THE ARTHUR YOUNG ACCOUNTING COLLECTION Graduate School of Business Administration Library of the University of California Los Angeles H, NIA, library Graduate School of Business Administration University of California Loa Angeles 24, California RETAIL ORGANIZATION AND ACCOUNTING CONTROL RETAIL ORGANIZATION AND ACCOUNTING CONTROL BY PHILIP I. CARTHAGE D. APPLETON AND COMPANY NEW YORK LONDON 1920 COPYRIGHT, 1920, BT D. APPLETON AND COMPANY PRINTED IN THE tTNITED STATES OF AMERICA HF 5G D5C2 DEDICATED TO MY DEAR WIFE, E. C., WHO INSPIRED THE WRITING OF THIS BOOK INTBODUCTION With the firm belief that Accounting may eventually become a science, and that the knowledge accumulated through experience and experiments is essential to the furtherance of such science, I have written this book out of my accumulated knowledge and experience for the benefit of retailing establishments and the accounting profession. "We are living in a world of specialization and in writing this book, I have treated in its entirety retail control. All the systems have been installed with very large organiza- tions to test their worth, prior to placing them before Retailers and the Accounting world in this volume. No consideration whatever is given to manufacturing, except- ing where it is necessary to draw a comparison. The department store, the specialty shop, and retail store of any description are within the book's scope. I have eliminated as far as possible technicalities, that the value of this volume may be enhanced as a textbook and wherever it may be required for a complete installation of a department store system. I have long felt the need of a textbook on department store procedure, and have endeavored to render my book useful by its treatment of accounting, management and systems. Theory is entirely eliminated. Practical appli- cation and experience are its governing features. The management of stores very often is confronted with perplexing problems. It endeavors to obtain knowl- edge of methods employed in other establishments. Twenty years in the retailing field in various sections of vii INTRODUCTION the United States in the capacity of merchandise manager, sales promoter, comptroller and office manager have taught me the requisites essential to the understanding of a well informed department store executive. PHILIP I. CARTHAGE. riu CONTENTS CHAPTER PAGE I. BOOKS IN USE AND PBOCEDUBE 3 II. BOOKS IN USE 36 III. SALES CHECKS AND RETTJBN CHECKS 73 IV. AUDITING 108 V. BALANCE SHEET 131 VI. BALANCE SHEET 149 VII. BALANCE SHEET LIABILITIES 169 VIII. TURNOVER . 198 IX. MERCHANDISING 219 X. MERCHANDISING 240 XI. PROFIT AND Loss 262 XII. BURDEN : ., .... 287 XIII. PROFIT AND Loss . : M -. . 303 XIV. ALTERATION DEPARTMENT .... , : , ; : ., . . 329 LIST OF FOKMS NUMBER PAGE 1. Journal Voucher ? 5 2. Burden Register 10 3. Department Ledger 14 4. Purchase Record 15 5. Daily Bills 19 6. Accounts Receivable Ledger 20 7. Co-workers Purchase Account 22 8. C. 0. D. Record 28 9. Cash Book Receipts 30 10. Cash Book Disbursements 31 11. Voucher Check Record 33 12. Voucher Check Record 34 13. Departmental Salary and Sales Report 37 14. Employees' Census 39 15. Commission Records 41 16. Employees' Payroll Ledger 42 17. Mark Up 45 18. Mark Down 47 19. Mark Down Record 48 20. Retail Reduction Slip 52 21. House Total Sales Record 54 22. Sales Record 56 23. Departmental Inventory Record 63 24. Merchandise Report at Retail 64 25. Merchandise Record 65 26. Storage Record 71 27. Sales Checks 74 28. C. 0. D. Sales Check 79 29. Transfer Check 84 30. Transfer Check 85 31. Transfer Check 86 32. Transfer Check 87 33. Transfer Check 88 34. Transfer Check 89 35. Inter-Department Sales Checks 91 xi LIST OF FORMS NUMBER PAGE 36. Cash Refund Slip 93 37. Cash Refund 93 38. Merchandise Exchange '. 96 39. Charge Credits 99 40. Charge Credits 99 41. Sales Check Tally 104 42. Sales Check Tally 105 43. Tracer Check 110 44. Station Cashier Reports 113 45. Summary of Daily Sales 114 46. Audit Summary 116 47. Audit Summary Reverse Side of Form 46 117 48. C. 0. D. Paste Card 118 49. C. 0. D. Register for Delivery Department or Office . . . 119 50. Delivery Sheet 120 51. C. 0. D. Customers Record 121 52. C. 0. D. Check and Supply Tag 123 53. Sales Report by Prices 239 54. Alteration Envelope Ticket 333 55. Alteration Record 335 56. Work Production Ticket 338 57. Alter for Stock 340 58. Alter for Window Garment 341 xii CHAPTER I BOOKS IN USE AND PROCEDURE Unlike the manufacturing or jobbing business, the department store finds it a necessity to carry a consider- able number of book records to complete its net work of accounting and system. The details are so extensive that efficient management requires various information so that proper statistics can be set up, in report form, to assist the executives, department managers, and buyers to perform properly the functions of their positions. All the books in use make up the Accounting system, and the policy of the establishment is reflected therein. The books must be complete for the records intended, and must coordinate with the house and policy system. In coordi- nation, oftentimes fraudulent entries, or inaccuracy can be detected; but, most important of all, the requirements of detail are so necessary that insufficient information becomes the greatest burden to contend with. Aside from good commercial requisites, the technicalities of the federal, state, and municipal laws require complete records of com- mercial enterprises to be kept. All this may be summar- ized by briefly saying that the accountant of a commercial organization is a historian who daily records, minutely, the incidents as they occur during its life. Considerable attention should be given to the establish- ing of book records, so that a repetition does not occur. An analysis of most offices will show that like records are kept in diverse forms, most of which are never, or very seldom, required ; nor does the information assist in the management of the establishment. Greatest of all is the unnecessary, indirect burden added to operations. The worth of statis- 3 4 RETAIL ORGANIZATION AND ACCOUNTING CONTROL tics should be given careful consideration, prior to estab- lishing these book records. General Ledger. The General Ledger is the one book wherein all accounts and every transaction are summar- ized. Unlike the manufacturing company where the bur- den of overhead is itemized in a subsidiary ledger, which reflects the details of the cost accounting system, the Gen- eral Ledger of the department store records all its work- ings, with the exception of the one subsidiary ledger known as the department ledger. This general ledger will contain all balance sheet accounts in the first part of the ledger, followed by the profit and loss accounts and financial income accounts. Journal Vouchers. The form of entry into the general ledger is made through the Journal Voucher, shown in Form 1. The author recommends but one entry. That is, one set of debits and one set of credits appear on a Journal Voucher, for auditing reasons. The detail column speci- fied on this form, supporting the general ledger columns of debits and credits, is posted in the Subsidiary ledgers. The adoption of the Journal Voucher not only prepares for the postings of the book records in use, but for the special entries and miscellaneous detail that does not come within the provisions of the various book records. The voucher must be attested to officially by signature before posting in the general ledger. These Journal Vouchers, though primarily affecting the general ledger, in most cases affect the merchandising departmental ledger where a profit and loss account is involved, or subsidiary ledgers, the control of which are kept in the general ledger. For example, a change is to be made in an account in the accounts receivable ledger. The detail will be shown in the detail column, prior to posting the Journal Voucher, in the general ledger. The accounts receivable bookkeeper will be obliged to initial the detail entry, indicating that BOOKS IX USE AND PROCEDURE 5 the entry has been posted to the accounts receivable ledger. Care must be exercised in the proper distribution of these postings where other items are affected, so that the work- ing papers or distribution book will summarize the posting, for one final entry for the month, in the account provided for in the departmental ledger. An omission of this pro- cedure will affect the trial balance. The Journal Voucher cannot be accepted officially as part of the accounting system unless detailed information is given supporting the Journal entries. The descriptive matter must be given concisely but clearly; it must be sufficient to obliterate any doubt as to authenticity. JOURNAL VOUCHER NO. FORM 1. JOURXAL VOUCHEB The Subsidiary Ledgers. Subsidiary Ledgers are those which support the general ledger, giving such details as are required to set up either cost accounting or a division of the various overheads or burden. These ledgers should be so kept that a detailed statement is obtainable, in order to arrive at every conceivable information from which sta- tistics can be set up. Ledgers that are subsidiary to the General Ledger are Accounts Receivable, Accounts Pay- able, Burden Ledger, Stock Ledgers. In fact, any Ledger, the accounting of which is controlled in the General Ledger by controlling accounts, is known as a Subsidiary Ledger. Most important of all, and often referred to by the man- agement, is the Departmental Ledger (operating depart- ment or merchandising departments). Distribution of Working Records. In making the dis- tribution of the general ledger for the departmental ledger, e RETAIL ORGANIZATION AND ACCOUNTING CONTROL there are quite a good many accounts which will be merged into one. Then a final total is posted in the departmental ledger. From an auditor's viewpoint, it is customary to make such a summary on a neatly appointed sheet. The mana- ger of the office or chief accountant should see that such distributions are kept in bound book form, from which record, postings will be made in the departmental ledger. Thus a clear working record is obtained that wil! be open for proper auditing. It is customary for examining accountants to set up all detail on a uniform columnar sheet, known as working papers. But these working papers are likewise essential in good office management, and, where the accounting department does not keep records of this nature, they are highly recommended for adoption. It will be found that they are very often referred to and are very important as reference records. Private Ledgers. Some organizations, aside from the use of the general ledger, also employ what is known as a Private Ledger. While there should not be any distinc- tion between the general ledger and the Private Ledger, since all controlling accounts are within the one scope, the private ledger will be used to control investment accounts, also for a few controlling accounts which will not appear in the general ledger. But both Private and Gen- eral Ledger must be taken into account in rendering the balance sheet for an organization. Personal accounts, such as those of members of the company, are generally kept therein. Impersonal accounts are out of place in this ledger. Impersonal accounts are those that indicate a condition. Corporation Stock Ledgers. The Stock Ledgers of a corporation will in no way affect the General Ledger, with the exception that the record of the amount of stock issued, whether common or preferred, or treasury stock, will appear BOOKS IN USE AND PROCEDURE 7 in the capital accounts. Care must be exercised in hand- ling the Stock Ledger that a clear and concise record is kept of all the stockholders of the company, that the tax stamps required by the Government have been affixed prop- erly, and that all canceled stock is attached to the stock record. It is customary, prior to issuing dividends, that these stock ledgers be closed for a period of a few days or a few weeks. Thus an opportunity, in large corporations, to close the books properly is given, and to issue dividends to stockholders of record. The Stock Ledger must conform to all the requirements of the by-laws of the corporation. In the larger corporations, especially those that conduct extensive branch offices or plants, a duplicate of the ledger will be maintained at the principal branches. The closing of this ledger is generally prior to the periodical meetings of the Board of Directors. This record is governed by the laws of the state of the company's incorporation, and it is important that an account record be kept of all stockhold- ers, their holdings of the corporate stock, their names and addresses, alphabetically arranged, the date their stock was acquired, the stocks subscribed for, the stocks open, all transfers and records. Corporation Debt Limitations. A corporation whose by-laws limit indebtedness unless it has been voted and passed upon by a quorum (a stipulated number of the Board of Directors, or stockholders of record) should main- tain a record known as " APPROPRIATION." The account- ant should require a requisition specifically referring to the particular appropriation and a report rendered periodically of the conditions surrounding each appropriation, that corresponds with the minutes of the directors' meetings. In conjunction with the foregoing records, a monthly report should be rendered and made a part of the monthly balance sheet. This should give analytical information about all appropriations, open or overdrawn, or contracts executed and completed within the required stipulations of the appropriation. Burden Ledger. It is known that the elements of cost accounting, in a manufacturing organization, are those of material, labor and burden, better known as overhead. Some of the larger department stores conduct their own manufacturing organizations, for articles that the manage- ment believes can be manufactured better by themselves than bought from manufacturers, wholesalers, or jobbers. But these instances are very few. The department stores buy their products, which they place on sale, from the manufacturer. Thus two elements are merged into one. That is, material and labor are merged into one element known as merchandise, for which a specific price has been paid, and on which price an increase is placed for retailing. There can be but two divisions in cost for a department store: (1) Merchandise. (2) Burden. Burden covers everything but the cost of the merchandise. Again we have the manufacturing organization which has a Burden Ledger. " An account will appear in the general ledger as work-in-process. This account is supported in the general ledger with detail, which will be summarized by giving rough stock, finished material, labor and burden. The detail of the Burden is to be found in the Burden Subsidiary Ledger in which the various expenses are itemized. The burden is applied to the work- in-process, the cost of labor is added thereto, and reduced by crediting the work-in-process with finished stock." The department store eliminates the subsidiary burden ledger inasmuch as the burden is divided into nine differ- ent divisions. This is treated in the Chapter on Burden. The divisions are the working overhead of the retail estab- lishment and cover every detail conceivable. They are kept in the general ledger under the proper divisions. BOOKS IN USE AXD PROCEDURE 9 Burden Payable Ledger. This ledger, sometimes referred to as the expense ledger, contains those personal accounts for which impersonal accounts are set up in the general ledger, giving the detail of Burden necessary to conduct the establishment. The entries in this ledger are received from the Burden Purchase Register, or voucher systems, of controlling expenses incurred. The control of the Burden Ledger, which also corresponds to the Burden Payable in the gen- eral ledger, receives its control by summarizing the monthly or given period of purchases as a credit, and is debited with cash paid, returns, or other debit entries applicable to this account. Burden Register. All expense bills are entered in the Register and segregated to the proper divisions of the store Burden, from which postings are made into the Burden Payable Ledger Personal Account (Form 2). The aggregation of the impersonal entries is journalized and proper disposition is made to the general ledger accounts. Each division of the store Burden must be analyzed prior to closing the entries for the month in order that the detail will appear on the journal voucher for distribution to the general ledger accounts. It is recommended that each item of store Burden be carried under its own caption. The larger a store grows, the greater will be the necessity for a budget system. The adoption of the budget will require provisions for various expenditures and the appropriations must be accounted for, all of which assists in the control of the store Burden. Burden Vouchers. An accountant who is installing a system in an organization must not for a moment so forget himself as to make the business fit the system. On the con- trary, he must organize the accounting system to fit the business, and to fit it in such a manner that the desired results will be obtained without any circumvolution. 10 BOOKS IX USE AND PROCEDURE 11 In manufacturing organizations, all Burden is summar- ized and known by numbers. This summary book is better known as A CHART OP ACCOUNTS, in which the Administra- tion will have its own set of burden, planning, and the engi- neering department, its set of Burden, etc. The reason for such distribution of Burden is the extensive number of items of which the Burden or Overhead is comprised. For instance, an automobile manufacturing organization may have 10,000 different distinct parts of which the machine is made up. This manufacturing organization may make its own tools and its own parts, conduct its own brass foun- dries, its own aluminum foundries, its own steel plants. In order that the business may be departmentized properly and the burden properly distributed, A CARD OF ACCOUNTS becomes an essential necessity. The department store can- not apply the Burden in the form of a CARD OF ACCOUNTS for the reason that while it is extensive, it is segregated into a stipulated number of divisional burdens. Accountants may argue that Form 4, which is given here, is not the kind that is customarily used in department stores. But the evolution of accounting is such that eventu- ally the department store will find it to its advantage, and in fact a necessity for better accounting, to adopt the methods herein described. Some stores have what is known as an expense record. They enter the various expenses that are incurred without any divisional segregation of Burden. While this expense record will produce a burden statement, its effect is lost in not giving proper application, and its value does not pro- duce the effect necessary for comprehensive ability in the furtherance of successful management. A Voucher system, in conjunction with the registering of Burden, is in the form of a combination ledger and check on the reverse side of the check. A carbon copy is set up. On this are enumerated the gross amount of the invoice 12 KETAIL ORGANIZATION AND ACCOUNTING CONTROL purchased, less the returns, for which a column is provided. Another column may be provided for claims, another for the discounts, and another for the net amount. At the end of the month, or at the payment period, each column is added separately and the total of the net column will be the amount payable to the company with whom the liability was incurred. The check is then reversed, and filled in with the check perforating ma" v; ne, and the name speci- fied to whom the check is payable. Thus, we have, at the end of a period, the check and remittance slip all made in one, as well as the ledger entry, which is separated from the check itself by a perforation. This is a great time- saver, but many accountants of extensive experience prefer the old-fashioned debit and credit ledger rather than the Voucher system, or the old ledger system in conjunction with the Voucher system. Experience, however, is the best test for the use of both the ledger and the voucher systems, all depending upon the volume of business, the class of help, the store's locality, and the policy by which it is governed. Departmental Ledger. There are many opinions as to how a Departmental Ledger for a department store should be kept. The many audits made by the author and the systems installed throughout the country show, we regret to say, that the percentage of retail establishments that have no perfect Departmental Ledger is deplorable. Such conditions can give only approximate results, rather than accurate information. Form 3 is a department ledger which has been conceived by the author as being most ideal. It gives an entire year's accounting for a department, with the sum- marization, in the form of a profit and loss account on the same page, receiving its proper distribution from the sub- sidiary supporting books. It presents an equitable distri- bution of burden, logically applied and governed by economics. BOOKS IX USE AXD PROCEDURE 13 The working of this ledger requires considerable care, not only in the distribution of the burden applied to the department, which is discussed in later pages, but in the auditing of the sales checks, which must be perfect in every respect. The procedure begins with the entries from a journal voucher on which are summarized the cash sales, the C. 0. D.'s, and the charges. Each department has its amount, which has been taken from the sales record and posted into the working month on the departmental ledger to the respective department, thus giving the gross amount of the sales. The returns, 'Credits and allowances are like- wise posted, the total of which is deducted from the total Bales, giving the net sales for the month, or a total for a given date for the fiscal year. The next column of this sheet is known as cost inventory. While stock in the department store is preferably con- trolled at retail, the cost of the stock on hand must be kept. Purchases. Purchases signify the net amount for the month contracted for and received by the department. This item will be net, as the returns have already been deducted. The item provided for discount would give the amount of discounts received through the department's pur- chases. It is customary for the department to receive credit for the discount obtained through its purchases of merchandise. Not a few stores permit the department to receive the extra profit made from discounts, using as a basis for such action the fact that discount is a financial income, that the department is carried on for merchandis- ing purposes only, and that such a department can be credited only with the profits obtained by buying and sell- ing, not with profits obtained through financial transactions. The next section of this departmental ledger sheet is the burden. The burden of a department store will be divided into the headings of Administrative, Buying, Selling (which I I I O 1 / 1 J 3 u P 1 , \ \ Ed >- I Q 1 j j cr > < 0. WHEN EMP tr < D l- a < S H 1 CO s EH Jz ?! 1 a \ | LU ^ < a ? a i >; I ^ 6 < s UJ ) UJ ~v > \ 42 BOOKS IN USE . 43 son is employed. The signature of the authorizer must appear for the amount issued. If a floor superintendent is employed, the privilege of authorization is extended to his office. When the amount of commissions and P.M.'s for the week is determined by setting up the total in the commission rec- ord, the result is transferred to the general pay-roll records. Pay-Roll Records. The accountant is familiar with many forms of pay-roll records. Those generally in use are a combination of employee's records and time. Others are the time clocks either by card or sheet. Some stores have time clerks to register time. The employees call their numbers, and their time is registered in and out. Still others have punch cards which are turned in at the end of the week for computation of their salary. For the purpose of the system described here, a card punched by the co- worker is used by a time clock, registering in and out four times daily. At the end of the week, the time or number of hours' service rendered is entered on the pay-roll record and the amount of salary earned is extended. Each clerk will have his own ledger page (Form 16). A column is provided for charges that may be deducted. These charges against the coworker may be for merchan- dise, lateness or other items that may occur during the course of business. The final sum of the coworker 's income for the week is extended in the total column. Government Requirements Information at Source. The Revenue Act of 1918 requires returns to be made by various persons and companies. These returns are not meant to be used as a basis for computing and assessing the tax on the person or company making the return, but to furnish the revenue officers with accurate information. The Act reads: " That all individuals, corporations, and partnerships, in whatever capacity acting, including lessees or mortgagors 44 RETAIL ORGANIZATION AND ACCOUNTING CONTROL of real or personal property, fiduciaries, and employers, making payment to another individual, corporation, or partnership, of interest, rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed, or determinable gains, profits, and income (other than payments described in sections 254 and 255 pars. 197-198) of $1,000 or more in any taxable year, or, in case of such payments made by the United States, the officers or employees of the United States having informa- tion as to such payments and required to make returns in regard thereto by the regulations hereinafter provided for, shall render a true and accurate return to the commissioner, under such regulations and in such form and manner and to such extent as may be prescribed by him with the approval of the secretary, setting forth the amount of such gains, profits, and income, and the name and address of the recipient of such payment." In quoting the provision of the income tax, it can readily be seen that not only a ledger record is kept to coordinate with the requirements of the Federal government, but also an excellent record for setting up and auditing the pay- ments for salaries, commissions, premiums, charges, etc. Mark Ups. The mark up of merchandise refers to the percentage or the amount of money added to the cost in order to obtain the selling price. In a manufacturing organization, an extensive cost accounting system should be conducted in order to obtain the cost of production. When the final cost is obtained, the profit should be added thereto, to set the market price. This profit added to the cost may also be termed a mark up. Some methods used by manufacturing organizations will be termed " Cost plus." The plus may also be termed " Mark up." The department store, however, has no cost account- ing in the manner conducted by the manufacturing organi- zation, as the merchandise is purchased direct from the a. D H < 45 ;46 RETAIL ORGANIZATION AND ACCOUNTING CONTROL manufacturer, importer, wholesaler, or jobber. Sometimes, after adding transportation charges to receive the merchan- dise in the store premises, the allotted percentage of profit expected from the department must be marked at a stipu- lated amount that will bring the revenue required to cover the profits for a particular department. The correctness of the mark up for the various depart- ments is given considerable attention, a record for which is kept and set up in a daily inventory record. Some stores will control mark up at the percentage added to the cost, others by the percentage of profit that the mark up will produce. Exemplifying this, the cost of an article is $10. A required mark up of 50 per cent must be added to the cost to obtain the selling price, giving the selling price as $15. If a percentage of profit is required of 25 per cent, the selling price would be $13.33 or 33 per cent mark up on the cost. Profits are not calculated at the cost of a com- modity. They must be produced from the selling price. While a department must produce a stipulated percent- age of profit, merchandise can not always be marked through a table rate. The value of the commodity to society or the community must receive every consideration, likewise sales promotion may find it necessary to sell mer- chandise at cost or at a very low percentage of mark up. Generally, the overhead necessary properly to manage a department, plus the policy of the store margin to required profit, formulates the mark up percentage. Mark Downs. The mark down problem is an extensive one, and every phase of merchandising must be taken into consideration. The terminology of mark down is a reduc- tion in the selling price of an article regardless of its classi- fication or the department in which it is carried for sale. There may be several reasons why a mark down is taken. The most common reasons are, that merchandise having been carried in stock longer than is deemed advisable, must be MARK DOWN . ro? M if ! ! < I ; \ c ^ e ! I s V $ " t J '' !?5 IIM :i Ujj ': !s is ^ SI \ 48 BOOKS IN USE 49 reduced in price in order to effect a quicker sale. Or the merchandise may be what is known as ' ' style goods, ' ' which are affected by the change in seasons and new creations. Then, too, other reasons for mark down may be shop worn article, deterioration of goods, a department's becoming stagnated and not producing the volume of business which is expected. It is necessary, therefore, to reduce the mer- chandise, and create a sale in order that the proper turn- over may be accomplished. Form 18 is a mark down record, which gives the detail of the merchandise being marked down, the amount of cost, original selling price, the amount of the reduction, and the reasons for such mark down, together with the proper executive authorization. From an accounting viewpoint, the reason for the mark down is irrelevant. But it is a prime factor in obtaining correct results since the proper control of daily inventory is maintained at the retail prices for perpetual inventory. The mark down of merchandise will also affect the required profit of the department. Therefore, in order that a complete record may be kept, a mark-down book becomes one of the essentials of the accounting system, as .shown in Form 19. The individual mark-down sheet, as described in Form 18, is entered individually, giving the house number, which is a number given for ready reference to all articles placed in stock, manufacturer's number, where the article was obtained. The line number refers to certain classes of merchandise that are known by color, for the better description of the class of merchandise carried in stock. The date when the merchandise was received in stock is necessary. This information is required in order to keep check on merchandise which is offered for mark downs. Also the length of time that the merchandise has been on the premises must be known. In short, unless an adequate reason is given, the mark down is impossible. The cost and last selling price are required to be entered. 50 RETAIL ORGANIZATION AND ACCOUNTING CONTROL A certain class of merchandise may have several mark downs, after receiving its first. If its selling price is not sufficient to create its sale, a second mark down is necessary. Oftentimes a third is required. The quantity of pieces which have gone to mark down is then extended at the dif- ference between the first and last mark down, and the final total is arrived at. Daily, these amounts are transferred to the merchandise control record in order to arrive at the correct amount of merchandise in stock for each depart- ment. The mark-down record allows a column for purchases. Each manufacturer is allowed a page, or as many pages as may be required, and the amounts of the purchases are recorded. The object of this is, from a managerial view- point, to arrive at the percentage of merchandise marked down that has been received from the various manufactur- ers, to show the value in trade of the purchases. Buyers and department managers are prone to abide by the unrelaxing rule governing mark downs. In a well organized merchandising store, a continuation of ignoring the mark-up or mark-down rules is sufficient reason for dis- missal, for lost control of the department must surely fol- low. This, however, is eliminated by the inventory depart- ment, which maintains an inventory staff that takes physi- cal inventory of each department at least once a month and reconciles the book inventory. These inventories are taken after business hours. Retail Reduction Slips. On all sales, regardless of whether they are cash sales, charge sales, C. 0. D. sales, or will call sales, the sales check must agree with the price indicated on the price ticket attached to the piece of mer- chandise sold. There cannot be any deviation from this rule, and who- soever permits a deviation, whether to an outside customer, a coworker, or an executive, must be held strictly account- BOOKS IN USE 51 able for such, deviation, and is subject to whatever action the management sees fit to impose. If a coworker, regardless of his or her position, makes a purchase, the full amount of that purchase must appear on the sales check. If the coworker is entitled to a discount, a retail reduction slip such as Form 20 is to be compiled, with all specifications of procedure printed thereon. The reasons for the reduction must appear on the reduction slip, the date of the reduction corresponding with the same date as the sales check. The department in which the sale has taken place must be specified. The sales person's num- ber must appear on the sales check. The name and address of the party making the purchase must appear as well as the sales check number. The term " loss on " indicates the price for which the merchandise was sold. T< The original price " signifies actual price for which the mer- chandise was originally marked for selling. " The amount of loss " indicates the difference between the original sell- ing price and the price for which the article was sold. This amount of loss will, in most instances, indicate the amount of discount, or the difference between the original selling price and the price for which the article was sold to the coworker ; difference between the cost price and the sell- ing price. Any reduction whatever, or any deviation from the regular selling price for allowances permitted, must be authorized by the superintendent of the floor, or the buyer of the department, or his or her assistant. Such authoriza- tion must appear on the line indicated by "Authorized by." The coworkers, whoever they may be, must sign their names so that they appear in duplicate by the use of a car- bon paper, on both the original, which is a yellow sheet, and the duplicate copy of the retail reduction slip, which is pink. The yellow slip must be attached to the sales check and sent to the auditing department in the same manner in- which all sales checks are accustomed to be taken care of. 52 RETAIL ORGANIZATION AND ACCOUNTING CONTROL Form 116A . 2SOO iet 4-19 Retail Reduction Slip leason. The only authorized reasons are: A. Discount to Co-Worker. 3, Allowance to customer for unsatisfactory Mdse. Dept S. P. No.. Salescheck No Original Price.. Amount of Loss . Authorized by I, personally, am paying (or this merchandise and am entitled to discount. Go- Worker Sign . __ This slip must accompany all discount*, allowance*, and deviations from the retail price. FORM 20. RETAIL REDUCTION SLIP If an allowance is made to a customer, the same pro- cedure must be followed. That is, all information must appear on the retail reduction slip properly signed by the -authorizer, and the customer should sign her name and address on the line provided for the coworker's signature. The yellow slips are matched up with the pink by the BOOKS IN USE 53 auditing department to account for any differences and for any missing slips. The yellow retail reduction slips are sent once each week to the statistical department by the auditing department, where the stock records are . adjusted. No matter how stringent the mark downs or the one price of any store may be, occasions arise where a reduction is made on a sale. Especially is this true where a coworker of an organization makes a purchase and special discounts are a privilege. The control of the various stocks must receive prior consideration. The retail reduction slip may be considered as an individual mark-down slip executed to control stocks in addition to other elements. Sales Record. Sales customarily understood as orders by the wholesaler or manufacturer, may be divided into three classes: 1. Unfilled orders. 2. Orders in process of manufacture. 3. Filled orders, shipped to the purchaser or the con- signee. Department store orders are divided into three groups differently interpreted, each of which is an actual sold and delivered classification. These are classed as Cash sales. C. 0. D. sales and will calls. Charge sales. The merchandise, having been sold by the various depart- ments of the store, is recorded by sales checks. These sales checks, which go through a detailed audit, will be recapitu- lated, giving the total sales of each department for the day. These totals are entered in a columnar record, for which each department is allotted a division with its department number or letter at the head of the sectional division. It is important for good accounting that each classification of sales should be set up on separate pages. The reader will recall the fact that the total column of the cash sales 54 BOOKS IN USE 55 in this record must be equivalent to the daily cash sales recorded in the cash hook (Form 22). There are classifications of merchandise, such as clothing for men and women, or furniture, in the case of which con- siderable importance is attached to the knowledge of the quantities sold. In such instances an extra column should be provided, immediately following the record of sale, designating the value and the quantity sold. The value of this record is considerable for merchandising purposes. Sales Returns. The record of the merchandise returned by the customers, whether cash, C. 0. D., or charges, is as important as recording the actual sales result- ing from the daily audit of all the sales checks. Return merchandise from sales to the department store is quite a problem. This problem is extensive both from the standpoint of overhead control and of deterioration of the merchandise. Many of the stores throughout the United States have found the percentage of returns to be of such proportions as to necessitate placing limitations on the number of days during which the merchandise may be kept by the cus- tomer. Requests for credit are restricted in some commu- nities. The health departments in many communities have placed restrictions against the return of certain classes of merchandise to the department stores. In the same way that original sales are recorded in the columnar record best fitted for the purpose of setting up the accounting, the returns should be recorded. A separate record of cash refunds C. 0. D. returns and charge sale credits, including the special column for departments where a record is kept of the quantity sold should be kept. "Where an exchange of a purchase is made, a credit must be made for the return of the merchandise and a new sale recorded. To those unfamiliar with department store pro- 56 RETAIL ORGANIZATION AND ACCOUNTING CONTROL cedure, this may seem an arduous task involving a lot of unnecessary waste. It must be remembered that every action has a definite object. There can be no perfunctory methods, as every link of the store system depends upon its individual strength, upon the efficient coordination of its every detail, as if it were a single unit. A diversion from this procedure generally results in a loss. 191 Dept. FORM 22. SALES BECOED Net Sales. Opinions may differ as to the entry of sales. It may be argued that, deducting the returns from the gross sales, the net sale, which is the objective, should be entered into the sales record, thereby eliminating a con- siderable amount of clerical work and bookkeeping. To do this, however, would defeat proper accounting and the organization would not be in a position to set up a statis- tical record to arrive at an analysis of its sales in detail. It would be impossible to control the individual depart- ment, to know whether or not the returns are heavier in BOOKS IN USE 57 some departments than in others, if the percentage has reached greater proportions than the limitations recognized in the trade. The manager should be placed in a position to make investigation, and ascertain the reasons for such returns. Here we recognize that accounting is not merely a set- ting up of figures, but that it should be so constructed that any analytical statement is of material benefit to the vari- ous managers in furthering the interests of the organiza- tion. Thus we find that a separate record of individual sales, a separate record of all sales, and a separate record of all sales returns must be set up. Merchandising Terminology. The term MERCHAN- DISING defines the commodities that are bought and sold by an organization, including the sales promotion of such com- modities. It may also be termed a matter of barter, but the term barter is foreign to the department store. Daily Inventory. There are two essentials necessary to control the department store : 1. The net work of the accounting system. 2. The merchandising control which is a nucleus for every element entered into the merchandising problems of a store. From an accounting view point, the use of this book will give the stock on hand at cost monthly for the balance sheet and the profit or loss statement, also the departmental profit and loss statement. It is necessary that accuracy should predominate at all times. It may be described fur- ther as a perpetual inventory of all wares carried on by the organization. The procedure of this record, if begun with an inventory commencing with the fiscal year, must be taken both at cost and selling. The total merchandise received daily as shown in the purchase journal will be transferred to the departmental record in the column set 58 RETAIL ORGANIZATION AND ACCOUNTING CONTROL up for that purpose. The mark downs or mark ups are to be entered in the mark-down column. Generally a mark up is entered in red ink, deducting one from the other in order to arrive at the net mark down (see Form 24). To compute the figures in order to arrive at the new inventory, the inventory at the beginning of the day, to which the merchandise received is added, will, after deduct- ing the mark downs, give the percentage of profit for the department. One method of ascertaining this percentage is by deducting the total cost of the merchandise from the total detail sales, giving the profit in dollars and cents. This result is used as a dividend, as the divisor will be the stock on hand at retail. The quotient gives the percentage of profit. The net sales consisting of all cash, C. 0. D., and charge sales, less all returns of every description by departments, will be entered into the net sales column and deducted from the previously obtained result, and then extended to the new inventory column, which will be the retail inventory for the close of the day or the beginning of the next day. The net sales must be reduced to an average cost. If the percentage of profit for a department be a stipulated amount, the dif- ference between that amount and 100 per cent must, of necessity, be the cost. That percentage taken from the net sales for the day will give the cost of sales, which result is deducted from the cost of inventory previously arrived at and extended to the new inventory column at cost, com- pleting the cycle for the day, taking into consideration the inventory beginning, merchandise received, less merchan- dise returned, mark downs, mark up and sales for the day. The inventory of cost is in no way affected by mark downs or mark ups. It will readily be seen that if an article cost $1.00 whether it is sold for $2.00 or whether it is sold for 50 cents, the cost is still unaffected. BOOKS IN USE Inventory at retail 5,000.00 Inventory at cost 3,600.00 Profit 1,400.00 5,000 . 00 28 % profit mark up retail inventory 1,400.00 Profit 1,000.00 400.00 400.00 Cost and profit equals Sales 5,000 100% Cost 72% Profit 28 % Cost 3,600.00 Cost 72% If a profit of 28 per cent is required on the sales and the cost of an invoice is $3,600, the invoice will represent 72 per cent of the selling price. To obtain the correct selling price, divide the 72 per cent into the cost of the invoice and the quotient is the retail value or selling price. Total cost of selling 100 5000 Profit desired 28 72 3,600.00 Cost 72 360 XXX Divide cost of percentage into cost of the article. The quotient is the selling price. 60 RETAIL ORGANIZATION AND ACCOUNTING CONTROL The clerical help necessary to make the calculations of all departmental records is composed of girls or young ladies. They, it must be remembered, are neither bookkeepers nor accountants. They are untrained, and in order to obtain correct figures, the simplest methods possible must be employed. Retail Control. Preference must be given to the con- trol of stocks at retail rather than at cost. Many discus- sions and numerous writings on this subject have been pub- lished. To give briefly the most concrete reasons, the reader will assume that the average percentage of profit for the department is 33 1/3 per cent. The overhead to conduct that department is 32 per cent. At a glance it can be seen what margin of net profit the department is work- ing on. Again, with the knowledge that the department costs 32 per cent to carry (meaning 32 per cent on the sales) the buyer will make a purchase, and have a mark up of 25 per cent profit. That is, the merchandise will be marked up 33 1/3 per cent on the cost, which would be an equivalent of 25 per cent profit on the selling. Knowing that 32 per cent is the overhead and 25 per cent is the profit, an imme- diate loss of 7 per cent is sustained providing mark down is not taken on this particular purchase to make a further loss. Retail Inventory Control. The inventory control as previously discussed covers both cost and retail. Difficul- ties occasionally arise in maintaining its accuracy. A per- fect control is given in Form 25. After many years of experimenting and careful study, this method has proven successful to the utmost degree. Allowances, however, must be given to leakage at least 1/2 of 1 per cent. One of the ^rgest stores in Boston, doing an annual business of over sixteen million, showed a leakage of 1 9/10 per cent for all stocks. BOOKS IX USE 61 The procedure of Form 25, a sheet for each department. First column ' ' Inventory and Purchase Accumulative, ' ' The cost and retail beginning with the inventory of the fiscal year at cost and retail. Add daily new pur- chases at cost and retail in their respective columns. The accumulated total on line below is the addition of the daily purchase to the previous obtained total. Second column " Purchases received this month." Enter all daily purchases at both cost and retail. The accumulative amount is shown on the line below by adding the daily total to the previous obtained accumu- lated total. Third column ' ' Accumulated Inventory and Purchases less Mark Downs. ' ' This column, number 3, is the total of the accumula- tions of number 1 and 2 at retail less column 6, the accumulated mark downs. Fourth column ' ' Profit on purchases. ' ' The period column indicates the season. The month column is for daily entries. The interpretation of profits is the amount of money added to the cost for all daily purchases, and is entered daily, the line below being the accumulated entries for the- month. This is obtained by adding the daily total to the previous obtained total. The period will cover from the beginning of the fiscal year; the accumulated profits in dollars and cents are the accumulated amounts added to the purchase price at cost to obtain the retail. Fifth column " Profits on Purchases less Mark downs." The fifth column is similar to that of the fourth in its construction, with the exception that mark downs or mark ups have been considered. Sixth column ' ' Purchases Month 's percentage. ' ' The percentage of mark up on the daily purchases will 62 RETAIL ORGANIZATION AND ACCOUNTING CONTROL be represented in this column. The accumulative per- centage on purchases, giving no consideration to mark downs or additional mark ups, will be identified on the line below which signifies accumulated figures through- out the sheet. Seventh column ' ' Mark downs. ' ' Mark downs entered in the period column represent the mark downs taken for the season in accumulated form. The month column, daily mark downs for the month, is on the line below " accumulated for the month." Mark ups are entered in red figures and deducted from previous accumulated total to obtain the new accumulated total. Eighth column ' ' Inventory stock Percentage. ' ' It is necessary to know daily the percentage of mark ups that all stocks in a department represent. This column provides for the percentage information, which is obtained by the following process : The accumulative inventory and purchases divided into the accumulative profits, giving as a quotient the percentage of retail profit on stock carried by a department. Ninth column " Sales." It is important that the net sales be entered daily for the period and daily in the month column, the line below representing the accumulative sales for the period and, in the month column, the net accumulative profit for the month. Tenth column. This column is provided for the inventory shown at the close of the day. Eleventh column. The accumulative mark up, if no mark down or mark up were ever taken, should be represented in this column. BOOKS IN USE - ^ v*s p, 1 65 6 RETAIL ORGANIZATION AND ACCOUNTING CONTROL To OBTAIN INVENTORY AND PERCENTAGE Daily result : 1 7 9 = 10 5 -h by 1 = 8 4-r-by 2 = 6 1 7 9 = 10 Accumulate. Same procedure as above, using accumu- lated figures. In closing books for the month or year to obtain cost of inventory, column 11 or percentage of mark up, if no mark downs or additional mark ups were taken, is to be used. This will give a lower cost of inventory and provide for depreciation of value for stock disposal. Form 24 is a summary of the working sheet as shown, on Form 25. Advertising Records. One of the most extensive and largest items of a department store's burden is the adver- tising of the store and its wares. Cognizance must be taken of the fact that good accounting procedure can be argued as to whether or not the entire expenditure for advertising can be termed properly ' ' An expense for operation. ' ' Perhaps a store that has been organized for a good many years wishes to incorporate its affairs or place the organization on the open market for sale. There is no question but what a good will account would be established, and a value placed on the name of the organization for its value in the com- munity. "While good will appears on the assets of a com- pany in a class by itself, its tangibility, like all other good will accounts, cannot be considered as an asset for the pur- pose of obtaining credit unless its earning powers are of a substantial nature. Yet, while the organization is in activ- ity, a good will which represents the good name and earn- ing power of the department store is of intrinsic value in the community where it carries on trade. The basis of the BOOKS IN USE 67 good will would then be established. It would be estab- lished from the extensive advertising which the store con- ducts, the policy pursued and substantiated by supporting such advertising with good value to the trade of the mer- chandise it carried in stock. However, the expenditure for daily advertising in a newspaper or periodical, or in direct advertising, including the cost of maintaining the advertis- ing office, is properly charged to advertising. Such adver- tising should be distributed properly, and charged to the various departments who participate in the daily adver- tising. "Where a store has quite a number of departments and all the departments do not advertise, the question arises as to what portion of the space occupied by the name and address and editorials contained in the daily newspaper and other advertising mediums should be distributed to such a department. A department that has not advertised should at least bear the burden of cost for the space used to adver- tise the name and address of the company, along with the editorials. For it is but reasonable to argue that the vari- ous departments which did advertise were the means of bringing a certain number of people into the store. Such people passing through the departments which have not advertised, may be prompted to make purchases from the merchandise on display. Some organizations will only charge advertising to such departments as advertise in the daily paper. Those who do not advertise are not charged for anything. This is the policy of many a store, but it fails in making logically a proper distribution for the adver- tising cost. Advertising is charged for at either a stipulated amount per line or per inch. In the larger cities it is charged at the line rate. The proper method of setting up the cost and distribution by departments should be followed daily. The procedure is to ascertain the total number of lines to a col- 68 RETAIL ORGANIZATION AND ACCOUNTING CONTROL umn and multiply by the number of columns or parts of a column in which the ad is set up. There are nine lines to an inch, and the number of inches in each column multi- plied by the columns or fraction thereof used will give the. total amount of lines used for the daily advertising. The columnar record is then set up, of which usually the date column to the left of the page will be used for the dates covering the entire month. The various departments will be designated at the head of the column, and the amounts of space -used and the cost in dollars and cents are set up alongside of each other, a daily total column cost for the advertising. In addition to this, other advertising matter which may come from indirect advertising is set up as an additional cost in the same record, thus giving, at the end of the month, the total amount of advertising utilized by {he vari- ous departments and the amount of space used, so that a statistical record may be set up and a comparison made from year to year. Discount Records. In treating this subject, this term is applied to cash discount received from the payments of obligations at maturity, other than negotiable instruments. The discount question is one that runs into quite large pro- portions. There are many organizations throughout the country in the retail business that are satisfied to conduct their affairs so that their wares carry a sufficient mark up to cover their entire overhead, depending upon the discount earned to produce their profits. The importance is readily estab- lished in the foregoing statement of showing the necessity of carrying a complete record of discounts earned. Two methods are applicable. One is, after entering the mer- chandise received in the invoice register, to set up the dis- count immediately alongside of the liability incurred. The other is to set up the discount in a discount record at the BOOKS IN USE time that the discount is earned, when making the remit- tance. A form is not given for this record for the reason that a regular columnar journal is sufficient for the pur- pose. The record that is set up of discounts earned is not a substantial figure to appear in a general ledger. The actual discounts earned at 'the time of makinjj the remit- tance for an obligation that appears in the cash "Dock are the only figures relating to discount that should appear in the general ledger and, from there, on the Profit and Loss statement. "Where the discount is entered in a purchase journal upon receipt of invoice, several journal entries are necessary for monthly closing. PURCHASE JOURNAL RECORD Date In- voice No. Regis- ter No. Account Name DEFT. 101 Selling Discount Cost From Purchase record Dr. Discounts from merchandise purchase- Cr. Unearned discounts From cash book (Posting direct) or through journal vouchers Dr. Unearned discount. 70 RETAIL ORGANIZATION AND ACCOUNTING CONTROL Required Discounts. Perhaps there is no other line of commercial affairs that would set up an account known as Required Discounts. The store may require a uniform dis- count to be earned by every department, whether the department itself receives credit for such earned discount, treated as an additional income to the department, or 'the discount earned is simply passed to the credit of the administrative branch of the establishment. A specific dis- count must be earned by the departments. Exemplifying this, a department is required to earn a discount of 7 per cent. The particular department may be the glove depart- ment. The prevailing discount allowed in the glove trade is 2 per cent. The buyer of merchandise cannot influence the manufacturer to accede to his terms. He will either add the difference of 5 per cent to the cost of the merchan- dise or, should the merchandise be covered by the discount of 2 per cent when the merchandise is received at the store, an additional 5 per cent is charged to the merchandise and credited to the required discount. The difference of 5 per cent is set under a separate accounting record, known as Required Discount. Storage Record. All stores of any size carry reserve stock. This seldom applies to wearing apparel such as ladies' outer clothing or men's outer clothing, though at times furs and overcoats may be carried on from one sea- son to another. Reserve stocks are those of underwear, hosiery, house furnishings and the heavier wares carried on in trade by the department store, with the exception of style stock. A warehouse or storage may be kept on the premises. Or if the volume of business of an organization is such that all space is required for selling purposes, outside ware- houses or storage buildings will be used for such reserve stocks. To merchandise a store properly, and in order that an accurate accounting record be kept, the perpetual inven- RECORD | DELIVERED to Department* i REMARKS i I ! 1 QUANTITY OUT 111 O cc 1 STO Record of Description RECEIVED | 5 COLOR DtSCRIPT- ION | 1 d 1 71 72 RETAIL ORGANIZATION AND ACCOUNTING CONTROL tory records, as described in Form 24, will be set up, to be known as reserve daily merchandise control. These will be supported by a storage' record, in which the detail of the various stocks on hand will be recorded. Any stocks removed from the storage will be credited to the total on hand stock to show a detailed statement of the condition of all stocks for the department. To apply best a storage record, any reserve system will be sufficient, but there are exceptions to this. The classifi- cation of the diverse merchandise would have to be set up so that, at a glance, a record will give the necessary infor- mation to the buyer (departmental manager) of the reserve stocks in the storage house, so that merchandise may be replenished with the storage merchandise (see Form 26). In addition to the storage record, each department car- ries an individual record of stored stocks, applying for ready reference the lot number or storage number of the storage record and of value of such stock. Office Petty Gash. Office cash may be better known as petty cash, and is generally used for the payments of petty expenditures. Expenses of this nature must be recorded very carefully. Any ruled form of cash book, itemizing the various expenditures, is sufficient. However, it must be remembered that no merchandise should be paid for with office cash, neither should salaries or personal drawings or payments be withdrawn from the office cash. Each payment must be requisitioned properly by the man- ager of a department, properly countersigned by one authorized to do so. All cash received must be indorsed by the parties receiving such moneys on the reverse side of the petty, cash vouchers or requisition. SALES CHECKS AND RETURN CHECKS Sales Checks. Sales checks of a department store or any retail establishment represent a bill of sale for a pur- chase made by a customer. These sales may be in various forms. They may represent a cash sale, charge sale, C. 0. D. sale, an approval, a will call, whatever arrange- ment the customer may have with the store with whom he trades, or the condition upon which the sale is made. These sales checks are set up to coordinate with the busi- ness, generally, to fit in with the volume of business con- ducted by the house. Stores, whose volume of business runs into great proportions, have separate checks to repre- sent cash sales, C. 0. D. sales, or charge sales. These checks come in book forms of 50 each, with a serial number con- trolling the checks from 1 to 50. A binder or holder is readily made to hold the 3 sets of checks. Then again, there are other organizations that have one set of checks on which provision is made to represent either the cash sale, the charge sale, or the C. 0. D. sale (see Forms 27 and 28). The setting up of the correctness of the sales record is dependent upon the proper auditing of these sales checks. A thorough knowledge of its entire procedure is necessary to obtain a perfect audit. Rules usually given to the salespeople and rigidly enforced are the following: Sales checks must be written plainly and distinctly. Omit flourishes. Never write a number over another. Never write a name over another. Never write a letter over another. 73 MXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX vss Dp't U.lte Sold by Am't of Sola mer PU^CHASCO BY Coin Ord No CUSTOMER'S VOUCHER oyt Am't of SiU Ch from CuftonMr Ani'l Paid C.O. D. FOEM 27. SALES CHECKS SALES CHECKS AND RETURN CHECKS 75 If check is incorrect, have entire check made void and signed by floor superintendent, then proceed to make a new sales check. In charge accounts, or C. O. D. sales, begin all names with the printed capital letter of the alphabet. Write initial in capitals. If you are a purchasing agent, be sure that you get the name of the purchaser as well as the name of the purchasing agent. Always repeat the address. Always obtain the location such as east, west, north, south, for section of the city. "When in doubt as to correct spelling of the name or address, ask the customer to spell it for you. In receiving cash from customer, always repeat the amount received before entering on your sales check. Count your change to the customer after receiving it from cashier. At all times be accurate. Never put a rubber stamp on either writing or numerals, and especially the address. Use a new carbon after the twenty-fifth check has been used. If a sales check is missing from the sales book, immediately notify floor superintendent, who will notify auditing department. Cash Sales. Where the sales check in use is that of the combined form of cash, C. 0. D. or charge, the word " cash " is represented by filling in the space denoting the various details in which the cash sale is connected. Cash sales should at all times be made up on white paper, though this varies so much that there is really no adequate reason why the cash sale should have any other color but white. Sometimes, colors are used to further distinguish one department from another or to locate one floor from 76 RETAIL ORGANIZATION AND ACCOUNTING CONTROL another. But for the reason that the cash is of such vital importance in the cash auditing, it is best to have all writ- ings on the white paper. The author wishes to say emphatically that all sales checks should be in triplicate. That is, a duplicate check is given to the customer for identification and claims, the original of which is retained by the house, and a tissue (which is a triplicate) remains in the book. Thus, there is an immediate foundation established for a tracer. When a cash sale is affected, the merchandise, cash and check are delivered to the cashier's desk. "Where a pneumatic tube system is used, it is sent to the cashier's station. Where a cash register is used, it is registered in such register. Where no parcel wrapper is employed, the clerk generally makes her own parcel. However, where a wrapper is stationed, an inspectress will compare the amount of sale with the price marked on the merchandise. If the sales check and merchandise with its price ticket correspond, the parcel is made up and returned to the sales clerk for the customer. Well regulated stores employ the identification method, which is known as a " Customer's identification." This is a part of the duplicate check giving the number of the clerk, sales check number, date, amount of sale, and cash received. After the sale has been effected and the money received, the clerk removes the identification voucher from the check proper, which is attached by the perforation method. The voucher or receipt is handed to the customer, retaining it until her package is delivered, using her identification slip to obtain the package properly belonging to the customer. The parcel wrapper is instructed to write the sales clerk's and check number on every package. This method has proved its worth during the rush hours in preventing mis- takes in delivering parcels to customers. Permitting sales clerks to pack their own goods may save some time, and permitting each clerk to be her own cashier SALES CHECKS AXD RETURN CHECKS 77 may also keep the customer from becoming impatient while waiting for change and parcel. But for obvious reasons known to every department store man, the author does not recommend this method. It may be utilized to advantage in such departments as notions, bakery and meats, but in no other. Though stores permit gloves, hosiery, perfumery and ribbon departments to make their own cash and do their own parcel wrapping, an inspection system is highly recommended. C. 0. D. Sales Checks. C. O. D, sales for all stores regardless of the volume of business are at best not only an encumbrance, but a loss and a dissatisfaction to the business and institution as well as to the customer. The most expen- sive sale of an organization is where the customer requests her purchase to be sent to her home C. 0. D. (terminology being, Cash on Delivery). The average percentage of returns of all C. 0. D. sales is about 28 per cent. In many stores, the percentage of returns will even run beyond 50 per cent. This percentage has increased to such great proportions, that the department stores throughout the country have practically banded themselves together into a policy that C. 0. D. sales will only be accepted where a customer is known to the house, or to the coworkers of the department, or where a deposit is placed. "Whether a customer is known or not, no C. 0. D. sales will be sent out of town unless a deposit is made to conform in proper proportions to the amount of the sale. "Where a C. 0. D. sale is affected, the procedure should be the proper filling in of the specifications printed on the sales check. "Where the proportions of the C. 0. D. business is large, it is best to have a separate check plainly printed, with the word C. 0. D. as printed in Form 28. In affecting a C. 0. D. sale, the full name should be obtained. There must be no deviation in this instance. "When the customer 78 RETAIL ORGANIZATION AND ACCOUNTING CONTROL gives the address in care of another party, both names in full should be secured. The duplicate sales checks are sent to the cashier 's desk and the cashier in turn will have them delivered to the main office. The original sales check and the merchandise are sent to the C. 0. D. parcel desk sta- tion. By the term C. 0. D. parcel desk, the author refers to a station set up to receive all packages or merchandise which are covered by C. 0. D. sale. At this station all goods are wrapped and the check is either pasted to the package or pasted on a card, which is tied to the parcel, and from that station sent to the delivery department for dis- tribution. The duplicate 'check which is sent to the office every hour is immediately recorded on a C. 0. D. record (see C. 0. D. audit). The C. 0. D. sales check just men- tioned is that which is applicable to the department store exclusively. There are many organizations throughout the country. In fact, almost every line of commodity has reached the stage of specialization, so much so that establishments have sprung up in the last decade which have specialized in the selling of one particular classification of merchandise. Such an organization is known as a specialty house. It may be men's clothing, women's clothing, millinery, wearing apparel of any description whether infants', juveniles' or adults hardware, furniture, in fact, any conceivable commodity carried on in trade, and used by society. Where a wearing apparel organization is conducted, a workroom where alterations are made is conducted, completing the specialization of the establishment. Where a C. 0. D. sale is made in the specialty house, the sales checks, which ordinarily, in the department store, are pasted on a card or on a package, will be pasted to the reverse side of Form 48, which is made up of a manilla card. This form is known as a C. 0. D. shipping tag, and sales check, and is also used for cash sale. The date on this must C. O. D, 'DEP'T Address . Folio. 533 ClerL Am't, $ T C, O. D. SO2-3O4-3OS W LAFArrm ET, SI1-313-310-317 W. LEXINGTON ST. Oata_ .191-. Folio M_ 533 Clerk DESCRIPTION Total FORM 28. c. o. D. SALES CHECK 79 80 RETAIL ORGANIZATION AND ACCOUNTING CONTROL be written plainly, with the description in the form of a bill, so that the tag will remain attached to the garment and remain attached during the process of alteration, up to the time that the merchandise is ready to be packed in the con- tainer to be forwarded to the customer who has made the purchase. The stub of this tag is a record to be used in the alteration books and card file of the alteration or work- room. In these records proper space is set up to signify whether such alteration is a C. 0. D. sale, a cash sale or a charge sale, having in mind that a verification of the open C. 0. D. can be traced either in the workroom or delivery department. Charge Sales Checks. A considerable amount of dif- ficulty arises at times in properly controlling the sales for which the customer carries a charge account. At the incep- tion of the charge sale, all information, such as is printed, with an allotted space on the sales check, must be filled in. The clerk affecting the sale will communicate with the credit department in order to ascertain whether the credit of the customer making the charge sale is in good standing. This information is obtained from the credit department, either by the sales person or by clerks who are known as 0. K. clerks or credit clerks. There are various devices used, in which these checks are 0. K.'d or approved for delivery by the credit department. Various mechanical devices are made that authorize credits, going extensively into the mechanical or telegraphic house systems. "When the credit department sanctions a sale, the sales check is completed. The original check is given to the cashier. The duplicate check is given to the customer with the merchandise, and the cashier's voucher, which is an addition on the foot of the check as shown in Form 27, is sent to the office for a triplicate check on the charge sale. After completing the audit of the charge sales check or vouchers in the auditing department, these checks will be SALES CHECKS AND RETURN CHECKS 81 posted through the accounts receivable ledgers, where they will find their way to the proper account in the ledger, and a statement will be rendered monthly. Charge sales may be collected hourly and an immediate audit set up, which is reconciled the next day. These hourly audits are for the express purpose of enabling the accounts receivable ledger clerks to post sales charges the same day the purchases are made. Will Call Checks. The will call check is an excellent check to be adopted where a deposit.is made on a purchase and the customer wishes the goods held for a future date. Most houses use the C. 0. D. check for this purpose, which is very wrong, as it permits an excellent opening for mis- takes and dishonesty. C. 0. D. checks should never be used where a deposit on merchandise is made until called for. A will call check is made up in triplicate form and is con- siderably smaller than the other checks in use. The top check with cash deposit must go to the cashier, who treats this top check as a regular cash sale. A tissue duplicate remains in the book and a triplicate of hard manilla paper is attached to the merchandise and set aside until called for. "When the original check reaches the office, a will call record is established in a will call record book and for all goods not called for after a given period the customer will be notified and merchandise replaced in stock, after a lim- ited time allowed the customer to pay for the purchase. The deposit will be forfeited and the will call balance credited by forfeit, or whatever circumstances may be connected therewith should the customer fail to comply with request to call for merchandise set aside. The will call check is further extended for the purpose of a partial payment plan of purchase. While the store is not selling its wares on the installment plan, it is custom- ary with houses to extend this privilege when specifically 82 KETAIL ORGANIZATION AND ACCOUNTING CONTROL requested by a customer. In instances of this kind, any installment method of record will be kept, but for every payment made by the customer, a cash sale check must be made. The reason for this is because the original payment of the will call sale has been considered a cash sale. There- fore, all future payments must likewise be considered as cash sales. In such establishments, where C. 0. D. checks are used as " "Will Calls," additional payments must be credited to open C. 0. D.'s. Club Plan Sales. The term club plan is a camou- flage for installment sales. The department store is not an installment house, and to offer pianos, players or furniture on installments would not be in keeping with the store policy, hence the term club plan. All club plan sales, as a rule, are subject to a chattel mortgage. The accounting is similar to the will call system on a broader plan, with a ledger account controlled by the credit department. Transfer Checks. This form of check is a convenient sales and burden saver. It is a means of giving the cus- tomer quick service and at the same time of encouraging trade. A transfer sales check may either be a charge sale, a paid sale or a C. 0. D. sale. The object is to enable the customer to buy in any number of departments without delay, and to have all her purchases delivered, where con- venient to do so, in one package or in one shipment. If, after the purchases have been made, the customer wishes all her purchases delivered to another party, such address must be given to the clerk in charge of the transfer desk. The Transfer Desk. The transfer desk is a central station where all parcels bought on a transfer check are delivered. At this transfer desk a cashier is generally sta- tioned. Here the entire transfer sales check is paid, and all packages are checked and disposed of in accordance with the customer's desires. There are several forms of transfer checks. One may be SALES CHECKS AXD RETURN CHECKS 83 on a manilla card with pasters attached, generally running from ten to fifteen pasters to each transfer check. The procedure with the paster transfer card should be as follows: The customer arriving at the store will proceed to the transfer desk where she will obtain a card for the purpose. Each card is registered and the date recorded. The time of the day when the card was given to the customer must appear on the check. Specific information is requested as to whether the merchandise will be charged, paid or .sent C. 0. D. r which information must be indicated on the trans- fer or shipping directions, unless otherwise changed at the time the customer has completed all her purchases. It is customary in all stores where parcels are sent to the transfer desk that such merchandise should be held for three days only. Unless this merchandise is called for at the end of that period, the store will consider it its privi- lege to return the merchandise to stock. The customer, after obtaining the card, will proceed from one department to another to make her purchases. She presents her card to the sales person who has effected the sale, which clerk will enter in his sales the number, which is given to all sales people employed in department stores for convenience in accounting and statistical records. The sales person will also record the department employed in, a description in one or two words of the articles sold, and the amount in dollars and cents. A paster or sticker such as shown in Form 29 will be detached and pasted to the parcel, which will be sent immediately to the transfer desk to await the call of the customer making the purchase. The sales person must not for any reason delay the sending of the transfer purchase to the transfer desk immediately after the customer departs. Another form of transfer check is shown in Forms 30 to 34. In this instance, the pasters are not used, but a regular Transfe: N9 193 V Chg. to Date Iff" Address Sent to Address Purchased by If purchases are to be taken with, use Pink Transfer TO SALESPERSON Whoa issuing a . transfer card aslt customer il g-< ><..! arc i.> be charged. If . write the name ofpiprsod to whom charged and tlie purchaser'* name on IraaiUr. Mfd and sles checks, also place on transfer card the date t>l sale. .Customer's Instructions TbU sheet contains Shipping Directions. nd must not lie taVen from the store. When through purchailng, present thu card at t'anMrr dr sU in t>aserr>ent. ii goodr re to be taken with. Jf goods are to be sent, tins card van be left at P.xch-tnpfi Desks and Bureail of Inforni.mon on first fl or (. Series no. Voucher Series No D.tt Sold by Dqx Ami Silt Cub Customer Ami Ptid C O D. INFORMATION 43. TBACEB CHECK 110 AUDITING 111 check. No excuse must be accepted for not accomplishing a tracer that is once begun. Tracer Check. The moment a check is found missing, a tracer check is made (as shown in Form 43). The details are obtained from the tissue or envelope tally. The tracer auditor will make her investigations, or, to use the vernacular, ' ' Run down the missing check ' ' and record all information obtained upon the space allotted for this pur- pose on the tracer check. Upon completing the investiga- tion, her report will be turned over to the auditor-in-chief to close the search. The Adding of Checks. After accomplishing the assortment of all checks, the tally will be checked back to account for each sale. The cash will then be added and the total of all the cash sales for the day verified with the cash receipts turned in to the general cashier. At the same time that the checks are being compared with the tally sheets, the auditor must audit each check for additions and multiplications. Any errors detected must be reported immediately to the chief auditor, who will then follow the course of policy that the house may pursue in regard to blunders. Blunders. This is another term for errors made by sales people. Many stores pursue a policy of charging from five cents to twenty-five cents for all blunders made by sales help. This is rather detrimental to an organiza- tion. If a clerk is not efficient in her work, she must ba taught to be so. The good will of coworkers must at no time be discouraged. Cashiers' Vouchers. Some auditing systems may not make an hourly collection of sales checks, but permit the cashier to turn in her checks at the close of business. These checks will be added, and whatever the cash receipts of the'se checks amount to must be an equivalent of the cash turned in to the chief cashier by the cashiers of the depart- 112 RETAIL ORGANIZATION AND ACCOUNTING CONTROL ments. However, a considerable amount of time is lost by waiting until the following day to assort the checks. Unless a large force is employed, the object of completing the daily audit of the previous day's work would be defeated. The cashier will retain the duplicate of the cus- tomer's voucher, sometimes known as the " Customer's identification of sale. ' ' This duplicate voucher represents the actual cash received by the cashier, and also represents the amount of the sale of the upper part of the check. These vouchers are turned in at the end of the day by the cashier. Such vouchers are assorted to account for any missing vouchers, and then totaled to account for the amount of cash received by each cashier. These totals must be recon- ciled with the cash turned in to the chief cashier at the end of the previous day. Refunds. Refund checks may be cashed by any cashier in an establishment. Some organizations may have a central station for such refunds. This does not neces- sarily prove good efficiency, nor is there any special result obtained from setting up a station for this express purpose. A cashier who cashes a refund or accepts it as a part pay- ment of merchandise or as a full payment of merchandise, will consider such refund as if it were actual cash. The total amount of the cashier's vouchers for the day should be an equivalent to the amount of the actual cash plus the amount of cash refunds paid out. The reconciliation of her cash for the day should be all sales checks, less refunds checks. Comparison with Chief Cashier. Aside from the audit of the individual checks as heretofore described, at the close of the day the cashier will set up a recapitulation of the amount of cash which she turns in to the chief cashier. This is the first check of the cashier. At the same time, a receipt goes to the sub-cashiers for the amount of actual cash turned in at the end of the day (see Form 44) . AUDITING 1 113 RCJJ, Slip of ___ _^____ Date No. C400_ DCIT. EC. Total REG. AMIS. Error Slip- Cash O.K. SH. sus. Total Slip of Date Note* . Silver . Gold. . Checks Refund* Receipt* Total let. I.L. N Ml k* tteri r TM will k* chart^ Um all itarUlM. FOBM 44. STATION CASHIEB BEPOBTS Cash Auditor's Summary. A summary of each sales check by departments is set up on a form described in Form 46, in which the date of the audit, sales clerk num- ber, the serial number of the book in use, and the checks number, at the beginning and ending of the day, are recorded. From this tally, the amount of the cash sales, charges or C. 0. D. 's will be entered, and any charges that are made for alterations or extra charges for any special order work, those in a measure, made foreign to the express purpose to which the store may be established, will be entered in a column provided for the purpose. The sales of each clerk will then be added crosswise in 114 RETAIL ORGANIZATION AND ACCOUNTING CONTROL order to obtain the total amount of a sales person's sales for the day. The totals of all sales person's sales will be the total amount of the sales. The total sales for cash, C. 0. D.'s and charges, with the corresponding credits and refunds and other data, are FOEM 45. SUMMAET OF DAILY SALES transferred to a final house record or " summary of sales record " as found on Form 45. All entries from this sheet are transferred to the department sales record book. The auditor-in-chief must also set up the sales portion of the accounts receivable control for final posting to the general ledger. These controls must correspond to the control as set up by the ledger clerks of the accounts receivable ledgers. Where government taxes prevail, the space for remarks AUDITING 115 will indicate the department, amount of net sales, and tax collected. Over and Short. Very often a reconciliation of the cash sales and the cash turned in to the chief cashier will balance. More often, there will be a difference, either shortage or " over." It seems impossible that such things should exist. Still, consideration must be given to the fact that many thousands of sales occur during a day's business, and that mistakes are inevitable. Care and cau- tion prevail at all times, but differences cannot be obviated. A listing is made in the general cash book of the overages and shortages. At the end of the month, postings are made to the general ledger account, known as Over and Short. At the end of the fiscal year they are charged off to the P. and L. (profit and loss) account. The over or short accounting, sometimes referred to as surplus or deficit of daily audits, is the result of making wrong change, lost cash, sales checks still unaccounted for, or dishonesty. Reluctance should be paramount in the thoughts of an executive examining the summary sheets, to even infer dishonesty, where a shortage is shown in the cash audit. Missing cash sales checks and irregularities have often been discovered, but caution is advisable for all inves- tigations. C. 0. D. Checks Audit. The audit of C. O. D. checks takes on an entirely different aspect from the audit of cash sales checks. Cognizance must be taken of the fact that part of the C. 0. D. sales is allied to the cash sales audit. An instance in which such sales checks become a part of the cash sales check audit is seen in those C. 0. D. sales where a part payment has been made. In such an instance, the amount of cash paid is added to the day's audit as so much additional cash sales. A distinction is made in C. 0. D. checks where a cus- tomer makes a deposit on her purchase and wishes the mer- 116 KETAIL ORGANIZATION AND ACCOUNTING CONTROL chandise sent C. 0. D. This form of C. 0. D. check will be known as PART PAID C. 0. D. "Where a C. 0. D. sale is effected, and the customer has made no payments what- ever, nor applied any credits that she may be holding against the house, such sales will be known as a STRAIGHT C. 0. D. FOBM 46. ATOIT SUMMARY C. 0. D. at the Source. Assume that a C. 0, D. trans- action has been made in any department of the organiza- tion. Promptly upon the customer's leaving the depart- ment, the C. 0. D. will be sent to the auditing department, where a C. 0. D. number is applied to that sale. Whether a department store carries a separate check known as C. 0. D. check or whether the sales check in use is a com- bination of either cash sales, C. 0. D. sale, or charge sales AUDITING 117 check, it is incumbent upon the sales person (and this rule must be enforced rigidly by the manager of the department or manager of the floor) to see that the C. 0. D. check is sent to the auditing department to receive the next open INSTRUCTIONS Get list of Sales Clerks in the Department Check tallies with the list to account for each clerk. Check tissues with tally to correct any errors. Before putting tissues back in the tally, count the number of garments that have been sold and put the amount on the tallyfin blue pencil. Audit Sales Clerks checks with her tally ^ Add cash on tally p^ the amount of cash , charges and C. O. D.'s on the tally in blue pencil, These totals must be correct. There should be no missing cash checks or C. 0. D. checks. Missing charges may be held hi the Credit Department When a Charge is missing enter in book the "Sales Clerk's number, the series number of check, name of agent, name of article, and the price of the article. If the cEeck is O. K. the following day, Oi K. the entry in the book and pass through" with the charged checks. If any cash or C. O. D. check is missing locate it the same day. Find cash voucher for cash check or in- quire at the Inspectresses' desk about the C. O. D. check. If not located, inquire Delivery Department and Alteration Room. When finished with the auditing and adding, copy the amounts that are on the tallies, oo this sheet Balance this sheet, file away cash checks, pass charge checks and C. 0. D. checks with this sheet to the Auditor-in-Chief. Be careful of missing checks. Be on the lookout for missing charges Remember You are examining important records. When in doubt about anything ask the Auditor-in-Chief. Never take anything for granted. You must be positive your examination of this audit is correct beyond a question of dQoot Accuracy, defined, means exactness, to do with care, without mistakes. FORM 47. AUDIT STJMMAEY (Reverse Side of Form 46) 118 RETAIL ORGANIZATION AND ACCOUNTING CONTROL C. 0. D. number. A clerk is specially employed for C. 0. D. transactions in the auditing department. Upon the arrival of the C. 0. D. sales check at the audi- tor's department (for a number) the check will be regis- EN r e Y f AS COr W ESfc M E Dept. O.D. A 39146 In case of Error C. AMOUNT or Exchange, return this card o. Intact D. TO COLLECT Depl If this pacKarc I* returned tn ronon therefor mutt toe written In margin bolcw A39146 Reason O. AMOUNT O. TO D. COLLECT SALES NO. DATE SHIPPED DATE RETURNED THIS STUB IS TO BE DETACHED BY THE DRIVER AND RETURNED WITH AMOUNT OP CASH COLLECTED TO THE C. O. D. CASHIER. FOEif 48. C. O. D. PASTE CARD AUDITING 119 tered on a C. 0. D. register, Form 49, giving the next con- secutive number, the clerk's number effecting the sale, the department, the name and address of the customer, and the amount of the C. 0. D. to be collected; also the time that the C. 0. D. check arrived at the auditing office. This sales check with the C. 0. D. number will be returned to the sales person in the department whence it came. That sales person will attach the C. 0. D. check to the merchandise C.O.D Register FOKM 49. C. O. D. BEGISTEB FOB DELIYEBY DEPABTMEKT OB OFFICE and in turn will either be put in parcel form by the depart- ment wrapper, or shipping department, and the C. 0. D. sales check either pasted to the package or pasted to a manilla card with a string attached to such card, which will then be termed a String Ticket. This ticket is to be attached to the parcel. It is then ready to be distributed by the delivery department to the route to which it belongs, and to the proper driver. The delivery department must register all C. 0. D.'s on a separate delivery sheet, known as a C. 0. D. delivery sheet (see Form 50). 120 AUDITING 121 C. 0. D. Customer's Record. At the time that a C. 0. D. check is sent to the auditing department to be registered for a C. 0. D. number, the registrar will also fill in a C. 0. D. card which is kept in a file, alphabetically arranged or numerically arranged. On this card the name and address of the customer, and in care of whom the package is delivered, will be mentioned. The check number, the department, the clerk's number, the amount of the sale, C.O.D. No.. Name Address . Care of _ FOBM 51. c. o. D. CUSTOMEE'S BECOBD and the date of the sale are also given. In some organiza- tions a central station in the store or on each floor is main- tained. At this station the registration sheets are made, also the cards kept. The object is to set up a record of all customers who are in the habit of purchasing from the store C. 0. D.'s. Should the C. 0. D. be- refused when delivered the return, as shown on the delivery sheet, will be recorded on this card, giving the date of the merchan- dise being returned to stock. If a reason is given for the 122 EETAIL ORGANIZATION AND ACCOUNTING CONTROL refusal of the merchandise, this reason is recorded on the card. The prevailing reason will be what is known as D. W. (don't want). Should a second C. 0. D. be sent to the customer and returned with the same comment, when a third C. 0. D. sale is effected, the management will be notified that the customer is one who habitually purchases C. 0. D.'s and refuses to accept them. Disposition is then made of the package in accordance with the judgment of the manage- ment. C. 0. D. Ledger. The C. O. D.'s having been regis- tered and the individual customer's record having been established, a C. 0. D. ledger clerk in the delivery depart- ment will record in a C. 0. D. record book the time when the C. 0. D. package has been placed in the delivery department for routing, the date sold, and the department from whence it was sold, the clerk's number, the C. 0. D. number, the name and address of the customer, with the date shipped from the department, the amount of the sale, and, if a part payment, the amount of such payment; also filling in the column provided for the C. 0. D. to be col- lected. This is shown on Form 8. Promptly upon the driver's return of the C. 0. D. deliv- ery sheet, this ledger will be checked, showing the amount paid or whether the merchandise has been returned to stock. It is necessary that the reader thoroughly understand this procedure before entering into the details of the audit, as it is essential that the complete cycle of the C. O. D. trans- action be comprehensible before the auditors can proceed with the audit of C. O. D. sales. 0. 0. D. Sales Checks Audit. The foregoing descrip- tion of the various methods of procedure that the C. 0. D. sale takes into effect is followed by the result that the dupli- cate of the sales check is received in the Auditing depart- ment. Here is followed the same procedure of assortment Clerk c. o. D. CASH 8601 SHIPPING TAG DATE__. _.... _ M_ ; ARTICLE | PRICE, ETC. ALTERATION EXAMINED BY Total Date Shipped _ _ COUPON No. {[ DATE In . . . STYLE NO. ARTICLE PRICE ALTERATION Total FOBM 52. C. O. D. CHECK AND SUPPLY TAG 123 124 EETAIL ORGANIZATION AND ACCOUNTING CONTROL by serial number, generally known as book number; also of taking the consecutive numbers of the checks contained in each book to allow for missing checks, in the same man- ner as cash sales were handled, of segregating these C. 0. D. checks by departments and then summarizing the amount of the C. 0. D. sales by diverse departments in order to obtain departmental sales. The audit of all of which is enumerated in order to obtain the C. 0. D. sales for the day. The listing of the sales by clerk num- bers and departments is on Forms 46 and 47. A control for the C. 0. D. ledger is set up from Form 45 for the debit charges to this account. Dr. C. 0. D. account with sales. Cr. C. 0. D. account part payments. Cr. C. 0. D. account cash collections. Cr. C. 0. D. account with returns. Charge Sales Check Audit. Charge sales are entirely different from either cash or C. O. D., inasmuch as the mer- chandise purchased by the charge customer is either taken with her or left for delivery at her residence. The general procedure is that of opening an account in the Credit department in the same manner as prescribed by any Credit department of a wholesale or a manufacturing organiza- tion, with the exception that individual customers may not have a commercial rating. Then the result is that private investigations are necessary to determine upon the line of credit allowed to the customer. The credit department will then set up a record of all customers and, by a card system, maintain a record for quick information as to the credit standing of that charge customer whether she be a delin- quent account or thoroughly responsible for her purchases, or whatever other information is necessary to determine upon the line of credit. There are several devices in use. One may be a house AUDITING 125 telephone system, where many telephones are conveniently placed in each department and connected with the credit office in order to telephone the credit department to ascer- tain whether a charge can be passed upon. In the smaller retail organizations, card indexes are main- tained in the various departments for the sales person's information in waiting upon the trade of a charge account. Having passed upon the credit, with the charge sale now effective, the duplicate of the sales check is collected hourly and deposited in the auditing department. These charge- checks are assorted by the department serial numbers and the number of the checks are reconciled along with C. 0. D. checks and cash checks in order to account for all sales checks during the course of the day's business, and to set up a record of missing checks. A list of missing checks is then given to the house tracer of the Auditing department, who will locate and account for such checks in order to complete properly the day's audit. Having set up a charge sales record by departments, to warrant its correctness a verification is made of the exten- sions and additions of the sales checks. The voucher attached to each check is passed on to the auditing depart- ment by the accounts receivable department. In many department stores there is a class of business carried on by what are known as Purchasing Agents. The manner in which these Purchasing Agents carry on their trade varies in many respects. The only interest that the department store has in these Purchasing Agents is to the extent where such agents issue an order on the department store to sell or deliver merchandise to a second person, who will be the customer of the Purchasing Agent. These are known as Store orders. Where a charge sale is effective on a store order from the purchasing agent, that store order must be attached to the sales check. These store orders are further verified with the sales check in the 126 RETAIL ORGANIZATION AND ACCOUNTING CONTROL Accounts Receivable Department and the total amount of the charge sales is listed by departments on the summary of sales record. The individual bookkeepers controlling Ledgers will enumerate the total amount of the sales posted in their ledgers under the letter of the alphabet by which the ledger is known. The total of such sales is then added to their individual control for trial balance purposes, which must agree with the total charge sales as concluded for the day by the auditing department. This gives a double check and audit of all charge sales. A charge sale may occur and for diverse reasons may be held up by the credit department. The selling departments will record the sale on their tally. The tissue copy of the sales check supports the entry on the tally, yet the charge check will be missing. The tracer, in running down this missing check, will find that the merchandise and sales check are held up in a department known as " Hold for orders. ' ' The auditing department when familiar with the conditions effecting the missing charge check, will record such missing charge check in a tickler. But the check must not be considered as a sale until it has been passed by the credit department and sent to the Accounts Receivable Department. The tickler for missing charge checks must be gone over every day. No checks therein should be permitted to remain open longer than one week. Part Paid Charges. There are instances where a charge customer will purchase an article, will pay for part of her purchase, and will not desire to have the entire article charged. The cash on this charge will naturally be received by the cashier in the department. The amount of such cash paid in is then considered as a cash sale and the balance as a charge sale. The auditing department will! make their discrimination in the charge sales by using the balance of the check, which is a charge, as a charge sale; AUDITING 127 i and the part paid cash will be entered as so much cash received and recognized as a cash sale. There are stores which will consider the total amount of the sale as a charge and the part paid in cash as a payment on account. But this procedure does not record the exact transaction. It may be a matter of opinion or choice which method should be adopted. However, the former has been proven to give the desired results, though tha latter is in considerable use. Transfer Checks. Particular attention must be given to the auditing of a class of checks known as transfer checks. The different sales checks made in the various departments of the store must be assorted according to the serial number by which the transfer check is known. The auditing department reconciles these individual checks with the transfer sales, verifying the correctness according to both additions and postings on the transfer card. Upon the completion of such verification and classification of the sale, that is, classifying of the cash, C. O. D. or charge sale, they are summarized and transferred to the various depart- ments where the sales were effected, and added to the sum- mary of the sales record in order to ascertain the com- pleted sales for the various departments of the establish- ment. Auditing departments dislike auditing transfer checks, which makes it more important that a special report be rendered monthly of the transfer sales. The tally card of the transfer checks and all their originally attached checks or supporting sales checks, as enumerated on the transfer tally or transfer card, should be assembled before beginning the audit. Application of Credit Refunds to the Audit. All refunds or credits issued by the store are, without question, either in duplicate or triplicate. The cashier who reim- burses the customer for any cash refund voucher presented 128 EETAIL ORGANIZATION AND ACCOUNTING CONTEOL must use such refund check as a part of her cash. These refund checks are turned over to the auditing department by the chief cashier. These checks along with charge credits and C. 0. D. credits are verified with the duplicate copies or tissue copies of the original check that has been issued. "When they are found to be correct, they are enu- merated in their various classes. That is, the total amount of cash credits is deducted from the cash sales in order to ascertain the net cash sales for the store. C. 0. D. credits are likewise deducted from the total C. 0. D. sales from the individual department in which it is affected, in order to ascertain the net C. 0. D. sales. The same is applicable for charge credits against the charge sales. Part Paid Charge Credits. Where a part paid charge is returned, particular attention must be given to that type of credits. The amount of the original charge must be referred to the ledger, where a description of the original sale will be found. This is done in order to pass a further charge credit and to make a cash refund only for the amount of cash paid in, which amount of cash is applicable to cash sales. The policy in handling part paid charges effects the reversing of the charge in making credits. Part Paid C. 0. D. Credits. The same method described in the part paid charge credits is applicable to the C. 0. D. part paid credits. When a part paid credit is desired from a C. 0. D. sale, reference should be made to the entry in the C. O. D. ledger. Many stores require the sales check to be presented with the merchandise when any credit is requested. But, very often, indeed, the customer misplaces the check and simply presents the merchandise or makes a claim for her credit. This entails investigation. Very often the customer will become irritated because she is obliged to wait while investigations are made. The delays are often eliminated through efficient and general AUDITING 129 house systems, which the author treats of in the chapter on Turnovers and Merchandising. Alteration Sales Audit. The alteration department, which is a workroom conducted for the altering of clothing, whether it is men's or women's apparel, has a separate record of its sales. These sales are charges made to cus- tomers for style changes or proper fitting of garments. These sales may be either cash payments or charges, but they should, under no circumstances, be C. 0. D. In the case of a C. 0. D. sale that requires an alteration, a part payment of such C. 0. D. sale must be gotten in order to insure the customer's taking the garment, including a suffi- cient compensation to cover the alteration charges and the changes made in the merchandise. A separate sales check is very seldom made for alteration sales. Exceptions are* only where the customer's own merchandise is offered to the store for alteration, and the store accepts such altera- tion for the reason that the patron is a permanent cus- tomer of the store. This is generally termed an ** accom- modation." The auditing department will list under a separate record the amount of alteration charges appearing on each sales check. When an alteration appears on a sales check for any specific department, the sales of that specific department are deducted to the extent of the alteration charges. The alteration charges are then considered a sale to the credit of the alteration department. At the close of the day's audit, the total amount of alteration charges or sales is enumerated and passed to the credit of the altera- tion room. This is done in order to set up an account for the alteration department, in which account it is debited under various headings with the overhead costs as well as labor expenses. Thus a profit or a loss may be known at any period, as well as the cost and the income obtained from such alteration department. 130 RETAIL ORGANIZATION AND ACCOUNTING CONTROL Commissions. The custom in use in most stores is to pay in addition to the stipulated salary to sales persons, com- missions based on a certain amount of their sales. After completing the audit of the sales checks and after the tal- lies have been audited properly, the tallies are in turn sent to the paymaster's office, where a commission record is set up. The same method is applicable to P. M.'s (see Form 13). CHAPTER V BALANCE SHEET Open Corporations. Corporations whose stock has been found attractive for investments when sold on the open market, are known as open corporations. These cor- porations may be any organization incorporated in any state of the Union or in any foreign country. The amount of stock of such corporations is controlled by the stipula- tions of its charter and the statutory individual require- ments of the state of its incorporation. The stock or share may be of different forms. Its value and voting powers are subject to the provisions of the charter or by-laws of the corporation. Close Corporations. This form of corporation is gen- erally formed by companies desiring to enjoy the privileges granted to corporated organizations. Usually close cor- porations are family affairs or are composed of three indi- viduals or small groups of citizens, whose interests are indi- cated by the number of shares or certificates of stocks held by these individuals in such organizations. The voting power and distribution of profits for dividends are gener- ally represented by the certificates of stock held. The capital of such corporation may vary from a minimum of $500 (permitted in some states) to any amount desired, providing the amount paid in to the corporation within a stipulated period complies with statutes of the state in which the organization has been incorporated. Limited Liability. Generally, in most states of the union, in the event of the insolvency of the corporation, a stockholder is liable only to the amount of stock he may hold. There are exceptions in some states in relation to 131 132 RETAIL ORGANIZATION AND ACCOUNTING CONTROL banks and trust companies, where the stockholder is liable for the par value of the certificates held. However, the lia- bilities of every corporation are governed by the statute. A subscriber to stocks in a corporation that has become insolvent may be held liable by the creditors of such cor- poration for the difference between the amount he has sub- scribed and the par value of the stock. However, the cor- poration itself cannot hold the subscriber liable for the bal- ance of his subscriptions to the amount of stock subscribed for or for par value of the stock. Domestic Corporations. A corporation which carries on its business in a particular state should obtain its char- ter of incorporation in the state where it is conducting its operations. When such a corporation carries on its princi- pal business outside the state of its incorporation, it becomes a foreign corporation and must comply with the formalities prescribed in the state doing business. Organi- zations may incorporate in one state and do business in, another. In such instances, a permanent office with its stock records must be kept in the state of incorporation. On account of certain privileges and rights allowed in some states, this mode of procedure is often followed. Foreign Corporations. A corporation carrying on its business in a state other than the state of its incorporation is liable to restriction in its operations and is not recognized as a corporation. Its directors and stockholders may be considered as a partnership and liable as a partnership organization. Where, however, such foreign corporations have complied with the necessary requisites that the law provides, the same privileges may be accorded them as are enjoyed by domestic corporations. Stock Certificates. The author does not presume to describe fully the various stocks, their functions, nor legal- ity under diverse conditions. But, in passing, he describes them where they may affect the organization and system of BALANCE SHEET 133 the retail establishment within the scope of its accounting procedure. Stock certificates of a corporation, like a mortgage or a real estate deed, are merely an identification supporting- claim of ownership. This does not imply that a lost cer- tificate relinquishes the owner of his equity. The stock books of record verify the owner's claim just as a real estate deed does, generally being recorded upon munici- pality records. However, lost certificates of stock cause annoyance in obtaining duplicates, though the law requires corporations to issue duplicates. A corporation may receive its charter for any capitaliza- tion that it desires, providing the fee is paid to the state through its secretary until such stock is taken up and paid for by the incorporators or stockholders. The stock repre- senting the capitalization is termed ' ' Unissued Stock. ' ' It is not an asset and must not appear as such on the books of the company. Likewise unissued stock has no relation to treasury stock. Treasury stocks are those stocks of a cor- poration which are fully paid for and through some busi- ness transaction become the property of the company. They may then become an asset of the corporation, but legally they have no voting power, nor can they receive dividends.. The stock issued by the corporation represents that por- tion of its capitalization that has been paid up by either cash or other tangible property which becomes an asset to the corporation. Such stock issued may then be designated as " ISSUED STOCK." Common Stock. Stock known as common is such stock as carries no preferential benefits and receives its share of declared dividends or profits after all distribution, of profits and claims has been made. This, however, is subject to the by-laws of the corporation or the specifica- tion of privileges indicated on the face of the stock. 134 RETAIL ORGANIZATION AND ACCOUNTING CONTROL Preferred Stock. This classification of stocks receives the benefits of all profits or dividends they represent in priority to other stocks. There may be cumulative or non- cumulative dividends. Cumulative preferred with a spe- cific percentage of dividends are such stocks as receive their dividends at stipulated periods. In the event that the profits are not sufficient to pay the dividends and only part dividends can be distributed from the profits of the com- pany, the unpaid dividend may be carried over from year to year until the company's profits are such as to pay the dividends. Thus, profits become a prior claim to preferred stock. The balance may then be declared as dividends to common stock. Non-cumulative stocks are stocks where profits are not sufficient to declare dividends at spe- cific periods. They do not carry any obligation on the part of the corporation to make good the insufficient dividend at a later period. Not only does the preferred stock hold an advantage over all other stocks, as to dividends, but con- siderable preferences are granted to it through its charter and by-laws. Many companies will set up a reserve from their profits to meet cumulative dividends. They may also set up a reserve to retire the preferred stock at a specified period. Debentures. The definition of a Debenture is ' ' An unsecured acknowledgment of a debt with a promise to pay at a stipulated time or sooner. ' ' Debentures may some- times stipulate a priority of payment in the event of a dis- solution of the company or in the matter of insolvency. Often debenture bonds may protect the investor through special provisions obligatory on the part of the directors or upon mortgages. Such debentures are rare in the United States, though common in England. A debenture whose promised interest or principal has not been met can only have the same legal redress as an unpaid note, unless such a debenture carries with it collateral as here described. BALANCE SHEET 135 Bonds. Bonds are issued for the borrowing of money covering a period of years. They are secured by the assets of a corporation and a promise to pay the face value at the termination of the time stipulated in the body of the instru- ment. Bonds are negotiable instruments when payable to bearer or holder or to order, or when registered and having priority in claim upon the corporation. Statutory provi- sions regulate the issue of bonds by corporations. These generally are stipulations not to exceed a portion of the capital stock based upon the value of the assets. The laws of the state in which a company is incorporated should be searched thoroughly prior to issuing bonds, in order that legality be conformed with. Coupon bonds are those bonds upon which are attached promissory notes payable to bearer, representing the accrued interest at specific periods. The periods, as a rule, of semi-annual interest payments, continue until the face value of the bond becomes due and payable. Registered bonds are those which are registered upon the books of the corporation in the name of the owner. The interest is pay- able by bank checks to the owner of record. In the case of coupon bonds, prior to maturity of interest, the corpora- tions liable for outstanding bonds will deposit with a bank- ing institution the full amount of interest due. This bank will pay all coupons presented, cancel the coupon and regis- ter it into a regular coupon register record. These records coordinate with the series number of the bond and the coupon number, and are pasted in such record for further reference. For example, a bond issued for $1,000 for 20 years at 4 per cent interest payable semi-annually will have 80 interest coupons attached. Each of these coupons is numbered consecutively. The first maturing interest coupon is number one and the last maturing coupon is number eighty, at which time the face value of the bond becomes due and payable. 136 EETAIL ORGANIZATION AND ACCOUNTING CONTROL The advantages of coupon bonds are that they are pay- able to the bearer and are readily negotiable, whereas the registered bonds require the assignment and transfer on the books of the corporation issuing the bonds. la event of a loss, the owner is protected, which is not the case with the coupon bond. A company may issue several bonds, such as first, second or third mortgage bonds, sinking fund bonds, convertible bonds, collateral bonds, etc. "Where a company issues more than one mortgage bond, the subsequent issues become junior liens. That is, the first mortgage bond will be a prior lien to all subsequent mortgage bonds issued. Convertible bonds are such that may be converted into other securities issued by the company or may be converted into stock of the company as prescribed in the bond of issue. Collateral bonds are generally secured by collateral of other companies. Trial Balance. Trial balance is very often misinter- preted by business men who are not accountants, as being a statement showing affairs of a company. This is brought about through confusing interpretations of the balance sheet. The trial balance should have no meaning, what- ever, to the management of an incorporation or the owner of a business organization. It is merely a proof sheet to the bookkeeper to prove that his postings and his work for a specified period, generally monthly, have been done cor- rectly. It does not, however, prove that the work, in all its phases is absolutely correct. While the postings may be correct, it very often may happen that a debit or a credit may be posted to the wrong account. Still the work will be in balance. The trial balance, therefore, is a summary of all the debits and credits of a ledger, which when separ- ately added to a total should equalize. It is essential, before entering into any statement regarding the condition of affairs, that all debits and all credits should equalize. BALANCE SHEET 137 ."Without this it would be impossible to set up correctly the balance sheet. The balance sheet of a commercial enterprise or of any organization is a statement showing its financial condition at a particular time. It summarizes all the assets, which is a listing of all the cash, stock in trade and investments of outside moneys or property of an organization. In fact, it represents everything that may be converted into cash or that may be recovered in cash, from which entire total the liabilities of the organization, regardless of what their nature may be, is deducted. As a result, the net worth of the corporation, individual or partnership shows. The term " net worth," however, is generally applied to individual or private enterprise, and is supplanted by the term of " surplus " when applicable to corporations. Reading of the Balance Sheet. Not a few men of busi- ness affairs are properly able to read the balance sheet. It should be incumbent upon the accounting department or office management presenting a financial statement or bal- ance sheet to have it so set up that it shows the conditions of business affairs. So that, though such person is not an accountant or is not versed in accounting technicalities and terms, he should find the balance sheet readily discernible. To do this, the accountant should so set up tHe various accounts that the terms will be self-explanatory. The cur- rent assets should be so set up that they can be compared readily with the current liabilities, and so that the ratio of current assets over current liabilities can be seen at a glance. The owner of an organization or manager of a corporation should be able to ascertain the net worth at a glance. From the capital invested he should be in a posi- tion to recognize readily the net working capital involved. This may be found by deducting the total current liabili- ties, total reserve investments, and fixed assets from the total assets, which would give the amount of working capi- 138 RETAIL ORGANIZATION AND ACCOUNTING CONTROL tal. In the ease of a corporation, the total amount of capi- tal plus surplus to be reduced is obtained by deducting fixed assets, outside investments and even deferred assets. The remainder is the working capital of the organization. It is to be noted that a financially well managed store should average its cash on hand to be not less than 2 per cent, and such percentage may average up to 5 per cent, of the gross annual sales. The current liabilities should never exceed 18 per cent of the annual sales and should be kept down to 10 per cent to keep within the danger zone of over- borrowing. The working capital of the department store should be not less than 30 per cent, and should average 55 per cent of the total capital. The ratio of liquid assets over liquid liabilities should be two to one. That is the percentage of assets readily con- verted into cash to those of quick liability, though 75 per cent of liquid assets shown as liquid liabilities is a conserva- tive showing. Current Assets. Current assets is a term applied to such assets as can be turned readily into cash. They may also be termed liquid assets. Another term is quick assets. The term quick assets is generally used by bankers in describing such assets as are readily turned into cash. In setting up a balance sheet, the first group to appear is that of the quick assets. These are headed by the term ' ' CUB- BENT ASSETS. ' ' All assets under this term must be such as can be audited and verified readily as to their correctness. Gash in Bank. All cash receipts and disbursements will appear in the cash book or a subsidiary cash book in which all vouchers, whether bank checks or authorized cash vouchers, will be listed. Periodically all of these, depend- ing upon the volume of cash disbursed or received, will be reconciled with the bank in order to determine the correct- ness of book records corresponding with the bank balances in the institutions where the business does its banking. All BALANCE SHEET 139 checks issued by the company which have not been put through the clearing house will naturally show a larger bank balance. While this is a fact, it does not authorize a company to correct its cash in bank record on its own book to that of the bank. In reconciling the business balance with the banking bal- ance, checks issued by the organization, not having been cleared through the clearing house, should be deducted from the banking balance with other banking charges. Also checks that have been certified and the net balance at the bank should equalize the balance as shown on the books of the company. Cashier's Balances. It is customary for all cashiers to carry a sufficient amount of cash in their trays or tills to be used for change. This amount varies from $10 up to per- haps $100. In addition to this, the general cashier will carry a balance from $1,000 upward, depending upon the volume of business that the company may transact. All this cash is generally small currency, such as pennies, five cent pieces, dimes, quarters, and half dollars. The general cashier is charged with the total of all cash; that is, not alone the cash which she maintains in her own safe but that of the individual cashiers stationed in the various sections of the store. In turn, the chief cashier will hold the indi- vidual cashiers accountable for their cash balances and the cash turned in daily from sales. The general cashier will periodically audit station cashiers' trays or tills as to their daily balances. It will readily be seen that a certain sum of money will be tied up. This money, while a current asset and right- fully termed a liquid or quick asset when compared against liquid liabilities, will increase the ratio. But cognizance must be taken of the fact that the cashiers' balances are a withdrawal from the actual current assets and should only be used if the company were in liquidation. Cashiers* 140 EETAIL ORGANIZATION AND ACCOUNTING CONTROL "balances will decrease the turnover of the working capital, but the necessity for the use of change requires that these sums be carried by cashiers, thereby losing its actual worth as working capital in relation to merchandise. Cashiers' balances should be checked up at least once a month to determine their accuracy when compared to the general ledger account. Paymaster's Balances. The pay-roll department car- ries a working fund, the uses of which may be varied. This fund is generally in proportion to the number of people employed and the amount of the weekly pay roll. It may be used for advances on salaries to coworkers, which advance is deducted on the pay roll day, or, it may be used to pay off help who have been discharged or who may have resigned their positions. At best, advances on salaries are bad policy, not only on the part of the coworker but employer. Quoting Shakespeare's Hamlet, "Neither a borrower nor a lender be." However, where 100 per cent cooperation of the coworker is required, it is necessary to meet such cooperation on the same footing of reciprocity, but to dis- courage advances on salaries in a diplomatic fashion. Paymaster's balances or working funds should periodic- ally be checked up. In very few instances at the closing of the pay roll date, the full amount of the general ledger account calling for the paymaster's working fund should be on hand in the paymaster's safe at the close of such pay roll day. Office Petty Cash. The balance of the office cash on hand at the close of the month's records is a part of the' current assets and should appear as such on the balance sheet. This office cash, better known as Petty Cash, should be so kept that a regular audit will verify the correctness of all expenditures in a manner similar to the reconciliation of bank vouchers. Generally, the working fund for petty cash is used to draw funds as requirements may determine, BALANCE SHEET 141 against which vouchers will be made, properly counter- signed, for the various petty expenditures. Delivery Working Funds. This fund, used by the chauffeurs or drivers, is in a measure the same as the cashiers' balances, though not in the same proportion as that of the cashier's. Drivers' funds vary in amounts from $5 to $10, generally $5. Each chauffeur or driver is charged with a stipulated working fund which he uses as change when delivering a C. 0. D. or a part paid sale. This fund, like other funds, should periodically be audited for a verification of the General Ledger account and to sup- port correctness in placing such funds as may appear under Current Assets. Other Cash on Hand. Under this caption of other cash on hand, which might appear under current assets, are the classing of the month's books, which would represent the cash receipts from cash sales or other collections made either too late to deposit in the bank, or carried over on account of holidays or Sundays, or not deposited for any other reason. Such cash should be compared with the daily audit of sales checks and further entries in the various cash books to determine correctness, and should appear under the various Cash records in the general ledger until dis- tributed to its proper destination. Accounts Receivable Charge Accounts. The accounts receivable will represent charges to customers who enjoy privileges of a charge account with the company. How- ever, before placing the amount of accounts receivable from the ledger on to the balance sheet, careful attention should be given to such accounts as are known to be uncollectable. In such cases these accounts should be written off and charged to provision for bad debts and doubtful accounts. This is done for better reading, and to show the condition of accounts receivable from the balance sheet. Very little additional work is required on the part of the individual 142 EETAIL ORGANIZATION" AND ACCOUNTING CONTROL ledger clerk in setting up their trial balances to show accounts which have not as yet reached an age of 90 days, and other accounts which may have been unpaid for four months or longer; also accounts that have been due over one year. "While it seems that such conditions should not exist, it is doubtful whether every organization in a depart- ment store business would show all its accounts to be of a very recent date. If an account is six months old and it is doubtful whether its face value or any part thereof can be collected, it is best to write the amount off to bad debts and doubtful account, and to set it up in the suspense ledger as a record. If an account has been allowed to lapse six months, and the chances of collecting the account cannot be said to be very encouraging, the account which has been permitted to run six months or a year and carried as Accounts Eeceivable should be corrected promptly. There are instances where legal action has been taken to collect accounts. In such cases, the account should be written off and charged to a Litigation account. Should judgment be received, the Liti- gation account should be credited and the Judgment account opened. This last account should appear in a class by itself on the Balance sheet (see Judgment) when judg- ment is taken or received. C. 0. D.s. The amount open for C. D.s appearing on a balance sheet should be checked carefully and com- pared with the ledgers as to accuracy. All open C. 0. D.'s should be verified as to correctness, as it is possible that C. 0. D.'s, having been paid off, or merchandise, having been returned to stock, have not been recorded properly. Miscellaneous Accounts Receivable. Moneys may be outstanding in different forms, other than charge accounts or C. 0. D.'s. Such accounts might be for advances in lieu of contracts with coworkers, or unsecured accommoda- tion where loans have been made. Individual accounts BALANCE SHEET 143 should appear in the general ledger showing the various conditions surrounding the account. They should be set up to appear under Accounts Receivable, if the account is a collectable one. Its proper place as an asset depends upon the conditions surrounding the outstanding account and may be placed under current assets or deferred items. Notes Receivable. In the department store, notes receivable will seldom appear on the balance sheet for the reason that these transactions are such that they do not incorporate the necessity of accepting notes. However, there may be instances where notes are received by a store either in payment for merchandise or as indorsed notes accepted as security for loans or other commercial effects. These notes receivable should appear with as much detail as possible in the general ledger, the total of which is to be enumerated on the balance sheet. There are instances where notes receivable held by an organization will be sent to a bank to be discounted. When this occurs the cash received from the bank will be a credit to Notes Receivable. But this is only the beginning of the transaction. An account should immediately be set up showing Notes Receivable discounted, which will be debited and a reserve set up showing a liability of the store for the amount of the note discounted. The interest involved for the amount paid to the bank, and the amount received from the maker of the note, should be taken care of by the ele- ments surrounding the transaction. When the note is paid by the maker, the entry should be reversed if the note was discounted at a bank. A store which does not hold a note or discount notes receivable, but finds itself indorsing a note with recourse, should immediately, upon the indorsement of such nego- tiable instruments, set up a provision for such indorsement to show the contingent liability of the store for their indorsement. Such contingent liability should not be writ- 144 RETAIL ORGANIZATION AND ACCOUNTING CONTROL ten off until the negotiable instrument, for which the store became the indorser, has been paid up fully and the debt canceled. Inventories. The monthly inventory appearing in the monthly balance sheet will be such inventory as is shown from the book records (see Form 25). This record is a perpetual inventory conducted in the same manner as a cash book, adding to the inventory all merchandise received and deducting therefrom all sales and mark downs or other elements that may arise. The net result is that the inven- tory is obtained daily. While this is a customary method for well regulated merchandising systems in department stores, such records are supported as often as once a week by physical inventories in the form of tests. Aside from these, there is the other quarterly or quarter annually inventory, with an annual inventory in order to obtain the figures necessary for the fiscal year's balance sheet. In taking a physical inventory, special attention should be given to the account and the segregation of departments and the classification of merchandise in the diverse depart- ments. Often inventory will be taken both at cost price and selling price, but when a department store accounting system has been established concretely and the merchandise system well enforced, it is quite sufficient to take ihe inven- tory at retail only. Thus, while saving a considerable amount of work in computing the cost and retail in obtain- ing the mark up, the final calculations will be much easier to ascertain by the results at retail. The cost or mark up by departments can readily be ascertained by taking the inventory at cost at the beginning of the fiscal year, adding thereto all the merchandise purchases at cost by depart- ments, and deducting this result from the total amount of the sales during the fiscal year by departments, plus the inventory on net sales. This will give the mark up for merchandise during the entire year. This also is a proof BALANCE SHEET 145 against neglect on the part of the buyer or department man- ager to report daily the mark downs, mark ups, or merchan- dise sold under cost. Oftentimes a proof of this kind will show surprising figures, and even differences existing between the daily merchandise control and the inventory. "While every precaution is taken to guard against failure to record all mark downs by buyers or department managers, it will always occur in the best regulated stores. In taking the physical inventory, each department should be tested by taking the various quantities making a compar- ison. The extensions and additions should be checked and verified before using the results in settling up the general ledger or departmental ledger accounts. In taking the fiscal year inventory for the closing year, it is customary in department stores and the larger retail establishments to have the manufacturers or wholesalers, from whom they make their purchases, send "no merchandise during the period of inventory, and even to have them date all invoices either a week or ten days or a fortnight ahead in order that no new merchandise will be included in the inventory and the closing of all purchases will be recorded up to a given period. It can readily be seen that should this be eliminated, an incorrect inventory must result even though every precaution for accuracy has been taken. Valuations of Inventories. In manufacturing organi- zations, the taking of inventories will not only include the cost but all transportation charges. Very often the last price paid is taken as the cost of stock. This should not occur in the retail establishment. If an inventory is being taken at cost, the actual cost'paid for the merchandise must be taken. "Whether or not the market has fluctuated has no bearing whatever. "Where an inventory is taken at retail, all fluctuations have already been considered. There are occasions where a trend of the market is such that the values of certain stocks have materially increased and may 146 RETAIL ORGANIZATION AND ACCOUNTING CONTROL remain increased for an indefinite time. In this instance, merchandise managers are prone to make mistakes by appreciating the stock. Good business principles will not permit such appreciation for the reason that should the merchandise sell at an advanced price, such profits are shown up in the Profit and Loss accounting, which is the proper place for such profits to be detailed. On the other hand, should a certain change in the market depreciate the value, the loss would show in the accounting statement. Values should not be underestimated nor overestimated. They should always be taken at cost or market value, except where a department store controls its stock at retail. The accountant of such a store can readily ascertain what the cost generally should be by the method described in the inventory chapter. Inventory of Merchandise in Transit. An organiza- tion must assume liability for all merchandise in transit which has been purchased by such organization and for which they hold an invoice, and Bill of Lading. It is real- ized that when merchandise is actually received in the premises of the establishment, the proper inventories will be enhanced. Still for the closing entries for the fiscal year inventory, provision should be made for merchandise in transit, and reversed after the closing entry or corrected at the time that the individual invoices arrive. Merchandise in transit may reach very large proportions. Should this be eliminated from the statement or inventory records, the true statement showing the affairs cannot be produced. The same effect must follow in closing monthly records and in reversing the entries the first of the following month, in the same manner as accruals are considered. Inventory of Supplies. The listing of supplies will include such items as stationery, printed matter, packing materials, twine, porter supplies, etc., though the greater proportion of these supplies will be stationery and printed BALANCE SHEET 147 matter. As an asset, they are, indeed, of very little value. But in an active concern they can readily be taken at full value and treated as such on the balance sheet. One of the methods generally used in handling these items is to charge each invoice for stationery and supplies directly to the Burden of corporations under the heading of Indirect Expense. But the fact that all the stationery may not be absorbed during the current month, that it is charged as an expense and that a larger proportion may be carried over for several months thereafter, would not seem to be equitable in charging one month's burden instead of the burden of several months at a proportionate burden. Accountants may argue that the inventory of supplies should be treated as a Deferred Asset in the same manner as postage stamps or prepaid expenditures. "While it is correct to do so, the item of supplies with a department store or a retail establishment takes on huge proportions. Especially the stationery and printed matter become quite a factor in the management and the support of the policy on which a store is based. It, therefore, is logical to set up a supply inventory in the same manner as that of mer- chandise carried on in trade. In a going organization, it may be treated" as a current asset. However, for credit pur- poses and the determination of liquid assets, it should be eliminated. Decorator's Inventory. "While this item as an inven- tory might seem insignificant, and even at times impossible, yet an inventory taken of all the decorator's supplies would give astonishing figures. Under the heading of decorator's inventory would be listed all materials used for window display and interior decorations. Where a cost accounting is established in order to set up a proper cost to the various departments for window display occupying the display win- dows, any expenditures for window decorations should be a charge for window display advertising and should be dis- 148 RETAIL ORGANIZATION AND ACCOUNTING CONTROL tributed monthly to the departments occupying window space. Most department stores charge this expenditure to advertising, and others carry the purchase as an inventory. A decorator's inventory should always be perpetual. Any articles purchased must immediately be added to this inven- tory, and occasionally a physical verification must be made. Where purchases for decorations are not immediately charged against the operating burden, but are carried as an inventory, a depreciation of such inventory should be provided for. Work Room Inventory. It is customary in all con- cerns where alterations are made, especially in the case of ready to wear apparel, that a charge be made to the cus- tomer for alterations. However, there are not a few stores which make alterations free of charge. The outlay for these alterations is considerable, all depending upon the volume of business transacted in the apparel lines. Such purchases immediately become a charge against income. "Where alterations are made free of charge, the purchase of materials becomes a direct charge for the upkeep of a depart- ment. In setting up an account for the alteration room where a charge is required for alteration, all the elements of material, labor and expense must be accounted for in order that a proper accounting be produced periodically of conditions applicable to the alteration department. CHAPTER VI BALANCE SHEET Investments. An organization having accumulated profits may either declare dividends and withdraw a portion of its profits, or make investments, or do both. Perhaps it may utilize such profits for expansion. In any case, where profits have been accumulated, careful consideration must be given to the proper working capital the business requires. To do this, the balance sheet should be analyzed carefully prior to a decision for making investments. All problems of future transactions, the standing of the store in its com- munity, the necessity for replenishment of fixed assets should be considered. A careful investigation should be made of all reserve funds to cover future problems and the actual condition of such reserves. Thus, the working capi- tal is determined upon to cope with present and future business requirements. Circulating Capital. In order that the working capital may be determined properly, every element of the store's merchandise must be taken into consideration. While it is conceded that increase of capital in a going business should be the result of accumulated profits and that this is obtained through the quick turnover of stocks, yet this is not sufficient reason why capital should be withdrawn for per- manent investments. The merchandising records may be misleading. Prior to making investments the inventory should be examined as to the age of all stocks on hand. It may be found that a large percentage of merchandise is old and can be best given away, which results in a mark down to the extent of impairing the working capital. It would be more logical to change the word ' ' working ' ' 149 150 RETAIL ORGANIZATION AND ACCOUNTING CONTROL capital to " circulating " capital, for it is not the working capital that conveys any direct interpretation in the depart- ment store. When all stocks in trade are rapidly turning, such stocks are logically representing the actual working capital. If the stocks are moving rapidly, their circulation is revolving the capital. Hence circulating capital is the stock in trade which is the greatest of the current assets aside from the actual cash on hand and in banks. It is the sufficient circulating capital plus excess capital that must be determined upon prior to considering outside investments. That a sound, substantial business be estab- lished and every provision made for its soundness be main- tained is a requisite for business longevity. Bonds (as an Investment) . All investments should be in such securities that a ready market can be found at all times. This should be done not only properly to secure all withdrawals from the company, but also so that investments be used as collateral acceptable to financial institutions should the necessity arise. Should a decision be made for the purchase of bonds, the standing of the corporation whose bonds are to be purchased should be investigated carefully both from a financial point of view of current and future business, and also from the point of view of its past transac- tions in regard to its meeting previous obligations, bonded indebtedness and conditions of its stock. It should be determined whether, in issuing bonds, the corporation has complied with all the statute requirements and whether the proper percentage has been adhered to in relation to ics capital and assets. When bonds are purchased at par, the full interest that the bond carries is realized. However, if the bond is bought below par, not only a greater interest but an additional profit are realized, when the face value is paid upon maturity. In the case where a premium is paid for the purchase of a bond, that is, when bonds are bought above BALANCE SHEET 151 par, not alone is the interest decreased but also an addi- tional loss is accepted when the bond is paid at its face value upon maturity. Periodically, all bonds should be audited so that their correct values should appear on the balance sheet. The purchase price should appear at all times and also a reserve should be set up for market fluctua- tions should the bonds have a downward tendency. Stock Investments. Where moneys are invested in stocks of other corporations, the same procedure of investi- gation should thoroughly be gone into as in the investment of bonds. At no time should stocks be purchased on a part payment, better known as " on margin." To do this would take on a speculative aspect and the actual cash paid would be placed at the mercy of market conditions. All stocks for investment purposes should be purchased out- right and the actual amount paid for them should appear on the General Ledger under Stock Investments. Where a corporation has a considerable outside investment, in secu- rities, an investment record should be kept, known as an Investment Ledger. Here complete details as to the description of stock will be recorded with the actual income set up for each particu- lar security, charging the income with any brokerage paid at the time of the purchase. A corporation declaring a dividend to stocksolders may only do so out of profits earned. Such sums should be deposited with a banking institution against which dividend checks will be drawn to the order of all stockholders of record. Where a dividend has been declared legally, the stock- holder becomes a creditor to his pro rata share according to stock held. In the matter of insolvency and a dividend 's having been legally declared and set aside prior to such insolvency, the stockholder's equity in such dividend is irrevocable. 152 RETAIL ORGANIZATION AND ACCOUNTING CONTROL Dividends. Cash receipts from investment should not be credited to financial income from operations. To do this would be to set up erroneously a profit accounting to opera- tions. Dividends should be set up under a separate cap- tion of income preferably Income from Investments. Where a subsidiary ledger for investments is maintained, the divi- dends should be detailed in the various accounts, so that ail annual statement may be set up. Debenture Investments. As mentioned in the previous chapter, debentures take on the same status as notes. It may be a short term or long term note, and at best, its investment is not a highly recommended one unless secured by tangible collateral. Though short term notes may vary from sixty days to seven or eight months, they are recog- nized as three or six months' periods, and traded in exten- sively on the open market. The notes are from such makers whose commercial rating is recognized as a safe risk by credit investigators. The greatest inducement offered for debenture invest- ments is the large percentage of interest and the selling at a price below par as an opportunity for further profit or income at the time of maturity. Investments of Reserves. Where funds set aside for reserves are invested, all income from such outside invest- ments should be added to the reserve fund's principal, thereby increasing the fund. Where income is received from sinking fund investment, which fund was set up to retire bonded debts, the income from investment should be used for the same purpose as its principal. Investing reserves assumes the risk of market fluctuations and par- ticular care should be taken in the accounting of such investments. The investment must be considered at actual cost at all times until it has been converted into cash. The securities invested in must not appear as an asset on the books of the company. All records of such investment BALANCE SHEET 153 should be in a subsidiary ledger. Or if that is not suffi- cient, the reserve funds being invested should be detailed in the general ledger under a separate heading for each investment. Investments in Other Companies. "Where the officers of a corporation are interested in other companies or expand their business enterprises by organization of new com- panies, such organizations will be incorporated under their own charter and by-laws. This will be done for the reasons of privileges enjoyed by corporations. Some companies, however, may invest in another corporation, purchasing a block of stock. The amount invested becomes an asset on the books of the company doing the investing. Any divi- dends received from such investment must be treated as Investment Income and must not appear as an income from the companies' own operations. Should such investment ultimately prove a loss by reason of insolvency, the loss should be charged to surplus prior, providing that moneys withdrawn were originally from a prior surplus. Employees' Equity in Investments. There are occa- sions where an organization will make investments in which the employees of such an organization will participate. It may be in the form of buying property or it may be invest- ments in stocks or bonds. To exemplify this, an organiza- tion makes a purchase of $5,000 of bonds. The company advances the money and is the owner of such bonds. How- ever, the employees make weekly payments to the company, which payments are reimbursing the company for the out- lay of cash for the purchase of such bonds. "Whereas the company is the holder of the bonds, the employees, through their weekly payments, establish a lien on the bonds to the amount of their payments, thus creating an employees' equity in bonds. In showing the asset of bonds or investments where em- ployees may have an equity, the full amount of the invest- 154 EETAIL ORGANIZATION AND ACCOUNTING CONTROL ment should be stipulated, likewise specifying the amount of equity in such investments by employees with a final net amount of investment on which the employees have a lien. This method of employees' equity is very rare, but during the course of municipal or Federal requirements, where all citizens are requested to participate, such occasions may arise. Others may be where an organization is pursuing a policy of cooperative methods. Fixed Assets. All investments in property, regardless of its description, necessary for operation of an enterprise, without which properties operations are impossible, or if hired, would entail considerable extra cost for operations, are termed fixed assets. This does not include any part of the merchandise or commodity an enterprise deals in, in the course of buying and selling or of production and dis- tribution, but includes only property maintained by the company for its own use. These fixed assets are subject to depreciation through usage, age or natural causes. To pro- vide for depreciation of such assets, a reserve is created. Particular care must be exercised in not overvaluing this form of assets. Buildings. Investments in buildings in which an organization will conduct its affairs becomes a fixed asset of such an organization. Where the land as well as the building is owned by a company, the value of the land should be segregated from that of the value of the building and should be recorded upon books at the actual cost. The general period for the life of the building is estimated for accounting purposes to cover a period of twenty years, giv- ing a depreciation rate of 5 per cent per annum. A reserve should be set up depreciating the value of such building, which depreciation is written off monthly and charged as a rental cost to the operating burden. Buildings never increase in value. Any increase in value of property would refer to land and not to the build- BALANCE SHEET 155 ing itself. Repairs to buildings required on account of usage or natural causes are a direct charge to an account designated as " MAINTENANCE AND REPAIRS " to show the up-keep of the building. But where such improvements are> made on the property as additions to the building or bridges connecting buildings, it is an improvement to the property and an additional cost to such buildings. The fact that property has become more valuable in a community should not alter the building accounts. Each building should be known under a separate account. Any improvements should be applied to that particular parcel to which the improvements are applicable. A life period of 20 years is a conservative time for department store buildings, when it is considered that, on account of the hard usage to which they are put the life of manufacturing buildings is esti- mated for a period of five years, and seldom exceeds ten. Insurance. Placing of insurance on buildings should receive very close attention and at least once a month exam- ination of conditions existing in insurance records is a necessity. Insurance premiums against conflagrations, like many other policies, improve with age. The older the structure, the greater the fire hazard, and the premium increase must follow. In the event of a conflagration, when a portion of the building or the entire building is damaged, it is optional with the insurance companies as to the manner of settlement. These are either to pay money, repair, rebuild, replace or adjust by sound value with coinsurance. The department store should at all times carry replacement value insurance, not only for buildings but for furniture, fixtures and equipment. Fixtures and Furniture. Fixtures and furniture are generally found to be built as part of the building, and the shelvings and counters become a part of the building itself. The furniture, show cases, and other movable fix- tures, while under the hammer, are of very little residual 156 RETAIL ORGANIZATION AND ACCOUNTING CONTROL value. The life of the fixtures generally runs to a period of 10 years, of which 10 per cent of its value is written off yearly and charged to Operating Burden. Additional fix- tures or furniture required should be charged to Operating Burden rather than be carried as a Fixed Asset upon the books of the company. The income tax laws do not permit this. However, it may be added to fixture account under the maximum of depreciation limit. A reserve for depreciation may be set up so that at the expiration of ten years, when fixtures may be replenished, there will be a sufficient reserve for the installation of new fixtures and furniture. Insurance to cover should at all times be on the replace- ment value. Many organizations, after having the value of the fixtures written off, will carry a fixed asset of furniture and fixtures at one dollar. Delivery Equipment. Perhaps no other business organization has the extensive carrying equipment of the department stores. The delivery becomes a very important factor since success of the store depends greatly upon serv- ice which it renders its patrons. The delivery equipment may be of various descriptions. Formerly the horse and wagon and heavy truck were used extensively, and it was necessary for most stores to conduct their own stables, the up-keep of which was a direct charge to delivery expense. In the world of mod- ernization, more rapid strides have been made in efficiency. A better service has been found by supplanting the horse and wagon delivery by the automobile. The value of these automobile delivery cars and heavy trucks runs into large proportions. However, the usage to which they are put requires that depreciation does not exceed three years. A reserve for delivery equipment should be set up carefully, and its replacement by new trucks is chargeable to the reserve for delivery equipment. BALANCE SHEET 157 This is a fixed asset and should appear as such on the bal- ance sheet. A record of the complete delivery equipment should be kept so that a detailed statement for up-keep and results obtained by each automobile is readily obtain- able. This is a necessity for statistics in the control of the store Burden, since an excessive cost for package delivery will require investigations and revisions in the Delivery Department. . Sinking Fund. The purpose of a sinking fund may be described as providing for meeting obligations such as mortgages, bonded debts, retirement of preferred stocks. Funds of this nature have been set up for other purposes. Cash set aside for sinking fund must be received from profits. Investments of sinking fund result in additional profits which are applicable to the sinking fund. At the time that the sinking fund is applied for the object intended, any balance remaining must be credited to sur- plus account, or it may be declared as an additional divi- dend. The sinking fund must always be an asset, set up in a class by itself. Should the fund be distributed to various investments, such investments should appear in detail on the balance sheet. A sinking fund of large proportions which has been invested extensively in securities, should be detailed on a supporting statement for the single item of sinking fund appearing on the balance sheet. Impersonal accounts should be kept in the general ledger under the caption of sinking fund operating accounts, in which will be found expenses detailed, income, discounts, commis- sions, trustees of the fund, in fact, any item pertaining to the sinking fund operations. Should a company desire to set up a provision for a sink- ing fund, a distinction must immediately be made between depreciation and the intent of the sinking fund. Depre- ciation is a direct charge to profits, whereas, moneys set 158 RETAIL ORGANIZATION AND ACCOUNTING CONTROL aside for a sinking fund should be transferred after all operation charges have been determined and deducted from income. Otherwise, the charges to expense may be* doubled. Where a reserve fund is provided to meet a bonded debt, such reserve may be set up by charging sur- plus account and crediting sinking fund reserve or reserve for redemption of bonds. Where the reserve is not charged to surplus, but a sink- ing fund is established to meet a bonded indebtedness, such a fund may appear on the liability side of the balance sheet by showing the amount of bonded indebtedness less the sink- ing fund, which would be better termed " EEDEMPTIOTST FUND FOR BONDED DEBT." Mortgages. Mortgages as an investment should receive every legal attention that is required. The title of a property should be examined thoroughly and, wherever possible, a guarantee that the owner who receives the mort- gage has a clear title should be guaranteed by responsible individuals or corporations. The mortgagor should at all times receive periodically all paid tax bills, such as water, land or any other bills placed against property by the city in which the property is located. The reason for this is that unpaid tax bills become a prior lien on the property and such prior lien takes precedent over a mortgage, whether that mortgage be first, second or third. In the case of any plumbing work or painting or any improve- ments made upon the property for which payment has not been made, the mechanics making such improvement on the property have the privilege of filing a lien against the building. Such property can be disposed of when selling the property under the hammer to satisfy the mortgage or other form of sale. But this lien, known as a mechanics' lien, must be satisfied before a clear title of ownership can be given. The filing of liens against the property or any improvement made on it are subject to the statute of BALANCE SHEET 159 the municipality, and are sometimes governed by the state laws. The variation of first, second or third mortgages implies that the first mortgage has a prior lien on the value of the property to the second mortgage, and the second mortgage has a prior lien to that of the third. This can be compared readily with first mortgage bonds or second mortgage bonds, and so on. In the event of two mortgages on a prop- erty and foreclosure procedure having been instituted to set judgment, the property having been placed under the hammer, all moneys received will be used to satisfy the first mortgage and legal disbursements. What is left will be given to second mortgagor, and so on down the line till all mortgages are satisfied and all cash obtained by auction has been absorbed. It can readily be seen from such cir- cumstances that mortgages carried as an asset upon the books of a company should be mortgages that are absolutely clear from every lien, and that can be converted into cash without considerable legal procedure to satisfy any incum- brance upon the property for which the mortgage is held. Machinery. There does not seem to be any occasion for department stores having any fixed asset, such aa machinery, since they are not manufacturing organizations. Still there may be certain classes of machinery necessary for the engine rooms. Conveyors in the delivery depart- ment may be operated from power generated by the com- pany's own machinery. Such machinery takes on the same aspect as any other equivalent machinery used in manu- facturing plants, excepting such as is used for the produc- tion of a commodity where the hour unit may be applicable. The life of a machine varies in accordance with its uses and its construction. It may be anything from two to five years. A reserve should be set up making provision for replace- ment when such machinery becomes obsolete. The cost of 160 EETAIL ORGANIZATION AND ACCOUNTING CONTROL its up-keep is chargeable to that department of burden to which the machinery in use is applicable. Land. All investments made in land, whether or not an improvement has been made on it in the form of a structure, should appear at cost. The fact that land pur- chased and held for a particular period increases in value should not be sufficient reason to change the value as a fixed asset. For it is reasonably argued that, if land had been purchased at a specific price and held for a number of years, at the end of that time the amount sold for will give a handsome profit to the owner. Such profit is actu- ally made when the land is sold. The mere fact that all surrounding land has enhanced in value is not sufficient reason to correct the cost of the land paid. Where a number of properties are owned by an organiza- tion, it is advisable to allow for a separate ledger page account for each property, giving the cost paid for it and a full description of its location and the particulars apper- taining to such land. In addition a separate record should be kept for each property held, upon which will be entered the various taxes paid for the up-keep of such land. Where improvements have been made upon the property, such as a structure, any taxes paid to the municipality are charge- able as a rental. Deferred Assets. Assets under this caption are closely allied to current assets. Though they are prepaid expenses for operating burden, it should not be interpreted that realizable cash will supplant these assets and revert itself to current assets. There may occur in the course of busi- ness an outlay of cash such that, while it is chargeable to burden prepaid, a default may revert to current assets. In such instances, all conditions surrounding the prepaid expenditures should be considered prior to enumerating such assets as deferred. Usually a deferred charge to bur- den covers a period of many months. Because of this, the BALANCE SHEET 161 monthly writing down is resorted to for an equitable dis- tribution. Prepaid Advertising. An item seldom appears as a deferred asset for prepaid advertising, but where a store issues a catalogue, which catalogue covers a period of sev- eral months, the prepaid cost for advertising will be carried as a deferred asset and the value of the catalogue will be written off monthly covering the life of such issue. In mail order houses where a catalogue is issued to cover a period of six months, the entire cost of the catalogue will be carried as a prepaid asset. The value of the catalogue during the first month of its issue will be greater than the following five months. The second month of its issue will be greater than the next succeeding four months, and so on until the entire six months are absorbed. The last month 's cost of advertising may be as low as only 3 per cent of the original cost of the catalogue, whereas the first month may be charged to Operating Burden as high as 35 per cent of its total cost of advertising. The contracts made for advertising matter Tor pro- grammes, posters, placards, traveling conveyances or other displays may be treated as a deferred asset and periodic- ally charged off. Careful consideration must be given to an equitable diminution of such charges to operating bur- den under the caption of advertising cost, considering at all times that the advertising matter at the early stages of its issue or display is more valuable than at its latter period. This logic is only applicable to the monthly writing #n* at the prepaid contract or prepaid outlay for advertising matter. A department store may have placards with it3 store advertising matter distributed in various outlying dis- tricts of the town in which it is situated. Usually there is a monthly charge for such placards where space is hired from a bill posting company. As these invoices are 162 RETAIL ORGANIZATION AND ACCOUNTING CONTROL paid monthly, it would be charged directly to advertising. iWhere the payment is paid for a year in advance, an equitable distribution must of necessity occur. Usually, such distribution may be l/12th of its actual cost for the year, as the placards may be changed with such advertis- ing matter as may be appropriate for the season of the year. Prepaid Rents. It is customary for all rents to be paid in advance. This may either be on the first of the month or during any part of the month. "Where a pay- ment is made during the month for the benefit of the monthly balance sheet, unexpired rent becomes a deferred asset and should be so stated upon the books of the com- pany. Such deferred assets, however, must be reversed promptly after the balance sheet is drawn off. Rents, how- ever, that are due the company from property or leaseholds owned by the company or from such tenants as may occupy departments, must not be treated as a deferred asset but as a current asset. Sublet Departments. There are many department stores or retail stores of any description who may sublet a portion of their store to outside persons, who will conduct a department, usually paying from 10 to 30 per cent of its sales as a rental. This, in the last decade, has become very common throughout the country. The departments gener- ally sublet are Millinery, House furnishings, the Optical Department, Men's and Boys' clothing and Restaurants. It must be confessed that where a department store sub- lets a department to an outsider, it Js usually for the rea- son that the management was unable to conduct that department successfully. This, however, is not always the case. A store will sometimes sublet space for a depart- ment. Perhaps the store had never conducted such a depart- ment before or, for the want of sufficient capital, prefers to sublet a section of the premises to outsiders. The 10 BALANCE SHEET 163 to 30 per cent charges paid by the sublet department cover all stationery, light, heat, window display, cashier's and wrapping services, delivery services, in fact will cover all charges with the exception of advertising and clerk hire. The clerk hire here refers to direct selling help, and some- times to delivery cost. Prepaid Interest. When notes have been discounted, for which the interest has been paid in advance, such inter- est should be carried as a Deferred Asset, and monthly written off to an account known as " interest paid up." Prepaid interest might not be for notes alone, but may apply to advances in either cash or merchandise. Where notes receivable have been discounted, the interest prepaid should appear under this caption, not forgetting that a lia- bility is to be set up for the account, known as Accounts Receivable Discounted. Prepaid Salaries. There is not much to say about pre- paid salaries. Very seldom are salaries paid in advance to any extent that makes it necessary to set up a deferred item. However, there are administrative salaries which may be paid several months in advance, depending upon circumstances. On such occasions the deferred asset should be set up with a periodic reduction until the entire prepaid salaries are charged to burden operation, and to whatever particular burden such advances in salaries are applicable. Good Will. As a tangible asset for a basis of credit good will has no value. On the balance sheet it will appear classified by itself. Good will in its relations to the depart- ment store receives its value, first, from the source of adver- tising; second, from the value of merchandise, and third, from the service which it renders its patrons. It is obvious that good will can only be established where good manage- ment is paramount. It can only be subordinated by the three elements necessary to make the store a home topic of reliability when personal requirements become neces- 164 RETAIL ORGANIZATION AND ACCOUNTING CONTROL sary. Not only are the elements thus far mentioned essen- tial to create a good will, but every coworker must feel it incumbent upon himself at all times to further the interest of his store, whether in the premises or out. A going con- cern which has organized a store will not carry a good will account. A corporation enjoying the confidence of its com- munity in order to further its own personal interests, may issue bonds or stocks or both and create a good will account, to be within the statute limitations. To do this, earnings should be of such proportions that a good will can be sub- stantially supported by its past and present earning power and by a reasonable assurance for its future, which at best can have no guarantees. The entire transaction is open for criticism. A purchaser of the business may open a good will account for which good name of the store a premium has been paid. Such good will should be represented at actual cost, which has been computed from its earning power, after considering capital interest of both cash and personal services. It may be that the new management is capable of con- tinuing the good name of the store in the community and even enhancing its value, in which event good will may be carried as a temporary asset. Where the earning power decreases and even losses are taken, good will of necessity must diminish. It may be argued that a going concern whose good will account does not fluctuate by reasons of its excess of normal profits should permit the good will to remain at its cost as an asset on the balance sheet. It is doubtful whether any Board of Directors or owner of a department store, exercising good judgment and commer- cial requisites, would permit good will to remain longer than necessary. To eliminate good will, a secret reserve will be set up and periodically written off. Judgments as an Asset. It may seem unusual for such an account to appear on a balance sheet. If a judgment BALAXCE SHEET 165 is taken, it may either be for Accounts ^Receivable or per- haps for damages or for some claim terminated from legal procedure. If a judgment is for accounts receivable, ac- counts receivable should be reduced to the open account and the amount of the judgment received should appear as an asset upon the books of the company. Like the good will account, judgments are in a class by themselves. If a judg- ment is one that is collectable, it is worth while having such judgment appear as an asset for it is reasonable to argue that such judgment will be paid with interest at some future day. "Where a judgment is secured for default of contract or damages or from any source whatever, such judgment held by the store should appear as an asset on the balance sheet. Its offsetting entry depends upon cir- cumstances upon which the judgment was received. Once a judgment has been rendered, every legal right for the judgment creditor to have such judgment appear on the balance sheet is within the scope of every logical rea- son. It maybe that the judgment is under an appeal. Until a reversed decision has been rendered, the judgment should not be removed. The various states of the union give a certain life to each judgment, varying as much as twenty years. In some states, these may be renewed. However, before placing a judgment upon a balance sheet, all circumstances connected with it, with all prospects of eventually receiving payment, should be considered care- fully. Prepaid Insurance. An account provided for pay- ments of Insurance Premiums are either prepaid insurance premiums or insurance premiums paid up. A premium as designated here in relation to fire indemnifies the assured for the loss of property by fire, the premium being based on the fire hazard. It is customary to set up both aforemen- tioned accounts in the general ledger, debiting prepaid insurance premiums with the payment of all insurance pre- 166 RETAIL ORGANIZATION AND ACCOUNTING CONTROL miums excepting life insurance, and by prorating, writing off the monthly expirations of premiums to the account of insurance paid up. Though it is admitted that a premium of $144 for one year is written off of the rate of $12 a month for each month of the year while the insurance is in force, a cancellation of the policy at the end of the first month will not give a credit for unexpired insurance for $132. Insurance companies will make their charge at the short term rate. In the liquidation of a business, the balance sheet should show short term rates in the prepaid insurance account. It may be argued by accountants that unexpired insurance in a going concern is a current asset and not a deferred asset. It is admitted that a cancellation of all unexpired insurance can be converted into cash and that such prepaid insurance has a cash value, but a going concern would jeopardize its best interests not to carry insurance, nor could the credit world accept an insurance account as a current asset and determine its value as a credit risk. The insurance premium may be written off at once to the cur- rent month's operations, but to do so would burden the month that the insurance was paid and create an unequit- able distribution in the accounting of burden. The de- ferred charges are set up for periodic charges to operations. The amounts of insurance carried vary with the inventory, though it is necessary for merchandising reasons to know the stock in trade daily in all departments. It should like- wise receive careful attention to support loss settlements in adjusting a fire claim. All premiums should be carried in the accounts herein mentioned covering fire, liability, theft, boiler, sprinkler, leakage, tornado, accident, automobile, etc. Automobile insurance is a direct charge to delivery expense, and in writing of expired premiums such premium should be credited to prepaid insurance and debited to delivery cost BALANCE SHEET 167 under its insurance account. Likewise, with all other insurance, its distribution is applicable to that division of the store burden to which it refers. Contracts. In manufacturing organizations and con- struction concerns a contract may cover a period of years or run beyond the fiscal year. Stockholders or financial interests may demand a share of the profits from the work- in-process. An estimate of the profits accrued will be determined after ample provisions have been made for reserves. The amount of profits estimated will then be added to the uncompleted work to show the value of unfin- ished contract in inventory, work-in-process or unfinished stocks, as the circumstances warrant. However, department stores do not come in for such transactions. They may enter into contracts for fittings and furnishings, chattels, apartments, floor coverings and furniture. These contracts are treated as sales. Other contracts entered into affecting the financial status of the store should have provision for reserve set up to meet any contingent liability. Collateral. Contracts entered into between a store and an individual partnership or corporation may require such parties to furnish collateral to secure the covenants of any agreement. This should not for a moment be interpreted as that, for any agreement, which a department store may make, collateral is necessary. It may also be required where charge accounts necessitate collateral to secure the open account. Such collateral may be in the form of stocks, bonds, cash or a certificate of deposit It may even be to the extent of an assignment, a chattel, or a mortgage on real estate, all depending upon the propor- tions the account will be permitted to attain. The fact that a store becomes a custodian for such col- lateral does not give permission for the store to use such collateral in trade for any purpose. However, in the event 168 KETAIL ORGANIZATION AND ACCOUNTING CONTROL of a default of the agreement or an uncollectable account, the securities may be appropriated by the store. As long as the store holds such collateral, it must appear upon the assets of the company and should be offset by a like amount of liability to be known as COLLATERAL REDEMPTION LIA- BILITY. While the asset amount is equivalent to the liabil- ity, the true facts must appear on the balance sheet to off- set any misapplication of the securities held in trust as collateral. CHAPTER VII BALANCE SHEET LIABILITIES Current Liabilities. Liabilities, termed Current, are Accounts Payable, regardless of their nature, and Notes Payable. In addition to these may be any liability for the payment of which a stipulated period is given, usually not exceeding the limits of one year. The accounts payable must be liquidated at an expiration period, generally under such terms of purchase as are customary in the trade. However, all current liabilities are such as must be paid for within trade terms obligated by the debtor. Long term obligations covering a period of years cannot be designated as Current Liabilities until maturity, liabilities of this kind being termed Fixed Liabilities. Where notes are given for borrowed moneys, or for merchandise purchases, or for other purposes, the listing of such obligations should be segregated on the balance sheet. A corporation dealing extensively with notes should set up monthly a detailed statement of its entire notes payablei account, chronologically arranged to support the balance sheet. Accounts Payable Merchandise. The department store's ledgers of accounts payable are probably more extensive than most business organizations, since its deal- ings are so varied. Also the number of creditors and new creditors is numerous and constantly increasing. How extensive this is is shown by the author's experience in the position of Comptroller with an organization. Payments were made every fortnight and the number of checks issued varied from three to four thousand. Though the smaller stores experience not a little difficulty in keeping a clear 169 170 KETAIL ORGANIZATION AND ACCOUNTING CONTROL record of their accounts, ordinary bookkeeping may not conceive any idea why difficulties should be experienced. However, merely a purchase in a department store and a payment is not sufficient. All accounts must be followed up to ascertain whether the product of the creditor is a paying one to 'the store, or whether mark downs are neces- sary to make it move. If a creditor's merchandise is such that too many mark downs have been taken, the merchan- dise manager must be acquainted with the result so that this particular creditor will be eliminated. "With a creditor of extensive liabilities, conditions surrounding the extensiveness may require investigation. Along with these, any number of reasons for investigation come up from time to time. Thus, special attention is given to Accounts Payable aside from the fact that a cash obligation is to be met. Merchandising, the prime factor of the store, receives its source from these accounts, and very often an inventory will be checked for authentic purposes. The controlling account of the general ledger, which is also recognized as the Accounts Payable Account, should account for every invoice purchased. This may be checked back by a verification with the orders placed for merchandise and the expected volume to be received dur- ing the current month. The control of the outstanding orders for merchandise will assist in securing this informa- tion. The question of accounts payable resolves itself to the credit standing of the store. It is the equivalent of borrowing money in another form, thereby increasing the circulating capital. Notes given for the closing of an accounts payable account must be debited immediately to the account and credited to notes payable account. Memorandum and Consignments. Buyers are classi- fied help particularly skilled in a specific class of merchan- dise which they purchase, whose sale they promote. The regrettable feature with the majority of buyers is that BALANCE SHEET LIABILITIES 171 though they may be good buyers they generally are found to be poor business men or business women. This is read- ily understood from the fact that they have devoted most of their time to obtaining an exceptional knowledge of mer- chandise. They have only occasionally picked up a bit of commercialism. Thus, we find the necessity in department stores for exceptional men to be skilled as general man- agers, merchandise men and accountants. The buyers may make agreements with a manufacturer to ship the store an amount of merchandise on memoran- dum for a stipulated time. If the merchandise sells the invoice will be paid for. If part is sold, the balance is re- turned and the part kept is paid for. Though this does not seem to conform with trade carried on in other businesses, the fact remains that consignments of merchandise along these lines are a common occurrence. The accounting to control situations of this kind must not be slighted. No loose records should be tolerated. Trans- actions of this sort should be treated as accounts payable, and added to the inventory at the prices invoiced. When the merchandise is returned, the regular charge back (or debit charge) the term commonly applied for return, merchandise is applied in the same manner as to other stocks returned to manufacturers. In addition to the aforementioned procedure, a record of all consignments or memorandum merchandise should be kept and known as " CONSIGNMENT ACCOUNTS PAYABLE." This record is for the office to follow up in determining the ultimate results and disposition of such stocks. Miscellaneous Accounts Payable. Under this caption may appear all accounts not referring to merchandise in which the store carries on in trade. All purchases for bur- den usage would come within its scope. Most organiza- tions will draw a distinction between accounts payable for merchandise and miscellaneous accounts payable by two 172 RETAIL ORGANIZATION AND ACCOUNTING CONTROL separate records appearing as accounts payable merchan- dise and accounts payable expense. In the department store as well as in most businesses, good accounting will require this segregation. The burden register previously described will find its ledger accounts in the expense or burden payable ledger, which distribution, chargeable to operating burden, is departmentized. There may be other accounts payable which spring up during business procedure that will not appear in the bur- den or merchandise payable ledger. Such accounts will then find their way from circumstances in the general ledger and must appear under that classification of lia- bilities to which they rightfully belong. This generally is current liabilities. Notes Payable. All borrowed money for which a note has been given, and notes given for any purpose which the company has promised to pay, become a liability and must appear as such on the balance sheet. Where notes are given to cover Accounts Payable, accounts payable should be reduced to the amount of the note and the notes payable increased. The interest increased thereon is not a part of either account, and should appear in the accrued interest account, which will be calculated monthly during the term of the notes to its maturity. Short term notes may be issued by a store with or with- out collateral. Or the notes may be accepted by the public by virtue of the organization's good name or commercial rating. Sometimes underwriting makes this practice a costly one. Short term notes may be issued for three or six months. When maturity arrives they are paid for in cash or bonds or other securities issued by the maker of the notes. The larger department stores may resort to this method of financing their business, but it is a rare occur- rence. Long term notes may, however, be issued, but this will be done in the form of bonds or debentures. BALANCE SHEET LIABILITIES 173 Collateral Notes. Collateral Notes are those for which value received, the principal, and the interest are payable at a designated bank. At this bank the maker of the note has deposited a collateral security. At the option of the bank, such collateral can be converted into cash upon the non-payment of the note at maturity. The col- lateral on deposit with a bank may be changed from time to time, though only upon the consent of the bank, when such provision has been made at the time the collateral notes are issued. The general custom of borrowing money on notes by department stores and most businesses is done to meet obli- gations at maturity in order to take advantage of disi counts. Often foresight of a rising market on certain com- modities may warrant borrowing money, where an organi- zation finds itself temporarily short. Accrued Liabilities. All expenses that have accrued but are unpaid for should appear under Current Liabili- ties in setting up the balance sheet, whether the balance sheet is for the ending of the fiscal year or merely the regular monthly statement. These accruals, when formu- lated on the journal vouchers, should be reversed the fol- lowing month, with the exception of Reserve for Taxes, buyers' premiums and interest. All other accruals should be considered carefully prior to reversing the entry. The store items that usually appear as accrued are salaries, commissions, buyers' premiums, interest, other expenses that may be governed by contracts and unpaid rent. Taxes should appear as an accrued liability. Reserve for taxes is discussed in the next caption. Accrued items set up for balance sheet purposes should appear as charges for operating burden on the profit and loss statement. Reserve for Taxes (as a current liability). All reserves are set up on the balance sheet after all the current liabili- ties have been determined. But there is a class of reserves, 174 RETAIL ORGANIZATION AND ACCOUNTING CONTROL better known as working reserves, not payable in the same category as current assets but generally in yearly periods, which assume an accrued liability daily. As it is customary to write up all accruals monthly, these reserves take on greater proportions as each month of the fiscal year progresses. The exact amount of taxes is not known, but from cash payments and current conditions an approximate amount can be determined. The accrued taxes, properly termed reserve for taxes, though arguments contrary to this terminology have been offered, are logically a current liability not payable until bill is rendered. It may be argued that all reserves for taxes, whether municipal, state or federal, should be placed properly on the balance sheet under the caption of Re- serves. When bill is rendered, relocate the reserve to cur- rent liabilities. To offset this, it is reasonable to believe that the monthly portion of the tax should be a direct charge to current month's burden. If at the end of the fiscal year the tax should be greater than the provision allowed for taxes, then a reallocation would be in order. This would be difficult to perform, since all previous statements have been set up. If the tax bill rendered is greater than the reserve set up and the fiscal period has been closed, the excess tax over the provision made is a direct charge to surplus prior. That is, to the surplus determined for the fiscal year. Some accrued liabilities may be analogous to reserves. But it must be understood that where a definite accrual can be determined, it must not be termed and treated as a reserve. Acceptances. Concerns who carry on trade in a class of merchandise usually sold by department stores, whether they be manufacturers or wholesalers, or even importers, do so on a credit basis. The capital employed by these con- cerns of their own investments is only sufficient to pay for BALANCE SHEET LIABILITIES 175 their plant and fixtures, with a small margin remaining of the investments or fixed assets, to pay for merchandise to begin business and pay a few weeks' salaries. The makers or wholesalers of a production must extend a credit line to the retailer, and the retailers will sell their purchases to the consumer, who will purchase for cash, by charge, or on the installment. Thus, a complete cycle of credit is put in motion with the greater percentage of circulating capital as merchandise in trade. It becomes necessary for the manufacturer, jobber or wholesaler to extend to the retail trade a liberal exten- sion of time, known as dating. In order that payment should be met at maturity or that a shorter dating should be extended, a liberal discount is inaugurated as an induce- ment to the trade to meet obligations at maturity or to anticipate the payment by allowing the legal rate of interest. Such legal rates were regulated by the various states of the union as time progressed, until an international rate was recognized. The result of the liberal discounts is such that the merchant, in order to take advantage of liberal dis- counts, borrows funds from banks to meet his obligations. He will even anticipate obligations, thereby making an addi- tional percentage of discount in order to cover the interest charged by the bank for the loan. In foreign countries, especially European, the system of credit has been further extended in order that the borrow- ing of funds from banks may be made easy and at the same time permit the manufacturers and exporters to convert most of their circulating capital into cash. This system is known as ACCEPTANCES, which is another form of draft, replacing the promissory note. When the foreign mer- chant sells in his own country, a draft accompanies the shipment and the vendee, after examining the purchase, will stamp on the face of the draft his acceptance with his 176 RETAIL ORGANIZATION AND ACCOUNTING CONTROL signature. The vendor may or may not, according to his financial strength, present such acceptance to his bank, which will discount the draft upon the vendor's indorse- ment. Where the foreign merchants export merchandise to another merchant, the usual modus operandi is to attach the acceptance draft to the original bill of lading, together with consular invoice and other shipping docu- ments. Upon the acceptance of the draft, which is signi- fied by writing or stamping acceptances across the face of the draft, accompanied by signature, the shipping docu- ments are relinquished to the importer or vendee. The Federal Reserve Board has been urging American merchants to adopt this system of finance and the retailers have been encouraged to cooperate in its extensive use. "Where acceptances have been given, it must appear under current liabilities under the caption of acceptances, segre- gated to show the amounts and its period, such as 30, 60, 90 days or 4, 5 or 6 months. Though department stores will hardly receive accept- ances, such acceptances should appear under current assets and accounts receivable (credited). Where acceptances have been discounted at a bank, an account should be set up to show acceptances discounted (debited) and the bank from which the money has been received should be credited for discounted acceptances. When the acceptance has been paid by the vendee, the journal voucher set up will be a credit to acceptances discounted, and a debit to the bank for discounted acceptances. The acceptance of a draft will show on its face the day payment will be made, the place and signature. Bonded Debt. In chapter five, bonds have been dis- cussed briefly, sufficiently for comprehension of them in so far as a department store may be affected. The issue of bonds as it should appear on the books of the corporation is a liability showing the exact amount of indebtedness. BALANCE SHEET LIABILITIES 177 The ledger head line should give a brief description of why the bonds were issued and, if secured, their rate of interest, when and how it is payable. It may be argued that this information is not essential, but good accounting from every angle deems it advisable. The balance sheet should briefly state the wherefores of the bond and such other data as are necessary to support an intelligent statement. A company that has issued bonds need only record that amount that has been taken up. That is, if a board of directors authorizes a $300,000 bond issue and only $200,000 has been issued and paid for, the remaining $100,000, known as Treasury bonds or unissued bonds, will have no bearing whatever on the statement, nor will they effect the balance sheet until such time as they are issued and paid for. The balance sheet may have a foot note giving some detail as to the authorized issue, but the items under liabilities are the only items of any direct value. Dr. Cash Cr. Bonded debt (1st mortgage) The issue of bonds is generally accompanied by a pre- mium or a discount, and commission or brokerage for float- ing the bond. To follow up the above mentioned issue, the par value being 100 was sold at 100%, amount sold being $200,000. Dr. Cash $201,000 Cr. Bonded debt $200,000 (description) Cr. Premium payable $1,000 The premium of $1,000 may be considered as advanced interest, not as a profit. During the life of the bond, the $1,000 should be amortized, charged off and applied to accrued interest for bonded debt set up to meet the Inter- est payment period. The accrued interest should be dis- tributed equitably to operating burden. 178 KETAIL ORGANIZATION AND ACCOUNTING CONTROL Assuming that the $100,000 is the balance of the author- ized issue sold at a discount, say of 991/2, the entry would then be: Dr. Cash $99,500 Cr. Discount for bonded debt $500 Cr. Bonded debt $100,000 The discount plus brokerage, if any, must logically fol- low as being an additional cost for the loan, and is con- sidered as interest paid up for bonded indebtedness. It should receive the reverse consideration to that given to premium, by amortizing the discount over the life of the bond as a charge to operating burden. Long term bonded debt is a fixed liability. It should, however, be placed in current liabilities at least twelve months prior to its maturity. Dividends Payable. Profits that are determined after burden of every description has been deducted, may be termed net income or net earnings. It may be distributed as the Board of Directors may decide, according to its cor- porate rights. This may be in dividends, additions to sur- plus or working capital, store enlargements or branch stores; but generally the distribution and application of net profits depend upon the progressiveness of the mer- chants conducting the establishment. Preferred stock generally bears cumulative dividends or non-cumulative dividends. Cumulative dividends are the dividends declared when profits are not sufficient to meet the terms of the stock and are carried over to the following year or succeeding years. They hold a priority in claim over other stocks in the payment of dividends. Non-cumulative dividends receive a priority each year, succeeding cumula- tive dividends. However, where dividends are not declared or are not sufficient to meet the terms of the stock, there is no obligation on the part of the corporation to support the deficiency in dividends for the non-cumulative stock. BALANCE SHEET LIABILITIES 179 In declaring dividends to be paid, the department store should carefully examine its balance sheet so that the work- ing capital will not be impaired. It is not an unusual occurrence for a retail business to have earned during a current year considerable profits, but most often these profits will be represented largely in stock or fixed assets and there will be insufficient cash to pay the dividend. Or if the dividend is paid, the cash in banks and on hand will be reduced to the extent of making a bank overdraft and will force borrowing of funds for operations. The cash on hand which may appear on the balance sheet is worthy of more than passing consideration before a Board of Direc- tors finally votes a dividend to be paid. If sufficient cash be available out of the company's funds to pay dividends,- the necessary funds should be set aside. The book entry follows: Dr. Current surplus Cr. Dividends payable Reserves. Keserves may be either a legal require- ment, depending upon the nature of the business organiza- tion, or good accounting in setting up the balance sheet to offset asset values for replacement, contingencies, or pro- vision for losses that may occur in the future, which are chargeable to current profits. It may not be amiss to men- tion that a reserve account does not necessarily convey an impression that a specific sum of the organization earnings has been set aside to meet the specific object that the reserve account signifies. As previously mentioned, it is a charge against the current profits to provide for the future. Most prominent of all reserves are those- for DEPRECIATION. Reserve for Depreciation. In manufacturing organi- zations, depreciation takes on considerable proportions in its relations to cost of production. Machinery in factories or foundries and their entire equipment are given an esti- 180 RETAIL ORGANIZATION AND ACCOUNTING CONTROL mated life, depending upon the commodity in production, which affects all equipment. A percentage of the entire cost is written off each year on a monthly basis. The amount written off, if for machinery, participates in set- ting up the machine rate cost and becomes a direct charge. In treating of building depreciation, all its elements must be taken into consideration in the same manner as occu- pancy is treated of in the profit and loss chapters, in order to set up a further cost to the machine rate for production. Thus, depreciation in its entirety is chargeable to produc- tion. This does not occur in retailing. Depreciation is charged to store burden and cannot be charged to addi- tional cost of a commodity on sale. The market conditions and competition have a greater tendency in maintaining the mark ups than does the addition of burden to cost in order to obtain profit. To further the argument about why depreciation in the retail store cannot and must not be charged to cost of the commodity, a subject in merchandis- ing must be given careful attention. Adam Smith, one of the early writers of political econ- omy, says: " When the stocks of many rich merchants are turned into the same trade, their mutual competition naturally tends to lower its profits ; and when there is a like increase of stocks in all the different trades carried on in the same society, the same competition must produce the same effect in them all." It must obviously follow that a reserve set up for depre- ciation of fixtures, building or equipment, when charged to stocks, would eliminate a merchant in the present era from becoming a factor in competition. This is the case not alone with the merchant conducting a department store but also with the specialty shop, hotel, lace counter or even the street push-cart vendor. BALANCE SHEET LIABILITIES 181 The capital of a retail store must be likened to that of a. manufacturing concern, especially in the inception of its business career. Where investments of store fixtures dis- play matter, furniture and building improvements relate to factory plant and machinery, the capital is reduced by these fixed assets. A loss is immediately taken by the actual fact that, during the time that fixtures are being erected or show cases being installed, to resell the cases will cause a loss, even though the fixtures would probably be worth their value. Yet the fact that the fixtures are a necessity for the care of merchandise and pleasing to the eye and comforts of the customer, which comforts are para- mount for retailing success necessitates the reduction of capital in fixed assets. Depreciation results from decreased value, either by usage, obsolescence, or more often in the department store, and especially in the specialty shop, through constantly changing locations of departments. The term obsolescence referring to fixtures in the department store means the inadequacy of such fixtures as have become useless for the purpose for which they were intended. This is a very common occurrence which usually results from increased sales and changes in fixtures to meet the increased sales, the object of the change being the customer's comfort. The life of fixtures for which large expenditures have been made when there are reasonable assurances that they will remain permanently in one place at least a few years, covers a period of from seven to ten years. If a ten year period is considered, a monthly charge to operating burden, will be made of 1/120 of the original cost and a reserve set up for replacement. The " RESERVE FOB DEPRECIATION " account should receive its debit entry when replacements are made or from realizations on scrapped fixtures. Repairs are chargeable to maintenance of store under such maintenance account 182 RETAIL ORGANIZATION AND ACCOUNTING CONTROL as may be carried by the store, several of such accounts being generally found in department store ledgers. The proper account, however, is " REPAIRS TO STORE FIX- TURES." The various expenses supporting the account should be kept under separate ledger captions and accounts to support income tax schedules and management require- ments. The same procedure applies to maintenance of buildings. Notes Receivable Discounted. There is not much to say of notes receivable discounted. This item appearing under liabilities is to signify that notes received either in payment of accounts receivable or for any transaction have been discounted by some bank or other person. Pro- vision is thus set up for a contingent liability in the event that the note is not met at maturity by its makers. The notes receivable account will be credited with cash received from the bank and the interest charged to prepaid interest, if such interest is deducted when the note is dis- counted. If the interest is payable at the maturity of the note, provision must be made for accrued interest. The journal entry will be : Dr. The maker of the note. Cr. Notes receivable discounted. The maker of the note becomes a contingent asset for the value of the note to offset the contingent liability of the discounted note. "When the note has been met, this jour- nal voucher is to be reversed, which closes the entire trans- action. Guarantees and indorsements must receive the same attention as notes receivable discounted and should appear on the balance sheet. Judgments (as a liability). The management of any organization will endeavor to obviate legal procedure when- ever and wherever possible. But it sometimes happens BALANCE SHEET LIABILITIES 183 that a dispute over a purchase or over an accident is taken into court. Judgment may be given against the organiza- tion. If the judgment is for goods sold and delivered, the accounts payable should be debited and judgment credited. ^When an appeal is taken the judgment should appear along with interest accrued. Or a reserve should be set up to meet additional cost until the case is finally settled. Where legal procedure has resulted from a contract, the circumstances of the contract should be construed carefully prior to setting up the debit. Most every concern will carry liability insurance and accident cases will then be referred to the insurance company. But where judgment exceeds the insurance liability, the payment of such judg- ment will become a charge to operations. In any event, the judgment until reversed or paid, must appear as a cur- rent liability. Reserve for Bad Debts and Doubtful Accounts. This caption receives its source from the credit department. This department in a retail establishment must exercise more care in the extension of credits than the wholesaler, manufacturer, jobber or importer. This statement may not meet with the approval of wholesale credit men. But it must be conceded when comparison is made between the extension of credit to an organization whose management is supported by capital and business qualifications, and extending credit to the woman whose occupation is that of house-wife, who has no business ability, or to women whose business qualifications are limited. Their resources are the support they receive from their earnings, parents or hus- band, who may or may not be financially well situated or rated in any of the commercial agencies. The retail credit risk does not, however, take on the pro- portions of the risks of other organizations, since monthly settlements are required. Any lapse of time over the monthly settlement may impair the customer's credit standing and 184 EETAIL ORGANIZATION AND ACCOUNTING CONTROL will not be checked until the delinquent account has been paid up. With all the precautions surrounding the retail credit, accounts will run 30, 60 or 90 days past maturity. When the 90 day period has been reached, the danger period of collections has approached, unless the account is one whose financial and social standing in the community warrants the account to remain open 90 days or longer. The author's personal experience with the most exclusive Fifth Avenue, New York, specialty shops, tailors, dress- makers and milliners has been that accounts have been known to run from six months to two years before receiv- ing settlement. In many instances, a lost patron was the result of requesting settlement. The mark up on the mer- chandise in such organizations is of such proportions that comparisons are entirely out of the question, and unusual credit risks are taken on charge accounts. For example, during the year 1913 the author was ready-to-wear buyer for an Omaha store. On an eastern buying trip he met a former associate in a dress manufac- turing house. It so happened that the former associate, now buying for a Fifth Avenue house of prominence, purchased the same style gown as the author. Whereas the Fifth Avenue house marked the $32.50 gown to retail at $85, the author's retail price was $52.50. Consideration must be given to the distance from New York to Omaha as well as the $20 mark up. The Omaha store sold for cash and the other to the exclusive trade on long credit. The danger of uncol- lectable accounts under these conditions, which exist in every community, not necessarily with exclusive trade, only warrants a provision for bad debts and uncollectable accounts. This provision is a direct charge to current operations. Though it appears on the balance sheet as a liability, under reserve for bad debts and doubtful accounts, some accountants prefer to deduct the reserve from accounts receivable under current assets. Any uncol- 185 lectable account on which a part or the whole account has been collected and previously written off, must receive its debit entry in the reserve account for bad debts and doubt- ful accounts. In the last decade, numerous money lenders have made it a business to loan money to organizations which assign their accounts receivable. On these accounts an advance of 70 to 80 per cent is made, for the consideration of such assignment and other sound collateral, 6 per cent per annum is charged as interest and, to circumvent the law, a bonus or commission is paid that varies from ^ to 2 per cent per month. Stores whose charge accounts carry lib- eral time for payments, absorb considerably more than the capital will permit, and the hypothecation of accounts gen- erally follows to keep the concern going. The Federal Income Tax law allows for deductions " Debts due to the taxpayer actually ascertained to be worthless and charged off within the year." The object of setting up the reserve for bad debts and uncollectable accounts is to reflect the true condition of the organization 's affairs. Most every organization can, from previous records, set up an estimate of probable losses on accounts receivable for their fiscal year. But only those actual worthless accounts for the fiscal year are permitted in the deduction from income. Contingent Reserves. Liabilities may either be cur- rent contingent, fixed or capital liabilities. In the discus- sion of contingent liabilities for ready comprehension, it may be said that though they are not an actual liability, they are a possible liability. As long as an organization places itself in a position where it may possibly become a debtor, provision must be set up on the books of the com- pany to cover any contingency that may arise until this possibility has been removed or retired. The value of a balance sheet with all contingents having been provided 186 RETAIL ORGANIZATION AND ACCOUNTING CONTROL for will not only present the true condition of an organiza- tion, assuming that all other accounting principles have received every consideration, but also its basis for credit, whether for banking purposes or for obtaining commercial credit, and is worthy of greater appreciation. Most usual amongst the contingent liabilities are notes receivable discounted, indorsements, guarantees, lawsuits, whether pending or on appeal, subleases and covenants in contracts. These may warrant the establishment of a con- tingent reserve. Contingent reserves are also established where insurance does not cover probable losses. Redemption of Collateral. In ordinary organizations this account may not appear. The department store will find it necessary to require collateral from some charge cus- tomer to support the extension of credit limits. The col- lateral which is held in trust until such time as all or part of it may be forfeited for uncollectable accounts, or until the account is withdrawn, will appear under collaterals on the balance sheet. Its offsetting liability will appear under redemption of collateral. Reserve for Discounts. in most retail and department stores where charge accounts are carried, the terms of pay- ment are net, no discount, payable when bill is rendered on the 10th or 15th of the month. Discounts are given to pur- chasing agents. This makes it necessary to establish a reserve and, though it is treated as a liability, .and may appear under reserve, some accountants will deduct the discount from the total accounts receivable under current assets. The discount may be better termed commissions. "When paid at the time of settlement, it becomes an addi- tional charge to selling burden. In setting up the reserve, its offsetting debit entry should be to selling commissions. Reserve for Leakage. Deterioration, as practically interpreted in accounting, relates to depreciation. An entirely different aspect is taken as applicable to department BALANCE SHEET LIABILITIES 187 stores. It does not, as is commonly understood, relate to shop-worn merchandise. There can be no deterioration on merchandise if sales promotion receives its full share of attention. Stocks must turn a given number of times a year. The turnover depends upon the class of merchan- dise. If stocks don't move, take a mark down and get it out. Make it move. Take your medicine with a smile. No buyer of merchandise is infallible. They are but human. Since it is but " human to err," the merchan- dise manager or owner should not condemn the buyer, but should be thankful for an opportunity to advertise mer- chandise where the public may get something for nothing, metaphorically speaking. The author would further recommend that if such merchandise has been marked down so that it is hardly possible to mark the stock any lower, it should be given away to a charitable institution or to the poor, and thas add to the good will of the organization. It is a deplorable condition that exists in retail estab- lishments, especially in the larger department stores, that find it necessary to employ detectives for tbe detection of purloining individuals. It may be surprising to those unacquainted with department store conditions to know that from half of 1 per cent and as high as 2 per cent of the store's sales are unaccounted for. The condition of inventories may vary to this extent after all provision has been made for the proper control of merchandise. Deterioration certainly does not signify theft. It is sup- planted by the word leakage, yet reserve for leakage repre- sents " unaccounted for stocks." Perhaps the application of a Latin term for the account may be more appropriate, such as alls volat propriis, meaning " flies with its own wings." A store must determine its own leakage percent- age and monthly apply the percentage against sales as the reserve chargeable against inventory. Differences in inventory verifications, unless other calculations are ac- 188 RETAIL ORGANIZATION AND ACCOUNTING CONTROL counted for, must adjust stocks carried in the various departments. Capital. Oh the balance sheet the caption of " capital " will represent the capital actually paid into the organization for its stock. If the capital is represented by preferred and common stock, the amount paid in for each should 'appear. Some balance sheets will show the total capital of stock of the corporation, less the stocks unissued, with the remainder representing the actual paid up stock, which will be considered as the organization's paid up cap- ital. In department stores, and in fact in all retail estab- lishments, the capital is furnished by those taking an active interest in the conduct of the corporation's affairs. "Where the corporation has reached such extensive pro- portions as to require outside capital, reorganization is sometimes resorted to, or bonds or debentures may be issued. Most often increased capital through change of incorporation takes place. The par value of the shares will be such as to be within the means of that class of the public the store desires to interest. Conversions into vari- ous securities may be offered by the store to retire such stock. Those who are well acquainted with this form of high financing will let such securities alone. The capital must appear to agree with the certificate of incorporation. Surplus. The surplus account here referred to must not be confused with its other interpretations. In the retail establishment, its interpretation is that of accumu- lated profits from operations. Defining profits, it refers to the earnings from operations in excess over cost, after all expenditures for operating burden, accruals, and contin- gencies have been deducted from such excess. Dividends can only be paid out of the net earnings of the company, and such dividends are a direct charge to surplus account. The surplus of a company is sometimes diminished by writing off fixed assets. In the distribution of the store's BALANCE SHEET LIABILITIES 189 burden it sometimes creates a greater burden than the store actually absorbs. This is the means of creating a hidden store surplus, and at best should be discouraged. Surplus Prior. The term surplus prior refers to that surplus accrued during any period, prior to the current fiscal year's operations. Current Surplus. The balance sheet should show the detail of all capital, liability, segregating capital, paid-up surplus account and current surplus. The last mentioned refers to the surplus accrued during the current year's operations, and agrees with the current profit and loss account. 190 RETAIL ORGANIZATION AND ACCOUNTING CONTROL FIRM'S COMPARATIVE BALANCE SHEET FOE OCTOBER, 1919, AND RESOURCES 1919, October 1918, October 1919, September Increase Decrease CURRENT ASSETS: Cashiers' balances Paymaster balances Office cash Service fund Drivers' working fund Total cash Inventory (mdse.) Accounts receivable C. O. D.'s outstanding Personal (accounts not represented in subsidiary ledgers) TOTAL CURRENT ASSETS \ INVESTMENTS: Bonds Liberty bonds Real estate Interest in other companies TOTAL INVESTMENTS FIXED ASSETS: Buildings Furniture and fixtures TOTAL FIXED ASSETS DEFERRED ASSETS: Inventory of supplies Stocks and bonds held as collateral Prepaid rent . . . Prepaid interest Postage JUDGMENTS (On ) GOOD WILL TOTAL RESOURCES BALANCE SHEET LIABILITIES 191 NAME NINE MONTHS OF THE FISCAL YEAB ENDING JANUABT 31, 1920 LIABILITIES 1919, October 1918, October 1919, September Increase Decrease CURRENT LIABILITIES: Notes payable Reserve for purchasing agents' dis- counts Reserve for Federal Tax (not de- ductible from Income Tax). Reserve for State Tax Reserve for Municipal Tax Reserve for interest Outstanding cash credits TOTAL CURRENT LIABILITIES .... RESERVES: *Reserve for leakage (chargeable to cost of mdse.) Reserve for bad debts Coworkers reserves TOTAL RESERVES COLLATERAL REDEMPTION LIABILITY DEFERRED CREDITS f JUDGMENTS (CR.) CAPITAL LIABILITIES: Current surplus TOTAL LIABILITIES * It is recommended that this reserve should not appear on the balance sheet. Its disposition should be monthly, by reducing the department's inventory to which it may relate. 192 RETAIL ORGANIZATION AND ACCOUNTING CONTROL o >e^oo5js>gc::;:J>$jj < < H OCCUPANCY: Direct rents Elevators, salary and expense. . Watchman service Porter's and maid's salary Porter's and maid's uniforms. . . Porter's supplies 196 EETAIL ORGANIZATION AND ACCOUNTING CONTROL BALANCE SHEET LIABILITIES 19T sj "3 o>"c il Q. >>,gg a fe Sj-is-5 l.s.sgg | O^-iS^^J I s ls^^< ^ 1 1 & EH TOTAL OPERATING BURDEN CHAPTER VIII TURNOVER The importance of a Profit and Loss Statement in the department store takes on greater proportions than in any other business. Not that it is less important for any other organization to know its trading conditions, but that the department store is made up of many different stores, each one conducted as if it were a single unit, with a final result of their all being merged into one. To neglect any one unit may possibly absorb profits accumulated in other departments. The merchandising problems are such that the most minute detail must receive constant consideration and planning. Prior to going into the subject of Profit and Loss from an accounting problem, the source as to what constitutes a profit in a department store becomes an economic subject. Capital. The capital invested in an enterprise is merely a part of the capital in use. The important fact must not be overlooked that the moment capital is invested in an enterprise, such capital is almost immediately reduced by fixed assets being taken out of the capital. The remaining capital must be prepared to meet contingent lia- bilities, such as salaries and rentals, for which credit limits are not given. The balance of the capital is to be used in trade. The credit privileges given to the store by manu- facturers, wholesalers, importers or jobbers become the cir- culating capital of the business in the form of merchandise in addition to unfixed capital. Economics teaches us of capital. The whole capital of the undertaker of every work is necessarily divided between his fixed and his circu- lating capital. While the whole capital remains the same, 198 TURNOVER 199 the smaller the one part the greater must necessarily be the other. It is the circulating capital which furnishes the materials and wages for labor and puts industry into motion. It should be remembered that CIRCULATING CAPITAL PUTS INDUSTRY INTO MOTION. The circulating capital of the department store, specialty shop or retail store, must neces- sarily be its stock on hand, plus labor. The greater the circulation of the various stocks the better the production, distribution and full complement of the establishment. The profits of capital seen through the theories of economics in production and distribution lie in stock turning. This does not necessarily mean that in the case of an organization beginning with a capital of $100,000, of which amount $40,000 becomes a fixed asset, the $60,000 remain- ing is the circulating capital. It might be interpreted as such from a dollars and cents point of view, but economic features are such that the $60,000 remaining from the investment of the capital plus such capital granted the organization as credit in the form of merchandise, takes on an aspect of additional circulating capital. Considerable has been said and written of stock turn- overs, whether they refer to ready-to-wear goods or to house furnishings, jewelry, or any other class of merchan- dise carried on for trade in a department store. The con- clusion invariably is that its stocks should turn a given number of times. But in devising a means to do it with- out making excuses for failure to accomplish tKe desired results, merchants and buyers are apparently prone to discuss the difficulty of the subject. "Were the author to terminate this discussion in its begin- ning it would be sufficient to state merely that the maxi- mum propagation of turnovers can be obtained by the application of social science and economics. The vastness of these studies in its various stages analyzes the subject from every angle. 200 RETAIL ORGANIZATION AND ACCOUNTING CONTROL Old Merchandising Methods. The merchants of a few generations ago were wont to come to the market and make their purchases for six months or a year. Their mark up was not intended for small profits and volume, but rather for a substantial profit along conservative lines. Then again there was the old-timer whose capital, regardless of its amount, affixed thereto 6 per cent interest at the end of each fiscal year. Using the vernacular, he jollied himself into believing he had a larger capital at the end of each year, whether his business earned the interest or not. Modern accounting, however, has enlightened the mer- chant so that it is now known to all that profits are only accumulated by the quick turnover of stocks. To make greater profits, progressive merchants realize that this can only be accomplished by " buying little " but often. Do not be misled into believing that every time the buyer goes to the market to buy he has turned over his stocks. It appears a jest even to make mention of this ridiculous idea. How Turnover is Ascertained. There is but one method of ascertaining this information, and such informa- tion must be known daily or weekly to the merchant and buyer to secure the desired result. The average weekly stock on hand at a given number of times into the year's sales signifies the number of turnovers for the year. The aver- age stock on hand either for the week or month should be used as a divisor. The sales for the period to be figured are to be the dividend and the quotient will be the turn- over. Assuming that the amount of stock on hand is $50,000, it is to be determined how long a period it will take for such stock to turn. The $50,000 will be divided by the sales for the week and the quotient will be the number of weeks it will take for such stock to be sold out. In mer- chandising, the method of figuring is to determine the number of times merchandise is turning per annum, or the TURNOVER 201 length of time it will take for certain stocks to turn com- pletely. Merchandising is the prime factor, one that absorbs constant attention with an extensive merchandising organization employed to control the situation. The old-time management had very little or no compe- tition. Stores were all placarded with the " General Mer- chandise " sign. "Within, stocks were under cover, with very little display and only a few price signs here and there. The clerk was always pleasant and knew every one in town. With the coming of the present day, the popula- tion increased in every town and the influx of immigration was great, forming a populace that is the American in the making. "With this formation, the foreign and the Ameri- can knowledge of merchandise that tb.3 customer possesses, along with competition and new department stores and specialty shops constantly organizing, merchandising has developed into a modern science. It is, therefore, neces- sary to make scientific methods applicable in the success- ful management of all departments to attain profits. Profits again revert us to the problems of turnover of stocks. In analyzing a commercial enterprise, the analyst is con- fronted with many vital points that require experts and men of long and varied experience who conduct success- fully and control the various departments. There is the statistician who, in conjunction with the efficient manager, endeavors to hold the overhead down to normal. Then there is the buying organization, which devotes its time to buying and promoting the sales; again there is the cost of production, and any number of other elements. In fact, every department has a function to perform with an objective of doing it better every day. But of all the vital points of a business, be it mining or manufacturing or the department store, distribution pre- cedes everything else in perfect management and profit making. If your overhead is high, a greater distribution 202 RETAIL ORGANIZATION AND ACCOUNTING CONTROL will reduce it. Distribution is sometimes supplanted for the word " stock turnovers." To accomplish any particu- lar objective in the department store, from a managerial or profit-making point of view, the accomplishment of that objective leads to distribution, and a greater distribution means the increase of sales. The buyer must acknowledge the logical argument that the distribution of his various stocks holds him in control, like the suspended sword of Damocles. His stock must turn a given number of times to make good, or some one else will make them do it. And it should be not merely a quick turn of stocks, but a profitable turn. In acknowledging the importance of distribution, the merchant and buyer are confronted with the problem of how to accomplish the desired result. It therefore be- hooves the merchandise manager to plan sales promotion campaigns with the cooperation of department heads and strenuously to execute well defined plans. Lest it be overlooked, it may be opportune to mention that newspaper advertising or advertising by pamphlets or otherwise does not imply sales promotion, and that this is only a part of the theme for operation. Advertising is departmentized and known as the pub- licity department. Its objective is to bring the people into the establishment. Publicity does not close the sale across the counter. Merchandise Manager. Centralizing the merchandis- ing power, both purchases and sales, its beginning and result radiate from the merchandising office. This office does not merely pass upon the placing of orders, and invoices, or offer a suggestion to the buyer that a specific class of merchandise can be purchased from a different man- ufacturer or wholesaler with a better discount. The abso- lute control of stocks in every department must be known here every day. Knowledge of one's business is its great- TURNOVER 203 est factor. The larger the volume, the greater its import- ance. The banker can only pay his overhead expenses and declare dividends by the daily turnover of cash on hand. The same problem confronts the merchandise manager. To exemplify further turnover and profits as being synony- mous, reference is made to the fruit or vegetable vendor. His stock must turn daily or it becomes unsalable. His stock must sell, and sell quickly, for therein lay his profits. Adopt the fruit vendor's method, make it applicable to the million dollar business, prevent the very often unnecessary mark down, and hold on to the gross profits as long as possible. Mark downs cannot be eliminated, but they can oftentimes be prevented. The merchandise manager may lend every assistance to the buyer in his purchase and department management, including distribution, but it falls to the lot of the buyer to see how well his selling force can close their sales. This makes it necessary for buyers to be on the floor of their departments and not be cooped up in offices or permanently seated at desks. Thus every auxiliary of the department store has its cen- tral station at the merchandise manager's office, who, in turn, must have his work so systematized as to control the most minute detail. It is essential that the sales clerk's selling ability should be developed and tutored to the extent that their salesman- ship becomes an asset to the establishment in the accom- plishment of the required turnover. Stores have estab- lished schools, employed instructors, and put in use almost every modern device to educate their selling staff in perfect salesmanship. Salesmanship. What constitutes salesmanship? The subject is indeed quite an extensive one, yet it must not be overlooked that salesmanship is but a modifier of stock 204 RETAIL ORGANIZATION AND ACCOUNTING CONTROL turnover. The sales person who wishes to be termed properly a salesman must have the necessary qualities for making the prospective buyer think as he thinks, be of the same mind as he is and as enthusiastic. The selling requisites are divided in the following classes: Advertising. Health. Honesty. Initiative. Knowledge of merchandise handled. Sincerity. Enthusiasm. Determination. Advertising. A teacher of merchandise and a creator of desire is the publicity man. The advertising man in a store must of necessity be a salesman of extraordinary qualifications. He not only teaches and sells to the entire society in which the store is located, but also he must create desire in the public so that it is as enthusiastic as himself, in order to bring them into the store. He must convey convincingly to the minds of the public the whys and wherefores, with an easy understanding of what his store represents in service, in merchandise, and in policy. Advertising is the initial source creator of good will. It sells to all and is substantiated by the individual sales per- son when the public enters the store. A store cannot ad- vertise to-day, say what their policy and merchandise con- sists of and then stop for an indefinite period. It is the persistency of publicity which keeps before the public's mind the store and its full complement. But the persist- ency of subjects must not be overdone. Not alone must a store educate its own selling help because they don 't come readymade salesmen but also the public must be educated and persistently educated so that its mind will TURNOVER 205 be open at all times to think as the store thinks. The author does not undertake to tell the publicity man his business, but merely makes mention of the requisites neces- sary in assisting to accomplish the necessary turnover of stocks. Health. In engaging the woman or man as a sales- man, it must be remembered that the store is engaging a person who is going to represent the store, the owners, and their good name. Human nature, and character, are pic- turized in the physiognomy. The mouth, the eyes, the ears, the forehead, all immediately convey the character of the person who is being considered as a coworker and represen- tative of the store. Having determined upon the charac- teristics of the person as a successful applicant, the ques- tion of good health is a necessity. "Where the body is healthy, the mind will be supported in a like manner. The medical science may disagree on the technique of this state- ment, but commercially the diagnosis is not. far from cor- rect. The healthy mind, free from bad habits, clean in thought, must be one that, if not already alert and quick to think, is more easily trained than the one otherwise. A healthy mind and body become a requisite for good sales- manship. Honesty. The author does not refer to the weak- minded individual who would purloin what belongs to another. Kef erence is made to honesty with one 's self, where the depths of the heart are interested in one's actions, truth to oneself in thought, action, speech and knowledge. To succeed not only as a salesman, but in business in its entirety, honesty is like a halo crowning the word success. To sell a customer a piece of merchandise by conveying a wrong thought in order to effect a sale is dishonest and is not making a permanent customer. The honest thought in back of sales must be such that not only will the customer be pleased with the purchase but 206 RETAIL ORGANIZATION AND ACCOUNTING CONTROL that he will also think highly of the honesty of every state- ment, of every claim, in substance, by which it is supported ; so much so that the customer will become a permanent asset to the store. Again, we have a creator of good will, and a means of accomplishing the necessary turnover. Initiative. The difference between all mortals lies in their brain power. Some brains are more developed than others. Yet the ability to develop our brain power lies within our own desire, our own ambition of what we care to be whether we shall be satisfied with what brain power we possess, or whether our craving for knowledge or ambition leads us to attainment such that the fruits of our brain power may recompense us by making possible for us the way in which we care to live. That person who has to be told what to do, how to do, whether it be once or a dozen times, possesses no initiative. The person that pos- sesses initiative is the one who knows what to do, how to do it, and does it. . It is the person who is faced with a prob- lem, it may be critical or one never presented before in his experience, and who takes the initiative to do or die, that makes success. To overcome obstacles such as these and come out a winner helps in the making of good salesman- ship. This does not,only apply to salesmanship, but to all business men who are confronted with problems. It is the fellow with plenty of initiative that comes up smiling all the time. Knock him down as much as you like, he will always come up, and come up strong. Knowledge of Merchandise. The merchandise placed in a department to be distributed to the consumer falls to the lot of the buyer. "Where to get the merchandise, how to get it, how to buy it, the reasons for its purchase, are problems that come within the scope of the buyer. The author will not undertake to tell the buyer the details of this subject, for buying is a subject in itself, on which every buyer has his own opinion and does things to the best TURNOVER 207 of his knowledge and ability. It is assumed, however, when a buyer makes a purchase and merchandise is deliv- ered to his department, that he has made the best purchase possible. It should be incumbent upon the buyer to educate his sales people in his department in the various changes of style, material, workmanship, names of materials, their composition and general construction, regardless of what the merchandise may be that is carried in a particular department. The sales person should study intensively the merchandise carried on for trade in the department in which he or she may be employed. Knowledge is power. This is an old saying, but a true one. "When the sales per- son has at his command a well fortified knowledge of the merchandise, convincing power is more readily transmitted to the open mind of the prospective buyer. Then all ques- tions put to the sales person receive not only a ready answer, but a convincing one, supported only by honest statements. It is one of the prime factors that go with good salesmenship. The greater the knowledge of mer- chandize the sales person possesses the greater must be the proportions of the turnover. Sincerity. Sincerity does not imply flattery, nor can it be so interpreted. Many standard authors of fiction have written that no one is so little vain that he does not like flattery now and then. But flattery in a depart- ment store, while sales persons may get away with it once in a while, will ultimately result in the loss of a cus- tomer. Convey all thoughts sincerely, let the expression of your eye, of your face, of your mouth, show the sin- cerity of every word which you wish the prospective cus- tomer to believe. Friendship can only be created and held by sincerity. Insincere thought creates transmission of negative thought. No matter how you may try to adjust the features of your face to convey that you are sincere, 208 RETAIL ORGANIZATION AND ACCOUNTING CONTROL only a born artist in the art of contorting the face can suc- ceed at this. Sincerity, if it is supported by any argument of power that will induce the purchase of merchandise, not only cre- ates confidence in the buyer, but is the means of creating a friend. Friendship, in the retail business, results in a personal following to the sales person. This is a great asset, not alone to the sales person, but to the employer as well. Enthusiasm. All the necessary requisites for sales- manship heretofore mentioned are necessary to support enthusiasm. There can be no enthusiasm where love of labor does not exist. Interest in work must be displayed in every move and every action. The greater the interest in the undertaking, the greater the flow of enthusiasm. The open mind of the customer will readily take on the same enthusiasm as that displayed by the sales person. This should not be interpreted as meaning that the sales person should overdo her enthusiasm to the extent of rav- ing over the article offered to the customer. But there should be sufficient enthusiasm to create the desire for the article. Sales persons are known occasionally to get into a rut. Enthusiasm becomes lacking, ambition seems to cease. This is generally brought about more by personal affairs than by daily business transactions. If a sales person exe- cutes her duties sincerely, the merchandise in the depart- ment will be moving so rapidly that there will be new mer- chandise coming in so fast that sufficient food for enthusi- asm is constantly replenished. Keep to ethics. Do not tell a prospective purchaser how bad a competitor's merchandise is. On the contrary, tell the good qualities and demonstrate why your own mer- chandise is so far superior that it would be to the cus- tomer's advantage to purchase from you. Never mention TURNOVER 209 a competitor 's name unless you are approached on the sub- ject by a customer. Then politely and courteously bring your customer back to the subject of purchase, eliminating discussion of the competitor. Determination. Perhaps the term " determination " applied here may be analogous to what has been written previously. To be successful in any undertaking, ambition must be created. The proportions to which success must be attained will be the sincerity of ambition. Where sin- cerity becomes very prominent it takes on an aspect of determination. When ambition has been aroused and this ambition is supported by a real heart-felt sincerity, brain power becomes of a determined type. Such determina- tion cannot be satisfied until the objective has been accom- plished. A person may be honest with himself, may have plenty of initiative, may have extraordinary merchandise knowledge, be sincere in every undertaking, even enthusi- astic at times, but unless all this is supported by a de- termined mind to reach the goal of success, that success will never be accomplished and the man will end in dismal failure. Determination is a very fair representative of a person's will power, the power of thinking, and execution. After all is said and done, whether it is in salesmanship or any other branch of commercial work, the one who is a " doer ' ' is the class of help wanted and requisite to the success of organizations. 210 RETAIL ORGANIZATION AND ACCOUNTING CONTROL TURNOVER FOR YEAR 1918 A DEPARTMENT STORE IN TEXAS Art Goods Beauty parlors and hair goods Bargain basement (all stock) Books Boys' clothing. . Cafe" China and glassware Cigars .,, Corsets Candy Draperies '. Fountain 174 Furniture 3 2-5 Furs 11 3/10 Hoover sweeper 9 House furnishings 4 Infant's wear 5J^ Jewelry 3 9/10 Kimonos and house dresses 3% Kodaks 9 Ladies' gloves 1 % Ladies' suits 16 Ladies' waists 31 Ladies' hose . 3 3/5 Ladies' knit underwear 3 J^ Ladies' handkerchiefs 4 1/10 Ladies' coats skirts 10 Ladies' sweaters 25 Ladies' dresses 11 1/10 Laces v 1 % Leather purses 8 Men's clothing 2 8/10 Men's hats 5 Men's furnishings 3 Misses' suits and dresses 11 2/5 Millinery 10^ Muslin underwear 6 Notions 5 Patterns 3J^ Pianos 1M Picture frames 2 3/10 Ribbons 1M Rugs and carpets 4% Shoes Boys' 3 Shoes Ladies' Shoes Men's 2% Shoes Misses' and children's 2 Sewing machines 2 2/5 Silks and velvets 2 9/10 Stationery 4> TURNOVER 211 A DEPARTMENT STORE IN TEXAS Continued Silverware 1 }/ Trunks and Bags 414 Trimmings 2 Toilet sundries 2 7/10 Toys 5 Umbrellas and Parasols 3 3/10 Victrolas 13 Victor records 5 Wash goods and blankets 534 White goods and linens 4 Woolens and dress goods 2 1/10 TOTAL HOUSE TURNOVER 4J^ TURNOVER FOR YEAR 1918 A DEPARTMENT STORE IN OHIO Art 1 7/10 Bedding 2 9/10 Books ' 2 4/10 Boys' clothing 2 9/10 China and cut glass 1 Corsets 2 4/10 Dress goods 1 }/ Domestics 2 6/10 Furs 1 7/10 Gloves 1 9/10 Groceries 2 4/10 House furnishings 1 6/10 Ho-siery 3 9/10 Handkerchiefs 2 35/100 Infant's wear 2 Jewelry 1 45/100 Junior and children's 3 42/100 Knit underwear, ladies' 2 56/100 Ladies' neckwear 2 8/10 Ladies' suits 4% Ladies' coats 4 37/100 Ladies' skirts 4 21/100 Ladies' dresses 3 67/100 Laces and embroideries 1 6/10 Linings 2 Leather goods 3 Luggage 2 Men's hats 1 34/100 Men's furnishings 2 26/100 Men's clothing 2 58/100 Millinery 5 Muslin underwear 2 Notions 2 212 EETAIL ORGANIZATION AND ACCOUNTING CONTROL A DEPARTMENT STORE IN OHIO Continued Patterns 2 Petticoats and house dresses 3 36/100 Ribbons 1 38/100 Rugs and draperies 1 29/100 Shoes 2 29/100 Silverware 1 33/100 Silks 1 7/10 Sewing machines 2 28/100 Stationery 1 45/100 Teas and Coffees 8 45/100 Toilet goods 4 Toys 2 50/100 White goods and linens 1 9/10 Umbrellas 2 21/100 Waists and kimonos 3 17/100 Wall paper and decorating 1 89/100 Downstairs ready to wear 4 93/100 Downstairs millinery 4 1/5 Downstairs shoes 2 29/100 ALL STOCKS ^ 2 24/100 6 F/10 2M 3 9/10 TURNOVER FOR YEAR 1918 A SPECIALTY STORE IN PENNSYLVANIA, BUSINESS APPROXIMATELY $4,500,000. Children's dresses Gloves Furs Hosiery Infant's wear Junior coats Kimonos and silk underwear Ladies' coats Ladies' dresses. ., Ladies' skirts Ladies' suits Ladies' waists Millinery 21 6/10 Petticoats 6 9/10 Basement coats 8 1/6 Basement dresses 11 6/10 Basement suits 12 9/10 ALL STOCKS TURNOVER 7 1/5 times 4 1/6 5 5/10 4 7 6/10 7 6/10 9 9 TURNOVER 213 TURNOVER FOR YEAR 1917 A DEPARTMENT STORE IN LONDON, ENGLAND THE TURNOVER UNDER AMERICAN METHODS FOR ALL STOCKS Upstairs departments 4% Downstairs departments average 4% to 17 Stocks both upstairs and downstairs. . . 9 The turnover in England is spoken of as TRADE or SALES It will be interesting to know that the cost of advertising this volume of business stands about 1% per cent to 2 per cent. The total burden for the whole business was in the neighborhood of 17 to 18 per cent. DEPARTMENTS Silks 567,530 Velvets Colored dress goods Black dress goods 507,465 Flannels Plain cottons Fancy cottons 299,995 Paper patterns Linings '. . . 20,015 Household linen, towels Blankets Down quilts and bed spreads 330,110 Fancy and bed linens Tunics, real laces Cut laces . 139,850 Embroideries Veilings 42,500 Lace neckwear 1 Silk neckwear and scarves J 1 14,995 Ribbons 140,120 Men's hankerchiefs Ladies' handkerchiefs 250,435 Men's gloves Ladies' leather goods Ladies' fabric gloves 289,445 Children's gloves Knitted coats Shawls and scarves 202,555 Ladies' cotton, wool and Fibre hose Ladies' silk hose 565,140 Children's hosiery Ho-less hose. . . 2.8 2.5 1.5 .1 1.6 .7 .2 .5 .7 1.2 1.4 1 2.8 214 RETAIL ORGANIZATION AND ACCOUNTING CONTROL DEPARTMENTS PER CENT OP TOTAL BUSINESS Cotton and wool woven underwear . . Ladies' woven knickers Silk woven underwear 367,300 Children's woven underwear Haberdashery Hair combs Trimmings and belts f 444,990 Buttons Sunshades, Sticks Umbrellas 162,560 Ladies' nightgowns and pajamas. . . . Muslin underwear 252,575 Children's underlinens Overalls Ladies' and children's .... Nurse outfitting and aprons 202,610 Infants' millinery Infants' indoor garments 152,360 Infants' outdoor garments Petticoats 124,390 Bathing dresses \ Layettes / 72,825 Corsets Mantles upto 84s 130,110 Mantles over 84s 457,065 Costumes and gowns Special order Workrooms Raincoats Gowns up to 84s 1,040,310 Gowns over 84s Coats and skirts over 84s Workroom stock Skirts Girls' coats and skirts Girls' coats [ 190,115 Girls' dresses Blouses Blouses O. S [ 814,725 Blouses, robes Tea gowns, negligees 142,660 Muffs, stoles, etc Fur coats Feather boas 552,530 Storage Trimmed millinery Girls' millinery Untrimmed, millinery, flowers, [ 790,005 Feathers. . 1.18 2.2 .8 1.3 1 .8 .6 .4 .6 2.3 5.2 .9 4 .7 2.6 3.9 TURNOVER 215 DEPARTMENTS DOLLARS PER CENT OP TOTAL BUSINESS Men's suits ] Men's overcoats 377,465 Dress cloches, dressing gowns Men's bespoke clothing Bespoke workrooms stock 47,545 Motor clothing Motor cars 145,100 Motor bicycles Juvenile clothing (over 7 years) Little boys' clothing under 7 years .... 255,210 Boys' outfitting Cycles and cycle accessories 102,365 Motor accessories Men's outfitting 1 Flannel shirts and pajamas I Men's underwear [ 387,490 Men's socks J Men's hats and caps 37,485 Men's boots and shoes 114,970 Ladies' shoes over 20s Ladies' shoes up to 20s 462,480 Children's boots and shoes Clocks Jewelry 242,555 Fancy jewelry Elector plate and silverware 155,135 Fancy leather goods, purses, etc \ Bags, leather and silk / 199,895 Cutlery 122,505 Optical goods. 42,440 Photographic goods Stationery Table decorations 299,875 Art materials Books Maps, atlases 152,560 Post cards Art needlework Needlework accessories 215,020 Lamp shades 30,015 China ] Glass. 182,485 Fancy china and oriental J Electrical and lighting 52,490 Hardware 1 Turnery, brushes and baskets > 267,400 Fancy ironmongery ] 1.9 .2 .7' 1.3 .5 1.9 .2 .6 2.3 1.2 .6 .2 1.5 .8 1 .1 .9 .3 1.3 216 RETAIL ORGANIZATION AND ACCOUNTING CONTROL DEPARTMENTS DOLLARS PER CENT OP TOTAL BUSINESS Lace curtains Soft furnishings 110,100 Gramophones and records Pianos. 327,395 Sheet music Toys, games, dolls, p'rams 165,100 Sports, flags 69,960 Trunks \ Bags and suit cases I 147,605 Perfumes and toilet preparations Toilet brushes '. Drugs, toilet articles 684,895 Drugs, workroom stock, surgical appliances j Hair goods, hairdressing 125,320 Natural flowers ] Confectionery \ 437,520 Confectionery workroom stock J Soda fountain 139,985 Luncheon hall 420,005 Zoplpgical 12,495 Millinery (extension) Blouses (extension) Tobacco and cigars 330,055 Coal 107,365 Men's hairdressing 32,505 Grocery 1,370,325 Provision (cheese, bacon, butter) 585,160 Meat 479,535 Fish \ Poultry. . . . / 267,525 Fruits and vegetables 232,420 Flowers - 67,310 Bakery and pastries \ Cooked meats J 450,105 Wines and liquors \ Beers and minerals / 182,605 Quick lunch buffet 52,505 Total business was 20,157,770 .5 1.6 .8 .3 .7 3.4 .6 2.2 .7 2.1 1.6 .5 .1 6.8 2.9 1.3 1.1 .3 2.2 .9 .2 TURNOVER 217 THE ANNUAL TURNOVER FOR DEPARTMENT STORES DEPARTMENTS YEARLY TURNOVER Art goods and needlewokr 2H Blouses and waists (ladies) 9 Boy's clothing 2J^ Beddings 3 Books 2% Candy. 14 Coats, children's J^ Corsets 4^ China and glassware 2 Children's dresses _ 4J^ Carpets, rugs and all floor coverings 2J^ Dress goods 3 Domestics 3 Embroideries and Laces 2J^ Fountain 135 Furniture 3% Furs 4 Gloves. 3 Groceries 10 Handkerchiefs 3J^ Hosiery 4 House furnishings 2^ Hairgoods. 3^ Hats (men and boys') 4 Infant's wear 3 Jewelry 3 Knit underwear (men and women's) 3 Kimonas and house dresses 3 Ladies' coats 5J^ Ladies' suits 5 Ladies' dresses 5^4, Ladies' silk underwear 3J^ Ladies' neckwear , 4 Ladies' sweaters 5J^ Ladies' linens 3J^ Linings 3% Leather goods 3% Men's clothing 2% Men's furnishings 3 Millinery 7^ Muslin underwear 3J4 N otions 4 Patterns 4% Picture frames 2 Petticoats 6 Pianos 1% Ribbons 2J^ Silverware 1 % Stationery 2% Sewing machines 2% 218 RETAIL ORGANIZATION AND ACCOUNTING CONTROL DEPARTMENTS YEARLY TURNOVER Silks and velvets 3 Skirts 7 Shoes, Men's 2^ Shoes, Ladies' 2% Shoes; children's and boys' 3 Sporting goods 3 Trunks and bags 3J4 Toys 4 Toilet Sundries , 3 J4 Trimmings 2^ Umbrellas and parasols and sticks 4 Veilings 3 Wall paper and decorations 2% Wash goods 4 ALL STOCK OR HOUSE TURNOVER. . . . 5 times CHAPTER IX MERCHANDISING Merchandise Control. That a certain quantity of the stocks on hand must inevitably go to the mark down is con- ceded by every modern merchandiser. When to do it, and how to do it, and why it should be done is prompted by the knowledge of the quantity and its mark up value on hand. To know the value and mark up of stocks on hand daily is the essence of merchandising. It therefore be- hooves good management to conduct its control of stocks by the best obtainable accounting systems. The control may be at cost or at retail, but since all stocks are manipu- lated at retail value, it becomes necessary to control all stocks accordingly. Further, all percentages, whether profits, or otherwise calculated on the sales, enhance the necessity of knowing the retail value of stocks. The requisites for control are -as follows : Inventory beginning of day, per cent mark up. Purchases daily, per cent mark up. Purchases to date (fiscal year), per cent mark up. Mark downs daily. Mark downs to date Sales daily. Sales to date. Inventory ending of day, per cent mark up. Planned sales for the week. Planned sales for the month. Best previous month 's sales to beat. Best previous sale day to beat. Sales for the day last year. Daily sales required to meet plan. 219 220 RETAIL ORGANIZATION AND ACCOUNTING CONTROL Daily average sales. Sales for the month last year. Sales to date last year. Planned per cent mark up to close month. Planned per cent mark up to close season. Planned stock to close month. Planned stock two month advance. Open to buy. Orders placed to-day, delivery this month. Orders placed to-day, delivery next month. Orders placed to-day, future delivery and on call. Outstanding orders. Reserve stock in warehouse. Eeserve stock in department. Prices of merchandise in stock (by departments). Best selling prices (by departments) . Sales by prices this week. Sales by prices for the month. Sales by prices last year for the month. Open to buy by prices in volume of money. Open to buy by pieces. . From the foregoing it will readily be seen that the ques- tion of merchandising does not merely take on the exchange of merchandise for gold, but presents a scientific problem in meeting competition. Aside from the sale of commodity of demand, it includes the promotion of circulation of capital. Details of Merchandising. It must be admitted that essential to obtain the information required. There is con- siderable objection in many organizations against elaborat- ing upon accounting to obtain information. But to elimi- nate this necessary information is to merchandise blindly and to limit the volume of annual sales. The most import- ant detail of an office in retailing organizations is the mer- MERCHANDISING 221 chandising control. The auditing and general bookkeep- ing is not difficult though the enumeration of the necessary requisites here mentioned appear to be voluminous. Inventory Beginning (Md$e. Control}. The inception of any procedure must have its base. Especially is this one of the requirements in the calculation of stock manipula- tions of the various departments carried on in department stores or specialty shops. The value of such stocks is a secondary consideration, since its effectiveness for merchan- dising purposes is gaged by the percentage of mark up. To clarify this, reference is made to stocks that are known as style merchandise such as women's outer apparel, domestic and piece goods, better known as yard goods, gauged by the length of time in stock, period furniture, novelties, etc. The percentage of mark up and the age of the stock are given very serious consideration in sales pro- motion. Should the stocks at the beginning of a period be marked at a low percentage, the buyer of the department would be obliged to make a quick turn over of the stocks for the beginning period. Otherwise all merchandise pur- chased at higher mark ups would be lowered until such time as the turnover of old stocks at low mark ups should be accomplished. Daily Purchases. The stocks on hand with the begin- ning of the day's business should be a known quantity. The percentage of mark up must never be overlooked. Added thereto are the purchases for the day, department- ally. The percentage of mark up must be within the requirements of the house policy. The percentage of gross profit must be changed monthly to fit in their natural requirements of the community or with the season of the year. Exception to this principal of mark up is taken where a special purchase is made to sell at a small margin of profit to stimulate trade or to give something for noth- ing, metaphorically speaking. 222 RETAIL ORGANIZATION AND ACCOUNTING CONTROL To possess the knowledge of the daily conditions of new- stock arrivals, and its mark up, brings the attention of mer- chandise managers to the manner in which stocks are replenished, whether or not the required mark is main- tained, whether or not a department is becoming overbur- dened with more merchandise than its healthy condition will permit. It is conceded that a department at the begin- ning of its season will carry a much heavier stock than when the season for its sales is well under way. But even then, the maximum quantity for such period should be established and controlled. In addition to the knowledge of daily purchases, the accumulation of such purchases for the season or year receives prominent attention. It may be that the season has but a short time to run, so that purchases must be on the decline. Or sales may not be coming up to expecta- tions and necessitate the cancellation of open orders for reason of a backward season. Or perhaps the accumula- tive purchases are not sufficient to meet the demands for the volume of business a department is accomplishing. The accumulative mark up is a requirement not only to control the differences of the accumulative mark downs explained later. The closing of the fiscal year also requires a read- justment of the value of the stocks on hand for financial as well as merchandising purposes. For example, a department closes the season or year with a stock on hand of $100,000 with a mark up of 25 per cent profit. The assumption will be that the cost of such stock is $75,000. The question from a financial view point is whether the stocks are really worth $75,000 at cost. Con- siderable mark downs may have to be taken, or market con- ditions may have depreciated the cost value. Assuming that the department had an accumulative mark up of 35 per cent and that the stock at closing was $100,000, the cost of such stock at closing should be considered at 65 per cent or MERCHANDISING 223 $65,000, giving a better and true valuation, rather than an appreciative value. Cost -f profit = 100 % $100,000 % profit 35% 35,000 Cost 65% $65,000 Mark Downs (Daily and Accumulative). To eliminate mark downs in modern merchandising would be a colossal undertaking. Much, however, can be made unnecessary by the quick turnover of stocks. Its record must carefully be followed up and it should be incumbent on the part of the buyer to report mark downs daily, whether taken or not, thus keeping each department's daily procedure in touch with this important feature. It has been shown that merchandising control requires a daily and accumulative percentage mark up on all purchases. The mark downs daily and accumulative are kept in a like manner, showing the value and percentage marked down from the original mark up. A department's accumulative purchases may present mark ups of 33 1/3 per cent. The mark downs to date represent reductions taken to the extent of 10 per cent, making the inventory mark up of 23 1/3 per cent. If the required mark up is 30 per cent, it will be demon- strated readily that the department is conducting its affairs at a loss. Again, a buyer may boast of the wonder- ful mark up of his stocks and turnover. But consideration of the mark down may not enter into the mind of the buyer in his braggadocio until attention is directed to it by the merchandising manager. In calculating mark downs, the inventory beginning is increased by the merchandise pur- chased and reduced by mark downs taken, thus giving the stocks on hand from which sales may be produced at its net percentage of profit. 224 RETAIL ORGANIZATION AND ACCOUNTING CONTROL A fallacy in the proper control of merchandise is the reduction of stocks on the ftoor without recording the mark down upon the merchandising records. This generally occurs by lowering the price to effect a sale passed upon by the buyer, but not reported to the accounting depart- ment. Whether this is often repeated or not, the fact remains that it has been done. Immediately the control is effected and a loss to departments will occur in setting up a profit and loss statement either at the month ending or the fiscal year. It may also show up as a shortage in inventory. The transferring of merchandise from one department to another is accompanied by a mark down. The correct pro- cedure in transfer stock should be as follows : Dept, 1. Transfer to department 2, $400 at cost, $500 at retail. Dept. 1. Stock is reduced $400 cost and $500 retail. Dept. 2. Buys from department 1 the stock for $300. Dept. 1. Takes a mark down of $200 at retail, charging the retail loss to department 1. Dept. 2. Purchases for $300 the stock, which is the cost, and then marks up the stock in the same man- ner as new merchandise purchased from a manufacturer. Sales (Merchandise Control}. For the purpose of merchandising control, the net sales only are to be con- sidered in the reduction of stocks on hand. The term net sales signifies sales less returns. It is accomplished through the daily audits of sales checks on the merchan- dise control sheet as shown in Forms 19 and 23 and 24. An extra column is provided for accumulated sales for the month and period. The purpose of this is to place the management in a position to draw readily comparison between the accumulative purchases and the accumulative MERCHANDISING 225 sales. A stipulated departmental mark up being con- stantly borne in mind, a marginal difference can at all times be approximated at a glance in the comparison. Over buying must result in unnecessary mark downs and the elimination of profits. It is as important to keep closely in touch with the accumulated purchases as it is with the mark downs in the marginal difference with the net sales of a department. Inventory Ending (Daily). As outlined on Forms 23 and 24, the inventory ending at the close of busi- ness for the day is ascertained with its percentage of mark up. To summarize this is but to follow the heading of the form. It is begun by taking the inventory beginning with the fiscal year at cost and retail. Daily add thereto the purchases at cost and retail. To obtain new mark up, add or deduct merchandise transferred from one department to another as the case may be, deduct -mark downs, add additional mark up, which mark up is to be written up in red ink, deduct sales, and the result is the inventory end- ing. Form 23 is the daily working sheet for each depart- ment. Form 24 is the recapitulation of all working papers and is the only form to be consulted by merchandis- ing managers. Planned Sales for the Week and Month. To accom- plish an object successfully, thought must be given to that specific object in an analytical form. The accomplishment of the objective rests upon the predetermination to win the goal. The objective in planning sales from a merchandis- ing view has two divisions ; one being the method in which the objective may be attained, the other, the volume in money representing the goal. Here, the interest is centered in the volume. As a basis, the sales for the corresponding week a year ago is kept in mind. Depending upon the season of the year rest the sales promotion methods to be employed to support the 226 RETAIL ORGANIZATION AND ACCOUNTING CONTROL volume of business planned. The natural course of events and the economic conditions of the community may influ- ence the increase of volume. If these conditions are en- couraging, it should not be sufficient to rest upon such expectations. An undying struggle in the minds of all buyers is how to increase the volume for a period cor- responding to that of last year. In planning all sales, the volume to cover, by a good margin, becomes paramount. To remain at the same volume of business means to stand still. This is interpreted as going backwards in a retail establish- ment. It is not sufficient to plan for the week. You must plan for the month as well, thus enabling a department to retrieve itself in instances where certain weeks have not come up to expectations. Volume is always uppermost in the minds of those planning the sales, knowing that the percentage of burden is diminished when sales increase. Best Month to Beat. The planning of sales to excel that of the corresponding month of the previous year does not in itself adequately answer the purpose. Not alone must the month of the previous year be excelled, but the best month of corresponding prior years must be beaten. In retailing, there very often occurs what is known as an " off year," which is within the meaning of a backward season. It can readily be understood that there should be little difficulty in excelling the volume of such seasons. It therefore behooves the buyer not to overlook prior seasons ' best sales. To eliminate them would be detrimental to the department as a factor in retail distribution of its com- modity to the community, and its prestige would be placed in jeopardy. An analysis of old establishments gone back- ward will conclusively prove that their sales to a great measure have been retarded by virtue of neglecting prior years' records of accomplishment in planning both sales in volume and an adequate meeting of the demand in price, quality, and style stability. MERCHANDISING 227 Daily Sales to Meet Plan. As a guide to be in keep- ing with the sales planned for the month, the average sales for each day are determined. Plans for selling are con- cluded accordingly. To determine the average for the day, the number of business days divided into the planned sales for the month will give as a quotient the average sales for each working day. The planned sales for the month is by no means an arbitrary figure. Though it is in a measure approximated, statistics of well organized accounting offices will enable a statistician to set up sales to be accomplished for the next month at least a fortnight before the first of the following month. The procedure is to ascertain the volume of business for the month planned, corresponding to that of the previous year. The rate percentage in which the department is increasing its sales, plus 100 per cent, is the expected vol- ume of business. It may so happen that a department is making exceptionally rapid strides in its sales. Or the direct opposite may be the case. The abnormal percentage for the first fortnight of the current month prior to the month in planning must either be added thereto or deducted from the previously acquired result. All of these calculations depend upon the seasonable demand for the merchandise and the general increase of business of the organization as a whole. To obtain accurately the percentage of increase of sales for a department, cognizance of sales increase must be taken for at least four months previous to the month in question when planning, as a further guide to accuracy. Planned Per Cent Mark Up to Close Month. Mer- chandise fluctuates in its demand, regardless of its supply, with the season of the year in which it may be put into use. This condition makes it necessary to undulate the mark up of stocks. The largest volume of sales in all department stores, with but few exceptions, is that of outer apparel, especially feminine attire. Here the exemplifica- 228 RETAIL ORGANIZATION AND ACCOUNTING CONTROL tion of mark up is at its best. The reason for this is that the merchandise is known as style stocks, and it must receive its turnover more rapidly than furniture or hard- ware to accumulate its profit. When these so-called style stocks are in demand, the profits must naturally be greater. A particular kind of street dress will be worth more in April than it will in August, or a summer dress made to sell during the months of July and August will not bring the same price in October. To estimate profits of a stock made for a particular period that has passed its usefulness as a commodity is like reaching for astronomical phenomena. Hence, the mark up of stocks must vary each month of the year. Lest it be overlooked, though certain stocks are reduced for seasonable reasons or otherwise, new merchan- dise of seasonable demand arriving in a department at a greater mark up will have a tendency to increase the aver- age mark up of stocks carried on for trade in a department. Assuming that a dress department is located in a large metropolis in an eastern state, the fluctuations in the dress department for its percentage of profit on mark up should be as follows : January .................. February ................. 30% March ....... -. ............ 34% April ............ ......... 35% May ...................... 35% June ..................... 33% July ...................... 30% August ................... 29% September ........ ........ 32% October ................... 35% November. . . .............. 35% December ................. MERCHANDISING 229 The figures here mentioned are those with which each month is planned to end. Merchandise may be placed in stock at a 39 per cent rate of profit on selling. It may be necessary to take mark downs during the month, in which event a sufficient margin is allowed so that the month will close with the planned percentage of mark up profits. In like manner is the closing percentage of a season regulated. A merchant employing buyers will regulate the maximum profits permitted and will expect his buyer or department manager to close the season with a stipulated percentage. There cannot be a universal mark up to close the season of any department. The geographical location affects this percentage. Planned Stocks to Close Month. The balance sheet of any organization will disclose the amount of working capi- tal in use. The working capital permits a certain volume of business to be carried on conveniently, depending upon the turnover of the stocks carried in a particular trade. If the capital of a store is $100,000, it may conveniently, under good management, conduct a volume of one million dollars in sales per annum. Should that same organization con- duct two million dollars sales for the year, it will find it necessary to borrow another hundred thousand dollars or slightly over. Poor merchandising, permitting an unnecessary volume of stock to be carried, endangers the working capital of the store. Each overstocked department must show a loss for lack of turnover, and mark downs will be necessary to clear away the stock to make room for seasonable merchandise, or for want of cash. Thus an essential in merchandising is to plan the volume of stock to close each month of the year, all of which is governed by the sales planned for the month and actually made during the month. This enables the buyer to take advantage of market conditions, lessens the mark downs 230 RETAIL ORGANIZATION AND ACCOUNTING CONTROL by reason of not being overstocked, and prevents capital from being placed in jeopardy. A step further may be taken in this direction by plan- ning stocks for two months in advance. Consideration must be given to the class of stock which is being planned and its usefulness to the community. Extraordinary care must be taken when plans are made for two months or over. All past year records should be scrutinized before deter- mining the maximum planned stock. Merchandising Open to Buy. When to buy merchan- dise and what volume to buy can only be deduced by the sales effected or by the rate of turnover the department is accomplishing. If a department has a backward season or stock cannot be made to move, it cannot make new pur- chases, no matter at how much below the market value stocks may be offered for sale to the department. It has been stated in the chapter on turnover that pur- chases should be made in small quantities but often sup- ported by the sales. To know how much to buy weekly or every fortnight, the planned sale is the first requisite. The second is the accomplished sale and the rate over or under the planned sales for the period. Third, the stock on hand and the usefulness of the stock to the community in accord- ance with the length of time still to go to complete the season must be considered. Discretion must be exercised in the calculations in replenishing stocks. It will be found that the modus operandi here scheduled will be of infinite value in the proper guidance of scientific purchasing, if the term scientific purchasing can be applied appropriately. This particular feature of merchandising, relating to volume open to buy, is perhaps given more .attention in retailing than in any other organized business. It is the protection of the circulating capital that is care- fully guarded, as well as the protection for profits. Every protection from overstocking must be resorted to. On thia MERCHANDISING . 231 subject it may be argued that stocks may be carried over to the following season and thus eliminate unnecessary losses. This has been tested so often with unsatisfactory results that it is fallacious to give the method any thought whatever. The risks taken in carried over stocks lie in the possibility of their becoming shopworn, of decreased demand, change of style, moth damages, depreciation in value, and the interest cost on money value. Greatest of all is the dimi- nution of working capital. Orders Placed To-day this Month Delivery. As has been shown, actual sales affect the planned sale's. These two elements must affect present purchases. The replen- ishing of stocks should be induced by the turnover and not by personal feelings for style, season or special induce- ments. When plans are promulgated and the realization of sales as planned is accomplished, the ratio of the pur- chases against sales becomes the correct guide. Thus orders that are placed for current month delivery are charged to the planned purchasing power for current month's business. The purchasing power for second, third or following months are retrospective in relation to actual sales, planned sales and stocks on hand. There exist conditions in almost every retail establishment where orders must be placed for future delivery or delivery upon call. In the classification of stocks, in certain trades where the commodities are known as staple stocks, there exists more or less of a fluc- tuating market. Such stocks are not seasonable merchan- dise, but for proper replenishment and variety and as a result of the effect of economic conditions, it becomes neces- sary to place orders considerably in advance. The placing of orders for future delivery should not be encouraged. A study of the department requiring orders to be placed for future delivery must necessarily show a smaller turnover. 232 RETAIL ORGANIZATION AND ACCOUNTING CONTROL Outstanding Orders. A competent record of all out- standing orders becomes an important factor. An out- standing order with a manufacturer, wholesaler, importer or jobber, should not merely be considered as merchandise expected to be received in the department at a specific date. When the moment orders for stocks are placed, they become a part of the available stocks to carry on trade. The available stocks are those that are in the department plus open orders and reserve stock. The ratio of the pur- chasing power, obtained from actual sales compared with the planned sales, must be subordinate to the available stocks. To lose cognizance of this condition must bring on greater stocks and absorb profits by means of the mark downs and result in a greater clear way than the end of the season usually permits. In the calculation of all merchan- dising problems, a correct solution in promoting sales ideas can only be terminated when the available stocks have received their full complement of thought. From a finan- cial viewpoint, it is obvious that the circulating capital is courting danger should all departments be permitted to place orders without careful consideration being given to the available stocks. Control of Outstanding Orders. The control of open orders is dependent upon careful follow up methods exe- cuted by a clerk realizing the responsibility and the costly result following neglect of his work. There are many methods in use. The author will describe one that has proven itself exceptionally satisfactory. A proper form of order is to be determined upon to fit in with the department's merchandise. Such stipulations are on the order blank as will give the store the necessary pro- tection and liability for transportation, charges, quality, quantity, value, counter signatures, etc. These orders are to be on a light weight paper made up of five copies, one going to the manufacturer, wholesaler, jobber or exporter, MERCHANDISING 233 and the others to the receiving department, merchandising office and general office, with a copy for the buyers. The manufacturer's copy of the order is a confirmed order properly signed by the merchandising office or a member of the firm, authorizing the order and making bind- ing the contract between the store and the vendor for all covenants and stipulations contained on the order. The receiving department's copy of the order is given to this department after the order has been confirmed. It may be opportune to mention that all orders shoud be mailed to the vendor from the firm and not handed to the vendor by the buyer, unless the five copies are made by the buyer and confirmed by the proper authority upon the return to the store by the buyer. Copies are made by means of car- bon papers. The receiving department will maintain a file (box files or accordion files) for each department, placing the receiv- ing department copy of order in the proper file, alpha- betically arranged. When merchandise is received com- pletely covering the order placed, the copy of the order is attached to the invoice or folder containing the receiving date, and is sent to the general office. "When but a part of the order is received, the value of such shipment will be deducted from the copy of the order to show the balance re- maining open. Before the close of the day, the receiving department will set up in columnar form the amount of merchandise received by the various departments and send this report to the merchandise office. All merchandise received is deducted from the total out- standing, and new orders are added thereto. Cancellations and returns are deducted. This is compiled through an accumulative method of accounting. For example: 234 RETAIL ORGANIZATION AND ACCOUNTING CONTROL May 1 Open orders 25,000 1 Orders placed 5,000 Open 30,000 2 Received 11,000 2 Cancellation 1,000 Open 18,000 3 Received (deduct) . . . 7,000 Placed (add) 3,000 Cancelled (deduct) ,. . 1,000 4 Open. . 13,000 The same method is followed by the receiving department on a departmental recapitulation sheet of all open orders. General Office Copy. This copy is merely recorded in order file formation for comparison of cost of the com- modity when the incompleted order has not been sent to the general office by the receiving department. The buyer's copy of the order is usually taken care of in a similar form by the buyers themselves or by their clerks, when a department is large enough to employ cleri- cal help. However, it is not essentially necessary for the buyer to do this as the merchandising office keeps all buyers informed daily as to the department's condition. Reserve Stocks. In the past, merchants were wont to carry large quantities of stocks of various classifications of merchandise. These stocks were usually stored in ware- houses or storerooms and termed Reserve Stocks. They consisted of hosiery, knitted underwear, sweaters, blankets, furniture, floor coverings, and even wearing apparel. It has been the custom of merchants to follow this method, and it is not surprising to find these conditions existing in our present day with some stores in almost any city. It is a MERCHANDISING 235 fallacy in modern merchandising that is unpardonable. No- merchant in retailing should permit reserves of any com- modity. It is better to pay more at a future date than to carry stocks in reserve. Financially, part of the circulating capital is prevented from being in motion. Thus the diminution of capital and the turnover must be retarded. From a merchandising viewpoint reserve stock loses its freshness, deteriorates from lack of proper care or on account of lack of demand or change of style. Perhaps the reserve may be due to look- ing into the future. Such thoughts of the future result in speculations or gambling, which cannot be synonymous with modern merchandising. There may occasionally exist an exceptional incident, but this practice must eventually be detrimental to the best interests of an organization. To be a piker in merchandising is by far a greater credit than to overload one's self with an unnecessary burden. "Whether the store's outlet is in millions of dollars or hundreds of dollars, it is advisable to buy from hand to mouth, so to- speak, in accordance to a department's requirements. Best Selling Prices. Perfunctory merchandising is that in which controls are set up in monetized segments. It may be admitted that a certain degree of success is accom- plished by this but the superlative degree of success is only possible when, in conjunction with monetized segments, the prices of the various quantities receive the same considera- tion. A knowledge must be established giving the quan- tities sold by prices. This knowledge is obtainable daily- through the sales checks or price stub tickets of each department, setting up daily the quantity sold of each price of merchandise carried in stock. The purchasing power will then be centered on the best priced merchandise mov- ing in the department, thus enabling the department to- create a better turnover and a larger variety of stock at the best selling prices, from which customers may make their selections. This procedure continued yearly is a most per- 236 RETAIL ORGANIZATION AND ACCOUNTING CONTROL feet guide for the following year's purchases, not only by prices but for quantities sold during each weekly period (see Form 53). For sales promotion ideas, this information at hand becomes of intrinsic value. Especially is this knowledge paramount for better control as the department grows in sales. In the form here given, the information is set up on a basis comparative with that of the previous year. It may so happen that one year the best selling prices will be centered amongst one group of prices, and during the cur- rent year at another. This will promptly demonstrate any change of policy the organization may have established, or whether a change in policy in regard to the classification of merchandise the community is forcing upon the house is advisable. Perhaps it may demonstrate that a buyer is not keeping within the policy of the house. In any event, the management is apprized of conditions promptly during the course of the season, rather than by a haphazard guess or an analysis of conditions to elucidate information that has been eliminated from thought. Certain classes of merchandise are best for a guide by having the information monthly. However, merchandising is always at its best on a weekly basis. In addition to weekly reports of best selling prices by pieces, a daily report as a result of the daily newspaper advertisements is set up, thus giving daily sales conditions by pieces, prices and best selling advertising prices, including material and color, should a particular color or stock be in seasonable demand. How to set up the statistics of sales by prices is formu- lated by two methods. It has been here mentioned that the information is obtained from the sales checks. This method is the longer method, but the most accurate one. A depart- ment's merchandise is segregated into its classification of color, style or make. For example, furniture should be as follows : MERCHANDISING 237 Day oold PRICES Quantity total Dollars total Brass beds 5 10 15 18 20 25 30 35 40 M T W T F S - Weekly total Women's coats Col. 5 7.50 10 12 15 20 25 30 35 40 Quan. total Dollar total M T W T F S Weekly total At the end of the weekly period, the total sales at each price will be ascertained by addition and set up on the recapitulation sheet as shown in Form 53. Another method for setting up a sales record of the num- ber of pieces sold at prices is by means of a stub attached to the price ticket hung on merchandise marked for selling. These stubs will bear the lot number or style number by 238 RETAIL ORGANIZATION AND ACCOUNTING CONTROL which that particular class of merchandise is known, which may be either the store's own style number or the manu- facturer's style number. The color and selling price will also appear. Promptly following the making of a sales check, cover- ing the sale of a particular article, the stub will be detached and deposited in a receptacle for the purpose of retaining all the stubs. This receptacle is usually placed at the wrapping desk or, if the merchandise is of such character that no wrapping desk is convenient, the receptacle will be placed at the cashier's desk or inspectress' desk, all depend- ing upon the general outlay of the store 's system of making change and parcel wrapping. These stubs, at the begin- ning of business the following morning, will be removed from the receptacle, assorted by prices, color, quality or any such method in which the record is desired to show the quantity sold by prices. The assortment having been concluded, an entry will be made in a book form kept in the department. A report will be sent to the statistical department of the general office, which will, in turn, set up the general office record for future purposes along the line of sales by prices conforming with the set up as shown in Form 53. ^ AJ ;; ; H ; 1 i ^ i ( ? 1 . 7 1 A \ v 1 "i 4 ^ Cs i '! 4 I -^ 3 i < \ i 1 P^ ? " 1 ] J -\ a ;> ! J H Vi { ? 3 >. * { It '; _ J { ^ 1 i j S j 1 N 1 ^ i eo 1 V 5 1 It : % s ,5 5 ; ? a 0? : : - S V) j | ft< I ? } [ i i i [ j j j i. 5 4 - 4 k ! I I s ? | j 1 s | 1 * 7, ^ | | I <0 V ^ -- k ,5 ! [ j 4 S * 3 1 ! ^ y I > ;C 1 ' ^ i ^ 1 ^ \ "3 1^5. ^j ^ F5 ^ k j k I k v, * y ^ 239 CHAPTER X MERCHANDISING In previous chapters, the author has discussed merchan- dising in many particulars, especially with regard to the question of turnover, which is the basic principle of mer- chandising and the source of obtaining profits. Successful merchandising must result in profits, a large volume of sales and perfect cooperation; all of which are governed by predetermination of an honest objective. A dishonest objective undermines the full complement of merchandis- ing, and failure is the ultimate culmination. Failure to accomplish success where honesty receives its full comple- ment may be due to many causes. These may be divided into the following: Ability. Character. Capital as to man power. Location. Store layout. Cooperation. Service. Sales promotion. Merchandise control. In the discussion of the classes here named as mentioned in the chapter of turnover, the subject of the buying of merchandise must be eliminated entirely. There are no rules governing buying. Wanted merchandise is selling merchandise. It is often termed desirable stock. An organization overloaded with undesirable stocks that must go to the mark down when the season has been good, will 240 MERCHANDISING 241 generally find that its buyer has used poor judgment. Though the buyer is indefatigable, many friends and good fellowship often make the store bear the consequences. Or the buyer may be indefatigable but he may not know the functions of the buyer's position. Ability. Considering the first requisite of the diverse requirements for successful merchandising, ability plays a most potent part. Its beginning is with the proprietor of an organization and its administrative executives. Ability for the retailing business is one necessity, but this is only subordinated to education. Ability should not only exist amongst executives, but in all classes of help. These cover all the coworkers of the organization from office clerks and sales help down to the porters. What necessity is found for education ? It does not imply that the sales person or porter should be the happy possessor of a university diploma, but simply of the education necessary to perform his functions to perfection. Efficiency may be one of its interpretations, but efficiency has been strangled so often that its use to convey an explicit meaning has come to be as broad as the interpre- tations of the Delphic oracle's predictions in ambiguous terms, so that the coworker, not being able to define effi- ciency for lack of knowledge, does not comprehend the term nor its requirements. Educating coworkers of an organization to perform their functions perfectly is creating ability. The better the abil- ity, the greater the result. Educating along the lines of coworkers' functions is not sufficient, and many organiza- tions, which stop at this limitation, retard their best inter- ests. It is assumed that the elementary subjects of common school education have been taken care of by the laws of our government. Polishing education along the lines of modern economics and social conditions is as necessary to 242 RETAIL ORGANIZATION AND ACCOUNTING CONTROL the organization's proprietor and executives as it is to their coworkers in order to enhance the value of ability. This form of education is equal to the knowledge of how cloth is produced at the mills, or the story of how silk is made from the cocoon to the dyers, or the porter's knowledge of why oxalic acid and water used to mop up floors will give it lighter or whiter appearance. How to accomplish this education for the proprietor and coworkers is simple in its undertaking, providing it becomes a part of the store's organization. Educational instructors are employed. Periodical lectures on various subjects must be conducted. Store organs, better known as store news or magazines, must be issued. There may be a store library, general store meetings, department meet- ings, with the department manager at the head imparting knowledge of market conditions as well as of the merchan- dising problems open for discussion. It is surprising how much one knows when put to the test in an open discussion in which coworkers participate. As an educator, such methods are without a parallel. It not only broadens the scope of knowledge but engenders better mannerisms as well as improvement in speech. Abil- ity is knowledge and, since knowledge denotes power, lack of such power as ability furnishes will defeat any project, whether it be retailing or anything known to civilization. Character. This second classification is equal to that of ability. Its scope is of stupendous proportions and tre- mendous importance. Character of the personnel is of more importance than that of any other form of business. Its reflection comes from the owners of the business. Their exemplification of character not only to coworkers but to the entire society must be unblemished. Why should char- acter carry on such tremendous importance in its relation to merchandising? Turnover is the answer. It is doubtful whether any father or husband would per- MERCHANDISING 243 mit his dear ones to enter an establishment employing per- sons that wholesome society would ostracize. Just picture a woman entering an establishment, who is approached by a coworker in the establishment, whose appearance and expression denote refinement, cleanliness of thought, of action, of speech, of kindliness and personal interest. The woman, a prospective customer, is thus made to feel safe in her surroundings. Her confidence is promptly estab- lished. Her thoughts are not diverted from but are imme- diately concentrated on the object of her search. In fact, the sale is half won or, at least, a permanent patron is added to the store's assets. On the other hand, have the same woman approached by a coworker of nonchalant disposition, who thinks more of a rendezvous than any other thought. A discussion of the two results to the best interest of the organization needs not be undertaken. It suffices to say that, under the second circumstances, good will is depreciated and a prospective sale invariably will be lost. A close study into the charac- ter that represents the store will show that this is the ful- crum of success. Character does not cover personality alone. The mer- chandise itself is changed from the neuter gender to that of personality in its relations to store-keeping of modern times. Questionable character is repulsive, not only to wholesome people, but eventually to others of questionable character. Likewise, does shoddy merchandise sooner or later take on repulsiveness. A conscientious coworker who is out to win success can only find success through real hard work. He is one who will give two dollars of labor for one dollar received. Unfortunately, the masses cannot under- stand this. The store that will give full value and a little extra for every dollar they ask for their stock must of necessity create trade, receive trade and hold trade. Abra- ham Lincoln may well be quoted in this respect when he 244 RETAIL ORGANIZATION AND ACCOUNTING CONTROL said ' ' you can fool all of the people some of the time, some of the people all of the time, but you can't fool all the people all of the time." Then there is the paradox of P. T. Barnum, a " Sucker born every minute." Capital as to Man Power. The capital of the retail establishment may be divided into three divisions: Circulating capital. Fixed capital. Man power capital. Of fixed capital and circulating capital, the author has previously made mention. Since the durability of circu- lating capital is less than fixed capital, the circulating cap- ital will be diminished unless it is accumulated by profits. The extent of any business venture depends upon the cash originally employed. Borrowed capital is usually in the form of negotiable instruments. Of the three divisions, man power capital becomes an important factor. Not only does it represent a cash value as to labor, but it also has the power of producing evolution to circulating capital, which puts industry into motion. Man power capital is represented by knowledge which is power without which power cash capital or its exchange- able value other than knowledge of labor will soon diminish cash and make the business venture a failure. It behooves the merchant to equalize his cash capital in proportion to man power at a ratio of 1 to 2. That is, knowledge in any par- ticular branch of retailing must be twice as great as its exchangeable value in cash. The earning power for the organization reflects the personal earning power of the coworker, who must be a possessor of man power capital. Every organization should possess an educational curricu- lum with the objective of development of man power capital. MERCHANDISING 245 Location. In its relations to merchandising, location becomes a prime factor. In this respect it may be sub- divided into the classes of Inceptive location. Popular location. Medium location. Exclusive location. Inceptive location refers to the premises and locality in the city or town where a store is contemplated. Where the community is not rated as a first class city, the drawing element must receive careful attention. This requires the geographical consideration of neighboring towns, villages, hamlets and farming surroundings. There are cities and even towns whose suburbs are considerably greater than their own population. Then, again, there is the railroad center from which a transient trade may be derived. The population, the industries, the earning power of the people, their habits and customs, amusement centers, climatic con- ditions, productions, banking facilities, transportation facilities, and adjacent towns have their share of analysis. These elements must receive careful study prior to investing capital, not forgetting a thought to competition. When all is favorable and a decision is arrived upon, the retail business section is to be determined. Upon this determination rests the class of merchandise to be carried on for trade. Upon concluding the selection of the retail center, the question of the right side of the street is next in order. Observation will conclusively prove that one side of the street is a greater thoroughfare than the other. Where the thoroughfare is greatest, the selection for the store site must be determined upon. There are a number of cities where both sides of the street are almost equally used by the in- habitants. Yet even in these instances one side will always 246 RETAIL ORGANIZATION AND ACCOUNTING CONTROL be a shade the better. You cannot merchandise unless the people are there to merchandise with ; the greater the num- ber of the people, the greater the merchandising. Popular location refers to the masses and the center in which the poorer classes are accustomed to do their shop- ping. Closely following this location is generally found the medium location, which caters to the middle classes. In our country, as shown by statistics, 90 per cent of the entire population possess less than one thousand dollars; 8 per cent possess from one thousand to five thousand dol- lars, and 2 per cent possess over five thousand dollars. From these statistics a clear discrimination may be drawn for the poorer classes or popular trade, the second class for medium trade and the exclusive class, which is known as the better, or exclusive trade. A distinction is also made between the exclusive trade and ultra-exclusive or society trade. The exclusive trade will always endeavor to isolate itself from the popular and even the medium trade. To exemplify this, New York a century ago had its shopping center at Chatham Square and Catherine Streets. When the poorer class began to inhabit this section about the time of the Civil War, the shopping center moved to Grand Street and Bower Lane, now known as the Bowery. Shortly after the war, it again moved a mile further north near Fifth Avenue. In the last fifteen years, a further move was made to 34th Street and up to 42d Street. The fact that the popular trade and medium trade localized itself in certain shopping cen- ters, and a tendency to populate other sections of the city, assisted in the movement of the retailing section. It was further assisted by the new railroad centers of the New York Central Railroad and the Pennsylvania Railroad. The exclusive trade until a decade ago was located on Fifth Avenue from 31st to 35th streets. To-day the influx of other classes of trade has forced the exclusive trade to MERCHANDISING 247 move further north to where it is now located. These vari- ous movements conclusively demonstrate that location and the class of merchandise to be carried are in trade closely allied. A retail organization will sometimes inadvertently pass from the popular to the better grade of merchandise, generally through the constant changing of buyers, and will not awake to the change until the sales begin to dimin- ish and the turnover slackens. If it is the intention of the store to change the classification of its merchandise, the administrative body of the store must be farsighted enough to prepare a change of store location. Layout. The store layout is a continuous thought in the management of the retail establishment. The meaning of the term layout is the manner in which shelving, counters, tables and racks and aisles are arranged. The street entrance to the store must immediately attract the attention of the patron and create an impression of pleasant sur- roundings that will make the patron feel like seeing more. The atmosphere should be filled with a feeling of happiness, the clerks should be ready with a delighted smile to wait on the patron with the feeling of not only good will, but of pleasure at attending to the patron's wants. The appear- ance of coworkers has a tendency to enhance the value of the store layout. The aisles should at all times be as wide and as many as the width of the store will permit. Where counters are used, which generally are located directly in front of walls, the width of such counters must receive consideration with regard to the class of merchandise used. For example, a glove counter must be upholstered and one-third the width of the silk or domestic counter, or of such counters as are used to display linens, muslins and dress goods. All cases and fixtures of every description must be appropriate for excellent display of the merchandise which the section houses. 248 RETAIL ORGANIZATION AND ACCOUNTING CONTROL Beginning with the basement, it is customary to have such departments as house furnishings, groceries, meat market and dairy ^products. Many stores utilize the base ment as a lower price store, and carry here a complete department store stock. This does not permit the base- ment, or downstairs store, to take on the appearance of an auction house. Its enticing layout must be in harmony with the store in general. All floors should be so arranged as to denote individuality in accordance with the stocks and for the comfort of the shopper. Cooperating. The retail establishments and depart, ment stores make it necessary to subdivide cooperation into three divisions: Coworkers cooperation. Departmental cooperation. Department head cooperation. Economics teaches us that labor is the ultimate price that is paid for everything. The exchangeable value for labor given by the worker of a store is cash ; sometimes cash and commodity. A remuneration having been paid and being paid for labor, it is within the rights of the organiza- tion to expect such labor, better known in retailing as ser- vices (labor being better applicable to manufacturing pro- duction) to be as the organization wishes it. Such rights must be exercised with precautions, always having in mind that capital and labor must work harmoniously together to accomplish the objective. The coordination of all co- workers to cooperate, as it were, in a single unit must fol- low. Assimilation, when referring to the animal body, is the building up of tissue. This is done through organic substances, from proper nourishment. Cooperation of all classes of labor, direct or indirect, should receive such nourishment in the form of education on the subjects of human nature, altruism, clean thought, value of progress, MERCHANDISING 249 the rewards of honest execution of work and happiness derived from work, and from harmonious contact with the fellow-worker. "We are taught that poisonous substances taken into the body cause dissimilation or the tearing down of the body tissues. There is no distinction in the application of for- eign thoughts to a coworker's mind. When destructive thoughts or thoughts that divert the mind from clean activ- ity are engendered, there can be no cooperation. It is the object of every department store to operate each department as if it were an individual store. In many instances these departments take on specialization in the commodity handled. Those stores that do not specialize their departments, can do but a limited volume of business. Lest it be overlooked, modern commercialism is in the form of specialization, and the greatest factors that department stores have to contend with in competition are the specialty shops. In specializing the merchandise carried in trade in a department, it becomes a necessity to carry the class of merchandise to meet the demands of the trade catered to. The sales person should not be placed in a position to say " very sorry, indeed, Madam, but we do not carry it in stock. ' ' Buyers often neglect to complete their stocks 'and its entire complement. The moment the neglect becomes effective, the department has its shortcomings and speciali- zation is defeated. It is regrettable to say that such con- ditions exist in most department stores. Even in the so-called specialty shop, in the majority of cases, they often do not complete their specialization. In the cooperation of departments it will be often found that the management of one department through petty jealousy of another, will retard the advancement of the other departments and thereby engender the same feeling for their own department. It is hardly conceivable that 250 RETAIL ORGANIZATION AND ACCOUNTING CONTROL such feeling should exist, but only in the exceptional store, where education of mind and trade is a part of the store will it be eliminated. The feeling of one department against another will arise from so insignificant an action as removing a table, a rack, one foot of floor space, a window display for a day. A store tribunal, consisting of its co- workers, will be found a most excellent method of over- coming and combating such conditions. One department must at all times recommend other departments. Perhaps the greatest evil and enemy of cooperation in stores is caused by the lack of harmony amongst executives. Every executive has his functions to perform. They must be performed without fear, with farsightedness, be well balanced logically and with the paramount thought of the good of the store. The ideal executive of the retail store is one with a happy trend of mind, cheerful on all occasions, a student of human nature, well educated through school- ing and worldly knowledge, having complete control of his temperament and long training in merchandising. All executives do not possess these qualifications and it often happens that one may feel petty grievances, generally with- out real cause. Distracted thoughts follow and the store bears the brunt of such distraction. Men are sometimes prone to tell their troubles to some coworker. The co- worker becomes the medium of circulation, thereby engen- dering destruction of cooperation throughout the store. Executives should have their weekly meetings, in which all supposed ill feelings are to be aired, cooperation discussed and the furtherance of progress promoted. Service. Undoubtedly, the greatest factor for com- mercial success in retailing in modern times, and greater still for the future, is Service. An enterprise without ser- vice is likened to suspended animation, or an inanimate state awaiting a resuscitator who knows how to conduct retailing along modern principles and who besides being MERCHANDISING 251 an executive of ideas (sound ideas) is also a humanitarian. The question of capital and labor is endless, yet we must concede that capital and labor must work harmoniously together to assume success. The modern department store is an exemplification of capital and labor in two forms : 1. Capital and coworkers. 2. Store customers. Capital and coworkers will be treated as the store or organization in its relation to service. It is common for any interested party in retailing to pick up a newspaper of any of our cities and read : " The People's Store," or " Make Blank and Company Your Store." Most of this is pure and, in most instances, unadulterated " bunk." The store may wish to have its organization patronized by the entire community. The mere fact that its desire becomes known through publicity does not necessarily prove that the desire is accomplished. The desire must be applied to the laws of " cause " and " effect." It must be promulgated from the administrators to the coworkers, not merely by word of mouth or by a placard in the coworker's locker room that the store wants in- creased sales. The coworkers must be trained in perfect salesmanship. It must not be overlooked that the co worker spends the greater part of his life at the store. Unless that coworker's mind is at ease by sufficient remuneration, har- mony to perfection with the fellow-coworkers to assure happiness in being at the store congenial surroundings and interest sufficient to wear a smile that is broad and benevolent, any desired effect must be defeated. When the training of the coworker is an accomplished fact, only then can proper service be rendered to the community. The embryonic stage of service is with the coworker. His schooling must be in accord with the house policy before he can be expected to render service to patrons. 252 RETAIL ORGANIZATION AND ACCOUNTING CONTROL Optimism is a most wonderful doctrine, but to think that the customer is receiving service without training the help to render the right kind of services is a delusion. Having educated the coworker, the question arises as to what service is to be rendered a patron to make this patron a permanent customer, an asset to the organization, so that the mere mention of the organization's name immediately brings thoughts that are synonymous with pleasure in shop- ping. Service may be segregated as follows: Courtesy. Accommodation. Value. Courtesy. Many are taught courtesy from child- hood ; others cultivate their disposition to be courteous, and still others find they are forced to be courteous. The latter character is the unwanted class in every walk of life. David Bates, in his poem " Speak Gently," says: ' ' Speak Gently ! It is better far To rule by love than fear. Speak Gently ! Let not harsh words mar The good we might do here." Accommodation. It is one of the most beautiful reflec- tions that the teachings of brotherly love are part of our existence upon this planet. Altruism must certainly bring happiness to the altruist. This should be part and parcel of an organization's policy. The author agrees that no business organization is a charitable institution, and that business is founded for profit. But profits are accumu- lated by turnover of stocks, and every possible element that may lend assistance in turning stocks must be brought into play. Accommodation is a great factor that must be reckoned with, especially in retailing. In other businesses, accommodations take on a different aspect, though the one MERCHANDISING 253 who receives the accommodation usually pays for it in the form of value received. The retailer may receive it in a part of his mark up or directly charge it as part of his store burden. In what form may the department store accommodate its patrons? The ways are many and they usually are: Charge accounts. Parcel wrap accommodation desk. House shoppers. Obliging assistance. Shopping guides. Baby nursery. Store hospital. Professional nurses. Children's playground. Rest rooms. Roof gardens for resting and shopping. Sun parlors. Musical entertainment. Reading and writing room. Stationery for patrons' use. Post office. ' Theatrical attraction, ticket offices. Fashion Bureau. Complaint Adjustment Bureau. Store Information Bureau. City and General Information Bureau. In fact, any good, sound idea that will make the customer feel at home and satisfy his or her wants, should become a part of the accommodation service rendered, and a con- venience for shopping. Value. Quoting David Ricardo, 1 "if it (a com- modity) could in no way contribute to our gratification, it 1 Political Economy, Chapter 1, on Value. 254 RETAIL ORGANIZATION AND ACCOUNTING CONTROL would be destitute of exchangeable value however scarce it might be, or whatever quantity of labor might be necessary to procure it." He further says, " In speaking of commodities, of their exchangeable value, and of the laws which regulate their relative prices, we mean always such commodities only as can be increased in quantity by the exertion of human industry, and on the production of which competition oper- ates without restraint. ' ' The subject of variations of value and the influence of demand are divided into : 1. An increase of value, from a diminution of quantity. 2. A diminution of value from an augmentation of quan- tity. 3. A possible augmentation in its value from the circum- stances of an increased demand. 4. Value might be diminished by a failure of demand. Ricardo, though he lived early in the nineteenth century, has so well defined value and the principles of demand, that no exception or comment is necessary. A parallel, however, may be drawn to the misinterpreta- tion of value as commonly applied in modern retailing. A retail merchant who will mark commodities, regardless of the demand in the community, at a close margin of profit, will claim that the commodity is of wonderful value. Again, the buyer will go to the market and pick up (using here the customary trade expression) a lot of merchandise, call it a ' ' job ' ' if you like, at a price at cost or below cost of production. The arrival of the merchandise at the store will be marked at a very close or reasonable mark up, some- times a greater mark up. In placing the merchandise on sale, value will receive considerable expression. That is, the merchant's opinion, perhaps his honest opinion, is that wonderful values are being given for the price and he accentuates his opinion by bold advertising. MERCHANDISING 255 Consideration must be given to the consumer's opinion of value, which is more important than that of the mer- chant. The consumer, believing that her purchase was worth every cent paid, and even agreeing with the mer- chant that the value was exceptional or even extraordinary, will forget the consideration given for the commodity pur- chased and solely judge the purchase by its use, its wear, its durability, the benefits of pleasure gained by its pur- chase. These results are the measure of value on commodi- ties placed by the ultimate consumer, by which a store's ser- vice may be either enhanced or destroyed. Destructive service is first begun by inflated values or misrepresentation. As an example, here is an advertise- ment generally appearing in newspapers in which depart- ment stores advertise : " Extraordinary is the only word which seems ade- quate in describing the splendid values offered in this sale. i " Hosiery sale. Savings are quoted as a fourth to half, but that means savings of 25% to 50% on our regular low prices, etc. " $1.75 to $2.50 silk stockings, $1.39 pr." The question of value here must receive particular atten- tion. No merchant could honestly sell a $2.50 stocking for $1.39 without impairing his trade. "Why is the $2.50 stocking being sold for $1.39? The consumer does not know it, but the merchant knows that the lead contained in the silk will reduce the stock to an unsaleable state unless that stock is made to move quickly. Perhaps the stock has already been kept too long and, after the cus- tomer has fallen for the bargain and has worn the stocking once or twice, they are torn or holes fall into them. The question arises, how many of such customers will again visit this particular hosiery department for their wants. The answer is obvious it will only be those who have 256 RETAIL ORGANIZATION AND ACCOUNTING CONTROL fortunately picked up an exceptional good pair of stock- ings. In this particular advertisement, the store's fallacy has been the lack of explaining this tremendous reduction. The creating of furniture sales, white goods sales, house furnishings sales, drug sales, and any number of others, must not be a trumped affair, nor a job lot manufacturer's outlet, but an honest, truthful and reflective statement of the whys and wherefores of the sale, always having in mind not the merchant's opinion but that of the patron. The merchant's opinion won't count for much unless his words are substantiated by the products he deals in, regardless of the class of people catered to. Sales Promotion. In part, this subject has been dis- cussed in the chapter on turnover. There are two distinc- tions in merchandising. The one being buying, the other selling. Of the two, the latter is the greatest problem. Where the enterprise is of small proportions, it is custom- ary for the merchandise man to care for the merchandis- ing, both buying and selling. In larger organizations, a salesmanager is a necessity. A sales promoter is not one who knows too much or knows all about sales, but is rather the possessor of extraordinary brain power, a quick thinker, in touch with all the economic conditions of the country as well as of the community in which the store is located, and a master in salesmanship. Ketail sales promotion is at variance with the sales pro- motion of the manufacturer. The one is the distributor to the ultimate consumer, whereas the other sells to the retail distributor. And in most instances for a considerable length of time prior to the use the consumer may utilize the com- modity. The question of supply and demand is the prob- lem for the retailers to solve. It is of the utmost import- ance for the sales promoter, at the beginning, to possess a keen understanding of the economic conditions of country, state and community. In the analysis of supply and de- MERCHANDISING 257 mand, a thorough understanding of labor conditions must be considered, for cost of production regulates the exchangeable value of commodities. This has been demon- strated persistently during the European "War. The in- crease of labor from land products in commodities of almost every description increased the exchangeable value, better known as the market value. Sales promotion requires good, sound ideas. A factor that is a modifier of sales promotion is competition. Care- ful consideration should be given to the population of the community and its surrounding counties from which trade is expected. From the known population, the greatest vol- ume is set as the goal the highest peak possible to be reached in annual sales. This having been done, a thought as to transient trade is not to be overlooked. The wealth of the community and how it is distributed to the class of trade to whom the store caters, is of utmost importance. Usually this is controlled by the industries of the com- munity that support labor. "Where labor is in big demand, it is reasonably certain that a large retail exchange of com- modity for gold must follow. "Where the community does not require an abundance of labor, the retailing exchange of gold for commodity must of necessity be limited. If the division of wealth be divided into two classes, that of the extremely wealthy class and that of the lower class, and the population is small, it must follow that the wealthy class will seek their requirements from exclusive establishments situated in the larger communities, and the possible ex- change of gold for commodity from the poorer class is lim- ited to that paid for necessary essentials. The present and future of the store must at all times be paramount in promotion of sales. In looking into the future, the coming generation must be educated from child- hood to look upon the store as a place for good things, and to be proud of the fact that it is an organization where 258 RETAIL ORGANIZATION AND ACCOUNTING CONTROL merchandise obtained always gives pleasure and value received. To this end, a store should protect its future business and instill the desire of shopping in the coming generation. Bi-weekly or monthly prizes should be offered for compositions, essays, suggestions or any feature what- ever that brings the store to young minds. For right here is where the family begins to discuss the store at the dinner table or even in social circles. When such discussions of a store become a household topic, there can be no greater advertising to bring the right kind of results. A store committee, consisting of the more important ex- ecutives and buyers, should be appointed to meet once a week for two hours, to discuss ways and means to promote sales. This committee will gradually take every detail of the store and its community into its discussions. It is sur- prising to know the wonderful results that follow. The entire uplifting of the store is the result, and occasionally outsiders' opinions and travels will polish thoughts gen- erated from these committee meetings. A cardinal essential to sales promotion is a good idea. Ideas make a business. True to this, it becomes incumbent upon the sales promoter to study new ideas continually, especially original ideas, well analyzed before they are put into motion. Sensational ideas create curiosity and stimu- late desire, but their purpose is defeated when they are too often repeated. They not only must produce a desired result, but must be the means of creating in the minds of the community of patrons thoughts that are homogeneous of the commodity offered for an exchangeable value, either for the demand of the present or for the future. Ideas must be acceptable to the community to produce the de- sired effect in the store organization. To experiment upon ideas, the acceptability of which is dubious to the com- munity, is costly. Bather than increasing the turnover of a commodity, this increases the store burden, and the means of diminution of capital. MEKCHAXDISIXG 259 Sales Promotion as to Store Analysis. The analysis of sales promotion must receive its full complement of the elements mentioned along with statistics established by the store. The analysis should be made by departments and treated individually and not as a whole. It is not suffi- cient to set up a store's own statistics of its departments. Those of its competitors become equally important. Per- haps no organization for commercial trade is so qualified to ascertain its competitor's statistical information as that of the department store or specialty shop. The elements to receive particular attention are those of the number of people visiting departments, from 12 o'clock noon until 4 P. M., not only of its own store but of its competitors. In heavy departments such as coats, suits, dresses, fur- niture, etc., the number of pieces carried in stock, com- pared with that of competitors, should be known daily. To obtain this is not difficult under present day shopping customs. The difficulty can only arise where exclusive styles are carried in stock. In such cases, trade sales promo- tion takes on an entirely different aspect. The quantity of stock carried on for trade generally reflects the demand for a department's merchandise. To know a competitor's stock quantity, at least weekly, is of intrinsic value. The prices of the merchandise carried on in stock are, to a certain degree, known to competing stores, through advertising and store shoppers. But this is not usually efficiently pur- sued. The information the shopper should obtain njust be as complete as possible, and must be ascertained with cleverness. A further assistance in setting up statistics for comparative purposes and for knowing the extent of com- petition to augment other knowledge, is the number of co- workers employed in the different departments. A buyer or merchandise manager can very readily approximate the extent of a department's sales by the number of sales help in a department and the prices of the various stocks, 260 RETAIL ORGANIZATION AND ACCOUNTING CONTROL especially if the additional information previously men- tioned is at hand. Sales Promotion as to Store Analysis. A further aug- mentation to competitor's statistics is the space daily occu- pied by departments in the various daily newspapers. Per- haps the reader may contend that the foregoing subject of Bales promotion is included within the meaning of a secret agent procedure. If so, the author desires to have such thoughts perish. It is again necessary to repeat that' knowledge is power, that competition is most welcome in any community, but that to meet competition and promote expansion, a more comprehensive method of paving the way in obtaining the objective that knowledge of every source could not be found. In this the knowledge obtained must receive the full complement of merchandising. In every undertaking of sales promotion, the public must be considered in every move that covers not alone the store 's established patronage, but the entire community. The public buys what it pleases, and the store must adapt itself to the class its policy caters to. The analysis of the store 's own shortcomings in sales pro- motion requires constructiveness from the individual sales clerks. To exemplify this, there was a store whose shirt waist department's annual sales were about $400,000, that* did not come up to the allotted quota. That is, the depart- ment was expected to do $500,000, and it ran short $100,000. A complete analysis was made for the year in the following manner: Each coworker 's sales were enumerated by sales checks that is, the number of sales effected weekly and the value they represented in dollars. A monthly analysis in addi- tion was made on the following outline : MERCHANDISING 261 Co- worker No. of sales effected Value in dollars Prices of Waists Sold 2.00 2.50 3.00 3.50 4.00 5.00 etc. The results of analysis demonstrated that certain co- workers whose amounts ran high in dollars, sold the higher priced waists, while others sold in greater quantity but in lesser amounts in dollars. This clearly demonstrated that certain clerks seemed nonchalant to the trade requiring the cheaper grade of waists, and others were unable to meet the ability to effect sales in the better grade. Education along the lines necessary to overcome the in- difference of the one and to increase the ability of the other became a factor, and the necessary procedure to put the education in effect followed. CHAPTER XI PROFIT AND LOSS Profit and Loss Defined. The income of an organiza- tion may be segregated into three divisions : The first is the income derived from the product in which the organization carries on trade. The second income, that derived through financial transactions. The third, that derived through extraordinary pro- cedures. Defining the first, income from commodities carried on in trade would be the proceeds realized from the sale of such ;stocks through departments, selling agents, or individuals. Financial income would be defined as profits accruing through the financial transactions of the organizations. Extraordinary income, where incomes are determined from transactions entirely foreign to those in which the organization has an objective of obtaining profits through trade. This income through the sale of stocks carried on in trade of the department, is divided into three circumstances. These are from: Cash transactions. Charge transactions. C. 0. D. transactions. Charge transactions mean transactions where charge .accounts, better known as accounts receivable accounts, are carried on. Cash Sales. It is necessary to segregate the various .sales of the department store or any retail establishment in 262 PROFIT AND LOSS 263 order that the audits may be controlled properly and in order that the available cash may be known at any future date in order to meet obligations, especially where the organization has reached such proportions that a budget system is necessary in order to meet every requirement. In conjunction with this, a classification of the store's trade with the setting up of statistics necessary for the better management, is available. Every department store man is very much interested in knowing the cash receipts for the day, week, month or year, and the percentage of cash, C. 0. D. or charges represented in the day's sales. It is customary in beginning the Profit and Loss state- ment to record at its beginning the sales, or the income from which the burden will be deducted. This is not altered in the department store statement with the excep- tion that the sales are detailed. The first item appearing on the Profit and Loss state- ment is cash sales. This represents the gross receipts in cash from merchandise sold, whether it be a cash transac- tion or cash which represents a part payment. Charge Sales. The next item in order is charge sales. The amount representing the sales for charge accounts will be the gross amount of the actual charge sales effected throughout the entire establishment. These refer to Accounts Receivable. They will represent actual sales which have been passed upon by the credit department and controlled through the credit office in so far as credit limits and collections are concerned. 0. 0. D. Sales. All sales for C 0. D. transactions, whether the source is from a part payment, a will call or a C. 0. D. transfer check regardless of what the source has been, the fact that the merchandise was not paid for until delivery at a later date than the one when the sale actually occurred makes it necessary that the transaction go under the caption of C. 0. D. sales. These C. 0. D. sales 264 RETAIL ORGANIZATION AND ACCOUNTING CONTROL are the third of the source income, or circumstances of effected sales. Total Gross Sales. Perhaps it may not be necessary to enter into discussion of the various methods in which a profit and loss statement is set up. However, there are ele- ments entering into setting up a profit and loss statement of a department store that are unlike those of other than retail businesses. After having segregated the divisions of the gross sales, the ascertaining total is next in order. The percentage should be set alongside of each division; the total of which will equal 100 per cent. To be exact, 100 per cent would be an impossibility. It will, however, represent .9999, etc. The total gross sales divided into each division of sale will give as a quotient the percentage of the total gross sales. Sales Returns. Many organizations will set up a profit and loss statement showing the sales as a net amount. The department stores vary so extensively in this regard that the amount of merchandise returned of any of the three divisions is as important as setting up the sales themselves. Statistics show that there is quite a variation in the difference of returns, depending upon the classifica- tion of sales. This will be shown in the following chrono- logical order of returns. Cash Returns. Cash returns mean returns of mer- chandise for which cash credits have been issued or cash refunds have been made, because of the customer's dissatisfaction with the merchandise. Dissatisfaction may not always be the case, but from the department store point of view, it is seldom the real reason. The feminine sudden inspiration may determine upon the purchase of an article and the determination subsides when that person reaches her domicile. Fortunately, the change of mind is here less than in any other transaction. The statistical percentage of the cash returns on all transactions average 6 per cent for the year. PROFIT AND LOSS 265 It is a known fact in retailing that cash transactions are very small, though 6 per cent on a large volume of business amounts to a considerable sum.. Still, when a comparison is made with the returns of other classifications of sales, it is, comparatively speaking, a small item. The knowledge of the percentage of returns under dollars and cents is also necessary in order that the extra cost to the delivery department may be determined. This makes it necessary, in setting up the Profit and Loss statement, to segregate the classification of sales as well as the classification of returns. The percentage is obtained by dividing the total of designated divisional sales into the divisional return, giving as a quotient the percentage. The total returns are divided by the gross sales to obtain the total percentage of returns. Charge Credits. Following cash credits, the next in order are the charge credits, which comprise credits for merchandise returned, from charge accounts or from allow- ances for claims. This form of credit is very costly for the reason that the charge account will have certain mer- chandise sent to the home and, after permitting it to remain several days and sometimes several weeks, a claim will be made or the merchandise returned. During the years 1916-1917-1918, strong efforts have been made by department stores throughput the country to eliminate the return evil, with the result that many stores have adopted certain regulations regarding the acceptance of returns, to the extent that any merchandise purchased on a charge or otherwise, unless claim is made or returned within three, five or seven days, is not acceptable. Also apparel other than apparel known as outside apparel is not accepted as a return under any conditions. The general excuse given by stores for the non-acceptance of merchandise is the sani- tary conditions that prevent the store from making the credit or the exchange; and there are even laws in various 266 RETAIL ORGANIZATION AND ACCOUNTING CONTROL cities that prevent a store from making exchanges of such apparel, whether for men, women or children. The average return of charge accounts varies from 12 per cent to 16 per cent, depending upon the location of .the city, the percentage being figured of return charges on charge sales. C. 0. D. Returns. Returns of merchandise, regardless of the nature of the business, are at best an evil. In apply- ing the term " evil," which is a characteristic application by retail men for returned merchandise, the word is used to apply to the hard usage through which the merchandise is put and the deterioration in value of stocks after they make the circuit from the store to the customer and back again. C. 0. D.'s are segregated into two kinds: One is a part paid C. O. D. which refers to those C. O. D.'s on which a deposit has been made by the cus- tomer. The second is a straight C. 0. D. on whicli no deposit has been made. C. 0. D. sales have taken on the same aspect as charge sales to the extent that the retail merchants throughout the country are making every effort to diminish the C. 0. D. returns by requesting a deposit on any merchandise pur- chased under terms of C. 0. D. Unless a deposit to equal the proportion of the amount of the sale is made, the stores will not make a delivery. There was a time when a department store claimed that delivery expense was either 3c, 4c or 5c a package. A store would consider itself quite fortunate, under pres- ent conditions, if the cost per package was 12c. Still the author ventures to say that there are some large depart- ment stores in the country whose cost per package is no less than 25c, and others as high as 35c, and perhaps more. PROFIT AND LOSS 267 The necessary procedure can readily be understood to which a store finds itself put to take in order to prevent additional expenses from merchandise purchased and then returned with no adequate excuse for such return. A woman will enter a store and, after putting the clerk to a considerable amount of trouble and annoyance in showing the merchandise, the prospective customer will think she is taking compassion upon the clerk by telling her to send the merchandise to her home C. 0. D. "When the delivery man drives up to the door he receives an invitation to take the merchandise back with a D. "W. (don't want) along- side of the customer's name on the delivery sheet. This is perhaps one of the reasons, and the most common one, why the C. 0. D. sales are so heavy. The change of mind is more pronounced on a C. 0. D. sale than it is on any other classification of sales. Statistics show that the average returns of C. O. D.'s range from 20 per cent to 35 per cent of the sales. . It may be argued that one of the reasons of the continua- tion of the C. 0. D. sales is that if a store runs a $1,000,000 C. 0. D. sales, 35 per cent of which we will say is the maximum average of returns for the year, the store still would have a net C. 0. D. business of $650,000. Whether or not the profits gained from the $650,000 are sufficient to cover the expenses, depreciation and time of the sales clerk, delivery department and auditing department is a subject for the individual store to determine for them- selves. However, the author recommends C. 0. D. sales on account of their psychological effect on customers and their relations to good will. Total Returns. Summarizing the returns of the vari- ous classifications, the total is deducted from the total of gross sales in order to obtain the net sales for the entire establishment. The total of returns is based upon the total of the gross sales, in order to obtain the percentage of 268 RETAIL ORGANIZATION AND ACCOUNTING CONTROL returns without any discrimination. The average returns are based on 10 per cent, though they may be as low as 8 per cent and as high as 12 per cent or 13 per cent. A mail order house using a considerable amount of the elements of accounting the same as those of the department store, shows that returns will average about 12 per cent. This demonstrates that whether the merchandise is bought through mail or in person there is a certain amount of returns to contend with. Provision for such returns must be set up in every undertaking in the management of a store. Unless provision is made for the care of the returns, it will be found that profits will be absorbed through this channel by indirect cost or blind costs. Net Sales. In order that profits may be determined the net sales is the basis of calculations. Having discussed the gross sales and the returns, total returns being deducted from the total gross sales, the net sales will be determined. In the retail establishment, where returns of merchandise are perhaps larger than any other known business, good accounting makes it necessary that all details regarding sales should be shown on the profit and loss statement. A ready comparison between the net sales and the gross sales is one of the important figures which the management or the owner of a department store will look forward to with such anxiety, for the balance sheet must be subordinate to this figure. By mentioning balance sheet as a subordination, the retail merchant knows just how he stands in his affairs. "Whether he is worth a few dollars more or less does not enter into his mind. "What he wants to know is how his business is going, and the balance sheet does not show this from a merchandising point of view. Accountants may argue that the balance sheet is a necessity in order to know the conditions of one's business. The author, on his own knowledge, must admit this, and PROFIT AND LOSS 269 cannot refute any discussion along this line. But the mer- chant operating a department store or retail establishment is interested in the fluctuations of his business from the merchandising point of view. It is safe to say that 90 per cent of the merchants operating a retail establishment care very little regarding the balance sheet, and in fact a great percentage of such merchants do not even know what an accountant is talking about when he refers to the word balance sheet. If the term financial statement is mentioned it is understood, but the operating methods of the retail establishment superseded by merchandising are what fill 99 per cent of the retailer's time. Having arrived at the net sales for the period, the next procedure is to ascertain exactly what the net sales cost. Cost of Sales. In order to ascertain the cost of sales for a trading statement or a Profit and Loss statement, there are three elements to be taken into consideration. The first will be that of inventory beginning of the period. The period may be either the beginning of the fiscal year or the beginning of the month. Retail stores control their inventories at retail, though a very great per- centage still retain the old method of controlling their stocks at cost. Where the inventory at the beginning is set up at retail, its ledger value should be reduced to cost. To this cost of inventory the amount of merchandise, purchased for the period for which the trading statement, is-set up, should be added. From the total of the inventory beginning, plus the merchandise purchases, the inventory on hand, better known as inventory ending at the par- ticular period at which the statement is being set up, should be deducted. This results in showing the amount of merchandise used in order to produce the net sales at the beginning of the profit and loss state- ment. Consequently, the amount of merchandise used at cost in order to affect the net sales becomes the cost of 270 RETAIL ORGANIZATION AND ACCOUNTING CONTROL the merchandise for the net sales that have been affected. Gross Profits. The gross profits take on a considera- ble amount of importance in merchandising, not alone for the amount of money that they represent in dollars and cents, but for the mark up that they represent on the mer- chandise. The merchandising of a department store entails a considerable number of details. The foremost, however, of all these details is the mark up. Merchandise that is sold must carry with it a certain profit, though it is a very common occurrence for a department store to buy quantities of merchandise for various departments, and mark them at cost, and very often, indeed, below cost. To the accountant it seems ridiculous, to the merchant it appears as good bait to catch fish. In fact, department store merchants, in order to merchandise properly, require that the public should get something for nothing some- times, as well as something for a valuable consideration. A department is charged with a certain percentage of overhead. It is therefore necessary for the department to produce a certain profit equivalent to this percentage, suffi- cient to leave a margin to cover the difference between the overhead and the net percentage of profit required. To exemplify this, a buyer is engaged to purchase certain merchandise, and as manager of that department, he will be expected at the beginning of the season to show a profit of 40 per cent. The buyer will be permitted to take cer- tain mark downs, but the well managed store will insist that the buyer and department manager should close his season's business with a stipulated percentage for his goods of 33 per cent. This 33 per cent represents the mark up for the gross profits. It is seen from this point of view that the gross sales are the result of the mark up in mer- chandising. A buyer or department manager cannot be held respon- sible for the net profits. They can only be expected to PROFIT AND LOSS 271 show a gross profit on merchandising. They are not responsible when it comes to the operating burden. In fact, they are not required, nor are they engaged, to con- trol operating burden. Their position is to buy and sell, with no interest, whatever, in the operating burden. Such burden is controlled through the general management. It therefore does not fall to the lot of the buyer to show net profits, but the gross profits are closely watched, not alone when a periodic Profit and Loss statement is set up either monthly or closing the year, but daily, for every movement in the merchandising. The mark up is carefully scrutinized. The cost of sales deducted from the net sales will give us the remainder of gross profits for the period. The gross profits, divided by the net sales, will give as a quotient the percentage of gross profit. Operating Burden Administration. The operat- ing burden of a department store is divided into nine divisions, known as Administrative, Buying, Advertising, Selling, Receiving, Occupancy, Delivery, Indirect Burden and Workrooms. Each division will be treated separately. The administrative burden of any organization relates to expenditures necessary to operate the business, which a single unit does not take on a direct charge, and which are promulgated through executive offices. A department store consists of a number of departments shading into the vari- ous accounts of merchandising. Each department is con- sidered as if it were an individual store. Each department is but a unit of the whole undertaking. The administrative burden is distributed monthly to the various units by pro- rating on sales, on purchases, on sales checks issued by the department monthly, and on the number of packages delivered. In fact, conditions at each store are such that every element of the store's management must be taken into consideration prior to establishing an equitable basis for distributing the burden to the various units. The dis- 272 RETAIL ORGANIZATION AND ACCOUNTING CONTROL tribution is based on the element of expense to the division of burden it may refer to. Executive Salary. Salaries paid to officers of the cor- poration who are active, and executives who partici- pate in the general management of the organization, are included under this heading. These salaries usually are for general manager, business manager, superintendent, and administrative executives. These receive their distri- bution as a charge to the burden of the various depart- ments on the basis of sales. That is, the burden is pro- rated to the various departments on net sales per month for each department of the store. General Office Salary. The general office is the central station of the entire store system. Every branch of ac- counting of the house system, in fact, the entire network, of the store's management, is centralized in this office. It, will be divided into such offices as the general cashier, paymaster's office, statistical department, auditing depart- ment, billing department (this department conducts ac- counts receivable ledger, rendering bills and statements for charge accounts), accounts payable department, corre- spondence bureau, mailing department, general accounting and tracing bureau. The individual merchandising department heretofore mentioned is a single unit of the entire undertaking and generally does not carry its own office to care of the accounting of the department. There are, however, organ- izations where the volume of business may run into propor- tions of upward to $25,000,000 per annum, where it is necessary for each buyer to have a set of merchandising clerks to control the individual stocks. That is a separate problem in itself which will be treated under Merchandis- ing. However, as to general accounting, the general office controls this feature of the store's operations. This item of burden is pro-rated to the various depart- PROFIT AND LOSS 273 ments on the basis of net sales. It might be appropriate at this time to explain pro-rating of net sales. For example, if the store does a monthly business of $1,000,000 and a department has done a business of $100,000, the department doing the $100,000 business in pro-rating the net sales should be charged with 10 per cent of such burden distribution. General Office Supplies. Office supples usually run into very large proportions in a department store, even to a surprising degree. Still, every consideration for econ- omy should not be overlooked in using such supplies, which usually consist of stationery, printing, books, and tabula- tion sheets. All supplies issued, whether they be for the general office or any other department, should be issued from the supply department through a requisition, in order that the supply inventory may be credited with sup- plies which are removed from the supply department. Dis- tribution for this is similar to general office salary. All supplies that are issued to the administrative body receive similar distribution. Credit Department Salary and Burden. Like all busi- ness enterprises which sell merchandise on credit, the credit department is established in order to protect the circulat- ing capital outstanding. Every store gives the charge accounts the same procedure for extending credit limits and collections as any manufacturer, wholesaler, jobber or importer does. It is necessary that a complete record of each account be maintained in order that reference may be made to the responsibilities of each account. The cost of maintaining such a department is usually more than most organizations would care to admit. Very often faulty accounting is misleading to the extent that improper ac- counting cannot be set up for statistical purposes in determining the exact cost of conducting charge accounts. Impersonal accounts, segregating overhead for the credit 274 RETAIL ORGANIZATION AND ACCOUNTING CONTROL department, would be : Salary, stationery, subscriptions to mercantile agencies, credit investigating, maintenance of 0. K.ing system, collections, and legal fees. All this bur- den is administrative, since it has no direct bearing on any one department, and since all departments of the store receive the same attention without any discrimination. The distribution of the credit department cost which is ap- plicable to each department in the store, must be on the charge sales of each department. Legal Expense. It can be said safely that all matters involving litigation are best settled out of court. But there are occasions where employing legal procedure is unavoid- able. All legal expenses come under the head of adminis- trative, unless the legal procedure happens to apply to a department direct. If this occurs, the distribution for such legal procedure can only be applied to the merchandising department to which the circumstances relate. Where legal expense is purely administrative, it should be pro- rated on the sales. Charity Account. Almost every organization sets aside a certain sum of money yearly to be given to charity. This is perhaps done more extensively in a department Btore than in any other organization. For the store deals principally with women, and the women workers of the charitable organizations are always making it a point to make certain requests for charitable donations from the Btore with which they trade. Refusal very often is out of the question. It behooves the management to be very care- ful before making a final disposition of any request put to them for charity. This is a direct charge to administrative burden, since no special department of the store is directly responsible for the charitable donation. Equitable distribution of such burden is necessary. Should there be any benefit derived from the charitable donation, it would be of equal benefit PROFIT AND LOSS 275 to all departments. Some stores, in making their distri- bution for advertising, will charge charity to advertising. Such action could not be logically sustained, as charity is not given for advertising purposes. Any benefit derived by the store in the form of sales, as an after effect of chari- table donation, would be reciprocity rather than selling effected through advertising. Charity is charged to each department by pro-rating on the net sales. Recent rulings do not permit deductions for charities by corporations in income tax returns, though individuals are permitted this deduction. Information and Investigation. This is rather a pecu- liar caption and, for matters of accounting, it certainly does not convey any meaning. Still, it would seem rather peculiar should a department store not have an account of this kind. The store employing executives to whom exten- sive privileges are given, from a managerial viewpoint, finds it necessary to investigate the character and knowl- edge of each applicant so extensively as to make the direc- tors or owners of the organization reasonably sure that the person whom they are going to appoint will give satisfac- tory service. Mistakes are very dangerous, not to say costly. Considerable expense is attached to investigating in order to determine upon the appointment of such execu- tives. Then, again, the store will employ detectives, better known as investigators, to keep watch over persons addicted to purloining. How extensively these persons work is very surprising. There is undoubtedly at least one case a day in most large stores and an equal number is occasionally found in smaller ones. That such conditions exist is known to the management, and every precaution must be taken for protection. This burden, like all other administrative burdens, is not a direct charge to any one department. Therefore it must 276 RETAIL ORGANIZATION AND ACCOUNTING CONTROL be distributed equitably. This is done by pro-rating on net sales. Traveling Expenses. Executives occasionally travel to various cities in order to investigate the systems and management of other institutions, in order that informa- tion may be gathered that may be of advantage to their own organization. Further than this, traveling may be amongst their creditors, investigating market conditions as to merchandise, or accompanying buyers for diverse rea- sons. In fact, traveling may be on a large scope in order that the organization may be benefited directly by these trips. This is administrative expense and is pro-rated to the various departments on the net sales. Policy Account. This account is very often abused by its use as an outlet for anything except what the store stands for. Every organization, at its inception, deter- mines upon a certain policy to pursue. It is assumed that such policy is for the best interest of the concern. With a department store there is but one policy and that is " cus- tomer first." It is readily admitted that during the last half century women have become more interested in commercial affairs and are now holding an important post in the world of com- merce. "With all that, the percentage of women, who are educated along commercial lines, in order that they may thoroughly understand the position in which a merchant is placed, either in production or distribution of merchan- dise, is indeed very small. The natural result is that the women, who are the principal purchasers in a department store, will insist upon the most unreasonable demands. They will make complaints that would be astonishing to those who are not acquainted with retail methods of trade. And still, with all that, it must be remembered that ' ' Cus- tomer is first," and, whether she is right or unreasonably wrong, she is still right, and must be so treated. PROFIT AND LOSS 277 She must receive preference in every transaction. This is paramount. There must be no deviation from this. To the mind well trained in commercial affairs, other than retailing, it seems preposterous, and as if such preference to customer first means either a limited business or closing the front doors. Referring again to the account known as policy, it will often occur that allowances are being made on certain expenditures, or even losses are sustained, by giving preference to the customer. In these cases, the loss or expenditure should be charged to the policy account. The expenditure may arise by allowing a customer cash for any claim that would directly interfere with the good will of the establishment. Or it may be due to the return of merchandise after it has been worn a long time; in fact, to any number of reasons (and some of them are cer- tainly marvelous in their conception) . Disposition of these cases is generally put to the Superintendent of the estab- lishment. While he endeavors to make the best concession and tries to reason as much as he may dare to, he will always remember that persistency on the part of the cus- tomer will mean greater expenditure. Federal Taxes. There are several kinds of taxes pay- able to the Federal Government. These come in the form of Income Tax, Capital Tax, and revenue, in its relation to negotiable instruments, for which the department store comes into direct contact, and such taxes as may be enacted by the Federal government. The greatest of these is the income tax. While it is diffi- cult to determine at the beginning of the year or during the current year what the volume of taxes may be, still every merchant will know about what his profits will ap- proximate on the volume of business expected for the year. It would be quite an unfair distribution to allow federal taxes to remain open until the profits of the fiscal year hare been determined, and then to charge the various depart- ments and the surplus with one particular entry. 273 RETAIL ORGANIZATION AND ACCOUNTING CONTROL It is necessary, therefore, to set up a reserve for federal lax, doing so monthly, and charging the overhead with the approximated monthly reserve, and crediting the reserve for federal taxes. The Law does not permit taxes to be deducted as part of the store's burden. But the Law does permit and requires the amount of taxes paid for the cur- rent year to be charged against the surplus of that year. In carrying over the surplus to the following year, which is to be added to the capital, providing the balance of such surplus has not been distributed as dividends, setting up the -reserve and charging monthly the approximated in- come which can readily be determined through the monthly profit and loss statement does not involve hard- ship at the end of the fiscal year in meeting the obligations of the Federal government. A step further in this direction, which at the same time assists the financial management of an organization, would be upon determining the amount of the income tax monthly to withdraw such funds from the business and to invest them in bonds or other tangible property readily converted into cash. Thus interest is enabled to accrue on the investment for taxes which, though payable after the end of the fiscal year, should be treated as if it were pay- able monthly. There are months in the retail business which must, of necessity, show a loss. During these instances it is up to the management to use discretion. Most of all, when their profits are being made, it is incumbent upon the manage- ment to set up a monthly reserve for income tax and for Federal capital tax. A reserve should be set up monthly debiting its approximated monthly proportion to burden and crediting reserve for Federal tax ; reversing all Federal lax reserves and the closing of the fiscal year. Revenue Stamps. Revenue stamp tax is a tax on negotiable instruments. While it may be treated as an PROFIT AND LOSS 279 additional cost to interest, it is not a logical charge for the reason that the revenue stamp attached to the note repre- sents a Federal tax and not interest. For this cause, a reserve is not necessary, but the tax paid is a direct charge to burden, allowable in the deductions of overhead in com- puting income tax. State Tax. In most states, a state capital tax is placed on all corporations. This, like the reserve for Federal taxes, should be set up in accordance with prior taxes, which are usually based on the working capital of the organization. In New York state, organizations should be particular in their reserve for state taxes and consider it in the same manner as the Federal tax. No reversing of the entries is necessary at closing, since the state tax is deductible in computing the Federal tax. Municipal Tax. These taxes may be many, such as water rent, land tax, trade license. Such taxes have a tendency to be based on the premises of an establishment. Where they are so based upon the premises in which the organization is carrying on trade, such taxes are an addi- tional cost for occupying the premises, and are chargeable to occupancy. Municipal tax, principally referred to in this caption, is that of a mercantile license to carry on trade. Some municipalities will charge as low as a few dollars for these licenses. Other cities have none. Some cities make their charge on the volume of business trans- acted, so that the cost of the license for an organization doing a business of $5,000,000 may be as high as $4,000 or $5,000, graduated in accordance with the greater volume transacted. Thus, it is found necessary to set up a reserve monthly to meet the municipal tax at the period. It is customary in all municipalities to render tax bills during the first month beginning with the year. In set- ting up this reserve, monthly approximations based on pre- vious years' transactions would be the debiting of adminis- 280 KETAIL ORGANIZATION AND ACCOUNTING CONTROL trative expense and a credit to reserve for municipal tax. When the tax is paid, reserve will receive its debit. Educational Welfare. All successful and progressive retail organizations find education necessary, in order to be- come a factor in a community. In order to promote their sales, they must educate, not only their executives along the lines that will make them more valuable to the organization, but their buying staff, their selling help, as well as all the help connected with the various divisions of the organization. This education may be in the form of lectures by outsiders, school rooms where special instructors are employed, travel- ing from one city to another, visiting various stores to obtain knowledge and to ascertain how the various ele- ments connected with retailing are conducted, in order that the coworkers' knowledge may be enhanced so that their ultimate value will mean a greater benefit to the store organization. All this requires the expenditure of certain funds. Such expense should be charged directly to an account known as " Educational Welfare." Memberships. Membership in an association, which is 'in the form of dues paid to such association, that may assist the administrative body of the organization, is a direct administrative expense. The associations, to which membership cost would be applicable, are usually merchant 's association, credit men's association, advertising or press clubs, or other societies through membership in which benefit is derived by the store. Subscriptions and Periodicals. There are always a number of publications, such as trade journals, business magazines and business books which will assist the various buyers and executives either in merchandising or manage- ment. Usually the greatest item of these expenses is sub- scriptions for trade journals. While they may not be interpreted as educational welfare, they cannot be a direct PROFIT AND LOSS 281 charge to buying expense. It is one of the many expenses of a retail establishment which can be well dispensed with. But modernization demands that the buyers and execu- tives of a retail establishment be constantly in touch with all market conditions and changes. These are usually writ- ten up in trade journals, and by obtaining knowledge through such publications, the store becomes a beneficiary. Generally, a store will make provision for expending a stipulated amount each year for such publications. It is, therefore, desirable that a separate account be kept, not only setting up expenditures for subscriptions and publi- cations, but also having them enumerated under this account for further reference. Planning Department. Coordinating all systems as if they were one, augmenting a spirit of improvement for better presentation of merchandise, store layout and house system come within the scope of the planning department. Problems are here analyzed to the most minute detail and carefully studied for perfect solution, a definite deci- sion is made prior to placing it into execution, rather than by means of the old method of haphazard guess or imagi- native thoughts of " it will do better this way. ' ' Thoughts that are phantasmagorial cannot impulsively be put into effect. The planning department should be headed by a man with thorough knowledge of merchandise, sales pro- motion and department store accounting; a rare combina- tion, but a most essential one for concrete results. In sup- port of such an executive, a committee of the store's ablest coworkers should form a board to delve into planning prob- lems and conclude a perfect solution for them. . A plan to move a department to another location is not a simple matter. The owner of a store or a general manager alone counts for naught in determining how, where and when it should be done, regardless of what his individual opinion may be. The question is placed in the hands of 282 RETAIL ORGANIZATION AND ACCOUNTING CONTROL the planning department, which submits a detailed written report of the chief executive of the organization. The approval or return of his plan to the planning department, with recommendations for other considerations, is the cor- rect procedure. The cost and method of procedure should be incorporated in the report. The moving of tables, racks or fixtures, no matter how trivial, comes within its scope. A well managed planning department will have its own office with blue prints of the entire store layout. These cover merchandising departments, receiving, delivery and offices, store organization blue prints and the systems of operation. To prevent costly errors, it is a cardinal point in planning to picture the organization. The expense of maintaining this department is an admin- istrative burden and is pro-rated on the basis of sales. Employment Department. In most stores help is employed through the superintendent's office. The scope of this office is so varied as not to justify the importance attached to the records governing the help question when* help is engaged here. The superintendent's office' should be sub-divided into that of the store superintendent and that of the employ- ment superintendent. The latter should be headed by an executive qualified in the selection of help for various functions. The necessary executive requisites are to know the duties, ability and requirements for every position in the store, the salaries paid by other stores for similar posi- tions, and to keep the help wanted advertising down to a minimum. The employment department must be correlated to the planning director or planning department and* the store superintendent. The chart showing the relative position of each coworker, from the minor position to that of the manager of the department, should be readily accessible in the employment department. A chart or blue print of PROFIT AND LOSS 28S every department must be in this office. In the allotted space denoting the position, the coworker's name should appear and the salary paid for his services. PLAN FOR RECEIVING DEPARTMENT Delivery Manager Name $ 11 Bookkeeper Name S 2nd Asst. Receiving Name S 3rd Asst. Price Mark- ing Name 8 4th Asst. Distributor of new mdse. Name $ i Checker Name 8 Ticket writer Name 8 Distributor to depts. Name 8 1 Checker Name 8 Ticket writer Name $ Distributor to depts. Name 8 1 Checker Name S Ticket writer Name 8 1 2nd Count Name 8 Ticket writer Name 8 1 1 2nd Count Name $ Ticket writer Name 8 From the receiving department plan, it will be seen that there is a complete layout of all coworkers employed in this department to perform a special function, though as- sistance may be given by it to other functional operations. !When a position is open, no name will appear in the 284 RETAIL ORGANIZATION AND ACCOUNTING CONTROL allotted space on the chart. This is accomplished by noti- fying the employment superintendent prior to discharging a coworker. Or, where a resignation is accepted, the name in the allotted oblong is eradicated. By charts of this description, for both selling and non-selling departments, a control of help is established. Applicants for positions must be requested to fill in application blanks. The best forms obtainable for such applications can be set up in conjunction with store requirements, by adopting the questionnaires used by bond- ing companies in applying for a bond. The application must be completed before an interview with the employ- ment superintendent can be obtained. In the event of em- ployments being granted, the newly employed coworker receives instructions from the store school, which he must attend. The paymaster's office is notified, his name is placed on the proper departmental chart, and his applica- tion is placed on the file of " active coworkers." Where an application has been rejected, such application should be placed in an open list, filed by positions. These applicants are possible candidates for future openings, their names being alphabetically arranged. In addition to coworkers' applications being placed in active service file, a record should be kept of every coworker identifying the coworker, with his vocational ability. It may be that a stenographer may also be a good bookkeeper, saleswoman or artist. If an opening occurs for a better position, the selection should be made from the rank and file rather than by referring to the application file or news- paper help wanted. The employment office should maintain a coworker 's record of the number of times tardy, late or absent from business, characteristics as to disposition, dress and ambi- tion. Reports as to personality are obtained through reports of department managers and interval inspections PROFIT AND LOSS 285 by the superintendent's office. An organization may also have a personal director, or a department may be main- tained which assumes supervision of the store personnel. This director must be correlated to the employment office, and must coordinate with the store superintendent. Educational Department. Not until the last decade have department stores taken the coworker in hand, devel- oping him so as to become a part of the store under real organization. The prime reason for this move was insti- tuted by the retail help situation, especially in the selling element of the store. The educational department, established with school rooms, and, for its curriculum salesmanship, house system, discipline, personality, speech, etiquette and general edu- cation, subordinated only by enthusiasm, performs a two- fold service. It indirectly increases the profits of the or- ganization through the creation of efficiency and coopera- tion and assists the coworker towards better production for a greater remuneration. The employment superintendent is instructed to give preference to high school graduates for any situation. This class of help is more easily trained for various capacities, and has been found to give better results than the training of broken down salesmen and clerks does. The educational director should possess exceptional qual- ifications. He cannot assume the responsibilities of the department until he himself has made a careful study of the entire establishment and accounting system. He must possess as well a thorough knowledge of the store policy and methods of merchandising. The school room should be planned in the same manner as any of the public school houses. Its library should be complete and the circulation of its books on the same prin- ciple as those of public libraries. The schooling embraces various courses of study. Train- 286 RETAIL ORGANIZATION AND ACCOUNTING CONTROL ing should be complete, subject to tests and examinations. It includes text-books for theory, and actual demonstra- tions for practice to complete the teachings. Store school- ing should be compulsory and a condition of employment. Promotions should be made by examinations, testing ability for adequacy in performing new functions. The expenditures for this department depend upon the size of the store. All expenditures are segregated for a monthly detailed report. The allocation of this burden should be on the basis of sales. CHAPTER XII BURDEN Occupancy. In premises that are rented from land- owners, it has been the custom of accountants to set up a Profit and Loss statement, itemizing the rent paid for the use of the premises as rent paid. Thus the item becomes a fixed overhead charge to operations. The correctness of this is acceded, inasmuch as rent is defined as payment for the use of property. A departure from the usual form of set- ting up rent is the cost of making a property a tenancy for an organization to conduct business'. The actual rent paid to the owners becomes but a part cost to the occupant. The up-keep of the premises must of necessity be an added cost for the occupancy of the premises for the proper con- duct of retailing. The segregation of occupancy cost gives a better analysis of the store burden. Direct Rent. In the analysis of occupancy, where the property is rented from the owner, the first element of cost is the rent paid monthly in agreement with the owner for the use of the premises. This element of cost is designated as a direct rent or prime cost. No merchant will occupy another's property unless an agreement in the form of a lease is entered into. Certain covenants of the lease may make the tenant assume the payment of water rents, taxes, replenishment of the property, and responsibility for its general condition thereby increasing the tenant's cost for the occupancy of the premises. Elevator Expense. A retailing establishment occupy- ing a building with many floors finds itself in a position to equalize each floor as a drawing power to be visited by its patrons. To equalize each floor, every possible means is 287 288 RETAIL ORGANIZATION AND ACCOUNTING CONTROL resorted to to make it accessible. To this end escalators are erected and capacious lifts are installed to make ascen- sion to upper floors inviting. The mechanical upkeep of these lifts, liability insurance and salaries paid to opera- tors incurs an additional cost for the premises and becomes an indirect charge to occupancy. Porters and Maids. The services of porters and maids in its relation to additional cost of occupancy brings forth a thought of service to patrons. A store may set up an account, charging. the service account with all expenditures for service to patrons. Amongst these may be maids. A distinction should be made between service to patrons and janitor service. It is necessary to keep the premises spick and span. The porter's functions take on greater propor- tion and become quite an organization in themselves, as the store becomes larger and the occupied space is enlarged. The salaries paid for the employment of porters may be viewed as janitor service and logically construed as an additional cost to occupancy. They are distributed to the various departments on the same basis as direct rent. Porter's and Maid's Supplies. The cleanliness of the store through remuneration for services rendered by por- ters is only a part of the cost of up-keep. The supplies necessary to perform the functions of store janitors cannot be charged to any account but that to which they bear a strict relationship. These supplies are segregated from all other supplies, charged to departments using diverse needs, and become an additional element to occupancy cost. Light. Whether a store generates its own electric current or buys its use from outside companies, it must be segregated into the divisions of occupancy and advertising window display. Very few stores, indeed, are fortunate enough to occupy premises where a sufficient amount of daylight can be used to eliminate the use of artificial light. It logically follows, in order to occupy the premises to con- BURDEN 289 duct business, that artificial light is a necessity. This necessity becomes an additional cost for occupancy. Current that is used to display merchandise in show win- dows is an advertising feature. It is chargeable to adver- tising under window display costs. All lighting fixtures, incandescent lamps, arc lamps, wiring, electricians' sala- ries, gas, gas fixtures, globes, burners, are a further cost to light. Its distribution is based on the number of lamps burned in each department. Where separate meters are installed for floor sections, the cost is readily obtainable. Heat. Heat and power should be divided under two captions: Charging power used for light to the account set up for light cost, usually determined from switchboard readings of the lighting generator, and heat for the prem- ises, to its own account, headed " Heat." "Where the store is large enough to have a separate auxiliary department conducting its own power plant for light and steam, cost accounting methods become applicable. To determine the cost, the elements to be considered are fuel, labor, space, repair, equipment supplies, water tax, boiler insurance, and other insurances. Consumption of heat may be deter- mined by an analysis of cost between the summer months with that of the winter months, allowances being made for extra use of window lights. Where a store purchases its current for light and pow-ri*, the heating cost is ascertained by setting up the cost of fuel, labor, repairs, water supplies and boiler insurance. When heat is necessary for the comfort of the coworkers and patrons an additional charge for occupancy occurs. Thus a cost additional to previous obtained occupancy cost is assimilated. Water Rent. The cost of water rent is in the form of taxes, levied by the municipality or, in some communi- ties, by private owned corporations. It may well be termed supplies necessary for occupancy, or for generating power, 290 RETAIL ORGANIZATION AND ACCOUNTING CONTROL similar to fuel. Where spring water is purchased for the use of the coworkers or patrons, it cannot be charged to occupancy. A division is then set up and applied to co- workers' welfare or store service account, whichever the circumstance may be. Amortization. Denning amortization, its interpreta- tion applies to periodic charges to operating expenses or charges to profits or income from paid commercial arrange- ments of contracts, bonds, leaseholds, premiums or dis- counts, buildings, machinery and equipment. There are occasions where a corporation may sell its bonds at a pre- mium, that is, above their par value. Such excess should be shown on the balance sheet as a reserve for interest and periodically charged off over the period of the bond to adjust the interest reserve of the bond issue. This excess will be carried as a deferred credit until it is washed out. The reserve application will refer to bonds sold below par. The amortization of leaseholds on property will cover the period of prepaid rentals. An organization will lease land upon which a structure will be erected, in which the organ- ization will conduct its affairs. The leasehold on the land will cover a term of years, at the termination of which the lease may be renewed or the land returned to the owner in its original state and the structure demolished. Or the leasehold may require the lessee to relinquish, with or with- out a bonus, all improvements on the land to the lessor. In addition to this, the lessor may charge a monthly rental covering the life of the lease. The organization having erected a structure upon the land, will carry the cost of such structure as an asset upon its books. Should, for example, the improvements and structure value be $100,000, and the leasehold have a life of 20 years, with all rights and privileges to be relinquished without any consideration on the part of the lessor, the organization must pay to the lessor a yearly rental of $5,000 for ground rent (land BURDEN 291 leasehold). The organization will make the monthly pay- ments at the rate of $5,000 per annum, charging such pay- ment as rent for occupying the premises. In addition thereto, 1/20 of the structure value, at its monthly propor- tion per annum, will be written off of the $100,000 outlay or will amortize the structure value, charging such amortiza- tion as additional rental, as a cost to operating burden. The same modus operandi is applicable to machinery or fixtures, and must not be confused with depreciation. Amortization of contracts assumes its procedure from the covenants agreed upon. An illustration of this is found in quoting the incident of an automobile manufac- turing corporation. A sales manager had a contract cover- ing a period of five years to sell their chassis at a stipulated price. Not only was he to receive a commission of 25 per cent for every chassis sold by him or his personally appointed agents, but also a commission of 25 per cent for every chassis sold by the company in the territory given to the sales manager by the corporation. At the expiration of the first year of the contract the sales manager had sold enough chassis to entitle him to $100,000 in commissions. The cor- poration decided upon its own method of representation in the territory and the sales manager agreed to cancel his contract for a consideration of $250,000, all commissions reverting to the corporation. The check having been paid to the sales manager, the entry in the General Ledger was as follows: Dr. Mr. Sales manager's contract, $250,000. In order to set up an accounting of whether or not the payment of $250,000 was a wise transaction, and if so, what profit and benefits the company gained by the purchase of the contract, it was decided that on all chassis sold in the territory of the contract the company was to charge itself 292 RETAIL ORGANIZATION AND ACCOUNTING CONTROL with the commission of 25 per cent it would under the covenants of the contract be obliged to pay the sales manager. In addition thereto, it deducted from the earned commission the expense necessary to effect sales, which ex- pense would have to be such expense as the sales manager assumed out of his own pocket to effect such sales. The substance of the entire transaction then was to amortize the payment of $250,000 by commissions earned. The excess of $250,000 was to show the additional profits earned by the corporation through the cancellation of the contract. The ledger accounts then follow: Dr. Amortization of sales manager contract, $100,000. Cr. Sales manager contract, $100,000. This accounting, set up to show profits taken over by the corporation in the purchase of the sales manager contract for $250,000, covers orders in work-in-process for which commissions were payable. Dr. Sales expense for contract taken over (this account receiving its debits from expenditures relating thereto from the cash records or other transac- tions). In the calculations of all amortizations, allowances must be made for salvage. Maintenance of Building. In the proper application of expenditures for the maintenance of the building, where the store owns its own property, a distinction must be made between repairs and replacements or improvements. Re- pairs apply to general wear and tear or reconstruction of parts of the building that have become dangerous to use. The cost of such repairs are a direct charge to occupancy under the caption of maintenance of building. However, the replacement of certain parts in the form of reconstruc- tion, of renovations that improve the building or add to the life of the building, are an additional cost to be charged BURDEN 293. to th,e entire cost of the building. The maintenance ac- count should show the details of all expenditures. Especially is this required in setting up schedules for in- come* tax. Depreciation of Building. The United States Revenue Act, section 234, sub-section No. 7, defines depreciation as follows : " A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence." A life of twenty years is usually estimated for the ordi- nary building occupied by a department store. Thus, a. depreciation of 5 per cent on the amount paid for the build- ing may be charged off as depreciation, and a reserve set up, to be known as " RESERVE FOR BUILDING DEPRECIA- TION." The value to be taken into consideration is the actual money paid for the building, and not its market value. In. fact, the market value of buildings should never appear upon the balance sheet of a statement, but in a footnote the market value may be stated. The depreciation charged off at the rate of 5 per cent per annum, subdivided into twelve parts, becomes an additional cost to occupancy. There are occasions where an organization becomes the lessee of a building for a number of years. It is obliged to make certain repairs to the building in order to make it. suitable for business. In such instances, an equal distribu- tion for the construction of the building should be set up by carrying as an asset the improvements made and by- writing off periodically, as an additional cost to occupancy, moneys which represent the outlay for the improvements of the building. This is a very common occurrence, yet organizations have charged the cost for improvements to leaseholds during the period of one year, which is inconsist- ent with good accounting. 294 RETAIL ORGANIZATION AND ACCOUNTING CONTROL Watchmen Service. Another item entering into the cost of occupancy is that of ' ' Watchmen services. ' ' Under this heading come outside protection by the means of cor- porations formed for the purpose of patrol, the police de- partment of the municipality, and such watchmen ser- vices as may be engaged by the store. All these become a part of the cost of occupancy. A differentiation must be made between watchmen ser- vices in doorways where packages or articles come in or out of the building, and watchmen services for the protection of the building. Watchmen services denoting protection are to be charged to occupancy, whereas all other watchmen services are an indirect charge to operating bur- den, applicable to that particular department in which the watchmen service is rendered. Distribution of Bent to Departments. A fallacy in most accounting methods which, it is regrettable to say, is advocated by some accountants, is the distribution of rent on the basis of sales. How ridiculous this really is can be seen by comparing any department, whose merchandise is such that a considerable amount of floor space is required, with that of a department utilizing a very small space and doing a large volume of business. This distribution must of necessity produce an unequitable charge to departmen- tal burden. The volume of store space must be analyzed carefully. The basement store may be worth but 10 per cent of the total occupancy charge, or the main floor may be such that a 50 per cent rental charge of the entire occupancy burden is applicable to the floor. The store in any community must decide its own value. The lowest cost is the basement store ; the main floor is the highest charge, and the cost of the upper floor depends upon the merchandise and its value in the community. The monthly value per square foot of space is to be de- BURDEN 295 termined. The departments are measured under schedule. Space at a rate per square foot of space is chargeable to the floor for occupancy distributed. The problem is solved as follows : Dept. (number of square ft.) 1 . X Total floor space (sq. ft.) % of occupancy value Month 's occupancy cost X ' = Department Occupancy 1 If the floors are of extensive proportions, and the front part of the store represents a greater value than the rear of the floor, it should be divided into sections, showing the percentage value of each section of the allotted percentage value of the floor occupancy cost. It is recommendatory to employ cost accounting segre- gations and burden applications to departmental occupancy distribution, when space takes on extensive proportions and where more than the ordinary number of departments are employed. Receiving. The receiving department is not only a department that means a section of the building in which merchandise is received from vendors, from whom the store has made purchases. It is more than this. In this partic- ular department another section is established in which all merchandise received is sent to a sub-department, known as a marking department. This marking department is a subsidiary to the receiving room, where copies of all orders placed with manufacturers, wholesalers, jobbers and exporters are kept. From these orders and invoices, the marking department will mark all merchandise, giving the department number, manufac- turer's number or style number, selling price, such mark- ings on price tickets as may be consistent with the store's 296 RETAIL ORGANIZATION AND ACCOUNTING CONTROL policy, or the entire system in which an organization con- ducts its affairs, to conform with its merchandising records. The number of co workers in this marking department depends upon the volume of business conducted by the organization. The efficiency of the receiving department must not be abated in the least iota. Here, more than in any other section of the store, must efficiency be paramount. For the payment of all moneys is promulgated from this department. Its records must be such that any item marked for payment in the general office can readily be traced to the receiving department, to assure the authentic- ity of making a payment voucher covering either the ex- penditure for merchandise or burden. Unlike that of the manufacturing organization, where freight and expressage become a part of the cost, a retail establishment will charge freight and express to receiving burden, and not add such expenditure to the cost of mer- chandise. The author will not for a moment argue that freight and express are not an additional cost to merchan- dise, but exception is taken to the application of this by buyers in marking the retail price of merchandise on the price paid for the commodity. The buyers, however, must keep in mind the percentage of burden charged to their departments for operations. It can readily be seen that in the busy store the cost of transportation is readily lost in the shuffle, and the buyer does not take cognizance of what the cost of transportation may be. The marking of the merchandise will take on a certain percentage. This percentage of mark up must give the profit to the depart- ment, cover the overhead, and allow for mark downs to close the season at a stipulated percentage of mark up. It is conceded that an article whose prime cost is $20 and the transportation charges on which are $1, costs $21. To argue the matter further, the percentage of operating burden is 25 per cent. For example, exclusive of transpor- BURDEN 297 tation charges, and should it be possible to figure operating burden on cost, 25 per cent becomes an additional cost to the commodity, making such commodity cost $26 instead of $20. But, as previously mentioned, the burden of any description whatever is entirely eliminated from its appli- cation to cost, and receiving becomes as much a burden as occupancy, administration, or any other factor coming into the cost of operation. It has been customary in many trades where a store pays transportation charges, whether by freight, express, motor trucks, or in any other form, that the vendor assumes the charge. "Where the vendor does not assume the charge, the retail organization will make a deduction for such transportation charges in making remittances for the pur- chase. This practice has been in effect for centuries and is gradually diminishing. The practice has become so exten- sive that organizations have been set up by the manufac- turers of various commodities organizing against this un- fair advantage which the retailer takes upon the manu- facturer. Receiving Salaries. An additional cost in conducting a receiving department, and perhaps a greater cost in size than transportation charges, is salaries. The customary cost of salaries for the receiving department averages two- tenths of one per cent. This average percentage is an excellent guide, and has been found by the author to be almost the standard rate for every large store throughout America. Receiving Supplies. The supplies used by the Receiv- ing Department must receive careful attention. These charges are usually for receiving boxes, stationery of every description, and conveyances usually in the form of trucks to convey merchandise from the receiving depart- ment to the merchandising department and other sup- plies that are necessary to conduct a receiving room prop- erly. 298 RETAIL ORGANIZATION AND ACCOUNTING CONTROL Cognizance must be taken of the fact that price tickets hung on merchandise or attached thereto are not a supply for receiving. Such price tickets come under the caption of supplies that are chargeable to the burden of the depart- ment to which the commodity is attached, they are to be used in the department selling that particular classification of merchandise. It may be opportune to mention that the supply depart- ment, in distributing supplies, will do so upon requisition. Where the receiving department requires a certain quan- tity of price tickets for a particular class of merchandise, the department for which the price tickets will be used is specified on the supply requisition. The supply depart- ment will charge the department which will put the tickets in use, whether attached by the receiving department or not. At the month's end it will pass such charges into the general office, which will make a distribution for supplies to the departments in which it was utilized. Thus an equitable distribution for supplies is given. Receiving Demurrage. It very often occurs that mer- chandise is received from a vendor, when the vendor did not properly execute transportation papers, with the result that the merchandise was obliged to go to the storage houses, or' to be stored in the store's own storage or receiv- ing room pending adjustment or tracing of transportation details or documents. This entails an additional cost for the receiving of the merchandise, and must be set up so that the cost will be charged to the receiving department. At the same time this must be the means of knowing how often the demurrage occurs so that better facilities will be instituted, eliminating such additional expense. The fur- ther away the store is from the merchandise markets, the greater the contingency for demurrage. Vehicles. A store will, in addition to the delivery vehicles, maintain vehicles for the receiving of merchandise BURDEN 299 only. These vehicles are used to receive merchandise from docks, storage houses, or from any point whatever, in order to fetch merchandise into the receiving department. The maintenance of such vehicles becomes a direct charge to receiving, along with chauffeurs' or drivers' salaries, ga- rage expense or, where houses are used, the up-keep of horses, rent, fodder, harnesses, c*c. Where motor trucks are used, new parts, chauffeurs' salaries, accident insurance, or all classification of insurance applied, and depreciation of the equipment become an additonial charge to the receiving department. Transportation Insurances. It is customary to have a certain amount of insurance in forms covering the trans- portation of merchandise from various sections of the coun- try to the store. This insurance, known as ' ' floater, ' ' cov- ering fire, pillage, or entire loss, is to compensate an organ- ization for any losses sustained in the transportation of merchandise, which does not protect the buyer in accord- ance with the Interstate Commerce Laws. The cost of such insurance is chargeable to the receiving department. The loss of merchandise above the value recovered by insurance it written up in a loss account, detailed. Distribution of Receiving. In order that an equitable distribution may be made to the various departments con- ducted by the store for receiving costs, the total amount of receiving each month is distributed and charged to the diverse departments on the basis of merchandise purchased. Delivery. The extensive cost of maintaining delivery must be in keeping with the store. Every means possible in modern merchandising has been tried in order to reduce the cost of maintaining this department. Inducements of every description are promulgated to have the customer take the merchandise with her. In the latter part of 1918, a few stores of prominence made it a fixed rule that with all merchandise that was sent, a cus- 300 RETAIL ORGANIZATION AND ACCOUNTING CONTROL tomer was obliged to pay a charge of 10 cents for each, package. Though this charge of 10 cents is very small, customers have taken exception to the charge. But having become accustomed to paying this charge, they prefer to have the merchandise sent rather than to carry it home with them. Ten cents by no means covers the cost of delivering the package. In the years of 1910 or 1911 a package could be delivered for as low at 7y 2 cents, and this cost seldom exceeded 15 cents. At the present time the cost for delivering an ordinary package will run as high as 50 cents, with an average of 35 cents. This does not include house furnishings, furniture, floor coverings, pianos or heavy merchandise coming in the same category as the merchandise just described. The charge of 10 cents is not made for the reduction of delivery, but to induce the cus- tomer to TAKE PACKAGES WITH HER rather than to have them sent. This relieves the congestion in the delivery department, and helps in eliminating the smaller packages which are always more expensive than the larger ones. Vehicles. Transportation vehicles, whether motor or horse power, cost a considerable amount for their up-keep. All of this is charged to the delivery department. Where motor vehicles or wagons are in use, the cost of such trucks is charged to delivery equipment. They are depreciated not to cover a period longer than three years, and 1/36 of its original cost is depreciated monthly, where the reserve is set up for depreciation, and its debit charge is placed to the cost of Vehicle Delivery. In addition, chauffeurs' salaries, helpers, new parts, garage expense, gas, general up-keep and insurance are direct delivery charges to vehicles. Parcel Post. Parcel post charges are used where packages are sent out of the city or out of the city limits, where the delivery department or vehicles do not go. The postage stamps in use have always been a source of annoy- ance to the management of a retail organization. Not that BURDEN 301 the honesty of any of the eoworkers in the department has been questioned. But regardless of how it may be con- trolled, an opening for dishonesty will be apparent. Or- ganizations have known parcel post charges to run up to considerable amounts. To control this by detailed accounting would entail a greater cost than the amount that might be open for unaccounted postage. It is therefore advisable to adopt the same methods as are used in mail order houses. Where a considerable number of packages are delivered by parcel post, the mail order houses will make arrangements with the postmaster to use what is known as PRECANCELLED STAMPS, thus insuring a greater amount of security in the proper handling of postage stamps than could be otherwise obtainable. Conveyers. The larger the organization, the greater must be the facilities for delivery, and efficiency of the delivery system becomes a prime factor. Various kinds of chutes from all floors will be erected so that packages will be sent readily to the basement, if a delivery department is situated in that section of the store. Or, if the delivery department should be located in one of the upper floors, conveyers of various descriptions will be installed. Packages may be collected by trucks at the various wrap- ping desks, or at central points on each floor by means of door trucks. The cost for the up-keep of the conveyers, trucks, and eoworkers employed for fetching the merchan- dise from the department to the delivery room is charged as additional cost for delivery. Conveyers are very expensive installati9ns. When a conveyer is installed, it is originally charged to delivery equipment, and a monthly rate of depreciation of the origi- nal cost is chargeable to the delivery equipment to set up a proper cost for delivery charges. Delivery boys or messengers are employed in addition to all other delivery conveyances, in order that deliveries may be made promptly, giving the customer a first grade of ser- 302 EETAIL ORGANIZATION AND ACCOUNTING CONTROL vice. It is the services which a store desires to render to its patrons which increase the delivery cost. Carfares become a factor when customers desire merchandise to be delivered specially, or at a particular time. In order that these special deliveries are properly carried out, to wait for a particular time when a store vehicle reaches that point would become inconsistent with the service that a store desires to render its patrons. Special messengers are there- fore employed, and the cost for delivery of these packages by car, or special messenger, entails a special cost for the delivery. Salaries. The salaries paid to all coworkers in the delivery department, whether they are chauffeurs, drivers or clerks, become a cost to the delivery, and is chargeable to this department. Supplies. The greatest burden of supplies that a sup- ply department has to carry is that used for wrapping and delivery purposes. All twine, paper boxes, excelsior, cases, crating, nails, hardware, etc., used by the delivery depart- ment must be charged to the department where the sup- plies are sent. Such supplies, then, become a direct charge to the department in which the supplies are delivered. Distribution of Delivery. A careful accounting in every department is set up to show the number of packages delivered to patrons from the various departments. This is obtained from the address label of the sales check, usu- ally pasted on the package or hung on a manilla card, which card is attached to the merchandise to be delivered. At the end of the period, which is one month, the closing of the month will show the exact expenditure for the up-keep of the delivery department. The merchandising departments are then charged with the number of pack- ages that were delivered from their department at the rate per package for delivery charges for each month. The ordinary cost accounting for burden distribution is applicable. CHAPTER XIII PROFIT AND LOSS Buying Burden. The burden of buying is an exten- sive one. Its size is dependent upon the volume of busi- ness a store transacts. The salary paid to a buyer does not signify that such salary is the only buying expense of the store, but all other expenses that arise through the buying organization must be added to salaries in order to have a complete knowledge of what the total expenditure for buy- ing may be. These expenses are a direct charge to the department in which the expense occurs, with the -excep- tions found in the more detailed description that follows. Buyers' Salaries. The buyer of a department store may buy for one department or many. In the larger or- ganizations, the buyer will purchase for one department only. The salary received by the buyer is therefore a direct charge to the department of which he is buyer and manager. Where a buyer purchases for more than one department, his salary should be distributed among the various departments on the basis of merchandise purchased. All bonuses or gifts, prizes and extra remunerations are chargeable in the same manner as salary, depending upon the circumstances for which such additional payments have been made, reflecting upon the departments which are responsible for such payment. Traveling Fares. Buyers' traveling expenses refer to expenses incurred while they are on board trains or ships. It may be in traveling to other cities, or to foreign coun- tries. This expense is segregated from living expenses while traveling, in as much as it is necessary for the store to know exactly the expenditures caused by traveling to other cities for the purchase of the store's merchandise. 303 304 RETAIL ORGANIZATION AND ACCOUNTING CONTROL Traveling Expenses. Traveling expense covers hotel bills whether in their own country or in a foreign country. It is customary for every department store to allow a buyer, in addition to their own railroad or steamer fare, from $4 to $10 a day, though the greater number of stores throughout the country allow this expense as $5 a day. This does not refer to buyers of such stores as are located in New York city, where the greater market for the depart- ment store merchandise exists. Buyers connected with New York stores are allowed street carfares and taxi-cab charges, but usually these are not expected to be charged up by the buyer. Traveling to the Orient, or Europe, in search of particular merchandise may require an additional cost for traveling. This expenditure, being entirely out of the ordinary, an exception is made to the entire practice of mark up heretofore described. For reasons of the tre- mendous cost of importing foreign merchandise and because its usefulness may only be utilized by that portion of society capable of paying liberally for their requirements, the cost of merchandise will be determined prior to setting the mark up. These will be as follows: Prime cost of merchandise. Commissionaire service abroad. . Expressage abroad. Packing abroad. Tax abroad. Consular invoice cost. Ocean transportation. Marine insurance of all descriptions. Duty. American drayage. Foreign traveling expenses. Allowance for wear and tear. And finally added to the above items, the mark up for retailing. ALTERATION DEPARTMENT 305 Out of Town Offices. Most stores are accustomed to having a New York buying office. Sometimes an office also exists in other cities. Where a store does not maintain an office of its own, it usually is connected with some other buying organization, for which service a payment is made from $500 a year upward. Where offices are maintained in European capitals, such as London and Paris, in addition to the cost of the office, a commissioniere, who assists in the buying of foreign mer- chandise, is maintained on a percentage basis. All of this means an additional cost to maintain the buying organiza- tion. It may be argued that commissions paid to a com- missioniere are an additional cost to merchandise. It is admitted that such is the fact, but this item should be segregated from the direct cost of the merchandise to an indirect cost, in as much as, if the buyer was over at Paris and he were doing the buying, it would not be necessary to employ a commissioniere. Or, if the buyer were thoroughly acquainted with the various conditions in Paris, he would not be obliged to employ a commissioniere to assist him. In importing, a charge in the European countries is made for every move of merchandise, such as packing, crating, drayage, consular invoices, marine insurance, etc. These charges, as enumerated, are an additional cost to the mer- chandise, and not to the maintenance of a buying office. The maintenance of these offices in our own country or any foreign country is a direct benefit gained by all the departments. It is therefore reasonable to assume that each department, which gains the benefit of this office, should bear its proportional cost. Those departments importing merchandise alone must stand the cost of main- taining offices. Other departments which receive a direct benefit of maintaining offices in other cities receive their share of such burden on the distribution of merchandise purchased. 306 RETAIL ORGANIZATION AND ACCOUNTING CONTROL Where out-of-town offices maintain an office staff for clerical work, their salaries, supplies, and general up-keep should be added to the cost kept under separate captions in the general ledger. Selling Burden. The cost of selling merchandise in the department store does not rest alone on the salaries paid to the sales help, but on every element that touches directly upon the actual sale of the merchandise. These are divided into two classes: One is direct selling, and the other advertising. Under direct selling, we begin with the caption of sales force. Sales Force. All coworkers, who are directly engaged in selling merchandise and are generally known as sales workers or sales people, are a direct charge to selling. Their salaries alone should be set up separately from any other payment that may be made to them. The distribu- tion of their salaries is direct to the department in which they are employed. It very often happens, and in fact it is almost a daily occurrence in stores, to transfer a sales clerk from one department to another for a few hours or for a day. When this takes place, a coworker's transfer record is made by the floor manager, who will send such transfer to the paymaster, or employment superintendent. He, in turn, will credit the salary that the clerk receives to the department in which he is employed, and will charge the department to which he has been transferred either for the number of hours employed in the department trans- ferred, or for the entire day, if the clerk has been so employed. Contingent Sales Force. Almost all retail establish- ments have a contingent selling force. This selling force is not employed for the entire week, but may perform its work on Saturdays only, or for two or three days of each week. This contingent selling help is distributed to vari- PROFIT AND LOSS 307 ous departments through the superintendent's office, which so notifies the paymaster's office, which checks up its salaries by the time put in by such help. It is segregated from all other selling help, and very often figures will assist in determining the necessary selling force required for the various departments. Contingent Stock Help. In addition to stock boys and stock girls employed to take care of stocks in various de- partments usually in furniture, floor coverings, house furnishings, and wearing apparel additional help is often engaged after school hours, usually for Saturdays and, in some cities, on Mondays, and is known as contingent stock boys and stock girls. They, to a great extent, assist the selling force in selling the merchandise by the proper care of the stocks and doing errands that are necessary as assistance in the selling. They, therefore, take on the func- tions of selling assistants and are a direct charge to selling expense, under \_heir own ledger caption. P. M. Salaries. P. M. salaries are salaries paid to all sales help in addition to their regular salaries. The P. M. is a premium paid for performing extra services and sell- ing merchandise or old stock above a stipulated price. P. M.'s are known in some trades as SPIFFS. The selling of merchandise above the marked price is the old form of P. M.'s, originated many years ago by unscrupulous mer- chants. They would, to use the vernacular, look the cus- tomer over for an " E. Z. mark," and if found to be in the category of P. T. Barnum's description of a " sucker," they would argue on various prices until the article was sold or the sale lost. The P. M., as practiced by honest merchants, is the payment to the sales person of twenty- five cents on the dollar for all higher priced merchandise sold above a stipulated price. Sometimes a flat 50 cents for every $1 above a stipulated price is paid. In the opinion of the author, P. M. 's should be abolished 308 RETAIL ORGANIZATION AND ACCOUNTING CONTROL in every form. The educational department should care- fully instruct sales help in salesmanship so that special inducement to sell stocks that are higher priced or unde- sirable is not necessary and no discrimination is made. Advertising. A very common error made in retail accounting is to charge to advertising moneys paid to news- papers or circulars for direct advertising matter, terming such cost advertising expense. To set up the real cost of advertising, every element must be taken into consideration. That includes salaries for advertising managers, his assist- ants, sign writers, window trimming, interior decorations, electrotypers, etc. The combined expense is the actual ex- pense incurred for advertising. Advertising Salaries. All advertising must have its beginning. While the thought may come from almost any center of the establishment, publicity is established through the advertising department. This department generally consists of the advertising manager, lay-out clerks, artists and stenographers. All salaries paid to this class of help are known as Advertising Salaries, and should be charged under a ledger heading of their own. Newspaper Advertising. The next in line to advertis- ing salaries is the newspaper medium, which is the great- est of all advertising expenditures. While the accounts of the various papers are set up in the Burden Ledger, the monthly sum total is written up in the General Ledger under the account known as Newspaper Advertising. It is very important that this account be kept carefully. Newspaper advertising costs vary from 1% per cent to 3 per cent for department stores; for specialty shops, from 2!/2 to 5 per cent. Newspaper advertising in excess of this amount can only be accounted for through special adver- tising or the neglect of the proper control of an organiza- tion. The distribution of the cost of newspaper advertising is PROFIT AXD LOSS 309 a direct charge according to the space used by the various departments. In addition thereto, all other advertising matter is distributed to each department on the basis of its sales. It may be argued that a department which does not advertise at all for an entire month should not bear the burden of any part of the advertising costs, for the reason that it has in no way, shape or manner, either by news- paper, pamphlet or even window display, participated in any direct newspaper for advertising matter. It is not logical that because a department did not par- ticipate in the expenditure, it should not bear the burden of any charge. It must be admitted, in view of the fact that all other departments, or a great number of other departments, have borne a considerable amount of the expense of advertising and brought customers into the store, that a department which has not advertised has materially increased its sales, or run up a fair volume of business through this advertising. That department, even though it did not advertise, indirectly gained the benefits of the expenditure made by the department that did adver- tise. This being the fact, it is but equitable that the de- partment not advertising should at least bear the expense of part of the indirect advertising matter, but of no part of the direct advertising matter which would be in the form of newspaper advertisements, pamphlets or hand bills. Electrotypes. With few exceptions, all retail estab- lishments will use an electrotype reproducing the particu- lar class of merchandise that is being advertised. The artist will make a sketch depicting the advertised subject, which will be set up in the form of an electrotype, cut or matrix, which is used by the typesetter in setting the type for the advertising matter. It may be imagined that the cuts, though inexpensive, surprisingly increase the total amount of expenditure. Good advertising is not an ex- pense, but one of the principles of turnover. Though it 310 KETAIL ORGANIZATION AND ACCOUNTING CONTROL seems that no merchant would make an expenditure unless economic conditions and business warranted such expendi- ture, still it is often found that cuts and matrices are abused in their use. Signs and Posters. One of the superstitions of a department store is that of believing in signs. This should not be interpreted as meaning that the entire establishment should be literally placarded by massive signs projecting from ceilings or walls. Signs are rather placed on tables and counters to convey thought to the mind of the patron and to act in the capacity of a silent salesman. These signs and posters are written upon cardboard, oilcloth, wood, or anything conceivable that will be pleasing to the eye and convey a thought to inspire desire. They may be in show windows. They may be represented by a sign mentioning the firm's name on the outside of the building, or by a pennant projecting from one of the windows of the building or upon its roof. This is also advertising, and should be charged accordingly under , a separate caption upon the General Ledger. Sign Writer's Salaries. Salaries paid to the various sign writers should be charged up to a special heading, and are an additional cost to advertising. Paints, brushes and material of every description are an advertising supply cost. Window Decorators. "Window trimming constitutes quite an expenditure, and perhaps as great an advertise- ment as any advertising store matter. A considerable ex- pense is gone to in order to make the windows very attrac- tive by means of backgrounds, paintings, floor coverings, window display fixtures, lights and supplies, velours, vel- vets, cretonnes, etc. These, along with the salaries paid to window trimmers, are chargeable under two separate headings. The one is known as window decorations, or window trimming, and the other as window trimmer's sala- PROFIT AND LOSS 311 ries. Segregation being necessary for detailed information for cost record. Depending upon the quantity of window space, the de- partment is charged with the cost of the space it occupies by the number of days of each month. Where all display windows are on one street, with an even depth, and where only one department is at any time advertised in the win- dow, the rate is an equal one, depending upon the total cost of the month. However, where a window has a con- siderable depth, and. two or three departments are adver^ tised in one window, it must be remembered that that class of merchandise nearest to the street is charged with the greater cost, and the department placed in the rear of the window, or on the side windows, facing the vestibule, is charged with the lesser cost. Lights, window cleaning, window plate glass insurance, are additional costs. Advertising Supplies. A considerable amount of sup- plies is used in the advertising department. These consist of paper, crayon, pencils, inks, various descriptions of paper, and a host of minor supplies, all of which become necessary properly to conduct the advertising department. These necessary requisites, indirectly, are an additional cost to advertising, and should be so charged. Novelty Advertising. There are various forms of novelties which are distributed amongst the patrons of an establishment. They may be souvenirs of a suit depart- ment, a house furnishing department, or small play trin- kets, booklets, balloons or toys given to children visiting the " kiddies' " department, better known infant's wear, children's clothing, little girl's apparel, where the sizes run from 2 to 6 and 6 to 14. These novelties are purely and simply an advertising proposition. As such they are to be charged to advertising. The department that dis- tributes these novelties is directly charged with the adver- tising matter. 312 EETAIL ORGANIZATION AND ACCOUNTING CONTROL Interior Decorations. Another form of advertising is that of interior decorations. Considerable expenditures are made in making the interiors of various departments attractive. This does not refer to merchandise which is set up in an attractive form on counters, cases or shelvings to attract the eye, but to decorations on walls, pillars, stair- cases and the like. There can be no specific items men- tioned of which the interior decorations might consist, but it will be understood that with regard to any decorations made in the interior of the store by the display manager or his assistants, the time put in by such help and the expen- diture for decorations is a charge to indirect advertising, which is pro-rated on sales to the various departments of which the store is made up. Miscellaneous Advertising-. The term ' ' Miscellane- ous " for a ledger account should be avoided wherever pos- sible. It does not convey any specific meaning, and as such it is difficult to convey a thought that might be of material benefit for the management of an organization. In using the term Miscellaneous Advertising, reference is made to magazines, programmes, cinematograph slides, and donations that take on the aspect of advertising rather than of charitable donations. Where the store advertises as a whole, the cost of all these should be pro-rated on the basis of the sales to all departments. Indirect Burden. The greatest burden of all store expenses is that which comes under the caption of Indirect Burden. The interpretation of this classification of burden is expense that cannot be charged directly to the cost of conducting any of the merchandising departments, or operating departments. It also consists of non-selling ex- penditures, salaries, and non-productive costs. Unproduc- tive costs as interpreted in retailing are costs that do not enter into either buying or selling of merchandise, and do not apply directly to administration. PROFIT AND LOSS 313 Help Wanted Advertising. Help wanted advertising is quite a costly item, and it can only be reduced through a lower turnover of help. In this respect, the interests of the coworkers must be aroused by making their work of a fascinating nature. Bonus plans have .been adopted in many stores. In those organizations where bonus plans have not been put into effect, it is highly recommended that such methods should be introduced. When newspaper advertising is necessary to engage help, an unnecessary expense is immediately gone into, which might be avoided if a proper employment department is organized. Coworkers' Bonuses. In paying bonuses to coworkers, the office should differentiate between a bonus and a gift, Gifts are not permitted to be deducted from income tax, whereas a bonus is deductible and may be considered as an additional salary to be paid. There are many forms in which a bonus may be paid to a coworker. They should be segregated into two parts, one for selling help, and the other for the non-selling help. As to selling help, a quota could be formulated which quota should be the equivalent to a percentage equalling the salaries to be paid by the department. All salaries are to be uniform. On all sales made above a stipulated quota a percentage equivalent to that of the original quota equal- izes the salary. The result would be as follows : A sales person receives a salary of $20 a week in a de- partment. An allotted percentage for selling help per- mitted to a department would be 4 per cent. The quota for that department would be $500. For everything sold above $500 a commission may be determined, to be paid to the sales persons as a further inducement to perform a greater sales record. The percentage might be 2 per cent, but never exceed 4 per cent. 314 RETAIL ORGANIZATION AND ACCOUNTING CONTROL The bonus to be paid to the non-selling persons takes on an entirely different aspect. "We assume that a store is willing to distribute a certain percentage of its profits. Each classification of non-selling help is to be given a cer- tain number of points. Should a coworker be in the em- ploy for one whole year, he would be entitled to that share of the distribution of profits that his number of points represents. To exemplify this: A store has 1,000 coworkers who are non-selling help. They may receive one point, two or twenty points. A segregation of all these points is an equivalent to 10,000 points. The profits to be distributed would be $50,000, making each point bear a $5 value. If a coworker is entitled to 12 points, his bonus at the end of the year is $60. These bonuses are to be charged to a bonus account, set up by debiting ' ' Current Surplus ' ' and crediting ' ' Bonus Account." "When the bonuses are paid, they are debited to the bonus account, thereby closing out the distribution of bonuses for the current year. Should other bonuses be paid during the year for a particular class of work, it should be charged to additional salaries for the department in which the coworker is employed. A thought beyond the distribution of the profits by dis- tributing points for each particular position is to central- ize the ambition of all coworkers as if they were a single unit. For the greater the profits of the organization the greater will be the distribution of profits, making all co- workers work for one common end. That is, greater profits increase sales and result in greater efficiency. Cashiers' Salaries. In setting up an audit report for salaries, professional auditors will do so by segregating this form of the store's burden as a separate and distinct item of expense, thus giving a departmentized Burden schedule for salaries supporting the profit and loss statement. The PROFIT AND LOSS 315 author is fully in accord with such procedure. However, a very careful study of department store research work will result in the segregation of all salaries, making each salary- applicable to that particular division of the store burden. This is necessary to analytical and progressive manage- ment. Department store cashiering is a. part of the store ser- vice as well as a branch of the accounting system. Every facility for quick action on the part of the cashier is em- ployed. These facilities are in the form of a central cashier system, desk cashiers, cash registers, with simplified sales checks to lessen the cashier's work in making change. A cashier should never be permitted to wrap parcels nor do any desk auditing. Her change and cash turned in to the general cashier should be audited with the cash sales checks to reconcile the daily receipts. The change she disburses should at all times be new money and bills, easily obtain- able from the banks with whom the store carries its bank- ing account. In the distribution of cashier's burden, the cost or sala- ries paid should be charged to the departments in which her station is situated. Where her duties apply to more than one station, her salary may be pro-rated on the basis of sales. Exchange Clerks Salaries. In almost all department stores a station is provided where customers may have mer- chandise credited to their accounts and obtain refunds or credit vouchers to apply as payment for other purchases. These stations are known as exchange desks and are in charge of a clerk known as Exchange Clerk. The credits issued are audited by the auditing depart- ment, from which audit the returns of the various depart- ments of the establishment are set up and deducted from the gross sales, to ascertain the net sales of a department. Some stores are very liberal in accepting exchanges, 316 RETAIL ORGANIZATION AND ACCOUNTING CONTROL whereas others will not accept changes after three or five days. The most liberal policy is not to issue any credits, but to insist upon the customer's accepting a cash refund, unless a charge account is extended to the customer. The distribution of exchange clerks' salaries is based upon the returns and is pro-rated accordingly. Adjustment Department Complaint Clerk's Salaries. The position of the complaint clerk is by no means an enviable one. Her trials are many and require a person- ality whose equilibrium is evenly balanced, an amiable dis- position and a thorough knowledge of the store policy, sys- tem and departments. Particularly at this station is a customer made or forever lost to the store. Unless redress is here obtained, a persistent customer will carry her com- plaint to the management. Thus not only is the valued time of an executive unnecessarily consumed, but the .com- plaint is permitted to reach an aggravated state. The man- agement should receive daily a copy of every complaint filed with complaint clerk, so that means may be taken to eliminate faulty transactions. Recommendations are made to further appease the mind of the complainant, to com- municate by letter from the executive offices to ascertain her feelings, and to offer expressions of regrets. The distribution of adjustment bureau's salaries and ex- penses is pro-rated on sales. Will Call Clerks. A well managed department, regardless of its volume, will conduct its " will call " department in its own merchandising section. The term " will call " is sometimes known as " lay away depart- ment," deriving its terminology from the fact that a cus- tomer not having sufficient funds to pay for merchandise desired, may have the privilege of having her selection put aside upon the payment of a deposit. Many organizations set up a " will call ' ' department in a particular section of the store, conveniently located and PROFIT AND LOSS 317 readily accessible. This department will be in charge of one or more clerks. The merchandising departments, which transact lay-aways through this department, are chargeable with its up-keep. The distribution of its cost may be set up by a record of the number of pieces handled from each department. All salaries and up-keep expense are divided by the total num- ber of pieces, to ascertain the cost per piece of merchandise handled during the month. The cost per article, multiplied by the total of each department's commodity, will furnish the exact Burden to be distributed and applied. Furni- ture, pianos, house furnishings and the like do not come within the scope of this department. The method of least resistance is to pro-rate on the basis of sales, but this could not be an equitable distribution. Inspectors' and Inspectresses' Salaries. The term inspector may refer to examiners of newly arrived mer- chandise, or to the delivery department or to the parcel wrappers in the various departments. In the receiving department, inspectors or examiners will carefully examine all merchandise as to its proper construction and the fulfillment of the contract or condi- tions that may appear on the copy of order. Usually, the buyer of the department will examine the commodity and take cognizance of its construction's being the same as the sample from which the purchase was made. Where exam- iners are employed in the receiving department, an addi- tional cost to receiving is assumed. The delivery department inspectors are an additional cost for the deliveries. In mail order houses, the inspectors in the delivery or a mailing department will promiscuously pick up a package from the conveyors or from the assem- bling bags, open the package and examine its entire con- tents. In the department store, the requirements of inspec- tresses or parcel wrappers are for the examination of the 318 RETAIL ORGANIZATION AND ACCOUNTING CONTROL price ticket, comparing it to the sales check for price, de- scription, lot or style numbers and quantity. The distribution of their salaries is chargeable to the department in which they are employed. Where inspec- tresses perform their duties for more than one department, their salaries are pro-rated on the sales in the departments where they are employed. A fallacy permitted by many stores is permitting cashiers to do their own inspecting. Where cash registers are in use, and the sales person is permitted to wrap her own parcels, the cashier will verify the amount registered with the prices appearing on the price tickets attached to the commodities sold. This is the only exception for permitting cashiers to act as inspectresses. Executive Clerks. The executive offices employ ste- nographers and clerks to perform the necessary clerical work appertaining to the functions of propagation of com- merce or store policy. The executives' salaries are a direct charge to adminis- trative burden, under the caption of executive salaries or administrative salaries. However, the clerks must be segregated to apply to indirect burden. Executives' clerks and secretaries apply to owners and executives, other than buyers, and general office management. The clerk hire for merchandising offices cannot be applied to the buying burden, in as much as it does not directly apply to the buying of commodities. Hence, the clerical force becomes a part of the indirect charge to operations under its own caption of merchandising section. The distribution of this class of expenditure is pro-rated on the basis of sales. Telephone and Telegraph. The account for telephone and telegraph expense, generally referred to in this fashion by bookkeepers, should be in analytical form under the following captions : PROFIT AND LOSS 319 Telephone Contract. 1. Monthly messages. 2. Cost. 3. Toll calls. 4. Repairs and station up-keep. 5. Salaries to operators. 6. Stationery and supplies. This procedure may appear to be quite an extensive method of accounting, but its simplicity does not assume additional labor in bookkeeping. It is doubtful whether the management of any organization will authorize the pay- ment of a voucher for telephone service without making some comment about the exorbitant cost. This itself makes it necessary for better accounting methods ta eliminate avoidable uses of telephone up-keep. A direct wire to a mar- ket or a market office may be contracted for to reduce toll cost. Telegrams can be charged directly to departments (operating departments), whereas all other costs may be distributed and pro-rated on basis of sales. Stationery and Supplies. A burden that takes on considerable proportions is that of stationery and supplies, a store's printed matter, and wrapping material. The sub- ject of stationery and supplies has been discussed partly under inventories on the balance sheet. The allocation of this expense must receive careful attention. Unnecessary expenditures will creep in, often harmful to the best interests of the organization. Like merchandise purchased for trading purposes, authorization and confirmation should prevail. Careful consideration and examination of every system form should be approved by office manager and system manager prior to reordering. The purchasing must receive the approval of the department head who requisi- tions the supplies, and the order must be confirmed by an administrative head. All supplies are charged to a supply inventory, which is 320 RETAIL ORGANIZATION AND ACCOUNTING CONTROL reduced only by requisitions signed by the department head desiring the supplies. The value of the requisition is charged to the department making the supply request. At the end of the month, a detailed report by the supply de- partment is furnished to the general office, which will allo- cate the departmental charge, credit the supply inventory and charge the indirect burden and such other depart- ments as come under the division of the store burden. Sup- ply clerks and supply purchasing agents' salaries are an additional cost to supplies. Postage (Postage Register). Defalcations in petty ways are very common among those intrusted with the cus- tody of postage stamps. This item of store burden is not a small one. Some of the larger department stores have found this account to reach as much as $25,000 a year. The author, as comptroller of a mail order house, has seen this account run into hundreds of thousands of dollars. While postage stamps on hand may appear as a deferred asset, their value represents a convertible asset. This asset is reduced by its absorption of store or administrative bur- den. The custodian of all postage stamps should keep a book record in the same manner as the debit and credit side of the cash book is maintained. Requisitions should be required to release stamps from their custodian, who will enter on the credit side the value of stamps issued, charged to the department making requisitions. The columnar book, known as postage register, is quite appropriate. An occasional audit should be made to verify any misuse. Parcel post records should be checked with the postage register for reconciliation. The allocation of this burden should be obtained through the postage register. Paid up Insurance. Premiums are the consideration paid by the assured contracting insurance against loss. The prepaid premiums are a deferred asset, and expired pre- miums are a direct charge to operations. The first pro- PROFIT AND LOSS 321 cedure in accepting a policy of an insurance company is to determine its financial standing as to its ability to meet contingent liabilities. This is readily obtainable through the financial publications, in book form, through state con- trol, or the underwriter's board. The statements of operating companies are divided into two schedules one being the Financial Schedule and the other the Statistical Schedule. The solvency of the insurance company in most states is determined by a state insurance department. However, the examiners are not always experts, and care as to the solvency of the company should be taken by the financial management prior to accepting its insurance. A varied insurance is carried by department stores. This includes fire insurance for stock and fixtures. It is recommended that replacement value should be preferred to that of a 100 per cent or 80 per cent co-insurance clause. The cost of this insurance for expired premiums should be charged to indirect burden. Transportation and parcel post insurance, for receiving purposes, are chargeable to the Receiving burden. Automobile insurance, for fire, theft and accident colli- sion, is chargeable to the delivery department. Where it is maintained for the Receiving department, this insurance cost should apply to receiving cost. Sprinkler, boiler, plate glass, house accident and elevator insurance are chargeable to occupancy. Bank messenger, hold up, burglary insurance, employees' bonds and compensation are indirect allocations. The nature of the insurance will designate its distribu- tion. Carpenters. Most every department store employs a staff of carpenters and maintains a workshop. The scope of labor not only includes carpentry, but painting as well. It has been found, after considerable experimenting, 322 RETAIL ORGANIZATION AND ACCOUNTING CONTROL that it is more economical to maintain a carpentry depart- ment than to contract with outside contractors for the up- keep of this particular classification of labor. The moving of fixtures and their construction has been discussed under reserve for depreciation. It is doubtful whether any retail establishment is now in existence that has not at some time or other moved about its fixtures, or that is not constantly changing its departments. It appar- ently seems to be a characteristic amongst retailers, no mat- ter what commodity they merchandise. Reconstruction of fixtures and of the layout of the store and its departments has become habitual with the progres- sive merchant. This is done for the convenience of cus- tomers and for the better presentation of the varied stocks displayed to catch the eye of the prospective purchaser. With this, the carpenter assists the display manager in the artistic manner of display to present commodities to better advantage. To exemplify this, a department's fixtures will be in- stalled and painted mahogany color. The manager after visiting other stores, will find blue a better shade to display the stocks of this particular department. This color makes a profound impression and, upon his home coming, the manager immediately proceeds to change the fixture construction and to paint the fixtures blue. A short time elapses and the management, after making other visits, finds that the prevailing color combination for this particular stock is a combination of blue and gray or white. Again the change is made. Thus, the prime rea- son for a carpentry department is established. Shelvings, tables, cases, floorings and partitions require repairing. Oiling the wood for better appearance and longer life is a necessity. Here, too, the carpenter is very essential. The accounting for this department is set up and controlled by the budget system, segregating the vari- ous expenditures entailed by this department. PROFIT AND LOSS 323 Construction of new fixtures, such as display tables and how cases, is a direct cost to new store equipment. All cost for labor, .material and burden should be carried on the store equipment account as an asset. Replacements are direct charges to reserve for depreciation. Repairs and maintenance of all store equipments are an indirect charge to store burden and consequently are chargeable to the profit and loss account. The allocation of these charges to departments is pro-rated on the basis of sales. The administration of some organizations charges the entire equipment to the specific merchandising department in which the selling equipment is situated, thus applying capital equitably. Where this capital distribution is in effect, repairs and maintenance are applicable to the de- partment where the repairs and maintenance expenditures take place. Financial Income. The income of an organization, organized to carry on trade in merchandising, using the term merchandise as is commonly interpreted in the field of commerce, may be divided into two parts : One is the profits accumulated from turnover of mer- chandise ; The other is the profits accumulated through financial transactions. In the entire construction of retailing, the financial prin- ciples of merchandising as the basis for calculations of every conceivable angle, depend upon ascertaining the turn- over. It will readily be seen that, in order to obtain this, all financial incomes or anything appertaining to finance that might add an additional profit, must be eliminated. It therefore behooves a department store or any retailing establishment to segregate its profits, so that merchandising profits that accumulate through financial transactions should be set up separately on the profit and loss state- ment. 324 RETAIL ORGANIZATION AND ACCOUNTING CONTROL Merchandising Discounts. Almost all purchases are subject to discount. The percentage of discount generally applicable to a commodity is that which prevails in the market for such commodities. The terms of sale, known as dating, represent a definite time allowed for the pay- ment of the invoice covering a shipment for merchandise bought, sold and delivered. The vendor agrees with the vendee that if at the end of ten days from the date of ship- ment, or thirty days, or sixty days, as the agreement of the sale may be, the account is paid, a discount of a stipulated percentage is permissible. However, if the invoice ren- dered to cover a shipment is not paid at the termination of the definite time mentioned on the invoice, it is optional with the vendor whether or not the discount will be per- mitted in the settlement by the vendee. It narrows down to the fact that the discount becomes a financial transac- tion. Assuming that the debtor is unable to meet his obligation at the stipulated time which had been arranged, in order for the debtor to take advantage of the discount applicable to the invoice which is maturing, he will often negotiate a loan with either his bank or some other individual, to whom the debtor agrees to pay interest for the loan of sufficient funds to meet his obligation. The loan having been negotiated, the debtor will then proceed to settle his obligation with his creditor in order to derive the benefits of the discount, to which such invoice is subject under the terms of purchase. The debtor is willing to pay a certain amount of interest for the loan of funds in order that he may receive a greater discount on the proceeds of the turnover of cash. The discount re- ceived on merchandise, as can readily be seen, resolves itself into a financial transaction. Accountants may argue that a price paid for merchan- dise is the gross price, after deducting the discount, to PROFIT AND LOSS 325 which the price paid for the merchandise is subject. The author admits that accountants who argue along these lines are correct when an invoice is subject to what is known as a " Trade Discount." But where the ordinary terms are applicable, should an invoice be paid at the expiration of the terms of sale, a financial transaction becomes evident. A segregation, therefore, in order to obtain the cost of sales, is set up on a retailing profit and loss statement. This shows the cost of merchandise entirely separate from finan- cial transactions. Discounts received from merchandise purchases, other than trade discounts, are set up on the profit and loss statement under the caption of " Financial Income. ' ' It must not be overlooked for a moment that the mark up of stocks is on the gross price paid to the manu- facturer. No consideration is given to terms of sales other than those here described. Miscellaneous Purchase Discount. It is recommended that separate accounts be set up to show discounts obtained from merchandise purchases and discounts obtained from expense purchases and miscellaneous purchases. These are not very extensive. They generally depend upon the vol- ume of business enjoyed by an organization. Purchasing Agents' Discounts. Purchasing agents may be placed in the same category as salesmen working on. the commission basis, who receive a commission on the pro- ceeds of their sales. The purchasing agent's organizations are more prominent in the eastern states than in any other section of the country. There are many large department stores that will not permit purchasing agents' discounts, for the reason that a large amount of expenditure is involved in carrying on their accounts, and their purchases are subject to a high percentage of returns. The general discount permitted to purchasing agents for p 11 sales effected through them, either direct or indirect, 326 RETAIL ORGANIZATION AND ACCOUNTING CONTROL averages 10 per cent. The question arises whether or not the percentage of discount given such purchasing agents can really be termed a discount. If termed a discount, it comes under the heading of financial income, and is a direct charge against financial incomes of other sources. However, it is the contention that the discount given to the purchasing agent is a brokerage fee or a commission for sales effected through their efforts, and may be applied in the same manner as the salary and commission paid to any sales person in any particular department of a store's or- ganization, in as much as it is a selling burden. The purchasing agent's discount should be applied under selling burden as a brokerage cost for selling. There would be, in the distribution of this additional selling burden, rather a difficult problem for an equitable application of additional selling cost. To apply the distribution by pro- rating on the basis of sales may, in many instances, impose an unnecessary burden on certain departments whose sales are few or none at all through purchasing agents. Wherever possible, the auditing department segregates its charge accounts from those of personal charges and pur- chasing agents by departments, in order to set up a proper equitable selling burden. Where the bookkeeping depart- ment makes its own audit for charge accounts, this informa- tion may be obtained through them, and passed on to the Statistical department, where additional selling burden will be distributed to its proper source. Interest Earned. Interest earned is a direct credit to financial income. The source of such earnings may be from interest on daily bank balances or from investments in stock, bonds or property other than those required to conduct the affairs of the organization. Interest earned through the anticipation of pre-maturity obligations, other than Notes Payable, would come under this caption. PROFIT AND LOSS 327 Interest Paid up. The cost for borrowing money and the penalties, paid in the form of interest, for obligations permitted to remain unpaid after maturity, are a direct charge against earnings through financial transactions. Interest paid on investments is applicable to the income from such investments, and must not conflict with the finan- cial income, and the operations for which the store has been organized. Loss Account. The ordinary bookkeeping methods are usually found to carry a profit and loss account during the entire period or fiscal year, with its closing entries at the termination of its business period. The profit and loss account should not be opened until the ending of the fiscal year, and then for the purpose of computing profits or losses to determine the results of the organization's trans- actions. During the course of the year, all profits that are directly made, except through the buying and selling of merchandise, should be applied to a specific account. Losses sustained through uncollectable accounts, and written off the records, should be transferred to the sus- pense ledgers and carried to a loss account, enumerating under such loss account the name, address and amount of the loss. Section 234, items 4 and 5, deductions allowed in the income tax of 1918, are as follows : " Items allowed for losses sustained during the taxable year, and not compensated for by insurance companies or otherwise, debts ascertained to be worthless and charged off within the taxable year, the amount of net loss must represent the actual loss over and above all income. ' ' This being required within all interpretations of the in- come tax law, a division between merchandising income and financial income must be set up. It therefore is neces- sary to show loss account, after the gross income and the 328 KETAIL ORGANIZATION AND ACCOUNTING CONTROL financial income have been obtained, by deducting the loss account in order to ascertain the final net profits of an organization. Extraordinary Income. Organizations are formed to carry on trade along specific lines. If incorporated, specifications are incorporated in the charter granted by the state 'of incorporation, granting permission for the con- ducting of a particular branch of commerce for profit. In- come obtained through channels other than the specific object of organization must be treated as entirely distinc- tive from all other income. It must be set up on the profit and loss statement as Extraordinary income. This will appear under its own caption, following the completion of the Profit and Loss statement. Adding the extraordinary income to the previously obtained income gives a final result. CHAPTER XIY ALTERATION DEPARTMENT Alteration departments are not conducted for profit, but for service to customers. Any retailing organization con- templating obtaining profit from this section of the organi- zation may as well shut its doors, or close out the depart- ment requiring the alteration rooms. The best that can be hoped for is that the alteration department will break even. Occasionally a fiscal year may close with a profit from this department. When this occurs, it is advisable to make a thorough investigation, not from the standpoint of ledger figures, nor of the alteration manager, but of the prestige of the store, the satisfied customer, and the merchandising department. The alteration rooms referred to are those for men's or boys' clothing, millinery workrooms, and, greatest of all, women's and misses' apparel. Successfully conducting the alteration department of the ready-to-wear shop or department store has always been more or less of a problem that buyers and managers experi- ence difficulty, in solving correctly. Perhaps in most in- stances the management has not considered the advantages to be gained by the study of the economic conditions gov- erning this department. That 95 per cent of all alteration rooms are conducted at a loss is not merely an assumption but a statistical fact. In most cases the reason for the loss is lack of adequate system, inattention through executive incapacity, expendi- tures for unnecessary workroom supplies, excessive or ineffi- cient help. There is the " wiseacre " who believes the alteration 329 330 RETAIL ORGANIZATION AND ACCOUNTING CONTROL room should manage itself and that all that is required is a good fitter. He awakens at the termination of the season or year with the sales record decreased or else he tries to fathom the problem of where his profits have gone. A ready-to-wear department, regardless of its volume of sales, must be organized perfectly and governed by a per- fect system, with its every subsidiary department under control by efficient management. "With these essentials ob- served, there is no valid reason why an alteration room should not pay its own expenses and assist in pleasing patrons. The modus operandi of the alteration system begins with the sale of a suit, for example. The saleswoman in this instance has detached the forty-two-size ticket and sold it to Mrs. Smith as a regular size forty. Yes! we are per- fectly aware that the clerk had no right to misrepresent the garment, even if it was only a difference in the size, but that is a story in itself. The garment having been sold, it is up to the fitter to make it fit. Outside of the cities of New York and Chicago, perhaps Philadelphia, Boston and Cincinnati, the fitters are not real tailors. They are dressmakers, with only a fair knowl- edge of tailoring. However, long experience has probably fitted them to assume the duties of " a fitter." It would be fitting and proper to instruct them, with a view to perfect efficiency, in a fixed set of rules, and monthly to remind them of these rules governing their par- ticular work. The following " Don'ts " are very sugges- tive: Don't keep the customer standing over twenty minutes for a fitting. Don't talk to the customer unless spoken to. Be brief, tut polite. Don't make any comment on the quality of the materials ALTERATION DEPARTMENT 331 or styles, nor offer your opinion on how badly the tailor made the garment. Don't tell the customer the alteration has a lot of work to it. Don't make any rash promises for fitting or delivery. Alteration Ticket. An electric bell connecting the suit department with the alteration room will promptly call the fitter to the department. Where a store does a large volume of business, the fitters should be constantly on the floor. Subsequent to the sales check's having been made, an alteration ticket, as shown in Form 54, filled out and attached to the garment, must be as near perfection as is humanly possible. Form 54 is the result of more than, fifteen years of experimenting and, when finally put into use, has been found excellent in every respect. The alteration ticket is a combination envelope and alteration instruction ticket. When the sale has been com- pleted, the customer receives the voucher of the sales check. The duplicate sales check is placed within the envelope alteration ticket by the sales person for future reference. Fitters, as a rule, pin up all alterations. To those familiar with ready-to-wear merchandise, this term is readily comprehensive. It means pinning the garment, so that it will fit the form of the customer perfectly. In merchant tailoring it is the custom to chalk the garment. However, in addition to the pinning, measurements are also required for finishing purposes. So the measurements are printed on the ticket for the tailor's further informa- tion. In the particular sale here exemplified, the suit consists, of two pieces, a coat and a skirt. The alteration ticket con- sists of two parts, with strings attached to each ; one indi- cating, the skirt alteration, and the other indicating the coat alteration. Each ticket is attached to the part of the 332 RETAIL ORGANIZATION AND ACCOUNTING CONTROL garment it represents. The ticket itself gives all the neces- sary procedure. However, to insure the elimination of errors, a copy of the sales check is placed on the face of the alteration ticket, in the event of a C. 0. D. sale, to further identify the garment when completed and ready for ship- ment. Upon the completion of the alteration envelope and iis attachment to the respective parts of the garment, the suit will be sent to the alteration department, where it is received by the clerk in charge of the book records. Assuming that charges for suit alterations vary from 75 cents up, a schedule of prices for diverse alterations should be made, stipulating the charges to customers for such alterations as enlarging the armhole, raising the back under collar, removing wrinkles under the collar, padding the bust, shortening the coat or the skirt, hemming the bot- tom, taking in around the hips. There should also be a schedule for separate coats, dresses, gowns, etc. The merchandising office, in compiling this schedule of prices to be paid for alterations, should give considerable care and attention to the amount the department can pay for each particular kind of work. Likewise, there should be a fixed schedule of charges to customers for the various alterations, having in mind a fair margin above labor costs to cover fittings, supplies, additional materials and unfore- seen contingencies that might incur additional expense. Also not forgetting that Mrs. Smith, who purchases a suit, refuses to pay for any alteration and that, rather than lose the sale, the alteration is put through free of charge. Bad business, of course, either way, but rules should be rules, and it is safe to say that when a customer is very much taken with her selection, she will invariably pay any rea- sonable charge for an alteration. Therefore, it would not be recommended that any exceptions be made to the rule of charging for alterations. 3 333 334 RETAIL ORGANIZATION AND ACCOUNTING CONTROL Alteration Record. The clerk in charge of the altera- tion room records will enter all alterations that enter the workroom in a record, such as is described in Form 55. The date when the alteration is received in the workroom must be placed on the alteration envelope, and must likewise be entered jn the record. The number column is a consecu- tive number indicating the number of alterations thus far for the season. These numbers being consecutive, the num- ber of alterations made during a season, week or month is readily obtainable by deducting the number from a date, beginning from a date ending. The customer's name and address follow. A description of the article is essential, such as a Suit, Coat, Dress, Waist, etc. The record of the sales person's number has been found necessary, very often, to meet investigation or trac- ing. This, along with the date of purchase, must never be overlooked in the entry. The alteration number is a consecutive number and should be preceded by the department number or letter. If a suit department is known as Dept. B, the entry should be B 1. Or, if the suit department is known as Dept. 21, the entry should be 21-1. The alteration number having been given, the same num- ber must appear on the alteration envelope. This altera- tion number which is used for many purposes during the course of alteration such as identification and quick location during process of work, date of delivery to cus- tomer, and charge for the alteration is essential for auditing the sales records. The accounting procedure for alterations has been dis- cussed previously. All alteration charges are a credit to this department. Its up-keep, covering every element, is a direct charge. The alteration department of a store is a necessity. It cannot be dispensed with and its efficiency must be para- 335 336 RETAIL ORGANIZATION AND ACCOUNTING CONTROL mount to the entire organization. The difficulty of efficient organization and the added overhead to operations may be laid directly to the manufacturer's carelessness in produc- tion. This is evident in almost one garment out of every six. In addition to this, the manufacturers, through ineffi- ciency or mismanagement, have their garments marked with wrong sizes. It is a common occurrence for the shipping clerk of a garment manufacturer to take a size 38 and change it to a 40 size, by remarking the ticket or changing it, just because he does not have on hand a size 40 to fill a retailer's order calling for such a size. Sizes. Then, again, the designer of a manufacturer will originate a style and perhaps forget to correct his pat- tern, or he will skimp it. The grader, who cuts the pat- tern for the various sizes, may not be efficient in his work. When the garments are cut on the graded patterns and completed, they will not fit women as they should. A correct schedule of sizes for women's apparel is shown in the following chart : 36 38 40 42 44 46 48 50 52 Around bust 37J 28 40 INCl 4Qi 30 42 IES 42"! 32 44 44i 34 46 46i 35| 48 48| 37| 50 5Qi 39 52 52i, 40^ 54 54| 411 56 Around waist Around hips six inches below waist line . . STOUTS 381 40-J 42i 44i 46^ 48i 50i 52 Around bust 43 30-J 41 INC] 45 32i 43 iES 47 34i 45 49 36i 47 51 38^ 49 53 40 51 55 41i 53 57 42| 55 Around waist Around hips six inches below waist line ALTERATION DEPARTMENT ODD SIZES 337 37 39 41 43 45 47 49 51 INCHES Around bust 38} 40} 491 44} 46 - 48} 50} 52 5 Around waist 31 33 35 37 39 41 43 Around hips six inches below waist 44 46 48 50 5? 54 56 58 Work Production Ticket. A charge is made for every alteration, whether or not the charge is sufficient to cover the alteration. The customer is not expected to pay any addition to the original charge as set forth by the sales person at the time a sale is effected. The schedule of prices chargeable for alterations is set up by departments and can only be revised through the statistical department of the office, through recommendations by the comptroller to the merchandising office. The statistics are obtained through the work production tickets. The need for cost accounting becomes apparent. To obtain the necessary requirements a procedure similar to that employed by manufacturing organizations is resorted to. That is, job production cost finding is necessary. The results of many similar jobs are the basis for the charge. The production ticket will be marked by the foreman or department manager, the ticket being hung by means of an attached string to the garment. The coworker's name (better known as operative number) and the time put in for his particular work are added. Material cost will be entered by the clerk of the department. Upon completing the job, each ticket is sent to the general office for labor costs to be entered and burden applied. The Statistical Record of alteration costs, in analytical form of the various classification of stock carried by de- partments using the workroom, is set up for monthly re- 338 RETAIL ORGANIZATION AND ACCOUNTING CONTROL ports. An analysis of costs, by this means, is the logical method of determining charges to be applied for various alterations. The difficulty arises of meeting competition. Most stores, WORK PRODUCTION TICKET ALTERATION DEPARTMENT # umber. 'Date- Received tfime _ , otrr. Completed Time Description of Alteration. QIVKN TO NUMBER RECEIVED Fl liHD COST. Fitter ( Time =3 j Date Tailor ( Timo ( Date Seamstress ( Time ? Date Presser ( Time I Date Examiner ( Time I Date Total Labor Cost Material Used Overhead Applied Total Cost Alteration" Co-worker's FOEM 56. WORK PRODUCTION TICKET ALTERATION DEPARTMENT 339 in fact it would not be amiss to say almost all stores, set up arbitrary charges. Where they get their cost findings is a mystery to themselves. The general argument for their charge schedule is that their competitors charge a specific price for certain alterations, and that they follow blindly. There are specialty shops in most communities that ad- vertise " Alterations free of charge." What a fallacy this .is. The burden of a store must thus of necessity increase, since labor and material for alterations are not given away for nothing. The customer must pay somehow, and she does. Alteration Room Layout. An inspection of alteration departments in department stores or specialty shops will disclose the usual fallacy of giving this particular depart- ment as little room as possible. This is not done because it is the desire of the management to do so, but for want of adequate selling space, which receives preference. Plenty of sunlight and ventilation should be foremost in its planning. The odor from damp pressing cloths, escap- ing gas, steam boilers and benzine produces fumes that are obnoxious and detrimental to health. Compartments for hanging the various garments to be finished on specific days should be set up by means of 1% inch iron pipes, projecting from walls and ceilings, each compartment indicating a particular day of the week. The layout of tailor's tables to be set should give plenty of working room, all of which is to be regulated by the space allowed for the department. The equipment should be modern in order to facilitate quick service. There should be special compartments for special deliv- ery alterations. This will be indicated by a red paster, marked " Rush," with the time to be delivered pasted on the alteration ticket. Alterations for Stock. It is not usually the custom, where a garment requires alterations for stock, that a 340 RETAIL ORGANIZATION AND ACCOUNTING CONTROL charge to the department requesting the alteration is affixed. It would be inconsistent with good management to eliminate this charge and add a burden to the alteration department without its receiving a return for labor and material. In making stock alterations, the cost charged rmSOI8.t7-tOM O ALTER FOR STOCK Date Floor......... REMARKS CAa uihon^ed by. FORM 57. ALTER FOR STOCK by the alteration department should be carried as an addi- tional cost of merchandise by the merchandising depart- ment. Many such alterations would eventually effect the mark up. This method gives an equitable distribution of cost. Such cost is a credit to the alteration department (see Form 57). Alterations for Window Display. A store's greatest advertisement is its window display. Here, merchandise is placed on forms, offset by expensive backgrounds and decorations. When a garment is placed on a form for dis- ALTERATION DEPARTMENT 341 -*ress C fa 'V0/- FOBM 58. AJLTEB FOB WINDOW GABMENT play, its elegance must be presented in such a manner as to create a shopper's desire. The merchandise, if wearing apparel, must be pressed thoroughly, all the hooks and eyes sewed carefully, and there must be nothing out of place that indicates a defect. The window decorators will send such garments to the alteration department for the necessary attention. The cost of such alteration attention is charge- able to window display against the department whose mer- chandise is prepared for the display window (see Form 68). INDEX Acceptances, 174 discounted, 176 Accommodation, 252 sales checks, 90 Accounts payable, 23 for consignments, 171 for merchandise, 169 for miscellaneous, 171 Accounts receivable, 16, 17, 141 ledger, 16, 17 Accruals analogous to serves, 174 Adding of sales checks, 111 Address label or shipper, 90 Administration, 252, 271 Advertising, 204, 308 cost distribution, 308, 311 help want, 313 miscellaneous, 312 newspapers, 308 novelties, 311 prepaid, 161 records, 66 relations to good will, 204 salaries, 308 signs and posters, 310 supplies, 311 window display, 147 Alteration charges, 129, 332 department, 329 for stock, 339 for window display, 340 room layout, 339 record, 334 sales audit, 129 20, re- tickets, 331 Amortization, 290 Appearance, 243 Appropriation record, 7 Approval sales checks, 91 Assets, 137, 138 deferred, 147, 160 fixed, 154, 175 liquid or quick, 138, 147 Assorting of sales checks, 108 Auditing, 108 Balance sheet, 131, 190, 191 Bank checks, 138 Banking, 138 Bills, 19 Bills of lading acceptance at- tached, 176 Blunders, 111 Bonds, 135 collateral, 136 convertible, 136 coupons, 135 registered, 135 Bonuses, 40, 130, 313 Book records, 3 Buildings, 154 Burden, 287 distribution, 271 division of operating, 13 ledger, 8 payable, 9 register, 9, 11 vouchers, 9 Buyers, 170 salaries, 302 343 344 INDEX traveling fares, 302 Buying burden, 302 Capital, 188-198 circulating, 149 investments, 181 stock, 135 working, 138 Carpenters, 321 Cash audits, 113 books, 29 , refunds, 92-94 sales, 75, 262 Cashiers balances, 139 chief, 32 duties, 32, 112 vouchers, 111 Charge accounts, 16-18 audit, 124 credit, 95-265 procedure, 96 procedure posting, 100 sales, 263 checks, 80 Charity, 274 Charter, 133, 328 Chart of accounts, 11 Club plan sales, 82 C. 0. D. at the source, 116 audit, 122 collections, 33 credits, 101-128 customers' records, 121 delivery sheets, 120 ledger, 27, 122, 142 parcel desk, 78 register, 119 returns, 266 sales, 263 sales checks, 77 sales checks audit, 115 straight, 116 Collaterals, 167 redemptions, 186 Collection of sales checks, 111 Commission record, 40, 130 Commitments, 231, 232 control, 232 Common stock, 133 Competition met scientifically, 220 Consignments, 170 Contingent liability, 143 sales help, 307 stock clerks, 307 Contracts, 167 Conveyors, 159, 301 Corporations, 131 close, 131 debt limitations, 7 domestic, 132 foreign, 132 open, 131 stock ledgers, 6 Cost of sales, 269 Cost plus, 44 Courtesy, 252 Co-workers census, 36 records, 36 Credit audit, 127 office, 124, 273 records, 26 Cumulative stocks, 134 Current assets, 138 Customer's identification, 76 Debentures, 134 Debt limitations, 7 Decorations interior, 312 Deferred assets, 147-160 INDEX 345 Delivery, 299 equipment, 156 working fund, 141 Departmental ledger, 4-6, 12 salary report, 36 subleted, 162 Depreciation, 181 of buildings, 293 Destructive service, 255 Determination, 209 Discount records, 68, 324, 325 Distribution of delivery, 302 departmental rents, 294 receiving burden, 299 records, 5 Dividends, 7, 134, 152, 188 cumulative, 178 noncumulative, 178 payable, 178 Divisions of control, 16 Domestic corporations, 132 Education, 242, 285 Educational director, 285 welfare, 280 Electrotypes, 309 Elevators and escalators ex- pense, 288 Employee's ledger, 21 as sales promoters, 258 Employment bureau, 282 Enthusiasm, 208 Examination for employees' promotion, 286 Exchange desk, 92 Exchanges, 94-102 Executives, 250 clerks, 318 salaries, 272 Expense ledger, 9 Extraordinary income, 262, 328 Federal taxes, 277 Financial income, 262, 323 Fitters, 331 instructions for service, 330 Fixtures and furniture, 155 Foreign corporations, 132 cost of merchandise, 304 Freight and expressage, 296 General ledger, 4 General or main office supplies, 273 Good will, 66, 111, 163 Gross profits, 270 with exceptions, 221 sales, 264 Health, 205 Heat, 289 Honesty, 205 Hypothecation of charge ac- counts, 185 Ideas, 258 Impersonal accounts, 6-9, 157 Import merchandise, 305 Income tax information at the source, 43 Indirect burden, 147, 312 Individual (personal) accounts, 143 Initiative, 206 Inspectors, 317 Insurance, 155 paid up, 320 transportation, 299 Interdepartmental sales check, 35 346 INDEX Interest, 175 accrued, 172 Earned, 326 on notes, 172 paid up, 327 prepaid, 165 Inventories, 57, 144 beginning, 221 decorators, 147 differences, 187 ending, 225 supplies, 146 transit of merchandise, 146 valuation, 145 workrooms, 148 Investigating vendors' product, 170 Investments, 149 bonds, 150 debentures, 152 in buildings, 154 in land, 160 in other companies, 153 in stocks, 151 of reserves, 152 with employees participating as an equity, 153 Journal vouchers, 4-13 Judgments as an asset, 164 as a liability, 182 Land, 160 Lay aways, 103 Layout as to store service, 247 Legal expense, 274 Liabilities accrued, 173 current, 169 fixed, 169 limited, 131 liquid, 138 Life of fixtures as to deprecia- tion, 181 Light, 288 Long term notes, 172 Loss account, 327 Machinery, 159 Mail order credits, 101 Maintenance of buildings, 292 Man power capital, 244 Mark downs, 25, 46, 92 accumulated, 223 daily, 223 Mark up, 44, 144, 221 accumulated, 223 Mechanical bookkeeping, 17 Mechanics' liens, 158 Membership, 280 Merchandising, 57, 170, 200, 219 ability, 241 best month to beat, 226 character, 242 control, 60, 219 cooperation, 248 cost, 8 daily sales to meet prepared plan, 227 details, 220, 240 exchange, 95 knowledge, 206 location, 245 manager, 202 memorandum, 170 open to buy, 230 planned sales, 225 sales promotion, 256 service, 250 stock to close the month, 229 INDEX 347 store layout, 247 Miscellaneous accounts receiv- able, 142 Missing checks, 109, 126 Mortgages, 158 Net sales, 56, 268 Noncumulative stocks, 134 Notes collateral, 173 guaranteed and indorsements, 182 receivable discounted, 143, 182 payable, 172 payable statement, 169 Occupancy, 287 Office petty cash, 72, 140 salaries, 272 Offices out of town, 305 foreign, 305 Open corporations, 131 Operating burden, 156, 271 Outstanding cash credits, 101 Over and short, 115 Parcel post, 300 Partial payment plan, 81 Part paid, C. 0. D., 104 charges, 126 charges and credits com- bined, 104 credits, 128 Part payments, 103 Paymaster, 39, 140 Pay roll records, 40 Permanent patronage through co-workers' education, 252 Personal accounts, 6, 9, 25 Planning department, 281 P. M.'s, 40, 307 Policy, 276 check on merchandising, 236 Porters and maids, 288 Porters' supplies, 288 Postage, 320 register, 320 Precancelled postage stamps, 301 Preferred stocks, 134 Prices, best selling, 235 Price tickets, 92, 95, 298 Private ledger, 6 Profit and loss, 4 defined, 262, 302 statement, 192-197 Profits, 188-270 Provision for indorsement, 182 Purchase journal, 69 Purchases, 13, 221 accumulated, 222 Purchasing agents, 100, 125 discounts, 325 orders, 100 Quick assets, 138 Quick liabilities, 138 Reading the balance sheet, 137 Receiving, 295 demurrage, 298 salaries, 297 supplies, 297 Refunds, 112 Registered bonds, 135 Rent direct cost, 287 prepaid, 162 water, 289 Repairs to buildings, 293 store fixtures, 182 348 INDEX Replacements, 292 Required discounts, 70 Reserves for bad debts, 183 building depreciation, 293 contingencies, 185 depreciation, 156, 179 discounts, 186 leakage, 186 replacements, 181 stocks, 70, 234 taxes, 174 working, 174 Retail credit extension, 183 credits analysis, 184 merchandise control, 60 reduction slips, 50 Return evil, 265 Revenue stamps, 278 Salaries, 302 adjustments clerks', 316 cashiers', 314 exchange clerks', 315 inspectors', 317 prepaid, 163 sign writers' 310 Sales, 224 checks, 74 help contingents, 306 planned, 225 planned best month, 226 planned daily, 227 planned per cent mark up, 227 prior seasons best, 226 promotion, 256 record, 53 return cash, 264 returns, 55, 264 Salesmanship, 203 Secret service, 275 Selling burden, 306 Service, 250, 255, 315 Shoppers, 259 Short term notes, 172 Sincerity, 207 Sinking fund, 157 Stock certificates, 132 Stocks, excess, 229 Stocks, planned to close, 229 Storage record, 70 Store analysis, 259 Straight C. 0. D., 116 Staffer, 18 Subscriptions to periodicals, 280 Subsidiary ledger, 5 Supplies, 273, 302 Surplus, 188 current, 189, 314 prior, 153, 189 Tally, 106, 126 Taxes, federal, 277 municipal, 279 state, 279 Telephone contracts, 319 and telegraph, 318 Tracer, 109, 126 check, 111 Transfer checks, 82, 127 desk, 82 Transit accounts payable, 24 Traveling expense, 276, 304 Trial balance, 136 Turnover, 198 how ascertained, 200 in England, 213 old merchandising methods, 200 INDEX 349 statistics, 210, 211, 212 Unaccounted for stocks, 187 Uncollectible accounts, 185 Undistributed cash, 141 Value, 253 Value readjustment of stocks, 222 Vehicles, 298, 300 Vendors' products, 170 Voucher system, 11 Watchman service, 294 Will-call checks, 81, 316 Window decorators, 310 Window display garments, 341 Work production tickets, 337 Work rooms, 329 (1) Library Graduate School of Business Administraiidflr University of California Loa Angeles 24, California 3 SOI UCSO^ERNREG^^^JJIlill A 000179162 3