic. 1. True ascertainment of profits is necessary for safe con- duct of business. 2. Market values of assets is secondary: B. Definitions. 1. Capital Receipts — Preferably Capital Income. Note — Capital income is the amount contributed to or guar- anteed for the permanent use of an organization to enable it to carry on its business. It may represent, not only the amount actually invested in the concern in cash, but also amounts which the stockholders have agreed to contribute in the future, and also amounts secured by the issuance of long time obligations. 2. Capital Expenditures. Note — Capital expenditures are expenditures which have been made in acquiring or improving the equipment or other prop- erty of an organization. 3. Working Capital. Note — The working or circulating capital of an organization is the amount of the capital income which remains for use in operating the business after the capital expenditures have been cared for. It is sometimes defined as the excess of current assets over current liabilities. Under either definition the amount indicated would be the same. If there were a fund of $10,000 remaining from the capital invested after the fixed assets had been ac- quired, this amount would be represented in the balance sheet as the excess of current assets over current liabilities. 4. Fixed or Capital Assets. Note — Fixed assets are the assets of a concern which have been acquired for its permanent use. An easy method of de- termining whether an asset is fixed or current, is to ascertain the purpose of its purchase. If it was acquired for the purpose of resale or represents steps in the conversion of such assets into cash, it is a current asset. All other assets except cash are fixed. 5. Current Assets. Floating Assets. Note — Current or floating assets are those which are not a pcrtion of the permanent investment of the undertaking. They are the assets which the firm deals in or consumes for the purpose of making a profit, or which represent cash, or are in a form readily convertible into cash. They are sometimes subdivided into quick and working assets. Cash, readily realiz- able investments, accounts or notes receivable and similar items are treated as quick assets, while inventories of raw material, finished goods and other items which are to be sold or con- sumed are considered as working assets. 6. Fixed Liabilities. Note. — Fixed liabilities represent that portion of the capital income of an organization which is a liability of the concern, as distinguished from the investment in the organization. 7. Current Liabilities. Floating Liabilities. Note — Current or floating liabilities are those which require attention within a short time, viz., liabilities which are not of a permanent character. 50 SYLLABUS OF BOOKKEEPING 13 B 8 8. Revenue Receipts. — Preferably Revenue Income. Note — Revenue income is the income which properly arises from the operation of an undertaking. 9. Revenue Expenditures. Note — Revenue expenditures are those incurred in the opera- tion or maintenance of an undertaking. C. Distinction. 1. Capital expenditures do not affect profits or losses. Rev- enue expenditures relate to operation or maintenance. Note — Duration is the keynote of distinction. An asset con- sumed in a day or on a particular job, or too insignificant in point of life or value to be recorded specifically is a revenue item, while if it were large, costly and long lived, so far as the business is concerned, it would be a capital item. Illustration — Machinery bought for a particular job is revenue, although in general it is capital. D. Operation. 1. Capital. a. Increase of Capital. i. New Properties. Note — Properties include cost of properties including expenses of acquisition as well as carrying charges or rebuilding. Cost should rule even though value may be different from ascertained cost. Cost however, may not include any inter-company profits. Illustration — Additions are made to old properties. The value of the completed property is less than the book value of the old property plus the additions, but cost should rule, as books are supposed to show depreciated value and not market value. If any of the recorded cost of additions contains any amount of profit earned by some other company of a group of affiliated companies, it should be removed for the purposes of a holding company's financial statement. 2. Organization expenses. See 11 F. 3. Replacements. Note — Old asset is removed from books (Plant account and Reserve for Depreciation account) and new asset takes its place. 1W Demonstration — A machine costing $2,000, with a reserve for depreciation of $1,200 is sold for $800 and replaced by a new one costing $3,600. Required entries. See 11 G 3. . b. Decreases of Capital. 1. Depreciation. Illustration — Records value of shingle machine consumed and included in the cost of shingles made. 2. Sale. Note — Cost usually should be removed from books. Difference between cost and selling price should be recorded separately after adjusting the revenue accounts relating to the article sold. 3. Loss. Illustration — Fire, Wreck, etc. 4. Amortization. Defined — The decline in value owing to the discontinuation of the special work for which a machine had been acquired. Analogous to depreciation but affected by changing conditions instead of being fairly constant in operation. Differs from fluctuation, as fluctuation is the result of a change of other things which have a reflex action on the thing in question. Amortization is result of changed condition of use of the thing itself. 51 SYLLABUS OF BOOKKEEPING 13 D 1 c c. Miscellaneous. i. Fluctuations of Capital Assets are ignored. Note — Capital Assets wete acquired for permanent use. De- preciation accounts record consumption of original asset during active life. Giving effect to fluctuations will disturb annual charges. 2. Discounts, Cash. Note — The purchase of an article for permanent use is an- alogous to the purchase of a new business, hence cash discounts are analogous to organization expenses and are a deduction from capital. 2. Revenue. Note — Revenue accounts record the results of operations. Illustration — Sales, Purchases, Expenses, etc. E. Exceptions. 1. Organization Expenditures. a. Defined — All expenditures incidental to the organisation of a company, the sale of its stock or bonds, in fact all expenditures of every kind, prior to successful opera- tion, are capital. Note — Miscellaneous income of the same period is an offset on theory that an organization cannot make a profit or suffer losses prior to operations. See 11 F. 2. Wasting Assets. a. Defined — An asset operated by a life tenant or under a condition where the object of the organisation is to discontinue business as soon as the asset is consumed, exhausted, or lost, or otherwise disposed of. Examples — Mines, Quarries, Single buildings, Single ships, Tim- ber lands, etc. Note — Such organizations do not provide for the reducing value of the asset from year to year for, in general, it is not intended to replace it ; neither is it possible to accurately ascertain the residual value and, furthermore, it is not considered desirable to retain in the business large sums of money which are not to be reinvested. In such organizations, the investment and all additional ex- penditures made in developing, promoting or financing the con- cern are considered as capital and all receipts of whatever nature are considered as revenue. On the other hand, organizations operating this class of property, which intend to purchase other properties and to continue operations indefinitely, should pro- vide for the depreciation and exhaustion of their properties the same as any other concern, otherwise they will have no capital available with which to purchase future workings. 3. Sales or Purchases on Installment Plan at a Time Price. Note — Selling Price or Cost of such articles includes an ele- ment of interest which must be apportioned over the period of credit. 52 SYLLABUS OF BOOKKEEPING 13 Q QUESTIONS 1. Of what importance is a careful distinction between Capital and Revenue ? 2. Define Capital Receipts ; Capital Expenditures ; Working Capital ; Capital Assets ; Current Assets ; Fixed Liabilities ; Current Liabilities ; Revenue Receipts ; Revenue Expenditures. 3. A fountain pen, acquired for the use of a bookkeeper, will last three or four years. Why is it not a fixed asset? 4. Is it proper to capitalize interest paid on money borrowed to provide for construction? 5. (a) What is the amount of the net working capital in the following balance sheet? Balance Sheet Jan. 1, 1915. Real Estate $ 10,000.00 Capital Stock $ 50,000.00 Patents 8,000.00 Bonds 20,000.00 Buildings 55,260.00 Notes Payable 10,000.00 Cash 9,320.00 Reserve for Bad Debts 5,350.00 Inventories 32,600.00 Accounts Payable 32;502.00 Interest Prepaid 1,600.00 Reserve for Depreciation, Accounts Receivable 40,200.00 Buildings 20,000.00 Surplus 19,128.00 $156,980.00 $156,980.00 (b) What is the amount of the net working capital in the balance sheet of the same company as of January 1, 1916, which here follows : Balance Sheet Jan. 1, 1916. Peal Estate $ 17,000.00 Capital Stock $ 50,000.00 Patents 7,000.00 Bonds 30,000.00 Buildings 68,520.00 Notes Payable 20,000.00 Cash 3,260.00 Reserve for Bad Debts 6,240.00 Inventories 38,710.00 Accounts Payable 25,620.00 Interest Prepaid 820.00 Reserve for Depreciation, Accounts Receivable 42,200.00 Buildings 35,200.00 Surplus 19,128.00 $177,510.00 $177,510.00 (c) What items have absorbed the difference? 6. State which of the following should be charged or credited to Capital and which to Revenue : (a) Repairs to machinery and plant. (b) Replacements of machinery and plant. (c) Royalties on machines, owned and used by the company owning the patents, similar machines being leased under royalty to com- petitors. (d) Brokerage on a piece of property purchased. (e) Costs attending a mortgage given. (f) Costs of patents, including lawyer's charges and government fee. (g) Expenses of incorporating a company, (h) Discount on bonds sold. (i) Premium on bonds sold 7. A corporation distributing gas to consumers in several contiguous cities, during the period of construction of pipe lines, charges all materials purchased to Construction Account. When the lines are opened and operations begun., rnrsed materials are conservatively in- ventoried at depreciated values and taken into Operating Stock ac- count. When auditing the accounts would you approve or disapprove this treatment? State your reasons. 8. Jones and Co. buy certain special machinery for use in the construction of a bridge which will require three years to complete. Although, normally, the machinery would last ten years, it is of no use to the contractors and will be scrapped upon the completion of the work. Does it represent a Revenue or a Capital expenditure? 9. A trolley road, operating in New York State under the jurisdiction of the Public Service Commission, decided to improve one of its pas- senger stations. The book value of the property at this time was $68,000. Improvements erst $15,000. The appraised value of the prop- erty, after the improvements were made, was $76,500. How would the changes involved be shown on the books of the trolley company? 53 SYLLABUS OF BOOKKEEPING 13 Q 10. The Uphill Railroad Company hauls much of its own construction ma- terial and in doing so increases the initial cost of the material by add- ing a freight charge for its own services, and credits the amount of the freight charge to earnings. Is such action proper? If not, why not? 11. A street railway company, having been granted a franchise for a new line, expended in that connection the following amounts : Legal ex- penses incident to the grant $2,000; expenses of cbtaining consent from abutting property owners $10,000 ; paving the street between the tracks (which was a condition of the franchise) $15,000; damage claims $500. Prepare journal entries to record the above items on the general ledger. 12. What kind of expenditures, in the case of a manufacturing business, would you classify as maintenance, repair of equipment, machinery and plant, and what as actual betterments? 13. When machinery and other plant purchases are subject to cash dis- counts, how should the items be entered in the books? Give reasons for your answer. 14. In auditing the accounts of a business, you discover that part of the goods have been sold on the instalment plan and that these sales have been treated as regular sales. What action would you take in such a case? 15. In auditing the accounts of a company, you discover that an appraisal shews that the assets in the aggregate are equal to the book value but that the factory site has appreciated in book value $100,000, while the machinery has depreciated $100,000. State how you would handle these matters in preparing the accounts. 16. In auditing the accounts of a manufacturing company, you find that the company has expended a total of $3,000 worth of its own material, labor and expense in constructing a machine for its own use. This machine, if bought in the open market, would have cost $4,000. An- other machine was constructed under similar conditions which cost $12,000 but which, if purchased in the open market, could have been procured for $9,000. At what amount should each of these machines be capitalized? Why? 17. State how you, as auditor, would consider and report to your client the following fact : The Beechnut Chair Company purchased several wood-working plants in a run-down condition and made thereon ex- tensive outlays for repairs, charging all such expenditures to capital account. Were such expenditures properly allocated or should they have been charged against revenue? State your reasons fully. 18. In the machinery account of a company under audit, you find the fol- lowing, among other items : Dr. Cr. Purchase of two machines, Type Sales of old machine. Type A A, including freight $8,000 (less the cost of removal and Cost of removing a disused ma- freight) $1,264 chine, Type B, to make room Sale of old machine, Type B 1,470 for new machine 160 Cost of installation of two. new machines 280 Alterations to four Type C ma- chines, necessitated by change in product 640 Cost of moving two machines from Building A to Building B to permit of more economi- cal operation, including rein- stallation 270 The balance on machinery depreciation account shows an increase for the year of the amount provided out of income which is com- puted at the rate of 4% on the balance of machinery account at the commencement of the year. The method of keeping the machinery and machinery depreciation accounts has been in force from the com- mencement of operations. Draft your comments as auditor of these accounts, assuming that no items other than those above mentioned call for any comments. (American Institute.) 54 SYLLABUS OF BOOKKEEPING 13 Q 19. What are organization expenses? How are they to be treated in ac- counts? At what point do expenses cease to be organization expenses and become operating expenses? Is the deficiency in the early years of a corporation's activities (whether an actual loss or a deficiency between the earnings and the normal rate of return) similar to organ- ization expenses? How should such deficiencies be treated in the accounts? To what extent is such a deficiency similar to interest paid during construction? Should such deficiencies be carried on the bal- ance sheet? If so, should they be written off, and how and when? May the deficiencies representing the difference between actual earn- ings and normal rate of return be capitalized, in the strict sense of having capital stock issued to a corresponding sum? State clearly just who is affected, and how, by the different methods of treating the items mentioned above. (American Institute.) 20. If, in auditing the accounts of a Power Company, you found included in with other revenues, an amount covering a charge to contractors for estimated loss on account of delay in completing new buildings or installing new machinery, would you consider it a proper entry and what would be your duty under the circumstances? 21. On auditing the accounts of the Milwaukee Mercantile Company, you find that they have added $375,000 to the investment in property, made up as follows : Labor $100,000.00 Material 200,000.00 Overhead, being proportion of factory overhead expense^ 50,000.00 Interest on Investment during construction 25,000.00 $375,000.00 It should be remarked that the company did not find it necessary to borrow money to build this plant, and the interest calculation was made upon the amounts expended. Had the company contracted for the construction of this building, the cost would have been $410,000, and the management decided to credit profit and loss account of the year with $35,000, being the excess of the probable contract cost over the actual cost as worked out above. What criticism have you to make of these transactions? 55 SYLLABUS OF BOOKKEEPING 14 A 14. ACCOUNTS SHOWING PROGRESS: A. Trading. 1. Non-divisional. a. Object: Shows all items affecting gross profit, and bal- ance carried forward to Profit and Loss account is Gross Profit. Note — This form seems to be most popular in Great Britain; in fact the divisional form or the Manufacturing Account seem to be of but recent adoption there. b. Location: Is first section of a statement showing pro- gress. c. Component Parts: All items affecting cost or sales, dif- ference being gross profit. Illustration — TRADING ACCOUNT Inventory 1/1/17 $ 4,000 Sales $130,000 Purchases 92,000 $ 96,000 Inventory 12/31/17 6,000 $ 90,000 Wages 10,000 In-Freight ~ 4,000 Duty 2,000 Gross Profit carried to Profit and Loss Account 24,000 $130,000 $130,000 56 SYLLABUS OF BOOKKEEPING 14 A 2 2. Divisional. a. Object: To show — ist, Gross Profit, and 2nd, Profit on Trading of a concern which makes an analysis of its accounts in detail, according to the divisions of its or- ganisation. Illustration — TRADING To Cost of Goods Sold: Ry Sales .00 Inventory, Finished Less Returns, Allow- Goods, beginning of ances or Trade Dis- period 00 counts 00 .00 Cost of Goods m'f'd brought down 00 .00 Less Inventory, end of period 00 .00 To Gross Profit, carried for'd .00 .00 .00 To Selling Expense: By Gross Profit bro't Salesmen's Salaries 00 down .00 Commission 00 Traveling Expense 00 Rent of Salesroom 00 Cartage or Freight outwards 00 .00 Reserve for Bad Debts (based on sales) .00 To Profit on Trading carried for'd .00 .00 .00 b. Location: When this form is used, the trading account or section, heads the report of a trading concern, but it would follow the manufacturing account of a manu- factory. Component Parts: of Selling. Sales against Cost of Sales and Cost 57 Brandy Wines Total ; 400.00 $6,000.00 $7,100.00 500.00 5,000.00 6,400.00 1,000.00 5,800.00 8,300.00 1,900.00 9,500.00 13,520.00 200.00 2,000.00 2,500.00 SYLLABUS OF BOOKKEEPING 14 A 2 d d. Departmental. i. Object — To show Gross Profit on each Department and Profit on Trading all Departments. WW* Demonstration — From the following particulars of the busi- ness of R. Hay & Sons, Wine Merchants, prepare Departmental Accounts, showing the gross profit on whisky, brandy, and gin and wines, and Profit and Loss Account for the year. Gin and Whiskey Stock in hand 1st January $ 700. V Stock in hand 31st December 900.00 Purchases 1,500.00 Sales 2,120.00 Duty and charges 300.00 The following additional payments and allowances have been made during the year : Cartage $ 50.00 Wages and salaries 300.00 Stationery and stamps 10.00 Rent 50.00 Taxes 18.00 Cash discount allowed to customers 100.00 Cash discounts received 150.00 B. Profit and Loss Account. 1. Non-divisional. a. Object: To show items which reduce the Sales to Profit on Ordinary Business or to Net Profit. Illustration — PROFIT AND LOSS ACCOUNT Inventory $ 4,000.00 Sales $100,000.00 Purchases 60,000.0u Inventory end of Selling expense 5,000.00 period 8,000.00 Salaries 4,000.00 Stationery 200.00 Taxes 800.00 Interest 400.00 Net Profit 33,600.00 $108,000.00 $108,000.00 2. Divisional. a. Purpose: Shows the items which reduce the Profit on Trading to Profit on Ordinary Business. In this case it usually follows a Trading Account. (See 14 A 2 a). b. Uses of Term. Note — The term Profit and Loss Account or Statement is often used broadly to designate the entire statement showing the prog- ress of a Manufacturing or Trading concern and may be either non-divisional as 14 B 1 or may be divided under headings ; Manufacturing, Trading, Administration, Net Profits and Ap- propriation. Note — The term Profit and Loss Account also is used to indi- cate the Administration Section where there is also either a Manufacturing Account or a Trading Account or both in the same statement. In this case, the items of the Net Profits Sec- tion (14E) usually are included in the same account, either separated from the other items or intermingled therewith. C. Administration Section or Account. 1. Purpose: To show the items relating to the adminis- tration of the business or of such a general nature that they cannot be shown properly in any other section. It usually starts at the point Trading Profit and ends at the point Profit on Ordinary Business. 2. Location : Second section of an account prepared for Trading Concern, third of a Manufactory. 58 SYLLABUS OF BOOKKEEPING 14 D D. Manufacturing. 1. Object: To show prime cost and completed cost of goods manufactured. 2. Location : First section of an account showing pro- gress of a manufacturing concern. 3. Component Parts : a. First, all items affecting Prime Cost. Example — Labor, Material, Duty, Infreight. b. Second, all items of Indirect Cost. Examples — Indirect labor, rent, light, heat, etc. See 8 C. E. Net Profits Account. 1. Purpose : To show causes reducing Profit on Ordinary Business to Net Profit, viz: profit or losses outside the ordinary run of business, — Capital earnings or Capital losses. Illustration — See 7 B, 8 F. 2. Location : Next to last section. 3. Application : This account may be used for either divi- sional or non-divisional statements showing progress. F. Appropriation Account. 1. Purpose: To show the Surplus account in detail for period under review. 2. Location : Last section. 3. Component Parts: Surplus brought from last period plus additions during the year as credits, less losses af- fecting prior years and appropriations from surplus. G. Miscellaneous. Note — Preceding sections under heading 14 are for trading or manufacturing concerns ; clubs, transportation companies, and in fact almost every kind of business has its own form of ac- counts to show its progress. The same general rules prevail. H. Forms. 1. Account. Note — Items shown as debits and credits. Illustration — MANUFACTURING To Cost of Materials By Prime Cost, carried Used: forward .00 Inventory, raw ma- terial beginning of period 00 Purchases 00 .00 Less Inv. end of period .00 .00 To Labor .00 .00 .00 To Prime Cost, bro't By Inventory partly down .00 m'f'd goods, last of Inventory, partly m'f'd period .00 goods, beginning of By cost of goods m'f'd period .00 carried for'd .00 Power, Reserve for De- preciation on ma- chinery, etc .00 .00 .00 59 SYLLABUS OF BOOKKEEPING 14 H 1 a To Cost of Goods sold: Inventory, Finished Goods, beginning of period 00 Cost of Goods m'f'd brought down 00 .00 Less Inventory end of period 00 To Gross Profit, carried for'd To Selling Expense: Salesmen's Salaries 00 Commission 00 Traveling Expense 00 Rent of Salesroom 00 Cartage or Freight outwards 00 Reserve for Bad Debts (based on sales) To Profit on Trading, carried for'd TRADING By Sales 00 Less Returns, Allow- ances or Trade Dis- counts 00 .00 By Gross Profit Bro't down .00 .00 .00 .00 ADMINISTRATION To Management or Of. By Trading Profit, fice Salaries .00 bro't down General Expense .00 Office Supplies .00 To Ordinary Business Profit, carried for'd.. .00 .00 To Expenses, inciden- tal to securing capital: Interest on Loans, etc Cash Discount on Sales To Unusual Losses: Defalcations, Fire, etc .00 NET PROFIT By Ordinary Business Profit, bro't down Income from Invest- .00 ments Cash Discount on Pur- .00 chases .00 .00 .00 .00 P. & L. APPROPRIATION (Partnership) To Interest on Capital .00 To Appor tionment among Partners 00 (Corporation) To Special Reserves To Profit and Loss Ad- justments relating to prior years To Dividends To Balance (Undivided Profits) .00 .00 .00 By Balance from Pre- vious Year .00 By Net Profit, Current .00 Year .00 = By Profit from Sale of Fixed Assets .00 (If apportionable over prior years) a. Advantages. i. Gives more opportunity for illustrating and comparing items. 2. Allows net results to be secured more readily. 3. Carries the thought forward more steadily. b. Disadvantages. 1. Useless for comparative or percentage statements. 60 SYLLABUS OF BOOKKEEPING 14 H 2 2. Statement. Note — Items follow each other in perpendicular order. Illustration — (The following form is taken from Montgomery's Auditing.) A B COMPANY Comparative Statement of EARNINGS AND EXPENSES for two years ended May 31, 1913 YEARS ENDED 1913 1912 May 31 Per Cent May 31 Per Cent Gross Sales Less Allowances and Returns Net Sales Inventory, beginning of period Purchases, net Less Inventory end of period.. Cost of Sales Gross Profit Ratio to Sales Ratio to Cost Selling Expenses: Salesmen's Salaries . Salesmen's Expenses Commissions Advertising .. Catalogues Delivery Expenses ... Total Selling Expenses.. Ratio to Sales Administration and General Expenses: Executive Salaries Office Salaries Office Expenses Stat'nery and Office Supplies Telephone and Telegraph Postage Traveling Expenses Legal Expenses Rent Insurance Light, Heat and Power Building repairs and main- tenance Depreciation on Furniture and Fixtures Miscellaneous Total Administration and General Expenses Ratio to Sales... Total Expenses Net Earnings Deductions: Interest on Loans, etc Net Profit a. Advantages. 1. Percentage statements. Note — Percentage figures may be placed close to figures to which they relate. 2. Comparative Statements. Noie — A number of years' figures may be shown side by side for comparison. 61 SYLLABUS OF BOOKKEEPING 14 I I. Deficiency Account. 1. Object: To show causes leading up to insolvency. 2. Form. See 15 A 2. J. Account Showing Disposition of Profits. 1. Defined: An account prepared comparing conditions of different times for the purpose of showing how pro- fits have been absorbed or used. A similar form could be used to show the absorption of borrowed money or invested capital. 2. Advantages : Answers the big question, "Where did the money go?" 3. Form. DISPOSITION OF PROFITS During 12 months ending Dec. 31, 1917 ASSETS 1916 1917 Increase Decrease •"" Cash $ .00 $ .00 $ $ .00 Acc'ts Rec 00 .00 .00 Inventories 00 .00 .00 Prepaid Insurance 00 .00 .00 Plant and Equipment 00 .00 .00 $ .00 $ .00 $ .00 $ .00 Net Increase of Assets $ .00 LIABILITIES Accounts Payable $ .00 $ .00 $ .00 $ Accrued Payroll 00 .00 .00 Bills Payable 00 .00 .00 $ .00 $ .00 $ .00 $ .00 Net Increase of Liabilities $ .00 NET CHANGE IN PROPRIETORSHIP: Capital and Surplus Dec. 31, 1917 $ .00 Capital and Surplus Dec. 31, 1916 00 $ .00 $ .00 62 SYLLABUS OF BOOKKEEPING 14 Q QUESTIONS 1. What different forms of Trading Statements are there and what are their distinguishing features? 2. What is the location of the Trading Section of a statement showing profits and losses? 3. Under what conditions is it advisable to prepare a Departmental Trading Account and how should such an account be arranged? 4. Under what conditions would it be advisable to use the Non-Divisional Profit and Loss Account, and why is such a form not adapted to other purposes. 5. What is the location and purpose, and what are the component parts and various designations of the Administration Section. 6. What information is conveyed by the Manufacturing Account and into what subdivision may it be shown ? 7. Why is the Net Profits Account or Section often necessary? 8. What is the purpose of the Appropriation Section and where should it appear in a financial statement ? 9. Distinguish between the Account Form and the Statement Form of displaying information, explaining the advantages and disadvantages of each. 10. Indicate, on the following list, the section of the Profit and Loss account in which each revenue item would appear, using the following letters: "A" Manufacturing; "B" Trading; "C" Administration; "D" Net Profit ; "E" Appropriation ; "X" Items which properly may be grouped separately. Accounts Payable 36. Manufacturing Power, Heat and 2. Accounts Receivable Light 3. Accrued Salaries and Wages 37. Miscellaneous Factory Expenses 4. Advertising 38. Miscellaneous Selling Expenses 5. Bad Debts Written Off 39. Non-productive Labor 6. Bills Payable 40. Office Equipment 7. Bills Receivable 41. Office Salaries 8. Bond Discount 42. Officers' Salaries and Expenses 9. Bond Premium 43. Organization Expenses 10. Bond Interest Accrued 44. Patent Rights It. Capital Stock 45. Patterns and Drawings 12. Cash 46. Plant Site 13. Credit Department Expenses 47. Plant Buildings 14. Depreciation of Buildings, Ma- 48. Plant Machinery and Equipment chinery and Plant 49. Productive Labor 15. Depreciation of Workmen's Cot- 50. Purchasing Department Expenses tages 51. Raw Materials Purchased 16. Directors' Fees 52. Rent of Workmen's Cottages 17. Discount on Purchases 53. Reserve for Depreciation of 18. Discount on Sales Bldgs., Machinery and Plant 19. Federal Corporation Tax 54. Reserve for Depreciation of 20. First Mortgage Bonds Workmen's Cottages 21. Freight and Cartage Inward 55. Reserve for Doubtful Accounts 22. Freight and Cartage Outward 56. Reserve for Sinking Fund 23. General Office Expenses 57. Returns and Allowances on Pur- 24. Good Will chases 25. Insurance 58. Returns and Allowances on Sales 26. Insurance Premiums Unexpired 59. Sales of Manufactured Goods 27. Interest on Bills Payable 60. Sales of Waste Material 28. Interest on Bonds 61. Sales Agents' Commissions 29. Income from Investments 62. Salesmen's Salaries 30. Inventory, Raw Materials 63. Salesmen's Expenses 31. Inventory, Goods in Process 64. Sinking Fund Investments 32. Inventory, Manufactured Goods 65. Surplus 33. Investments (Outside) .. 66. Taxes on Plant and Equipment 34. Maintenance of Buildings, Ma- 67. Taxes Accrued chinery and Plant 68. Workmen's Cottages 35. Maintenance of Workmen's Cot- tages 11. Refer to 13 Q. No. 5, and prepare a statement showing the amount of the profits and their disposition. A 30% Dividend was declared during the year. 63 SYLLABUS OF BOOKKEEPING 14 Q 12. The following is the income account of the Chicago Manufacturing Company for the year ended December 31, 1916: Gross Sales $1,100,000 Returns 100,000 Net Sales 1,000,000 Cost of Sales 750,000 Gross Profit 250,000 Selling Expense $100,000 General Expense 100,000 200,000 Net Profit 50,000 Deductions from Income 25,000 Net Income _...$ 25,000 In submitting your report, you desire to present a statement of per- centages. What figure would you adopt as your basis, and why would you take it : Gross Sales, Net Sales, Cost of Sales, or Gross Profit ? 13. "B" began business a year ago keeping only single entry books. He started with the following assets and liabilities : Cash $50,000.00 Mortgages (Land) $10,000.00 Land 20,000.00 Accounts Payable 500.00 Patents 10,000.00 Bills Payable 2,000.00 Notes Receivable 10,000.00 Bonds 5,000.00 Accounts Receivable 1,000.00 Today his assets and liabilities are as follows : Cash $ 5,000.00 Bonds $10,000.00 Land and Buildings 30,000.00 Accounts Payable 2,000.00 Patents 8,000.00 Accrued Wages 500.00 Trade Marks 5,000.00 Note: (B's drawings $1,000.00) Notes Receivable 15,000.00 Accounts Receivable 20,000.00 Material and Supplies 12,000.00 Finished Goods 10,000.00 Prepare a tabulation showing what the profits were and what became of them. 14. Prepare a tabular statement, using such figures as you wish for a departmental organization operating three departments. Accounts are kept with Sales, Purchases, Inventories and departmental expenses for each department. The departmental expenses are classified under the headings : Salaries and General Departmental Expense. Accounts are also kept with General Salaries, Taxes, Rent, Light and Heat, Stationery, Donations, etc., which do not specifically affect any particular department. 15. Refer to question 10. Prepare Profit and Loss Account in both Statement Form and Account Form indicating the advantage or dis- advantage of each. 04 SYLLABUS OF BOOKKEEPING 15 A 15. ACCOUNTS SHOWING EFFECT. A. Statement of Affairs. 1. Definition: An account prepared to show the value ot the claims of a general creditor against the estate, of an insolvent, or firm contemplating bankruptcy. 2. Form. STATEMENT OF AFFAIRS M. R. BROWN, DECEMBER 31, 1913 Assets Nominal Expected Amount to Produce $ 3,000.00 Cash $ 3,000.00 4,200.00 Notes Receivable, Good 4,200.00 8,000.00 Accounts Receivable: Good $4,800.00 4,800.00 Doubtful 2,000.00 1,200.00 Bad 1,200.00 10,200.00 Merchandise 7,500.00 2,000.00 Fixtures 800.00 $27,400.00 $21,500.00 Less Preferred Creditors as per contra 475.00 Available for unsecured creditors 21,025.00 Deficiency 3,975.00 $25,000.00 Liabilities Nominal Expected Amount to Rank $ Creditors: $ 20,000.00 Accts. Payable 20,000.00 5,000.00 Notes Payable 5,000.00 Preferred Creditors deducted from Assets as per contra: 300.00 Taxes $175.00 175.00 Wages 300.00 $475.00 $25,475.00 $25,000.00 DEFICIENCY ACCOUNT To Drawings $ 1,800.00 By Capital at Corn- To Speculative Losses.... 2,000.00 mencement $ 7,500.00 To Sundry Trade Losses By Deficiency as per as per books 1,775.00 Statement of Affairs.... 3,975.00 To Shrinkages as per statement of Affairs: Accts. Rec $2,000.00 Mdse 2,700.00 Fixtures 1,200.00 5,900.00 $11,475.00 $11,475.00 3. Rules Affecting. a. Partly secured creditors, in general, may participate to the amount by which they are unsecured. b. Over-secured creditors must contribute the amount by . which they are over-secured to the general fund. c. Wages to the amount of $300 earned by each claimant within three months prior to date of bankruptcy are preferred claims. d. Taxes are preferred claims. e. Rent is not a preferred claim unless it accrued after date of bankruptcy. f. Preferential claims (not preferred) represent prefer- ences granted others by the insolvent, and must be re- turned to the general fund. 65 SYLLABUS OF BOOKKEEPING IS B B. Statement of Assets and Liabilities. 1. Defined: An account, prepared from any source other than double entry books, which is intended to show the financial condition of an individual or organization. 3. Form. STATEMENT OF ASSETS AND LIABILITIES OF JOHN DOE Assets Liabilities Cash : $ 50.00 Notes Payable $200.00 Accounts Receivable 100.00 Accounts Payable 400.00 Goods 300.00 Net Worth 350.00 Plant 500.00 $950.00 $950.00 C. Balance Sheet. 1. Definition : An account prepared from double entry books to show the financial condition of an organiza- tion as at a given moment. 2. Forms. a. Statement. i. Defined — Items arranged in perpendicular order and total liabilities deducted to show net worth. Illustration — Assets : Cash $ 50.00 Accounts Receivable 100.00 Goods 300.00 Plant 500.00 Total Assets $950.00 Liabilities : Notes Payable $200.00 Accounts Payable 400.00 Total Liabilities $600.00 Net Worth $350.00 2. Advantages. a. Desirable for comparative or percentage purposes. 3. Disadvantages. a. Opportunity for comparison of component parts is greatly reduced. Account. 1. In General. A. Characteristics — Has Debit and Credit columns, although offsets are deducted from their major account (See B), and the debits and credits are viewed separately instead of jointly as in the statement form. B. Advantages. 1. Allows greater opportunities and shows results or items comparatively, collectively, or as offsets to each other. C. Disadvantages. 1. Unsatisfactory where a number of balance sheets are being compared. 2. English Form. A. Characteristics. 1. In general the Capital Stock and Properties are placed first on their respective sides, followed by other items in a certain order. 66 SYLLABUS OF BOOKKEEPING 15 C 2 b 2 B B. Advantages. j. A modified form, where some logic is applied to the arrangement of the items, is desirable where the purpose is to show to a group of stockholders how their money has been invested, or to a group of bondholders, the amount of their security. The author has never been able to learn of any desirable feature of the true pre- scribed form. C. Disadvantages. i. Form is based on law and not on logic. No opportunity is given for comparison, and items of like kind often are not combined. A very unsatisfactory form and rap- idly discarded by all deep thinking accountants. Jok- ingly, it has been said that certain accountants use it in the United States, only, because it is a relic of their birthplace. Note — It is not uncommon to include the English form with the American form in a report where a number of the stock- holds of an organization live in Great Britain. D. Form. FORM PRESCRIBED BY THE ENGLISH COMPANIES ACT BALANCE SHEET OF THE CO., Made up to 19.. Property and Assets Property held by Company: Showing: Immovable Property, dis- tinguishing: (a) Freehold Land (b) Freehold Bldgs (c) Leasehold Bldgs Movable Property, dis- tinguishing: (d) Stock-in-Trade (e) Plant The cost to be stated with deductions for de- terioration in value as charged to the Reserve Fund or Profit and Loss Debts owing to the Com- pany: Showing: Debts considered Good for which the Company holds Bills or other Securities.. Debts considered Good for which the Company holds no security Debts considered doubt- ful and bad Any Debt Due from a Director or Other Officer of the Company to be separately stated Cash and Investments: Showing: The nature of Investment and Rate of Interest The Amount of Cash, where Lodged, and if Bearing Interest Capital and Liabilities Capital: Showing: The Number of Shares The Amount Paid per share If any Arrears of Calls, the nature of the Arrears and the Names of the Defaulters Particulars of any For- feited shares Debts and Liabilities of the Company: Showing: The Amount of Loans on Mortgages or Deben- ture Bonds The Amount of Debts owing by the Company distinguishing: (a) Debts for which Acceptances have been given (b) Debts to Trades- men for Supplies of Stock-in-Trade or other articles _ (c) Debts for Law Ex- penses (d) Debts for Interest on Debentures or Other Loans (e) Unclaimed D i v i - dends (f) Debts not enume- rated above Reserve Fund: Showing: The Amount set aside from Profits to meet Contingencies Profit and Loss: Showing: The Disposable Balance for Payment of Dividends, etc Contingent Liabilities: Claims Against the Com- pany Not Acknowledged as Debts Moneys for which the Company is Contingently Liable 67 SYLLABUS OF BOOKKEEPING 15 C 2 b 2 D American Form. A. Characteristics. i. Assets in order of availability. Fixed Assets are all presumed to be equally unavailable and are grouped in the order of their magnitude. 2. Liabilities in order of their claims upon the assets. 3. Items of a kind are grouped, and often shown in one total. Illustration — Capital $100,000 Surplus 10,000 Surplus reserved for extension.. 5,000 Total Proprietorship $115,000 4. Total current assets appear opposite total current lia- bilities ; total fixed assets opposite total fixed liabilities and total Passive assets — Intangible assets — opposite Proprietorship. B. Advantages. Offers greatest possible opportunity for study and analysis. C. Form. BALANCE SHEET OF THE "X" CO., AS AT 191 ... CURRENT ASSETS. CURRENT LIABILITIES. Cash 00 Bills Payable 00 Investments, Bonds, Accounts Payable .00 etc .00 Sundry Charges Accrued: Bills Receivable 00 Int. on Bills Payable 00 Accts. Receivable 00 Int. on Bonds 00 .00 .00 Less Reserve for Bad Debts 00 .00 Inventories: M'f'd Goods 00 Goods in Process of Manufacture 00 Raw Material 00 .00 Investments, Real Es- tate, etc .00 Deferred Charges: Unexpired Insurance .00 Rent Paid in Ad- vance 00 .00 Total Current Assets.. .00 Total Current Liabilities.... .00 FIXED ASSETS. FIXED LIABILITIES Real Estate .00 First Mortgage Bonds .00 Buildings 00 Machinery 00 Furniture and Fixtures .00 .00 PROPRIETORSHIP Less Res. for Dep 00 .00 .00 Capital 00 Goodwill 00 .00 Undivided Profits 00 .00 .00 .00 Contingent Liabilities.- .00 68 SYLLABUS OF BOOKKEEPING 15 Q QUESTIONS Distinguish between a Statement of Affairs and a Statement of Assets and Liabilities. Give a number of rules concerning the distribution of a bankrupt's estate. Distinguish between a Statement of Assets and Liabilities and a Balance Sheet. What rules should be followed when preparing a Balance Sheet — American Form? The books of a corporation show balances at the debit or credit of the following accounts : Rents from tenements, reserve for accounts receivable, depreciation on machinery, depreciation on furniture and fixtures, bond redemption account, bills receivable, dividend on pre- ferred stock. State which should enter the profit and loss account and which should appear in the balance sheet. Why? Classify balance sheets as to form and describe briefly the character- istics of each form. Refer to question number 10, chapter 14. Group the items into a Profit and Loss Account and Balance Sheet. Construct a seven column statement from the following Trial Balance and Inventories. Dr. Cr. Cash $ 12,300.00 $ Notes Receivable 32,700.00 Accounts Receivable 47,000.00 Furniture and Fixtures 3,000.00 Building 13,000.00 Real Estate 50,000.00 Notes Payable 30,000.00 Accounts Payable 13,100.00 Advertising * 2,600.00 Commission 3,050.00 Supplies 12,900.00 Salary 9,300.00 Insurance 625.00 Postage 1,650.00 Discount 550.00 Exchange 25.00 Interest 175.00 Discount 375.00 Thos. Greene, Prop 85,000.00 Drawing Accounts (Prop.) 4,300.00 Mdse ! 64,350.00 $193,000.00 $193,000.00 INVENTORY. Furniture and Fixtures $ 2,500.00 Buildings 12,500.00 Real Estate 47,000.00 Advertising 300.00 Supplies 500.00 Salaries 300.00 Insurance 150.00 Postage 400.00 Interest (Asset) 25 00 Mdse 5,365.00 Note — Use analysis paper with column headings : Trial Balance, Dr. ; Trial Balance, Cr. ; Inventories ; Losses ; Gains ; Resources ; Liabilities! 69 SYLLABUS OF BOOKKEEPING 15 Q 9. You are instructed to prepare a statement of affairs of Chinook and Multnomah as at October 31, 1913. Following are the particulars : Merchandise, $8,000; Notes Payable, $2,500; Loan from John Oregon, $14,000; Accounts Receivable, $1,800; Accounts Payable, $5,000; Bank Overdraft, $2,000; Furniture and Fixtures, $1,000; Real Estate, $4,500; Chinook and Multnomah have other merchandise to the value of $5,000 in addition to the $8,000, above stated, $2,200 of which is held by the bank as security for the overdraft, and $2,800 by John Oregon as security for his loan. Oregon also holds a first mortgage on the real estate. Of the accounts receivable, $500 are considered bad, and $300 are expected to realize 50% of their face value. These items must be dealt with properly and the deficiency shown. 10. From the following trial balance of Maker and Seller's books, ex- tracted on December 31, covering six months' operations, prepare a manufacturing, trading and profit and loss account and balance sheet : Dr. Cr. Cash at Bank $ 3,000.00 $ Petty Cash in Hand 15.00 Bills Receivable on Hand 1,000.00 Sundry Debtors 36,825.00 Buildings 20,000.00 Plant and Machinery 15,000.00 Sundry Creditors 9,850.00 Loan on Mortgage 22,500.00 Material on Hand, July 1st (Raw Material) 13,705.00 Purchases 42,000.00 Wages 7,020.00 Discounts Allowed on Pur- chases 1,950.00 Discounts Allowed Customers .. 4,690.00 Returns (Customers' returns for half-year) 1,650.00 Sales 80,000.00 Patent Rights (Expenses) 250.00 Rent and Taxes 500.00 Advertising 2,300.00 Traveler's Salary 2,150.00 Carriage, outward 1,950.00 Bad Debts Written Off 500.00 Repairs 420.00 Patent Royalties Received in Advance 2,500.00 Royalties on Patents Attribut- ed to Half-Year 200.00 General Expenses 2,510.00 Interest on Loans 600.00 Reserve for Bad and Doubtful Debts 2,700.00 Reserve for Discounts on Book Debts 985.00 Maker, Capital Account 30,000.00 Maker, Drawing Account 6,000.00 Seller, Capital Account 15,000.00 Seller, Drawing Account 3,600.00 $165,685.00 $165,685.00 The goods on hand (raw material) on December 31, are valued at $17,500.00. Write off 5 per cent from plant and machinery for depreciation for the half-year. The profits are to be apportioned as follows : Maker, two-thirds. Seller, one-third. 70 SYLLABUS OF BOOKKEEPING 15 Q 11. Prepare a seven column statement from a ledger which contained the following open accounts after 15 days of business : Dr. Cr. Cash $ 8,418.76 $ 2,363.86 Peter B. Burns, Partner 9,000.00 Alfred E. Paine, Partner 3,000.00 Furniture and Fixtures 450.00 Bills Receivable 1,000.00 Interest .25 Commission 27.25 Mdse. Discount 11.49 30.30 Supplies 169.85 James Addington 151.56 Mdse 7,060.00 3,040.50 Accounts Receivable 1,269.50 1,069.50 Inventories : Mdse., $4,474.07 ; supplies, $58. Net income is shared by the partners in proportion to their investment. Furniture and fix- tures remains unchanged. 12. Criticise the following Balance Sheet of the Cleveland Building Com- pany for the year ended December 31, 1915, (a) as to form and arrangement; (b) as to values for Balance Sheet purposes; (c) as to grouping of the items : ASSETS. Fixed Assets : Goodwill $ 500,000.00 Patent Rights, etc., at cost $ 53,000.00 Patent Fees, etc., paid during year 1,216.00 54,216.00 Plant and Machinery, at cost 58,222.00 612,438.00 Investments in Branch— Detroit 102,000.00 Deferred Charges : Dividend on Preferred Stock paid in ad- vance 1,500.00 Interest and Insurance paid in advance 2,103.00 3,603.00 Current and Working Assets : Cost of unfinished contracts, including ma- chinery in use 52,125.00 Add: Estimated Profit— 20% 10,425.00 62,550.00 Inventory of Materials and Supplies, at cost 12,307.00 Notes Receivable — Customers and for Cap- ital Stock 512,000.00 Accounts Receivable 14,218.00 Cash in Bank 5,260.00 Cash on Hand and Advanced to Agents 14,817.00 621,152.00 Total 1,339,193.00 Deduct : Surplus 58,618.00 $1,280,575.00 LIABILITIES. Capital Stock : 6% Preferred 1,000 shares of $100.00 each fully paid (issued at 90%) $ 90,000.00 Common, 10,000 shares of $100.00 each 1,000,000.00 $1,090,000.00 Due to Branch— Toledo 190,575.00 $1,280,575.00 71 SYLLABUS OF BOOKKEEPING 15 Q 13. Arrange the following in a Balance Sheet for presentation to a banker, and then analyze the financial standing of the Thomas Sales Co. from the banker's viewpoint. Furniture and Fixtures $ 15,000.00 $ Stock of Merchandise at Cost 50,000.00 Accounts Receivable 35,000.00 Officer's Accounts 30,000.00 Bonds Owned 10,000.00 Capital Stock 75,000.00 Accounts Payable 20,000.00 Trade Notes Payable 40,000.00 Surplus 5,000.00 $140,000.00 $140,000.00 14. Criticise the following Balance Sheet from both the auditor's stand- point and that of the company's financial position. Assume that the bond indebtedness outstanding is $200,000. ASSETS. Real Estate, Buildings, Plants, Machinery, Equipment, and other permanent Invest- ment, including Goodwill $1,000,000.00 Investment in Stocks and Bonds at Cost • (Market value $60,000) 100,000.00 Current Assets : Raw Materials $170,000.00 Finished Stock at Selling Prices, Less 5% Discount 100,000.00 Consignments (Selling Value) 50,000.00 Supplies (Estimated) 200,000.00 Accts. and Bills. Rec. including advances to Employes 125,000.00 Stock in Treasury (Unissued) : Preferred 150,000.00 Common 137,225.00 Investments in Subsidiary Companies 225,500.00 Cash and Miscellaneous Items 50,500.00 1,208,225.00 $2,308,225.00 LIABILITIES Capital Stock : Preferred $ 500,000.00 Common 750,000.00 Bonds and Bankers' Loans 575,000.00 Current Liabilities : Accounts Payable $ 15,225.00 Other Indebtedness 231,000.00 Accrued Items - 2,000.00 248,225.00 Reserves : For Depreciation $ 50,000.00 Less Renewal Expenditures, written off 65,000.00 Balance (Debit) 15,000.00 For Bad Debts 20,000.00 Other Contingencies 5,000.00 10,000.00 Surplus (less Dividends Paid) including ap- preciation in Real Estate and other Capital Assets and Profit on Inventorying Raw Ma- terials at Market Prices 225,000.00 $2,308,225.00 72 SYLLABUS OF BOOKKEEPING 15 Q 15. John Thompson exhibits the following Balance Sheet of his business, dated June 30, 1900: Cash $ 750.00 Sundry Creditors $ 6,000.00 Book Debts 9,500.00 Bills Payable 7,500.00 Stock on Hand 6,500.00 Bank (Overdraft) 3,000.00 Fixtures, etc 1,750.00 Balance 2,000.00 Total $18,500.00 Total $18,500.00 On questioning Thompson, it was found that he had omitted the following from his Balance Sheet : $250.00 owing for rent ; $75.00 owing for taxes ; $2,500.00 borrowed at 5% from his wife three years ago, no payment having been made on account of either principal or interest ; a draft for $500.00 accepted by a firm without consideration, falling due in 30 days. His private and household debts amounted to $600. The item entered on his balance sheet as cash included his per- sonal I. O. U. ! s for $600.00. Of the book debts, about $3,500.00 might be considered bad and the rest good. The stock was good except $1,000.00 which would not produce more than $100. The fixtures, if sold, would not realize more than $250. The only other assets were household furniture worth about $1,250.00 and residence valued at $7,500.00 subject to a first mortgage for $5,000.00 at 4%, and also a second mortgage held by his bank as security for overdraft. Prepare a statement of affairs. 16. In an investigation of the accounts of The American Products Com- pany, you find that the Balance Sheets of the Company for the past four years are as follows : ASSETS. Years ending December 31st . 1915 Land $ 30,000 Buildings 75,500 Machinery 48,600 Furniture and Fixtures 8,000 Bonds 10,000 Capital Stock in Subsidiary Co 25,000 Advances to Subsidiary Co 40,000 Inventories 36,000 Accounts Receivable 189,000 Cash 16,000 Prepaid Expenses 5,000 $482,100 $528,300 $499,000 $609,500 LIABILITIES Common Stock $ 75,000 $ 75,000 $ 75,000 $ 75,000 Preferred Stock 50,000 Bonded Debt 30,000 Bills Payable 75,000 Accounts Payable 162,500 Accrued Wages 10,000 Accrued Taxes 10,000 Reserve for Depreciation 24,000 Reserve for Contingencies 5,000 Surplus 40,600 1916 1917 1918 30,000 $ 45,000 $ 45,000 80,500 80,500 95,000 53,800 60,000 83,500 8,500 8,500 9,000 10,000 10,000 5,000 25,000 58,000 48,000 66,000 125,000 96,000 202,000 229,500 12,500 20,000 9,500 6,000 7,000 8,000 50,000 60,000 100,000 20,000 10,000 85,000 90,000 100,000 177,200 87,400 90,600 16,500 18,000 25,000 12,500 40,000 65,000 32,000 42,000 63,000 8,000 10,000 12,000 52,100 66,600 78,900 $482,100 $528,300 $499,000 $609,500 The net profits were double the amount of dividends paid each year. Prepare a statement reflecting the disposition of the profits earned and other funds provided each year and the change in working capital since December 31, 1915. 17. Rearrange the Balance Sheet shown in problem 12, acting arbitrarily wherever by so doing you can improve the form or arrangement. 18. Follow the same procedure as outlined in question 17, using prob- lem 14. / 73 SYLLABUS OF BOOKKEEPING 16 A 16. MISCELLANEOUS BOOKS OF ACCOUNT. A. Journals. 1. Object. a. To record, in convenient order, the record of a trans- action, usually determining Debits and Credits. 2. Evolution of. a. Money Columns. i. Simple form: Memorandum book without columns. 2. Columnar Form: One column for records of money involved. 3. Double Entry Form: Tzvo money columns — one for debits and one for credits. b. Explanation Columns. i. Simple Form: Simple narrative. 2. Modern Form: Date between transaction; Name of Debit account extending to- left margin; name of Credit account 1/4 inch from margin, and details extending to within 1/2 inch of left margin. 3. Complex Form: Numerous columns; each intended to contain certain items of a class as — , Kegs; 1/2 Kegs; Quarts; Pints;' etc. c. Manner of Entry. 1. Simple Form: Each transaction entered and journalized individually. Illustration — J. Jones $43.00 Sales $43.00 Jones bought a 9x12 rug. ?. Joint Entries: Tzvo or more debits or credits or both. Illustration — 10th J. Jones $43.00 P. Smith 22.00 Sales $65.00 To record sales for the day. 3. Accumulated Entries: One or more pages devoted to entries of a class. Illustration — Sundries $410.00 Sales $410.00 J. Jones $ 43.00 P. Smith 22.00 A. Olson 48.00 M. Johnson 297.00 $410.00 4. Books of Entry: As Sales book, Cash book, etc., set aside for entries of a class. 3. Special Forms. a. Debits and Credits tvidely separated. 1. Order of Columns: Debits; Folio; Explanation ; Folio; Credits. Note — Date is inserted in explanation column. 2. Advantage: Money columns are widely separated, thereby re- ducing errors in posting. 74 SYLLABUS OF BOOKKEEPING 16 B B. Sales Records. 1. Purpose. a. To record all sales in a convenient manner. 2. Advantages. a. Combines all items of a class and removes them from General Journal, reduces labor in posting and entering. 3. Forms. a. Simple: Explanation column containing date, name and address of debtor and details of sales; two money columns, one for value of each item, the other for total invoice; one folio column preferably placed adjacent to total column, although often placed on left side, folios being inserted just before the name of creditor. b. Departmental: Same as 16 B 3 a, but with additional columns on right wherein sales are analysed as to de- partment. Demonstration — On June 10th, A. Jones, 430 10th St., purchased 4 Ideal Heaters @ $30.00; 5 kegs of 6d nails @ $4.80; and 4 30x3 y 2 non-skid tires @ $18.00. Required Sales book ar- ranged for departments, Auto Supplies, Building Hardware, Stoves, and General Hardware. c. Salesmen's Analysis: Same as 16 B 5 b, but with addi- tional columns on right, one for each salesman. Note — Sales are analyzed, 1st, as to department; 2nd, as to sales- men, for the purpose of determining commission due them. d. Ledger Analysis. 1. Form: Any of preceding, but with a number of total columns, one for each sales ledger operated. Illustration — Items : Sales, Hardware ; Sales, accessories ; Sales, Building Material ; A to L, M to Z. 2. Purpose: Analyses sales as to the ledgers affected and carries total forward for the purpose of controlling accounts. e. Sales Abstract. 1. Form: Same as 16 B 3 b, but explanation column contains only serial number of sales. 2. Method: Sales slips are used as posting medium and are registered in sales abstract for the purpose of analysis and summarisation. 3. Advantage: Saves rewriting sales slips and provides better evidence, as slips are often shipping records as zvell. C. Purchase Records. 1. Purpose. a. To record all purchases. 2. Advantages. a. Removes items of a class from the General Journal and combines them. 3. Form. a. Invoice Book. Note — Invoices pasted in book ; amounts extended to money columns ruled in the book ; postings made from this money column. b. Purchase Journal. 1. Form: Date of Entry; Date of Invoice; Name of Creditor; Terms; Maturity; Amount; Analysis as to departments. 2. Purpose: Facilitates analysis of purchases and their summari- sation for entry. 75 SYLLABUS OF BOOKKEEPING 16 D D. Cash Records. 1. Purposes. a. To record all transactions affecting cash. 2. Advantages. a. Reduces posting; facilitates entering; enables cash to be balanced easily. * 3. Forms. a. Simple. Note — Two columns — one for receipts, the other for payments. b. Columnar. i. Advantages: Items of a class are entered in individual col- umns and posted as one item. 2, Form: A. Simple: •Debit Side: Date, Explanation, Folio, Accounts Receiv- able, Miscellaneous, Cash Sales; Credit Side: Date, Explanation, Folio, Miscellaneous, Ex- pense, Freight, Express. B. Discount Columns as Memorandum only. i. Form: Debit Side: Date, Explanation, Folio, Discount Al- lowed, Net Cash Received, Miscellaneous, Cash Sales; Credit Side: Date, Explanation, Folio, Discount Re- ceived, Net Cash to Accounts Payable, Miscellaneous, Expense, Freight, etc. 2. Disadvantages: This form cannot be used where there is more than one sales ledger on account of control un- less additional discount columns are provided — one for each ledger. 3. Advantages : Allows net cash to be entered in Cash Book. C. Discount columns as regular columns. 1. Form: Debit side: Date, Explanation, Folio, Accounts Receiv- able, Miscellaneous, Cash Sales, Discount Received; Credit side: Date, Explanation, Folio, Miscellaneous, Expense, etc., Discount Allowed. — or — Debit side: Date, Explanation, Folio, City Ledger, Country Ledger, Foreign Ledger, Miscellaneous, Cash Sales, Discount Received, etc.; Credit side: Date, Explanation, Folio, Accounts Pay- able Ledger, Miscellaneous, Expense, etc., Discount Al- lowed. 2. Advantage: Can be used where more than one Sales ledger is operated. D. Bank Columns, where all receipts are deposited and all payments made by check. 1. Form: Debit side: Date, Explanation, Folio, Discount Allowed, Credit to Customers, Miscellaneous Credits, Cash Sales Credit, Bank Deposits; Credit side: Date, Explanation, Folio, Discount Re- ceived, Accounts Payable Ledger, Miscellaneous, Ex- pense, etc., Check Number, Withdrawals. 2. Advantage: Each page balances separately, and sepa- rate books may be used for receipts and payments. 76 SYLLABUS OF BOOKKEEPING 16D3b2E E. Bank Columns where separate accounts are operated for Cash and Bank in ledger and where bank transactions are entered in regular Cash Book, i. Form: Debit side: Date, Explanation, Folio, Credit "A" to "L" Ledger, Credit "M" to "Z" Ledger, Credit Miscellane- ous, Credit Cash Sales, Credit Discount Received, Credit Bank; Credit side: Date, Explanation, Folio, Debit Accounts Payable Ledger, Debit Miscellaneous, Debit Discount Allowed, Debit Bank Deposits, Debit Expense, etc. 2. Advantage : a. Combines all items in one book and may be used where it is desired to allow payments to be made by either cash or check. b. Where Daily Balance Book is used prevents fraud, for errors must be disclosed as they cannot be thrown back into periods prior to the date of their discovery without changing the Daily Balance Book for the en- tire intervening period. 3. Disadvantages: a. Requires all checks to be entered on both sides of Cash Book. b. Requires the use of Daily Balance Book to record total cash avails. Note — In the case just outlined, the cash book balance repre- sents the amount of cash in the drawer only, and, in order to have a record of the total cash avails, it is necessary to provide some sort of an auxiliary record which will combine the cash and the bank items. This record usually takes the form of a Daily Balance Book into which a complete record of both the cash and the bank items is made. In form, the book would be ruled similar to the following and would, possibly, be printed with three forms on a page, allowing six forms to be displayed when the book is opened as this num- ber answers for a week's balances. DAILY CASH BOOK, THURSDAY 191 Bank Balance, Brought forward $00.00 Cash Balance, brought forward 00.00 Cash Receipts : * $00.00 00.00 00.00 00.00 $00.00 Less: Cash Payments : * $00.00 00.00 00.00 00.00 $00.00 Cash Avails : Bank: Balance, as above _ $00.00 Deposits 00.00 Withdrawals , 00.00 $00.00 Cash : Checks $00.00 Currency 00.00 Specie 00.00 00.00 00.00 $00.00 * One line to correspond with each column in cash book. 77 SYLLABUS OF BOOKKEEPING 16 D 4 4. Special Methods. a. Slip System. i. Explained: Duplicate deposit slips and carbon copy of checks aie posting mediums. 2. Operation: Posting is made from slips, as above, and ab- stracts are prepared for summarising entries. 3. Specific Use: Concerns selling S. D. B. L. only, who handle no specie and pay all bills by check. 4. Advantages: No lost motion. 5. Disadvantages: Liable to be misused. 78 SYLLABUS OF BOOKKEEPING 16 Q QUESTIONS 1. What are the objects of a Journal and what changes have occurred in its use and form? 2. Describe the different forms of Explanation Columns. 3. In what different ways may the entry be made? .4 Describe different possible arrangements of money columns. 5. What advantage is derived by having the money columns widely separated? 6. Describe a number of form of Sales Records, explaining their use and respective advantages. 7. Draft a journal for use of a concern which sells five different classes of product and which requires a supplementary analysis of sales to correspond with the three customers' ledgers which they operate 8. What advantages are possessed by the Sales Slip method of keeping a record of sales over the Sales Book Entry method? 9. What is the purpose of the Purchase Record and what forms may it take ? 10. Draft two or more forms of Cash Records and explain their use and ' purpose. 11. Describe the Slip System of handling cash receipts or cash payments. 12. A Milwaukee corporation has twenty sales ledgers and desires to adopt a system of sectional balancing so that each ledger may be bal- anced separately each month. Outline and illustrate the use of tli£ system. 79 SYLLABUS OF BOOKKEEPING 17 A 17. MISCELLANEOUS BOOKS OF ACCOUNT (Cont'd): A. Final Records. 1. Ledger. a. Defined: A book which contains the final entries of a business, summarizing them under appropriate headings. b. Subdivisions. i. General Ledger. A. Defined — The principal ledger of a concern, containing all accounts which convenience has not thrown to other books. 2. Private. A. Defined — A ledger usually kept to centralise control of the books of account, and keep much of the information contained therein private. B. Component Parts. 1. All accounts which do not change from day to day in the ordinary course of business. Illustration — Real Estate, Plant, Bonds Payable. Note — Accounts indicating progress or which constant- ly change are kept in the general or its subsidiary ledgers. Illustration — Sales, Purchases, Accounts Receivable, or Accounts Payable, are kept in the general ledger. C. Operation. i. To Open — Transfer all accounts, desired in the private ledger, from the general ledger and place controlling and adjustment accounts (See 12 C) in each to make each self -balancing. W9 'Demonstration — Given the following Trial Balance. Open Private and General Ledgers, making each self- balancing : *A Capital $ $ 40,000.00 Sales 50,000.00 Accounts Receivable 20,000.00 *Plant 12,000.00 Cash 1,000.00 Expense 7,000.00 ♦Drawings 5,000.00 Purchases 30,000.00 "•Inventory 30,000.00 Accounts Payable 5,000.00 *Notes Payable 10,000.00 $105,000.00 $105,000.00 *In Private Ledger. 2. To Record Private Transaction. a. Where Private Ledger only is affected, treat as in ordinary books. Illustration — Plant is sold for $400, and cash is placed in private cash account. Private Journal Dr. Cash $400.00 Cr. Plant $400.00 b. Where general ledger accounts are effected also, ad- just the proper account in the private ledger and put complimentary entry in general ledger controlling account. 80 SYLLABUS OF BOOKKEEPING 17Alb2C2b Illustration — "A" draws $500.00 for personal use. Private Journal Dr. "A" Drawing $500.00 Cr. General Ledger Cont. Account $500.00 Simultaneously adjust proper account in General Ledger and place complimentary entry in Private Ledger Adjustment account. Illustration — General Journal Dr. Private Ledger Adjustment Ac...$500.00 Cr. Cash $500.00 j. To close; transfer all accounts from General Ledger to Private Ledger through the adjustment and con- trolling accounts ; close books as ordinarily, then trans- fer accounts desired in General Ledger back to General Ledger. Illustration — Dr. Sales $50,000.00 Accounts Payable 5,000.00 Private Ledger Adjustment Account 2,500.00 Cr. Accounts Receivable $20,000.00 Expenses 7,000.00 Cash 500.00 Purchases 30,000.00 In Private Ledger, make an entry just the reverse of this. The Private Ledger will then contain all accounts. Close books as usual, then make an entry in both sets of books to open General Ledger again. 3. Subsidiary Ledgers. A. Defined — A ledger operated to remove many ac- counts of a class from the general books so they may be treated as a unit, instead of individually by the aid of Controlling accounts. See 12 C. B. Original and Final Records. 1. Bills Receivable Register. a. Form. Note — Date ; Payee ; Maturity Date ; Serial Number ; Folio ; Amount ; Credits, Current Month ; Succeeding Month ; Third Month ; Balance carried to new page. b. Operation. Note — List all notes in order of their date, giving each a num- ber corresponding to the entry number, posting each to the credit of the proper accounts. At the end of month, complete the equilibrium of the books by posting the total of the notes recorded, to the debit of the Notes Receivable account in the General Ledger. If Accounts Receivable controlling account is used, it must be credited with the amount. c. Advantages. 1 Facilitates recording notes and saves posting. 2. Enables note entries to be easily identified when posting pay- ments, as note number may be entered in Cash Book. 2. Sundry Debtor Register. a. Form. Note — Date ; Creditor's Address ; Serial Number ; Amount, Dr. ; Credits, Current Month ; Succeeding Month ; Third Month ; Balance carried to new sheet. b. Operation. Note — Similar to 17 B 1 b, although, in general, postings are 81 SYLLABUS OF BOOKKEEPING 17 B 2 b made to Sundry Debtor's Register from Sales Books, or Sales Register. This may be eliminated, but doing so seems to facilitate fraud. c. Advantages: Saves space and facilities balancing. 3. C. O. D. Register. a. Form, i. Local. Note — Customer, Address, Number, Amount Dr. ; Credits : Cash, Returns, Holdovers. A sheet or book for each driver. 2. Out of Town. Note — Customer ; Address ; Collecting Agent ; Number ; Amount, Dr. ; Credits : Current Month subdivided under Cash and Re- turns ; Succeeding Month subdivided under Cash and Returns ; Balance carried forward. b. Operation. Same as Sundry Debtor Ledger. c. Advantage. Same. C. Special Classified, Tabular or Columnar Journal. 1. Denned: A form of journal arranged with columns for each class of items which occurs with great frequency. 2. Object: To reduce postings and simplify work when inexperienced persons keep accounts. 3. Disadvantages : Too cumbersome unless each book is restricted to a particular class of items, as all sales in a sales book, except where business is very small. See 16 B, C, D. 4. Subdivisions. a. Cash Journals. i. Defined: A journal containing columns for all prominent amounts including cash, wherein all original entries of every kind arc recorded. 2.. Form. A. Date; Explanation; Folio; Cash, Dr. and Cr.; Accounts Receivable, Dr. and Cr.; Bank, Dr. and Cr.; Purchases; Sales: Expenses, Miscellaneous: Accounts, Folio, Dr. and Cr. B. Miscellaneous, Dr.; Bank, Dr.; Cash, Dr.; Purchases; Expenses; Accounts Receivable, Dr.; Folio; Explanation; Folio; Accounts Receivable, Cr.; Bank, Cr.; Cash, Cr.; Sales; Miscellaneous, Cr. Note — All debits on Left and all credits on Right facilitates proving totals. 3. Specific Use; Small Business. b. Check Register. 1. Defined: A register of checks issued showing their distri- bution and usually, also the bank account in detail. 2. Form. Note — Deposits, Balance, Check Number, Withdrawals, Payee, Folio or Voucher Number, Dr. General Ledger, Accounts Pay- able or Voucher Payable Ledger, Expenses, etc. 3. Advantages. Note — Places all checks together ; eliminates necessity of check stubs ; contains bank account in detail. c. Voucher Register and Distribution Book. r. Defined: A register of accounts payable, each of zvhich is represented by a separate vcucher, wherein incoming in- voices or statements are distributed to proper expense or other accounts. 2. Advantages: Simplifies entering bills and facilitates their payment. 3. Form. 82 SYLLABUS OF BOOKKEEPING 17C4c3A A. Where all credit items are posted direct to the ledger. Note — Date, Credit accounts, Explanation, Folio, Amount, Voucher Number, Purchases, Dr. ; Manufacturing Ex- pense, Dr. ; Selling Expense, .Dr. ; Administration Ex- pense, Dr. ; Miscellaneous subdivided under Account, Folio, Amount. Note — This form is for use where, for financial or other reasons, each invoice is not paid separately and when ledger accounts are desired. It enables the incoming vouchers to be filed numerically and, when the voucher number is shown in the ledger, facilitates finding specific items quickly. B. Where most or many of the items are treated individually. Note — Date ; Account ; Explanation ; Folio ; General Ledger, Cr. ; Voucher Payable, Cr. ; Voucher Number ; Paid; Debits same as before. Note — Folio or Paid columns both are never used in connection with any item, hence may be combined in one column. 4. Operation. Note — Each incoming invoice, or statement if they are grouped, is attached to a voucher jacket, and given a number correspond- ing with the line in the Voucher Register on which it is entered. It is filed first, before entering, on an arch file await- ing arrival of the statement. Second, it is jacketed, entered and filed in an "Unpaid Bills File," either according to matur- ity or numerically. When paid it is filed in the Paid file numer- ically for future reference. Where a Combined Check and Remittance Letter is used (See Accounting Principles — Voucher Checks). The carbon copies of the check and letter may be filed alphabetically as an index to the voucher, or, H it is preferred to file the vouchers alphabetically, the duplicates may be filed numerically as a cross-reference. 83 SYLLABUS OF BOOKKEEPING 17 Q QUESTIONS 1. Differentiate a ledger and a journal. 2. Explain how a general and a private ledger may be operated simul- taneously relating to the accounts of a particular firm. 3. Refer to question 10, chapter 15. Which items would you show in the private ledger and which in the general ledger ; also which might be controlling accounts of subsidiary ledgers? 4. Of what particular advantage is a private ledger? 5. Trial Balance of the "X Y" Co., June 30, 1914. Private Ledger. "X" Capital $ $ 240,000 "Y" Capital 160,000 Plant and Machinery 187,500 Material per inventory June 30, 1913 102,625 Notes Payable 5,500 General Ledger Controlling Account 115,375 $ 405,500 $ 405,500 General Ledger. Sales $ $ 657,025 Purchases 240,000 Labor 172,500 Office Salaries 35,000 Traveling Expenses 12,000 Interest 3,000 Stationery and Printing 875 Rent and Taxes 21,000 Discount and Allowances 11,250 Fuel 23,000 Insurance 875 Freight, Inward 8,750 Commission 31,875 Advertising 2,500 Notes Receivable 30,575 Accounts Receivable 180,575 Accounts Payable 39,250 Cash 37,875 Private Ledger Adjustment Account 115,375 $ 811,650 $ 811,650 Depreciation on plant and machinery, 5% ; unexpired insurance, $375.00; bad debts, $1,625; inventory of material on hand, June 30, 1914. $98,025. Given the above trial balance of the private and general ledgers of the "X Y" Co., prepare journal entries to close both books, also prepare profit and loss account and balance sheet. 6. Explain the operation of a bills receivable register and tell of its advantages. 7. How is a sundry debtors ledger operated and what advantages are derived by its installation? 8. Under what conditions is a cash journal used to advantage? 9. Two forms of cash journal are given in the text. Which is prefer- able? 10. Under what conditions would you recommend the use of a check register and what advantage would you claim for it? 11. Explain the operation of a voucher register or distribution book and tell of the advantages or disadvantages of its use. 12. What are the advantages, if any, of the voucher record over the purchase 'eirrnal used in connection with a creditors' ledger? What is the relation of each to the general ledger? 84 SYLLABUS OF BOOKKEEPING 17 Q 13. Suggest a plan whereby a department store might adequately control its C. O. D. business. If convenient for purposes of illustration, submit forms. 14. What items are listed sometimes as accounts receivable, that do not properly belong in such a list? How should they be classed in the balance sheet ? 15. Explain fully the use of a private ledger, indicating what accounts are usually kept therein. 16. Assume that the private ledger of a trading copartnership contains the capital assets and liabilities, the partners' accounts, the profit and less account and the notes payable account. State the procedure for closing the general ledger, laying particular stress on the disposition of the working and trading assets and the cash transactions affecting the capital assets and liabilities. 17. A cash book exists with three columns on each side, viz.: Debit side: Discounts, Dr., Cash Receipts, Bank Cr. Credit side : Discounts, Cr., Cash Payments, Bank, Dr. in making an audit, you find that the cashier closed his cash book at the end of a month, bringing down a cash balance of $177.91 ; you count his cash and find that he has only $119.12. On going carefully through the month's transactions, you find that $45.37 paid in cash had been entered in the bank column ; the total of a previous page of cash receipts, $2,516.25, was brought forward as $2,525.75 ; the dis- count $2.50 on an account paid had been entered in the cash column as a payment instead of in the discount column ; $10.00 received from a partner for payment of a private account had been included in the cash in hand, but not entered in the cash book. Rule a form of cash book as above, enter the balance brought down, and make entries to correct the errors above described. Show the deficiency still existing, and state how it should be dealt with. 18. Describe what is known as the voucher system. Can a voucher sys- tem be used to advantage in every business? If not, state certain conditions which would militate against it. 19. Criticize the arrangement of a voucher record with column headings as follows, for a telephone company : Date ; Voucher Number ; In Favor Of; Issued For; Paid, subdivided under Date, Check No.; Amount of Voucher, Credit Accounts Payable ; Operating Expenses, subdivided under Repairs of Wire Plant, Repairs of Equipment, Sta- tion Removals and Changes, Depreciation of Plant and Equipment, Other Maintenance Expenses, Operators' Wages, Other Traffic Ex- penses, General Office Salaries, Other General Expenses; Intangibles; Lands and Buildings; Central Office Equipment; Station Equipment; Exchange Lines ; Toll Lines ; General Equipment ; Undistributed Con- struction Expenditures; Plant and Equipment Purchased; Materials and Supplies; Depreciation Reserve; Miscellaneous, subdivided under Account No., Account, Amount. 20. Criticize the arrangement of a voucher record with column headings as follows, for a college : Date : Voucher No. ; Fund Paid From ; To Whom Paid; General Ledger, subdivided under Account, Folio, Amount; General Expenses, subdivided under Advertising, Care of Grounds, Heat and Light, Insurance, Postage, Printing, Travel Ex- pense, Officers' Salaries; Ooerative Expenses, subdivided under Farm, subdivided under Labor — Supplies, Dairy, subdivided under Labor — Supplies. Horticulture, subdivided under Labor — Supplies, Poultry, subdivided under Labor — Fcrd, Horse Barn, subdivided under Labor — Supplies, Board Departments, subdivided under Labor — Supplies; Students' Stationery and Supplies, Janitors' Supplies, Janitor Work, Salaries of Employees, Educational, subdivided under Salaries of Instructors, Apparatus, Supplies, Library Books; Maintenance of Plant, subdivided under Repair Material, "Stock," Main Building, Chemical Laboratory, Grove Cottage, Cottage No. a, Cottage No. b. Cottage No. c. New Dormitory, Old House, Farm House, Farm Barns, Agricultural Laboratory; New Plant and Equipment, subdivided un- der Title. Folio, Amount; Vouchers Payable, Cr. 85 •*. U>»l-* , " r Y F 027 c vJU 425608 UNIVERSITY OF CALIFORNIA LIBRARY