THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES , LIBRARY, tos a Library Graduate School of Business Administration University of California ACCOUNTING PRACTICE ACCOUNTING PRACTICE BY CLARENCE MUNRO DAY CERTIFIED PUBLIC ACCOUNTANT UNIVERSITY OF THE STATE OF NEW YORK D. APPLETON AND COMPANY NEW YORK i920 40057 COPYRIGHT, 1908, BY D. APPLETON AND COMPANY .Library HF 5635 D33a INTRODUCTION THE idea prevalent some years ago, that an accountant was sim- ply a " bookkeeper out of a job," has long since been dispelled. To-day the business has attained a high standard as a profession. To check a set of books, and simply verify the clerical accuracy of the work, is not auditing in the true sense of the word. There are methods requiring little work which make such checking unnecessary. The accountant, while he understands bookkeeping, is more than a bookkeeper. He must be capable of dealing with the difficult prob- lems of business and he must know how to interpret the intricacies of affairs so that a layman can comprehend and be guided by his observations. The accountant must know theory in order properly to understand his business ; but a man able and proficient in theory is not necessarily a competent accountant. He must acquire practice by actual experience, in order to develop ability as an accountant; for it is the art of applying theory in practice which makes the theory valuable. In the natural order of things, we learn from the experience of others, and the advantage each generation has over the preceding one lies in the knowledge gained by the experience of the preceding gen- eration. The business of accounting has developed so rapidly that the ref- erence books, essential to the business as a profession, have not kept pace ; consequently the books available are not on a par with the ref- erence books of other professions. For many years, it has been the duty of the author to supervise the work of others, and during his experience he made notes of the best methods under his observation. These notes have been valuable for reference, and the many requests from prominent accountants for access to the notes have influenced the author to publish them. The language is simple, telling how to do certain lines of work so as to lead directly to the desired results and avoid repetition. vi INTRODUCTION The book is divided into four parts, namely : I. Methods of Working, II. Cost Accounting, III. Operating Forms, and IV. Report Forms. I. The first part of the book treats of methods of working which have been developed by years of experience and will be valuable to any accountant who desires to attain a high standard of excellence. It also contains miscellaneous notes which are the opinions of com- petent auditors. II. The second part of the book treats cost accounting in a new and original way. The systems are all simple and practical, having been successfully worked out. The original working instructions are submitted, which made repetition necessary in some instances, for it did not seem advisable to eliminate any part of the original working instructions. III. The third part of the book contains the operating forms which were referred to in so many different places that .it was con- sidered best to group them. The author suggests that the student make rough copies of the forms necessary to each system and study each system as a unit instead of so many parts. IV. The fourth part of the book is devoted to report forms and forms of a statistical character. The first nine forms are never sub- mitted as the main exhibits of a report, but are generally made by the auditor as a basis upon which he can prepare his report and other statistics. From Form 10 on are the forms to be submitted as ex- hibits when making the official report. CONTENTS PART I. METHODS OF WORKING CHAPTER PAGE I. How TO PLAN AND PERFORM A GENERAL AUDIT IN DETAIL . . 3 1 . The Character of the Business .... .3 2. The Books Employed and Plan of Keeping Them . . 4 3. The Object of the Audit 5 4. Auditing a Trading Business 5 5. Audit of the Cash 6 6. Preliminary Steps 6 7. Grouping the Books 7 8. Making the Working Plan of the Audit .... 9 9. Order of Work 13 10. General Suggestions 14 II. How TO AUDIT THE CASH 17 1. Summary of Cash Book Account 19 2. Summary of the Check Book Account . . . . 19 3. Summary of the Pass Book Account 20 4. Vouch Payments with Canceled Vouchers . . . . 21 5. Reconciliation of Payments and Checks . . . . 21 6. Reconciliation of Checks and Canceled Vouchers . . 22 7. Check Deposits with Receipts 23 8. Reconciliation of the Receipts and Deposits . . . 23 9. Reconciliation of Check Book and Pass Book Deposits . 23 10. Vouch Cash with Regular Vouchers 25 III. How TO ANALYZE AN ACCOUNT 27 IV. A FINANCIAL AUDIT 37 V. THE FIRST AUDIT OF A NEW CORPORATION 44 VI. MAKING ADJUSTMENTS TO A LEDGER 46 VII. PREPARATION OF THE REPORT 48 VIII. LOCATING DIFFERENCES IN THE LEDGER 54 1. To Analyze a Ledger 54 2. How to Section a Ledger 57 3. How to Block a Ledger 60 4. When to Block a Ledger 63 IX. PLANNING A GENERAL SYSTEM OF BOOKS 65 i. A Trading Business 66 X. GENERAL NOTES AND SUGGESTIONS 77 vii viii CONTENTS PART II. COST ACCOUNTING CHAPTER PAGB I. COST SYSTEMS IN GENERAL 89 1. Elements of Cost .89 2. Kinds of Cost Systems 91 II. PLANNING THE SYSTEM 93 1. Planning the Controlling Accounts 93 2. Method of Operation 98 3. The General Books and a Cost System . . . 101 4. How to Plan the Cost System 102 5. Correct Foundation for Cost Figures and Reports . . 108 III. PERCENTAGE COSTS 114 1. Determining Percentages 114 2. Use of Percentages 119 IV. INSTALLING A COST SYSTEM . . . * 118 V. SCHEMES FOR SIMPLIFYING WORK 120 VI. COMPUTING COSTS WHERE No SYSTEM HAS BEEN OPERATED . 124 VII. COST SYSTEMS WITH ORIGINAL WORKING INSTRUCTIONS . .128 1. Shoe Carton Factory Cost System 128 2. Cotton Mill Cost System 135 3. Cost System for a Drug Compounding Laboratory and Factory .... 146 4. Cost System for a Silk Mill 152 5. Working Instructions for a Cost System for Woolen Mill . 154 6. Outline of Cost System for Lithographing Company . 161 PART III. OPERATING FORMS 173 PART IV. REPORT FORMS 217 INDEX 313 PART I METHODS OF WORKING I. HOW TO PLAN AND PERFORM A GENERAL AUDIT IN DETAIL In order to plan an audit, it is necessary to consider (a) the character of the business, (6) the books employed and the plan of keeping the books, and (c) the object of the audit. The Character of the Business This is the most important feature to be considered when plan- ning an audit, for the nature of the business will give an insight into the matters to be provided for and consequently a definite idea of the books required by the business. The idea is this : When you enter an office to plan an audit, think of the character of the business and establish in your mind what classes of entries are essential to keep records of the business. After you have established in your mind what matters should have been provided for, an examination of the books as hereinafter described will reveal the provisions which were made for keeping the records of the business and assembling the results, also the methods em- ployed in bringing out the important features of the business. A little careful thought on the character of the business at the beginning of the examination will give you a clearer insight into the system of keeping the records, and enable you to grasp the situation more thoroughly and work intelligently and with confidence. . Trading Business If it is a trading business, they buy and sell, in which case you will expect to find books for the purchases and books for the sales ; and in addition to the books which are peculiar to that particular business you will find the books which are common to every busi- ness : namely, the cash books, the journal and the ledger. 3 4 ACCOUNTING PRACTICE Manufacturing Business If it is a manufacturing business, they purchase raw material and supplies, manufacture and sell or ship to selling agents. In that case you will expect to find books for the purchases, and sales or ship- ments to selling agents, pay roll books, and in addition to the books peculiar to the business you will find the books which are common to every business : namely, the cash book, the journal and the ledger. The Books Employed and Plan of Keeping Them Make a complete list of the books that were in use during the period to be examined. While making this list, make a memorandum of the part each book performs, its object and endeavor to establish in your mind its relation to the system as a whole, also the names and duties of the clerks engaged in keeping the books, and per- forming the various functions associated with them. At the same time inquire regarding the methods of entering and filing orders, invoices, receipts, etc. If you acquaint yourself with the methods of the office at the outset, it will enable you to plan the work so as to interfere as little as possible with the regular office routine and facilitate matters when you desire to investigate any questionable entry. If you know where to look and what to look for, it will not consume a fraction of the time that will be required if you are not familiar with the office routine, and it will be more agreeable to all concerned, than if you are obliged to make indiscriminate in- quiries regarding every matter you deem it expedient to investigate. In examining the books when planning an audit, give especial attention to the books which are peculiar to the business, and en- deavor to learn the reason and object of every diversion from ordi- nary methods. The methods employed, in making records which are similar, vary owing to circumstances and differences of opinions and ideas, but the object in view is the same and the results similar. To illus- trate: There may be a hundred different ways of preparing records of the sales, but the main object of all is to determine the amount of the sales, and the resultant must necessarily be the total of the sales. Consequently the diversity of methods should not confuse HOW TO PLAN A GENERAL AUDIT 5 you; your object is to verify, to your satisfaction, the total amount of the sales, the analysis being a secondary consideration. The Object of the Audit The object bears an important influence when you are planning an audit, for it is the first consideration of the audit and the excuse for its performance; nevertheless it is impossible to offer more than suggestions regarding the procedure, especially when the informa- tion desired is of special import or of an extraordinary character. This much might be said : When you are called upon to perform an audit with a view to obtaining certain information, it is necessary to keep the information desired foremost in your mind, to give it first consideration without sacrificing the safeguards necessary to your own protection, and to give especial attention to all books and items bearing on the matter in question. If you make an examination of a set of books simply to obtain certain peculiar information and neglect to satisfy yourself that the cash was all right at that time, the layman, should an embezzlement be discovered later, will almost invariably condemn you for your neglect and will not consider the circumstances of your case ; con- sequently it is inadvisable to render such service unless your instruc- tions are in writing and specify that you are not to examine the financial end of the business. Auditing a Trading Business Illustrating the method of procedure you would go through in familiarizing yourself with a business, as a preliminary step to plan- ning a general or detailed audit, let us consider a trading establish- ment. The character of the business consists of buying and sell- ing. By specializing the features in this way we predetermine what the business operations are, and create in the mind an outline of the business; this should enable you to grasp the situation quickly and help you to formulate your ideas of what is necessary to prepare proper records of the transactions of the business. Since the business consists of buying and selling, you first ascer- tain how the buying and selling have been recorded. 6 ACCOUNTING PRACTICE Buying Who did the ordering? What books were kept to record the pur- chases and the various transactions appertaining thereto? How were the returned purchases treated? What provisions were made to take advantage of discount on bills? Who was authorized to approve these and what safeguards were adopted to prevent errors of omis- sion or commission in settlement? Selling What books were kept to record the sales and the sales credits? How were they analyzed and summarized? What methods were employed to avoid errors in charging and shipping, and who was authorized to approve orders for shipment? Books Common to Every Business There are certain books common to every business and, while it is not intended to minimize their importance to the business, the con- sideration of their character is not important when endeavoring to comprehend the scope of the business. These books are the cash book, the journal and the ledger, and they are used and treated the same in almost every business. Audit of the Cash Plan to audit the cash as outlined hereafter and ascertain who had charge of the cash, the powers of the persons responsible for the cash and the restrictions upon them. Ascertain the methods em- ployed in handling the receipts, the channels through which the re- ceipts came and the check upon them. Ascertain what methods were employed in making the disbursements, the persons authorized to approve the payments and, if a petty cash account was in opera- tion, obtain a clear conception of the way it was handled and its rela- tion to the general cash. Preliminary Steps The plan of the books should unfold itself to you as you proceed with your preliminary examination ; if it does not, it will be better HOW TO PLAN A GENERAL AUDIT 7 to devote ample time to quiet thought, until you feel that you fully comprehend the situation. After obtaining a well-defined idea of the books and methods of conducting the business, a glance at the trial balance will reveal the accounts which were kept to control the business and will show the way they have been subdivided. When considering the trial balance group the accounts in the following way; Capital Accounts, Representing Assets and Liabilities. Nominal Accounts, Controlling Expenses and Income. Personal Accounts, Accounts with Individuals and Companies. The assets and liabilities are further classified as fixed and cur- rent, the fixed assets being the plant and equipment accounts and the fixed liabilities being the capitalization accounts, which include capi- tal stock issues of every form and the bonded indebtedness. The current assets are the active accounts of assets, such as cash, bills receivable, merchandise, accounts receivable, unexpired insurance, etc. ; the current liabilities are the active accounts of liabilities, such as bills payable, accounts payable, loans, etc. By devoting sufficient consideration to the accounts which have been provided, you can generally determine the features of the busi- ness that it was desirable to have predominate. Examine carefully the profit and loss account and see how the closing of the accounts was performed ; if the journal was used as a medium for making the closing entries, study carefully the closing entries which were made in the journal. Grouping the Books In your preliminary examination your prepared the following list of books : Private Ledger. General Ledger. Purchase Ledger. Sales Ledger. Bad Debt Ledger. 3 ACCOUNTING PRACTICE Petty Ledger. General Journal. Purchase Journal. Private Journal. Purchase Credit Journal. General Cash Book. Petty Cash Book. Check Book Amsterdam Trust Co. Check Book First National Bank. Check Book Lincoln National Bank. Pay Roll Book. C.O.D. Book. Sales Book (Press copy books). Sales Credit Book (Press copy book). Approbation Book. General Ledger Trial Balance Book. Purchase Ledger Trial Balance Book. Private Ledger Trial Balance Book. Sales Ledger Trial Balance Book. Receiving Book. Shipping Book. Stock Book. Inventory Book. Order Book. To follow the plan of specializing according to the peculiar fea- tures of the business, group the books by discriminating between the books for the buying, the books for the selling, and the books for the centralization and control of the business ; by arranging them according to the order of operation, you will readily observe any omission. BUYING: Order Book. Receiving Book. Purchase Journal. Purchase Credit Journal. Purchase Ledger. Purchase Ledger Trial Balance Book. HOW TO PLAN A GENERAL AUDIT 9 SELLING: Stock Book. Shipping Book. Sales Book. Approbation Book. Sales Credit Book. Sales Ledger. Sales Ledger Trial Balance Book. Petty Ledger. Bad Debt Ledger. C.O.D. Book. CASH : Cash Book. Petty Cash Book. Check Books. Pay Roll Book. CENTRALIZATION: General Journal. General Ledger. General Ledger Trial Balance Book. Private Journal. Private Ledger. Private Ledger Trial Balance Book. Inventory Book. By arranging the books similarly to the above you will be enabled to determine whether each division of the books is complete. Making the Working Plan of the Audit After you have carefully revised the schedule of books and arranged them according to the features of the business, and satisfied yourself that you have not overlooked any of the books, take a sheet of paper and make your final working plan of procedure: Write the name of each book, and under the name of the book write what work you propose doing in connection with it. Do this with every book in the order in which it appears on the list, viz : ORDER BOOK: Used to verify purchases. RECEIVING BOOK: Used to verify purchases. 2 I0 ACCOUNTING PRACTICE PURCHASE JOURNAL: Vouch the entries with the bills. Check the distribution of the items. Check the footings. Prove the totals of the distribution. Check the postings to the purchase ledger. Check the postings of results to general ledger. PURCHASE CREDIT JOURNAL: Check the distribution of the items. Check the footings. Prove the totals of the distribution. Check the postings to the purchase ledger. Check the postings of results to general ledger. PURCHASE LEDGER : Check footings of the accounts. See that all items are checked. Schedule unchecked entries. Make careful memorandum of all irregularities. PURCHASE LEDGER TRIAL BALANCE: Verify balances for beginning of period. Verify balances for end of period. Make copy of trial balance for end of period. Compare with controlling account in general ledger. STOCK BOOK : Examine general appearance of entries. Compare inventory at beginning of period. Compare inventory at end of period. Make a memorandum of all irregularities. Verify entries for purchases. Verify entries for shipments. SHIPPING BOOK : Check shipments with sales. Examine general appearance of entries. HOW TO PLAN A GENERAL AUDIT IX SALES BOOK: Verify extension of items. Check footings of sales. Check postings to sales ledger. Check postings of results to general ledger. APPROBATION BOOK (Shipments on Approval) : Examine general appearance of entries. Check transfers of charges to sales book. Verify return of entries canceled. SALES CREDIT BOOK: Verify extension of items. Check footings of sales credits. Check postings to sales ledger. Check postings of results to general ledger. SALES LEDGER: Check footings of account. See that all items are checked. Schedule unchecked entries. Make careful memorandum of all irregularities. SALES LEDGER TRIAL BALANCE BOOK: Verify trial balance for the beginning of period. Verify trial balance for the end of period. Make copy of trial balance for the end of period. Compare with controlling account in general ledger. BAD DEBT LEDGER: See that transfers to this ledger are authorized. Make schedule of all bad debts. Verify cash entries. C.O.D. BOOK : Check C.O.D. entries from sales book. Verify returns with receiving book. Check entries in cash book. Make list of outstanding items. Compare with controlling account in general ledger. I2 ACCOUNTING PRACTICE CASH BOOK: Balance cash on hand. Make a summary of cash book account. Make a summary of check book account. Make a summary of pass book account. Vouch cash payments with canceled checks. Reconcile cash payments and check book account. Reconcile check book and pass book accounts- Check deposits with receipts. Reconcile receipts and deposits. Vouch cash with regular vouchers. List missing vouchers. Check postings to purchase ledger. Check postings to general ledger. Check postings to sales ledger. Check postings to petty ledger. Check postings to private ledger. PETTY CASH BOOK: Vouch payments. Check transfer of items to cash book. List missing vouchers. PAY ROLL BOOK: Check footings of pay rolls. Verify items with time books. Check entries in cash book. GENERAL JOURNAL: Examine carefully all entries. Verify or' vouch all entries. Copy entries which are questionable. Copy entries relating to bonds, stocks and capital. Copy entries for closing books. Check postings to general ledger. Check postings to purchase ledger. Check postings to sales ledger. Check postings to petty ledger. Check postings to bad debt ledger. HOW TO PLAN A GENERAL AUDIT I3 GENERAL LEDGER: Check footings of accounts. See that all items are checked. Schedule unchecked entries. Make careful memorandum of irregular entries. GENERAL LEDGER TRIAL BALANCE BOOK: Verify balances for beginning of period. Verify balances for end of period. Make copy of trial balance for end of period. PRIVATE JOURNAL: Examine carefully all entries. Vouch all entries with general books. Copy all entries which are questionable. Copy entries relating to bonds, stocks or capital. Copy entries for closing books. Check postings to private ledger. PRIVATE LEDGER: Check footings of accounts. See that all items are checked. Examine carefully alterations and corrections. Verify trial balance for beginning of period. Verify trial balance for end of period. Make copies of trial balances. If you wish to estimate the time required to perform the audit,- when making a list of the books estimate the time required to exam- ine each book and check the work, allowing sufficient time for pre- paring the report. The total is the time required. Order of Work In most cases it is advisable to commence by auditing the cash. This will enable you to become better acquainted with the business and familiarize yourself with the system. I4 ACCOUNTING PRACTICE It is not necessary or advisable to perform the audit in the order of the plan, nor is it advisable to attempt to lay out the plan in the order you intend to do the work. After completing the audit of the cash, you can use your judgment in the performance of the balance of the audit. As each particular item of the work is completed, check off the item on your plan of audit; and where more than one person is engaged on the audit, the name of the auditor and the date the service was rendered should be inserted opposite the item of work on the plan of the audit. If any part of the work is only partly completed, insert the word " part " on the plan of the audit to indicate that it was not com- pleted, and make suitable notes in your working papers to enlighten your successor regarding it, so that he will be enabled to commence where you left off. General Suggestions Where the audit is extensive and the working papers are numer- ous, number each working paper and make an index of the working papers. Use these numbers for referring from one paper to another. Group the papers in a regular order similar to the following, so that you can readily refer to it: (1) Plan of audit and index to working papers. (2) Trial balances. (3) Cash and bank account papers. (4) Notes and text of report. (5) Analysis of accounts. (6) Statements for the report. (7) Memorandums for future audits. If you have assistants, devote your attention to the important matters and assign the assistants to the extensive checking, vouching, and footing. When directing work you can often accomplish more by devoting a generous portion of your time to careful thought, con- sidering well every feature and circumstance. The time employed making careful observations is not wasted. The maker of the books, the style of ruling and all the various HOW TO PLAN A GENERAL AUDIT I5 details may be important points especially if the books are loose leaf and there is reason to believe the matter is not the original, but has been copied or replaced. In performing an audit, it is the duty of the auditor to ascertain what the various results of the business are and satisfy himself as to their correctness, the net purchases, the net sales, etc., and the changes in the assets and liabilities. The assets and liabilities not shown, whether contingent or other- wise, should be carefully recorded on the working papers, especially bills receivable which have been discounted, and indorsements made to accommodate others. An auditor should use every means to determine whether all the assets which ought to be there are shown, and, if there is reason to believe that any assets have been dissipated or hypothecated, it is his duty to qualify his report to that effect and decline to cer- tify the balance sheet unless it is accompanied by the text of the report. If the business is a partnership, the auditor should examine the partnership agreement and make sure all the conditions have been complied with, and see that all entries relating to the partners have been properly entered on the books. If the auditor is not thoroughly familiar with the composition of the accounts after performing an audit in detail, it is advisable for him to analyze the accounts as directed in the instructions relating to the performance of a financial audit. If the business is a corporation, the auditor should examine the articles of incorporation, the stock books and the minutes, to see that the purport of the minutes has been executed and properly entered on the books. The auditor should see that all issues of stock bonds or other capitalization have been properly made and the values absorbed by the business ; if they have not, he should report it. Adjustments to Ledger Do not make adjustments to the ledger until the work is com- pleted. Make a complete schedule of all adjustments, showing full detail of the items, the books and folios, and all matters relating to !6 ACCOUNTING PRACTICE them. When the work is completed, make the adjustments as here- inafter described. Corrections If an entry was made incorrectly, correct it, or, better still, have it corrected at once and make a note of all corrections on a sheet used for that purpose only. II. HOW TO AUDIT THE CASH Outline of the Method (1) Make a summary of the cash book account. (2) Make a summary of the check book account. (3) Make a summary of the pass book account. (4) Vouch the cash payments with the canceled vouchers which were returned by the bank. (5) Reconcile the total payments on the summary of the cash book account with the total checks on the summary of the check book account. (6) Reconcile the total checks on the summary of the check book account with the total canceled vouchers on the summary of the pass book account. (7) Check the deposits with the receipts entered in the cash book. (8) Reconcile the total receipts on the summary of the cash book account with the total deposits on the summary of the check book account. (9) Reconcile the total deposits on the summary of the check book account with the total deposits on the summary of the pass book account (10) Vouch the cash with the regular vouchers and list all miss- ing vouchers. This method of auditing the cash is simple and complete, and enables the auditor to perform an audit of the cash in an incredibly short time when the work is extensive ; it also makes interesting what would otherwise be excessively monotonous. It (i) proves the cor- rectness of the footings of the cash book, (2) proves the correctness of the footings of the check book, (3) proves the correctness of the bank account, (4) reveals all errors and adjustments affecting the cash, (5) reveals all contra entries, (6) reveals all errors in the check book account, (7) reveals all errors in the bank pass book account, 17 !8 ACCOUNTING PRACTICE (8) exposes all items which were entered in the cash book and not deposited, (9) exposes all items which passed through the bank ac- count without being entered on the cash book, ( 10) makes it impossi- ble to overlook errors of omission or commission, and (n) develops positive control of the cash and bank accounts. Balance the Cash First Always balance the cash immediately ; this is imperative. While doing this, make memoranda of the following: (1) The footing of the debit side of the cash book and the last item included in the footing. (2) The footing of the credit side of the cash book and the last payment included in the footing. (3) The footing of the deposits on the check book and the amount of the last deposit included in the footing. (4) The footing of the checks on the check book and the number and amount of the last check included in the footing. (5) A complete detailed statement of the balance compiled by you. If there is cash other than cash in banks, make a minute record of it and be very particular regarding items other than currency. It is necessary that full details of all tickets be made a part of your working papers. Checks Outstanding Most bookkeepers make a record of the checks outstanding when the pass book is balanced. If this has been the custom in your case, make a copy of the list of outstanding checks for the beginning and end of the period to be examined. Preserve the papers relating to the cash balance and extend the examination up to the point where the balance was made, to satisfy yourself that the balance was correct and in order. Certificate Request the firm to secure from the bank a letter stating the amount on deposit on the day when the account was balanced and file this with your working papers. This is customary, and the banks generally provide a form to meet such requests. HOW TO AUDIT THE CASH 1. Summary of Cash Book Account Make a summary of the cash book account, showing the balance on hand at the beginning of the period, the receipts according to the cash book, the payments according to the cash book and the balance at the end of the period, similar to the following: Summary of the Cash Book Account Balance Jan. I, 1891. .$10,601.15 PAYMENTS. RECEIPTS. January, 1891 $10,415.70 Jan., 1891 ..$9,610.51 February, 1891 11,217.65 Feby., 1891.. 10,408.22 March, 1891 13,371.52 March, 1891.15,310.75 Total Payments $35,004.87 Total Receipts $35,329.48 Bal. Mch. 31, 1891 . . . 10,925.76 $45,930.63 $45.930-63 2. Summary of the Check Book Account Make a summary of the check book account for the same period, showing the balance on hand according to the check book at the begin- ning of the period, the deposits, the checks drawn and the balance on hand at the end of the period, similar to the following: Summary of the Check Book Account Balance Jan. i, 1891. $8,745.63 CHECKS. DEPOSITS. January, 1891 $10,315.91 Jan., 1891 ..$10,752.63 February, 1891 12,314.21 Feby., 1891. 11,822.31 March, 1891 12,982.15 March, 1891. 14,987.16 , Total Checks $35,612.27 Total Deposits $37,562.10 Balance 10,695.46 $46,307.73 $46,307.73 20 'ACCOUNTING PRACTICE 3. Summary of the Pass Book Account Make a summary of the pass book account covering the period. Show the balance on hand according to the pass book at the begin- ning of the period, the deposits, the canceled vouchers returned by the bank and the balance at the end of the period, as follows : Summary of the Pass Book Account Balance Jan. i, 1891. .$11,431.22 CANCELED VOUCHERS. DEPOSITS. January, 1891 $14,382.91 Jan., 1891.. $10,752.63 February, 1891 11,374.63 Feby., 1891. 11,822.31 March, 1891 12,222.57 March, 1891. 14,007.52 Total Vouchers $37,980.11 Total Deposits $36,582.46 Bal. Mch. 31, 1891... 10,033.57 $48,013.68 $48,013.68 In making the summaries of the cash book, check book and pass book accounts, endeavor to have the summaries conform to the clos- ings which were made on each book, for it is very easy to eliminate the matter belonging to the prior or subsequent periods. That is, if the period being examined is the month of June and the pass book was not balanced since May 2Oth, commence the pass book account at May 2oth, have pass book balanced, and bring summary to date. If there are several cash books, make a summary for each and every book and then make a summary of all the cash books, so that you know the total cash received and paid. If there are several bank accounts, make a summary of each and every check book and make a summary of all the check books ; also make a summary of each and every bank pass book and make a summary of all the pass books. 4. Vouch Payments with Canceled Vouchers Vouch the cash payments with the checks returned by the bank. If you use a blue pencil, make a blue double check mark on the HOW TO AUDIT THE CASH 21 summary of the Pass Book Account to indicate that you have vouched the cash with the checks and used a blue pencil to establish the identity of the items which were checked. In making check marks on the books, be careful and make a small, neat and distinctive mark ; take pride in having them appear regular instead of slovenly and hideous. (Little things express character.) When vouching the items of the cash book with the checks, exam- ine the indorsements and compare the payee with the cash book entry ; if you notice any irregularity in the indorsement or payee, make a memorandum of it, and make a small cross which will attract your attention when you are vouching the cash payments with the vouch- ers. In making notes relating to checks, enter on your working papers the full details of the checks. Make a list of all checks and bank charges which do not appear to be entered on the cash book. When all the checks which were returned by the bank have been checked off on the cash book, make a small circle (o) opposite each payment, which is for a check outstanding at the end of the period. If you have no list of them, this is the time to prepare a list of checks outstanding. Make a schedule of the items of payments entered on the cash book which were not checked. 5. Reconciliation of Payments and Checks Reconcile the total payments according to the summary of the cash book account and the total checks according to the summary of the check book account, as follows: CASH BOOK CHECK BOOK ACCOUNT. ACCOUNT. Cash book payments, as per cash book. . . .$35,004.87 Cash book items not checked $200.00 Checks, as per check book 35,612.27 Checks entered subsequent period 230.30 Exchange, etc., not on cash book 577. 10 $35,812.27 $35,812.27 22 6. Reconciliation of Checks and Canceled Vouchers Reconcile the total checks according to the summary of the check book account and the total canceled vouchers returned by the bank according to the pass book account, as follows: CHECK BOOK PASS BOOK ACCOUNT. ACCOUNT. Checks, as per check book $35,612.27 Outstanding January ist 2,685.59 Canceled vouchers, as per bank $37,980.11 Outstanding March 3ist 3 l 7-75 $38,297.86 $38,297.86 Reconciliation of Cash Payments and Canceled Vouchers CASH BOOK PASS BOOK ACCOUNT. ACCOUNT. Payments $35,004.87 $37,980.1 1 Checks not on cash book 230.30 Exchange, etc., not on cash book 577. 10 Checks of prior account.. . , 2,685.59 Outstanding end of period 3 I 7-75 Cash items not vouched with checks . . 200.00 $38,497.86 $38,497-86 If the results do not agree, it should not take you long to ascertain what the trouble is ; for, if your work has been done correctly, it must be one of three things, viz. : (i) a check missing which passed through the bank, (2) bank account incorrect or (3) footings wrong on check or cash books. If the results agree, you know wherein the cash book, check book and bank book accounts differ and can devote your attention to the extraordinary items which developed as the work progressed. Examine cautiously every item on the list of " canceled bank vouchers not entered on the cash book," and give especial attention to the list of items on the cash book which were not paid through the bank. HOW TO AUDIT THE CASH 23 7. Check Deposits with Receipts If the records are in such condition that it is possible to do so, check the receipts entered in the cash book with the deposits entered in the pass book. If inconvenient to check the receipts direct to the pass book, check the receipts with the deposits entered on the stub of the check book and check the totals to the pass book. Make a list of all items in the pass book which do not appear on the cash book and make a list of all items on the cash book which were not deposited. 8. Reconciliation of the Receipts and Deposits Reconcile the total receipts according to the summary of the cash book and the total deposits according to the summary of the check book account, as follows: CASH BOOK CHECK BOOK ACCOUNT. ACCOUNT. Receipts, as per cash book $35,329.48 Receipts prior account 1,855.52 Deposits, as per check book $37,562.10 Cash book items not deposited 200.00 Deposits not on cash book 577. 10 $37,762.10 $37,762.10 9. Reconciliation of Check Book and Pass Book Deposits Reconcile the total deposits according to the summary of the check book and the summary of the pass book, as follows : CHECK BOOK PASS BOOK ACCOUNT. ACCOUNT. Deposits $37,562.10 $36,582.46 Deposits made subsequent period 979.64 $37,562.10 $37,562.10 24 ACCOUNTING PRACTICE Reconciliation of Cash Receipts and Pass Book Deposits CASH BOOK PASS BOOK ACCOUNT. ACCOUNT. Receipts, as per cash book $35,329.48 Deposits, as per pass book $36,582.46 Receipts prior account 1,855.52 Deposited subsequent period 979.64 Deposits not on cash book 577. 10 Cash book items not deposited 200.00 $37,762.10 $37,762.10 If the cash book, check book and bank pass book accounts agree, it is hardly necessary to check the footings of the cash book and check books; nevertheless, it is always advisable to prove all the footings. Where all receipts were deposited, regard with suspicion every item entered in the cash book as received and not deposited in the bank, and regard with suspicion every deposit in the bank account which was not entered on the cash book. Report every case where money was drawn from the bank account and not entered on the cash book, no matter if it was deposited again later on. Report every note negotiated which was not entered on the cash book. See that all receipts were deposited for the amount entered on the cash book and be very careful regarding discounts. If discount was charged as an offset to the amount on the cash book, be sure the check deposited in the bank account was for the short amount entered as received on the cash book. When verifying receipts for interest or other payments on mort- gages, notes, etc., examine the notes and check off the payments entered on the backs of the notes, to make sure the entries were prop- erly made on the cash book. HOW TO AUDIT THE CASH 25 10. Vouch Cash with Regular Vouchers Inquire who was authorized to approve vouchers for payments, before commencing to vouch the cash with the regular vouchers which are the receipts for the payments. Vouch the cash payments with the regular vouchers, making a small initial letter mark to indicate its character. Devote special attention to the items which you marked with a cross or which were not checked at all, when you were vouching the payments with the canceled checks. If there was a petty cash book, vouch the cash book payments with the petty cash book, making the check mark with a red pencil. Check the items on the cash book for receipts which were absorbed by the petty cash account. When vouching payments for notes, bonds and mortgages which were retired, be sure to see the original documents and if they were not canceled, confer with the proper officials and insist upon having them canceled ; if they decline to cancel them, report the facts of the case. When vouching payments for interest on notes, bonds, etc., be sure to ascertain whether the interest payments were properly made, and if there were coupons, see that they were canceled. When vouching payments for investments in stocks and bonds, require the broker's memorandum of the sale and see if the checks were made direct to the broker; examine the securities to see that they were registered in the name of the company. When vouching payments for purchases of realty, require the deed and at least see that this has the recording clerk's memorandum entered thereon ; note also date recorded. When vouching payments for certificates of deposit, notice par- ticularly the date, and regard suspiciously a change of date; see also that the certificate is registered in the name of the company. When vouching payments which require the approval of the Board of Directors, examine the minutes and see if the payments were properly authorized. When vouching payments for dividends, examine the minutes anil see that they were properly authorized by the Board of Directors and that the dividends were equitable distributions to all the stockholders. 2 6 ACCOUNTING PRACTICE When vouching payments for salary of the officers, see that same were properly authorized by the Board of Directors. When vouching payments for office salaries or pay rolls, satisfy yourself that these are correct and report all matters which appear to be irregular or extraordinary. In all your work, use colored pencils and peculiar marks for specific purposes so that you can identify a check mark by referring to your working papers. Then, if you desire to know why you checked an item which is questioned, the check mark will indicate it. In making periodical audits, do not neglect to refer to the working papers of the prior audit and verify the former figures before com- mencing. Be deliberate in what you do, for accuracy is of vital importance and haste only means a waste of time and annoyance. It is the auditor's duty to ascertain whether all the cash, which should have been received, has been received and entered in proper form, also that a full and complete record has been made of each and every transaction. All the business should be spread on the books. If you make a careful examination of the cash first and satisfy your- self that it is correct or ascertain wherein it is not as it should be s you will find it much easier to proceed with the audit of the books; you will have more confidence in your work than if you defer the examination of the cash until you have wearied yourself with the rest of the audit. There are many unforeseen contingencies which might occur that would make it difficult for you to give the cash proper attention, if you defer the examination of same until the last. If you uncover what appears to be fraud or embezzlement, do not mention it until you are absolutely certain of your position. In the majority of cases it is advisable to wait until you have completed the audit of the cash before exposing the culprit. If, however, you are certain, and there is a possibility of the person escaping, it may be advisable to mention your suspicions, stating the facts without color- ing them. Qualify what you say with the statement that, as the work is incomplete, you are not yet in position to give definite infor- mation, but thought it advisable to call attention to the facts, if you are under authority, consult your superiors before making a verbal report regarding any matter., III. HOW TO ANALYZE AN ACCOUNT To analyze an account is to classify the elementary items of the account by grouping them under several headings, in order to obtain a more definite knowledge of its composition. This is one of the most important functions of an auditor, and an acquired habit of exercising great care in analyzing will be of ines- timable value to him. The ordinary account conveys little intelligence other than what the heading implies and very often that is misleading; therefore, in order to obtain definite knowledge of the composition of an account, it is necessary to examine it in detail. This can best be accomplished by commencing at the beginning and examining every item individ- ually, in the order of the entry, during which procedure it is a very simple matter to group the elementary items of the account in any manner desired, with the aid of a sheet of analysis paper. There are three methods of analyzing an account, and, while the results obtained will be the same, there are circumstances which make it more desirable to adopt one than another. The three methods are : The simple analysis. The comprehensive analysis. The analysis for a summary account. Any one of these three methods can be employed for any kind of work. THE SIMPLE ANALYSIS is the method in which the items are dis- tributed in the columns on the analysis sheet, without providing any means of referring to where the items appear in the account or where the items originated. It is the method commonly used by auditors be- cause it requires less time than either of the other methods. THE COMPREHENSIVE ANALYSIS provides a record of where the items appear on the books of original entry and is very satisfactory 27 28 ACCOUNTING PRACTICE when giving testimony ; for the most essential thing then is to be able to refer your inquisitor to the place where the items appeared on the books of original entry. THE ANALYSIS FOR A SUMMARY ACCOUNT shows a true copy of the account, given where the items appeared on the books of original entry and the analysis of each and every item of the account. It is the most satisfactory method for all purposes, but as it requires considerable time it is not usually employed. The copy of the ledger account shown is a case where each of the various items of the account specifies what the charge was made for, but in bookkeeping this is the exception rather than the rule, and if it is customary in the case in hand, it would not be advisable to accept it, for it is the duty of the auditor to refer to the original entry and verify each item. Never take anything for granted, and never accept any person's word when it is possible for you to ascertain the true nature of an item. In all cases where statements of any character affecting your work are made, always make a memorandum on your working papers of the statement, the date, and the name of the party making the statement, and as far as possible verify it. If the state- ment has any bearing on the matter to be reported, embody in your report the statement and the details relating to it. The Simple Analysis of an Account A copy of an account on page no of ledger No. 4 of the books of Jones and Kilby is submitted to illustrate the method of pro- ceeding. As the heading of the account implies, cartage, freight and expressage were charged to this account, and you find it necessary to know the total amount of each in order to make a satisfactory report. Preparing the Analysis Sheet Take a piece of analysis paper, and make a memorandum of the following at the top of the analysis sheet (see page 31). 1 i ) The number and name of ledger and the page of the account. (2) The name of the company. (3) A comprehensive description of the analysis, and (4) The period covered by the analysis. HOW TO ANALYZE AN ACCOUNT 2 g The following is an illustration of the headings for an analysis sheet, viz: "Ledger 4, Page no Jones and Kilby " Analysis of Express, Cartage and Freight Account " For the three months ending March 3ist, 1890." In writing your description of the account for the heading of the analysis sheet, make an exact copy of the name of the account as it appears on the ledger. In this case, it is desirable to divide the items of the account into three different classes ; so you head a column " Expressage," another " Cartage," and another " Freight " as shown on the copy of the analysis. Deciding the Headings for the Columns When making the analysis, the items of the account can be dis- tributed on the analysis sheet under as many headings as the circum- stances warrant ; but when making up the report, it is not advisable to submit a long list of items. It conveys nothing to the average mind, and only confuses ; whereas the items can be grouped under a few selected headings which will give a definite idea of the composition of the account. For illustration we will assume that the bookkeeper simply made the entry " January 10, 1890 Cash 71 $14.20 " and made ditto marks for the other items which were posted to the account. In that case, he would have nothing to indicate the composition of the account and would not know what headings to use until he com- menced analyzing the account. The first item examined would be the $14.20; it having been posted from the cash book, reference to the cash book would show the expenditure had been made for cart- age, in which case he would head a column " Cartage " and enter the $14.20 in it. Reference to the original entry for the next item of the account would reveal the item for freight "$115.70," and he would head a column " Freight " and enter the amount in the column, and so continue through the entire account. 3 o ACCOUNTING PRACTICE Analyzing the Debit Side of an Account The first item of the account, Cartage $14.20, should be entered in the column headed " Cartage " on the analysis sheet. The next two items, Freight $115.70 and $94.20, should be entered in the column headed " Freight " on the analysis sheet. The next item, Cartage $11.23, should be entered in the column headed " Cartage " on the analysis sheet. The next item, Expressage $1.25, should be entered in the column headed " Expressage " on the analysis sheet. The next item, Cartage $115.80, should be entered in the column headed " Cartage " on the analysis sheet. The next two items, Expressage $2.25 and $1.40, should be en- tered in the column headed " Expressage " on the analysis sheet. The next item, Cartage $41.75, should be entered in tlie column headed " Cartage " on the analysis sheet. The next four items, Expressage $0.40, $1.50, $3.05, $1.15, should be entered in the column headed " Expressage " on the analysis sheet. The next two items, Cartage $10.73 and $4.75 should be entered in the column headed " Cartage " on the analysis sheet. The next item, Freight $104.71, should be entered in the column headed " Freight " on the analysis sheet. The next and last item on the debit side of the account, Expressage $4.35 should be entered in the column headed " Expressage " on the analysis sheet. All the debit items of the account having been examined and dis- tributed on the analysis sheet, the actual analysis of the debit side of the account is completed. Foot the columns on the analysis sheet. Add the totals of the col- umns, and prove the result with the ledger account. Be absolutely cer- tain of the proof, and never leave it until you know it is correct. Make an analysis of the credit side of the account on the same plan as the debit. Deduct the total of the analysis of the credit side of the account from the total of the analysis of the debit side of the account. If the result is correct, make a summary, viz : HOW TO ANALYZE AN ACCOUNT 110 (Copy of Ledger Account) Express, Cartage and Freight 1890 Jan. Feb. Mch. 10 15 17 1 9 Cartage Cartage Freight Expressage Cartage Expressage Cartage Expressage Cartage Freight Expressage 92 73 75 77 109 79 83 in 85 86 87 90 "5 119 95 97 14 20 "57 94 20 25 40 75 40 5 305 V s I ,73 475 I04J7I - 528:42 1890 Jan. Mch. Freight Rebate Allowance Cartage Balance P. & L. 4,75 52057 528 42 (Copy of Analysis) Ledger 4, page 110 Jones & Kilby Analysis of Express, Cartage and Freight Account For the three months ending March 31, 1890 Expressage Cartage Freight 1.25 14. 20 115-7 2-25 i .40 11.23 1 15 .80 94.20 104.71 .40 41.75 1.50 10.73 3-5 4-75 i. IS 4-35 15-35 198.46 314.61 3.10 4-75 Freight Cartage Expressage Balance 15-35 I95-36 309.86 I95-36 J 5 35 520.57 -,-> ACCOUNTING PRACTICE o ~ Summary of the Analysis DEBITS. CREDITS. NET. Expressage $15-35 $ $15-35 Cartage 198.46 3.10 ! 95-36 Freight 314.61 4-75 309-86 Totals $528.42 $7.85 $520.57 Always make a summary of the analysis in a prominent place, and do not crowd it on the analysis sheet. If the sheet is full, it is better to take another paper and make the summary clear and plain, in order to avoid uncertainty regarding the results, and endeavor to arrange the summary so that it may be comprehended at a glance. When the analysis of an account is completed, arrange the various papers relating to same in the manner that appeals to you as being most convenient for reference, always placing the summary on the top. Join the papers together with a pin or clip and file for future reference. Improper Entries When analyzing an account, examine each and every item individ- ually, refer to the original entry and, if not satisfactorily explained, trace the matter out until you are satisfied you have obtained all the information to be had. Never leave it until you have an intelligent understanding of the item in question. If the item is such that, in your judgment, it is not a proper charge to the account you are analyzing, make a memorandum of the item on your analysis sheet, and on another paper make an exact copy of the original entry, and all the entries relating to it. Be sure to note the book and folio of each item, and, while the matter is fresh in your mind, write a synopsis of the facts of the case. Adjustments Cash Book 2/751. R. Graham. Bay Gelding $100.00 Charged against Expense Account, should have been charged against "Horses and Trucks." Cash Book 3/57. Walker & Co. Light Wagon 300 . oo Charged against Expense Account, should have been charged against "Horses and Trucks." Cash Book 3/191. Brooklyn Furniture Company Cabinet 322 . 50 Charged against Expense Account, should have been charged against "Furniture and Fixtures." Total as per Summary of Analysis Sheets $722.50 HOW TO ANALYZE AN ACCOUNT 33 Headings for the Columns of the Analysis Sheet If you know the composition of an account, as shown on the illus- tration, (in which case you know the account was composed of ex- pressage, cartage and freight), you have a definite analysis in view and simply head the columns of the analysis sheet to meet your re- quirements; but if the account reveals nothing to guide you in choos- ing the headings for your analysis sheet, proceed with the work, and the headings will develop as the work progresses. By that I mean: If the first item is expressage, head a column " Expressage " ; if the next is freight, head a column " Freight," and so continue ; then if you are producing too many headings, group the unimportant head- ings. Be judicious in providing headings, for an extended analysis often deprives the result of its best value. No set rule can be given, there- fore you must consider the circumstances and be guided by your own judgment. Analyzing Extensive Accounts When an account is extensive, it is better to analyze it in sections and make a summary of the sections. Summary of Several Analysis Sheets Sheet No. Total Expenses Supplies Rent Traveling Expenses Adjust- ments I 2232.35 I 171 . 20 47I-IS 150 . oo 340.00 IOO.OO 2 2445.20 1280 . 60 504. 10 2 IO .OO I50-50 300.00 3 2466 .40 "t37I-S 217.24 150 .00 405.16 322.50 7I43-95 3 82 3 -3 i 192 .49 510 .00 895.66 722.50 Salary and Wages In making an analysis of the salary and wages account, analyze the salaries first, putting pay-roll items in one column, and, after proving the analysis, proceed to analyze the pay-roll column accord- ing to departments, which, if correct, will agree with the column pro- vided for the pay-roll on the original analysis of the salary and wages account. 34 ACCOUNTING PRACTICE If it is possible to discriminate between productive and non-produc- tive labor, show the amount of each in the various departments. The Comprehensive Analysis of an Account for Legal Accounting In analyzing accounts preparatory to making a report which is likely to be examined in court, it is advisable to compile your analysis so that you know definitely the source of your information; this necessitates preparing the working papers so that reference can be made to the original entry of each item. If there is anything confus- ing when being cross-examined, it is the inability of the witness to state quickly the source of the information and the reasons for the deductions, consequently it is necessary to prepare the analysis sheets on a more elaborate plan than is generally adopted by auditors. The expense account conveys a fair idea of the average account. The first item of the account is $11.75; the particulars entered by the bookkeeper being " Sundries " you find it necessary to refer to the folio given, of the cash book ; upon examination, you find the desired page to have been in Cash book No. 3, and the details entered there " Expense Account, Brooklyn Gas Company, $11.75." This item is one of many for which you have seen the vouchers and, being an expendi- ture for light, it should be entered in the column provided for " Heat, Light and Power " in the manner shown on the analysis sheet. If, for any reason, the date is an important consideration, enter the date of each item on the analysis sheet in addition to the above. In making a comprehensive analysis of an account, give a synopsis of each item, and the book and folio of the original entry. Then, if you are called upon to state the composition of any part of the report, by referring to your working papers you can give a definite idea of what the item is for and refer your inquisitor to the original entry of each item. In the lower left hand corner of the analysis is a memorandum of the footings of the account, showing the amount deducted for prior account, which proves the analysis. Never neglect to make this a part of your analysis sheet, and never check it off as correct until you are absolutely certain that it is correct. L T se the double check mark as a means of identifying the items which you rse-1 to check each other. HOW TO ANALYZE AN ACCOUNT Expense Account 35 183 1890 June i Brought forward 907 60 5 Sundries 119 1 1 75 7 " IO2 500 oo 9 " 121 us 80 10 " IO4 1500 oo ii " 162 2IO 50 IS " 171 IOI 5 '7 " IO4 9 1 i7 21 11 II 7 5 25 " 119 72 18 3 " "5 81 5 2 3 " 119 no 22 . 3752 24 Ledger 3, folio 183 Jones & Walker Co. Comprehensive Analysis of the Expense Account For the Month of June, 1890 Heat, Light & Power - Bklyn. Gas Co. 119 ^5-5 N.Y. Steam Co. 121 n-75 115.80 Rent - Store Rent Tune IO2 OR Warehouse Rent 104 T T 1 A June, July, Aug. 500.00 1500 .00 Expenses J Moving 171 - Stationery 104 101 . 50 91.17 5J Edison Elec. Co. 162 210.50 - Yard Rent June 50 .00 - Sundries 119 72. 18 - Cons. Gas Co. us 81.52 - Edison Elec. Co. 119 I IO . 22 Footings 3752.24 907 .60 5 2 9-79 . 2050 .00 Expenses Rent Heat L. & P. 264.85 2050.00 2844 . 64 2844.64 36 ACCOUNTING PRACTICE Be deliberate and positive in whatever you do. Use the double check mark only to indicate that the result checked is indisputably correct, and never use it excepting to check such results ; then, if an error develops in the work, you will save yourself considerable work and annoyance. Adjustment Entries If you discover items which do not belong in the account, make up the summary of the analysis, showing first the balance as it would have been if the item in question had not been posted to the account, and then add to the correct balance each item to be eliminated, with full details, so that balance of the analysis sheet will agree with the balance of the ledger account as it stands on the book. Summary of Analysis of Traveling Expense Account (Showing item of salary which requires adjusting entry) Debits Credits i Net Traveling Salesmen 1 1/140 . oo 016 . ?o 10,223 . 50 Officers and Directors C7O I Z C . 2 7 I 5-63 Cash Receipts 1,910,622.70 Cash Payments 1,897,322.50 The total amount of debit or credit entries. .$6,531,738.10 Always commence with the journal ; check out the journal debits and credits, making your check marks on the ledger with blue pencil. It is always advisable to check the journal, because the number LOCATING DIFFERENCES IN THE LEDGER 61 of entries is generally small and checking identifies the journal items positively, obviating the confusion which would result from uncer- tainty regarding them. Consequently, if the entries are distinct, it is unnecessary to check the journal. After all the items from the journal have been checked off on the ledger, go through the ledger, page by page, commencing at the first page, and take off the total journal debits on each page, entering on a sheet of paper the ledger folio and the total amount of the jour- nal debits posted on the page. This will be a very easy matter, as the journal items will be con- spicuous and easily distinguished by the blue check marks which you have made. When the journal debits have been taken off the entire ledger, the sheet should be footed and, if the total amount of the sheet agrees with the summary of the footings of the journal, it is correct. If corrections are necessary, do not add or subtract from the total, but correct the item opposite the folio. Commencing at the first page of the ledger, go through the ledger again, page after page, and take off the total journal credits on each page, entering on another sheet the ledger folio and the total amount of the journal credits posted on each page, in the same manner that the debits were taken off. Foot the sheet containing the credits and see that it agrees with the total of the debits. If the cash postings to the ledger have been made in a manner which makes it a simple matter to discriminate between the cash and other items, it should not be necessary to check out the cash ; but if not, check out the cash postings, making your check marks on the ledger with a red lead pencil. The red pencil will identify the items, so that they can be distinguished from the other postings. Commencing at the first page of the ledger, go through the ledger once more, page after page, and take off the total debits for cash pay- ments on each page, entering on a sheet, each ledger folio and the total amount of the items posted on the folio. Foot the sheet con- taining the cash payments taken from the ledger and, if it is correct, it will agree with the cash payments on the summary. Commencing at the first page of the ledger, go through the ledger again and take off the credits for cash receipts ; foot the sheet and compare the total with the total cash receipts. 62 ACCOUNTING PRACTICE Commencing at the first page of the ledger, go through the ledger again and take off the debits posted from the purchase credit jour- nal; foot the sheet and verify the total. Next, take off the ledger the credits from the purchase journal. Next, take off the ledger the credits posted from the sales credit journal. Next, take off the ledger the debits posted from the sales book. In all cases, carefully check the postings to the ledger, of the totals or analysis of the cash receipts and payments, purchases, pur- chase credits, sales, and sales credits, and, after the work has been completed, if the equilibrium of the ledger has not been established, the difficulty can be located by bringing the figures together in the following manner: Take the trial balance for the beginning of the period; see that the folios of the ledger are in their consecutive order; foot the debit balances and the credit balances taken from pages i to 99 of the ledger ; foot the debit balances and credit balances taken from pages 100 to 199; do the same with the balances taken from pages 200 to 299 ; 300 to 399 ; 400 to 499 ; 500 to 599 ; 600 to 699 ; and so on through the entire ledger. For illustration we will presume that the ledger had 500 pages (see Form 30). DEBITS. CREDITS. Pages i to 99 $599,601.22 $1,000,000.00 " 100 to 199 710,820.91 10,700.60 " 200 to 299 47-3 1 T 3; >4 01 -7 " 300 to 399 87.20 210,871.16 " 400 to 500 90,601.15 29,184.33 Totals as per trial balance. .. .$1,401,157.79 $1,401,157.79 The ledger is now divided into sections of one hundred pages to each section (can be any quantity desired) and the work is analyzed in accordance with the sections. Prepare a sheet as illustrated on Form 30 A for debits and also prepare a sheet Form 30 B for credits. Enter on the Form 30 A, in the column headed " i to 99," the total amount of the debit balances taken from pages i to 99 of the LOCATING DIFFERENCES IN THE LEDGER 63 ledger; in the column headed " 100 to 199," enter the total of the debit balances taken from pages 100 to 199; in the column headed " 200 to 299," enter the total of the debit balances taken from pages 200 to 299 ; in the column headed " 300 to 399," enter the total of the debit balances taken from pages 300 to 399 ; and in the column headed " 400 to 500," enter the total of the debit balances taken from pages 400 to 500. When footed across the sheet Form 30 A, the total must be the footing of the trial balance. Enter the credits sum- marized on Form 30 B, in the same way the debits were entered on Form 30 A. Foot the various sheets for debits and credits and enter the debits on the summary (Form 30 A) and credits on the summary (Form 30 B). Foot the columns of 30 A and 306, and carry the total foot- ings of Form 30 A to Form 30 B and the total footings of Form 30 B to Form 30 A. On both Forms 30 A and 30 B, where the sheet footings are greater than the footings carried from the other sheet, carry down the difference, and the footings of the differences on Forms 30 A and 30 B will agree. The trial balance for the end of the period can now be analyzed according to sections and, as the footings of each section of the trial balance, are made, they can be compared with the results shown on Forms 30 A and 30 B. 4. When to Block a Ledger The writer has been very successful in locating balances and as a rule has been able to say about when he would be finished; because he never goes to work blindly, commencing to check before thinking out his plans. Sit down and think it over carefully ; for in most cases the book- keepers and auditors of the company have exhausted every available means before engaging an auditor. Learn just what has been done, then look over the books. In a case where the majority of the postings are of one class such as in a newspaper advertising business, where there are a multi- plicity of entries charging the accounts and only a very few entries for cash, allowances and journal sundries to check the charges like <5 4 ACCOUNTING PRACTICE advertising would require almost the same time taken to make the postings, whereas to block off the charges for advertising would take a very little time. If the block for a year does not agree, the totals taken from the ledger can be analyzed according to months and the difference confined to one month. If it agreed, the other postings can be proved in a short time and the work completed. In many cases where it was impossible to check out the books, this plan has been operated with success. IX. PLANNING A GENERAL SYSTEM OF BOOKS Examine the books which are in use and make a description of the books, using a separate piece of paper for each book; pin these together and use them for reference and also make notes relating to each book on the memorandum of that book. Take off a trial balance showing the accounts on the ledger, and make a condensed statement of profit and loss. (Report Forms i to 9.) Care should be exercised in the preparation of this statement, for the object of the statement is to determine the most satisfactory man- ner of assembling the accounts. Make a condensed trial balance of the business (see Report Form No. 46) ; this will show the features of the business which have been made prominent and the analysis of the various accounts. From this you should be able to design a monthly statement (Form No. 27). This is what the books are to work up to and should give the desired information. Always endeavor first to give the client the information he needs, in the simplest statement possible. Let your ideas be elastic and never force them upon a client. If you think you have a method which would prove valuable to the client, explain it to him in detail, giving the reasons for your deductions ; if not acceptable, get an idea of what he does want and show enthusiasm in working up his ideas. Do not try to formulate a plan for the complete system at once ; it only confuses the mind and exhausts your vitality. Take each division of the work separately and give it your indi- vidual attention. Formulate the plan of operating that particular branch of work 65 66 ACCOUNTING PRACTICE and, when you are satisfied you have it right, make up your forms in rough and write a careful description of your plan of operating same. Make an entry which will incorporate the results in the general books, and study it carefully before considering the next division of the business. Take up each division of the business and consider it carefully. After you have done so and have an entry for each book, review the matter and see if you have overlooked any class of entries. Formulate a plan of operating the system as a whole when you are satisfied that you have covered the detail thoroughly. The best method of satisfying yourself is to rewrite the books for a month or so, not every entry but every style of entry appear- ing on the books. Preserve these notes carefully, for your mind will require refreshing when installing the books. To Illustrate: A Trading Business In a trading business you have buying and selling. By preparing a condensed statement of profit and loss (Report Form No. 3), and a condensed trial balance (Form 46), you get an idea of the features which were considered prominent by the people who developed the business. Sales Examine the sales carefully and see if the method of handling the sales is open to improvement. Do not install special column bound books where a number of clerks are posting from the same book. It causes confusion, because only one person can use the book at a time. Always consider whether the book can be conveniently operated. The sales accounts should always be entered in a special ledger and a control account for them kept in the general or private ledger. After deciding the most desirable way of handling the sales, if you plan a new form, make a rough outline, and an entry covering the sales for a month. See sales journal Form No. 25 ; the following entry will incor- porate the results of that form in the general books: PLANNING A GENERAL SYSTEM OF BOOKS 67 Sales Journal Debits : Cash Sales Account $i 19.70 Sales Ledger Account 37,601.72 Purchase Ledger Account 401.15 Credit: To Sales Account $38,122.57 Debit : Cost of Sales Account 24,619.22 Credit: To Merchandise Account $24,619.22 Consider very carefully before making radical changes. It simplifies matters to have all work of a similar character com- piled in a like manner. Endeavor to arrange the books so that one entry will incorporate the results on the general books. Purchases Study the expense and merchandise purchase accounts on the ledger, and see where the entries originated. If a large number of entries of a certain class must originate in the cash book, note the fact on the memorandum for the cash book. Decide whether it is advisable to keep a voucher register (Form 32) or a purchase ledger. If the purchases are made of certain creditors, the purchase ledger should be kept; but if there are an extraordinary number of parties from whom purchases are made, the voucher register should be given the preference. Examine the methods which were in vogue for compiling the pur- chases, merchandise and expense. 1 i ) Would it be advantageous to make a special column purchase journal ? (2) Would it be desirable to have a purchase journal for ex- penses and a purchase journal for merchandise? (3) Is it necessary to keep a purchase ledger? The bulk of the merchandise purchases in many cases is purchased of such a large number of parties, that it would be a waste of time making an account for each purchase. 68 ACCOUNTING PRACTICE (4) If not necessary to keep a purchase ledger, how should the purchases be kept? (5) Would a voucher system be desirable? (6) Would a vertical file be desirable? (See improved voucher system.) After deciding upon the book to be used for the purchases, make a rough draft and an entry covering the purchases for a month. See Purchase Journal, Form No. 24 ; the following entry will in- corporate the results of that form in the general books: Purchase Journal Debits : Expense Account $371.60 Merchandise 47,691.77 Freight and Cartage 1 39.87 Advertising 300.00 Repairs and Renewals... 194.16 Selling Expenses 1,122.57 Provisional Account 301.70 Credits : To Sales Ledger $317.22 To Purchase Ledger.... 49,804.45 $50,121.67 $50,121.67 See also Voucher Register Form No. 32; the following entry will incorporate the results of that form in the general books: Voucher Register Debits : Expense Account $371.60 Merchandise 49,691.77 Freight and Cartage J 39-87 Advertising 300.00 Repairs and Renewals 194.16 Selling Expenses 1,122.57 Provisional Account 301.70 Credit : To Accounts Payable $50,121.67 PLANNING A GENERAL SYSTEM OF BOOKS 69 Cash Receipts Study the cash receipts and ascertain their sources. Decide whether it would be advisable to inaugurate a system like Form 26, entering nothing but checks on the cash book, or a system like Form 29, entering cash and checks on the cash book. There are many reasons why the system of entering nothing but checks on the cash book is the better one: It is more susceptible to an audit ; it makes the entries and payments final ; it is easy to prove and locate differences. There are many other reasons too numerous to mention. Petty Cash Fund This plan of operating the petty cash account was devised by the author and is being universally adopted, because it is simple and makes it possible to enter nothing but checks in the cash book. All receipts are deposited and never confused with the petty cash fund. The amount received is set aside until deposited. An even sum, say $500, sufficient to meet the requirements of the business, is set aside as a fund from which all petty items are paid and all matters not conveniently paid by check. Each payment is entered in a book or on an envelope. At any time it is desirable to balance the cash, the total payments should be counted as so much cash and the balance must equal $500. This enables the bookkeeper to square up his cash quickly and turn it over to another as often as desired. When it becomes necessary or desirable to reimburse the fund, the account is closed and a check is drawn for the amount which was paid from the fund, the original record of the payments being sub- mitted as a voucher for the check and the details of the check noted on the record. If an envelope is used, the size should be such, that it can be conveniently filed with the voucher for the check. The check is entered on the cash book like all other checks, and the record is final and complete. Nothing but checks are entered on the cash book ; consequently the deposits on the cash book should agree with the check book account and the cash payments should equal the checks. 7 o ACCOUNTING PRACTICE See Cash Receipts Form No. 23; the following entry will incor- porate the results of that form in the general books: Cash Receipts Debit : Discount $i 10*57 Bank Account 52,133.31 Credits: To Sales Ledger Account $21,777.86 " Purchase Ledger Account 41-32 " Bills Payable Account. . . . 30,000.00 " Cash Sales 1 19.70 " Exchange 305.00 $52,243.88 $52,243.88 Discount Column This column is provided when discount is allowed in settlements. If there are also petty allowances for freight, etc., columns can be provided if desired. Bank Column This column is for the deposits and should agree with the pass- book account. Sales Ledger Column This column is for all items posted to the credit of sales ledger accounts. The total amount credited to the sales ledger should be entered in this column. Purchase Ledger Column This column is for credits posted to the purchase ledger for cash received. The total amount credited in the purchase ledger should be entered in this column. Bills Payable and all such items, occurring only occasionally, are entered in the private ledger column and posted direct to it. Cash Sales Where cash sales are made, it is very convenient to provide a column for same on the cash book. If this is done, a column should PLANNING A GENERAL SYSTEM OF BOOKS 71 also be provided in the sales journal or some method devised for proving the cash sales. Exchange An exchange column should be provided on both sides of the cash book and all items of exchange entered in it. This is necessary to make the cash and check books agree in totals. The following entry will incorporate the results of Form 26 in the general books : Cash Payments Debits: Purchase Ledger Account. . . .$11,701.50 Sales Ledger Account J o.75 Bills Payable 10,000.00 Postage 50.00 Expense 71 .92 Salary 475-OO Wages 392.00 Merchandise 94-73 Freight and Cartage 71.62 Commission 95-OO Interest 1 17.40 Exchange 305.00 Credits: To Discount $112.31 To Bank 23,272.61 $23,384.92 $23,384.92 Cash Payables To obviate the necessity of an extended analysis of the cash book payments, the following method was devised by the author: Provide a column beside the purchase ledger column on the pur- chase journal (see Form 28), and also on the cash book (see Form 29). All items it is desirable to pay in cash without opening an account on the purchase or sales ledger, can be entered in the pur- chase journal, just as any other invoice and the payment made, charg- ing the item in the cash book in the column for Cash Payables. 72 ACCOUNTING PRACTICE The Cash Payables on the purchase journal will offset the Cash Payables on the cash book. Summing Up After you have drawn up your forms and made your entries, list the entries on a sheet of journal paper and foot them. Take a sheet of analysis paper and enter the condensed trial bal- ance of the business (rearranged to meet your scheme). Post to the sheet the entries for the forms you have made and extend the results just as designed on Form 27. In posting to the sheet, it is desirable to have some character represent each of the entries so that they can be distinguished at a glance. To illustrate: Have a square at the entry for sales, a diamond at the entry for cash receipts, etc. If it works out satisfactorily, it is safe to go ahead and have the forms made. Monthly Entries The best and cleanest method of making the monthly entries is to spread in the journal the entries for each book, so that one page (or two if necessary) will contain the entire results of the business. This has been accomplished in some of the largest concerns. The total of the journal footings will equal the totals in the columns for " Entries for the Month " on Form No. 27. If an error occurs, it can be located quickly by checking the state- ment with the journal. This is accomplished with ease by having a printed form for each book, so that the footings can be entered without writing the names of the accounts. Daily Balance Sheet This is virtually the method employed to secure a daily balance sheet; the results of each book are so arranged and reported, the total for each day being posted to a statement (Form 27). The total debits and credits of the entries for the day (month or week) should equal, and the amount for each account should be added to the results of the previous day and extended into the columns for trial balance up to date. PLANNING A GENERAL SYSTEM OF BOOKS 73 The daily results are sometimes more conveniently reported for the month up to date, in which case the results reported are added to the results for the closing of the previous month. Opening a New Ledger Before opening a new ledger, design the periodical statement for the business. (See Form No. 27.) Make a copy of the periodical statement and note, opposite the name of each account on the statement, the number of ledger pages it is expedient to assign to each account; add the total of the pages and see if the total exceeds the number of pages of the new ledger. After you have reduced or increased the pages assigned to each account to the required capacity of the ledger, enter the folio of each account opposite the name of the account on the statement. Then commence and open each account on the ledger according to the design on the statement. General Ledger Index To provide a convenient index for the general ledger, make a list of the accounts and folios on a sheet of paper a little shorter than the ledger. Leave a margin of about four inches on the left hand side and paste the sheet on the last fly leaf of the ledger, so that when the list is turned outward, the account names and folios will be in evidence. When not in use, turn the list inward so it will not show or be in the way. Provisional Account In every business there are certain items of expense such as in- surance, taxes, etc., which should be distributed over an extended period. It has been the custom to carry these items in such accounts as Unexpired Insurance, Unexpired Taxes, etc. ; but this requires con- siderable labor each month in order to determine accurately the amount which should be charged against that particular month. To obviate this repetition, necessitated each month, a book was devised by the author which is called the Provisional Account Book. The book is a sub-analysis with fourteen columns (see Form No. 22), the first column being for the amount, the next twelve col- 6 / ;4 ACCOUNTING PRACTICE umns being for the twelve months of the year, and the last column for the proportion of the expense expiring the following year. A column is provided on the purchase journal for provisional account (see Forms Nos. 24 and 29). Each and every item charged in this column is entered in the Provisional Account Book, the total amount being entered in the first column, and the amount chargeable to the current year distributed in the columns for the months to which the several amounts apply. The amount which will be unex- pired at the end of the fiscal year is entered in the last column. Several sheets (Form No. 22) can be used to further analyze this expense, by discriminating between taxes, insurance, etc., by using a sheet for each, with only one provisional account in the ledger. Improved Voucher System If the purchases are made from so many different parties that it is unadvisable to keep a purchase ledger account of each, the fol- lowing plan will appeal to many : Provide a vertical file for invoices and divide it into two divisions : one for unpaid and one for paid bills. Enter the invoices in the voucher register Form No. 32. All invoices are registered in the order of entry, the number being entered on the invoice. File the bills alphabetically in the division of the vertical file for unpaid bills, using a bellows file (monthly) for large accounts, and allow them to remain there until paid. Parties requiring invoices must never take the bills from the files without leaving a receipt. In fact, one person should be responsible for the file and no others should have access to it. When the bills are paid, they are removed from the division for unpaid bills, stamped paid, voucher register record made and the bills put in the division for paid bills. Voucher Register Record When the bills are paid, the payment should be entered opposite the item in the voucher register in the column provided for the cur- rent month. PLANNING A GENERAL SYSTEM OF BOOKS 75 The voucher register has three columns for the memorandum of amount of the payment. These are for the current month of entry and the next succeeding month (assuming all bills are settled in two months). If a bill is paid the same month as entered in the voucher register, the payment is entered in the column for current month. When balancing the books, a list should be made on the adding machine of the items unpaid and the total compared with the control account. If one or two items extend beyond the two months, they should be carried forward in red ink on the voucher register. The total payments for any month should agree with the total of the columns on the voucher register for payments made during that month. Branch Office Accounts The branch office books should be as simple as possible ; the books of original entry should be made in manifold and the originals sent to the home office. The branch office books should have columns for the home office and the purchase journal should have a column for the bills to be settled by the home office. Each branch office should have a fund from which all expendi- tures should be made by check only, and the branch offices should be reimbursed for the actual expenditures as approved by the home office. A monthly statement should be provided for each office similar to Form No. 27; in addition a summary of income and expenses, showing the results for the month, same month last year, for the year to date and same period last year; a summary of the sales, showing the inventory at the first of the month, plus the purchases, less the inventory at the end of the month, which makes the cost of the sales. In connection with this report should be a statement of the sales, deducting returns and allowances and showing the net sales. From the net sales should be deducted the cost of sales, showing the gross profits on each line of merchandise, according to the anal- ysis in common use. 7 6 ACCOUNTING PRACTICE A control plant ledger should be kept at the home office. This ledger should be a duplicate of the ledgers at the plants. A trial balance from the plant ledger should give a balance sheet in total and detail of all the plants. The final report should be the balance sheet of the entire busi- ness as one, and this should be supported by the balance sheet show- ing the detail of each item of the first balance sheet. By detail is meant how much is at each plant. This plan can be operated so that no ledgers are kept at the plants, by having the manifold sheets forwarded to the home office for entry. It is no more work for the home office and takes the results and the work from the branch offices. X. GENERAL NOTES AND SUGGESTIONS 1. Amplified Trial Balance In a case where it is necessary to eliminate entries which were superfluous or tended to confuse, it is very satisfactory to make an amplified trial balance, and after determining the entries to be elimi- nated, to deduct such from the accounts and thus produce the results which would have appeared had the books been written up correctly in the first place. An amplified trial balance differs from an ordinary trial balance in that, instead of taking off the balance of the account, the total debits and total credits are taken off. The difference between the debits and credits of each account (as taken off for the amplified trial balance) should equal the balance of the account as per the regular trial balance. 2. Account Current An account current is an account between two offices, and, all entries made by each being considered, the debit balance on the books of one office should equal the credit balance on the books of the other office. If a request is made by one office to another for an account cur- rent, it should be furnished with a detailed statement of its account as it stands on the books, commencing with balance the last time an account current was rendered, showing all the debit items and credit items entered in the account and the balance at the end. 3. Bills Receivable Discounted The auditor should make a record of all discounts when auditing and if not settled as at the date the assets are verified, the items should be scheduled and set up in the report as a contingent asset and a contingent liability. 77 78 ACCOUNTING PRACTICE 4. Accommodation Paper If the business is in any way liable as indorser or maker of accommodation paper, the notes should be considered a contingent liability when preparing a balance sheet. 5. An Exhibit An exhibit is something displayed or presented to view. In sub- mitting statements, schedules, etc., as part of a report, it is proper to characterize all as exhibits, inasmuch as all schedules and statements are exhibits, but all exhibits are not statements or schedules. Anything submitted with a report or supplementary to a report is an exhibit, and should be so characterized, whether it is a photo- graph, plan, design, letter, or copy of any instrument. 6. A Statement In accounting, a statement is an arrangement of figures, compiled to show certain results. Although a schedule is virtually a statement, a distinction is evident and, inasmuch as each sets forth distinctly its character, accountants are recommended to discriminate in using the words by adapting the special significance of the words. 7. A Schedule In accounting, a schedule is a list of items or an inventory. Al- though many accountants to-day interpret the meaning of schedule to be a statement, the old professional accountants interpreted the meaning of the word to apply only to a list. If the list was converted into a statement at the end, it was characterized as a statement. 8. Unexpired Insurance Unexpired insurance is an asset and should be considered in pre- paring a statement of assets and liabilities. To determine the amount of unexpired insurance, make a schedule of the insurance policies showing the number of the policy, name of insurer, insured, prop- erty, term, premium, and extend the unexpired portion of the pre- mium. The total of the unexpired portions of the premiums is the amount which should be set up as unexpired insurance. GENERAL NOTES AND SUGGESTIONS 79 When preparing a statement of the value of unexpired insurance for a continuing company, distribute the premium equally over the months of the term of the policies; but when the statement of the value of unexpired insurance is for a company which has ordered the cancellation of all policies, estimate the value of the unexpired portion of the premium on the basis of its rebate value. Unexpired insurance should be carried in a Provisional Account as described and distributed on Form 22. 9. Commission on Sales of Bonds and Stocks Commission paid on the sales of bonds and stocks issued as capi- talization is a charge against surplus; but is not always written off immediately, but classified with promoters' expenses and spread over a period of several years. This also applies to rebates and allowances of every character made to advance the sale of such securities. 10. Plant Equipment Written Off Arbitrarily Plant and equipment arbitrarily written off the books should be charged against surplus account. 11. Labor in Trading Account Labor should be charged in the trading account when the labor is a direct cost chargeable against sales ; to illustrate, take the labor of making and laying carpets, which is illustrated on Report Form No. 19. 12. Bad Debts Charged Off When rendering a report or an audit, always submit a schedule of the bad accounts charged to profit and loss during the period. If sales are being made to parties whose accounts were previously written off as bad, look up the correspondence relating to the accounts. 13. Collections of Bad Debts If collections are made of bad accounts which were charged to profit and loss, the collections should be credited to profit and loss account, and set up as an offset to the bad debts charged against profit and loss during the current period. 8o ACCOUNTING PRACTICE 14. Surrendered Capitalization Dividends Waived Gifts to Corporations Capitalization surrendered without consideration, dividends waived, and all gifts to a corporation should be credited to surplus accounts, but should never be the basis for declaring dividends. 15. Dividends from Investments In an industrial company, all dividends from investments in out- side enterprises should be credited to surplus. If desired, special accounts can be maintained to show the return from certain invest- ments, but the accounts should be closed into surplus without con- fusing them with the profit and loss from operation. 16. Unexpired Discount Discount on bank accommodations should be considered as an asset when preparing a statement of assets and liabilities. A schedule should be made of the discounts showing the number, date, bank, due date, rate, discount, and unexpired portion of the discount. The total of the unexpired portions of the discounts is the unexpired discount. 17. Accrued Taxes Accrued taxes should be considered as a liability when preparing a statement of assets and liabilities ; if the amount due is not set up as accrued taxes among the current liabilities, a reserve should be set aside to cover the amount due. 18. Promoter's Expenses Promoter's expenses are a charge against surplus account, but are not always written off immediately, being spread over a period of several years. 19. Administrative Expenses (meaning home office) The salary and expenses incurred by executive and administrative offices should be prorated over the various auxiliary offices. The GENERAL NOTES AND SUGGESTIONS 81 apportionment of these may be made on a basis of the production, or sales of the auxiliary offices or plants. 20. General Expenses This classification should include all the expenses of the business which are of a general character, salary and expenses of officers, and general office staff; in fact, all expenses incurred by the management in the supervision of the business, including executive and administra- tive expenses. 21. Factory Expenses This classification should include all expenses of the factory at large, which cannot be assigned to particular departments because they are common to all; such as salary and expenses of the factory superintendent and his staff, light and power for elevators, insurance and taxes which cannot be applied to departments, accidents, etc. Factory expenses should be prorated equitably over the various de- partments, to be applied against the production of the departments. 22. Departmental Expenses This classification should include all expenditures chargeable directly and specifically to each department for supplies used in the process of manufacture which do not enter directly into the product as a component part of it; also, rent of factory (computed according to required floor space), heat, light and power, building and machinery repairs, insurance and taxes, reserve for depreciation, and any charge for which the department is directly responsible. Department expenses should be distributed equitably over the pro- duction of the department. 23. Good Will Good will is a legitimate asset in an industrial enterprise and the most accepted method of computing the amount of good will is to take the total profits for the last five years and deduct from them five years' interest on the capitalization at seven per cent per annum ; the balance is good will. The rate of interest is based on the assump- 8 2 ACCOUNTING PRACTICE tion that no capitalist would invest in an enterprise unless he was assured at least seven per cent annual return. Good will should be written off the books during five subsequent years by charging off one-fifth against each succeeding year. 24. Relation of Profits to Investment The relation of the profits to the amount of money invested is one important feature to be considered when performing a financial audit. The small percentage of profit on sales showing a large percentage on investment is preferable to a large percentage of profit on sales with a small percentage of profit on the investment. 25. Voucher Check The common form of folding voucher check is undesirable for many reasons, and is being dispensed with. As a rule, the indorse- ment is overlooked in conforming to the many details required in executing the voucher. The indorsement is of greater importance than the receipt, and any voucher check which neglects the indorse- ment should not be used. The most satisfactory form of voucher check is the check with a small form on the back of the check, which can be used to enter the necessary memorandum of the settlement, under which should be printed, " Indorsed in settlement of the above." 26. Control Accounts In order to divide the responsibility for the work of keeping the books, large concerns are obliged to keep control accounts on the general ledger, which keep a record by totals of the detail entered in the various supplementary ledgers. The control account shows what the balance of the supplementary ledger should be. To illustrate, consider a sales ledger. The control account in the general ledger would be charged with the total sales posted to that ledger and credited with the cash receipts and sales credits for the ledger. Consequently, if the detail posting to the sales ledger is done correctly, the balance of the sales ledger must equal the balance shown by the control account in the general ledger. GENERAL NOTES AND SUGGESTIONS 83 This method has been very satisfactory, and has simplified the taking of the trial balance so much, that it is being adopted by most concerns. It also enables the bookkeeper to show the results of the business promptly, even when the postings to the sales and purchase ledgers have been permitted to fall behind ; because the accounts in the general ledger are few and the totals of the business can be posted in a short time, and thus the results of the operations of the business known. 27. Planning General Ledger In planning a general ledger, it is very desirable to limit the accounts to as few as practical. The analysis need not be neglected, because the totals of four or five of the purchase journal items are posted to one account, for the detail of the account can be known (if question arises) by making a summary of the monthly totals of the purchase journal. Another plan is to have a few pages of the ledger made especially for the expense accounts, by using a whole page for debits and a whole page for credits, and ruling five or six columns on each page. By using the columns for an analysis of the items and posting all the items to total columns debit and credit, so that the difference of the total columns will be the balance of the account and the analytical columns will show the detail of the total columns. 28. Excessive Valuation of Inventories When the inventories are valued at excessive prices, a reserve should be set up to offset the excessive valuation. 29. Items Previously Charged to Capitalization If a physical inventory includes items which have been previously charged to capitalization, the increased value of assets should be set up in some account in the nature of a reserve, until the proper ad- justments have been made. To set it up as surplus is misleading. The same applies to tools, implements, etc., previously charged to capi- talization. ACCOUNTING PRACTICE 30. Inventories of Merchandise Where Two Values Are In Evidence Inventories should be figured at two values if profits are figured on the production : the greater at the market value and the lesser at the cost value. The difference between the totals of the inventories should be set up as a reserve. Market Value Cost Value Reserve Material 190,401 . 10 167, ?oi . 30 22,899 ^ Merchandise 21 ?,o8l . 7O 201 ,662 . 1 5 14,3 IQ . < ? Total 406,382 80 360,16'? 4^ 37,210 . 3 ? In the preparation of the statements attached to a report, the inventories are considered at the cost value, this being considered the most conservative. The reserve represents anticipated profits. 31. Purchases (in report) If desirable, for any special reason, to draw attention to the cred- its for returns and allowances on purchases or the gross purchases, the amount of same can be carried short. The net amount is generally shown because a multiplicity of deductions in a report only confuses. 32. Supplies The most practical method of handling supplies is to include the net cost of supplies in the expenses, general and manufacturing, show- ing only the net expenses in the statements and the value of the inventories of supplies in the balance sheet. 33. Dates Used In Reports Never make the date January ist when the books were closed as at December 3ist. 34. Interest on Capital Interest on capital should be set up as an expense when the inter- est is charged in lieu of salary of the proprietors of the business. If making an audit to show profits, the interest should be set up separately no matter what the conditions are. GENERAL NOTES AND SUGGESTIONS 85 If making an audit for the parties in control of the business, inter- est on capital should be set up as a special item of profit and loss. 35. Closing Books of Corporations When closing books of corporations, the profits should be trans- ferred to surplus, and dividends authorized should be charged against surplus and credited to Dividends Payable. 36. Closing Books of Partnerships When closing the books of partnerships, the profits and personal drawings should be carried to the partners' investment accounts. 37. Arrangement of Exhibits In preparing a report, the main exhibits should be arranged in accordance with their relation to each other, the main exhibits being submitted first and the supplementary exhibits, statements and sched- ules following. Exhibits are also arranged according to their relative importance. 38. Check Marks Be neat and careful in making your check marks ; the work of excellent accountants has been condemned severely because of sloven- liness in this regard. The majority of business men take pride in the neat appearance of their books and regard with disgust, careless- ness in marking the books, especially when clone by a high-priced man It is generally necessary to use different colored pencils to distinguish the different marks. 39. Queries Queries arising in the course of the audit should be recorded on a working paper devoted to that purpose only, and when investigated and approved, the items should be checked off on the working paper. 40. Source of Statements In making notes of statements made by others, state who made the statements, when, and endeavor to record their exact words with- out elaboration, slkvays state facts. 86 ACCOUNTING PRACTICE 41. Binding Reports Reports are bound in book form by using a cover and binding the sheets in the cover with eyelets. The use of ribbons, placed through the eyelets and fastened in the front of the cover with a seal has been discontinued. 42. Letter Heads Professionally, it is not good taste to have self-praise or adver- tising matter printed on the letter heads. Your name, public account- ant, auditor and accountant, or your degree, your address, associates, if any, are all that first-class accountants use. 43. Forms of Report The idea of submitting these various forms has been to set forth the principle and not to show forms which are to be copied without considering the circumstances. Always have a regard for the fitness of things. To follow set rules is not always expedient. Consider what is appropriate to the conditions and endeavor to prepare a report suited to the business conditions. 44. Checking When auditing never, under any circumstances, arbitrarily check items which are unchecked. Never do such a thing during the prog- ress of the audit, especially when seeking a difference. Even though you do give it up, do not make arbitrary check marks. Keep a record of the marks used for checking postings and vouch- ing items. A distinctive mark should be used for checking, so that you know by the mark why the check was made, and a memorandum should be made on the working papers of the marks which were used. PART II COST ACCOUNTING I. COST SYSTEMS IN GENERAL A cost system is a method of bookkeeping designed to show the cost of manufacture, and to provide a means of reckoning the basis upon which it is profitable to sell the production. It should also show the results of purchasing, conserve the material, expose unnecessary losses and supply suitable statements of the progress of the manu- facturing department. 1. Elements of Cost The elements of cost are primarily material, labor and expense, and under ordinary conditions all expenditures can be so classified. Material : ( Productive. Labor : -J ( Nonproductive. Departmental. ^ Factory at large. Expense : General Expense. Selling Expense. Work Purchased Expenditures are classified as work purchased, when an outside party is paid for performing some special operation which cannot be classified as labor or material. If the work was done in the factory, it would be a labor cost ; but since it is not, it cannot properly be classified as labor, especially when the percentage costs are based on the per man hour. Since it cannot be classified with either labor or material, it should be treated as an independent factor and set up by itself. If the expense percentages are based on labor and mate- rial, it should not be included in the amount upon which the per- centage charges are computed; but if the percentage charges are 7 89 9 o ACCOUNTING PRACTICE based on the total prime cost, it should be included before the per- centage charges are computed. What Is Material? There has been considerable discussion regarding this question, and in some cases it has been vexatious discriminating between mer- chandise, material, and supplies. The product of one business may be the material of another ; con- sequently, the same must apply to a compound business, in which case the principle would apply to departments. But it would not be ex- pedient to record as sales the product of one department delivered to another ; and even if actually sold, conditions might be such that these sales would be a byproduct set up as an offset to the material cost. Shoes are the product of which leather is the material ; leather is the product of which hides are the material. If the business was simply making shoes, the material would be leather ; but if the tannery was operated in connection with the shoe factory, and tanned leather was a considerable item of the sales, the product of the tannery must be the raw material of the shoe factory. Intercharges In a compound business, the product of one department delivered to another as sales should be treated as intercharges, and the analysis of the sales and purchases should each have a column for inter- charges, in order to show the amount of intercharges on each. The amount of intercharges on the sales journal should equal the inter- charges on the purchase journal. Supplies The simplest and most satisfactory method is to treat as supplies all articles used in a general way in the department, which are not a component part of the product and cannot be charged to the orders as a definite quantity. Prime Costs The prime costs are labor and material. In some cases, the ex- penses are based on the labor only. The latter method has been re- COST SYSTEMS IN GENERAL gi ceived with favor, when the material cost varies so extraordinarily that it would be inequitable to base the expense cost on it. Percentage Costs After the prime costs have been determined, percentages are added for expenses ; these are called the Percentage Costs. Basis of Computations In all cases of similar import, the past must be the basis for the future computations, and to be accurate, all contributing conditions should be considered whether favorable or otherwise. (See con- densed statements of profit and loss, Report Forms I and 2.) 2. Kinds of Cost Systems There are many kinds of cost systems and some are combinations of various methods. The following are some of the methods of keep- ing costs: (1) The cost system in which the records are kept according to order numbers. In this method, it is customary to provide a cost sheet for each and every order number. The cost sheet should be ruled so that the items will be grouped according to the desired analysis and provision made for a summary of the results. (See Form No. 7 for illustration of ruling.) (2) The cost system in which the records are kept according to departments. In this method, a cost sheet is kept for each department. The cost sheet should be ruled so that the items will be grouped according to the analysis and provision made for a summary of the results. It should also provide for a record of the quantity of work passing through the department, according to the unit of measurements. (See Form No. 21 for illustration of ruling.) (3) The cost system in which the records are kept according to the operations or processes. In this method, a cost sheet is provided for each and every process. The cost sheet should be ruled so that the items will be grouped 92 ACCOUNTING PRACTICE according to the analysis, and provision made for a summary of the results. It should also provide for a record of the quantity which underwent the process and the rate per unit of measurement. (See Form No. 21 for illustration of ruling.) (4) The cost system in which the records are kept according to machines. This is known as the machine cost and the cost sheets are made for individual machines or groups of machines. The cost sheet should be ruled so that the items will be grouped according to the analysis, and provision made for the summary of the results. It should also provide for the record of the results from operating the machines and the number of hours in operation. A rate is charged for the time the machine is occupied. This rate is known as the " machine hour " and is based on the expense of operating the machine, considering only the number of hours in operation. (See Form No. 21 for illustration of ruling.) II. PLANNING THE SYSTEM 1. Planning the Controlling Accounts The classification of the items, the arrangement of the ledger accounts, and the method to be adopted are the difficult features. For this reason, I submit the chart showing the grouping of ac- counts, which I entreat you to study until your mind automatically groups the accounts and arranges the control of the operations as described. Plan of Operation Chart Showing the Grouping of the Accounts CASH ACCOUNT (2) WORK-IN-PROCESS ACCOUNT PRODUCTION ACCOUNT CASH ACCOUNT 93 94 ACCOUNTING PRACTICE Each one of the rectangles shown in the chart represents an account on the ledger. Cash is paid for material in detail and the cash account is credited with the total, which total is debited to the material account. Toll Station No. i is the material column. Cash is paid for labor in detail and the cash account is credited with the total, which total is debited to the labor account. Toll Station No. 2 is the labor column. Cash is paid for expenses in detail and the cash account is credited with the total, which total is debited to the expense account. Toll Station No. 3 is the expense column. Material is charged to the cost sheets for work in process in detail and the material account is credited with the total, which total is debited to work in process account. Toll Station No. 4. Labor is charged to the cost sheets for work in process in detail and the labor account is credited with the total, which total is debited to work in process account. Toll Station No. 5. Expense is charged to the cost sheets for work in process in detail and the expense account is credited with the total, which total is debited to the work in process account. Toll Station No. 6. As the work is completed, the cost sheets are figured in detail and the total of the completed cost sheets is debited to the produc- tion (or similar account) and credited to work in process. Toll Station No. 7. Now study the following concrete plan of operating the cost sys- tem No. i, and endeavor to comprehend the relation of the accounts to each other before studying the detail of the items : CONCRETE PLAN OF OPERATING THE COST SYSTEM No. i 1 i ) Balance commencing the period $17,691.83 (2) Charges made in detail to the Cost Sheets, during the period: Labor 1721.60 Material 4782 . 95 Expense 649 . 87 Total in operation during period $24,846 . 25 Deduct Cost Sheets for orders completed during the period. ... 10,791 .44 Balance at end of period $14,054 . 81 Value of Work in process at the end of period. List of unfinished Cost Sheets should equal this balance. This balance is the balance for the beginning of the following week. PLANNING THE SYSTEM 95 There are three classes of expenditures to be considered, and, no matter how they are ultimately subdivided, you should consider them primarily as: Material. Labor. Expense. You should study the chart until your mind inadvertently groups them in this manner. The cash is paid for material, labor and expense ; the respective accounts on the ledger are charged and the cash account credited. The entry should be: Material, Dr $1005.03 Labor, Dr 960.00 Expenses, Dr. 100.00 To Cash, Cr $2065.00 The material, labor and expense are charged to cost sheets, which are a record of " Work in Process." The amount so charged to cost sheets is controlled, and the work in process account on the ledger is charged, and the material, labor and expense accounts on the ledger are credited. The entry for same should be: Work in Process Account, Dr $7154.42 To Material Account, Cr $4782.95 " Labor Account, Cr 1721.60 " Expense Account, Cr 649.87 $7154.42 $7154-4-' When the work is completed, the total value of the completed cost sheets is charged to the production account (or similar account) on the ledger and credited to the " Work in Process Account " on the ledger. The entry should be : Finished Product Account, Dr $10791.44 To Work in Process Account, Cr $10791.44 9 6 ACCOUNTING PRACTICE After examining the chart, it must appear to you that creating a cost system revolves itself primarily into a matter of arranging the control accounts and providing a means of controlling the passages from one account to another. The material is delivered to the work in process. What is the best, simplest and most practical method of making a record of the delivery, and securing a competent record of the material delivered to work in process? If a requisition is made for the material, the store clerk or party in charge of the material could make the necessary entries on the slip for the identification and price of the material actually delivered, and the requisition could be used as a basis for the charge. In fact, any form of any kind, which is a competent record of the material delivered, could be returned to the cost department, to be used as a basis of the charge for the material on the cost sheet. The forms for material to be charged to cost sheets could be figured and totaled on an adding machine, and the detail posted to the cost sheets direct from the forms. The labor is expended on work in process. How can a record be made of the work which will not only insure returns for the expendi- ture, but provide a means of charging the labor to the cost sheets for work in process? Study carefully the different classes of time cards, and choose the method which appeals to you as most adapted to the requirements of the situation. (See Operating Forms i and 2.) The expenses must be added as an additional or supplementary cost. What basis should be employed to secure an equitable distri- bution of the expenses? (1) Work in Process Account on the Ledger Work in process account on the ledger is the same kind of account as the sales ledger account on the private ledger. The sales ledger account is charged with a total for sales made; but the items are charged in detail to the individual accounts in the sales ledger. Collections are credited in total to the sales ledger account ; but the items are credited in detail to the individual accounts on the sales ledger. PLANNING THE SYSTEM 97 So it is with the cost system. Work in process account is charged with a total for material, but the items in detail are charged to the individual cost sheets. The labor is charged in total to the work in process account on the ledger; but the items are charged in detail to the individual cost sheets. The expense provision is charged in total to the work in process account on the ledger; but the items in detail are charged to the cost sheets. If a list is made of the accounts in the sales ledger, the total of the balances (trial balance) in the sales ledger will equal the balance of the sales ledger account on the private ledger. So it is with the cost system ; if a schedule is made of the cost sheets which are uncom- pleted, the total of the uncompleted cost sheets will equal the balance of the work in process account on the ledger. To sum the matter up briefly : the work in process account on the ledger is simply a ledger account controlling the work in process. (2) The Material Account on the Ledger The material account on the ledger is an account controlling all material on hand, which -has not been delivered to work in process of manufacture, excepting articles classified as manufacturing ex- pense supplies. The balance of the material account should be the value of the inventory of the material and, when an inventory is taken to prove the work, the physical inventory of material should be the equivalent of the balance of the ledger account. The material account may be subdivided into as many accounts as desirable ; but the disposition to subanalyze is generally carried to extremes, the result being an enormous amount of labor without any valuable return, and quite often the main objects are swamped in a mass of valueless detail. Under the heading material could be grouped every conceivable article used in the factory which is delivered under control; but it is unadvisable to do so. Discriminate between supplies and material by classifying as mate- rial only articles that become a component part of the product. Experience has demonstrated this to be the most practical plan. 98 (3) Pay Roll Account on the Ledger The pay roll account is an account to which all labor is charged. The labor account should be absorbed by the cost system, unless advances are made or advance charges made for wages. (4) Expense Accounts on the Ledger The expense accounts on the ledger may be subdivided into as many accounts as it is deemed expedient. The accounts should be grouped or analyzed, so that it is possible to determine (i) the depart- mental expenses, (2) the factory expenses, (3) the general expenses, and (4) the selling expenses. The total of the expense accounts should not exceed the amount provided to meet expenses (by charges made to cost sheets), unless some payment has been made for advances. The credits to the expense accounts should be sufficient to cover all accrued expenses and transfer the expenses to the cost sheets. 2. Method of Operation (1) Balance of Work in Process Account at the Beginning of the Week. (See plan of operating system No. 2.) The balance of the work in process account on the ledger should be the value of the production in various stages of manufacture, as shown by the cost sheets, and a schedule of the cost sheets at any closing period should equal the balance shown by the ledger account. Work in process account is the account representing the entire prod- uct in process of manufacture. It may be subdivided into depart- ments, but this is a supplementary matter to be treated hereinafter. (2) Charges Made to Cost Sheets The charges made to the cost sheets should be controlled and analyzed, so that the total amount is known and also an analysis of the total. The credit to material account for the charges made to cost sheets should reduce the material account to the inventory value of same. The credit to labor account should offset the account for pay roll on the ledger. PLANNING THE SYSTEM 99 OPERATION AND CONTROL OF COST SYSTEM No. a. LBDGBR ACCOUNTS Work in Process. Total ANALYSIS OF CHARGES TO COST SHEETS Material Labor Expense (0 (2) Balance of work in process account at the begin- ning of the week $6739.15 2600 .00 $4i50-75 I IOO .OO $1910 . 60 950 .00 $675.80 55O .00 Charges made to the cost sheets during week . . (3) (4) Total in operation during week 9337-15 2IOO.OO 5 2 50-75 IO2O . 15 2860 .60 829.30 1225 .80 250.55 Cost sheets for completed orders (5) Balance for work in proc- ess account at the end of the week 7237-I5 4230.60 2031.31 975-25 (3) Total in Operation This total shows the value of work in process which was in oper- ation during the week. It does not mean that the work in process at any time during the week was worth that amount, as the majority of it may have been delivered during the early part of the week. (4) Completed Cost Sheets The cost sheets should be scheduled as they are completed and an analysis made of them to determine the amount of labor, material and expense which was charged to them. The analysis of completed cost sheets is required only for proving, and is not essential unless you desire to prove each class of entries, as shown on the plan of operating No. 2. (5) Balance of Work in Process Account at the End of the Week The balance of work in process at the end of the week is similar to the balance at the beginning (No. i) and this balance at the end of the week is the balance for the beginning of the next succeeding week. I00 ACCOUNTING PRACTICE Proof of Work The cost sheets are listed at the beginning of the period ; charges are made to the cost sheets during the period ; all cost sheets for com- pleted orders are scheduled and analyzed according to material, labor and expense (or any analysis planned) and the total is deducted (see No. 4 of plan). The balance of the cost sheets should then be listed on the same form and the result, if correct, will be the total of the uncompleted cost sheets (see No. 5), and an analysis showing the amount of labor, material and expense. The object of operating the cost system according to the analysis of the charges is : It gives a proof of the work in such a way, that if an error was made in the work, it will not be necessary to go over the entire work but only the part in which the error occurred. If the error is in the pay roll charges, examine them; if in the mate- rial, examine the material; if in the expenses, examine the expense. Basis of Percentage Charges It is inadvisable to base expenses on a period of a week or a month, as this necessitates carrying over from one period to another a surplus or deficit. The percentage charges, under normal conditions, should be based on the past year or years. Therefore, the business should be sub- jected to rigid scrutiny, and all contributing conditions considered. Idle Periods The fixed expenses of a business, or department of a business, are continuous, whether in operation or not, and the expenses of pres- ervation during an inactive period is as much a cost of operation chargeable to an active period, as the fixed expenses of the active period ; for it is necessary to preserve the integrity of the business during the inactive period, in order to make possible its operation during the active period. To illustrate: If a business with an annual rental of $12,000 was of a character prohibiting operation four months during the year, it would be deceptive and inequitable to compute costs on a basis of PLANNING THE SYSTEM 1OI $1,000 per month, because (other elements being accurate) the results would show an additional loss of $4,000 per annum. Verifying Percentages In a cost system where the percentage charges are based on annual statements, the provisions made for such expenses should be so arranged, that comparisons can be made monthly with the ledger accounts for such expenditures. Provisions for Expense Account When the cost system results are incorporated on the general ledger, it has proven very satisfactory to arrange the expense account so that, when a trial balance is taken, the accounts are in order, mak- ing it possible to foot the expenses, and, instead of crediting the ex- pense accounts with the percentage charges, which were made on the cost sheets, allow the accounts to stand in their integrity, making suitable provision for unexpired expenses, depreciation and long term expenses to insure an accurate record of the expenses which have actually expired ; then accounts should be set up in the ledger to show the provisions made to meet them. 3. The General Books and a Cost System The general books can be made to cooperate with the cost system and matters simplified by arranging the purchases for account of material and expenses to meet the requirements of the cost system. If the general books are designed so as to give you all the infor- mation required for the cost system, it is not advisable to make any change, especially at this time. Production Ledger A production ledger can be kept as a part of the cost system and only the accounts required for the cost system kept in same, a bal- ance being entered in an account for general ledger to establish the equilibrium of the production ledger. The accounts in the production ledger would be as follows: General Ledger Account. Work in Process Account. I02 ACCOUNTING PRACTICE Material Account. Labor Account. Production Account. Provision for Departmental Expenses. Provision for Factory Expenses. Provision for General Expenses. Provision for Selling Expenses. The general ledger account would have a balance, necessary to establish the equilibrium of the production ledger. The work in process account would be the record of work in process as described heretofore. The labor account would be the provision made to cover the cost of labor and would be the opposite of the balance on the general ledger. The provision for department expenses should be a credit and the equivalent of the total debits of the accounts in the general ledger for department expenses. The provision for factory expenses should be a credit and the equivalent of the total debits of the accounts in the general ledger for factory expenses. The provision for general expenses should be a credit and the equivalent of the total debits of the accounts in the general ledger for general expenses. The provision for selling expenses should be a credit and the equivalent of the total debits of the accounts in the general ledger for selling expenses. Thus it is evident, the production ledger is the reverse of the general ledger ; and a trial balance, showing the results taken from the ledgers, when placed so the accounts are opposite each other, should show results which offset each other. 4. How to Plan the Cost System (i) Examine the general books and prepare a condensed state- ment of the profit and loss for the year or several years (see Re- port Forms Nos. I to 9). This is to be the basis upon which the percentage charges are made, and will show the ratio of the PLANNING THE SYSTEM IO3 various elements of cost to the whole cost, to the sales and to each other. The information required to prepare the condensed statement of profit and loss can generally be obtained from the trial balance taken from the books before closing. While making the examination of the general accounts, it' is advisable to investigate the material accounts and get some idea of the way it has been customary to handle material on the general books. Note how the invoices are approved, entered and paid. (2) Look over the plant, request some one to show you over who is conversant with the various operations and processes, who can commence at the beginning and follow the production through the various stages and give you an intelligent description of it so that you can (a) comprehend the general scheme of operation, (b) get an idea of the methods of delivering material, (c) the way the mate- rial is worked, (d) the records of the work which are made in the factory, (5 vision, his wages are a part of theirs, because he supplies what is deficient in them. Therefore, if you are paying ten employees $15.00 per week and paying a foreman $50.00 a week to supervise their work, each one of the employees cost $20.00 per week. (6) After preparing the plans for making and collecting the records in the factory, it is necessary to design the forms for the cost department to use in computing the records. Factory Records Do not burden the employee with records, remember he is not a bookkeeper and is not supposed to keep accounts. Strive to make his end as simple and easy as possible. In a well-regulated factory, the basis of a cost system already exists, and it is simply a matter of gathering the necessary figures and arranging the control of the elements of cost, so that the costs may be determined and the gross results known. Every business has developed certain records and systems which are valuable and suitable to their needs ; for this reason it is ex- tremely bad policy to predetermine the system simply because it was successful elsewhere. It should be your purpose to examine care- fully every little detail of the business, in order to incorporate old methods in the new system. The custom of prearranging a cost system, and entering a factory with the determination of making the factory conform to the system, is unreasonable and has caused more disappointment to all concerned than anything else, not to mention the excessive financial loss entailed. Work Order Where a cost system is operated, orders should be provided for all work of general character, such as repairs, construction, etc. This is to identify the work and make it possible to determine the cost. These orders are called work orders to distinguish them from the regular orders. Planning Charges When planning how to make the charge to the cost sheet for labor or material, ascertain your objective points, and devise the I0 6 ACCOUNTING PRACTICE simplest and shortest way of getting the charge from one point to the other point. By that I mean do not confine yourself to set rules and argue that, being delivered from a storeroom, an issue book must be kept in the storeroom; that this book must be analyzed and the result credited to stores; that a journal must be kept from which to make the charges to the cost sheets, etc. That is all very good if the firm desire a mass of valueless detail and have no regard for expense. But the majority of business men only care for results and will be just as well satisfied if you use the delivery slip, which might also be the requisition, and if the cost system records are made on it ; you can get just as satisfactory results by simply listing the slips on an adding machine and making the charge to the cost sheets direct from the delivery slip. Machine Shop Expense The maintenance of a machine shop operated in connection with a large factory or mill, can be covered by a percentage to be added to cover the expense of it, unless the machine shop is occupied with some work not chargeable to expense. If the machine shop is not essential to any product or department, it should not be considered an expense against it. Factory Expenses and Supplies The author believes that the most satisfactory solution of how to handle the cost of factory expenses and supplies is to base the charge on the annual expense incurred, and add a percentage to cover it. Heat, Light and Power The maintenance of a heat, light and power plant should be charged according to the requirements of the departments, and a per- centage based on the cost of the previous year added to cover it. Perpetual Inventory It was always deemed absolutely essential to a cost system to have a storeroom, and to systematically issue material in order to obtain a record of it. PLANNING THE SYSTEM 1O7 In fact, the storeroom and cost system have been synonymous, the storeroom being considered so important to a cost system, that its establishment was the first consideration. The following method devised by the author eliminates the neces- sity of a storeroom, and, while it provides excellent records of the material without one, it is valuable when operated in conjunction with the storeroom. Registering Material Everything is registered in the receiving record (made in dupli- cate) when received, without regard to the character of the article. This register number is a mark of identity and is put on the goods in some manner which enables the number to be characterized on sight as the register number. The register number is placed on the invoice when the invoice is approved by the receiving clerk ; it is placed on all books of record where the entry for the invoice is made and placed in the ledger account which keeps a record of the purchases. These numbers are entered into the receiving book in their numerical order, and each lot receives a number. For receiving record form see Form No. 3. If several classes of articles are received in one lot, separate num- bers may be assigned to each class. The first number might be lumber, the next oil, the next office supplies, etc. This number being placed on the case or package or object, is, as stated, a mark of identity; and when passing through the factory, if question arises regarding any unopened case, information regarding the case can be obtained instantly by referring to the number on the receiving record. When the invoices are approved, the full details of the articles should be entered on the receiving record, which is used for refer- ence. If an inventory is made, the numbers are an index to the prices and indicate the time the material came into the factory. These numbers are used in keeping the stock records, and are entered on the delivery slip for charge to work in process. The number provides a means by which the cost department can price the delivery slips at actual purchase prices. Charges for freight, brokerage, etc., which are an additional cost of merchandise can be made to the merchandise account in total, and I0 8 ACCOUNTING PRACTICE posted in detail to the record on the stock card, thus insuring a charge for material at full cost. The charges made to the cost sheets should show these numbers, and any question regarding the material can be referred instantly to the original invoice, so that the net results from specific lots of mate- rial become evident without keeping a special record. A stock card or suitable record of each lot can be kept according to these numbers and complete record of stock made ; these are indis- putable because they are supported by the invoices and cost sheets. The stock card can be made out from the invoice after it is approved by the receiving clerk. This provides a means of establishing a perpetual inventory in detail which requires very little work. It establishes a common iden- tity to material which is used by all departments in the factory and office. It makes it possible to keep in close touch with the purchasing agent and keep advised regarding his judgment in making purchases. Results of Operating the Cost System The results of the operation of the cost system should be presented in a simple statement, which can be conveniently analyzed and veri- fied quickly, by reference to records which are unquestionable. 5. Correct Foundation for Cost Figures and Reports Percentage Costs in General The most common error in figuring costs is to prepare a wrong basis. To obviate the disappointment which must inevitably result from a wrong basis, the author suggests making a condensed state- ment of profit and loss. (See Report Forms Nos. I and 2.) When the prime costs are labor and material, divide the total expenses to be provided for, by the total of the labor and material. This gives the percentage to be added to labor and material for such expenses. Always use as a basis the total labor as per pay roll and increase the detail amount by the percentage for non-productive labor before computing the percentage charges. Study carefully the condensed statement of profit and loss (Report PLANNING THE SYSTEM 1O9 Form No. i) and the relative percentage of the various elements of costs. The percentage to be added to the cost of (i) material and (2) labor to provide for (3) manufacturing and (4) general expenses would not be 12^ because the expenses are 12$ of the manufacturing cost. The total percentages of the expenses divided by the total percentages for labor and material would give the percentage to be used. Hypothesis: (3+9) -i- (57 + 31) -13. 6% ($10,693.77 + $30,766.55) H- (198,551. 28+ 107,611.43)- 13.6% The cost of manufacturing being determined, the provision for selling expenses (where selling expenses are based on sales) and the provision for profits should be made by dividing the manufacturing cost by the percentage the manufacturing cost is to be of the sales, and marking off two points. Hypothesis: Manufacturing Cost X 100 - Price to Sell. Percentage Manufacturing Cost is of Sales In a compound business, the percentages of the elements of cost are affected by the trading department of the business. The expense ratios should be smaller, because the trading department assists in carrying the expense loading. To determine the percentages which the manufacturing costs are of the sales ; first compute the percentages the elements of cost are of the manufacturing cost; next compute the percentage the cost of sales is of the sales. Multiply the percentage the cost of sales is of the sales, by the percentage the manufacturing expense is of the manufacturing cost, and the result will be the percentage the expense is of the selling value. The same applies to labor and material. Report Form No. 3 This is a condensed statement of the profit and loss of a simple trading business. 1IO ACCOUNTING PRACTICE The important features of the business are as follows: (1) The net cost of the merchandise, (2) The expenses of conducting the business, (3) The expenses of selling, and (4) The net sales. In preparing a report of such a business, it is not proper to charge any portion of the general expenses to selling expenses. Confine the selling expenses entirely to expenditures chargeable directly to selling expense. Report Form No. 4 This is a condensed statement of the profit and loss of a manu- facturing business disposing of its product through selling merchants. The important features of the business are as follows: (1) The cost of material, (2) The cost of labor, (3) The expenses of manufacturing, (4) The expenses of conducting the business, (5) The cost of the manufactured product, (6) The expenses of selling, and (7) The net sales. In preparing a report of such a business, it is not proper to charge any portion of the general expenses to manufacturing expense or selling expense. The prime business of the company is manufacturing and the expenses are all chargeable to manufacturing cost, except expendi- tures chargeable directly to selling expenses, such as advertising, com- mission, brokerage, etc., paid in addition to the regular commission and guarantee. Report Form No. 5 This is a condensed statement of the profit and loss of a business which purchases merchandise in addition to manufacturing it, but does not prepare the inventories to show the value of the merchan- dise separate from the material. PLANNING THE SYSTEM This form is submitted to show the method of entering the mer- chandise purchases, and arriving at the cost of material and mer- chandise consumed to produce the sales. The important features of the business are as follows: (1) The cost of merchandise and material, (2) The cost of labor, (3) The expenses of the factory, (4) The expenses of conducting the business, (5) The expenses of selling, and (6) The net sales. Report Form No. Q This is a condensed statement of the profit and loss of a com- pound business. The prime division of the business is manufactur- ing and the selling is only incidental. The important features of the business are as follows : (1) The material consumption, (2) The cost of material, (3) The cost of labor, (4) The expenses of manufacturing, (5) The manufacturing cost of production, (6) The cost of sales, (7) The expenses of conducting the business, (8) The expenses of selling, (9) The sales of waste, and (10) The net sales of merchandise. This form is submitted to illustrate the method of determining the cost of the production, and relation of sales of waste to the con- sumption of material. The sales of waste are an offset to the material consumption and should be deducted from the material consumption to determine the cost of material. Classify as selling expenses all expenditures which could be elimi- nated if the sales were made through selling agents. If a selling division is maintained and the general expenses are prorated over the manufacturing and selling divisions, show the II2 ACCOUNTING PRACTICE amount so charged separately from the regular division charges and also show the basis upon which the expenses are prorated. Report Form No. 7 This is a condensed statement of the profit and loss of a furni- ture business which buys rough, unfinished parts, finishes them and sells the finished furniture. The important features of the business are as follows: (1) The cost of sales, (2) The expense for salary and wages, (3) The other expenses of conducting the business, (4) The whole cost, and (5) The net sales. The form is submitted to show the method of setting up labor under such conditions. When labor is an element of cost included in the inventory values of a trading business, such labor should be set up as part of the cost of the merchandise, before deducting the inventory for the end of the period. Report Form No. 8 This is a condensed statement of the profit and loss of a complex trading business. The important features of the business are as follows: (1) The cost of material and merchandise, (2) The cost of labor (when an added cost), (3) The expense for salary and wages, (4) The other expenses of conducting the business, (5) The whole cost, and (6) The net sales. The form is submitted to show the method of setting up labor in a trading account, when labor is an element of the cost of sales. When labor is an added cost included in the sale as part of the sales, such labor should be set up in the trading account after show- ing the cost of the material. PLANNING THE SYSTEM II3 Report Form No. 9 This is a condensed statement of profit and loss of a simple trad- ing business. The important features of the business are as follows: (1) The cost of sales, (2) The expenses of conducting the business, (3) The expenses of selling, and (4) The net sales. This form is submitted to show the method of setting up duty, foreign freight, etc., in the trading account. The above items, being part of the purchase cost included as in- ventory values should be set up as part of the total charges, before deducting the inventory for the end of the period. III. PERCENTAGE COSTS 1. Determining Percentages After the material and labor cost has been computed, for either the department or the plant at large, a percentage is added to said cost to cover the expenses. More disappointment is caused by making errors in determining the percentages to be employed than in any other way. Extreme care should therefore be used when preparing the percentages. Percentage of Expense Based on Labor Cost If the percentage of the expense is to be based on the labor charge, ascertain the amount of the labor and expenses for the year, and divide the total expense by the total labor. Hypothesis: Expenses -r- Labor = Percentage. This percentage is the ratio of the expenses to the gross labor charge. Consequently, if the charge to the cost sheet is for produc- tive labor only, the productive labor must be increased by the per- centage for nonproductive labor. To determine the percentage to be added to productive labor for nonproductive labor, divide the nonproductive labor by the productive labor. Hypothesis: Nonproductive Labor -f- Productive Labor = Percentage. The percentage is the ratio of the nonproductive labor to the pro- ductive labor. Selling Expenses The cost of manufacture should be determined before provision is made for selling expenses, because the ratio of the selling expenses 114 PERCENTAGE COSTS IIS is to the sales, and is not in any way influenced by the labor or material cost. After determining the whole cost of manufacturing, a percent- age should be added to provide for selling expenses. To determine this percentage, divide the selling expenses for the year by the whole cost. Hypothesis: Selling Expenses -H Manufacturing Cost = Percentage. This is the ratio the selling expenses are to whole cost. Percentage for Profits If the intention is to add a percentage to the cost to provide a profit based on the sales, the best method is to multiply the whole cost by 100 and divide the result by the percentage the whole cost bears to the selling price. Hypothesis: 100 per cent Percentage for profit = Percentage of Whole Cost to Selling Price; (Whole Cost X 100) -=- Percentage of Cost = Price to Sell. It simplifies matters if you charge all supplies to appropriate ex- pense accounts and include in the percentage costs a sum sufficient to meet them. Distributing Unproductive Labor and Expenses When the expenses are applied to the labor cost on a basis of per man, hour, or any method using the labor as the only basic cost, the pay roll can be made up according to departments on Form 11, and the expenses and unproductive labor can be applied in whole or according to departments on a percentage basis or on a basis of fifty- two weeks. The pay roll should be made up according to departments, and the productive and nonproductive labor shown. The expense chargeable to each department for the week should be entered opposite the department and the total expenses of the department shown. n6 ACCOUNTING PRACTICE The total expenses and the nonproductive labor should also be shown in the column provided, and the percentage to be used as a basis of distributing the expenses and nonproductive labor over the productive labor, determined by dividing the productive labor by the nonproductive labor plus the expenses. With this method of distributing the expenses, it is a very simple matter to compute individual orders, if you have the material and productive labor. Hypothesis: Cost of Material $200.00 Pay Roll (productive only) 100.00 Expenses 65$ of Pay Roll 65.00 Manufacturing Cost 365.00 Provide 20^ for profits and selling expenses. ($365.00 X 100) -r- 80 = Sell for $456.25 2. Use of Percentages Computing Costs. (First Plan) Plan of computing the cost where the basic costs are labor and material. Cost of Material $i 12.60 Productive Labor $47.60 Nonproductive Labor 10^ 4.76 Cost of Labor 52.36 Cost of Labor and Material $164.96 Expenses n< of Prime Cost 18.15 Manufacturing Cost $183.1 1 Provide 10$ for Selling Expenses. Provide 20^ for Profits. ($183.11 X 100) -f- 70 = Sell for $261.59 The price to sell at in order to provide 10$ for selling expenses and 20$ for profit. PERCENTAGE COSTS n 7 Computing Costs. (Second Plan) Plan of computing costs where the basic cost is labor. Cost of Productive Labor $93. 1 5 Nonproductive Labor lofi 9.32 Cost of Labor $102.47 Expenses 60$ of Labor 61.48 Material 301.70 Manufacturing Cost $465.65 Provide 10^ for Selling Expenses. Provide 20$ for Profits. ($465.65 X ioo) -r- 70 = Sell for $665.21 The price to sell at in order to provide io< for selling expense and 20$ for profit. IV. INSTALLING A COST SYSTEM When installing a cost system, it is extremely bad policy to set a time for the beginning of the system and endeavor to inaugurate the entire system at once. Beginning the Use of the Factory Forms It is more practical to commence by issuing the various forms to be used in the factory a few at a time, and give them a trial of a few weeks prior to the date set for the actual beginning. This enables you to watch how they work and will insure better results when you actually commence operations, because by that time, the factory has become accustomed to their use and the forms are in good working order. It enables you to direct personally the preparation of each and every form, if you install them a few at a time, thus insuring better results and avoiding the confusion and personal annoyance which must inevitably result if you endeavor to be all over at once. It will also be more satisfactory to the workman for you to show him personally how to prepare the forms, than it is to issue written in- structions or have the directions given by another who can hardly be expected to comprehend your ideas until he has seen them in actual practice. Material Examine carefully the operation of the forms controlling the material issued, and criticise in your own mind every detail of the operation; see if they can be simplified without sacrificing accuracy and insure to the cost department the return of all forms issued. The object of a cost system in relation to the material is: to keep an accurate record of the material when received ; to see that all material paid for has actually been received ; to show the value of the material on hand at any and all times ; to insure against loss by 118 INSTALLING A COST SYSTEM 1I9 waste or design; to show the results derived by the purchase of different grades of the same class of material. It devolves upon you so to arrange the control of the material, that such necessary and valuable information is collected and recorded in a manner which is not open to question. Pay Roll Put your method of computing the labor cost in full operation and actually figure up the various details yourself before commencing the operation of the cost system ; this will disclose the defects and weakness of the system and enable you to correct unforeseen contin- gencies which may arise. It will also provide something for the cost clerks to work on and obviate the necessity of having clerks capable of thinking. Putting the Cost System into Operation After you have the variou's forms in operation in the factory and the detail is being collected in a satisfactory manner, appoint a day for com- mencing the system, preferably a time convenient for making closings : if the cost system is to be operated weekly, the beginning of a week; if the cost system is to be operated monthly, the first of the month. Prepare an inventory of the work in process in the factory as at the date set for commencing the system, and make cost sheets to cover all the work in process, so that the total of the cost sheets will equal the total of the inventory of work in process. These sheets are the cost sheets for the beginning of the cost system and should be put in the binder for the cost sheets in opera- tion, which cost sheets are a record of the work in process. If it is impossible to take an inventory, the cost system can be commenced and operated just as if the preparatory results were com- plete ; but in this case no work which was commenced prior to that date would have a complete record of the cost. An inventory should be taken as at the date for commencing the cost system, and you should issue such instructions as are necessary to insure having it prepared so that it will give the totals in the way you require them to prepare the opening entries for the cost system. (See instructions relative to taking inventory.) V. SCHEMES FOR SIMPLIFYING WORK The following schemes for simplifying the figuring are given to convey an idea of what is possible: (1) Figuring the detail of the pay roll. (2) Figuring the charge for lumber used in cutting circles. (3) Figuring square stock. 1. Figuring the Detail of the Pay Roll The figuring of the detail of the pay roll can be avoided by pre- paring a book with a page for each rate, and showing on the page the value of every quantity of hours from one to the number of hours in the full week. Index the book by the weekly rates, and the time cards can be extended by referring to the wage rate book. The same principle can be applied to any form of wages. A wage rate book for hours of a 6o-hour week based, on the weekly rate of pay, would appear similar to the following: $5.00 per week (6o-hour week) *4 hour .$.02 08 K " 04 17 2/4 " 06 25 1 " 08 33 2 " 16 67 3 " 25 oo A " ->"> T> 4 33 33 5 " 41 66 A wage book for hours of an 8-hour day would appear similar to the following: SCHEMES FOR SIMPLIFYING WORK I2I $4.10 per day (8-hour day) Yl hour $.12 81 Yt " 25 63 Y* " 38 44 1 " 51 25 2 " I.O2 50 4 " 2.05 oo To prepare a book of this character, requires considerable time; but, when completed, it is invaluable, because it expedites matters and obviates the necessity of employing rapid calculators. It is more accurate, because the liability to error is eliminated by comparison. 2. Figuring the Charge for Lumber Cut in Circles Where spool heads of various diameters are cut from the same lumber, to ascertain the quantity of lumber to be charged against each particular size of spool heads, proceed as follows: Known Quantities: The quantity of finished spool heads of the FIRST DIAMETER is A. The quantity of finished spool heads of the SECOND DIAMETER is B. The quantity of finished spool heads of the THIRD DIAMETER is C. The whole quantity of lumber used to make all the spool heads is D. Unknown Quantities: The amount of lumber to be charged against spool heads of: The first diameter is E. The second diameter is F. The third diameter is G. Hypothesis: A X (Constant of the first diameter) is H. B X (Constant of the second diameter) is I. C X (Constant of the third diameter) is K. The sum of H, I and K is L. 122 ACCOUNTING PRACTICE H X D equals E. L-J X D equals F. L-rf K X D equals G. The sum of E, F and G is the equivalent of D. Diameter: Constant: Diameter: Constant: Diameter Constant: 2 inches .02 II 5/8 inches i5 7 6 8/4 inches .41 76 2/8 " .02 46 5/2 " .16 49 8/8 .42 82 2/4 " .02 76 5/8 " .17 26 9 44 87 2/8 .03 08 5/4 " .11 09 9/8 45 4i 2/2 " .03 41 5/8 " .18 84 9/4 .46 66 2/8 " .03 76 6 .19 64 9/8 47 94 2/4 " .04 13 6/8 . 20 46 9/2 49 22 2/8 .04 51 6/4 " .21 31 9/8 5 53 3 .04 91 6/8 .22 17 9/4 .51 84 3/8 " 5 33 6/2 23 03 9/8 5 2 49 3/4 " 5 74 6/8 2 3 94 10 54 54 3/8 .06 21 6/4 " .24 8 S 10/8 55 9i 3/2 .06 68 6/8 25 78 10/4 57 3 3/8 " .07 16 7 .26 73 10/8 58 7t 3/4 " .07 67 7/8 " .27 68 10/2 .60 13 3/8 .08 19 7/4 " .28 67 10/8 6l 57 4 .08 73 7/8 " . 29 66 10/4 .63 04 4/8 .08 29 7/2 " .30 68 10/8 .64 50 4/4 .09 85 7/8 " .31 60 1 1 .66 4/8 " .10 44 7/4 " 32 76 1 1/8 67 5i 4/2 " .11 05 7/8 " 33 72 1 1/4 .69 03 4/8 .11 66 8 35 6o 1 1/8 .70 58 4/4 .12 31 8/8 -3* I 1/2 7 2 13 4/8 .12 94 8/4 " 37 12 1 1/8 73 7i 5 13 6 3 8/8 .36 26 1 1/4 75 3 5/8 " M 33 8/2 " 39 4i 1 1/8 .76 92 5/4 IS 03 8/8 .40 58 12 78 54 3. Figuring Square Stock The following plan was devised to obviate the necessity of figuring each piece or lot of pieces. A book is made up with a page for each length of square stock 2 feet, 2^2 feet, 3 feet, 31/2 feet, 4 feet, 4^2 feet, 5 feet, etc. SCHEMES FOR SIMPLIFYING WORK I23 Length 24" (2 feet) Size. ioo pieces. At $26.50 per M. At $32.00 per M. I AX y 2 4. 1663 feet . 1 10416 '33333 %x H 6.5104 . 172526 208333 %x H 9-375 ' .248437 .300000 %* % 12.7604 ' 338I5I 408333 i X i 16.6666 " .441666. 533333 i^XiH 21.0937 " .55898* .675000 iMxiM 26.0416 .690104 8 33333 By figuring each size of square stock used in this manner, the cost clerk is enabled to price the square stock in rapid-fire time. VI. COMPUTING COSTS WHERE NO SYSTEM HAS BEEN OPERATED First examine the books and make a condensed statement of profit and loss. (See Report Forms Nos. I to 9.) This is to be used as a basis of figuring the costs. Next study the conditions and determine the amount of the labor cost, and the material cost. If it cannot be figure in detail, take aver- ages. Every factory keeps record of production; study these and the pay roll. The most practical way of learning would be to accompany an auditor; therefore the author will endeavor to describe the work so that you can follow the plan and operations in your mind. The report in the case cited was subjected to harsh criticism; but the engineers and accountants engaged in the business were obliged to admit the accuracy of the report after it had been examined minutely. The author was engaged to make an examination of a typewriter factory to determine whether the money advanced had been absorbed by the business, and incidentally to prepare a statement of the cost of manufacturing the machines. Visiting the factory, he proceeded to make an audit of the cash as outlined previously. Next he prepared a condensed statement of the profit and loss as shown on Report Forms Nos. 2 to 9. He next visited the factory to study the conditions. The manu- facturing proved to consist of two divisions: (i) making the parts, and (2) assembling the machines. An examination of the department records revealed a record of the parts made and the machines assembled. This being determined, the pay roll was analvzed for the period 124 COMPUTING COSTS I25 according to the following divisions of labor: (i) making the parts, (2) assembling the machines, and (3) general labor. . The general labor was prorated over the other divisions and cost of parts and cost of assembling machines was computed by weeks. It was learned that the results obtained during the last five weeks were more satisfactory than the previous weeks. The superintendent explained that this was because the plant was new and the organization was not complete until recently. This being the case, it was not deemed expedient to base the costs on the average figures, but show the costs according to the best results obtained. Notwithstanding this, the averages were embodied in the report, but not considered when figuring the costs. A careful study of the conditions convinced him that the only practical means of figuring the cost of making parts was to base the cost on the average number of parts made without considering indi- vidual parts. An examination of the stock of parts on hand revealed an aver- age quantity of each part which was sufficient evidence that the aver- age quantity of each had been made. A summary was made of the number of parts made each week, and the pay roll of each week, for making parts, was set opposite the quantity made, and the cost extended. An average was shown for all the weeks and an average for the last five weeks. The latter was used as the basis of computing the cost of making parts under the most favorable conditions which had existed. Next a record was made of the quantity of machines assembled each week, the average for all weeks, and the average for the last five weeks. The latter was used as the basis of computing the cost under the most favorable conditions which had existed. The foreman stated that he could easily double the output without any additional help, if the parts were delivered to him, and to supjKirt his statements he called attention to the records which verified his claim. The quantities assembled each week being determined, the pay roll of each week was set opposite the quantity for the week, and the cost of assembling machines for each week was extended. 126 ACCOUNTING PRACTICE The conditions of the recent weeks being more favorable, the costs were figured on the basis of those weeks and the expenses divided according to weeks. This method of dividing the expenses according to the fifty-two weeks in the year is seldom adopted by the author; but the case seemed to warrant such a procedure. In a new plant there is always a limited' production until the organization is affected. The following is the method adopted to show the present results, the possible results, and the best that could be anticipated under most favorable conditions. Estimate of Cost of Manufacturing Typewriters: BASED ON PRODUCTION. Present, 60 Machines. , Possible, 80 Machines. Anticipated, too Machines. Labor Cost of Making Parts: Based on Pay Roll for five weeks end- ing November 2 1901 . $4 843 06 1 1 . 96 25-73 II .96 14.08 II .96 11.27 Parts delivered to the assembling de- partment averaged 81 machines per week, $4, 843 .06 -=-(5 X8i) =per -, machine $ i r 96 This cost might be reduced by putting in more machinery to obviate the necessity of making changes, setting up machines. Extra machinery would cost about ....... $20,000 oo Labor Cost of Assembling Machines: Based on Pay Roll for five weeks end- ing November 2 1901 . $5 634 77 Department produced 219 machines. $5,634.77 -7-219 =per machine Foreman claims he could assemble 100 machines with the same help under more favorable conditions. If he assembled 100 machines. . . . If he assembled 80 machines Carried forward 37-69 26 . 04 23- 2 3 COMPUTING COSTS 127 BASED ON PRODUCTION. Present, 60 Machines. Possible. So Machines. Anticipated. 100 Machines. Carried forward 37-69 4.00 5-00 1 1 .46 26.04 3.00 5.00 8-59 23-23 2.40 5 -oo 6.87 Nonproductive Labor: Based on average of five weeks ending November 2, 1901 $240 oo Material Cost: (Estimated) Based on cost for the year ending November 2, 1901 Expense Cost: Supplies, Superintendent, etc. Based on charges for year ending November 2, 1901 Manufacturing Cost: Exclusive of depreciation, interest on capital, etc., per machine 58-I5 2.50 3-84 33 - 42.63 1.87 2.88 33- 37-5 1.88 2 .46 33- Depreciation on Machinery and Equipment: 10% n $78 ooo 10% on $98 ooo Interest on Investment: $300,000.00 @ 4% $320,000.00 @ 4% Selling Expenses: (Average) Based on charges for the year Cost of manufacturing and selling. Machines sell for $100 less 10% . . . Loss, present conditions, per machine Profit, favorable conditions, per machine. . . Profit, improved conditions, per machine. . . 97-49 90 .00 7-49 80.38 90 .00 9.62 74.84 cjo . oo 15.16 VII. COST SYSTEMS WITH ORIGINAL WORKING INSTRUCTIONS 1. Shoe Carton Factory Cost System It will pay you to study carefully this system, for it keeps itself and the costs need be figured only when desired. The costs are always there and, if the cost of any particular lot is desired, it can be had on short notice. (Actual experience.) No factory records were required for the cost system, which had not been in operation in some form before the system was inaug- urated. Work orders (Form 4) are issued for all construction work, re- pairs, etc., and the costs are always existent although not figured. The factory order (Form 8) is issued and the superintendent's clerk issues a combining order (Form 5). The combining machines are adjusted and the weights of the rolls of paper are noted on the back of Form 10, as the paper is put in the machine. When completed, the material charge slip (Form 10) is executed, and the quantity of paste used (estimated) is also entered on it. The combined paper, now box board, goes upstairs to the carton department and the cartons are made under Form 8. The registers on the machines give the count, which is entered on Form 8, for both rotary and gluing machines. If stock combined box board is used, it is charged on Form 8. The wrapper order is issued to the wrapper man for the prepa- ration of the wrappers, and the printing order, when printing is re- quired. The wrapper man and printer charge, on the slip issued to them, all supplies required for the order, and these slips return to the factory office when completed. When the orders are completed, the forms are dated with a stamp 128 COST SYSTEMS I29 and are returned to the cost department and filed in the envelopes (Form No. 7). The pay roll is charged from Forms i and i a. Every employee working on an order, makes a separate Slip Form i a for each order. He returns time slips for ten hours each day and, if any part of the work was nonproductive, he makes returns on Form No. i. The factory records of pay roll are made from these slips, and then the slips are dated with a stamp and sent to the cost depart- ment, where the slips are filed in the Envelopes Form 7. Operating the Cost System If the system is operated and figured daily, the slips and charges for material, etc., are received daily ; they are figured and listed on an adding machine, and the total added to the control sheet of the cost system. The forms are then charged to the Envelope Form 7 and, after the charge is made, the form is slipped in the envelope. All forms for charges, orders, and memorandums relating to the order, are put in the Envelope Form 7 and preserved. Pay Roll The pay roll slips are analyzed weekly, according to the order numbers and each week should have a number. To analyze, simply sort the slips according to orders. The number of the week should be stamped on the slips and the summary of the analysis should be entered in the journal for charges to cost sheets (any kind of jour- nal) ; the total should be added and the nonproductive labor pro- rated over the productive items to be charged to order numbers. The charges for labor should then be made to the Envelope Form 7 and the slips put in the envelopes. Making Weekly Closing After all charges have been made for the week, the envelopes are figured and a list made of the amounts on the adding machine. The total is verified by the control sheet. 130 When the charges for the week have all been made to Form 7, the completed orders are sorted out and figured. A percentage (shown by the general office books) is added to the completed orders for department and general expenses. The completed orders (cost sheets) are then listed and the total is deducted from the control sheet for the cost system. The envelopes of the completed orders are then filed permanently for future reference. The results of the cost system are entered on the general books by making journal entries for the results shown on the control sheet for the cost system, as described heretofore. If the Cost System is to Keep Itself The records are all prepared and filed away in the envelopes just the same, except the figuring is not done. This requires only about an hour of a girl's time each day and can be done at any time. The nonproductive labor being a percentage charge based on an average of the past experience, it should be changed if the conditions change. A record should be kept, showing the percentages to be charged by months, in form convenient for reference. A record should also be kept of the percentage of nonproductive labor, by months, in form convenient for reference. At any future time, the cost of any order can be determined accu- rately by taking out the envelope for the order and figuring the slips contained in the envelope, adding the percentage charges shown for the period in the record of percentages. Working Instructions PRINCIPLE The principle of this cost system is : (1) Obtain proper basic items of cost; (these are the direct charges for labor and material) ; (2) Add a percentage to the labor for nonproductive labor; COST SYSTEMS I3I (3) Charge computed rates for all supplementary items of cost, such as paste, glue, etc. ; and (4) Increase the whole by a percentage (based on the previous year's business) for fixed charges, office and factory expenses. OPERATION In the operation of the cost system there are virtually two systems : First System: Computes the cost of combining box board. Second System: Computes the cost of cutting, folding, gluing, finishing and packing the shoe cartons. The Computing of Costs May Be Discontinued After competent rates have been compiled for charging the sup- plementary items of cost, if it is not desirable to compute the cost of each and every order, the forms may be sorted and placed in the assembling envelope (Form 7), and only such orders computed as may be deemed necessary or desirable. This does not mean a discontinuance of the system, as the cost of any order may be computed at any time. But whenever conditions change, which affect the supplementary charges, new rates must be computed. This applies to both labor and material. Form 1. Time Slip for Nonproductive Labor When an employee is engaged on work which is not to be charged to an order, he should make a record of his time on this Form I. Enter on the form: (1) Time Clock Number, (2) Enter in the column headed " work done " a description of the work engaging his time, and (3) Enter in the column headed " hours " the number of hours he was engaged on the work. The date will be entered by the clerk in the factory office who will stamp the date on all time slips and verify them before sending them to the office. This form is used to compute a basis of percentage to be added to productive labor, to provide for the cost of nonproductive labor. I3 2 ACCOUNTING PRACTICE Form 2. Time Slip for Productive Labor When an employee is doing work which is to be charged to an order, he should make a record of the time on Form I a. The employee must enter on this form : (1) The Employee's Time Clock number. (2) The number of the order engaging his time. (3) The number of hours to be charged. The employee may enter on this form: (4) The time he commenced. (5) The time he finished. The employee should make notes relating to the labor in the place provided for remarks. The date will be entered by the clerk in the factory office, who will stamp the date on all time slips when he verifies them before sending them to the cost department. This form is used to compute the proper charge to be made for productive labor, and all labor, which can be charged directly to an order, should be charged against the order, no matter how the em- ployee is engaged. This charge is the basic cost of labor. Form 3. Received Registry Sheet This form should be used in making a record of the material received. The register number of the goods will be the number of the sheet and forever after that number must be used to identify the goods. The object of this form is: (1) To provide the cost department with a means of obtain- ing the prices of the material purchased. (2) To make a record of goods received. (3) To provide a memorandum of the stock for the factory office. Form 4. Work Order A work order should be issued for all work to be done in the factory not provided for by the shoe carton order and the com- COST SYSTEMS bining order, excepting nonproductive labor in connection with the making of shoe cartons. Work orders should be issued weekly for: (1) Making of paste. (2) Mixing of glue. (3) Printing materials. Work orders should be issued for remodeling or rebuilding ma- chinery or buildings, and all work, where it is desirable to ascertain the cost. Each work order .will be issued in triplicate, similar to Form 5. Mixing of Glue A work order, Form 4, should be issued weekly for the mixing of glue and all materials used, and work done in connection with them should be charged to that work order. The object of this is to obtain a basis of rates which can be used in making charges for the glue. Making of Paste A work order, Form 4, should be issued weekly for the making of paste, and all materials used and work done in connection with it should be charged to the work order number. The object of this is to establish a basis of rates which can be used in making charges for paste. Form 5. Combining Order The factory office will issue combining orders on this form for all combining to be done and each order will be issued in triplicate : 1 i ) Original : Cost department copy. This copy should be sent to the cost department as soon as convenient after issue. (2) Duplicate: Factory copy. This copy should be delivered to the foreman in charge of the combining. (3) Triplicate: Factory office copy. This copy should remain bound in the book for ref- erence. I34 ACCOUNTING PRACTICE When the work is completed the order should be returned to the factory office and by them delivered to the cost department. Form 7. Envelope for Assembling Charges Time slips (Forms I and I a) should be delivered to the cost de- partment daily after the rates have been entered on them and, after the extensions have been made, the items should be entered on the en- velope and the charge slips placed in the envelope for future reference. Charge slips (Forms 8, 9 and 10) for material should be deliv- ered to the cost department as soon as the factory offices have made their stock records, and, after the extensions have been made, the items should be entered on the envelope and the charge slips placed in the envelope for future reference. Form 8. Shoe Carton Order This order should be issued by the factory office and, at the time it is issued, a memorandum should be made of the combining order number issued in connection with it or the combining order number of combined stock to be issued. The printing order should be used when printing is to be done on the order and the wrapper order should be used by the wrapper man to make proper charge for his work and material. Form 9. Charge Order Number Where material is required for an order and where material is used on an order other than the following: Paper charged on Form 10. Wrapper charged on Form 8. Paste charged on Form 8. Printing materials charged on Form 8. Glue charged on Form 8. Paste charged on 'Form 10. Charge should be made for it on this Form 9. This is a basic cost for material. Form 10. Material used on Combining Order When the materials are assembled, preparatory to operating the combining machine, note on this form : COST SYSTEMS (1) The date the form is executed, (2) The combining order number, (3) The register number of the rolls of paper, (4) The original weights, (5) The work order number of the paste used, and (6) When the combining is completed, enter the weights of the paper not used. This form is used to make the charge against the combining order for the paper required to complete the order. This is a basic cost for material. 2. Cotton Mill Cost System The following system was put in operation in a large combination of mills and the system was kept by one man. Xo new forms were required for use in the mills, because the regular records were suffi- cient. The system is closed quarterly and shows the results in detail of about one hundred and fifty different kinds of yarn and about fifty kinds of cloth. Opening the Cotton A record of the bales of cotton opened is kept, so that the quan- tity of each kind used is known. Waste Produced A record of waste is kept, so that the quantity of each kind of waste and its disposition is known. Cotton and Waste Sheet (quarterly) A sheet is made for the cotton and waste ; the sheet is charge 1 with the inventories at the beginning, with all cotton reported opene.l as per opening record and waste consumed. From the total is de- ducted the inventory of cotton and waste at the end of the period and the allowances for waste produced. The net results should be the cotton of each character used. From the net quantities of cotton used, deduct the production of I3 6 ACCOUNTING PRACTICE yarn, and the balance will be the loss of cotton in operation of the spinning. The price of cotton to be used is the cost obtained by dividing the total cost of each (after all allowances for waste, etc.) by the pounds of yarn produced from each kind of cotton. The price of the cotton distributed over the yarn production sheet at a per pound rate should equal the total value of cotton used, according to the condensed statement of profit and loss for the quarter. Quarterly Statement To obviate the necessity of closing the books quarterly, a statement is made, on which are provided columns for the trial balances for the beginning and end of the period, and the difference on each account. The differences, with the inventories should give the results for the quarter. Expenses The expenses are prorated over the departments, by making a summary of the departments (Form No. u) for the quarter and distributing the expenses for the quarter over the departments. Labor From the opening to the roving, not including roving and except- ing combing, when it is combed, the cost is kept weekly according to the total pay roll chargeable to this and the quantity produced by the department. Roving The roving is made up weekly on a sheet which has a column for each of the following; Hank Number. Number of Hanks. Pounds. Wages. Nonproductive (Wages). Total. Average. COST SYSTEMS I37 Each week this sheet is compiled from the department reports for making up the pay rolls. The results of each week are posted to the cost book (ledger) which has an account for each hank number. The account is printed with headings like the weekly sheet and shows the results of each hank number for each week, and the total for the quarter is the result used in computing the cost of roving. The cost of roving is based on the actual production of yarn, a summary being made of the yarn produced by charging the produc- tion of each yarn to the various rovings for that yarn. Frame and Mule Spinning A sheet is made up weekly for each class of spinning, and shows the result of the week's work. The columns of the sheet are headed as follows: Yarn Number. Spindles Run. Pounds of Yarn. Wages. Nonproductive (Wages). Total. Average. Each week this sheet is made up from the department reports for pay rolls. The results for the week are posted from the weekly sheet to the cost book (ledger), which has an account for each and every yarn number. Each account shows the same records as the weekly sheet, the weeks being posted successively and the total being made for the quarter. These totals for the quarter are taken off on an analysis sheet and are the results used in computing the cost of yarn. Quarterly Closing, Making Yarn The results for the quarter of each style of spinning are made up on an analysis sheet with about twenty columns. The sizes of yarn are entered on the sheet and the quantity of each produced. The yarns are classified according to the style of 10 138 ACCOUNTING PRACTICE cotton used and the purpose of the yarn. The cost of cotton is distributed over the yarn sheets, so that the net cost of cotton used will be equal to the total charges for cotton on the spinning sheets. The cost of opening to drawing is charged at a per pound rate, so that the total amount will equal the labor cost of those departments. The expense charge for those departments is prorated over the labor cost of opening to drawing. The roving and roving expenses in the next columns are charged from the roving summary, each yarn being charged with the cost of roving, so that the total equals the roving sheets. The actual roving each size hank roving shown by the roving sheets will exceed the yarn produced by the waste in roving. Taking the summary of roving made with the pounds of yarn charged to each roving for the yarn, and dividing that number of pounds into the wages of each roving, gives the actual cost of each roving. After distributing the cost of roving, the spinning labor and expenses are added. The total is the cost of making each yarn. The yarns are then separated, the hosiery yarn kept by itself and the cloth yarns charged to manufacturing cloth. Final Summary of Yarn The cost of making the hosiery yarn is summarized on a sheet with the following special columns: Spindles : Run. Average per spindle. Yarn: Numbers. Style. Made on. Pounds spun. Based on Cotton: Class. Average per pound. COST SYSTEMS I39 Cost of Cotton (per pound produced) : Amount. Average per pound. Expense Cost (per pound produced) : Amount. Average per pound. Labor Cost (per pound produced) : Amount. Average per pound. Total Cost (per pound produced) : Amount. Average per pound. The results shown on the spinning sheets are summarized on the final summary and the averages shown. This summary is the basis upon which costs of the many ways of finishing the yarn are computed. Cost of each hosiery yarn is figured on Form No. 36. Quarterly Closing, Making Cloth Weekly Sheet for Weaving The weaving is made up weekly from the cloth reports and the labor analyzed according to the cloth and loom. The weekly sheet for weaving has columns for the following: Width of Cloth. Cuts. Yards. Pounds. Wages. Nonproductive. Total. Average. Final Summary The results of the weekly sheets are posted to the cost book (ledger), which has an account for each size and style of cloth. The columns of the ledger accounts have the same headings as the weekly I4 o ACCOUNTING PRACTICE sheet, and, at the end of the quarter, the production is taken off the ledger on a summary sheet which has the following columns : Cloth: Number. Style. Yards. Pounds. Cost of Warp: Pounds. Amount. Average per pound. Cost of Filling: Pounds. Amount. Average per pound. Weaving : Labor. Average per pound. Expense. Average per pound. Cost of Cloth: Amount. Average per pound. Average per yard. Yards per pound. The cost of each style and width of cloth is figured on Form No. 35. Working Instructions To facilitate matters and compile the results so that they can be easily comprehended, the system will be subdivided into the follow- ing departments : (/) Manufacturing Yarn. (2) Manufacturing Cloth. (5) Finishing Cloth. (4} Finishing Yarn. (5) Making Sheets and Pillow Cases. COST SYSTEMS I4I The cotton and waste will be opened and put in process. After the spinning, the cost of manufacturing yarn will be determined, and the proportion of the cost chargeable to hosiery yarn will be set aside, but the proportion chargeable to cloth will be charged against the department of manufacturing cloth. The cost of all labor and ex- pense in connection with the actual making of the cloth will be charged against the department of manufacturing cloth, and the total result, which will be distributed and shown according to each width (standard) and style of cloth, will be the cost of manufacturing the cloth, and the final result will be the production and cost of each size and style of cloth. Finishing cloth will not be a department of manufacture, but simply an account on the general ledger, to which will be charged all bills for finishing brown, and bleaching and finishing. Finishing yarn will be a department of manufacture, and will comprise all costs for operations and supplies on the hosiery yarn after the spinning. The prime costs will be: I. COST OF MAKING CLOTH, and II. COST OF MAKING HOSIERY YARN. I. After the cost of making cloth has been determined, the cost of finishing brown or bleaching and finishing will be added to show the cost of each style and size. II. After the cost of making yarn has been determined, the cost of special dyeing, combing, cones, etc., will be added to show the cost of each style, and size of yarn prepared as desired. The making of sheets and pilloiv cases will not be a department of manufacture, but simply an account on the general ledger, to which account will be charged all expenses and material in connection with the manufacture of them. Each system will be complete in itself, and the items classified thus : (a) Labor Cost. (b) Material Cost. (c) Expense Cost. The expense cost will not include cost of selling, which will be treated as a supplementary cost to be considered only as desired, the I42 ACCOUNTING PRACTICE object being to determine the cost of manufacturing and show the cost of selling as an after consideration. (a) Labor Cost The labor cost will take the weekly pay roll and analyze it accord- ing to the departments, separating these so that the amount of labor at large (which is not chargeable directly to manufacturing depart- ments) can be ascertained and distributed among the manufacturing departments, by prorating it according to the amount of wages charge- able to each manufacturing department. These figures should be so compiled, that the proportion of non- productive labor at large will be so recorded that comparisons can be made of same from week to week. The labor chargeable directly to each department is then analyzed, in order to determine the amount of productive labor (labor charge- able directly to cost of manufacture) and the amount of nonpro- ductive labor in the department. After ascertaining the amount of nonproductive labor in the de- partment, the total of the nonproductive labor in the department and the proportion of the nonproductive labor at large, which is charge- able to the department, are distributed among the various items of productive labor by prorating them according to the amount of each, which result will be the labor cost, and the final total of the labor cost for the week must agree with the pay roll. The pay roll will be classified as follows : Opening, Picking and Carding. Combing. Manufacturing Yarn Manufacturing Cloth - Roving. Frame Spinning. Mule Spinning. Spooling, Warping and Slashing. Weaving, etc. Cloth Room. Cone Winding. Twisting. Dyeing. Knitting. 143 After the pay roll has been analyzed according to departments, and the nonproductive labor distributed, the totals of the wages chargeable to the departments must equal the total pay roll for the week. ROVING Total labor chargeable to the roving department is compiled as follows : Analyze the pay roll of the roving department, in order to deter- mine the amount of labor chargeable directly to each hank number. Make a summary schedule of this, and then distribute the total amount of nonproductive labor over the schedule by prorating it according to the amount of wages chargeable against each hank number, so that the total of the revised schedule will equal the total pay roll for that department. SPINNING The total labor chargeable to the mule spinning is compiled as follows : Make an analysis of the pay roll of the mule spinning to deter- mine the amount of wages chargeable to each yarn. A schedule of this analysis is then made, and the total of the nonproductive labor of all kinds chargeable to the department is distributed ovej the schedule by prorating it according to the amount chargeable to each yarn. The total of the productive and nonproductive labor charge- able to each yarn will be the total labor cost of each yarn. The same method applies also to frame spinning. WEAVING The labor chargeable to the weaving department is compiled as follows : Make an analysis of the labor chargeable to weaving, for every operation associated therewith, to determine the amount of labor on each cloth according to its style and width (standard). A summary of this analysis is then made, and the total nonproductive labor of all kinds chargeable to the weaving department is distributed over the summary by prorating it according to the amount of productive wages chargeable to each style and width of cloth. The total of the pro- I44 ACCOUNTING PRACTICE ductive and nonproductive labor chargeable to each cloth will be the total labor cost of the cloth, and the total of the completed schedule will equal the total of the productive and nonproductive labor charge- able to the department. ROVING The pay roll of the roving department must be prepared accord- to the hank roving. MULE SPINNING. FRAME SPINNING The results would be more satisfactory if the actual weights were reported. The weight of each yarn spun and the wages for spinning each yarn must be reported, so that the labor cost of each class of yarn can be computed. COMBING The labor paid for combing must be shown separately. The pounds combed and the pounds of the combings must be made a matter of definite record. WEAVING, ETC. The pay roll for weavers and all operations associated with them should be reported as performed on the size (standard) of the cloth instead of the size of the loom. SPARE WEAVERS Wages should be charged against size of cloth according to the items reported opposite regular weavers' names on the pay roll sheets, which items should equal the wages of the spare weavers. YARN SUPPLEMENTARY WAGES After the yarn has been manufactured, all supplementary wages must be separated, that is, the pay rolls for Winding, Spooling (Hosiery yarn only), Twisting, Rewinding. YARN SUPPLIES All supplies, cops, etc., for hosiery yarn must be separated on the general books and carried in a separate account. COST SYSTEMS I45 No. 3 YARN (made from waste) Should be separated all through in all processes, and in every way possible. SPOOLING The pay roll for spooling must be so prepared that it is possible to discriminate between spooling cloth yarns and spooling hosiery yarns. The labor cost will be computed and compiled weekly, but the material and expense costs will only be compiled quarterly. (b) Material Cost The cotton and waste will be charged against manufacturing yarn, and after spinning the yarn, the cost of making yarn will be the first material cost chargeable to manufacturing cloth, and dress- ing supplies of all kinds will be added to the cost of yarn in the department of manufacturing cloth. The yarn purchased for warp and filling must be so recorded, that its weight and value, raw and dressed, will be known. The yarn sold, warp and filling, must be so recorded, that its weight and value, raw and dressed, will be known. All supplies of starch, etc., used in dressing will be charged to a " Dressing Supplies Account " on the general ledger, and the quantity used must be reported weekly. (c) Expense Cost The expense will be divided as follows: (1) Administration Expense. (2) General Mill Expense. (3) Department Expense. (1) The administration expense will comprise all expenses which are chargeable against all mills, and cannot be charged directly to any particular mill, except selling expenses. (2) The general mill expense will comprise all expenses charge- able to a particular mill, but not against any particular department. (3) The department expense will comprise all expenses charge- able directly to departments. I 4 6 ACCOUNTING PRACTICE The expense cost will be distributed as follows: The administration expense will be distributed among the various mills on a basis of production. The general mill expense will be added to the proportion of admin- istration expense chargeable to the mill and distributed among the various departments on a basis of labor cost. The department expense will be added to the proportion of admin- istration and general mill expense chargeable to the department and distributed among the various items of labor cost, prorating it accord- ing to the amount of the labor cost. When taking the inventory at the beginning it will be neces- sary to show in each department of manufacture the composition of the inventory; namely, the amount computed for cotton, waste, labor and expense, the basis of the charge for cotton to be the in- ventory weights; the basis of the charge for labor to be the two prior pay rolls; and the basis of the charge for expense to be the expenses of the prior period. 3. Cost System for a Drug Compounding Laboratory and Factory General Outline of Routine The work of compounding in the laboratory is done in secret, the drugs are known to the cost clerk by numbers only, and the quantity of each required for each and every machine is computed so that the cost clerk simply changed a price when the pharmacist notifies her that the price has changed. Required for Machine No. 10 Drug No. i. i oz. at $1.75 $1.75 " " 2. i quart " 40 .40 " " 3. 50 gallons " i. 60 80.00 " 4. 100 " " 07 7.00 " 5- 3 grains " 2.75 8.25 Cost of Drugs required for No. 10 Machine $97.40 These are arranged in an indexed book which keeps a record of all prices. COST SYSTEMS I47 The pharmacist prepares the compound. If he operates three machines in concert, he simply crosses off the numbers of the ma- chines on the envelope (Form No. 12) ; when the compound is ready, it is run in a tank and the number of the tank put on the envelope (Form No. 12). At this time the pharmacist also makes a tag (Form No. 14) ; the number of this tag corresponds with the number of the envelope (Form No. 12). On the tag is noted the date, com- pound, gallons and tank number, and the tag is hung up on the tank. This obviates the necessity of keeping a record of the drugs in the tanks, and saves labor, annoyance and possibly ruin of drugs, by bottling before the medicine has matured. When the foreman of the bottling department wants to bottle a given medicine, he and the pharmacist simply refer to the tags on the tanks. If a tank has the required quantity of a given medicine, they can tell at a glance whether it has matured and connect it with the machines. The foreman of the bottling department takes the tag down and hangs it at the machines doing the bottling. To obviate the necessity of counting the bottles, trays have been made to hold two dozen bottles each. The tables and trucks are marked so that the number of trays indicate the quantity by the space occupied on the table. After bottling, the workman marks the number of bottles, regis- ter number (on the outside of the case from which the bottles are taken) and quantity of bottles used and broken on the portion of the tag (Form 14) for that purpose. The tag is torn off and sent to the stock clerk, who marks off the quantity of bottles on the stock card (Form No. 6) ; the tag is then returned to the cost clerk, who makes a charge to the cost sheet (Form No. 13). After making the charge to the cost sheet, the portion of the tag which was returned by the bottling department is filed in the envelope (Form No. 12). The tag and bottles of medicine are then passed on by the bottler to the corking department, each department operating independently and sending in records which check each other. The tags are all filed in the envelope until the cost sheet is com- pleted. The cost sheets show the progress of the work in all depart- ments. I4 8 ACCOUNTING PRACTICE The pay roll is analyzed weekly according to order numbers and charges for labor are made so as to show the cost of each operation. When completed, the sheet is figured and, as the medicine is deliv- ered, the delivery is recorded on the cost sheet The number of the emulsion is stamped on the bottle and carton. This system is kept by a stenographer in addition to doing her regular work and giving accurate costs. Working Instructions In devising the cost system, there are three things considered: First, Material. Second, Labor. Third, Expense. Material. (Received) When the material is received in the receiving department, the goods are entered in a receiving book and registered consecutively, as hereinafter described. This register number is a mark of identity which follows the goods all through the factory and is entered on the invoice for them at the time it is approved by the receiving clerk ; wherever hereinafter the words " Register Number " are used, they refer to said number. EMULSIONS The compounding of drugs is divided into emulsions. If one machine is operated independently of the other machines and the product of that machine run into a tank separately, that is one emul- sion. If two or three machines are operated collectively and the product of those machines run into one tank, that is one emulsion. Each emulsion is given a number and the chemist in charge of the laboratory has an envelope (Form. No. 12), and a tag (Form No. 14) for each emulsion. These tags and envelopes are numbered con- secutively and for each set consisting of one tag and one envelope, there is down in the office in the possession of the cost clerk, a cost sheet (Form No. 13), with a number corresponding to the number on the tag and envelope which is in the laboratory. COST SYSTEMS I49 MATERIAL CONSUMED: DRUGS After the emulsion has been compounded, the chemist fills out the envelope (Form No. 13) and the tag (Form No. 14), which are to represent that particular emulsion. The envelope is sent to the office, but the tag is retained in the laboratory and serves as a ready reference record of the contents of that particular tank until the foreman of the bottling department desires to commence bottling out of that tank. At that time the foreman of the bottling depart- ment will confer with the chemist in the laboratory, receive from the chemist said tag (Form No. 14), and both the foreman of the bottling department and the chemist will see that the proper tank is connected with the proper bottling machines. MATERIAL CONSUMED: SUNDRIES The foreman of the bottling department will take this tag to his department and, after the emulsion has been bottled, the register number and quantity of bottles used and broken in bottling this par- ticular emulsion, will be entered on the tag in the places provided for them and the tag will be passed along with the emulsion to the corking department where it is corked. After the emulsion has been corked, the register number and quantity of corks used and destroyed will be entered on the tag in the places provided for them and the tag passed along with the emulsion to the labeling department. After the emulsion has been labeled, the quantity of labels used and de- stroyed will be entered on the tag in the places provided for them, and the tag with the emulsion will be passed along to the casing department. After the emulsion has been cased, the register number and quantity of cartons and pamphlets used and destroyed will be entered in the places provided for them and the tag passed along with the emulsion to the packing department where the emulsion is packed and the number of packing cases used is entered on the tag in the place provided for it. Immediately after the emulsion has been packed, the foreman will take the tag and will himself count the quantity of cases and loose bottles of medicine and enter the num- bers on the tag in the places provided for the finished product. When he has done this and recorded the material consumed, as hereinafter provided, he will immediately send the tag to the cost clerk. I50 ACCOUNTING PRACTICE COST CLERK. MATERIAL CONSUMED: DRUGS When the cost clerk receives the envelope (Form No. 12), she makes the extensions of the value of the drugs on the envelope, enters them in the journal of charges to costs, and immediately posts them to the cost sheet (Form No. 13), with the emulsion number corre- sponding to the emulsion number on the envelope (Form No. 12). (This is a notification to the office that this emulsion has been com- pounded and the cost sheet keeps the office informed regarding the progress of the work on the various emulsions.) COST CLERK. MATERIAL CONSUMED: SUNDRIES When the different parts of the tag (Form No. 14) are received by the cost clerk, she makes the extensions of the values of the material on the tag, enters them on the journal for charges to cost sheets, and immediately posts them to the cost sheet (Form No. 13) with the emulsion number corresponding to the emulsion number on the tag. After all the material has been charged under the heading of " Cost of Material," the total is carried to the summary of costs on the cost sheet (Form No. 13). Labor Each and every employee in the factory must have a time card (Form No. 2) which is filled out by the foreman, or under the direc- tion of the foreman of the department. On this time card, the time spent on each emulsion is entered opposite the number representing that particular emulsion and in the column representing the day of the week. At the end of each week, these time cards are sent to the cost clerk. COST CLERK. LABOR When the cost clerk receives the time cards (Form No. 2) from the various foremen, she proceeds to calculate the value of the time devoted to each particular emulsion, and after she has calculated the time devoted to each particular emulsion, the cost of labor on each emulsion is charged to the various cost sheets (Form No. 13) by taking each time card separately and posting from that time card to COST SYSTEMS , 5 , the emulsion cost sheet (Form No. 13). After all the time has been charged to the cost sheets (Form No. 13) she will make a summary of the factory pay roll, and with the results shown on this summary, she will prove the amount charged to each particular cost sheet Expense There are three classes of expense, viz: General and Office Expenses, Factory Expenses, and Machinery Expenses. The general and office expenses and the factory expenses are charged to the cost sheets (Form No. 13) by obtaining from the general books the actual amount of said expenses for the week and distributing them on the various cost sheets in operation during the week, considering the number of days each emulsion was in operation in the factory. An entry for this is made in the journal for charges to costs, and from there is posted to the cost sheets (Form No. 13). The machinery expenses are charged to the cost sheets (Form No. 13) by obtaining from the general books the actual amount of said expenses for the week, including the amount provided for depre- ciation on machinery, and the total for that week is distributed on the various cost sheets representing emulsions which were compounded during that week, considering the number of machines in operation on the day the emulsion was compounded and the number of ma- chines operated for each emulsion. An entry for this is made in the journal for charges to costs, and from there is posted to the cost sheets (Form No. 13). After all the charges under the heading of " Summary of Costs," on Form No. 13, have been made, the amount column is footed and the result is the actual cost of production for that emulsion. SHIPMENTS OF MEDICINE When the medicine is prepared for shipment, the emulsion num- ber of the medicine used is marked on the order and, when these orders are returned to the office, the cost clerk posts to each cost sheet (Form No. 13), the shipments of medicine. I52 ACCOUNTING PRACTICE* 4. Cost System for a Silk Mill The mill in question buys the raw silk, sends it out to be thrown and dyed, and after making the goods which are a mixture of cotton and silk, sends them out again to be finished. Filling is generally cotton, purchased in the yarn, and is also sent out to be dyed as required. Stock cards are kept to show the location and disposition of the raw silk and cotton yarn, and, in addition, a card system is operated to trace each piece of silk goods made. The employee's pay is made up in individual books, which are returned to the office weekly to make up the pay roll. A warp card and number is issued for the making of the warp, and a record is kept on it of each warp. All work is piece work, except winding, and tickets are delivered for work done. These tickets are entered in the employee's pay roll books, and the tickets are returned to the office. (Tickets, Forms 15, 16, 17 and 18.) In the office a book is kept of the work done in each department, and all goods are traced in detail ; because silk is very valuable and must be accounted for. The warp room book has columns for warp number, lot num- ber, yards, weight, ends, rate, warper's name, and the amount; and, as the tickets come in, they are entered immediately and filed away. Thus the warp rooni books show a record of the work done in the warp department and provide a permanent record of the silk and warps which make it possible to trace all silk from the purchase invoice to the finished goods. These records are made of every department and show the pro- duction of each department. The records verify the pay roll, because the pay roll of each de- partment must agree with the department book, considering non- productive labor. The winding records are kept according to the pounds, the record being kept by the weigher delivering the work to the employee. A rate per pound, according to actual experience, is charged for winding. COST SYSTEMS I53 The warper delivers the finished warp and receives a warp ticket (Form 15), which is entered in the pay roll book of the warper. The twister twists the warp and receives a ticket (Form 16), which the time clerk eriters in his book. The weaver weaves the warp and, when the required number of yards is indicated, a cut is made. This cut is given a number by placing the next tag (Form 18) on it. The tags are numbered consecutively, and the tag and cut are sent to the inspector, who measures and examines the piece, making proper entries on Form 18 and returning the weaver's ticket (Form i8a) to the weaver, who has the ticket (Form i8a) entered. The weaver also puts the loom card on the piece and the inspector enters the data on the loom card (number of cut as per card, Form 18) and returns Form i8a and the loom card to the weaver. The inspector weighs and examines the piece. His time is non- productive and charged as part of the factory expense. This is be- cause the time spent on individual pieces is uncertain and subject to numerous interruptions. If the inspector's time can be charged to spe- cific pieces it should be done. The burling department next get the piece of silk and turn in ticket (Form i8b) for the work done. The piece is then passed on to the sewing department and the sewing department turns in ticket (Form i8c) for the work done. The piece is sent to the finisher, who returns the piece with a new tag (sales tag) and also the old tag (Form i8d). The pay roll is made up from the employee's books and, if it fails to agree, can be easily checked with the office record of work in each department. The office record is simply a list of the tickets which come in daily and the pay roll books are the employee's records ; consequently, they must agree. The main object is to see no silk is lost, no money paid for serv- ice not actually performed, to provide actual costs, and to keep the office informed of the progress of the work. The costs are figured on Form No. 19, which can be used to esti- mate a basis, by the same process as figuring actual costs. The results of each warp can be determined by sorting the tickets, and the cost of individual pieces determined quickly, by figur- 11 154 ACCOUNTING PRACTICE ing the warp and adding to the proportionate cost for warp the detail tickets for the piece of silk. 5. Working Instructions for Cost System for Woolen Mill The objects of this cost system are: First: To provide a means of computing costs. Second: To prove that the computations are correct, and Third: To control the material and wages. The important controlling weights are the weights mixed, the weight after spinning, the weight off loom, and the weight of finished product. ANALYSIS OF ACCOUNTING (DIVISIONS) Real Accounts: Plant and Equipment. Capital. Cash. Receivables and Payables. Sales Account. Expense and Supplies: General Supervision of Business. Selling Expenses. Mill Expenses. Manufacturing: Making Shoddy. Dyeing. Washing and Sorting Wool. Mixing to Finishing. In computing costs, the departments of manufacture are divided as follows: Prime Costs: Taking the cleaned raw material and combining all opera- tions from the mixing to the finishing, except dyeing, which is charged as a supplementary cost. COST SYSTEMS I55 Supplementary Costs: (1) Making Shoddy. (2) Dyeing. (3) Sorting and Washing Wool. There are three classes of charges considered in computing prime costs : (a) Cost of Raw Material: (1) Warp. (2) Filling. (6) Cost of Labor (to include dyeing). (c) Provision for Expenses: (1) Mill Expenses. (2) General Supervision of Business. (3) Selling Expenses. In computing the prime cost charge: First: The Cost of Raw Material. Second: The Cost of Wages (which include Supplementary Dyeing). Third: Add to the total amount of Raw Material and Wages, a percentage (according to the previous year's business) to provide for all expenses. The result is the cost of Manufacturing and Selling. Fourth: Increase this amount to a sum sufficient to provide for the profit desired, in order to get the selling price. No prices should be quoted on estimated costs, as actual results should be obtained to verify all estimates before quotations are made. Prime Costs: Manufacturing MATERIAL Charge the actual (or computed) quantity of material used for warp and filling at the cost of each lot, the price computed in the make-up of lots, providing for the handling of the material and cost of wool sorting and washing, and waste. This is a basic cost, and should be the value of the material to be used. I5 6 ACCOUNTING PRACTICE WAGES For Mixing and Oiling, use the original weight of the lots mixed, at the average cost of mixing and oiling obtained by averaging the production and wages. For Carding and Spinning, use the original weight of each lot mixed, at the average cost of carding and spinning: If a new lot is put in operation, a test can be made or the actual cost can be computed by keeping the record separate in each department until a satisfactory basis has been obtained. For Dyeing, Stock or Yarn: The charge made for dyeing, although included with wages, must be the cost of dyeing, which cost will include the cost of dyestuffs, expense of dyeing and dyehouse, and wages of dyers and all helpers. If the dyeing is done before carding, the weight used in comput- ing the cost is the original weight of the lot as mixed (unless you desire to weigh the dyed stock, in which case the weight of the dyed stock should be used in making the charge for dyeing, also for card- ing and spinning). For Twisting, charge the actual weight delivered to the twisting department at the actul cost of twisting, as per pay roll, or a com- petent average rate shown by averaging the wages and production of the twisting department. (Allowing for waste.) For Warp Spooling, charge the actual weight (which is obtained by weighing the warp after spinning) at either the actual wages for warp spooling or a competent average rate obtained by averaging the wages and production of the warp spooling department. For Warp Dressing and Drawing-in, charge the actual yards dressed at the actual wages or at a competent average rate shown by averaging the wages and production of the warp dressing and drawing-in department. For Weaving, charge the actual yardage off the loom at the rate of wages paid for weaving, adding to the rate for weaving an average amount for the expense of nonproductive labor in and in connection with the weaving department, which average amount will be obtained by averaging the yards produced and all wages paid for expense of nonproductive labor in connection with the weaving. For Burling and Sewing, charge the actual yards off the loom at COST SYSTEMS I57 a competent average rate obtained by averaging the production and the wages for the burling and sewing departments, considering the width of the goods. For Dyeing in the piece, charge the actual yardage after dyeing or, if inconvenient to measure after dyeing, charge the yardage off the loom at a rate which must be computed for each class of pro- duction. For Finishing, charge the finished yardage at a competent average rate obtained by averaging the finished product and the wages of the finishing department, considering the width of the product. Expenses and Profits The total charge for raw material and the total charge for wages, etc., are added together, and a percentage is added to the total, to provide for all mill expenses, general expenses and selling expenses. This is the whole cost and to the whole cost must be added a suffi- cient percentage to provide for the profit desired. No Allowance of any kind should be made for waste where figures are taken from actual results shown in manufacture. Provision should be made for loss in cleaning raw material when making the prices for raw material. The percentage to be added to the total material and u'ages should be determined by considering the proportion of the expenses to the production during the prior year's business. Futures Where costs are computed on goods to be manufactured, suffi- cient allowance must be made for waste, in the various operations, and before any prices are quoted, said allowance made for waste, in the various departments of manufacture, should be verified by actual weight. Wool Sorting and Washing The cost of wool sorting, washing and all expense necessary to produce clean stock should be separated from the manufacturing account and added to the purchase price of the wool, in order to obtain the cost of the cleaned wool which is a supplementary cost. 158 ACCOUNTING PRACTICE Rag Sorting and Picking Shoddy The cost of rag sorting and picking shoddy, and all wages and expenses in connection with the manufacture of shoddy should be separated from the manufacturing account, in order to show the cost of manufacturing shoddy, which is a supplementary cost. Analyzing Wages In analyzing the wages, the various departments should be sepa- rated as follows (by simply grouping the names) : Making Shoddy Rag Sorting and Picking Shoddy. Dyeing Dyeing Raw Material or Yarn. Dyeing in Piece. Manufacturing Mixing and Oiling. Carding and Spinning. Twisting. Warping. Weaving and Expense. Burling and Sewing. Finishing. General Expense Office Help. General Help. Plant and Equipment New Houses. Improvements. Wages in Departments In the weaving department all nonproductive wages for foremen, helpers and all persons employed in the department, excepting weav- ers on production weaving, are grouped on the pay roll under the heading of weaving expense. COST SYSTEMS I59 In all other departments the wages of every employee in the department are included as part of the wages of the department in which they are engaged. Under general help include only employees that cannot be charged against any particular department, such as yard hands, watchmen, etc., excepting such as are specially provided for. The Proof of Wages The amount of wages charged by the superintendent in computing costs can be verified by striking an average, considering the summary of the reports of production and wages for the departments. And annually the summary of the production and wages reports should not exceed the production for the year when the goods in process, in each department at the beginning and end of the period, are considered. To Prove the Wool Consumption The total amount of wool used, as shown by summarizing the record of the mixing department book, should equal the consumption for the year, as shown by the wool account in the private ledger. Add to the inventory of wool on hand January ist the purchases of wool for the year and from this amount deduct the inventory of wool on hand December 3ist; the result thus obtained should equal the amount of wool consumed as per mixing room record. (Considering waste.) To Prove the Consumption of Cotton The total amount of cotton used during the year as shown by summarizing the record of the mixing room should equal the cotton consumed, as shown by the cotton account in the private ledger. (Considering waste.) To Prove the Consumption and Manufacture of Shoddy The inventory in pounds of shoddy on hand January ist plus the pounds of shoddy manufactured, less the inventory in pounds on December 3 ist (following), should equal the shoddy consumption as shown by the summary of the record of the mixing room. 160 ACCOUNTING PRACTICE In taking account of stock in process at the end of 'each period, the weights and numbers of the stock in process in the following departments should be shown separately : Carding and Spinning, Twisting, Warp Spooling, Warp Dressing and Drawing-in, and in the following departments the numbers, yards and weight should be shown in detail : Weaving, Burling and Sewing, Wet and Dry Finishing, Piece Dyeing. Manufacturing Shoddy (Supplementary Cost) The manufacture of shoddy must be kept entirely separate and treated as an independent business (except in regard to fixed charges and general expenses), in order to obtain the cost of making shoddy to compare with the cost of shoddy purchased. (1) All purchases made for the shoddy department should be charged to the shoddy account during the year. (2) All wages in connection with the manufacture of shoddy should be separated on the semimonthly report of production and pay roll, and charged to the shoddy account at the end of the year. (3) A record should be kept of the shoddy manufactured. At the beginning of the year the shoddy manufacturing account is charged with the inventory of shoddy making material. Add to the inventory of January 1st all purchases and deduct from the total obtained, the inventory of shoddy making materials on hand December 3ist; the resultant will be the material consumed in making shoddy. The consumption of each class of material can be obtained by compiling them separately, and the total results, if correct, will equal the resultant obtained. To the material consumed in making shoddy add the wages of the shoddy department for the year. Divide the total by the number of pounds of shoddy produced COST SYSTEMS j6i and the result will be the average cost of manufacturing shoddy for the year. Dyeing (Supplementary Cost) The average labor cost of dyeing either the raw material, yarn or piece goods, can be used in computing costs if desired ; or Test lots may be put in operation, in order to obtain competent rates to be charged for wages; or Actual wages for dyeing can be charged by keeping a record of the wages. Material: The costs of dyestuffs vary so extraordinarily that the cost and quantity of dyestuffs must be considered in computing the cost of material used in producing certain results. For this reason, when compiling the cost of dyeing, the first cost of dyeing must be obtained by computing on actual results; thus: Dyeing: Material (Dyestuffs consumed) $- Wages (actual or average) $- Expenses and Supplies (average) $- Total Cost, Divide the total cost by the number of pounds and the result is the cost of dyeing per pound. The cost of each cloth is figured on Form No. 37. 6. Outline of Cost System for Lithographing Company The elements of costs will be assembled on cost sheets, and these cost sheets will be kept in two binders : (1) Cost Sheets in Operation. (2) Completed Cost Sheets. The cost sheets in operation will be considered always as a unit, and a controlling account will be kept in the ledger, showing the value of the costs in operation. If the cost sheets in operation are ACCOUNTING PRACTICE scheduled at any given time, the total of same should be the equiva- lent of the balance of the ledger account for work in process. Each -week should commence with this balance, which should be the total value (or cost) of work in process. Charges should be made to the cost sheets in operation through the cost department journal, so that the cost department journal will show the amount which was charged to cost sheet, and an analysis of this, so that the proper accounts can be credited with the total of the items which were charged to the cost sheets. The cost sheets completed during the week should be scheduled in detail on form number, classifying the cost sheets according to the number of sheets in the bill. A recapitulation should be made of this classification, which should give the total amount of the cost sheets completed during the week. Deducting this total from the total of the cost sheets in operation should leave the balance, which should be the work in process. Material The material should be charged to the cost sheets as delivered at actual cost value, but can be charged to the cost sheets when the order is completed if it is more desirable. Labor (also Department and General Expenses) The pay roll should be analyzed weekly according to departments, and the factory and general expenses distributed over the depart- ments. (Form No. n.) The cost sheets for the departments operated as a whole should be charged with the pay roll for the department, plus its relative proportion of expenses. The pay rolls of the press rooms should be analyzed according to the classification of presses, and the amount chargeable to each class of presses, plus its relative proportion of expenses, should be charged to the cost sheets for the classes of presses. The pay rolls of the departments operated according to order numbers should be made up to show the amount of productive labor chargeable to each and every order number, the proportion of the COST SYSTEMS expenses chargeable to the department should be prorated over the order numbers of that department, and the amounts charged to the individual cost sheets for the orders. Selling Expenses The selling expenses should be charged to the cost sheets after all other elements of cost have been determined by adding a percentage, considering the ratio of the selling expense to the whole cost. Details of Cost System Classification of Original Expense The various expenses of the business will be analyzed to show primarily : (1) Pay Roll. (2) Material. (3) Reserve and Long Term Expenses. (4) Departmental Expenses. (5) General Factory Expenses. (6) General Expenses. (7) Selling Expenses. (8) Sales Office Expenses. The prime cost is the labor, and the distribution of the factory and general expenses should be made according to the ratio they bear to the labor, considering previous experience. Material All material purchased should be charged to the material account. Under the heading of material should be classed all articles charged to cost sheets, such as paper, etc., which become a component part of the product. The material will be charged direct to the cost sheets immediately upon delivery from the delivery ticket, and at the actual cost of the material. Pay Roll The pay roll account should be charged with the entire amount of the pay roll. 164 ACCOUNTING PRACTICE Distribution of Pay Roll and Unapplied Expense. (Form 11) The pay roll of the departments operated according to order num- bers should be set up on Form No. n, to show the amount of pro- ductive labor and unproductive labor, and the other departments should show only the total labor for the department. Unproductive Labor The amount of the unproductive labor in each department, oper- ated by order numbers, should be added to the proportion of depart- ment expense, factory expense, and general expense, the ratio of the whole to the productive labor should be computed, and the productive labor plus its percentage of the expenses should be charged to each and every order number. Departmental Expenses This classification should include all expenses chargeable to the departments for supplies used in process of manufacture, which do not enter directly into the product as a component part of same, such as alcohol, benzine, brooms, mops, brushes, oils, etc. ; also heat, light and power ; building and machinery repairs ; reserve for depre- ciation; and insurance and taxes. Subanalysis of Departmental Expenses A subanalysis will be made to determine the amount chargeable to all departments, and the amount chargeable to particular depart- ments for specialties used only by certain departments. Heat, Light and Power The cost of heat, light and power will be based on the previous year's expenses, and distributed over the departments according to the requirements of each department, and be a part of the departmental expense. Building and Machinery Repairs The cost of building and machinery repairs will be based on the previous year's expenses, and distributed over the departments, the COST SYSTEMS X 6 5 building repairs according to floor space, and the machinery repairs according to the actual report of repairs in each department ; the totals will be a part of the departmental expenses. Reserve for Depreciation The reserve for depreciation on plant and equipment should be based on the valuation and possible life of properties in the respective departments, and included as a part of the departmental expense. Insurance and Taxes The cost of insurance and taxes on plant and equipment will be based on the previous year's expense and distributed over the depart- ments; the insurance on buildings according to floor space; the in- surance on machinery, etc., according to valuation of same in the departments ; and the insurance on the stock in warehouse will be charged to general expense. General Factory Expenses This classification should include all expenses of manufacture, common to all departments ; the salary and expenses of the factory superintendent, and his office staff; the salary and expenses of the cost department; heat, light and power for elevators, etc., which cannot be applied to any department ; insurance and taxes ; teaming ; insurance on raw material and sundry supplies not chargeable to departments ; accidents, etc. General Expenses This classification should include all expenses of a general char- acter, such as salaries and expenses of officers and general office staff; stock clerks; in fact, all expense incurred by the management in the supervision of the business, and also their proportion of the New York (Executive) office expenses. Selling Expenses Under this classification should be included all selling expenses of every character, except sales office expenses, which should be treated as follows : ACCOUNTING PRACTICE Sales Office Expenses If a sales office is maintained, a special account should be main- tained for same, and all expenses incurred by the office should be charged against the account. The selling expenses will be subdivided by discriminating between booking and shipping expenses. To deter- mine the percentage which is to be added to the cost sheets, for selling expenses, ascertain the percentage of the selling expenses to the whole cost, exclusive of selling expenses, by deducting the total selling expenses from the whole cost, and dividing the selling ex- penses by the resultant. MAKING UP PAY ROLL FOR DEPARTMENTS OPERATED ACCORDING TO ORDERS The pay roll of departments, operated according to order num- bers, should be analyzed, and, after determining the amount charge- able to each and every order, prorate the expenses (including unpro- ductive labor) over the orders, so that the total amount, being charged against orders, is the equivalent of the department's pay roll and its relative proportion of expenses as per Form n. The charges should be made to the individual cost sheets from the analysis sheet, and the results entered in the cost journal. MAKING UP PAY ROLL FOR PRESS ROOM The productive labor of the press rooms should be analyzed ac- cording to class of presses, and the expenses prorated over the labor, chargeable to each and every class of presses. The charges against classes of presses are made to the cost sheets for the different classes of presses through the cost journal. PAY ROLL OF DEPARTMENTS OPERATED AS A WHOLE The pay roll of the departments operated as a whole, and the relative proportion of expenses, as per Form No. n, should be charged to the cost sheets for the departments through the cost department journal. COST SYSTEMS 167 Preparation of Inventory In preparing the inventory the different items should be classified as follows: Material. Department supplies. Factory supplies. General expense supplies. Building and machinery repair supplies. Heat, light and power supplies. Selling expense supplies. Reserve and long term expenses. Work in process. Finished product. Merchandise. Do not confuse the different classes by putting them on the same sheet, for no two classes of articles should appear on the same in- ventory sheet, except when making a summary of the total inventory. This summary should show the total amount of each class, except department expense supplies, which should be set up to show the amount chargeable to each department. MATERIAL Under the heading of " Material " should be classed all articles, such as paper and ink, which become a component part of the product. DEPARTMENT SUPPLIES Under the heading of " Department Supplies " should be classed all articles used by departments, which can be consistently charged against the departments because they are used by the department and not an expense of all departments. FACTORY SUPPLIES Under the heading of " Factory Supplies " should be classed all articles which are necessary to the operation of the factory in general, which cannot be charged to particular departments. l6 8 ACCOUNTING PRACTICE GENERAL EXPENSE SUPPLIES Under the heading of " General Expense Supplies " should be classed all articles of a general character not applying directly to the manufacturing, such as office supplies, etc. BUILDING AND MACHINERY SUPPLIES Under this heading should be classed all articles such as lumber, belting and parts of machinery which are renewals and replacements, except such as are to be used by the heat, light and power depart- ments. HEAT, LIGHT AND POWER SUPPLIES Under the heading of " Heat, Light and Power Supplies " should be classed all articles which are necessary to the operation of the plants generating, transmitting and distributing the heat, light and power. SELLING EXPENSE SUPPLIES Under this heading- should be classed all articles used by the sell- ing departments. RESERVE AND LONG TERM EXPENSES A detailed account of each and every item composing these ac- counts should be shown, giving sufficient detail to enable the book- keepers to distribute the items over the months during which the expense accrues or expires. WORK IN PROCESS Under this heading should be scheduled each and every cost sheet for work in process, and this schedule should show the total charges with an analysis of their composition (namely, material, labor, ex- penses, etc.) ; the deliveries made should aso be shown with the esti- mated cost and value of said deliveries. The cost sheets should be closed as at the time the inventory is taken ; but, before the closing is made, all charges should be entered on same for work up to that time, and for material issued. The pay COST SYSTEMS !6 9 roll should be figured to date and charged as customary during the previous year. FINISHED PRODUCT Under this heading should be classed all articles which were manu- factured and are finished product ready for the market. MERCHANDISE Under this heading should be classed all articles which were pur- chased to sell and which are not manufactured, worked or reworked. PART III OPERATING FORMS FORM No. i. TIME CARD NON-PRODUCTIVE LABOR Time Clncfc Number Date Rate per week ; Day ; Hour ; Working on Hours Amount Check I 173 FORM No. IA. TIME CARD PRODUCTIVE LABOR Employe's Number_ Charge Order No. Time Started Time Finished Hours Rate per Hour Amount Posted Remarks : Date will be stamped here by office FORM No. 2 WEEKLY TIME CARD Employe's No. Depmt. $ Name 1 nrr A y oar (ate S per It Week ending Order Numbers s- g ' c_ $ I O. $ H i B. S Wednesday Thursday 2 0. $ y 1 Don't Write Here Amount x- Non-productive Totals FORM No. 3 COST DEPARTMENT COPY Receiving Book Purchas Bought Receive e Dept. No. Of Register No. ' ; I . rt ... Location Register Number Marks Quantity Particulars Rate Per Amount Deliveries Order No. Quantity Order No. Quantity Order No. Quantity 176 FORM No. 4 WORK ORDER u o> J- O O u O 5 s c o> O. o a a 2 ^J j= j- j3 Q U . ^ 3 "1 S S 43 Z O z o A g- 2 V I tft i O c o, I; .0 b o ' .- 1 J s "5 c u. QJ .2 t > *55 product I 0. epartment c o D o > c ctf 3 <0 1 cx c 5 a X 1 U 1 "5 ^ *S 2 1 c a. JD ' Si tn z IW 4 ex. Q B i t & a FORM No. 12 ENVELOPE c ^j- .2 j o -*- C<3 O 185 FORM No. 13 COST SHEET MEC Machi MCINE nes No. 1, 2, 4, 5, 6, r, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19 Cost of Material Cost of Labor Reg. No. Qtty. Material Rate Amount No. Department Mrs. Rate Amount Bottles, Large Used Laboratory " Broken Small Used " Broken Bottling Corks, Large Used " Broken " Small Used Labeling " Broken Labels, Large Sets Used " " Broken " Small Sets Used " " " n > Broken Pamphlets, Large Used " 11 " Small Destroyed Cartons, Large Used Destroyed Casing Small Used " Destroyed Packing Packing Cases, Large " Small Total Material Labor Production: Large Small 186 Tank No. Emulsion No. 6 5 Com Com pounded Gallons menced B ottling Summary of Costs Shipments of Medicine Particulars Amount Shipping Number Order Number Large Small Drugs: Machines @ Material Labor Expense $ . i I 190 Cost per bottle: Completed: 1 flrpe Small 187 FORM No. 14 ORDER TAG Emulsion No Tank No. Gallons Compound- Compounded Loose Bottles Packed Large Small Cases Large Small Quantity Cost Value Emulsion No. 6050. Pamphlets and Cartons Pamphlets Reg. No. Rate Large Small Cartons^ Large Small Used Value Destroyed Value Emulsion No. 6050. I abeis Rate Quantity Ruined <-> 5 y tn ' Emulsion No. 6050. Corks Reg. No. Cost Used Value Destroyed Value ge ill Emulsion No. 6050. Bottles Reg. No. Cost Used Value Destroyed Value Large Small 188 FORM No. 15 Warp No.. Yards__ C. ds_ Warper Ticket Lot No. Weight Rate, $ Warper's No. _ Artiount, $ FORM No. 16 Twister Ticket Warp No. Loom No. Twister's No. Rate, $ Amount, $. FORM No. 1 7 Factory Piece No. Yards Rate, $ Picker's No Picker Ticket Width Amount, $ Approved 189 FORM No. 1 8 D FORM No. 18 C FORM No. 18 B FORM No. 18 A Factory Piece No. 1 1 71 Style No Finished No._ Finished Weight Finished Yards Weaver's No Loom No ___ Weight _ Yards Sewing Ticket Factory Piece No. Sewer's No Yards Burling Ticket Factory Piece No. 1171 Employe's No. Yards Weaving Ticket Factory Piece No. 1171 Weaver's No. _ Cut Yards__ 190 FORM No. 19 COST SHEET Basis: Raw Silk @ $ per pound. QUALITY No. Yards Weight Width Make up of Warp Ends Yards Make up of Filling Picks Width Reed Disposition Skeins Per cent, added for profits TT Material Warp Jbs. Throwing Dyeing Filling Dyeing __ Wages Winding Silk Winding Cotton Warping_ Ibs. Twisting Weaving _ Picking Burling Sewing -yds. Total Productive Labor Non-productive Labor Finishing^. Refinishing_ Scouring Piece Dyeing .yds. Total Material and Wages Expense Loading Cost of Product Cost of 100 Yards Sell for _yds. .per yd. FORM No. 20 COST JOURNAL a, W bX> c3 o o w W O P Orde Numb 192 FORM No. 21 COST SHEET I > 5 & _0 43 5 +> ctf 4-> o "3 *-< o H V ^ Q ? . *-> 's cv (U 15 Q Provide for binding here 193 FORM No. 22 SUP.- ANALYSIS -t-> IH x ca 0) 0) StH CD Q t> S CJ O bfl IH rt 3 H 43 s*. *d a aJ 3 I i a rH CD tUO .2 'H 3 , A X f^ W g OH O !-,' Ctf s >. * c 3 CD fe y fj y < A CO c E < 4 Provisi t g -*- < C 3 4 4 5 \ I c c 3 j 3 94 FORM No. 23 JOURNAL tj * 1 * > -0 S *> * P -M (U bO . "o >3 00 -> u 'C to "n "O 00 JJj t> .r; "5 2, f ' "^* ^3 1 T3 ~~ | |M O Particulars x . iS 2 V Q 14 FORM No. 29 CASH BOOK 4-1 A 0) Q Credited to account of: i Exchange -, m * ft ej Ow n ti "(O o PH "S Q 4) M A p 5 hi J <4-l -M a 2 M -"2 cu.3 3 s > c3 o -l- rt -O W ^ & i aj 09 >-, fe 1 01 i &> J OH a ed 3 4> Q - * o D Particulars 0) --> n3 p FORM No. 30A CONTROL SHEET NO CO CO 3 s PQ PQ u 204 Q u FORM No. 308 CONTROL SHEET ro 3 N O PH cn S PH u S a it! 'S 10 en CJ O X* P^H | ^ o rt PH U 2 H o y . C >-H O ON cn O <* cn VO !z ~ O 1 "rt o G ro "~* O cn l ~~ 1 O ^" 1 rj O tt! N 6 | q M O t > O H cn O q (U O W) j_, H M S S 4 W y~, o c\ ^6 o vS" o o H M o tc -^ "X3 O IO 206 FORM No. 32 LEDGER ACCOUNT ILLUSTRATING ANALYZING A LEDGER F. W. BROWN & Co. ACCOUNT 1903 1903 Jan. i Balance L 171 10 701.50 Jan. 25 Cash 74 4 ooo.oo 15 Mdse. 35 710.60 3i 1 80 i 701.50 20 < < 3'5 91.60 Feb. 24 Bills Rec.J 3i5 5 ooo.oo 2 5 3?o i 191.52 27 Cash 202 3 3I4-5 26 Freight C '75 19.20 / 27 Mdse. 39 410.20 / 29 ( C 395 910.60 / Feb. 7 <( 410 92. 10 1 9 11 4i5 191.70 / i? Interest J 337 125.00 / i? Mdse. 435 71.60 / J 9 i i 440 192.60 / 27 < i 470 i 605.71 / Mh. 28 (i 563 91.20 / 3 1 a 608 97.41 / Apl. 10 619 1 10.72 / 22 635 89.25 / 28 710 601.83 / 28 < < 711 191.27 / May i Forward 6 17 495.61 Forward 14 016.00 FORM No. 33 MONTHLY STATEMENT Ledger Folio Balance Sheet Entries for Month Trial Balance Accounts Debits Credits Debits Credits Capital Cash Purchase Ledger Sales Ledger Petty Ledger Bills Receivable Bills Payable Furniture and Fixtures Merchandise: Inventory Wholesale Retail Totals General Expenses Wholesale Department Retail Department Profit and Loss Dividends Surplus Totals 208 Ledger Folio Income and Expense Entries for Month Trial Balance Accounts Debits Credits Debits Credits General Expenses Office Salaries Sundry Expenses Rent Heat, Light and Power Taxes Insurance Cartage Transportation Totals Interest on Notes Disc't on Sales and Purchases Balance Totals Wholesale Department Wholesale Wages Transportation Cost of 'Sales Sales Salesmen's Salaries Salesmen's Expenses Balance Totals Retail Department Cost of Sales Sales Wages Advertising Balance : Totals 209 FORM No. 34 VOUCHER REGISTER T3 O) 9 0) W = 5 S c 3* 6 Z . Charged to account of : 'w 0) U) ?3 >> TO "ra OO I O S Accounts Payable Amount u E Z Ui o> rt Q FORM No. 35. PRICE TO SELL: Cloth- finished DATE EXECUTED Mill for quarter ending Based on : Cost Sheets of Cost of Cotton Purchased Q Figured on pounds of Cloth Manufactured. Made on Warp Yarn No Sley .Filling Yarn No.. - Length of Warp prepared yards to produce per pODD'l Loom yrd of Cloth. 11 Warp Yarn: Requires fn Muniifuchir* Yiirn : Per pound Dyeing Cotton : Color Per pound Twisting: p'y: Per pound (Average Labor Cost increased by proportion of Department Expenses) Winding: On Per pound (Average Labor Cost increased bv proportion of Department Expenses') Yarn Supplies: Cost of Cones, Tubes, Packing Materials etc. Spooling : Per pound (Average Labor Cost increased by proportion of Department Expenses) Total Cost Allowance % for Waste in Winding and Twisting Providing # for Selling Expenses freight, etc. j Providing % for Profit L Increases Total Cost 1007 and equals Sell for per pound FORM No. 37. NUMBER RANGE Nt> FABRIC SELLING WEIGHT OUNCES DATE 190 Warp Dressed Vein. Mj ike-up of Lots. Weight Lbs Ends Picks. Fillinit Yam, Lh. Loom Width Indira Ml ciimoH WMPCTO AcniAt nia WEIGHT WEIGHT U.UKU . : u > 1 Off Loom, Material, Yards, Weight, Lbs. Width, Inch** Total Charge for Material, Finished, Yards, Wages, Mixing and Oiling, I.hs. iece. Lbs. ective pur- chasers of an interest in the corporation. The fixed assets and fixed liabilities are set up first because of their relative importance to the clients. The connecting link between this exhibit and Exhibit II is the balance of the surplus account. Report Form No. 29. (Page 270.) This form is a statement of the surplus account and is submitted in connection with the balance sheet Exhibit I, because it is not con- sidered good form to embody statements in the balance sheet. Your attention is directed to the method of entering dividends, plant and equipment charged off, and capital stock donated. The connecting link between this exhibit and Exhibit I is the surplus for the end of the period. The connecting link between this exhibit and Exhibit III is the net profit carried from Exhibit III. The connecting link between this exhibit and Exhibit II is the surplus at the beginning of the period and the surplus at the end of the period. Report Form No. 30. (Page 272.) This form is a statement of profit and loss to be submitted in connection with the other exhibits of this report. 224 Your attention is directed to the entries for bad accounts and the amount recovered on bad accounts. It is particularly directed to the method of closing the account, carrying the balance down, and showing items which are not necessarily a part of the business. Interest and discount are financial transactions, and there are many conditions where it is absolutely necessary to show the items as exhibited. When depreciation of an extraordinary character is charged off, such charges are also set up in the same method as the interest and discount. The connecting link between this exhibit and Exhibit II is the net profit, which is carried to the surplus account. The connecting link between this exhibit and Exhibit IV is the gross profit carried from the trading account. Report Form No. 31. (Page 274.) This form is a trading account to be submitted in connection with the other exhibits of this report. The remarks relating to Report Form No. 16 are appropriate to this exhibit. The connecting link between this exhibit and Exhibit III is the gross profit carried to the profit and loss account. The connecting link between this exhibit and Exhibit Y is the net cost of manufacturing carried from the manufacturing account. Report Form No. 32. (Page 276.) This form is a manufacturing account submitted in connection with the other exhibits of this report. Your attention is directed to the manner of setting up the sales of waste, which is an offset to the cost of material consumed. Report Form No. 33. (Page 276.) This form is a comparative balance sheet and is supplementary to the other exhibits of this report. The connecting links between this exhibit and the report proper are the various items of the balance sheet for the end of the period, which is Exhibit I, and the balances of surplus for the beginning and end of the period which appear in Exhibit II. REPORT FORMS 225 Reports Forms Nos. 34 to 40 inclusive These forms are similar to the previous forms, excepting that they are a little more complicated. The period covered by this report was three years. The Report Form No. 35 is different from the others because the circumstances called for separate accounts. The Report Form No. 36 is also different for the same reason. This statement shows the real profits and the Report Form Xo. 43 shows the profits as appearing on the books of the company. The claim that the profits for 1905 was $22 194.33 and for 1906 $15 025.81 is refuted by the copy of the profit and loss account for 1906, which is Exhibit 43. Setting up accounts in the form shown in this report will exhibit the true sources of all items of surplus and profit and loss. Report Form No. 40 illustrates the method of setting up a com- parative balance sheet or statement of assets and liabilities. The latter name applies to this form, because the condensed trial balance for the date of the audit is embodied in the exhibit. Report Form No. 41. (Page 302.) This form is a comparative statement of profit and loss for three years, and illustrates the method of showing the various items, so that a comparison can be made. Your attention is directed to the method of setting up the credits which were deducted from the sales for the year. Report Form No. 42. (Page 304.) This form is a condensed trial balance for the date the audit was made, and should be submitted, if the audit is made a date later than the closing of the books, for the purpose of determining the condi- tion of the business for a client who is a possible purchaser qf an interest in the business. Report Form No. 43. (Page 306.) This form is a summary of the profit and loss account as it appeared on the books of the company, and is submitted to illustrate the proper 22 6 ACCOUNTING PRACTICE method of reporting the results as shown by the books when the books are inaccurate, because of errors of omission or commission. Report Form No. 44. (Page 308.) This form is a statement of the account of the company con- trolled by the vender of the company examined. Report Form No. 45. (Page 309.) This form is a comparative statement of statistics and percentages of interest to the vendee and its importance is evident. Report Form No. 46. (Page 310.) This form is a condensed trial balance and illustrates the method of establishing the equilibrium of the trial balance by adding to the general accounts the totals of the accounts receivable and accounts payable. Report Form No. 47. (Page 311.) This form is a schedule of bills receivable and illustrates the meth- ods of condensing the schedules when full particulars are not essential. Report Form No. 48. (Page 312.) This illustrates the form used when certifying a balance sheet separated from the regular report. It is very acceptable to bankers because it enables them to see at a glance the amount of the current assets and liabilities and fixed assets and liabilities. This balance sheet is compiled from Report Form No 28, page 268. In General Report Results not on Books. The statement of profit and loss embodied in the report of an audit need not appear in that form on the books of the company in order to certify that the results are as per the books. It is essential only that the net results as shown by the report appear on the books. If the net results shown in the report do not coincide with the books, a statement should be added to your report to show wherein the books differ from your report. (See Report Form 43.) PERCENTAGES OF THE VARIOTS ELEMENTS OK COST (SIMPLE). Percent- Percent- ae of ae of Manfg. Whole Cost. Cost. Percent- age o( Sales. I. Cost of Material, 198 551 .28 57% 53% 45% 2. Cost of Labor, 107 611 .43 3i% 29% 24% 3- Manufacturing Expenses, 10 693.77 3% 3% 2% 4- General Expenses, 3 766.55 9% 8% 7 c 5- Manufacturing Cost, 347 623.03 IOO*/^ 93% 78% 6. Selling Expenses: Commission and Guarantee, 28 941 . i i r- / * 6% 7- Whole Cost, 376 564.14 100^ 84% 8. Profits for the year 1901, 69 47 1 -37 1 6% 9- Sales, 446 035.51 ioo r o REPORT FORM No. i. (For report, see Report Forms Nos. 13 and 14.) 227 PERCENTAGES OF THE VARIOUS ELEMENTS OF COST (COMPOUND). Percent- age of Manfg. Cost. Percent- age of Whole Cost. Percent- age of Sales. Cost of Material, 201 040.69 62% 56% 47% Cost of Labor, 101 342.17 31% 28% 24% Manufacturing Expenses, Manufacturing Cost, 21 874.60 7% 100% 6% 90% 5% 76% 324 257.46 Inventory of Merchandise, Dec. 31, 1900, 117 394.11 Purchases of Merchandise during year, Total, 140 291.87 581 943-44 Deduct: Inventory of Mer- chandise, Dec. 31, 1901, 94 762 . 18 9% 76% Cost of Sales, 487 181.26 Selling Expenses, Whole Cost, 54 892.13 10% 100% 9% 85% 542 073.39 Profits for the year 1901, 93 874.60 15% 100% Sales for the year 1901, 6 3S 947-99 REPORT FORM No. 2. (See also Report Forms Nos. 6 and 15, 16 and 17.) CONDENSED STATEMENT OF PROFIT AND Loss FOR THE YEAR 1901. Inventory of Merchandise, December 31, 1900, Purchases of Merchandise made during the year, (Less : Purchase Credits for Returns and Allowances.) Total, Less : Inventory of Merchandise December 31, 1 90 1 , Cost of Sales, General Expenses, Selling Expenses, Whole Cost, Profits for the year 1901, Sales for 1901 (Less Returns and Allowances), 17 691 .40 100 471.18 118 163.58 19 111.44 99 5-'4 ii 477- 6 9 25 3"- 8 7 135 840.70 18 761 . 15 154 601 .85 REPORT FORM No. 3. (For report, see Report Forms Nos. 10, 11 and 12.) 229 CONDENSED STATEMENT OF PROFIT AND Loss FOR THE YEAR 1901. Inventory of Material, December 31, 1900, Purchases of Material made during 1901 (Less: Purchase Credits for Returns and Al- lowances) , Total, Less: Inventory of Material, December 31, 1901, 50 701.80 178 611.85 22 9 3!3- 6 S 30 762.37 Cost of Material, Labor, Manufacturing Expenses, General Expenses, Cost of Manufacturing, Selling Expenses, Commission and Guarantee, 198 551 . 28 107 611 .43 10 693.77 3 7 66 -55 347 623.03 28 941 . i i Whole Cost, Profits for the year 1901, 376 564.14 69 47J-37 Sales (Less Returns and Allowances), 446 035.51 REPORT FORM No. 4. (For report on above, see Report Forms Nos. 13 and 14.) 230 CONDENSED STATEMENT OF PROFIT AND Loss FOR THE YEAR u>oi. Inventory of Merchandise and Material, Decem- 141 309.72 her 31, 1900, Purchases of Merchandise during the year 1901 (Less: Purchase Credits for Returns and Allow- ances), 201 755.31 Purchases of Material during the year 1901 (Less: Purchase Credits for Returns and Allow- ances), 194 609.77 | Totals, 537 674.80 Less: Inventory of Merchandise and Material, December 3 1, 1901, 123 461.12 Cost of Merchandise and Material, Labor, Factory Expenses, General Expenses-, Selling Expenses, 414 213.68 191 604 . i i 37 692.15 24 608 . 2 I 57 223.44 Whole Cost, Profits for the Year 1901, Sales for the year (Less Returns and Allow- ances), 7 2 5 341-59 84 367.22 REPORT FORM No. 5. 231 CONDENSED STATEMENT OF PROFIT AND Loss FOR THE YEAR 1901. Inventory of Material, December 31, 1900, Purchases of Material made during the year 1901, (Less : Purchase Credits for Returns and Allow- ances) , Total, Less: Inventory of Material, December 31, 1901, Material Consumption, Deduct Offset: Sales of Waste, 47 211.82 201 777.84 248 989.66 39 477-86 209 51 1 . 80 8471 ii Cost of Material, Labor, Manufacturing Expenses, Manufacturing Cost of Production, Inventory of Merchandise, December 31, 1900, Purchases of Merchandise made during 1901 (Less: Purchase Credits for Returns and Allow- ances) , Total, Less: Inventory of Merchandise, December 31, 1901, 201 040.69 101 342.17 21 874.60 324 257.46 117 394.11 140 291.87 581 943-44 94 762 . 18 Cost of Sales, Selling Expenses, Whole Cost, Profits for the Year 1901, Sales, (Less: Returns and Allowances), 487 181.26 54 892.13 542 073.39 93 874.60 6 35 947-99 REPORT FORM No. 6. (For report on above, see Report Forms Nos. 15, 16 and 17.) 232 CONDENSED STATEMENT OF PROFIT AND Loss FOR THE YEAR 1901. Inventory of Furniture, December 31, 1900, Purchases of Finished Furniture during the Year 1901, Purchases of Unfinished Parts during the Year Labor: Setting Up and Finishing Furniture Total, Less: Inventory of Furniture, December 31 , igo i, 121 809. 15 I9 8 761. 13 177 693.55 10 763.88 509 027.71 104 786.22 Cost of Sales, Salary and Wages, Expenses, Whole Cost, Profits for the Year 1901, 404 241 .40 39 7 2 3-47 49 7 6 7-33 493 73 i - 2 9 49 "67-34 Sales, (Less: Returns and Allowances), 543 499-63 KKPOKT FORM No. 7. (For report on above, see Report Forms Xos. 18 and 19.) 2 33 CONDENSED STATEMENT OF PROFIT AND Loss FOR THE YEAR 1901. Inventory of Carpets, December 31, 1900, Purchases of Carpets during the Year 1901 (Less : Purchase Credits for Returns and Allowances), Total, Less: Inventory of Carpets, December 31, 1901, Cost of Carpets, Labor: (Cutting, Fitting and Laying Carpets), Salary and Wages, Expenses, Whole Cost, Profits for the Year 1901, Sales for the Year 1901, (Less: Returns and Al- lowances) , 117 322.44 310 267.78 427 590.22 108 427.39 319 162.83 9 43!- 2 9 34 3 11 - 28 49 777- 6 5 412 683.05 58 744.22 427-27 REPORT FORM No. 8. (For report on above, see Report Forms Nos. 18 and 19.) CONDENSED STATEMENT OF PROFIT AND Loss FOR THE FISCAL YEAR ENDING OCTOBER 31, 1902. Inventory of Merchandise, October 31, 1901, 127 604.11 Purchases of Foreign Merchandise (Less: Credits for Returns and Allowances), 304 111.82 Duty, Foreign Freight, etc., 176 So i . i 5 Purchases of Domestic Merchandise (Less: Credits for Returns and Allowances), 217 444.26 Total, Deduct: Inventory of Merchandise, October 31, 825 961.34 432.73 Cost of Sales, 707 528.61 Selling Expenses, 54 608.15 General Expenses, (Includes Interest and Bad Debts), 67 846.18 Whole Cost, 829 982.94 Net Profits for the fiscal year ending October 31, 1902, 25 376.76 Sales, (Less: Returns anil Allowances), V 55 35')- 7 RKPORT FORM Xo. <;. (For report on above, see Report Forms Xos. 20 to jr. MESSRS. JOHNSON BALANCE SHEET, A ssets : Cash on hand December 31, 1901: First National Bank, Petty Cash, Total, 3 1 827.54 500.00 3 2 3 2 7-54 Bills Receivable as per Exhibit D, I IOO.OO Accounts Receivable as per Exhibit E, Sundry Sales Accounts, Edward Davis, Total, Inventory of Merchandise: (No responsibility assumed for quanti- ties and prices.) 41 397.60 I OOO.OO 42 397.60 19 111.44 Unexpired Insurance as per Exhibit F, I 047.30 Furniture and Fixtures (As per books) , 9 722.38 Total Assets, 105 706.26 REPORT FORM No. 10. 236 AND HILL. EXHIBIT A. DECEMBER 31, 1901. Liabilities : Bills Payable as per Exhibit G: Bank Accommodations, Sundry Creditors, Total, Accounts Payable as per Exhibit II, 25 ooo.oo IO OOO.OO 35 ooo.oo 7 321-15 1 Total Current Liabilities, E. S. Johnson Capital Account: Balance, December 31, 1900, Profits for year, Exhibit B, Total, Less Personal Drawings, Balance, December 3 1 , 1901, David S. Hill Capital Account: Balance, December 31, 1900, Profits for year, Exhibit B, Balance, December 31, 1901, 9 534->3 6 253.72 15 787-85 2 005.70 42 321.15 ij 782.15 49 602.96 37 095-53 12 507-43 Total, 105 706.26 237 MESSRS. JOHNSON PROFIT AND Loss ACCOUNT FOR THE Debits: General Expenses: Office Salary and Wages, Office and General Expense, Rent, 5 47 1 - 62 2 113.87 2 OOO.OO Telephone and Telegrams, Legal Expense, Total, Selling Expenses: 947.60 944 . 60 II 477- 6 9 Salesmen's Salaries, Salesmen's Expenses, Advertising, Gratis Account, Commission, Total, 8 722.15 10 233.54 3 944-n 3 2I -54 2 090.53 2 5 3 11 - 8 ? Balance being Net Profits carried down, 18 761.15 Total, 55 550-71 1 Division of Profits: E. S. Johnson, one third, David S. Hill, two thirds, 6 253.72 12 507-43 Total, 18 761.15 REPORT FORM No. n. 238 AND HILL. EXHIBIT B. YEAR ENDING DECEMBER 31, igoi. Credits: Gross Profits on Trading carried from the Trading Account, Exhibit C, Balance carried from above 239 MESSRS. JOHNSON TRADING ACCOUNT FOR THE Debits: Inventory of Merchandise, December 31, 1900. (No responsibility assumed for quantities and prices.) Purchases of Merchandise. (Less Purchase Credits for Returns and Allow- ances.) Total, Deduct: Inventory of Merchandise, December 31, 1901. (No responsibility assumed for quantities and prices.) 17 691.40 100 471 . 18 118 162.58 19 in .44 Cost of Sales, Balance, being Gross Profits on Trading carried to Profit and Loss Account, Exhibit B, Total, 99 051.14 55 154 601.85 REPORT FORM No. 12. 240 AND HILL. EXHIBIT C. YEAR ENDING DECEMBER 31, 1901. Credits: Sales of Merchandise, Less : Sales Credits for Returns and Allowances. 157 833-7a 3 231-87 Net Sales for the year 1901, 154 601 .85 Total, 154 601 .85 241 BALANCE SHEET, THE WILLIAMS Assets: Cash on hand, December 31, 1901, Petty Cash Fund, First National Bank, Total, Inventory of Material, (Not responsible for quantities and prices.) Parts and Findings, Sole Leather, Goat Skins, Sundries, Total, 300.00 29 654.18 29 954-18 30 762.37 14 983.11 9 377-84 3 225.00 3 i7 6 -42 Bills Receivable as per Exhibit C, 10 000.00 Accounts Receivable as per Exhibit D, 115 497-82 Unexpired Insurance as per Exhibit E, 371-5 Total Assets, [ 186 585.87 REPORT FORM No. 13. 242 SHOE COMPANY EXHIBIT A DECEMBER 31, 1901. Liabilities: Bills Payable as per Exhibit F, Accounts Payable as per Exhibit G, Total Current Liabilities, Capital Stock: Authorized (1000 Shares (a, $100 par value), Unissued, Issued, December 31, 1901, Surplus Account: Balance, December 31, 1900, Profit for 1901 as per Exhibit B, Balance, December 31, 1901, Total. 100 000.00 30 500.00 10 013.32 (><) 47 '-37 IO OOO.OO 27 601.18 37 601.18 69 500.00 79 484.69 1 86 585.87 243 THE WILLIAMS MANUFACTURING AND TRADING ACCOUNT Debits: Inventory of Material, December 31, 1900. (No responsibility assumed for quantities and prices.) Purchases of Material made during 1901. (Less: Credits for Returns and Allowances.) Total, Deduct : Inventory of Material, Decem- ber 31, 1901. (No responsi- bility assumed for quantities and prices). 50 701.80 178 611.85 22 9 3I3-6S 30 762.37 Cost of Material, Labor, Manufacturing Expenses : Rent, Heat, Light and Power, Supervision, Sundry Expenses, Total, General Expenses: Office Salaries, Office Expenses, General Expenses, Freight and Cartage, Total, Commission and Guarantee, Net Profits for the year carried to Exhibit A, 2 5OO.OO 52O.OO 3 900.05 3 773-7 2 198 551.28 107 611.43 10 693.77 3 766.55 28 941.1 1 69 471-37 16 229.62 7 947- 6 4 271.83 2 3 I 7-5 Total, 446 035.51 REPORT FORM No. 14. 244 SHOE COMPANY. EXHIBIT B. FOR THE YEAR ENDING DECEMBER 31, 1901. Credits: Sales for the year 1901, Less: Returns and Allowances, 457 433-33 ii 397-82 Net Sales for the year 1901, Total, 446 035.51 446 035.51 245 THE ELLISON PROFIT AND Loss ACCOUNT FOR THE Debits: Selling Expenses: Salesmen's Salaries, Salesmen's Expenses, Rent of Salesroom, Commission, Delivery Service, Heat, Light and Power, Total, i Administration Expenses, Balance, being Net Profits, Total, 15 114.11 19 837.72 2 001.34 3 9 2 5- 2 9 2 972.87 I OO5 . 76 44 857.09 10 035.04 93 874.60 148 766.73 REPORT FORM No. 15. 246 MANUFACTURING COMPANY EXHIBIT B. YEAR ENDING DECEMBER 31, 1901. Credits: Gross Profits carried from Trading Account, Exhibit C, Total, 148 766. 7-5 148 766.73 247 THE ELLISON TRADING ACCOUNT FOR THE Debits: Inventory of Merchandise, December 31, 1900. (No responsibility assumed for quantities and prices.) Cost of Production for the year, as per Manufac- turing Account, Exhibit D, Purchases of Merchandise. (Less : Credits for Returns and Allowances.) Total, Deduct : Inventory of Merchandise, December 3 1 , 1901. (No responsibility assumed for quantities and prices.) 117 394-11 324 257.46 140 291.87 581 943-44 94 762 . 18 Cost of Sales, Balance being Gross Profit on Trading carried to Exhibit B, 487 181.26 148 766.73 Total, 635 947-99 REPORT FORM No. 16. 248 MANUFACTURING COMPANY. EXHIBIT C. YEAR ENDING DECEMBER 31, 1901. Credits: Sales, Deduct: Credits for Returns and Allowances, Net Sales for the year 1901, Total, 638 i35-5 2 187.16 635 947-99 6 35 947 -9<> 17 249 THE ELLISON MANUFACTURING ACCOUNT FOR THE Debits: Inventory of Material, December 31, 1900, (No responsibility assumed for quantities and prices.) Purchases of Material. (Less: Credits for Returns and Allowances.) Total, Deduct: Inventory of Material, December 31, 1901. (No responsibility assumed for quantities and prices.) 47 211.82 201 777.84 248 989.66 39 477-86 Consumption of Material, Labor, Manufacturing Expenses: Supervision, Heat, Light and Power, Sundry Expenses, Depreciation, Total, $3 974.16 i 170.24 8 922.37 7 807.83 209 511 . 80 101 342.17 21 874.60 Total, 332 728.57 REPORT FORM No. 17. 250 MANUFACTURING COMPANY. EXHIBIT D. YEAR ENDING DECEMBER 31, 1901. Credits: Sales of Waste. Balance being Manufacturing Cost carried to Trading Account, Exhibit C, 8 47' i i 324 257.46 Total, 332 728.57 THE HOME FURNITURE PROFIT AND Loss ACCOUNT FOR THE Debits: Furniture. Carpets. Total. Salary and Wages: General Office Salaries (Prorated on a basis of Gross Sales), Department Salary and Wages, 10 893.74 28 829.73 9 470.80 24 840.48 20 364.54 53 670.21 Expenses: General Expenses (Pro- rated on a basis of Gross Sales), 16 340.61 14 206.20 30 546.81 Sundry Department Expenses, Rent (Based on floor space), Insurance, Warehouse Expense, 12 906.95 II 200.00 3 922.16 5 397-6i 15 33- 21 10 755.00 4 763.71 4 722.53 28 237.16 21 955.00 8 685.87 10 120.14 Net Profits on Furniture, 49 767.34 Net Profits on Carpets, 58 744-22 Total Net Profits, carried to Exhibit A, 108 511.56 Totals, 139 258.14 142 833.15 282 091.29 REPORT FORM No. 18. 252 AND CARPET COMPANY. EXHIBIT B. YEAR ENDING DECEMBER 31, 1901. Furniture. Carpets. Total. Credits: Gross Profits on Trading, carried from Exhibit C: Furniture, 139 258.14 Carpets, Total, 142 833.15 282 091.29 \ . \ Totals, 139 258.14 142 833.15 282 091.29 253 Debits: Inventory, December 31, igoo. (No responsibility assumed for quantities and prices.) Furniture Carpets Total 121 809.15 117 322.44 2 39 I 3 I -59 Purchases for the year 1901. (Less : Returns and Allowances :) Furniture, Parts of Furniture, Carpets, Total, 198 761.13 177 6 93-55 310 267.78 686 722.46 Labor: Setting up Furniture, Totals, 10 763.88 10 763.88 509 027.71 427 590.22 936 617.93 Deduct: Inventory, December 31, 1901. (No re- sponsibility assumed for quantities and prices.) 104 786.22 108 427.39 213 213.61 Cost of Furniture, 404 241.49 Cost of Carpets, 319 162.83 Cost of Furniture and Carpets, 7 2 3 404-3 2 Labor: Fitting Carpets, 9 43!- 2 9 9 43!- 2 9 Balance, being Gross Profits carried to Exhibit B, 139 258.14 142 833.15 282 091.29 Totals, 543 499- 6 3 471 427.27 i 014 926.90 REPORT FORM No. 19. 254 AND CARPET COMPANY. EXHIBIT C. YEAR ENDING DECEMBER 31, 1901. Credits: Sales for the year 1 90 1 , Deduct: Returns and Al- lowances, Furniture Carpets 544 687.17 473 540.72 | i 018 227.89 I i 187.54 2 113.45 3 3-99 Net Sales for the year: Furniture, Carpets, Total, 543 499.63 471 1014 926.90 543 499- 6 3 ' 47 1 427.27 '014 926.90 255 BALANCE SHEET, MESSRS. MARSHALL Assets: Cash on hand, October 31, 1902: Petty Cash Bank, Franklin National Bank, Total, Bills Receivable as per Exhibit D, Accounts Receivable: Sales Ledger Balances, Exhibit E, A. W. Kline, R. J. Jones, Total, Inventory, October 31, 1902, (Not responsible for quantities and prices) : Merchandise, Supplies, Total, Unexpired Insurance, as per Exhibit F, Furniture and Fixtures (as per books), 400.00 30 769.18 32 259.08 500.00 i 100.40 118 432.73 i 104.14 31 169.18 636.49 33 859.48 119 536.87 i 712.80 ii 809.25 Total, 198 724.07 REPORT FORM No. 20. 256 AND COMPANY. EXHIBIT A AS AT OCTOBER 31, 1902. Liabilities: Bills Payable as per Exhibit G, Accounts Payable as per Exhibit II, 40 ooo.cc ii 3 6 7- 6 4 Total Current Liabilities, Capital Stock, Surplus Account: Balance, October 31, ioi, Profits as per Exhibit B, Balance, October 31, 1902, 21 979.67 25 376.7<> 5' 3 6 7-64 IOO OOO.OO 47 356.43 Total, Part of report made December 5, Certified Public Accountant. 198 724.07 257 MESSRS. MARSHALL PROFIT AND Loss ACCOUNT FOR THE FISCAL Debits : General Expenses: Salary and Wages, 29 473.61 Office Expense, 13 287.93 Rent, 15 ooo.oo Heat and Light, I 184.22 Insurance and Taxes, 2 118.69 General Expenses, 9 37-i8 Total, 7 37!- 6 3 Selling Expenses: Salesmen's Salaries, 20 777.84 Salesmen's Expenses, 15 937-67 Advertising, 5 in- 44 Commission and Brokerage, 3 972.15 Premiums, 574.82 Gratis Account, T^4-^1 8 234.23 lotal, 54 608.15 Bad Debts, as per Exhibit (omitted), 2 114.80 Interest and Discount Expense: Interest on Notes and Accounts, 3 187.15 Discount on Sales, 4 987.16 Total, 8 174. 3 1 Balance being Net Profits for the fis- cal year carried to Exhibit A, 25 376.76 Total, 1 60 6 :5-65 REPORT FORM No. 21. 258 AND COMPANY. EXHIBIT B. YEAR ENDING OCTOBER 31, 1902. Credits: Gross Profits on Trading carried from Trading Account Exhibit C. Recovered on Bad Accounts, Interest and Discount Earnings: Interest on Notes and Accounts, Discount on Purchases, Total, i 147.60 10 765.81 147 831.09 901.15 ii 913.41 Total, Part of report made December 5, 1902, Certified Public Accountant. 160 645.65 2 59 MESSRS. MARSHALL TRADING ACCOUNT FOR THE FISCAL, Debits: Inventory of Merchandise, October 31, 1901. (No responsibility assumed for quantities and prices.) Purchases of Domestic Merchandise. (Less : Credits for Returns and Allowances.) Purchases of Foreign Merchandise. (Less: Credits for Returns and Allowances.) Duty and Foreign Freight, Total, Deduct: Inventory of Merchandise, October 31, 1902. (No responsibility assumed for quantities and prices.) 127 404.11 217 644.26 304 111.82 176 801 . 15 825 961.34 43 2 -73 Cost of Sales, Balance being Gross Profits on Trading carried to Profit and Loss, Exhibit B, 707 528.61 147 831.09 Total, 855 359-70 REPORT FORM No. 22. 260 AND COMPANY. EXHIBIT C. YEAR ENDING OCTOBER 31, 1902. Credits: Sales, Deduct : Returns and Allowances, Net Sales for the fiscal year, Total, 857 411-10 a i i i .40 855 359-70 8 55 359-7 Part of report made December 5, 1902, Certified Public Accountant. 261 MESSRS. MARSHALL AND COMPANY. EXHIBIT D. SCHEDULE OF BILLS RECEIVABLE, OCTOBER 31, 1902. Everett & Kuntz (makers) : 60 day note due November 5, 1907. Indorsed by R. W. Everett and A. W. Kuntz, payable at the Elmore National Bank, with in- terest at 6%, Underbill & Hoag (makers) : 90 day note due November 14, 1907. Indorsed by Amsink & Co. and G. J. Underhill, payable at the First National Bank of Utica, N. Y., with interest at 6%, Edward H. Hammond & Son (makers): Six months note due November n, 1907. No indorsers, payable at the Oneida National Bank of Utica, N. Y. Interest added to face of note, 150 .00 286 .49 Total Bills Receivable, 636.49 REPORT FORM No. 23. 262 MESSRS. MARSHALL AND COMPANY. EXHIBIT E. SCHEDULE OF ACCOUNTS RECEIVABLE OCTOBER 31, 1902. Ledger Folio NAME Good Questionable Bad 14 Rathburn & Back, I94-I5 I? Armour & Co., 310.50 19 Davis & Co., 47.60 20 Walker & Co., 40.00 22 Davis & Wilson, 10 761 . 22 24 H. M. Pinch & Sons, 117.65 26 A. Wilbur & Co., I 891 . 50 28 Washburn Plumbing Co., 90. i o 37 J. W. Gates & Co., 3 471-5 49 Doolittle & Daws, 184.05 58 Gem Iron Co., 7-17 104 Marvel Iron Works, I 171.60 M3 A. W. Butler & Co., 94-05 169 Wilson Iron Works, I IOO.OO 184 Marcy Store Co., 4 722.16 195 Edwards Supply Co., 2 316.80 199 Halsey & Howe, 2 765.00 205 Amity Iron Co., 2 974-03 Total Bad Accounts, I 237.27 Total Questionable Ac- counts, 443-35 443-35 Total Good Accounts, 30 578.46 30 578.46 Total Accounts Receiv- able, 32 259.08 REPORT FORM No. 24. 263 MESSRS. MARSHALL AND COMPANY. EXHIBIT F. SCHEDULE OF INSURANCE POLICIES, SHOWING UNEXPIRED INSURANCE, OCTOBER 31, 1902. Insurance on Stock: Policy No. 4716835, Queen Insurance Co., for > $7 ooo.oo Expiring January 5, 1905; Term 3 years; Premium, 216.00 Unexpired term, 2 years, 2 mos., and 5 days; Unexpired Premium, Policy No. 3946912, Amaranth Insur- ance Co., for $40 ooo.oo Expiring January 5, 1907; Term 5 years; Premium, i 800.00 Unexpired term, 4 years, 2 mos., and 5 days; Unexpired Premium, Insurance on Plate Glass: Policy No. 1392175, Wheeling Plate Glass Insurance Co., for $2 ooo.oo Expiring December 31, 1902; Term, i year ; Premium, 36.00 Unexpired term, 2 mos. ; Unexpired Premium, Insurance on Furniture and Fixtures: Policy No. 4962871, Lancaster Insur- ance Co., for $10 ooo.oo Expiring June 30, 1903; Term i year; Premium, 37.20 Unexpired term, 8 mos., Unexpired Premium, 157.00 i 525.00 6 .00 24.80 Unexpired Insurance October 31, 1902, i 712 . 80 REPORT FORM No. 25. 264 MESSRS. MARSHALL AND COMPANY. EXHIBIT G. SCHEDULE OF BILLS PAYABLE OCTOBER 31, 1902. First National Bank, Accommodation 30 day note, Due November 25, 1902, at First National Bank, First National Bank, Accommodation 90 day note, Due December i, 1902, at First National Bank, American Loan & Trust Co., 6 mos. note, Due January i, 1903, at American National Bank, 10 ooo.oo 20 ooo.oo 10 ooo.oo Total Bills Payable, 40 ooo.oo REPORT FORM No. 26. 18 265 MESSRS. MARSHALL AND COMPANY. EXHIBIT H. SCHEDULE OF ACCOUNTS PAYABLE OCTOBER 31, 1902. Ledger Folio. 20 21 2 3 29 39 170 195 204 R. V. Davis & Co., A. W. Bums & Son, G. E. Armstrong & Bro., Newmarket Co., Newhall Ship Chandlery Co., Newton Machine Co., Quaker City Iron Co., Remington & Sherman Co., Rhoadcs & Maloney, i 470.60 5 609.87 94-75 i 704.87 422.71 i 875.60 10 . oo 47-5 Total Accounts Payable October 31, 1902. ii 367.64 REPORT FORM No. 27. 266 EXHIBIT I. THE WILLIAMS & HENDERSON \YOODEN\VARE COMPANY, rini.ADKU'llIA, I'KXNSYLVANIA. iialunce Sheet, December 31, 1901. N'o'l'K : The above illustrates the method of marking the two-pa^e l'.\- h.ibits when they are bound in a Kepoit. THE WILLIAMS AND HENDERSON Philadelphia, BALANCE SHEET, Assets: Plant and Equipment: Real Estate and Buildings, Machinery, Tools and Movables, Office Furniture and Fixtures, Stable Equipment, Total, Cash on hand, December 31, 1901: Office Bank, Royal National Bank, Total, Accounts Receivable: Sales Ledger, Balance of Control Account, Frederick W. Vincent, Salesmen's Advances, Total as per Exhibit VII, Bills Receivable as per Exhibit VIII, Inventories, December 31, 1901: Merchandise, Material, Supplies, Total, Unexpired Insurance as per Exhibit IX. Total Assets, 341 609.82 139 842.15 129 395.01 3 981.17 10 401.39 400.00 94 761.82 no 401.72 10 ooo.oo 4 981.22 207 43 1 - 8 ? 51 606.65 4 122.39 625 229.54 95 161.82 125 382.94 i i 500 . oo 263 160.91 411.81 I I2O 847 .02 REPORT FORM No. 28. 268 WOODENWARE COMPANY, Pennsylvania. EXHIBIT I. DECEMBER 31, 1901. Liabilities: Capital Stock (Authorized 4 ooo Shares @ $100), Surplus Account, Balance as per Exhibit II, Bills Payable, as per Exhibit X, Accounts Payable, as per Exhibit XI, Total Current Liabilities, Total, 400 ooo.oo 620 626.67 50 ooo.oo 50 220.35 loo 220.35 I 120 847.02 269 THE WILLIAMS AND HENDERSON Philadelphia, SURPLUS ACCOUNT FOR THE Debits: Dividends: Dividend No. 8, Feb. 12., 1901 , 3% $12 ooo.oo Dividend No. 9, Aug. 10, 1901, 3% 12 ooo.oo Total, Plant and Equipment charged off as per minutes of meeting of Board of Directors held July 15, 1901, Balance, being Surplus, December 31, 1901, Ex- hibit I, 24 ooo . oo 175 000.94 620 626 . 67 Total, 819 627.61 REPORT FORM No. 29. 270 WOODENWARE COMPANY, Pennsylvania. YEAR ENDING DECEMBER 31, IQOI. EXIIUUT II. Credits: Balance of Suri>lus Account, December 31, 1900. Net Profits for the year 1901 carried from Profit and Loss Account, Exhibit III, Capital Stock Donated, 100 Shares, par value, Total, 750 762.13 58 865.48 10 OOO.OO 819 6 j 7 . 6 1 THE WILLIAMS AND HENDERSON Philadelphia, PROFIT AND Loss ACCOUNT FOR THE Debits: General Expenses: Office Supplies and Expense, Office Salaries and Wages, Postage, Telegrams and Telephone, Freight and Expressage, Cartage, Sundries, Total, Selling Expenses: Salesmen's Salaries, Salesmen's Expenses, Advertising, Commission and Brokerage, Gratis Account, Sundry Selling Expenses, Total, Bad Accounts, as per Exhibit XII, Balance carried down, 4 743- 16 20 692 .41 947.60 i 128.15 3 942.17 4 7S3- 21 5 9 8 2.77 42 189.47 38 023.37 i 987.32 49 245.91 10 407 .81 5 493- T 4 5 841-77 ii 223.88 i 07I-33 3 9 8 5-44 Total, 131 446.07 Interest and Discount Expense: Interest on Notes and Accounts, Discount on Sales, Total, Balance, being Net Profits carried to Surplus Account, Exhibit II, 4 722-15 10 777-45 15 499.60 58 865.48 Total, 74 365.08 REPORT FORM No. 30. 272 WOODENWARE COMPANY, Pennsylvania. YEAR ENDING DECEMBER 31, 1901. EXHIBIT III. Credits: Gross Profits carried from Trading Account, Exhibit V, Recovered on Bad Accounts, 131 051.36 394-71 Total, Balance carried from above, Interest and Discount Earnings: Interest on Notes and Accounts, Discount on Purchases, Total, Total, 131 446.07 49 245-9 1 3 711-85 21 407.32 74 365.08 273 THE WILLIAMS AND HENDERSON Philadelphia, Debits: Inventory of Merchandise, December 31, 1900. (Xo responsibility assumed for quantities and prices.) Purchases of Merchandise for the year 1901, Net Cost of Manufacturing carried from the Manufacturing Account, Exhibit IV, Total, Less: Inventory of Merchandise, December 31, 1901. (No responsibility assumed for quantities and prices.) 218 777.40 37 601 . 22 320 495-57 576 874.19 207 431 .87 Cost of Sales, Balance being Gross Profit on Sales carried to Profit and Loss Account, Exhibit II, Total, 369 442.32 131 051.36 500 493 .68 REPORT FORM No. 31. 274 WOODENWARE COMPANY, Pennsylvania. YEAR ENDING DECEMBER 31, 1901. KxiiiuiT IV. Credits: Sales of Merchandise for the year 1901, Less: Returns ami Allowances, Net Sales of Merchandise, 531 8.17.90 500 493 .(>& THE WILLIAMS AND HENDERSON Philadelphia, MANUFACTURING ACCOUNT FOR THE Debits; Inventory of Material, December 31, 1900. (No responsibility assumed for quantities and prices.) 41 701.50 Purchases (Net) for the year 1901, 190 333-n Total, 232 034.61 Deduct: Inventory of Material, Decem- ber 3 1,1901. (No responsibility assumed for quantities and prices.) 51 606.65 Cost of Material Consumption, 180 427.96 Labor, 97 542.ii Manufacturing Expenses : Sundry Expenses and Supplies, 7 575- 22 Supervision, Salary and Expense, 10 954.60 Heat, Light and Power, 4 777- 8 3 Insurance and Taxes, 9 662 -55 Accidents, i 471.82 Repairs and Renewals, 3 788.69 Depreciation, 15 786.44 Total, 54 017-15 Total, 331 987.22 REPORT FORM No. 32. 276 WOODENWARE COMPANY, Pennsylvania. YEAR ENDING DECEMBER 31, 1901. EXHIBIT V. Credits: Sales of Waste, ii 49'- 6 S Balance being Net Cost of Manufactur- ing carried to Trading Account, Ex- hibit IV, 320 495-57 \ \ \ \ x Total, 33 1 987-22 277 THE WILLIAMS AND HENDERSON Philadelphia, COMPARATIVE STATEMENT OF THE ASSETS AND LIABILITIES OF THE 1900 1901 Assets: Plant and Equipment: Real Estate and Buildings, Machinery, Tools and Movables, Office Furniture and Fix- 516 610.76 147 202 . 26 136 205.38 341 609.82 139 842. 15 129 395.01 tures, Stable Equipment, 4 423.52 ii 557-io 3 981.17 10 401.39 Cash on hand, 87 544.38 95 161.82 Bills Receivable, 9 100.00 i i 500 .00 Accounts Receivable : Sales Ledger, Frederick W. Vincent, 120 431 . I I i 10 401 . 72 IO OOO . OO Salesmen's Advances, 3 987-41 4 981 .22 Inventories: Material, Merchandise, Supplies, 41 701 . 50 218 777.40 3 764.18 51 606.65 207 43 T - 8 7 4 122.39 Unexpired Insurance, 5I7-93 411 .81 Totals, i 301 822.93 I 120 847.02 REPORT FORM Xo. 33. 278 WOODENWARE COMPANY, Pennsylvania. BALANCE SHEETS FOR DECEMBER 31, 1900 AND 1901. EXHIBIT VI. 1900 1901 Liabilities: Capital Stock, 400 ooo.oo 400 ooo.oo Surplus Account, 750 762.13 620 626.67 Bills Payable, Accounts Payable, Totals, 60 ooo.oo 060 . 80 i 301 822.93 ;o ooo.oo 50 220.35 I 120 847.02 279 THE WINDHAM FOUNDRY AND MANUFACTURING COMPANY, Report on audit for the three years ending December 31, 1904; December 30, 1905. and December 31, 1906. The books supporting this report are as follows : Cash Hooks, Nos. 31 and 32; General Journals, Nos. 19, 20, and 21; Purchase Journal, Nos. S and 9; Sales Hooks, Nos. 41 to ^4; General Ledgers, Nos. 5, b, and 7; Sales Ledgers, Nos. 20, 21. and 22; Purchase Ledgers, N'os. lo, 11. and 12; Sales Credit Book, No. 8. 19 TEXT OF REPORT CLARENCE M. DAY, CERTIFIED PUBLIC ACCOUNTANT. NEW YORK. Mr. EDWARD H. HENDERSON, 90 Wall Street, New York. NEW YORK, April 10, 1907. DEAR SIR: In accordance with your instructions, I have made an audit of the books and accounts of The Windham Foundry and Manufacturing Company of San Francisco, California, for the three years ending December 31, 1906, and, as a result of said audit, I submit herewith the following exhibits, viz : EXHIBIT I (page 288), Balance sheet of The Windham Foun- dry and Manufacturing Company on December 31, 1906, EXHIBIT II (page 290), Statement of Surplus for the three years ending December 31, 1906, EXHIBIT III (page 292), Statements of Profit and Loss for the three years ending December 31, 1904; December 30, 1905, and December 31. 1906, EXHIBIT IV (page 294), Statement of the Manufacturing and Trading Accounts for the year ending December 31, 1904, EXHIBIT V (page 296), Statement of the Manufacturing and Trading Accounts for the year ending December 31, 1905, 283 284 ACCOUNTING PRACTICE EXHIBIT VI (page 298), Statement of the Manufacturing and Trading Accounts for the year ending December 31, 1906, EXHIBIT VII (page 300), Comparative Statement of Assets and Liabilities of Balance Sheets for Decem- ber 31, 1903; December 31, 1904; De- cember 30, 1905 ; December 31, 1906, and the Trial Balance for April i, 1907, EXHIBIT VIII (page 302), Comparative Statement of the Profit and Loss for the three years ending Decem- ber 31, 1906, EXHIBIT IX (page 304), Condensed Trial Balance for April i, 1907, EXHIBIT X (page 306), Condensed Statement of the Profit and Loss Accounts (showing the results as they appear on the books of the com- pany) for the year ending December 31, 1906, EXHIBIT XI (page 308), Condensed Statements of the business done with T. Dixon and Company dur- ing the years 1904 and 1905, and a com- parison of the sales to them and the total sales during the years 1904, 1905, and 1906, and ExniniT XIT (page 309), Comparative Statement for the three years ending December 31, 1906, showing per- centages of the expenses and profits to the net sales. In connection with the above, I report for your consideration the following matters : TEXT OF REPORT 285 Real Estate, $72,500.00. The real estate consists of lots Nos. 40, 41, 42, 43, 44, 89, 90, 91, 92, and 93 in block No. 941 of the official city map. There are 500 feet fronting on Lakeview Avenue and 200 feet fronting on Forty- first Street. The entire property is used for factory purposes and the assessed valuation, according to 1906 tax bills, was $70,000.00. Tools and Fixtures, $9,150.01. The value of tools and fixtures is taken from the ledger account for tools and fixtures. The account is composed mainly of purchases of small tools, factory and office fixtures. No provision has been made for depreciation out of the earnings during the period exam- ined, and no renewals or replacements were charged against profit and loss. In my opinion, the value is excessive. " Patterns, $32,066.67. The 'Value of patterns is taken from the ledger account for pat- terns. The account is composed of charges for patterns purchased and manufactured, and in addition to these charges are the following entries : December 15, 1904, Increased valuation in Pattern Account, $3,182.92 December i, 1905, Increased valuation in Pattern Account, 2.329.97 November 10, 1906, Increased valuation in Pattern Account, 1,573.94 These entries do not appear to have been authorized, for I examined the minute book and found nothing relating to them in the minutes of the meetings of the Board of Directors. In my opinion, the valuation is excessive, for no provision was made for depreciation. Register Account Machines, Patterns, etc., $12,058.85. This account is carried on the ledger at the valuation stated, and is composed of the following items, valued as per books : 286 ACCOUNTING PRACTICE Model Carfare Register Patents and Designs, $6,000.00 Special Machinery for making Registers, 4,190.00 Patterns, etc., used in making Registers, 2,312.85 Valuation increased without authority, 456.00 Total (as per books), $12,958.85 In my opinion, the valuation on the above is excessive, because no provision was made for depreciation. Wagons, Carts, and Mules, $592.50. An inventory of wagons, carts, mules, harness, and appurtenances was taken on December 31, 1906, and I was informed that the inven- tory was appraised. I have examined the clerical accuracy of the inventory, but assume no responsibility for the quantities and prices. Inventories, December 31, 1906, $52,728.84. No responsibility is assumed for the quantities and prices of these inventories. Profits. An entry was made charging the profit and loss account for 1905, and crediting the profit and loss account for 1906 with $1,500. This item was not considered when compiling the statements embodied in this report. Sales to T. Dixon and Company. Exhibit XI shows a comparison between the total sales and the sales made to T. Dixon and Company. Earning Capacity. The relation of the earnings to the capital stock for the three years under examination is entitled to serious consideration. Espe- cially in view of these facts : the capital stock has been increased TEXT OF REPORT 287 without increasing the working capital, and no provision was made for depreciation. The earnings for the year 1904 were .0072$ of the capital stock; the earnings for the year 1905 were .1347^ of the capital stock; the earnings for the year 1906 were .0551$ of the capital stock, and the average earnings for the three years were .0655^ of the average capital stock. The average earnings for three years were about .05$ of the capital stock as at April i, 1907. These statements I certify to be correct in accordance with the books, accounts, and vouchers. Respectfully submitted, Certified Public Accountant. THE WINDHAM FOUNDRY San Francisco, BALANCE SHEET, ASSETS. Plant and Equipment: Real Estate, 72 500.00 Tools and Fixtures, 9 159.01 Patterns, 32 966.67 Register Account, Machines, Pat- terns, etc., 12 958.85 Wagons, Carts and Mules, 59 2 -50 Total, 128 177.03 Inventory December 31, 1906: Pig Iron, 12 484.60 Fuel. I IO8.OO Merchandise manufactured and in process, 39 136.24 Total, 52 728.84 Cash, Balance, December 31, 1906, 7 168.22 Bills Receivable, as per Exhibit 816 .49 (Omitted) , Accounts Receivable: Sundries as per Exhibit (Omitted) , 23 389.01 E. F. Wilton & Co., samples, 76.94 J. Manton, samples, 130.88 Metropolitan Improvement Co., Pool Tax Acct., 765.78 Total, 24 362 .61 Unexpired Insurance (as per books), 881.74 Total, $214 134-93 REPORT FORM No. 34. 288 AND MANUFACTURING COMPANY. California. EXHIBIT 1. DECEMBER 31, 1906. , LIABILITIES. Capital Stock: Authorized, Unissued December 31, 1906, Amount outstanding December 31, 1906, Rfortgage on Real Estate Interest 0/5%, Interest Accrued on J\ fort gage to Decem- ber 31, 1906, Accounts Payable: Sundries for Material and Supplies, Sundries for Rebates (Ledger acct. 722), Stockholders Accounts as per Ex- hibit (Omitted), Total as per Statement Book, Profit and Loss, Balance as per Exhibit II, 200 ooo .00 61 ooo.oo 5 609.12 1 320.72 2 463.28 139 ooo .00 50 ooo.oo 7 16 .00 9 393-12 15 025.81 $214 134-93 280 THE WINDHAM FOUNDRY San Francisco, STATEMENT OF For the Three Years Ending DEBITS. Dividends Paid During the Year 1 904, Balance, December 31, 1904, carried down, Dividends Paid During the Year 1905, Balance, December 30, 1905, carried down, (See notations in report.) Dividends Paid During the Year 1906, Balance, December 31, 1906, 3 960.00 6 393-99 353-99 4 230.00 22 469.07 $26 699.07 16 680.00 15 025.81 705.81 .REPORT FORM No. 35. 290 AND MANUFACTURING COMPANY, California. SURPLUS December 31, 1906. EXHIBIT II. CREDITS. Balance, December 31, 1903, Net Profits, carried from Profit and Loss Statement, for the Year 1904, Exhibit III, Increased Valuation on Register Account, Increased Valuation on Pattern Account, 5 842.62 9 2 625 229.54 s, $341 609.82 it, 283 619.72 { $i 120 847.02 Liabilities: Accounts Payable, Bills Payable, Surplus, Capital Stock, Total Liabilities, $ 50 220.35 50 ooo.oo $ 100 220.35 $1 O2O 626.67 $620 626.67 400 ooo.oo $1 120 847.02 I hereby certify that the foregoing statement, in my opinion, correctly sets forth the financial condition of The Williams & Henderson Woodenware Com- pany as at the close of business on December 31, 1901. Certified Public Accountant. REPORT FORM No. 48. 312 INDEX Accommodation paper, 78. Account current, 77. Accounts payable, schedule of, 208-9, 266. verifying, 41. Accounts receivable, 42. schedule of, 263. verifying, 40. Accrued taxes, 80. Adjustments to ledger, 15, 40. Administration expenses, 80, 145. Amplified trial balance, 77. Analysis for a summary account, 27. Analysis sheet, 28, 31, 35. deciding headings for, 29. Analyzing account, 27. ledger, 54. extensive accounts, 33. Arrangement of exhibits, 85. Arranging the books, 7. Arranging the working papers, 14. Assets and liabilities, fixed, 7. Audit of the cash, 17. Auditing a trading business, 5. Auditing a manufacturing business, 4. Auditor's duty, 26. Automatic cost system, 130. Bad debts collected, 79. written off, 79. Balance sheet, 52, 236, 242, 256, 268, 278, 288, 300. intermediate, 52. verifying, 4*0. Balancing the cash, 18. Bank column on cash book, 70. Basic cost, 134, 135. Basis of computations (cost finding) ,91. of percentages, 100. Beginning to operate the cost system, 119. to use cost system forms, 118. 21 Bills payable, schedule of, 265. verifying, 41. Bills receivable, discounted, 77. schedule of, 262, 311. verifying, 40. Binding reports, 86. Block a ledger, 60. when to, 63. Bonds of a new corporation, 44. outstanding, verifying, 42. verifying, 40. Branch office accounts, 75. Building and machinery repairs, 164. supplies, 1 68. Business done, condensed statement of, 227, 228, 229, 230, 231, 232, 234, 235, 306, 308. Capital accounts, 7. Capital stock, 44. verifying, 42. Capitalization, entries for, 43. Carton cost system, working instruc- tions of, 130. Cash, verifying, 40. Cash book, 198, 202. Cash fund, 69. Cash payables, 71. Cash payments entry, 71. Cash receipts entry, 69. Cash sales, 70. Certificate from banks, 18. Certificate of indebtedness, verifying, 42. Certified balance sheet, 51. Character of business, 3. Charge slip, 182, 183. Charges for freight, 107. Charges, planning, 105. Chart of cost system, 93. Check marks, 85. Checking, 86. INDEX Checks outstanding, 18. Classes of expenditures, 94. Closing books of corporations, 85. of partnerships, 85. Cloth estimating sheet, 212. Collection of bad debts, 79. Colored pencils, 26. Combining card board, 133. Commencing the cost system, 119. Commission on sale of capitalization, 79- Comparative balance sheet, 278, 300. Comparative condensed trial balance, 39- Comparative statements, 52, 302. Comparative statistics, 309. Completed cost sheets, 99. Comprehensive analysis, 27, 34. Computing costs, 116, 117, 125. no system, 125. Concrete plan of operating cost system, 94- Condensed statement of profit and loss, 109, no, in, 112, 113. of business done, 227, 228, 229, 230, 231, 232, 234, 235, 306, 308. Condensed trial balance, 38, 304, 310. Control accounts, 82. Control of material, 119. Control sheet, 204, 205. Controlling accounts, planning of, 93. Corporations, closing books of, 85. new, 44. Cost, estimating, 13. finding, 89, 116, 117. of manufacturing typewriters, es- timating, 126. Costs, computing, 116, 117, 125. no system, 125. Cost journal, 192. Cost sheet, 180, 186, 191, 193, 213. Cost sheets, completed, 99. Cost system, beginning to operate, 119. commencing of , 119. concrete plan of operating, 04. entries for general books, 05. forms, beginning to use, 118. installing of, 118. operating of, 93, 98, 129. method of, 93, 98. plan of, 93, 98. Cost system, planning of, 93, 102. putting in operation of, 119. what is a, 89. Cost systems, 89. figures on ledger, 95. for carton factory, 128. cotton mill, 135. drug laboratory, 146. silk mill, 152. woolen mill, 154. lithographing, 161. kinds of, 91. Cotton, 135. Cotton mill cost system, working in- structions, 140. Cotton waste, 135. Cutting lumber in circles, 121. Daily balance sheet, 72. Dates used in report, 84. Deciding heading for analysis sheet, 29. Department expenses, 81, 145, 164. provision for, 102. Department cost system, 91. Department cost sheet, 193. Department pay rolls, 115. Department supplies, 167. Deposits not on cash book, 24. Differences on a ledger, 54. Discount, interest and, 39. verifying unexpired, 41. Discount column in cash book, 70. Distributing unproductive labor and expense, 115. Dividends, from investments, 80. paid, 39. waived, 80. Division of expenses, 145. Drug cost system, working instruc- tions, 148. Elements of cost, 89. Emulsions, 148. envelope for, 185. Entries for capitalization, 43. for general books (cost system), 95. Envelope for assembling charges, 134. Estimating cost, 13. of manufacturing typewriters, 126. Excessive valuation of inventories, 83. Exchange, 71. INDEX 3*5 Exhibit, 78. what is an, 78. Expense account (cost system), 98. Expense cost, 145, 151. Expenses, provision for, 101. Expenses and profits, 157. Factory expenses, 81. provision for, 102. and supplies, 106, 165. Factory records, 105. Factory supplies, 167. Figuring of charge for lumber, 121. of pay roll, 120, 121. of square stock, 121. Financial audit, 37. plan of, 37. Finding of material cost, 118. of labor cost, 119. Finished product, 169. First audit of a new corporation, 44. Fiscal periods, 51. Fixed assets and liabilities, 7. Foreman's wages, 104. Form of certificate, 52. of report, 52, 86. Frame spinning, 137. Fraud and embezzlement, 26. Futures, 157. General audit, 3. plan of, 9. General books and a cost system, 101. General expense supplies, 168. General expenses, 81, 145, 165. provision for, 102. General ledger index, 73. General suggestions for audit, 14. General system, planning a, 65. Gifts to a corporation, 80. Good will, 81. Grouping the books, 7. Heat, light, and power, 106, 164. supplies of, 1 68. Home office expenses, So. Idle periods, 100. Important features of a business, no, in. Improved voucher system, 74. Inactive periods, 100. Installing a cost system, 118. Insurance, verifying unexpired, 41. Insurance and taxes, 165. Interest and discount, 39. Interest on capital, 84. Interested parties, 43. Intermediate balance sheets, 52. Invective language, 49. Inventories, verifying, 41. Inventory, 84. for cost system, 167. taking, 1 19. when to take an, 119. Items not deposited, 24. Items previously charged capitalisa- tion, 83. Kinds of cost systems, 9 1 . Labor, 104. cost of, 142, 150, 1 66. finding, 119. in trading account, 79, 112. on ledger, 98, 102. Letter heading, 86. Light and power, 106. Loans, verifying, 42. Locating differences, 54. Long term expenses, 73, 168. Looking over plant, 103. Lumber, figuring charge for, 121. Machinery expense, 151. Machine costs, 93. Machine hour, 93. Machine shop expense, 106. Main exhibits, 85. Making adjustments to ledger, 46. Making cloth, 139. Making notes, 48. Making paste, 133. Making plan of audit, 9. Making yarn, 137. Manufacturing account, 250, 276. Manufacturing and trading, account of, 244, 294, 296, 2(>8. report on, 50. Manufacturing business, auditing a, 4. report on, 50. Material, 97, 104, 118. classification of, 167. consumed of , 149, 150. INDEX Material, cost of, 145. fthdltig, 1 1 8. received, 148. Merchandise, 169. Method of operating cost system, 93, 98. Mill expenses, 145. Mixing glue, 133. Monthly entries, 72. Monthly statements, 200, 206. Mule spinning, 137. New corporations, 44. Notes, 42, 48. Nominal accounts, 7. Non-productive labor, 105. Opening cotton, 135. Opening a new ledger, 7 3 . Operating, report on, 5 1 . Operating cost systems, 93, 98, 129. Opinions, 48. Order of work, 13. Order tag, 181. Outline of auditing cash, 17. Partnerships, closing books of, 85. Pay roll, 119, 129, 166. account, 98. detail of, 120. figuring of , 120, 121. summary of, 184. Percentage costs, 91, 100, 101, 108, 114. Percentages, use of, 116, 117. verifying, 101. Performing a financial audit, 3. a general audit, 3. Periodical audits, 26. Perpetual inventory, 106. Personal accounts, 7. Petty cash fund, 69. Picker tickets, 189. Planning of a general system, 65. of charges, 105. of controlling accounts, 93. of cost system, 93, 10.2. Plan of financial audit, 37. of general audit, 9. of operating cost system. 03, oS. Plant and equipment written off, 79. Power, 106. Preliminary expenses, 44. Prime costs, 90. Process cost, 91. Productive labor, 104. time card, 174, 175. Production ledger, 101. Profit and loss, 42. account, 238, 246, 252, 258, 272, 292, 302. condensed statement of, 109, no, in, 112, 113. Promoter's expenses, 44, 80. Proof of cost system, roo. Property, verifying, 41. Provisional account, 73, 194. Provision for department expenses, 102. for expenses, 101. for factory expenses, 102. for general expenses, 102. for selling expenses, 102. Purchase journal, 68, 196, 201. Purchase ledger column, 70. Purchases, 43, 67. in report, 84. Putting cost system in operation, 1 19. Quarterly statements, 136. Queries, 85. Real accounts, 39. Receipts on account of mortgages, 24. Received registry sheet, 132. Receiving book, 176. Reconciliation of cash payments and vouchers, 22. of cash receipts and deposits, 24. of check book and bank vouchers, 22. of check book and pass book, 23. of payments and checks, 2 i . of receipts and deposits, 23. Register number, 107. Registering material, 107. Registering sheet, 176. Relation of profits to investment, 8_>. Report on manufacturing and trading, 50. on manufacturing business, 50. on operating, 5 1 . on several plants, 52. INDKX 317 Report on trading business, 40. on treasurer's accounts, 51. preparing, 48. Reports in general, 51. Report text, 282. Roving, 143. Salary and wages, 33. Sales, 43. Sales journal, 67, 197. Sales ledger column, 70. Sales of waste, 1 1 1 . Sales office, 166. Schedule, 78. of accounts payable, 208-9, 266. of accounts receivable, 263. of bills payable, 265. of bills receivable, 262, 311. of unexpired insurance, 264. what is a, 78. Schemes for simplifying work, 120. Section a ledger, 57. Selling expenses, in, 165, 168. provision for, 102. Selling price, 109, 116, 117. Shipments of medicine, 151. Shoddy making, 158. Shop order, 91. Simple analysis, 27, 28. Source of statements, 86. Spinning, 143. Square stock, 122. Statem'ent, 78. what is a, 78. Statements made by others, 8f>. Stock card, 108, 179. Stocks, verifying, 40. Store room, 107. Summary of analysis, 36. of analysis sheets, 33. of cash book, iq. of check book, i 9. of pass book, 20. Supplies, 84, 90. Surplus account, 270, 290. Surplus, verifying, 42. Surrendered capitalization, Sc. Tags, 1 88, 190. Taking an inventory for r<>st system, 119. Taxes, insurance and, 16^. Time cards, 131, 132, 173, 174, i 5. Trading account, 240, 248, 254, 260, 274. Trading business, auditing of, 5. report on, 49. Transportation of figures, 56. Treasurer's accounts, report on, 51. Trial balance, amplified, 77. condensed, 38, 304, 310. Trying cost system forms, 118, 119. Twister ticket, 189. Unexpired discount, So. verifying of, 41. Unexpired insurance, ; 8. schedule of, 264. verifying of, 41. Unproductive labor, 105, 164. Use of percentages, i id, 117. Vendor's agreement, 44. Verifying accounts payable, 41. accounts receivable, 40. balance sheet, 40. bills payable, 41. bills receivable, 40. bonds, 40. bonds outstanding, 42. capital stock, 42. cash, 40. certificate of indebtedness, 42. inventories, 41. loans, 42. percentages, 101. property, 41. stocks, 40. surplus, 42. unexpired discount, 41. unexpired insurance, 4 1 . Voucher check, 82. Voucher record, 74. Voucher register, 6S. Voucher system, improved. 74. Vouching payments, 21, 25, 26. Wages of foreman, 104. Waste, 135. Warper ticket, 189. Weaving, 143. Weekly closing, 129. Weekly time card, 175. What is a cost system "' 89. INDEX What is a schedule? 78. a statement? 78. an exhibit? 78. When to block a ledger, 63. to take an inventory, 119. Woolen mill cost system, working in- structions, 154. Wool sorting and washing, 157. Work in process, 98. in process account, 96. in process inventory, 1 68. Work order, 132, 177, 178. Work purchased, 89. Working instructions for carton cost system, 130. for cotton mill cost system, 140. for drug cost system, 148. for woolen mill cost system, 154. Working papers, 14. Yarn estimating sheet, 211. Yarn made from waste, 145. Yarn supplementary wages, 144. Yarn supplies, 144. UNIVERSITY OF CALIFORNIA LIBRARY Los Angeles This book is DUE on the last date stamped below. Form L9-32m-8,'58(5876s4)444 Library Graduate School of Business Administration UCLA-GSM Library HF5635D33a L 005 016 348 4 A 001 259748 o UNWEPS1TY OF LIBRARY 1UCo ANGELES, C