UNIVERSITY OF CALIFORNIA AT LOS ANGELES THE ARTHUR YOUNG ACCOUNTING COLLECTION Graduate School of Business Administration Library of the University of California Los Angeles Library MINE ACCOUNTING AND COST PRINCIPLES MINE ACCOUNTING AND COST PRINCIPLES BY T. O. McGRATH AUDITOR OF THE SHATTUCK-ARIZONA COPPER COMPANY FIRST EDITION FIFTH IMPRESSION McGRAW-HILL BOOK COMPANY, INC. NEW YORK AND LONDON 1921 COPYRIGHT, 1921, BY THE MCGRAW-HILL BOOK COMPANY, INC. PRINTED IN THE UNITED STATES OF AMERICA THE MAPLE PRESS COMPANY, YORK, PA. tat .rxumj.ii. Library HF 5686 PREFACE The present tax laws of most of the States and of the Federal Govern- , < ment require that accurate records be kept and that complete reports be w made to the Government of the results of each year's business. The em- c ployes of large industrial units are demanding that they be informed of 3 the results of their labor, and be given a share either of the profits of fO the business or in the savings resulting from their increased efficiency or effort. The general public is insisting that, being the consumer of all products, the costs and profits of industry shall be accurately determined and made public. As the result of the gradual depletion of our richest deposits of minerals the mining industry is operating on a narrower margin of profit than at any time in its history, and must know its costs gfrom month to month to protect against loss. Also, it is now recognized "^that a mining enterprise may be properly equipped with the best of mechanical appliances and have an organization of high ability and employes embued with the spirit of co-operation, nevertheless the business cannot be intelligently managed without a knowledge of the results of operation and the condition of the business for each operating _, period, which information can be obtained only by proper accounting and > o costing. Therefore, each unit of the mining industry feels the need not only j 25 of accurately determining its costs and profits so as to have an intelligent guide to operations, and to meet the requirements of the Government, the public and of its employes, but to compile the accounting and costing data in as uniform a manner as possible so as to obtain the benefit of the operating data compiled by the other units of the industry. To meet this need there is an urgent demand for a complete pre- sentation of accounting and costing of mining operations compiled on a scientific basis and in a uniform manner. In spite of this demand, however, at the present time the published literature is inadequate and lacking in uniformity and there is prac- tically no agreement nor any great degree of efficiency in the account- ing and costing practice of mines. The only explanation of the present status of mine accounting is that the great diversity in methods of mining, treatment and disposal of mine products, as well as in the character of the mines themselves limits the treatment of the subject to a description of individual systems and accounts unless the fundamental principles underlying all mining operations are recognized. Up to date there have been two principal methods of illustrating accounting procedure: one, by means of books and records used in the business, and the other by means of accounts and statements used in V 342595 vi PREFACE the business. When the first method is used there is explained how the books are kept in order to get a Balance Sheet and a Profit and Loss, or Income Statement. When the second method is used the balance sheet and the profit and loss account are taken as the basis and there is explained what should enter into these and subsidiary accounts, and what records should be kept to support the balance sheet and profit and loss or income account. While it is true that the two principal objects of accounting are, to obtain a balance sheet showing the condition of the business at the end of the operating period, and, a profit and loss statement showing the results of the period's operation, nevertheless these two statements are only the results of the accounting and are not the basis of the accounting. Neither are the books the basis of the accounting as they are only part of the accounting machinery. While the accounts are the basis of the accounting they will show the true condition of the business only when they have been created in harmony with the principles underlying the business. In this presentation of General and Cost Accounting, a new method has been used: First, in order to determine the basis of the accounting, the business has been analyzed and a statement of the principles of the mining business has been drawn; second, charts of accounts have been created that will correctly reflect these principles upon the ledger; third, schedules are drawn showing the charges and credits to these accounts to insure uniformity and correctness; fourth, books and records are created that will allow of the compiling of the operating and business data so as to give a balance sheet showing the true condition of the business and an income or profit and loss statement that will give the results of the period's operation. The accounting procedure is then handled in the order in which the business is done. It is believed that the correct basis of accounting for mining has been presented herein and that this basis will allow of uniformity in accounting and costing procedure for all mines regardless of operating methods or the character of the ores treated. To achieve such uniformity would result in great benefit to the mining industry and in the directors, managers and department heads comprehending the business from an accounting standpoint as well as from the angle of operations. The object has not been to endeavor to exhaust the subject of account- ing and costing as applied to mining, nor to present the different systems and methods now in use by mines, mills and smelters, but simply to state the principles and to present sufficient forms, charts, records and procedure to illustrate how the principles are applied in actual practice. Also the subject has been worked out in the form of a manual and each sub-division is taken in logical order which should make the book of more value to those who wish practical working knowledge of mine accounting. TABLE OF CONTENTS PAQIU PREFACE v SECTION 1 Promotion, Development and Equipment CHAPTER I INTRODUCTION The Business of Mining 1 Relationship of Accounting to the Business 2 Organization of the Business 4 Definition of Accounting Terms. . 5 Need for Better Understanding of Accounting 5 CHAPTER II GENERAL ACCOUNTING Purpose of Accounting 7 Organization of Accounting Department 8 Principles of General Accounting 10 Working Factors 11 Chart of Accounts 11 Schedules of Charges and Credits 12 Differences in Mining Methods, Etc 12 Forms and Procedure 13 Accounting Divisions 13 Stages of Operation 14 CHAPTER III CAPITAL, PROMOTION AND ORGANIZATION Capital for Prospecting 16 Determining the Capitalization 16 Organizing the Business 17 Capital Receipts 17 Capital Expense 22 Statement of Condition of Business 23 CHAPTER IV CAPITAL, DEVELOPMENT AND EQUIPMENT Operating Organization 25 Operating Accounting Department 25 Operating Accounting 26 Books of Record 26 General Accounts 26 vii viii CONTENTS PAGE Operating Disbursements and Receipts 27 Net Mine Development 28 Depreciation of Development Equipment 29 Closing Mine Development Account 29 Administrative Accounting 30 Administrative Mine Development 31 Crediting Operations with Mine Development 31 The Development Stage 32 Development Production Accounting 33 CHAPTER V CAPITAL, REORGANIZATION AND DEVELOPMENT Reorganization of Development Company 34 Determining the Capitalization 34 Reorganization Accounting 35 SECTION 2 Operating Production CHAPTER VI OPERATING GENERAL ACCOUNTING Chart of Operating Accounts 42 Basis of Accounting 44 Operating Production Accounting 44 Divisions of Production Accounting 45 Operating Capital 46 Statement at Beginning of Production 46 Operating Exploration and Development 47 Capital Disbursements During Production 48 Chart of Operating Principles 48 Working Factors 48 CHAPTER VII OPERATING DISBURSEMENTS Actual Disbursements Direct 52 Labor 52 Employment of Labor 52 Labor Reports 53 Check of Daily Labor Reports 54 Record of Labor Reports 54 Accidents 56 Orders and Deductions 57 Balancing Pay Rolls 57 Time Statements and Payments 57 Labor Disbursement Account 57 Bills Audited 60 Invoices and Freight Bills 60 Cash Discounts and Credits 61 CONTENTS ix PAGE Bills of Expense 61 Check of Invoices, Etc 61 Vouchers 61 Bills Audited Record ". 61 Check of Bills Audited Record 63 Voucher Cheque 63 Bills Audited Disbursement Account . . 63 Supplies Issued 63 Disbursements of Supplies 64 Report of Supplies Issued 64 Record of Supplies Issued 65 Handling 66 Check of Supplies Issued 67 Supplies Issued Disbursement Account 67 Summary of Direct Disbursements 68 Actual Disbursements Indirect 68 Shops 68 Power 69 Summary of Actual Disbursements 70 Accrued and Deferred Disbursements 70 Accrued Disbursements 70 Deferred Disbursements 71 Depreciation of Equipment 72 Depletion of Mines 72 Summary of Disbursements 74 CHAPTER VIII DISTRIBUTION OF DISBURSEMENT CHARGES Distribution of Direct Disbursements 77 Labor 77 Supplies Issued 77 Bills Audited 78 Distribution of Indirect Disbursements 78 Shops 79 Power 79 Distribution of Accrued Disbursements 79 Distribution of Prepaid Expense 80 Repairs 80 Replacements 80 Unexpired Insurance 81 Suspense 81 Distribution of Deferred Disbursements 81 Miscellaneous Credits and Charges . 82 Summary of Disbursement Charges 82 CHAPTER IX PRODUCTION Production Accounts 84 Inventory of Production 84 Production Methods. 87 X CONTENTS PAOB Mine Production 87 Report of Mine Production 88 Record of Ores Loaded and Shipped 89 Contents of Ores Sampled for Treatment 91 Record of Smelter Settlements for Ore Sampled 93 Production Record of By-products 96 Production of Secondary Products 97 Mill Production 99 Smelter Production 99 Refinery Production 101 CHAPTER X SALES Sales of Principal Production 103 Sales of Secondary Production 106 Sales of By-products 107 Sales of Operating Supplies, Etc 107 Undelivered Sold Production . . 107 CHAPTER XI RECEIPTS Delivery of Sales of Principal Production 110 Reserve for Loss on Sales . . Ill Overs and Shorts on Deliveries Ill Delivery of Sales of By-products 112 Delivery of Secondary Products 112 Miscellaneous Receipts 113 CHAPTER XII OPERATING CASH Cash Receipts 115 Cash Received from Treasurer 118 Cash Received from Sales of Principal Product 118 Cash Received from Sales of Other Products 121 Cash Received from Sales of By-products 123 Cash Received from Sales of Secondary Products 123 Cash Received from Accounts Receivable, Etc 123 Postings of Cash Book Debits 123 Cash Disbursements 124 Cash Disbursements for Labor 124 Cash Disbursements for Bills Audited 125 Remittances to Treasurer 125 Postings of Cash Book Credits 126 Petty Cash Account 126 Reconcilement of Bank and Cash Account 128 Unpaid Cheques 128 CONTENTS xi CHAPTER XIII OPERATING STATEMENT & SCHEDULES PAGE Trial Balance 129 Operating Statement and Schedules 129 CHAPTER XIV OPERATING PROFIT AND Loss AND CLOSING ENTRIES Statement of Actual Operating Profit or Loss 138 Comparative Statement of Operating Profit & Loss 139 Adjusting Inventory to the Books 141 Miscellaneous Adjustments 143 Adjustment of Depreciation Charges 145 Summarizing the Revenue Accounts 143 Summarizing the Expense Accounts 144 Statement of Accounts for Treasurer 144 Determining the Yearly Profit or Loss 144 Closing the Treasurer's Accounts 146 Combined Operating Profit & Loss 147 Ruling the Accounts 147 SECTION 3 Administrative Accounting CHAPTER XV ADMINISTRATIVE PRODUCTION ACCOUNTING Chart of Administrative Principles 153 Working Factors 153 Statement at Beginning of the Year 154 CHAPTER XVI ADMINISTRATIVE DISBURSEMENTS Actual or Current Disbursements 155 Accrued Disbursements 155 Federal Taxes 155 Other Accrued Disbursements 157 Deferred Disbursements 158 Appreciation of Property Investment 158 Distribution of Disbursements 158 Distribution of Current Disbursements 159 Distribution of Accrued Disbursements 159 Distribution of Deferred Disbursements 160 Operating Accounts 161 Distribution of Prepaid Disbursements , 161 xii CONTENTS CHAPTER XVII ADMINISTRATIVE RECEIPTS AND CASH PAGE Administrative Receipts 162 Receipts on an Accrued Basis 162 Receipts on a Cash Basis 162 Administrative Cash 162 Cash Receipts 163 Cash Received from Sale of Stock, etc 163 Cash Received from Notes Issued 163 Cash Received from Sales of Product 163 Postings from Cash Book Debits 164 Cash Disbursements 165 Cash Disbursements for Bills Audited 165 Cash Disbursements for Dividends 165 Postings of Cash Book Credits 166 Reconcilement of Cash Account 166 Notes Receivable 167 CHAPTER XVIII DIVIDENDS Cash Dividends from Earnings 168 Stock Dividends from Earnings 169 Dividends from Assets 170 Capital Dividends 170 Reducing the Depletion Reserves 171 CHAPTER XIX ADMINISTRATIVE BALANCE SHEET Administrative Trial Balance 172 Closing the Operating Account 173 Realized Appreciation 174 Administrative Balance Sheet Before Closing 174 CHAPTER XX YEARLY INCOME, OR PROFIT AND Loss AND SURPLUS Profit and Loss 177 Items that Should Appear on Profit and Loss Account 178 Determining the Yearly Profit and Loss 178 Surplus 179 Adjusting the Surplus Account 180 Surplus Account for the Year 180 CHAPTER XXI BALANCE SHEET Grouping of Balance Sheet Items 181 Arrangement of Groups and Items , . . . 181 CONTENTS xiii PAGE Balance Sheet Statement 182 Balance Sheet Schedules 183 Invested Capital 183 Reopening the Connecting Accounts 184 Closing the Operating Accounts 185 Accounting for Holding Companies 185 Liquidation of the Business 186 SECTION 4 CHAPTER XXII Cost Accounting Method of Cost Determination 192 Cost Principles 193 Units of Organization 193 Divisions 193 Departments, Etc 194 Expense 195 Schedule of Charges and Credits 195 Expense Distribution of Labor 195 Check of Labor Distribution 196 Summary of Labor Distribution 198 Posting the Labor Distributions 198 Expense Distribution of Supplies 202 Check of Supply Distributions 203 Summary of Supply Distributions 203 Postings of Supply Distributions 203 Expense Distribution of Bills Audited 203 Expense Distribution of Shops 204 Expense Distribution of Repairs 205 Expense Distribution of Replacements 206 Expense Distribution of Power 207 Boilers 207 Air Compressors 207 Air Drills 207 Electric Plant 207 Summary of Power Distribution 207 Distribution of Suspense Items, Etc 208 Determining the Development Overhead 208 Distributing the Overhead Expense 209 Cost Factors 210 Production Factors 210 Compiling the Tonnage Factors 210 Summary of Tonnage Factors 211 Summary of Final Production Factors 211 Operating Factors 213 Time . . 214 Xiv CONTENTS CHAPTER XXIII COMPILING THE COSTS PAGE Kinds of Costs 215 Production Costs 215 Total and Net Production Costs 215 Division Production Costs 219 Administrative Production Costs 219 Operating Production Costs 220 Departmental Production Costs 223 Departmental Unit Costs 224 Detail Unit Costs 227 Daily and Weekly Costs 229 Comparative Costs 234 Shops and Power Costs 237 Shops Costs 238 Power Costs 240 Boiler Horse Power Costs 240 Compressor Costs 241 Air Drill Operating Costs 241 Air Drill Repair Costs 241 Cost of Prepaid Expense 242 Asset Costs 244 Construction and Equipment Costs 244 Materials and Supplies Costs 245 Accounts Receivable Costs 247 Distributing the Cost Sheets 247 Assembling the Cost Sheets 247 Statistics 248 Economic Accounting 248 Forms 248 Appendix 250 Index . . 255 INTRODUCTORY INTRODUCTION GENERAL ACCOUNTING MINE ACCOUNTING AND COST PRINCIPLES CHAPTER I INTRODUCTION The Business of Mining. Before taking up the subject of Accounting for mining it is best to have a clear conception of the business as compared to other business ventures. While the ultimate object of the business of mining is to win a profit from operations the same as in all other lines of business, nevertheless the hazards and the nature of the business differ considerably from other industries. In order to make these differences clear, we will set forth the principal features, as follows: First. The initial investment in mining claims, development and equipment must be proven by the discovery of commercial ore of a net value equal to the amount of investment before the investor can be reasonably assured of the return of his capital, which will then be subject only to the fluctuations in the metal, material and labor markets. In other lines of business the amount of investment in merchandise, raw materials, property, etc., has a certain marketable value from the moment of purchase, and can be disposed of at any time thereafter, for the amount of capital invested therein, plus a reasonable profit, subject to fluctuations in the material and labor markets and to competition. Second. The income of a mine is determined principally by the amount that the net value of the ore discovered is in excess of the invest- ment in mining claims, development and equipment, while the income of other industries is determined by the price at which the purchased or manufactured article can be sold above the cost of production, and the quickness with which the investment is turned. Third. It takes from three to seven years as a rule, after necessary development equipment has been installed on a mineral property, to prove the value of the property, during which time the investor stands to lose not only the interest on his money, but all or part of his principal, depending upon the amount of the net value of the commercial ore, if any, that may be discovered. Other lines of industry have the value of their investment established immediately upon the acquisition of their 1 2 MINE ACCOUNTING AND COST PRINCIPLES stock and are able, as soon as equipment necessary to handle the business can be installed, to offer their product for sale at as high a figure above the investment cost as competition and the law of supply and demand, etc., will allow. Fourth. Mining, in taking the risk involved in proving its initial investment as well as being deprived of any return on its investment during this period, and being a wasting industry, must obtain a higher rate of income, after the mine has been proven to be income-bearing property, than is obtained by other business in order to insure, before exhaustion, the same average return of income as other lines of industry. Fifth. To operate a producing mine requires extraction of ore and sale of its recoverable contents, which eventually exhausts the property. Therefore, to continue the life of the business and to keep the organization intact, requires that the same risk and uncertainty and delay in return on investment as in the beginning of the business must again be taken in the reinvestment in new properties before the exhaustion of each proven property. In the case of other lines of business that have an established trade it is simply a question of reinvesting the liquidated capital that was invested in stock, in the purchase of new stock of finished or raw materials, which, in the case of successful commercial enterprises, is done three or more times during each year's operation, without any hazard whatsoever. In addition to the main points set forth above, mines are subject to accidents by fire, floods and cave-ins, of greater magnitude than is the case in other lines of business; this at times results in an operating loss even after the mine has been proven to be an income-earning property, and against which there is no insurance except in the case of accident to employees. A proven property has not only to assume the risks and uncertainties above specified, which are not assumed by other lines of business, but must also bear the risks common to all business of fluctuations in the price of metals, wages of labor and cost of supplies, as well as strikes and acts of nature, which at times may result in a proven mine operating at a loss for any one period. RELATIONSHIP OF ACCOUNTING TO THE BUSINESS Accounting is not a collection of arbitrary forms, systems, etc., that can be applied to each and every business, but is the application of certain principles to the business by means of double entry bookkeeping, of mathematics, accounts, forms, records, and systems in such manner so as to determine and show the true condition of a business and the actual operating results for any one period of operation in costs and the profit or loss. INTRODUCTION 3 As accounting is concerned with the results of each of the departments of the business and of the business as a whole, it is necessary first to have a clear understanding of the fundamental duties of each of the departments, which from an operating standpoint may be set forth, as follows: The function of Engineering is to furnish the technical information necessary to production and to design, specify, improve and maintain the equipment, materials and products; Purchasing is the obtaining, transporting and storing of the materials; Superintendence is the appli- cation of the labor of the men and the use of the materials to the produc- tion of the product ; Selling is the advertising, disposition and distribution of the product; while Management is the coordination and regulation of all these operating departments into one harmonious, efficient working whole in conformity with the policies of the Executive Board. Finance is the obtaining and disbursing of the money to procure men and materials necessary to carry on production, the disbursing of earnings, and the banking and investing of surplus earnings and capital returned from production; the Executive is concerned with determining policies and the bringing of the business into a harmonious working whole in conformity with the market conditions of supply and demand, etc., so as to achieve the greatest profit obtainable to the best interests of the business and of all its working parts. While the above definitions may not be theoretically correct, they concisely set forth the duties usually assigned to the different operating departments in mining organizations of the present time. Engineering is considered to include the geological, assaying, mechanical, and power departments. In very large organizations there is the Advisory or Consulting Departments, covering the legal, technical and social or industrial sides of the business. This brings us up to Accounting which is not concerned with any one department of work but with the accounting for the money, materials and product, and the showing of the results of each and every department of labor, both operating and administrative, and of the business as a whole. The relation of Accounting to the Executive and Financial Depart- ments is advisory, the same as Operating Engineering is to Purchasing, Production and Management. While Engineering is of first im- portance to Purchasing and Production, Accounting is of equal value to Engineering in Management, and is of first importance to Selling and Finance, as the determining of the profit is the thing of first importance to every business, and the showing of costs, earnings and the condition of each operating department of a producing mine is absolutely necessary to intelligent and efficient management. Therefore, it can be readily understood that any treatise that will 4 MINE ACCOUNTING AND COST PRINCIPLES set forth the principles of accounting, as applied to mining more clearly and in a more practicable manner will be of great benefit to the business of mining. ORGANIZATION OF THE BUSINESS Before endeavoring to set forth the functions of one department of a business one must first have a distinct concept of the business as a whole, and of each department's relation to the other departments. DIVISION AND DEPARTMENTAL UNITS OF A MINING ORGANIZATION J ______ Market Conditions Cube-Business 1 Engineering 2= Purchasing 4- Sell Ing 5= Management Administrati . la- Executive on | g 1 b - Financial * [ C -Accounting CHART I. The business of mining consists of the two grand divisions of Adminis- tration and Operation, and can be symbolized by a cube, the four sides representing the Operating Departments of : ENGINEERING PURCHASING PRODUCTION OR SUPERINTENDENCE and SELLING the top Management, and the bottom the Administrative Departments of: EXECUTIVE FINANCIAL and ACCOUNTING That upon which the cube, or business, rests is the market conditions. In a properly organized business, sufficiently large to require separate departmental organizations, each of these divisions will have its head. Nevertheless, the functions and work of each will be so intertwined as to make a consistent working whole. Also while each department will INTRODUCTION 5 be concerned with its own duties, it will in a minor way within its own organization, exercise the functions of each and all of the other departments. The Executive is represented in operations by the Management, which is symbolized by the top of the cube, and contacts all operating departments, while Finance is represented in operations by Accounting, which is symbolized by the bottom of the cube, and also contacts all operating departments. Therefore, in a properly organized mining business the Accounting Department is generally divided into two divisions to conform to the Operating and Administrative sections of the business. DEFINITION OF ACCOUNTING TERMS As accounting is the language of business, there is great need of standardization in the use of all accounting terms and a clear definition as to the meaning of each term in order to do away with the present ambi- guity in the statements of business and to fill the lack of uniform business data. The effort has been made in the following pages to be uniform in the use of business and accounting terms and so to set forth the facts as to allow of clear concepts of the meaning of the usual terms. NEED FOR BETTER UNDERSTANDING OF ACCOUNTING In the production of its product, the business of mining requires the employment and utilization of men, money, machinery and materials, and the profitable operation of the business depends principally upon the intelligence, ability and cooperation of the men who constitute the executive, administrative and operative force, generally spoken of as Capital Management and Labor. In the present day organizations, Capital, the Stockholders, is represented by the Board of Directors and the Financial and Accounting Departments; Management by the Executive Department the Manager and the heads of the Engineering, Purchasing, Superintendence and Selling Departments; while Labor has had little or no representation in the organization except as raw material, until recently. The primary function of accounting is the recording, analyzing and distributing of the money, men, materials and product involved in the activities of each and every department of the business so as to show at set intervals the total net results of the business in costs and earnings and the true condition of the business, thereby keeping the whole organi- zation informed of the facts. To do this, however, the principles of the accounting system in all its details must be based upon and be identical with the principles and organization of the business, otherwise a perfect 6 MINE ACCOUNTING AND COST PRINCIPLES photograph of the business in figures cannot be obtained. Therefore, the accounting system can be perfected only as the organization is perfected. Considering the nature of accounting, it can be readily seen why uniformly efficient and intelligent accounting results in an organization of size is so difficult to obtain; also why it is necessary that all the account- ing should be a complete unit and be under one head, and that this head should be familiar with all the details of the organization and business and that each of the operating heads should have at least a working knowledge of accounting. No other department of the organi- zation requires such a broad knowledge of the business details and fundamentals, nor is so dependent upon the cooperation of the other departments in order to properly execute its work. The importance of accounting is shown by the fact that no department of the business can express the results of its activity, or carry on its work intelligently for any length of time, without the assistance of accounting, nor can the results of the business, nor its condition be shown except through ac- counting and costing. Therefore, a knowledge of its basic principles is essential not only to the employees of the Accounting Department and to every depart- mental head of the business, but to every stockholder or person who relies upon the reports of directors and officers for his knowledge of the business in which he has invested his money. CHAPTER II GENERAL ACCOUNTING General Accounting is the applying of the principles of accounts to a business so as to show the results of operations in profit or loss, and to obtain a true statement of the condition of the business at the end of each operating period. PURPOSE OF ACCOUNTING Mining is a business, the same as other industries, and is operated for the profit to be obtained therefrom. Therefore, proper accounting is as necessary to intelligent and profitable operation and management as proper engineering is to the efficient production of mining. Accounting efficiency can not be obtained unless there is a definite idea of the results desired and of the methods of procedure. The purpose of accounting may be summarized, as follows: 1. To verify and check, analyze and record, the business transactions and the operations in such manner as to show at regular intervals a true, correct and intelligent statement of the condition of the business, and the results of operations in costs and earnings. 2. To furnish to the officers and to the different operating department heads the results of operations for each period, within such time as to enable them to utilize the knowledge obtained therefrom in the succeeding period. 3. To summarize and compare the results of the operations of each period and report to the Manager and Directors the fluctuations when compared with previous periods. The check of the reports, statements, etc., of the business transactions and of the operations should determine the accuracy of each individual item, or operation, and the verification of each transaction or operation should be such as to reduce leaks, thefts, extravagances, omissions and misrepresentations to a minimum. The Accounting Department is not to decide as to whether or not efficiency has been obtained in the different department operations, but is to report the actual results, conditions and fluctuations of the depart- mental operations to the management and to the executive in such manner as to enable them to ascertain whether or not efficiency is being obtained, and to furnish to the different department heads all the accounting information that may be necessary to assist each to obtain efficiency. 7 8 MINE ACCOUNTING AND COST PRINCIPLES ORGANIZATION OF ACCOUNTING DEPARTMENT In order to conform with the general organization of mining opera- tions, the accounting is usually divided into two departments. 1. Administrative Department. 2. Operating Department. The Administrative or Corporate Department is concerned, first, with the accounting in connection with promotion and organization, and, finally, with the dissolution of the business. However, its principal concern is with the results of the Operating Department covering the development, the equipment, and the production of the mine property. The Administrative Department is under the direct supervision of the Secretary and the Treasurer of the company, and the indirect supervision of the Auditor or Comptroller. In large business organizations of many branches or subsidiary organizations, the accounting that is usually done by the Treasurer and the Secretary, concerning the administrative side of the business is some- times done under the supervision of a Comptroller who is the general head of the accounting, while the General Auditor is the head of the oper- ating accounting and costs, etc., and his assistants are the auditors who verify the accounting work of the different operating organizations and departments. The Operating Department is concerned with the details of the development, equipment and production operations of the mine and other property, and the transmitting of the results of operations to the Admin- istrative Department. The Operating Department is generally directly under the Chief Clerk or Chief Accountant and indirectly under the Auditor. The organization of the Accounting Department depends on the form of organization of the business, whether corporate, partnership, etc., the scale of operations, the method of mining and treatment of ores, and the disposition of the mine and smelter product. As the mining business is generally carried on in the corporate form the accounting methods, etc., set forth in this treatise will be those particularly applicable to a corporation. The organization of the Operating Department may be a single unit under the Chief Clerk or Chief Accountant, with one set of books and records whose accounts are closed directly into the Administrative Department's books; or the organization may be of several units under an Accountant for each unit, with separate sets of books and records whose accounts are closed either into a set of general operating books and then into the Administrative or Corporate Department's books, or closed directly into the Administrative Department's books. Again, the Mine Department may be the principal unit and the other departments, such as the Smelting, Refining, and Selling, etc., be sub- GENERAL ACCOUNTING ^ 12 <*: Q> O L> 10 MINE ACCOUNTING AND COST PRINCIPLES units whose control accounts are carried in the Mine Department's books; and this latter method is the simplest and easiest to operate. PRINCIPLES OF GENERAL ACCOUNTING The business of each producer of raw and finished materials is similar in basic principles, in that after the necessary capital to finance the busi- ness has been paid in, either in cash or its equivalent, and the initial dis- bursements made for the purchase, development and equipment of the property which must be made before production can begin, the remaining amount of the capital, known as working capital, continuously rotates through five consecutive phases of operation, as follows: First. Disbursements of labor, materials and expense are either made or contracted for in order to operate the business. Second. Production as the result of operation is created and shown at the amount of the expense invested in the product. Third. Sales are made of the product or contracts made for the future deliveries of the product. Fourth. Receipts for the delivery of the sales are created, payment for which the buyers or other parties will be responsible. Fifth. Cash is received for the delivered product on the due date and is used to liquidate the disbursements, etc. The business of production continues to rotate through these five stages as long as production operations exist. However, in common with all other business it is necessary at the end of each operating period to determine the actual profit or loss in order that there may be known what amount may be distributed as dividends and what set aside as surplus and in order that a balance sheet may be drawn showing the condition of the business in the different stages of operation, as on a certain date. Therefore, the accounting principles of the business of mining upon which scientific accounting must be based are, as follows: 1. (a) Capital. 2. Disbursements. 3. Production. 4. Sales. 5. Receipts. 1. (6) Cash. 6. Profit or Loss. 7. Dividends. 8. Surplus. 9. Balance Sheet, or Statement of Condition of Business. These principles underlie the accounting procedure of any business producing raw or finished materials, which includes factories as well as mines, regardless of the individual character of the business. GENERAL ACCOUNTING 11 The first requisite is the drawing of a Chart of Principles, as shown by Chart II, illustrating the principles of the business and the accounting sub-divisions in proper order and relation one to the other, for use as a guide in the accounting, and in order that the results of operations may be properly and completely expressed. Working Factors. After the Chart of Principles has been drawn it is necessary that these principles be applied to the business in such manner as to give a correct picture in figures of the condition of the business and of the results of operations for any one period in costs and earnings. In order that this may be obtained and that there may be determined a definite and true basis upon which the accounting structure may be built and uniformly operated, it is necessary that an analysis of the business be made and there be established working factors, as follows: 1. A "Chart of Accounts" in harmony with the Accounting Principles, that will enable the showing of the true condition of the business, and the results of operations in costs and earnings. 2. A "Schedule of Charges and Credits" to be made to the different accounts to insure uniformity and accuracy in compiling the results of operations. 3. A Schedule of the Accounting Procedure so as to establish a uniform efficient working whole. 4. A File of the Forms and Records upon which to compile and record the business and operating transactions. The Chart of Accounting Principles (No. II) will be the same for all mining units and shows the principles necessary to be recognized in establishing the four working factors to express properly the condition and results of each business in costs and earnings. Chart of Accounts. A large percentage of business men and some accountants seem to think that names of accounts can be anything that the owner of the business may desire. This is the result, no doubt, of not establishing first a Chart of Principles. The names of accounts should clearly express the business operations and results according to principles, otherwise confusion and lack of clearness will ensue. The Charts of Accounts shown (Nos. Ill, XI and XIV) would be appli- cable only to mines worked by means of shafts and drifts, and producing direct-smelting ores, which were being smelted by the company, and the metal contents being sold in the market. Such charts must be made to fit each individual business. This can be done by taking the Chart of Principles (No. II) and dividing the accounting principles into Administrative, as shown by Chart II-A, and Operative, as shown by Chart ll-B, and then determin- ing the accounts necessary to properly and completely express the business results, as shown by Charts III, XI and XIV. However, the accounts need not necessarily appear in the ledger in 12 MINE ACCOUNTING AND COST PRINCIPLES the same order as on the Charts of Accounts, but in the order in which most convenient for posting and reference. The Charts of Accounts must show the actual operating and adminis- trative departments, sub-departments, etc., of the business, in order that a true picture of the results of operations may be made at set intervals. This is not a matter of personal opinion or desire as some think, but is a matter of clearly expressing facts. Schedule of Charges and Credits. The Schedule of Charges and Credits must state what shall be charged or credited to each operating- and administrative-department account, sub-department account, depart- ment-unit account, etc., in order to insure correctness and uniformity in the accounting, and to enable the determination of the true cost and the resulting profit or loss of each operation, as well as to fix definitely the responsibility of accurately reporting and recording charges and credits. The reports of the Operating Department must show what was done, and when and where; and the Accounting Department must compile the operating charges and credits according to the schedules, otherwise a true and correct statement of operating results can not be obtained, and the usefulness of the reports of the Accounting Department to the Executive, the Manager and the Operating Officials will be impaired. The uselessness of considerable of present-day accounting and costing is the direct result either of the heads of the Operating Departments determining how charges shall be made, the lack of a definite schedule of charges in the Accounting Department, or the inability of the Account- ing Department, on account of insufficient authority given to it, to deter- mine whether or not the reports of the operators are correct, which sometimes results in false, juggled or unintelligible accounting of little or no value to the Management or Operating Department Heads. Differences in Mining Methods and Character of Mines. The Charts of Accounts and Schedules of Charges must be made to fit the requirements of each class of mines, which may be stated, as follows: As to Method of Mining: A-\. Mines being worked by means of shafts, drifts and stopes; 2. Mines being worked by surface pits with steam shovels or hand labor. As to Character of Ores Mined: B-l. Mines producing direct-smelting ores; 2. Mines producing conceritrating-metallic ores; 3. Mines producing concentrating-smelting ores; and 4. Mines producing leaching ores. As to Method of Disposal of Products: C-l. Mines selling their products to smelters; 2. Mines smelting their ores and selling their smelter product to refineries or brokers; and 3. Mines smelting, refining and selling their products, and the product of other mines. GENERAL ACCOUNTING 13 Necessarily there would need to be variations in the Chart of Oper- ating Accounts to fit the operations of each class of mines, and differences to take care of the different minerals mined, as well as variations in the subsidiary accounts and the charges thereto of each mine of each class, in order to suit the local conditions and problems peculiar to each. Therefore, it can be readily seen that neither a Chart of Accounts, nor a Schedule of Charges could be drawn so as to be entirely applicable to all mines. Forms and Procedure. While the Administrative Accounting forms and procedure is practically uniform for all mines, the Operating forms and records and procedure must vary to suit the operating conditions of each mine. Nevertheless, where the accounting is based on principles, as shown by Chart II, the procedure and forms for each class of mines would be nearly uniform. Only the more important forms have been shown in illustrating the accounting procedure. Of course, these forms would have to be changed to suit the peculiarities of each business, as most of the forms given herein are those applicable to copper mining. The Administrative Accounting procedure should be practically the same for each mine, only the Operating procedure will vary according to the size and character of operations. The General Operating procedure set forth in this work is that suitable for a metal mining business as illustrated by the Charts of Accounts. However, it must be understood that the Charts of Accounts, the Schedule of Charges, and the detail forms and procedure for operation must be made so as to fit each business and must change as the require- ments of the business demand, otherwise the accounting system would not be in harmony with the operations of the business ACCOUNTING DIVISIONS While the Principles of Mine Accounting procedure follow one another in regular order as here-in-before set forth, and while the four working factors are generally worked out so as to make a complete consecutive whole, in actual practice the accounting work is generally divided into two divisions of: 1. Administration, and 2. Operation. In order that the principles involved in each division of work may be known and followed, charts similar to Charts II-A and II-B must be drawn as a basis of the accounting of each division, and the proper charts of accounts established to conform to these principles as shown by Charts III and XI. 14 MINE ACCOUNTING AND COST PRINCIPLES The work of each of these departments is complete and separate from the other. However, the summary of the operating results are closed into the Administrative Records at the end of each year or each period. While the principles of the Administrative and Operating Accounting are always as shown, in practise the division between Operating and Admin- istrative Accounting may not be in accordance with theory, but to suit the desires of the Executive or requirements of the business. STAGES OF OPERATION During the development stage of mining the Administrative and Operating Accounting have to do with the capital receipts and capital investments in purchase, development and equipment of the property. During the production stage the Operating Accounting deals with the Operating Disbursements, Production, Sales, Receipts and Cash, while the Administrative Accounting takes care of the Capital and Adminis- trative Disbursements, Receipts and Cash, the net results of the Operating Accounting and of the accounting of the Income, Dividends and Surplus and the drawing up of the Balance Sheet. In the life of the average mine, we have two stages of operation of the property which must be accounted for, as follows : 1. Development, and 2. Production. However, on account of the fact that practically all mining requiring an accounting department is done by corporate organizations, and the life of all successful mining corporations consists of four distinct periods of existence, there are two more stages added making four in all that must be accounted for, as follows: Promotion and Organization of the Business, Development and Equipment of Property, Production of Property, and Dissolution of the Business. The accounting for each one of these periods is distinct and different from the others. While the accounting required during the period of promotion and organization of the corporation when the necessary capital is raised with which to take care of the business, and the accounting for the develop- ment and equipment of the property when the capital that has been raised is invested in the business, is very simple, nevertheless it is very important, for, if the accounting during these periods does not properly show the capital that was paid in to the business, and does not properly account for the invested capital so as to meet the requirements of the Federal Tax Laws and the Treasury Department's Rulings governing the GENERAL ACCOUNTING 15 determining of Income and Excess Profit Taxes, etc., the business may be compelled to pay excessive Federal Taxes, as soon as it is on a producing basis. Both the Administrative and Operative Accounting required during the period of development has to do with the investment of the capital in property and equipment, while the accounting performed during the period of production is of entirely different nature and is highly important as intelligent and proper production accounting is absolutely necessary to obtain efficient operation and management, as well as to determine the true profit or loss resulting from each and every department, and of the business as a whole for each period of operations. The accounting required upon the winding up of the business and dissolution of the corporation while necessary, also, is simple and, of course, final. Therefore, in order to deal consecutively with accounting as it comes up in the course of the life of a business, there must be shown, first, the Administrative Accounting performed during promotion; second, the Administrative and Operative Accounting preliminary to production covering the investment of the capital in the purchase, development and equipment of the property; third, the Operating Accounting covering Production and the Administrative Accounting dealing with the results of production; and, fourth, the accounting necessary to close the business. This will divide the accounting into four stages to take care of the four stages of business, as follows: 1. Promotion and Organization, 2. Development and Equipment, 3. Production and Investment, 4. Liquidation, and will divide these four stages, except during Promotion and Organi- zation when only Administrative Accounting is involved, into the two accounting divisions of: 1. Administration, and 2. Operation, to properly account for like divisions of Operation. SECTION 1 PROMOTION DEVELOPMENT AND EQUIPMENT CHAPTER III CAPITAL PROMOTION AND ORGANIZATION The accounting required during Promotion has to do with obtaining capital, and while it is simple, it is the beginning of the accounting records and must be covered in order to make the records complete. All the accounting performed during the Promotion or Capital stage is performed by the Administrative Department. Capital for Prospecting. After a mining business has been established on a production basis, a certain amount of the earnings are used for prospecting of the property owned and the prospecting of promising properties owned by others who are unable to develop their ground, and who are willing to give an option for development and purchase of their property. However, before a mining business can originate, mineral-bearing ground must be discovered and located in accordance with the Federal Laws governing the locating, holding and acquiring patent to Mineral Lands. The prospecting for mineral-bearing ground is carried on generally by individuals acquainted with the practical side of mining and who are known as prospectors. This class of men obtain the necessary capital for prospecting by savings, or by grub stakes, or funds furnished by others who are to participate in anything discovered. It is very seldom that these men ever develop their prospects, any more than what can be done by the yearly assessment work necessary to hold the located claim or claims. After promising ground is discovered and located by the prospector, he endeavors to interest those who have sufficient capital either to develop the property for an interest, or to purchase it outright. Upon the investment of capital to develop a prospect is the beginning of the mining business, which, on account of the hazardous nature and the large investment that is usually required to make a producer of a prospect, is generally carried on as an incorporated stock company. Determining the Capitalization. The first thing to be decided as to the formation of a stock company is the amount of capitalization. The capitalization of the company to be organized should be sufficient to take care of the amount specified in the Engineer's report as necessary to prove the property, plus an amount that will meet the terms of the 16 CAPITAL 17 option for purchase of the property, as well as give a sufficient margin of reserve to take care of any reasonable unforeseen emergencis or difficulties. Organizing the Business. As a rule the initial company is a develop- ment company with a capital reasonably sufficient to prove the value of the property, and the company may become defunct upon the property proving a failure, or upon the proving of the property, it is absorbed by a mining company having a capital sufficient to take over the stock of the development company at its original investment value plus the additional value due to the results of the proving of the mine, and to take care of the equipment necessary to production, and to give ample working capital to carry on production operations. After the amount of capital has been determined, the Articles of Incorporation drawn and filed, and Certificate of Incorporation has been received from the proper official of the State in which incorporated, a certified copy of the Articles are filed with the County Recorder of the County in which the business is to be done, and the accounting record of the origination of the business is made by an entry in the Journal (Form No. 1), as follows: Capital Stock Unissued $350,000.00 To Capital Stock Authorized $350,000.00 "Being the amount of capital stock authorized for sale by the Articles of Incorporation of the A. B. C. De- velopment Co., and which is in the Treasury as unissued in all 35,000 shares at a par value of $10 per share." The posting of this entry to the ledger Form No. 2 is the beginning of the accounting record and procedure. Capital Receipts. After the initial meeting of the stockholders elect- ing the directors, etc., and the initial meeting of the directors electing the officers, the recording and the issuing of certificates of stock is done by the President and Secretary, for receipts of cash or its equivalent, and this is the beginning of the actual accounting of the business. The record of the owners of the Paid in Capital of the company or business is kept by the Secretary of the company. Each owner of a share of the capital stock is given by the Secretary, a stock certificate, showing the amount of his share, the date issued, etc. Upon delivery of the stock certificate a receipt for same is taken from each owner and for record this receipt, showing the address, is filed in an alphabetical file and gives the Secretary a convenient record of the names and addresses of all owners of stock. A record of the certificates of stock issued is kept on the credit side of the Capital Stock Journal (Form No. 3) as to date of issue, and this record is transferred to the credit side of each account in the Capital Stock Ledger (Form No. 4), which is kept so as to show the stock owned by each 18 ACCOUNTING AND COST PRINCIPLES CREDIT I H 3 FOLIO DENN ARIZONA COPPER COMPANY BISBEE. ARIZONA 1 \ : \ i t i 4 I 4 _0 j 1 T 4 1 i PI >.->]S'l,I> d w 1 - - 1 "3 i M =1 < Zi \ ^ "z C5 2 p !H *r. i 3 H .. ' ^ \ ^ o 1 K j $ r- < Q> S t U) M\ V> > Asset Ace 1 1! t i! ^1 4>S S 11 ! S ^ Accounts Prepaid Expense Accts. 1) . P ^ t> U) L ** s it - S c c - >i ^ ^? ^ ^ b-S ^> ^o &&P r ^ ?S Oj ^j to V r^ o *^ CtG;X ^-^ WX \ Expense ^ Department Expense Accts. R ^ t -S 6 > * D fe < "k - C ^ ^ -p K -S -t 6 | I ^ 1 -1> & -ChP a. fe ^ .cik S6> fc &4: feic-S p^-9 K. 8 ^ ^> H c s -C -^ c-S Oi ^ c in"l!rlilll x. .&> V C; C fc n ^4" ^ LOW uj (3 Qi < G <^ ~ ^^ ^ ^ 50 CHAPTER VII OPERATING DISBURSEMENTS The Operating Disbursements of production consist of Current or Actual, Accrued and Deferred, segregated so as to provide for proper accounting and costing, as shown by Chart IV. It is necessary that a complete record shall be made of all actual disbursements, and that this record shall be such as will allow a ready and reliable check to be obtained at the end of each accounting period by the one in charge of the Accounting Department, or by outside auditors, of all operating and cash disbursements. The business of Mining requires, in addition to the disbursements of Cash to meet the liabilities of operations, the direct disbursement or application to operations, first, of Labor as shown by the pay-rolls, and second, of Expense as shown by the Bill of Expense entered in the Bills Audited Record, and third, of Materials and Supplies to operations, as shown by the Supplies Issued Record. Therefore, it is necessary, in order to allow a ready and accurate check to be made of all actual dis- bursements, that there be created and maintained Direct Disbursement Accounts, as shown by Chart VI, as follows : LABOR BILLS AUDITED SUPPLIES ISSUED The Supplies Issued Account is supported by the Supplies Issued Record and the signed charge tickets which enable an accurate and ready check to be made of all disbursements from the Stores of Materials and Supplies, while the Labor and Bills Audited Accounts are supported, respectively by the pay-rolls, with the signed statements, and the Bills Audited Record with the receipted vouchers, and enable an accurate and ready check to be obtained of all Cash Disbursements for Labor, Expense and Purchases. These three Direct Disbursement Accounts cover all actual Operating Disbursements. The Indirect Disbursement Accounts are Power and Shops and are sub-divisions of the Direct Disbursement Accounts. However, as the records are to be kept upon an accrued basis it is necessary to show also the Accrued Disbursements which consist of Accrued Expense as covered by Accrued Accounts shown by Chart IV. In practical accounting it is seldom that any debit Accrued Disburse- 51 52 MINE ACCOUNTING AND COST PRINCIPLES ment Accounts are carried on the books. Instead of debiting an Accrued Disbursement Account and crediting an Accrued Account Payable at the end of each accounting period, in order to show an accrued liability, and then closing the Accrued Disbursement Account by a credit and debiting the proper expense account, in order to obtain the accrued expense applicable to each operating period, the credit to each Accrued Account Payable is offset by a debit direct to the proper expense account. This obtains the results desired and saves bookkeeping. In addition to the Actual and Accrued Disbursements there are the Deferred Disbursements consisting of charges for Depreciation of Equipment and Depletion of Mines. These charges are made upon the operating books by journal entry and are transferred to the Administra- tive Books through the Treasurer's Account and are the amounts which represent the capital returned by production and are not included in Operating Expense, but are charged direct to the Income Account and shown as a deduction from Gross Income. The Deferred Disbursements should not be confused with Deferred Expense charges which are herein considered as Prepaid Expense. ACTUAL DISBURSEMENT DIRECT Actual Disbursements consist of Direct and Indirect Disbursements. The Direct Disbursements are Labor, Bills Audited, and Supplies Issued; while the Indirect Disbursements consist of Labor, Supplies and Expense charges to Shops and Power Plants. LABOR The Labor Disbursement Account showing the total amount of all pay-rolls for labor employed and for which operations must account is created and supported, as follows: Employment of Labor. Proper authorization of all labor employed must be made before the name of an employee is entered upon the pay- rolls. The applicant, after making application for employment, is given by the employing agent, an Engagement Slip, which the applicant signs in the presence of the employing agent and which he then pre- sents to the physician, by whom he is examined to determine whether or not he is physically qualified for the work for which he has been engaged. The physician makes a thorough examination of the applicant and records his findings. If the applicant proves to be unfit, the physician takes up the engagement slip, marks on it "rejected," and returns it to the employment office. If recommended, the applicant again signs the engagement slip on the observe side, in the presence of the physician, and presents the approved card to the timekeeper, who requires him to fill out and sign an Employment Card, and who gives the applicant an OPERA TING DISB URSEMENTS 53 Identification Card to be by him presented to the shifter or the person who is to be responsible for his work and who is to report the distribution of his time. The employee signs the Identification Card in the presence of the person who is to report his time and the man is placed at work. CHART V. The card is then returned to the Employment agent by the shifter or foreman and the employee's name is entered in the Daily Time Book. Where a report is obtained on all men employed, an inquiry is sent out to last employer and a note made upon the application card of the answer received. Labor Reports. Each perso'n having direct supervision of labor reports the time of each employee, each day, on going off shift by turning 54 MINE ACCOUNTING AND COST PRINCIPLES in to the timekeeper his Daily Time Book in which a record of the time of each man is kept as follows: Opposite each name shown on the time book, in the space under each date column, for each full day worked, a vertical line; for each part of a day worked, the proper fraction; opposite each name in the proper column for each day an employee did not work, a cipher; opposite the name of an employee discharged or quitting, a long line, the line to begin after the last shift reported ; and two short lines after the last shift worked of a man transferred. UNDERGROUND DAILY LABOR REPORT For Shaft Date 192 SHIFTER'S NAME J.Geldart W.Lambert E.Powe F. Stone Rate per Day Shifts Shifts Shifts Shifts Total FORM 7. Check of Daily Labor Reports. When the force justifies a day and night timekeeper, each man must report to the timekeeper when going on shift and receive a numbered check which he returns to the timekeeper on coming off shift. The timekeeper, each day, makes a summary (Forms 7, 8, and 9) showing the number and wage of men under each supervising head, as shown by the time books turned in to him by the dif- ferent bosses, which he checks against the segregation slips turned in, and against his record, all of which must balance. A copy of the summary for each department is delivered to each department head, and copies of the complete summary are delivered to the Manager and to the Accounting Office. At the end of each pay period, new daily time books are written up for all bosses by the timekeeper, the names in the books being grouped as to rates and arranged alphabetically. Record of Labor Reports. A record of all the time reports is made on the Pay-rolls, a roll being kept for each department, also for each shop, and for each surface division. The total shifts of all rolls must balance OPERA TING DISB URSEMENTS 55 with the total shifts of the time books, as well as with the total shifts of all segregations, when checked each day and at the end of each accounting period. Surface Daily SHATTUCK ARI2 Labor Report ONA COPPER CO. 192 CLASS BATE TOTAL SHIFTS F.IMARKS General Waste :. jj ] Trm Sawmill *-rpente: TOTAL TOTAL FORM 8. Mechanical Daily SHATTOCK ARIZON Labor Report A COPPER CO. .192. CLASS RATE TOTAL SHIFTS REMARKS Machine Black- .mitt TOTAL TOTAL CLASS RATE TOT \\. SHIf TS REMARKS Cump.i filers Mine Purcps Wain i. Oil TOTAL TOTAL FORM 9. Upon an employee leaving or being discharged from the company's service before the end of a pay period, he is given, by the person who is responsible for his labor, a Discharge Report which report is in two parts. 56 MINE ACCOUNTING AND COST PRINCIPLES The part requesting payment is given to the employee leaving the com- pany's service and by him given to the timekeeper, who delivers the employee a time statement (Form 10) to be signed and delivered to the Paymaster at the same time he receives his pay check; and the part show- ing the employee's record is forwarded to the employment agent for his use in completing the employee's record on the application Card, which FORM 9 Chk No Roll NO NOT TRANSFERABLE IN ACCOUNT WITH Shattuck Arizona Copper Company For Half Month Ending , 191 CREDITS By Day at $4.25 By Days at $400 By Days at $3.75 By Days at $3.50. By Day* at $ DEBITS Hospital Store hMWM Subscription Cah Balance as per pay roll . Received payment In full NOTE. This should be signed before presenting. 12-21-16 50M CRANK MM FORM 10. Time Statement. card is then transferred from the "live" to the "dead" file. This is also done by the Paymaster to prevent the further carrying on the rolls of the discharged employee, and to keep the record a live file which will give accurate information of the employee. Each day or on certain days a list of the names of "quitters" is furnished the dispensary for its protec- tion in extending medical services. Accidents. A Report of each accident to each employee is made by the person in charge, and when an employee is off duty 14 days or more OPERATING DISBURSEMENTS 57 and has accepted compensation as provided by law he is placed on the compensation roll. After the close of each month, a report is made to the State Mine Inspector of all men injured who lost time, or as required by the State Laws. Orders and Deductions. Deductions are made upon the pay-rolls to meet employees' orders for insurance premiums, subscriptions, store and individual accounts; also for hospital fees, and for cash advances. Hospital fees, for hospital and medical service, are deducted from all em- ployees' wages who have been in the service of the company, the amount being determined according to whether the employee is married or single, and is always uniform. The Hospital deduction is entered against each employee on the roll, in the column provided therefor, at the end of each pay-roll period. Cash deductions are for cash advances as shown by signed statements taken by the Paymaster when making advances to employees, and are entered on the pay-roll at the time each advance is made. All other deductions, such as for insurance premiums, subscriptions, store and other accounts are covered by orders which must be worded to comply with the law of the State covering such matters, and are entered on the rolls at the time the orders are received. Balancing Pay-rolls. As the Accounting Period invariably ends with each calendar month, it is necessary, at such time, thp/i the timekeeper, before sending the rolls to the Paymaster, balance them against the time books as to total shifts. After they are received by the Paymaster, the Cash Advance Deductions are balanced against the General Cash Book record, and Time Statements are then made out for the balance due each employee showing thereon all deductions, extensions being made and checked on the pay-rolls at the same time. A recapitulation of the rolls is then made (Form No. 11) and checked against the cost segregations as to shifts and dollars (Form No. 12). The time statements are then numbered with the pay-roll numbers, the paid time statements taken out and checks drawn to satisfy the unpaid statements. Time Statements and Payments. Payment to each employee is made on the regular pay days for the net amount due, after any and all deductions have been made as shown on the roll and by the Time State- ment, which latter is made out at the time the roll is extended and bal- anced, and which is then distributed to the men by each supervisor of labor, the day before pay day, for their examination and information. The time statement is signed by each employee and is presented by him to the Paymaster on Pay Day, at which time his Pay Cheque is delivered to him. Labor Disbursement Account. In order to make a record upon the books of the company to show the amount of the month's labor for which the operations must furnish distribution, as well as to show the liability MINE ACCOUNTING AND COST PRINCIPLES s 3 O 3 55 - a H a es O Hi Q H S I - : :i __ 0^>R . a tf >> OPERA TING DISB URSEMENTS 59 UNDERGROUND LABOR DECEMBER, 1916 Date Muckers 5.60 Miners 5.85 Tmb. and Cgr. Shaftmen Demonstr. 6.85 Total 6.10 6.35 6.60 12- 1 203.25 148 28 2 381.25 2 205.25 148 28 2 383.25 3 2 2 4 204 . 25 150 27 2 383 . 25 5 211.50 146 28 2 387.50 6 204 . 25 142.50 29 2 377.75 7 205.50 151 27 2 385.50 8 210 150.25 28 2 390.25 9 212 147 28 2 389. 10 2 2 11 210 153.25 30 1 1 3 95.25 12 212.25 156 31 1 1 401 . 25 13 213.25 154.75 31 1 1 401 14 212.50 157 31 1 1 402.50 15 213.50 157 31 1 1 403 . 50 2,717.50 1,960.75 377 25 4 5,085.25 $15,218.00 $11,470.39 $2,299.70 $158.75 $33.00 $29,179.84 Difference .02 Roll... $29.179.86 16 210.25 156.25 31 1 1 399.50 17 107 73 15 1 1 197 18 209 153 28 1 1 1 393 19 217 156 29 1 1 1 405 20 214.25 152 28 1 1 1 397.25 21 177. 5G 149.75 32.5 1.5 1.5 1 363.75 22 153 113 26 1 1 1 295 23 196.5 144 28 1 1 370.50 24 100.25 74 14 1 1 190.25 25 2 2 4 26 210 150 27 1 1 1 390 27 209 . 50 152.50 29 1 1 1 394 28 209.375 149 27 1 1 1 388.375 29 209 148.50 29 1 1 1 389.50 30 209 . 25 151 29 1 1 1 392.25 31 1 1 2 2,631.875 1,922 372 . 50 17.5 17.5 10 4,971.375 $14,738.50 $11,243.70 $2,272.25 $111.13 $115.50 $68.50 $28,549.58 Difference .02 Roll $28,549.60 For Month: 5,349.375 3,882.75 749.50 42.5 22.5 10 10,056.625 $29,956.50 $22,714.09 $4,571.95 $269.88 $148.50 $68.50 $57,729.42 FORM 12. 60 MINE ACCOUNTING AND COST PRINCIPLES therefor which must be satisfied by cash disbursements, an entry is made in the Journal for posting to the general and subsidiary ledgers of the total amount of all rolls, as follows: Labor $67,383.45 To Accounts Payable $67,383.45 Labor $67,383.45 BILLS AUDITED CHART VI. BILLS AUDITED The Bills Audited Disbursement Account is charged with the total amount of all vouchers audited for properly authorized and checked invoices, freight bills, statements of expense incurred, statements of amounts due on authorized contracts, for which vouchers have been re- corded in the Bills Audited record, Form 13. Invoices and Freight Bills. All invoices for materials and supplies purchased and received each month, and all freight bills for materials received that have been approved by the Purchasing Department, are OPERATING DISBURSEMENTS 61 covered by vouchers in favor of the proper persons, firms or corporations. The form of invoice is determined by the nature of the business of the company which furnished the materials and a copy of each invoice is attached to the voucher or filed with the voucher number marked thereon. Cash Discounts and Credits. In recording the vouchers in the Bills Audited Record, the amount of each cash discount and the amount of each credit taken that does not apply to the invoice vouchered, but which is to offset a previous charge to Accounts Receivable, etc., is entered in the Credit column; and at the end of the accounting period, when the Bills Audited Record is closed, a voucher is made in favor of the company for the total of the Discounts and Credits which balances the net amount of the Bills Audited Record with the distribution segregations. Bills of Expense. Bills of Expense are rendered to the Accounting Department and are for expense incurred by the employees of the com- pany, or for amounts due to others on authorized contracts, and, upon approval by the proper department head, are vouchered. Check of Invoices, Etc. Before payment can be made, all invoices, freight bills, or bills of expense, must bear proper evidence of check and approval. The usual method is to stamp upon the face of the invoice, etc., by a rubber stamp, a form to be filled in and signed by the proper person. Vouchers. Vouchers are made out in original only, and when in payment of invoices the original copy of each invoice is attached to the voucher; when in payment of freight bills, the date, number, weights, items and amount of each are listed on the face of the voucher; when for Discounts the month is specified in which discounts were taken; when for Credits the nature and account of each credit is stated; and when for bills of expense the original copy of each bill is attached. When a voucher cheque is used the date and number of the invoice or bill of expense, etc., is listed on the voucher and the invoice is filed after being marked with number of voucher cheque. The distribution to the proper warehouse stocks of the materials received and freights paid, as well as the distribution to the proper expense accounts of the bills of expense, are shown on the back of each voucher. The proper distribution of the Discounts and Credits is shown on the face of the voucher. Vouchers for invoices subject to discount are made out and delivered immediately. Vouchers for all other approved invoices or bills of expense are made out and usually delivered before the tenth of the following month. Bills Audited Record. The approved vouchers are entered in the Bills Audited Record (Form 13) numerically and according to the month in which the expense was paid. When vouchers have been made of all approved invoices and freight bills and of all expense with which the month's operations is to be charged, the Bills Audited Record is closed, 62 MINE ACCOUNTING AND COST PRINCIPLES S 9 OPERATING DISBURSEMENTS 63 a voucher made in favor of the company for the total amount of the month's Credits and Discounts, and the record balanced. Check of Bills Audited Record. A summary of the distributions in the Bills Audited Record is made and this summary total must balance with the total of the amounts listed in the Net Amount Payable, plus the Credit Columns; also with the total of the Bills Audited Cheques issued as listed in the Bills Audited Cheque Register. Voucher Cheque. Voucher cheques are drawn to satisfy the amount of the approved vouchers and the cheques listed in the Bills Audited Cheque Register. The cheques, together with the Vouchers, are de- livered or mailed to the proper persons, firms or corporations, in whose favor they are drawn, and who are to receipt therefor. Bills Audited Disbursement Account. In order to record upon the books the amount of the Bills Audited Disbursements, of which distri- butions must be made, and to show the liability therefor, a Journal Entry is made for the total amount of the summary of the Bills Audited Record, as follows: Bills Audited $94,245. 62 To Accounts Payable $94,245. 62 Bills Audited $94,245.62 SUPPLIES ISSUED Supplies Issued Charge T/c/ref- Check Supplies Issued Record Handling Journal En try Summary of * Supplies Issued Record CHART VII. SUPPLIES ISSUED The Supplies Issued Disbursement Account is charged with the total of all materials and supplies issued to operations as shown by the Supplies Issued Record, and is created, as follows: 64 MINE ACCOUNTING AND COST PRINCIPLES Authorization of Disbursements of Supplies. Disbursements of materials and supplies are made upon requisitions (Form 14) signed by persons having authority to requisition supplies, except for such supplies as fuel oil, where the tanks are measured at the end of each accounting period, and of timber sawed and framed by the sawmill, where a check of the materials delivered to and from the sawmill is taken each day and REQUISTION FOR SUPPLIES __ J91 SHATTUCK ARIZONA COPPER CO. STOREKEEPER: Issued to tVtnhoum Account Xt. QUANTITY ARTICLE FOR Title FORM 14. Record of Powdc User r, Caps and Fuse ' 192 Level PLACE STICKS OF POWER NO.OF CAPS Fet Fuss TOTAL FORM 15. at the end of the accounting period, and of other supplies stored outside of the warehouse which is reported on special requisitions as shown by Form 15 and from such reports charge tickets are made for the month's consumption of oil, timber, powder, etc., used. Report of Supplies Issued. Each day, the Storekeeper compiles the requisitions for supplies and makes out Supplies Issued Tickets (Form 16), one ticket for each operating department unit, or sub-unit, repair or construction job, to which supplies have been issued as shown by the OPERATING DISBURSEMENTS 65 requisitions, entering on each ticket, above the name of the article, the quantity issued, and at the end of the fifth day, the total of the issues of each article is extended to the "quantity" column and the number of the stock to be credited is noted in the "stock" column. The warehouse stock cards are then consulted for prices of each of the articles and the total amount is extended on the charge ticket to the "amount" column. _C1 large to Supplies Issued Ticket Shattuck Arizona Copper Co 192 Account >Jr> Stock QUANTITY ARTICLES AMOUNT TOTAL Storekeeper FORM 16. STOCK RECORD OF STOCK RECEIVED GIVEN OUT ON REQUISITIONS ON HAND BATE UEC'D ORDER NO, f ROM WHOM QUANTITY UNIT COST DATE ACCT. QUANTITY QUANTITT FORM 17. At the same time the quantity issued of each article is credited to the stock on the Warehouse Stock Record (Form 17). A summary of the charge tickets is made and also a summary of the credits to each stock, which must balance with the total charges for each five-day period and this summary together with the charge tickets and the original requisi- tions are forwarded to the accounting office at the end of each period, Record of Supplies Issued. First, the items on the requisitions are checked against the items charged on the charge tickets to ascertain 66 MINE ACCOUNTING AND COST PRINCIPLES 3 +j c o s 050 P * ki d V. ^ C - SI 86 V 8 11 . >i ! I! a> 5 '-cf ^ ^ M r |^ 1 "Ifi * *iY> > <; ^ ^ -fl >3 , (3 s Mine*. ^ ^ "fc * E -e^ c ife 1 It cSn^ ^^ s Produced 1 o ! 0. ^ I (X V. O t C ,. ^ ^ Ore in Process < 5 ^ ? X: ts t) .t ^ ^ 1 6 * Ci ^,. f I* ftc K c$ 4 O ^ ^^ l & Si. $ 4 ^ Cj O ft: 0. Uj Ores or? Ha net of Mine ?s s Concenfr oces& at 5m > i . j: 1 "& t ts s ^i "6 Q) .C V t | 4 O t. O .? '-C -c: 10 t) Ores on Hand crfSme/fer Oi I E . .02 50.4 43.7 3 Oxide 5 23 xc 200 .02 26.4 6.0 25 Hi-Grade 10 Ch 145 400 .02 43.0 19.3 4 .. .. 1 " 120 900 .01 14.4 11.6 44 Oxide 19 193 500 11.5 31 21 " " 177 M 9.9 37 59 Prosp. 189 500 13.9 26 8 Stope 104 6oO 23.1 16 .. 11 8 xc 8.1 29 2 Ch 223 800 13.4 46 12 195 > 12.9 23 212 1L8 O.E.WHITE Assayer. FORM 19. REPORT OF MINE PRODUCTION As the samples of each day's mine production are assaj^ed, there is listed on Form No. 19, in order first as to level and next as to stope and chute numbers, the information necessary to determine the production and value of production from each stope or place in the mine from which PRODUCTION 89 ore is being produced, and a copy of this report is sent to the Accounting Department for its information in recording the mine production on Form No. 47 and for the use of the Cost Accounting Department in deter- mining tonnage costs. REPORT OF ORES LOADED AND SHIPPED As the ores are loaded from the bins into railroad cars, the cars are tagged and a report of each railroad car loaded is sent to the Accounting Office, and each day the Accounting Office makes a report to the smelter SHATTUCK AEIZOSA COPPBB COMEASY REPORT OF ORE LOADED Bisbee, Arizona^. Calumet & Arizona Mining Company, Douglas, Arizona. Gentlemen: We are today shipping the following cars: INITIAL So. GRADE OUR LOT So. Yours truly, SHATTUCK ARIZONA COPPER CO. * FORM 20. (Form No. 20) of the total number of cars of ore shipped. As soon as the Weight and Moisture Certificate (Form No. 21) is received from the smelter, and the smelter sampler's report (Form No. 22) is received and checked against the Weight and Moisture Certificate, the Record of Ore Shipments to the Smelter (Form No. 23) is written up from the infor- mation contained on Forms No. 20, 21 and 22. The matter of correct weights of ore shipments is a very important item, and means of checking the scale weights should be devised to protect against under weighing. 90 MINE ACCOUNTING AND COST PRINCIPLES At the end of each month the Ore Shipments Record is balanced and reconciled with the smelter record so as to show tonnages of ores shipped and on hand at mine and smelter, and a journal entry is made for the ore on hand, as follows: Ores on Hand at Cost $5,352.80 To Ore and Bullion $5,352.80 "287.504 Dry Tons of ore on hand at end of month at mine, and 277.777 Dry Tons of ore at smelter at cost." CALUMET 8 ARIZONA MINING CO. SMELTER DEPARTMENT WEIGHT AND MOISTURE CERTIFICATE Douglas, Arizona,. SHATTUCK-ARIZONA MINING CO., BUbee, Arizona GENTLEMEN : We rtpon the (oll " TIM ORO8 '-" 0. Mi ,... NKT A - r. . WEIGHT . 1598 11112 4390 6722 OUT Same ao lot 53 6.3756 Weight of Sample ( Ibs. ) Moisture % = Gross Weight==Ore plus Pan's Weight METALLICS 1 TOTAL* ,., o,u. 3-8 SIZE DETERMINATION T.A.OUTorU..A- LM. AMOUNT or n...u,c.. <,.. ,-. W.IOMT or .A.FI.I TAHM .U..Y or nAL L ie m CMCT W...HT OF OV...,, A.OUHT OF ^ALL,C.. NCT WM. .AT.O ro, CT REMARKS: This Is a part car of lot 53, which did not arrive with that Shipment, as it is difficult to secure a fair sample from such a small lot. "By arrangement with Ur. Cole sample of lot 53 applies to thla Lot 54. COMPARATIVE ANALYSIS i.-P-H OVTA1MM cu. AU. AG. PB. IN SOL. H. 0. REMARKS =. niu ..ti ......P.. FORM 22. CONTENTS OF ORES SAMPLED FOR TREATMENT At the time that the moisture sample is taken of each lot of ore received at the mill and smelter, an assay sample is also taken. Phis sample is then generally reduced by crushing and quartering to about 92 MINE ACCOUNTING AND COST PRINCIPLES 2 Ib. and then is divided into four portions of about 9 oz. each. One of these portions is assayed by the smelter's assayer, the other by the mine's assayer, and the remaining two portions are sealed by the samplers representing both mine and smelter, and are held for use of the umpire in case of disagreement between the mine and smelter as to the assay contents of each lot. PRODUCTION 93 As soon as the assay content of each sample is determined each by the mine and the smelter, the assay results are recorded and a com- parison is made, and if the results are within certain limits, the dif- ferences are usually split and a settlement agreed upon. If the differences in assay results are not within specified limits, repeat assays are run and recorded, and then if the differences are not within splitting limits one of the umpire samples are sent to an umpire for final determination. As soon as an agreement has been reached upon all assay contents a Settle- ment Assay Certificate (Form No. 24) is issued by the smelter for each lot of ore and this settlement assay together with the final assays of both mine and smelter and of the umpire, when obtained, are entered on the Settle- ment Assay Record of Ore Sampled (Form No. 25). CALUMET Be ARIZONA MINING COMPANY SHIPPER Shattuok Oxide. SMELTER DEPARTMENT DOUGLAS. ARIZ.. ,192 LOT HUH ,BC*S CAR ANALYS s OUNCES PR TON -- - so. i-,o, Ft C0 " - "1. c " C T~ SILVER 5976 119 1564 1567 37. e 3.9 25.0 1.7 13.1 5.9T 1.84 .019 gates. FORM 24. Settlement Assay. At the end of each month this record is totaled and averaged in order to show whether the mine or the smelter is getting the better of the averaging of assays. RECORD OF SMELTER SETTLEMENTS FOR ORE SAMPLED As each Settlement Assay Certificate is received for each lot of ore sampled, the settlement assays are recorded upon the Record of Smelter Settlements of Ore Sampled (Form No. 26) at the same time the wet and dry weights of each lot are recorded on the Smelter Settlement Sheet. As soon as settlement for each week's mine or mill production is obtained, a statement of the week's production is made up on space provided on Form No. 26 and copy of the week's production is furnished to the Pro- duction Superintendents and the Manager (Form No. 27). At the end of the month the Record of Smelter Settlements for Ore Sampled is totaled and smelter costs and production determined accord- 94 MINE ACCOUNTING AND COST PRINCIPLES ^! s 7, . - s a i *"* ~ ,. H P b I - SB O 3 _ / Q 1 -* 1 " tj - g o h O O N fa < O Jj :- ! K ^ < W ^ M < s- 8 J < i- J 8 4/. J 2 ,1 ; jl cts. per pound." This records the amount of the recoverable principal production from the mine product, upon the books at an average figure. STATEMENT OF WEEKLY PRODUCTION AUGUST, 1920 Wet Tons Per Cent, Mois. Dry Tons Recov. Per Cent, Cu Lbs., Copper Ozs. Au Ozs., Ag 1st Period 334.340 5.88 314.687 5.42 34,133 9.19 1,193 2d Period 549.640 5.45 519.674 5.35 55,547 15.30 1,442 3d Period 331 050 4 99 314.542 6.55 41,476 15.77 1,428 Total 1,215.030 5.44 1,148.903 5.71 131,156 40.26 4,063 FORM 27. A.S the unsold copper is sold the above production must be reduced an amount equal to the portion sold, which is taken up in the Sales Accounts at the selling price. If the principal production is determined from the amount of blister copper produced by the smelter each month, then the record of the principal production will be based upon the amount of recoverable copper in the blister copper. PRODUCTION RECORD OF BY-PRODUCTS The smelter product of the principal production usually carries by- products of precious metals, the recoverable contents of which must also be recorded upon the books, as shown by Production Sheet No. 26, if based on contents of ores sampled, or by Form No. 32, if based on contents of smelter production. The recoverable by-products having been determined they are usually taken up on the books at an inventory price below the present market, or at the average market price of the previous month, by a journal entry, as follows : , PRODUCTION 97 Due for Gold and Silver $10 631 70 To Gold and Silver Sales 10 631 70 "For 105.86 oz. gold at $20.00 and 9,599 oz. of silver at 88.702 cts., being the price of silver for previous month." When silver production is paid for at a price ruling on a certain date, the month's production of silver is taken up on the books at inventory price considerably less than the present market and adjustment made upon date of settlement, as shown by Form No. 41. THE CONSOLIDATED KANSAS CITY SMELTING & REFINING CO. EL PASO SMELTING WORKS PLANT Shipping C F as Bint r ibe. Ari*. Smelter Lot Shipper's Lot 3W9 sification flot. CAR WEIGHT IN AVOIRDUPOIS POUNDS N. Y. METAL QUOTATIONS No. Init. Gross Sacks w UK v., HMtwt n uu ,, Settlemint Date 1-20-20 19 7547 SilVtu i pur< 11T6J 57>20 16.' HI >1( ban d under Pittnan Ait. '65 on. va .ue with leld. |28? $0 Silver Lud i 6.5A Ctt. per 01. Dili 11 HI Copper CU. oer Ib. London Lead per 2340 Ibs. i. S O Exchange N. Y. Exchange Mex. Cy. Elements *, WtMOOk. Otducled ~ E tr St N >-' Rate Amount per ton Amount tot> Gold 1 Silver Lux) Copper 24 30 3 55 Oz - .9 * .8 * 1.5 t 95 23 655 ' 2S.3 586 90 527 4 ". Lbs. 2C.56 99 5/8 *V5 7. 23. 25. 10 57 05 55 72 TOTAL PAYMENT FOR 1. ETALS DEBITS CREDITS BRICKING CHARGE 4.50 2.7J 1 .88 Ahelysls Deductio n Net Rate Insoluble Silica Alumina Sulphur Zinc As Sb Bl .,10 Xlme 22. 21, i, 4 5 5* 8 @ Cts. a cts. 22.9 e!2 cts @ Cts. 9 cts. a cts. @ Cts. @ Cts. 23.54 9 .08 Cts Cts. TOTAL DEDUCT ONS 7.25 J .88 it 37 NET VALUE PER TON gd M DEBITS CREDITS Total value on 40.8<)5 dry' tons 50.35 ' *>" Less freight on 40.810 wet tons @ 4.75 per ton Less war tax Less demurrage Switching Less ump res Less revenue stamps. Less. duties Brokerage BALANC OtIK SHIPPER 236 7 t .03 .08 .58 .30 2054 .53 V, FORM 28. PRODUCTION OF SECONDARY PRODUCTS ' The production of secondary products is not, as a rule, of large volume and such production is usually carried on the books at cost until 98 MINE ACCOUNTING AND COST PRINCIPLES PRODUCTION 99 settlements are received therefor from smelters or agents when they are taken up on the records at the settlement values, as shown by Form 29. Secondary production is invariably sold to custom smelters under contract and settlements of each lot shipped are made in accordance with Form 28. A summary record of such settlements is kept as shown by Form 29, which gives all the information necessary to determine the production and the expense in connection therewith. This Form 29 is a combined production and sales record and is a very valuable form for mines selling their product direct to custom smelters. MILL PRODUCTION When the mine production is milled and the mill concentrates are delivered to the smelter instead of the mine ore, a separate Record of Ore Shipments (Form 23) is kept of the ore shipped for concentration, Concentrates Shipments Record 192 Date Shipped Car Number Flotation Craviy No. Remarks Wet Lbs Dry Tuns Muis. Wet Lbs Dry Tuns Mois. FORM 30. and a record of the concentrates shipped to smelter is kept similar to Form 30, unless the concentrates are sold to the smelter when a production and sales record is kept similar to Form 29. It is seldom that separate mill records are kept of the different proc- esses of mill production as crushing, tabling, grinding, flotation, etc., and when this is done such records are kept in connection with the metallurgical records and cost statistics, which are treated under those heads. However, a record is always kept of the quantity and assay contents of concentrates produced, generally one record based on mill assays and the final record based on settlement assays, in order to ob- tain the mill recoveries of metals in ores treated. SMELTER PRODUCTION It has recently become the accepted practice to treat the smelter as a separate organization the same as the refinery, even when the smelter is owned and operated by the same company and organization. The smelter handles the company's ores in a similar manner to outside or custom ores, either making a flat rate to the mines for ores of certain contents, and extra charges for variation from the agreed specifications, or 100 MINE ACCOUNTING AND COST PRINCIPLES a base rate with premiums and penalties, as is the practice of custom smelters. This enables the mine to obtain a very simple record of smelter production, either on basis of ores sampled, or of blister copper produced and leaves all the com plicated smelter production and metallurgical records as part of the smelter department. 192 NICHOLS COPPER COMPANY, LAUREL HILL, LONG ISLAND, NEW YORK. On or after the deliverable date mentioned below, upon surrender of this certificate to you properly endorsed, you will deliver at your refinery, f.o.b. cars or free aboard, New York Harbor Litherage, to the order of our Sales Department, the number of pounds of copper set forth below in the form of electrolytic wire bars, cathodes, cakes or ingots as per specifications. Lot No. Pounds of Copper Date of Delivery Charges Ounces, Gold Ounces, Silver ABC MINING COMPANY Secretary. FORM 31. When the production is determined upon the contents of ores sampled, usually a warrant against the refinery is given the Sales Department for the amount of the production, as shown by Form 31, for delivery at a date sufficiently advanced in the future to enable the treatment and refining of the metal. When the production is based upon the recoverable contents of the blister copper produced, the order to the Sales Department is based upon the production, as shown by summarized Form 32. PRODUCTION TRANSPORTATION OF SMELTER PRODUCTION 101 Due to the fact that a refinery generally handles the product of a number of smelters, it is very seldom that the refinery is in the same vicinity of the smelter, being situated close to the consumers of copper and cheap labor and power, and therefore the smelter production must be transported to the refinery. The record (Form 32) of bullion shipped to the refinery is made up from the daily reports of weights and contents of bullion as reported from the smelter, and the freight charges are paid, as per freight tariffs. However, in order to get the complete and correct cost of each month's production, the amount of bullion freight that. is chargeable against the month's production is taken up on the books, as explained under Accrued Disbursements, and as shown on Form 26. CALUMET AND AS COPPEB STATMENT for month of IZONA SMELTER _ ^ - - J91 INSCRIPTION BARS POUNDS (BLISTER) AVERAGE ASSAY CONTENTS f~ Ail. A?. Cu. An. A?. Fine Copper On band 191 Producing during month TOTAL. Shipjwd durlnc month On band 10] FORM 32. Smelter Production Recovery. REFINERY PRODUCTION Very few mining companies operate a refinery in connection with their mines and smelters, and even when this is the case, the refining of the smelter production is done by contract as to price and date of delivery of the refined product. The amount chargeable for refining against each month's production is taken up on the books in advance of the actual refining, as explained under Accrued Disbursements. The Sales Department of the company is advised as each week's production of metals is determined, and an order is given the Sales Agent (Form 31) on the refinery showing the date that same will be due from the refinery, etc., in order that the Sales Department may be informed of the amount of refined metals that will be delivered each week by the refinery that may be sold for future delivery, or will be available for spot sales. A copy of each of these advices is kept on file by the Accounting Department, and at the end of each month there is entered on the Pro- duction and Refinery Delivery Record (Form 33), the pounds and ounces of metals produced, and the pounds and ounces of metals that will be due from the refinery, and the due dates of delivery. 102 MINE ACCOUNTING AND COST PRINCIPLES PRODUCTION & REFINERY DELIVERIES YEAR- 1917 ============= MONTH PROD UCTION *:*] TOTAL LBS. EHY DELIVKI FROM PR MONTH 41 ES JDUCTION POUNDS January 141 SOS February 1 1 ',853 March / 5 I use April 1 4 8 232 5 S2 7S 5 F mi a 1 , It ?s; May 1 ?S SS 9 i iS / . 3 * 51 ^ Tebru ry 5 5 Cl 1 June 95 '33S 1 356 5tf f ; r 24 .' ttarcjh ' C 2C July s o ^08 1 1 SI 5 50 5 c s i r | Apri oc !, 2 1 August 6 4 (6 77 1 SSC 069 7 i s c J May 74 2 6' September 7 1 1924 1280 c ; v Q. 1 1 4 3 j 1 Jani G 9 25 i October 3 1518 4 S7 LCI I" - S7 u I July November 7 7 '6 IS sir 52 Ir : C5 OS f & LLt > i - 1 :si December e 2 SCI 2 f S 9 S 6j8 1 52 3 1918 Septen bef 25 7 1 7- > January 7S4 S S S '.. ,i i :i Octobt r 2 r s ~ s' February 91 S 31, I' 2 : s \ ill ber 3J C | March C4S 578 1 1" 5 93 co< JMM B bei : is 7 2 April 3 ; s 04 2 ! :.? ',' TOTALS \H93 53 t ? [ JJS SU 7 11 9 35 57 | FORM 33. CHAPTER X SALES On account of the sales department making the sales of and delivering, the principal product, as well as making collections therefor, the account- ing records for both sales and receipts of principal product are based on reports from the sales department. The sales of production are of three classes: Sales of Principal Product, Sales of Secondary Product, and Sales of By-products. Occasionally metal mines produce only one product, such as gold, silver, lead, copper or quicksilver, etc., the same as iron and coal mines, but as a rule most metal mines have a principal product such as, for instance, copper, with gold and silver as by-products which are extracted from the blister copper when the latter is refined and then there may be a secondary mine product such as a lead-silver ore or ores valuable only for their silica or sulphur content which are sold to custom or other smelters. The method of selling these different products usually is not the same, depending upon the scale of operations, etc. SALES OF PRINCIPAL PRODUCT When the production is of sufficient quantity to justify, a sales depart- ment is maintained to sell the principal product or the principal product is sold through independent sales organizations. Sometimes the secon- ary products are also sold through the sales department, but as a rule the secondary products of mines and mills are sold direct to custom smelt- ers or brokers. The by-products may be sold through the sales depart- ment, to smelters or to refiners or disposed of direct by the operating department depending upon the character and quantity and which method gives the best results. Even when the producers maintain their own sales department such is operated separately and as a rule a fixed rate of charge is made for selling plus the actual delivery cost. The sales department has its own cash account and keeps its own separate records of cash book, journal, general ledger, customers' ledger, etc., but closes its record of each sale when completed by a transfer of the cash received therefor to the Treasurer. 103 104 MINE ACCOUNTING AND COST PRINCIPLES As soon as the smelter production of the principal product is deter- mined for each week the sales department is notified of the amount and of the date delivery of refined metal will be due from the refinery. This /&&%afan& ftu assume all risks of delay due to stnkes.difTer nces with worfcmeo. accidents to machinery, delays of carriers including those in the transportation of copper or supplies necessary for the treatment of copper at the mines or plants, or to any cause be- yond our control Each month's delivery shall be treated a) * separate contract. ACCEPTED FORM 34. Sales Contract. enables the sales department to know the quantity of metal produced, in transit, and that will be available for sales delivery for each week and month in the future, as well as knowing what amount of unsold refined metal is on hand for spot sales. SALES 105 As sales are made of the principal product such as copper a sale con- tract (Form 34) is drawn and signed in triplicate, one for the Buyer, one for the Sales Department and one copy for the Accounting Department. Upon receipt of the triplicate copies by the Accounting Department a record is made of each sale in numerical order as to sale numbers (Form 35), which record is closed for each month, and the amount is taken up on the books by a journal entry, as follows: Sold Copper in Transit $122,291 . 65 Monthly Sales $122,291.65 To Future Sales Contracts $122,291 .65 "520,390 Ib. of copper sold against copper in transit, as per Monthly Sales Sheet." When the amount of the copper sold each month is taken up on the books it is necessary to reduce the amount of the unsold copper a like number of pounds, and therefor an entry must be made to reduce the unsold copper carried on the books, as follows: Ores and Bullion $67,937.88 To Unsold Copper $67,937.88 "To clear the books of 520,390 Ib. of copper sold in January, and 23,113 Ib. of Over-sales for March." Occasionally it is considered best to sell against future production and when this is done the sales are recorded upon the sales sheets the same as regular sales, and a charge to Over-sales is made by journal entry, as follows : Over-sales $235,000.00 Monthly Sales $235,000.00 To Future Sales Contracts $235,000.00 Sold against future production June 500,000 Ib. at 23.5 cts. Sold against future production July 500,000 Ib. at 23.5 cts. As shown by January Sales Sheets. However, when a statement is taken from the ledger the amount of the Over-sales on the books are deducted from the amount of the Future Sales Contracts in order that the statement of the business will show the true condition in assets and liabilities. As the production from mine and smelter gives refinery deliveries for the months against which over-sales have been made entries transferring the sales from the Over-sales Account are made, as follows: Sold Copper in Transit $6,059.60 Monthlv Sales $6,059.60 To Over-sales $6,059.60 "23,113 Ib. of March Over-Sales closed out by production deliveries." 106 MINE ACCOUNTING AND COST PRINCIPLES Copper Sales Sheet (Form 35) provides for a record of the settlement of each sale in order that there may be an accurate check of the price, pounds, and date of delivery of each sale. However, it is not necessary to have this information on the Sales Sheet. SALES OF SECONDARY PRODUCTION Numerous small producers sell their mine and mill products direct to custom smelters, and, also, as a rule, large producers of any particular mine product sell their secondary mine and mill production to custom smelters under contract. When this is done the Sales Record is combined with the production record as shown by Form 29, which gives a very concise and complete record of produc- tion and sales. When the mine and mill product is dis- posed of in such manner the production and sales records may be handled by one of two methods. The first method is simply to carry the ore and concentrates for which settlements have not been received as '' On Hand at Cost," and figure the monthly production and costs from the Smelter Settlements, as shown by Form 29. The second method is to charge an Ore Production Account with the total expense of producing the ores, and charge an Ore Milling Account with the amount of expense of milling ore. Then to charge a Metal Production Ac- count with the proportion of Ore Production Expense and Milling Expense that is appli- cable to the concentrates for which settle- ments have been received from the smelter, as shown by Settlement Sheet Form 29. The second method gives an accurate cost, while the first method gives an arbitrary cost, which after the first several months of produc- tion, will be fairly accurate, provided the monthly expense and production is uniform from month to month. The first method is more often found in use by small producers who do not realize the need of accurate records. SALES 10? SALES OF BY-PRODUCTS The disposal of by-products in the principal production, such as gold and silver, if copper is the principal product produced, is sometimes made by the sales department to the mint or to consumers, but generally such by-products are purchased by the refiners who make settlements therefor upon assay contents of the bullion before refining. Either the sales value of by-products, or an inventory price is used in taking them upon the books and this entry is usually made at the time of production, as was illustrated under Production Accounting. To use a nominal price in the inventory from month to month enables the ac- counting and bookkeeping to be done without delay. When the mine or mill production is sold to custom smelters, the by- products are purchased along with the principal content in the ore or concentrates, as shown by Form 29. SALES OF OPERATING SUPPLIES, ETC. Occasionally sales of operating supplies are made from warehouse stocks, as well as sales of obsolete equipment and of power, air, water, shop labor, or operating service such as assaying, engineering, etc. to accommodate others. Such sales are made upon authority of the manager or the authority of the department head responsible, and are carried in the Accounts Receivable Account. All such sales of supplies and of unused equipment show as a credit to the Supply Accounts or proper Equipment Account, etc., and do not show upon the Monthly Operating Statement. All sales of discarded equipment that had been charged to Operation and replaced with new equipment are credited to Refunds and Discounts "Old Materials Sold," while all sales of power, air, shop labor and services are credited to the proper Operating Department and the credit is shown on the Monthly Operating Statement. All sales of operating supplies, etc. are carried in the Accounts Receiv- able Account, while the sales of production are carried in regular Sales Accounts, as shown by Chart 8, and are transferred to Receipt Accounts as the sales are delivered to transportation agents for delivery to customers. UNDELIVERED SOLD PRODUCTION Occasionally, due to railroad strikes, war, or other causes interfering with delivery of sold production, it is impossible to make delivery of sales to customers, and when these undelivered sales are of large volume it is best to close them out of the "Sold Metal in Transit" and carry them as 108 MINE ACCOUNTING AND COST PRINCIPLES "Undelivered Sold Metal" in order that the Statement may show the amount of sold products that cannot be delivered. Before closing the books at the end of the year it should be decided whether or not the sales of metal in transit and undelivered sales are to be inventoried at cost or carried at the sales price. In making returns for purpose of Income Tax, the Undelivered Sales will have to be inventoried at cost, unless it can be shown that the pro- duct was on hand ready for delivery, and it was the desire of the purchaser, that the delivery should be made at a later date, or that inability to de- liver was due to the transporting agent. CHAPTER XI PECEIPTS When the accounts are kept upon an accrued basis it is necessary to take up on the books the receipts as they are created regardless of whether or not payments of cash have been received therefor. It is difficult for some persons to understand how there can be a receipt unless there has been an actual payment in cash or collateral, although they can understand why an accrued disbursement should be taken up on the books before there has been an actual disbursement of cash, and therefore some firms will keep their records of disbursements on an accrued basis but will keep their records of receipts upon a cash basis. However, when this is done the accrued revenue is not shown on the books, and a statement of the business does not show the actual condition of the business. Therefore, whenever there has been a delivery of any part of the pro- duction to others, or there has been created a revenue liability a record of it should be made upon the books regardless of whether or not the trans- action was for cash upon delivery or upon time payment. In a commercial business the receipts created by deliveries to cus- tomers are carried in an Accounts Receivable Account until paid, and in the mining business such an account is carried in the General Sales Ledger of the Sales Department. However, upon the General Books in the Accounting Department the Accounts Receivable Account is used to show the sales of operating supplies, operating labor, etc., while the receipts created by the delivery of sold production to customers are carried in special accounts, as shown by Chart VIII. This is done to show the amounts due for sales of produc- tion separate from sales of operating supplies, labor, etc. As the sales of metal production are made for future delivery as well as for spot, it is highly desirable that that portion of sales which have been delivered to transporting agents and to customers be shown separately as being in the receipt stage in contradistinction to sales that have not been delivered and may be cancelled before delivery or fail to be delivered on account of some future contingencies. This information is necessary in order that a statement of the business may show what amount is out- standing on delivered production. Also, as the books are kept upon an accrued basis it is necessary to take the receipts upon the records as they are created and not as cash 109 110 MINE ACCOUNTING AND COST PRINCIPLES 8 9 payments are received as is done when the books are kept upon a cash basis. Of course, even when the books are kept on an accrued basis it is customary to handle the small cash transactions upon a cash basis in order to avoid unnecessary book- keeping. DELIVERY OF SALES OF PRINCIPAL PRODUCT A record is made by the Sales Depart- ment of each sale to customers at the time the sales contract is drawn. This record of Sales Contracted is for the guidance of the Sales Department. However, a sale is not charged upon the Sales books against a customer until ship- ment is made, and a contracted sale is not usually taken up on the General Books as a receipt until the Sales Department makes the delivery. Therefore, either during the month, or at the end of the month, a record is made up on the General Books of receipts created by the delivery during the month of sold products by the Sales or other depart- ments, regardless of whether or not pay- ments have or have not been received for such deliveries. The record of copper deliveries each month is shown by the Copper Sales Deliveries Sheet (Form 36) using one Delivery Sheet for each month and the total amount of this Sheet is taken up on the General Books at the end of the month by a journal entry, as follows: Due for Copper Shipped S204,701.26 Monthly Sales Deliveries . . $204 , 701 . 26 To Copper Sales Deliveries . 204,701.26 "Amount of copper delivered to customers in January against contracted accounts as per Delivery Sheet." RECEIPTS in As deliveries are made a reduction of like amount must be made in the Sales Accounts in order that the records of sales may be correct and that the amount of the Company's assets will not be over-stated. Therefore an entry is made to accomplish this, as follows: Future Sales Contracts $204 , 701 26 To Sold Copper in Transit 204 701 26 Monthly Sales $204,701.26 "Reducing the sales an amount equal to the deliveries made during the month, as shown by Delivery Sheet." RESERVE FOR LOSS ON SALES The Sales Department is supposed not to make any sales to customers whose credit is doubtful, and it is expected that they will watch their accounts and collections and protect their shipments by insurance so as to avoid any loss. However, some catastrophe may result in a full or partial loss of an account or make it doubtful that the full amount of a receipt will be collected. In such cases the receipt in question should be carried at its sales value but a reserve should be set up on the books of an amount considered sufficient to offset any probable loss. This is done by debiting an account "Estimated Loss on Deliveries" and crediting "Reserve for Loss on Deliveries," and in making up the Operating Statement the amount of the ''Estimated Loss on Deliveries" will not show on the statement except as deducted from the amount of the "Copper Sales Deliveries," if it is a sale of copper, the net amount being extended to the balance column. The account reserve for loss on deliveries is charged with the actual loss when determined. If the loss does not occur as anticipated the amount of the reserve set up therefore is cleared from the books by reversing the entry. OVERS AND SHORTS ON DELIVERIES It is not always possible to deliver the exact amount of pounds of metal as called for under the sales contract on account of the different shapes as ingots, cakes, bars, or cathodes being of certain weight. There- fore, as a rule there is generally a few pounds more or less delivered for which adjustment is made with the customer upon settlement of each sale. At the end of each month the amount of the overs and shorts are totaled and adjusting entries are made upon the books to the proper accounts. In case of over-shipment the first adjustment is to the Receipt Account, as follows: Due for Copper Shipped $418.42 Overs and Shorts $418.42 . To Copper Sales Deliveries 418. 42 "The amount that overs exceed shorts on deliveries made against October Account, as shown by Delivery Sheet amounting to 1,465 Ib." 112 MINE ACCOUNTING AND COST PRINCIPLES The second adjustment is to the Unsold Copper Account: Ores and Bullion $183 . 12 To Unsold Copper 183. 12 Unsold Copper in Transit $183. 12 "Reducing the amount of unsold copper at inventory price to offset 1,465 Ib. of copper delivered over against October deliveries." In case the deliveries are short for any month the entries would be the reverse of those shown above for over-deliveries. DELIVERY OF SALES OF BY-PRODUCTS In the case of copper mines the by-products are usually gold and silver, and the sale of these is generally made to the refinery unless the company owns its own refinery, when, of course, they would be sold either to the United States Mint or in the open market. When the by-products are sold in the open market or to the Mint they are taken up on the books when the production entries are made and carried on the books at inventory prices below the usual market, and as sales are made the amount of the sales are entered upon the books and the production accounts are reduced an amount of ounces at inventory price equal to the amount of ounces sold, the same as done with copper sales. When the by-products are sold to refiners or direct to custom smelters the contract states the amount that shall be paid for same, and the by-products may be taken up on the books at contract price as produced, as shown by entry under Production Accounting, and not passed through the Sales or Receipt Accounts. This can be done even when the by- products are taken up in the Production Accounts at estimated figures, the amount of actual settlement being treated as Cash Receipt and the amount standing in the Production Accounts at inventory price being closed out. This method saves bookkeeping and is allowable when the by-products are not large. DELIVERY OF SECONDARY PRODUCTS The sales of secondary products are handled in the same manner as metal sales if sold direct to consumers. If sold to custom smelters they are carried on the books at cost until settlements are received when the proper amounts are taken up on the books the same as a Cash Receipt and the amount of the cost of inventory value is written off. If the Secondary Production is large and is not quickly turned into cash, it would be best to carry it through the Sale and Receipt Accounts the same as the principal production. RECEIPTS 113 MISCELLANEOUS RECEIPTS Miscellaneous receipts such as cash discounts, freight and purchase refunds, etc. are as a rule treated as cash receipts and are not carried in the Sale or Receipt Accounts but are entered as the cash is received therefor and will be illustrated under "Cash." In practice to save bookkeeping it is not customary to take up the delivery of Secondary Production and Miscellaneous Receipts into the Receipt Accounts, although this would be theoretically correct and can be done if desired. 114 MINE ACCOUNTING AND COST PRINCIPLES & to if. <0 & >~ C^ s<5 ,1 H ics Production Receipts By-Products ^^S r- h CHAPTER XII OPERATING CASH Generally there is only one account for Cash in the General Operating Ledger, with sometimes a Petty Cash Account. Usually the cash is deposited in one bank so that the Cash and Bank Account are the same. As a rule there is only one record for operating cash transactions, a Cash Book, or sometimes known as a Cash Journal, which book should always be a bound record. The amount of cash available for use of operation is shown by the Cash Book. There is only one Operating and one Administrative Cash Record, except when there is a holding company with subsidiary companies, and the entries are so made that postings can be entered to the Ledger direct from the Cash Book. The entries made upon the credit or dis- bursement side of the Cash Record are to record the distributions of cash and postings are made from these credit entries to the debit side of Disbursement Accounts to satisfy the disbursement liabilities that have been created. The entries made upon the debit or receipt side of the Cash Record are to record the receipts of cash, and postings are made from these debit entries to the credit side of Accrued Receipt Accounts to close out revenue liabilities that have been created, or the postings from these debit entries are made direct to Receipt Accounts, if the receipts are kept upon a cash basis. If there were kept only one record for all cash transactions, whether for operation or administration, the Cash Receipts would appear in the Cash Book, or Cash Journal, as coming from the sources as shown in Chart X, and the Cash Disbursements would be made to close Disburse- ment Accounts, as shown by Chart X. However, as the record of Operating Cash is kept separate from the Treasurer's record of cash, and as we are dealing with Operating Accounting, we will confine our present illustrations to cash used in production operations, and as recorded in the Operating Cash Book (Form 37). The form of the Operating Cash Record will vary to suit the needs of each business, but should be a bound record of double pages, the left- hand page for Receipts and the right-hand page for Disbursements of Cash. CASH RECEIPTS The cash receipts involved in production operating accounting depends upon the character of the mine, the manner in which the product 115 116 MINE ACCOUNTING AND COST PRINCIPLES Month of January 1918 Sales Accounts Receivable Sundries Jan 12 Due for Gold & Silver c ,- 1\S, G6 V Refunds -Miscellaneous 2000 (One month's Rental on Air Drill] V Bill + 31,0 - Wm Hughes 4 8C V BUI 389 Lamps S 90 V Bills &305 -10-14 -16-19-22 V 326 Denn Ariz Copper Co. ?!i ; 5 2C V BiUs"^S04-S7-S6 E.P. & S.W. System 11 IB V Refunds - Freight 23 V Refunds - Freight 48 V Bill^l-E.P. & S.W. System 138 \' Refunds - Wood Sold 1240 V Bill" 389 Lamps 3865 V Lead Lat.^6174 i !> 2 74 V Refunds - Old Material Sales 004 \' Refunds - Miscellaneous 4000 (Rental on Air Drill) Lead Lat.#5S12 \\ j]7i2 \' Bills +2 -5-11 E.P. & S.W. System V4 V Refunds Freight 177 V Bill+353 A.L.Engels J191 ' Bill *P - M.Doak S 60 V BiU* 46 E.P. & S.W. System Too \' Bill* 335 T.O. McGrath ::-;-; \' Bill* SOS H.W. Lumber Co.. Use V Bill + 339 P. D Mere Co . , >' COO V Refunds - Cash Discounts 02 54 Totals bg OS SS If. '90 47 : s 5 ; 1 Cash rjj< '1}9 16 To 183 Due for Gold & Silver \ 'S 67 233 Special Ore Sales C( i'o.O 16 98 Accounts Receivable _H ' \fftO 4 7 241 Refunds & Discounts l\sS4 Balance 1/1/18 1 221 7443 \ s \ \ \ X 233: 9SS9 FORM 37. Operating Cash Book Receipts. OPERATING CASH 117 Month of January 1918 December ACCOUNTS "PAYABLE LAKOR December ILLS AUDITED Jan uar y__ January ILLS AUDITED Jan Checks^ 77891 - 79S29 A2S78 - AS477 Labor - December January Bills Aud -December 3S09 - January :. 9 102 Accounts Payable To Cash 6C Balance 1/31/18 FORM 37. Operating Cash Book Disbursements. 118 MINE ACCOUNTING AND COST PRINCIPLES is sold, and the point of division between operating and administrative accounting. Theoretically, the cash received from sale of production should appear upon the operating books. However, due to the fact that the operating books are kept at the mine, which is usually situated at an isolated and distant point from the office of the Sales Agent and the Treasurer, the receipts from the sale of the principal product are generally remitted direct to the Treasurer and are recorded upon the Treasurer's books. Therefore, the operating cash receipts are usually limited to the following: Receipts from Treasurer, Receipts from Sales of Secondary Production, Receipts from Sales of By-products, Receipts from Sales of Operating Supplies, Etc. In some cases even the cash receipts for sales of secondary production and of by-products are recorded upon the administrative books. The accounting of cash receipts from sale of stock and from issue of notes is done by the Administrative Accounting Department and the record of such transactions never appears on the operating books. RECEIPTS FROM TREASURER Remittances of cash either in the form of check, draft, or money, are made to the Operating Department each month by the Treasurer and are of sufficient amount to take care of operating disbursements, or the amount of operating disbursements less the operating receipts of cash from sundry sources made direct to the Operating Department. The amount of these remittances are entered to the debit of Cash in the Cash Book (Form 37) and the Treasurer's Account is credited a like amount from the Cash Book entry. CASH RECEIVED FROM SALE OF PRINCIPAL PRODUCTS When the cash remittances for sales of principal product are made to the Operating Department, the amount of such remittances would, of course, appear upon the Operating Cash Book. However, such remit- tances are generally made direct to the Treasurer. As settlements are made by the Sales Department with Customers, Reports of Settlements (Form 38) are made in duplicate, the original is sent to the Treasurer together with cheque for the net amount of the sale, if final, or the total amount of settlement, if a partial settlement, and the duplicate is delivered to the Accounting Department from which a Sale Settlement Check (Form 39) is made, and the details of each sale settle- ment are entered on Sale Settlement Sheets (Form 40) and postings therefrom are made to the Sales Deliveries and Receipts Sheets in order OPERATING CASH 119 that there may be known the amount of settlements made for each month's deliveries and what amount of delivered copper is outstanding. At the end of the month the total amount of remittances, both partial payments COPY January 13, 1917. SHATTUCK ARIZONA COPPER COMPANY IN ACCOUNT WITH ADOLPH LEWISOHN & SONS SALES #721 NOVEMBER, 1916 JULY 21, 1916 By 115,311 Lbs. @ 23*f per Lb $26,521.53 CHARGES To Freight 115,311 Lbs. @ 24.8jf per 100 Lbs $ 285 . 97 Yz Per cent Discount $25,681.11 128.40 Commission 115 . 31 Paid December 2, 1916 16,800.00 Paid December 16, 1916 8,200.00 $25,529.68 BALANCE DUE You $ 991 . 85 E. & O. E. FORM 38. COPPER SALE SETTLEMENT CHECK SHATTUCK ARIZONA COPPER CO. Terms _ Delivery Month . - Place - - Settlement Date _ Exchange Rate Sale No... ._._... - .... ..... Lbs. @ percent $ Over Short Dely Lb*. Ettfi. SETTLEMENT TOTAL 9 Deductions: Insurance Freight Discounts Cathode Als. NET AMOUNT NEW YORK Commissions Telegrams, etc. $ NET CASH SETTLEMENT FORM 39. and settlements in full to Treasurer by the Sales A-gent is determined, and the Treasurer is charged and Sales Agent credited, as follows: Treasurer, Current Year $106,719.47 To Sales Agent $106,719.47 "Amount of remittances to Treasurer during January as shown by Statements of Settlements with Sales Agent." 120 MINE ACCOUNTING AND COST PRINCIPLES Ifl OPERATING CASH 121 The account with the Sales Agent never shows a balance except when there has been remittances of partial payments, and in such cases the balance in the Sales Agent Account is deducted from the balance in the account Due for Metal Shipped. At the end of each month the Record of Sales Settlement is closed and journal entry is made from the summary thereof, as follows: Sales Agents $106,255.98 Commissions and Telegrams $ 572. 42 Freight 473.81 Excess Freight 693 84 Discounts 396 44 Net Settlements 104, 119. 47 To Due for Metal Shipped j 106 f 255 98 "Amount of final settlements of Copper Shipped, as shown by Record of Sales Settlements." As the Sales Agent remits the net amount of each sale after deductions of commission, freight, etc. subsidiary accounts to the Sales Agent Account are kept to show these deductions. Also, as the Sales Agent's account is credited with the amount of net remittances only at the time the Treasurer is charged with net cash remittances received, it is necessary to charge out the selling expense paid by the Sales Agent and credit the Sales Agent a like amount, as follows : Selling Expense Not Due $2 , 136 . 51 To Sales Agent $2, 136. 51 Commissions and Telegrams $572 . 42 Freight 473.81 Excess Freight 693 . 84 Discounts, Etc 396 . 44 "Selling expense paid by Sales Agent, as shown by Record of Sales Settlements for January." CASH RECEIVED FROM SALES OF OTHER PRODUCTS It is customary for the receipts from sales of secondary products and by-products to be remitted direct to the Operating Department for the reason that the sales of these products are usually made direct to the smelters or refineries and the accounting of them can be handled better by the Operating Department than by the Administrative Department. However, in some cases the remittance for the sale of these products is made direct to the Treasurer the same as in the case of the remittances for sale of the principal product. In the latter case the Operating Accounting for these products is handled in the same manner as done for the principal product. 122 MINE ACCOUNTING AND COST PRINCIPLES Q a .2 " u 3 O S-i O) eW O O OPERATING CASH 123 CASH RECEIVED FROM SALE OF BY-PRODUCTS As cash is received from the sale of by-products it is checked against the Record of Gold and Silver Deliveries (Form 41) and the amount of cash received for the sale of each lot of by-products is entered upon the debit side of the Cash Book, as shown in Form 37, each entry in the Cash Book corresponding with like entry on Form 41. At the same time a correcting journal entry is made to adjust the inventory price to the actual price received, as shown on Form 41. No postings are made from the individual entries in the Cash Book except as shown on Form 37. CASH RECEIVED FROM SALE OF SECONDARY PRODUCTS As cash is received from sale of secondary products, it is usually accom- panied by a Settlement Sheet for each lot of ore, as shown by Form 28, and the net amount of sale of each lot of ore is entered in the Cash Book, as shown on Form 37, each cash book entry corresponding to an entry of a like amount on Summary Sheet 29. No postings are made from the individual entries in the cash book except as shown on Form 37. CASH RECEIVED FROM ACCOUNTS RECEIVABLE, ETC. As cash in payment of accounts receivable and sundries is received, entries are made upon the debit side ofthe Cash Book for each item show- ing bill number and necessary explanation to insure identification. The amount of each item is posted direct to the proper subsidiary ledger ac- count, the folio of the ledger page being placed in the folio column. POSTINGS OF CASH BOOK DEBITS At the end of the month the Cash Book is ruled and a summary made of the debit postings necessary to be made to General Ledger, as shown by Form 37, as follows: Folio Account Amount Debit Credit 16 183 233 98 241 Cash $11,619.16 $6,719.69 3,090.16 1,090.47 718.84 To Due for Gold and Silve Special Ore Sales Refunds and Discounts The posting to the credit of "Due for Gold and Silver" will close out that amount of the debit against accrued receipts that has been liquidated. 124 MINE ACCOUNTING AND COST PRINCIPLES The posting to the credit of "Special Ore Sales" will be made only when such sales are treated as a cash receipt, at which time a journal entry must be made to close out the account "Special Ores at Inventory." If the special ores have been carried from Production into the Accrued Receipts by a charge to "Due for Special Ore Shipments" and a credit to "Special Ore Sales," then the cash book entry would be a credit to "Due for Special Ore Shipments" instead of as shown above. The credit posting to the Accounts Receivable Account in the General Ledger will reduce the account and amount equal to the individual post- ings to the subsidiary ledger accounts. The credit posting to Refunds and Discounts in the General Ledger is usually considered as cash receipts and the amount of this credit is equal to the total of the individual postings to subsidiary ledger accounts of Refunds and Discounts. The debit posting to Cash in the General Ledger charges the Cash Account with the amount of cash received during the month. CASH DISBURSEMENTS Operating Cash Disbursements are made to satisfy the accounts payable liabilities created by the employment of labor as shown by the pay-rolls and the Labor Account in the General Ledger, and to pay for expense contracted either current or accrued, and materials purchased as shown by the audited vouchers entered upon the Bills Audited Record, and by the Bills Audited Account in the General Ledger. All such liabilities are known as Accounts Payable, and disbursements therefore are made by cheque, except petty disbursements handled through the petty cash account which are made in cash. CASH DISBURSEMENTS FOR LABOR Cash disbursements for labor are made by cheque for weekly, fort- nightly or monthly wages or salaries of regular employees, or for wages or salaries of discharged employees upon presentation of properly signed time statements. All pay-roll cheques are drawn by the paymaster or cashier against time statements bearing pay-roll numbers, which time statements are then given to the persons having immediate supervision of work of employees and by them distributed to the employees for exami- nation, signature and delivery to paymaster or cashier in lieu of receiving pay cheques for like amount. Discharged employees present identification slips, to paymaster and sign time statement at time of delivery of pay cheque. Cheques issued for labor are listed in the Pay-roll Cheque Register Form 42, and the total amount of cheques issued each month is entered upon the credit side of the Cash Book, as shown on Form 37. OPERATING CASH 125 CASH DISBURSEMENTS FOR BILLS AUDITED Cash disbursements for bills audited are made by cheque for all Bills Audited as shown by approved vouchers which latter are receipted at the time of payment and returned to the accounting Department, SHATTUCK ARIZONA COPPER OO PAY ROLL CHECK REGISTER DATE PAYABLE TO ,,. AMOUNT 5(1 MONTH Balance or footings brought forward 00 01 02 03 01 2 TT~ 3 4 5 6 7 8 9 Balance or foottnyu earned Jorvard FORM 42. DENN ARIZONA COPPER CO. BILLS ADDITED CHECK REGISTER DATE PAYABLE TO NUMBER AMOUNT g | MONTH AMOUNT fialancc of footings brought forward 00 01 0! OJ 04 Oi> U 47 M Balante of footings carried forward 4mint!3 Tnl\pn 21 10 1 69 23 6 35.79 331.03 1.39 199.99 946.93 8.12 Freight Claims Filed TOTAL CREDITS $368.21 $1,155.04 134 MINE ACCOUNTING AND COST PRINCIPLES SCHEDULE 4 CASH SETTLEMENTS WITH SALES AGENT JANUARY, 1918 ON DELIVERIES FOB MONTH OP POUNDS 100,378 200,035 80,320 October . . November. December. GROSS RECEIPTS $ 27,353.01 55,509.72 23,393.25 380,733 $106,255.98 Less Deductions: Freight Excess Freight Discounts, etc Net Settlements f.o.b. New York. Commissions and Telegrams Net Cash Settlements 473.81 693.84 396.44 $ 1,564.09 January Receipts (Treasurer's Office) $106,719.47 Partial Payments on Hand 1-1-1918 64,900.00 $171,619.47 Partial Payments on Hand 1-31-18 $ 67,500.00 Analysis of January Settlements as Above $104,691.89 572 . 42 $104,119.47 $104,119.47 For Delivery Pounds Gross Net New York Per Pound Amount Per Pound Amount Domestic. . 380.733 0.2790 106,255.98 0.27497 $104.691.89 The Manager, Auditor or Treasurer, as well as the other officers, upon receiving such an operating statement can clearly see the condition of the business and readily obtain from the statement and schedules the informa- tion desired. On the debit side of the statement the Operating Expense and the Previous Year's Production charge is listed first, and against this, on the credit side, is listed the revenue accounts. The Operating Expense and the revenue are the matters of first importance to the Manager and other officers and therefore are listed first. A Cost Sheet giving an analysis of the Operating Expense and a state- ment of Production is always furnished the Manager at the same time the Operating Statement is delivered to him, and it is customary for the Manager to call a monthly meeting of all Operating Department Heads and to go over the expense and costs and production results, receive suggestions, issue instructions and adjust complaints. As soon as the Sales Deliveries for the year are sufficient to offset the charge for the previous year's production that was unliquidated at the beginning of the year, it is best to close out this charge for Previous OPERATING STATEMENT AND SCHEDULES 135 Year's Production to the Sales Deliveries, although this is not necessary and the debit account can be carried on the Operating Statement until the end of the year if desired. The matters of next importance are Cash and Receivables as compared with Current and Accrued Accounts Payable and therefore these are listed second, and a Schedule of Receivables and Payables (Schedule 1) is made up to guide the Manager, Chief Clerk and Treasurer, as to the amount of cash that is necessary to keep in the Operating Account. Some believe that the information as to whether or not there is sufficient cash and receivables to meet the current and accrued accounts payable is of first importance and list the accounts that show this information first. However, the determination of whether or not the revenue is sufficient to take care of the expense of operation, and the analyzing of the revenue accounts from Schedule 2 to ascertain when cash receipts may be ex- pected are matters that must receive attention before any intelligent conclusion can be reached in regard to taking care of the Accounts Pay- able when the cash and receivables are insufficient to meet the outstand- ing indebtedness. The amount of unliquidated production as shown by the Production Asset Accounts is then given attention. In order that these accounts may be carefully studied a schedule showing the details of Ore, Bullion and Sales Accounts is made up, as shown by Schedule 2. This schedule allows a careful study to be made of the Production Asset Accounts as to deliveries of metal, unsold and future sales of metal, and furnishes the necessary information to the Manager, the Treasurer and the Directors in instructing the Sales Agent in regard to sales, and what will be the cash receipts from production in the future that will be available for operation or dividends, etc. The deferred Assets and Expense and the Construction and Equip- ment are carefully gone over by the Manager, in consultation with the Purchasing Agent, the Chief Clerk, and the Operating Superintendent. The Purchasing Agent furnishes a detailed statement of the materials and supplies, as per Schedule 3, and the questions of whether or not mater- ial stocks are too small, too large, or normal are decided, and the purchas- ing policy fixed for the next thirty days or longer. If there should be a stock of any material which the Operating Department has discontinued to use, the means of its disposal is agreed upon, and all complaints or suggestions in regard to materials are considered. At the same time the amount and cost of monthly Repairs and Replacements and Construction and Equipment are gone into, and all suggestions and proposals for future repairs and replacements and plans for new construction are submitted and disposed of. The Schedule of Expense and Cost, of Repairs, Replace- ments and Construction and Equipment are included with Monthly Cost Sheet. 136 MINE ACCOUNTING AND COST PRINCIPLES The Chief Clerk explains the nature and reason for all suspense items. The only other debit item on the Operating Statement is the Treas- urer's Current Year's Account. The details of the charges to this account each month is shown by Schedule 4, being the Cash Settlements with Sales Agent. The Treasurer's Current Year's Account is closed into the Previous Year's Account when the Operating Books are closed at the end of the year. At the beginning of operations the Treasurer's Current Year's Account is a credit account until the amount of production sales receipts delivered to Treasurer are in excess of the Treasurer's remittance to Operating Department, when the Treasurer's Current Year's Account becomes a debit balance. The Treasurer's Previous Year's Account always shows as a credit balance as long as the property is operating at a profit. On the credit side of the Operating Statement we have yet to consider the Reserve for Depreciation and Reserve for Depletion. The nature of these charges were explained under Disbursements. In the Yearly Statement at the end of the year there is included a Summary Schedule of the Construction and Equipment, the amount of Depreciation charged off and the net amount to be depreciated. The Depletion Reserve is transferred to the Treasurer's Books at the end of the year, and is kept on the Operating Books to enable the Opera- ting Department to ascertain the actual operating profit. Due to the fact that the Operating Books are closed only once each year, we will assume a Yearly Statement to be, as on following page. The Operating Balance Sheet or Operating Statement, should always show the complete accounts for Operating Disbursements, Production, Sales and Receipts, so that the Operating Manager may have a complete and intelligent statement of the results of that portion of the business for which he is responsible. Sometimes the Sale and Receipt Accounts are kept upon the Trea- surer's Book instead of the Operating Books. When this is done the Manager is informed as to Operating Disbursements only and can not obtain from his records a correct statement of operating results. In order to insure that the Operating Statement is complete, the head of the Operating Accounting Department must be familiar with all the details of operations, as well as with all the details of the business transactions with others that in any way affect the assets or liabilities of operating, and that influence the costs and income. All agreements made by the Manager or Department Heads involving payments of money, or transfer of assets, should be confirmed in writing and copy placed on file in the Accounting Office. OPERATING STATEMENT AND SCHEDULES 137 OPERATING STATEMENT OF THE CONDITION OF THE BUSINESS AT THE END OF THE YEAR 1918 Exploration and Development $ 170 , 497 . 08 Operating Expense, Copper 1 , 345 , 692 . 80 $1 , 516 , 189 . 88 Depletion of Mine's Copper Ores $ 498 ,614.51 Depreciation of Mine Equipment 18,000.00 516,614.51 Previous Year's Production 648,970.17 $2,681,774.56 Operating Expense, Mill Lead $ 245,293.66 Operating Expense, Direct Lead 5 , 588 . 84 $ 250 , 882 . 50 Depletion of Mine's Lead Ores $ 6 , 102 . 46 Depreciation of Mill Equipment _ 18,474.50 24,576.96 275,459.46 Cash $ 52,388.78 Due for Copper Shipped $212,576 . 00 Sales Agent 344.07 $ 212,920.07 Due for Gold and Silver 23,467.54 Current Accounts Receivable 5,736.57 242,124.18 294,507.96 Copper Ores on Hand at Cost $ 4,466.46 Unsold Copper at 17.643 cts 489,373.42 Sold Copper In Transit 0.00 $ 493 ,839 .88 Lead Ore Production $ 4,536.91 Lead Ore In Process 863 . 73 Lead Concentrates 53,874.04 59,274.68 553,114.56 Materials and Supplies $ 139 ,280 .73 Unexpired Insurance . 00 Replacements 172 . 08 Suspense 8.735.91 148,288.72 Construction and Equipment 547 ,290 . 15 Treasurer's Current Year's Account 730 , 686 . 58 $5.231.121.99 Ore and Bullion Account Copper $ 493 , 839 . 88 Future Sales Contracts . 00 Copper Sales Deliveries 2,319.137.62 $2,812,977.50 Gold and Silver Sales, Copper Ore $ 182 ,049 . 69 Special Ore Sales 0.00 182,049.69 Refunds and Discounts 4.980.74 $3,000,007.93 Mill Lead Bullion Sales $ 149,560.92 Mill Lead Gold and Silver $81 ,466.33 Sorted Mill Lead Ore 6.356.09 $ 87,822.42 Direct Lead Ore Settlements 26,011.91 103,834.33 263,395.25 Current Accounts Payable $ 100 , 124 . 61 Bullion Freight and Refining Not Due $ 45,868.38 Selling Expense Not Due 15,713.31 Reserve for Taxes 36,760.58 98,342.27 Reserve for Accidents 68.618.82 267,085.70 Reserve for Depreciation 262 , 304 . 37 Reserve for Depletion 504,716.97 Treasurer's Previous Year's Balance 933.611 .77 $5,231,121 .99 CHAPTER XIV OPERATING PROFIT AND LOSS AND CLOSING ENTRIES The operating Profit and Loss Account is usually opened and closed only once each year and then at the end of the year when the operating books are closed. However, each month for the information of the Manager and other officers and the directors, a statement of actual operating profit is made up from the Operating Statement for the year to date, also an Estimated Statement of Monthly Operating Profit is drawn. The Monthly Esti- mated Profit and Loss Statement uses the production at the average market price of metals for the month of production, or the average price of future sales when metals have been sold ahead, and the present market is unsteady. The Statement of Actual Profit and Loss is generally for the year to date and uses the amount of sold ore and metal shown upon the books plus the amount of unsold ore and metal at inventory. When the production is being sold as produced the statement of actual profit is the best guide as to the actual results. When there is being carried a large amount of unsold production at inventory which it is the intention to sell before the end of the year, the actual statement of profit or loss as shown by the Operating Statement is not a safe guide unles? an addition or subtraction is made thereto to adjust the unsold produc- tion from inventory prices to present actual market prices. A statement of actual profit or loss for the period, as shown by the Monthly Operating Statement, would be, as follows: STATEMENT OP ACTUAL OPERATING PROFIT OR Loss AS SHOWN BY THE OPERATING STATEMENT AMOTTXT PER POUND Copper Ore, Bullion and Sales, Net $ 97,446. 40 '26. 171 cts. Operating Expense 138,019.88 16.248 cts. Returns on Copper (Loss) $ 40 , 573 .48 9 . 923 cts. Gold and Silver, Sales, etc $13,721 . 86 Refunds and Discounts 718.84 $14,440.70 1.700 cts. Total Earnings (Loss) $ 26 ,032 .78 11 . 623 cts. Depletion and Depreciation 51 , 082 .76 6.014 cts. Net Operating Earnings (Loss) $ 77 , 1 15 . 54 5 . 609 cts. At Rate per Share per Year . 00 1 Price per pound of copper figured on Average Future Sales Price, and gives results per pound when production shall have been delivered. 138 OPERATING PROFIT AND LOSS AND CLOSING ENTRIES 139 In determining the net amount of Copper Ore, Bullion and Sales on the actual Profit and Loss Statement there is subtracted from the amount of the Ore and Bullion and Sales Accounts, the amount of the Previous Year's Production. The amount of the month's or year's to-date production can be divided into this net amount and an average price per pound obtained. However, such an average per pound would be of little value as the amount of unsold copper on hand from month to month would fluctuate this average regardless of the market price of the metal. Also the amount of unsold production carried over from the previous year would fluctuate the average price of metal so obtained. Therefore, it has been found more satisfactory to use the average sales price of copper sold for future delivery, which as a rule, will give results very close to the actual delivered price. The reason for the loss shown in the actual figures is that in closing for the previous year the unsold copper was inventoried at the average future sales price, while the amount of the unsold copper carried over from previous years was reduced back to cost upon opening the books at the beginning of the year. This will adjust itself as soon as the unsold copper is sold and delivered. For this reason the sales price per pound of future sales is shown opposite the amount, also an estimated Profit and Loss Statement is made up on this average future sales price. It is more satisfactory especially for the first several months of the succeeding year to close the books at the end of the year with the same inventory price for unsold copper as used during the year, and have this inventory price equal the cost. However, when the price of metal is advancing the directors sometimes wish to inventory the unsold metal at market in closing for the year. While this helps the current year, it destroys the value of the profit and loss account for the succeeding year until all the previous year's copper is sold, also it is contrary to the Treasury Departments Regulations which require the taKing of inven- tories at cost or market, whichever is lower. COMPARATIVE STATEMENT OF OPERATING PROFIT AND LOSS In addition to the actual Profit and Loss Statement, it is customary to show the estimated operating profit in total, also per pound of copper, or other metal, and per ton of ore treated, in comparison with previous month and either the year to date, or the previous year. The reason for fluctuations in profit when not the result of fluctuation in price of metal can often be found more quickly by consulting the per pound and per ton statement in comparison with the previous month than is shown by the actual statement. The following is the usual form of Comparative Profit and Loss Statement : 140 MINE ACCOUNTING AND COST PRINCIPLES COMPARATIVE STATEMENT OF OPERATING PROFIT Total THIS MONTH PREVIOUS YEAR Copper $222,306.94 $3,331,567.12 Operating Expense. 138,019.58 1,866,408.20 Earnings on Copper $84,287.36 $1,465,158.92 Gold and Silver $10,631.70 $ 153,547.65 Special Ore Sales 3,090.16 124,874.54 Refunds and Discounts 718.84 8,324.38 Gross Earnings $ 98,728.06 $1,751,905.49 Depletion and Depreciation 51,082.76 704,131.31 Net Earnings $ 47,645.30 $1,047,774.18 At Rate per Share per Year 1.63 2.99 Capital Returned per Share 1.75 2.01 Per Pound of Copper Copper $0.26171 $0.27913 Operating Expense 0.16248 0.15638 Net Earnings on Copper $0.09923 $0.12275 Gold and Silver 0.01251 0.01287 Special Ore Sales 0.00364 0.01046 Refunds and Discounts 0.00085 0.00070 Gross Earnings $0. 11623 $0. 14678 Depletion and Depreciation 0.06014 0.05899 Net Earnings $0.05609 $0.08779 Per Dry Ton Smelted Copper $25.38 $25.51 Operating Expense 15.76 14.29 Net Earnings $9.62 $11.22 Gold and Silver 1.22 1.18 Special Ore Sales 0. 35 0. 96 Refunds and Discounts 0.08 0.06 Gross Earnings $11 . 27 $13 . 42 Depletion and Depreciation 5 . 83 5 . 39 Net Earnings 5.44 8.03 Pounds Copper Per Dry Ton Smelted 96.98 91 .40 NOTE. Copper for month figured on average future sales. Price on Year, actual figures taken from the Operating Statement. A comparative statement of profit for "this month," "last month," and "year to date" is also very popular. The pounds of metal recovered per ton is shown as any fluctuation in recovery per ton will change the cost and profit per pound even when the ton cost is the same from month to month. It is always best to analyze the Profit and Loss Statement in connec- tion with the detail cost statement showing the amount of expense and cost per pound and per ton for the different departments and sub-departments of operation. The Profit and Loss Account in the general ledger is closed only at the OPERATING PROFIT AND LOSS AND CLOSING ENTRIES 141 end of the year. Before closing the Expense and Revenue Accounts into Profit and Loss, adjusting entries are made for any difference in Materials and Supplies as shown between the inventory and the books, and the different revenue accounts are closed into a general revenue account, and the several operating expense accounts are closed into a general operating expense account. ADJUSTING INVENTORY TO THE BOOKS It is customary for mines to keep a perpetual inventory record of material and supply stocks, the storekeeper checking up the card records of each article occasionally so that at the end of the year only minor adjustments are necessary. STOCK N INVENTORY SHEET SHATTUCK ARIZONA COPPER CO SUPPLY DEPARTMENT DATE "). PHK-WT NO. 19 STOCK UNIT ARTICLES PRICE TOTAL AMT. Over Short Or. ilar.'l i ! FORM 45. However, it is always best to take an inventory once each year with the assistance of at least one outside clerk or accountant whose duty it is to write up the inventory sheets. This proves up the accuracy and carefulness of the storekeeper and tends to stimulate interest and greater efficiency. The inventory is written up from the actual count of the stock of each article as shown by Form 45, the actual amount on hand being entered on the sheets and is compared immediately with the stock record and the amount of overs or shorts, also is entered on the inventory sheets. Thus the inventory sheets show the differences between the records and stock, as well as the actual stock, and is a means of checking the work of the storekeeper. As the storekeeper's charges for stock issues must be supported by signed requisitions, there is no way that errors can be covered up except by collusion with those who withdraw supplies. 142 MINE ACCOUNTING AND COST PRINCIPLES When the inventory is completed the amount of each stock is checked against the book records and a comparative summary made, as follows: MATERIALS AND SUPPLIES ACCOUNTS ADJUSTED TO INVENTORY, YEAR 1918 Stock 1918 Ledgers Inventory Inventory Short Over General $ 24,959.54 18,122.02 15,776.13 7,402.09 32,027.73 31,685.54 5,404.27 888.93 1,162.39 $ 24,445.53 17,967.80 15,760.91 6,932.14 31,923.43 32,901.93 5,279.67 883.53 1,474.85 $ 514.01 154 . 22 15.22 469.95 104.30 124.60 5.40 $1,216.39 312.46 Iron and Steel Kxplosives Fuel Lumber and Timber Machinery Pipe and Fittings Oils and Greases Tools Total $137,428.64 1,905.40 46.69 $137,569.79 1,905.40 46.69 $1,387.70 141.15 $1,528.85 December Handling December Jobs Uncompleted Profit on Supplies $139,380.73 141.15 $139,521.88 $139,521.88 $1,528.85 If the net difference is an overage of the inventory over the books an entry is made in the journal for posting to the general ledger, as follows: Materials and Supplies $141 . 15 To Profit on Supplies $141 . 15 "Amount that material stocks are over the book records as shown by inventory sheets." If the inventory sheets are short of the books a charge is made to Loss on Supplies and a credit made to Materials and Supplies Account. Also, at the same time a journal entry is made for posting to the stock ledgers of the proper debits and credits to balance the stock accounts as shown by the Summary. Inventorying Ore, Bullion and Undelivered Sales. Before determin- ing the Gross Value of Production, the Ore and Bullion Inventories should be adjusted to the average net operating cost less selling, or to the market price, if lower. If certain of the undelivered sales have been sold at less than cost or market price on December 31st of any year, then such sales should be inventoried at the sales price. If it is desired to inventory the undelivered sales at sales price when such price is higher than cost or market, as has been customary with most copper mines, in order to get the actual income, that should be applied, against the current year's cost, adjustment will have to be made in making return for federal taxes, unless the Treasury Department should make new rulings. OPERATING PROFIT AND LOSS AND CLOSING ENTRIES 143 MISCELLANEOUS ADJUSTMENTS All adjustments between monthly estimated charges for taxes, sell- ing, depreciation, etc., and actual charges are made so as to be included in the operating expense for the last month of the year, or are made as early in the year as possible. SUMMARIZING THE REVENUE ACCOUNTS It is customary to summarize the revenue accounts into one or more general accounts before closing for the year. This allows the Operating Profit and Loss Account to be put in condensed form and reduces the number of accounts to be transferred to the Treasurer's Books, and furnishes the Treasurer with the minimum of accounts bearing the names as they will appear on the Income Account or General Profit and Loss Account. Also it leaves the revenue accounts upon the operating books in proper form for statistical purposes. The first entry to summarize the revenue accounts is to close the Previous Year's Production into the Copper Sales Deliveries, which will leave a net Copper Sales Deliveries of $1,670,167.45. The Revenue Accounts are now in condition to be summarized which is done by journal entries for postings to general ledger, as follows: Gross Value Copper Production $2,346,057.02 To Copper Sales Deliveries $1,670, 167.45 Copper Ores and Bullion 493,839.88 Gold and Silver Sales 182,049.69 "Determining the gross value of copper produc- tion for the year." Gross Value of Lead Production $ 263,395.25 To Mill Lead Bullion Sales $ 149,560. 92 Mill Lead Gold and Silver 81,466.33 Sorted Mill Lead Ore 6,356. 09 Direct Lead Ore Sales 26,011.91 " Determining the gross value of lead production for the year." Refunds and Discounts $ 4,980. 74 Freight Refunds $ 218. 53 Miscellaneous Refunds 159. 38 Old Material Sold 880.31 Uncalled-for Checks 399 . 31 Cash Discounts 3 , 323 . 21 Profit on Materials and Supplies $ 141 . 15 To Miscellaneous Operating Earnings $ 5 , 121 . 89 "Determining the Miscellaneous Earnings for the year." In closing the Refunds and Discounts Account it is necessary to close also the subsidiary accounts as shown. 144 MINE ACCOUNTING AND COST PRINCIPLES SUMMARIZING THE EXPENSE ACCOUNTS At the same time the operating revenue accounts are summarized the expense accounts are treated in a similar manner by entries, as follows : Total Copper Operating Expense $1 ,516, 189. 88 To Exploration and Development $ 170,497.08 Operating Expense, Copper 1 ,345,692. 80 "Determining the Gross Copper Operating Ex- pense for the year." Total Lead Operating Expense $ 250,882. 50 To Operating Expense, Mill Lead $ 245 , 293 . 66 Operating Expense, Direct Lead 5 , 588 . 84 "Determining the Gross Lead Operating Ex- pense for the year." STATEMENT OF ACCOUNTS FOR TREASURER These summarized entries having been posted to the general ledger, the accounts are in proper form to be transferred to the Treasurer's records, and a statement is taken from the ledger and forwarded to the Treasurer for his use in taking the operating accounts up on his books. In the Treasurer's ledger there is a credit account "Operating Current Year's Account" which offsets the "Treasurer's Current Year's Account" in the operating ledger. Also in the Treasurer's ledger there is a debit account "Operating Previous Year's Balance" which offsets the "Trea- surer's Previous Year's Balance" on the operating books. When the operating accounts are taken up on the Treasurer's books these two accounts balance each other. Determining the Yearly Profit or Loss. The operating accounts having been made ready for closing the books for the year, the revenue, expense and depreciation and depletion accounts are closed into the operating profit and loss account by journal entries, as follows: Gross Value of Copper Production $2 , 346 , 057 . 02 To Profit and Loss $2,346,057.02 Miscellaneous Operating Earnings 5 , 121 . 89 To Profit and Loss 5, 121 . 89 "Closing to Profit and Loss the amount of the yearly revenue 'from copper.' " Profit and Loss $1,516,189.88 To Total Copper Operating Expense $1 , 516 , 189 . 88 Profit and Loss 498,614. 51 To Depletion of Copper Ores 498,614. 51 Profit and Loss 18,000.00 To Depreciation of Equipment 18 , 000 . 00 "Closing to Profit and Loss the amount of the yearly current and accrued expense for copper." While these closing entries could be combined into less entries than shown, it is not advisable so to do, as it would give a lump sum in the Profit and Loss Account which would destroy the value of this account for reference and for statistical purposes. OPERATING PROFIT AND LOSS AND CLOSING ENTRIES 145 The effort to save bookkeeping by combining and summarizing should not be carried to the point where the entries in the ledger have no value for reference or check. ADJUSTMENT OF DEPRECIATION CHARGES When the depreciation of equipment is closed to profit and loss, subsidiary credit journal entries are made for the proper depreciation credit to each construction and equipment charge account appearing in the cost ledgers. Theoretically, this credit should be taken when the depreciation re- serve is set up each month, but this would mean twelve entries for each year, instead of one when handled as above stated. When the depreciation of equipment charge is adjusted the last month of each year, a schedule of equipment and depreciation is made similar to the following: SCHEDULE OF CONSTRUCTION AND EQUIPMENT AND DEPRECIATION YEAR 1918 Total Reserved to Jan. 1, 1918 Deprecia- tion Year 1918 Total De- preciation Net Equipment Hoist and Gallows Frame $137 329 31 $134 800 59 $ 1 528 72 10(5 OOQ 01 Pump Columns and Pumps. . . . 2 765 58 2 765 58 Condenser and Cooling Tank . . . Wftt.pr Tanks anr) T.inpg 3,281.83 2,913 11 3,281.83 2 182 68 500 00 3,281.83 2 682 68 230 43 Oil System 2,054 92 2 054 92 2 054 92 Tramway Equipment 14,872 85 14 872 85 14 872 85 Sawmill Equipment 7 327 12 7 327 12 7 327 12 Machine Shop Equipment 11,040 52 9 644 54 1 000 00 10 644 54 395 98 Tinner Shop Equipment 50.97 50 97 50 97 Blacksmith Shop Equipment. . . . Electrical Equipment 2,697.83 487 22 2,499.34 476 72 198.49 10 50 2,697.83 487 22 Scaffold Flotation Machine Janney Flotation Machine Assay Office Equipment 858.74 48.74 1,178.59 858.74 48.74 1,178 59 858.74 48.74 1 178 59 591 45 591 45 591 45 Mine Buildings 26,416.99 22,770 62 3,000 00 25 770 62 646 37 Office Building 11,116.51 3,334 96 5,000 00 8 334 96 2 781 55 Employment Office 1,945.07 1,000 00 1 000 00 945 07 Mine Office 603 98 200 00 200 00 403 98 Lead Mill 294,901 98 18,474 50 18 474 50 276,427 48 Bins and Trestle 6,883 89 2,912 23 3,000 00 5 912 23 971 66 Furniture and Fixtures . 6,961 19 4,804 29 1 ,346 64 6 150 93 810 26 Motorcycle 187 00 87 50 59 50 147 00 40 00 Horses 389 20 389 20 389 20 5,126 92 4 , 538 03 588 84 5 126 92 5 00 5 00 5 00 17.17 17 17 17 17 Underground Phones 703.42 703.42 703.42 Safety First Apparatus 2,596.51 2,530.93 65.58 2,596.51 Lubricating Oil Tanks 473.43 473.43 473.43 Fire System (Engine, etc.) Lower Tram Loading Platform . . Drill Steel Car 679 . 35 120.95 658.81 679.35 120.95 329.81 679.35 120.95 329.81 329.00 Mucking Machine Model 4.00 4.00 Total .... 8547,290.15 $225,829.87 $36,474.50 $262,304.37 $284,985.78 146 MINE ACCOUNTING AND COST PRINCIPLES This schedule proves the amount of Construction and Equipment and the amount of Reserve for Depreciation shown on the Operating Statement. It is customary with mines to depreciate their Construction and Equipment at a certain fixed rate based either upon the estimated life of the mine or the estimated life of the bulk of the equipment when the life of the mine is greater than the life of the equipment, instead upon the estimated life of each piece of equipment. However, for the purpose of computing comparative costs a record should be kept of the average length of life of each piece of equipment. Frequently the total value of the equipment is depreciated before the equipment is discarded or the mine depleted. In such cases only the new equipment is depreciated, and the old equipment still in use at the termination of operations is salvaged and the amount received therefrom is treated as income. CLOSING THE TREASURER'S ACCOUNTS Having closed the operating books and determined the yearly profit, and sent the Treasurer a statement of the operating accounts, it is nec- essary to transfer the operating profit and the yearly depletion to the Treasurer and to close the Treasurer's accounts for the year. As all profits are distributed or reinvested by the Treasurer, it is necessary, at the end of the year, to transfer from the Operating Profit and Loss the yearly profit. This is done by charging the Operating Profit and Loss Account and crediting the Treasurer's Previous Year's Account with the amount of the yearly profit. The reserve for depletion set up each year also is transferred to the Treasurer who is the one to distribute it as capital dividends or to reinvest it in the purchase of new properties. This transfer is made by charging Reserve for Depletion and crediting Treasurer's Previous Year's Account. In order to clear the operating books for the next year the amount of the advances received from the Treasurer during the year shown by the Treasurer's Current Year's Account, is closed to the Treasurer's Account. The operating books having been closed for the year, the Treasurer's Account showing the new balance would appear, as follows : TREASURER'S ACCOUNT Balance January 1, 1918 $ 933,611.77 Profit for Year, December 31, 1918 306,310.31 Depletion Reserve, December 31, 1918 504,716.97 Treasurer's Current Year, December 31, 1918 $ 730,686.58 Balance, December 31, 1918 1,013,952.47 $1,744,639.05 $1,744,639.05 Treasurer's Previous Year's Balance, January 1, 1919 $1 ,013,952.47 OPERATING PROFIT AND LOSS AND CLOSING ENTRIES 147 YEARLY PROFIT OR LOSS Like entries must be made to profit and loss for expense and revenue from any other separate source of income and expense the same as made for copper, and when these have been made and posted they early combined Profit and Loss Account would appear, as follows: COMBINED OPERATING PROFIT AND Loss YEAR 1918 Copper Sales Deliveries $1 , 670 , 167 . 45 Copper Ore and Bullion 493 , 839 . 88 Gold and Silver Sales from Copper . 182,049.69 Gross Value Copper Produc- tion $2,346,057.02 Refunds and Discounts $4,980.74 Profit on Supplies _ 141.15 Miscellaneous Earnings $5 , 121 . 89 Mill Lead Bullion Sales $149,560.92 Mill Lead Gold and Silver 81 , 466 . 33 Sorted Ore Settlements 6 , 356 . 09 Direct Lead Ore Settlements 26,011.91 Gross Value Lead Production. $ 263,395.25 Total Operating Income $2,614,574. 16 Total Copper Operating Expense . . $1 , 516 , 189 . 88 Total Lead Operating Expense. . . . 250,882.50 TotalExpense $1,767,072.38 Depletion of Cop- per Ores $498,614.51 Depletion of Lead Ores ;. 6,102.46 Total Depletion $ 504,716.97 Depreciation of Cop- per Equipment. . $ 18,000.00 Depreciation of Lead Equipment 18,474.50 Total Depreciation $ 36,474.50 Total Capital Returned $ 541 , 191 . 47 Total Charges $2,308,263.85 Operating Profit $ 306,310.31 At Rate per Share for Year 0. 875 Capital Returned per Share for Year J - 44 RULING THE ACCOUNTS Either as each account is closed or after the books are closed all ledger accounts should be ruled and balances brought down so as to keep each year's record separate. The proper ruling of the profit and loss and other accounts is impor- tant as the ledger and summary accounts can be made clear or confused depending upon the method of ruling. SECTION 3 ADMINISTRATIVE ACCOUNTING 148 150 MINE ACCOUNTING AND COST PRINCIPLES OPERATING PROFIT AND LOSS AND CLOSING ENTRIES 151 CHART XI ADMINISTHATIVE ACCOUNTS ACCOUNT No. ACCOUNT Disbursement Accounts 1 Bills and Salaries Audited. 2 Federal Taxes Accruing. 3 Accrued Interest Unpaid. 4 Investment Obligations Contracted. 5 Depreciation of Equipment. (a) Operating Equipment. (6) Administrative Equipment. 6 Depletion of Mine Investment. 7 Depletion of Mine Appreciation. 8 Accounts Payable. 9 Reserve for Federal Taxes. 10 Reserve for Accrued Interest. 11 Reserve for Investment Payments. 12 Reserve for Depreciation of Equipment. 13 Reserve for Depletion of Investment. 14 Reserve for Depletion of Appreciation. Expense Accounts 15 Administrative Expense. (a) Directors' and Officers' Salaries. (6) General Office Expense. (c) Legal and Technical Expense. (d) Traveling. (e) Advertising and Donations. (/) Interest and Exchange Paid. ( &^ u ADMINISTRATIVE DISBUR 4-. * t; Q H* c 5 O X Deferred Depreciation of Equipment Depletion of Mine Investment Depletion of Mine Appreciation Accru e.rf Federal Taxes Accruing. Accrued Interest Unpaid, Investmento&figations Contracted Operating Accts. tiv. tS\ ^1 ^| ^ -^ HP Distribution of Disbursements Asset Accts. .*} Cu >o r+^ -o j I! It! -5 J 4SS C 5: 5 5 J^ J 1 ^ ^fc Expense Accts -K <^> - S <<> <* &s S;S- [J;uj "?u *> $ % H t IIS Actual Bills and Salaries Audited Department Expense & 9 j~ ^ III fil S 1 ** 1? s Per cent Liberty Bonds Subscription $386 , 428 . 15 "Amount of subscription for 4^ per cent Liberty Bonds taken up by payments." If a subscription or contract for investment securities is allowed to become void, the amount of the obligation is written off the books. In practice the writing up on the books of obligations entered into for purchase of securities or property is not always done. However, the true condition of the business can not be shown and the proper perspective can not be obtained from the Balance Sheet if such obliga- tions are not recorded upon the books and shown on the Balance Sheet. DISTRIBUTION OF DEFERRED DISBURSEMENTS The Depreciation of Equipment and Depletion of Mine Investment and Mine Appreciation is not distributed but is charged to the Income Account or General Profit and Loss Account, in order to create reserves out of gross income to cover the Reserve for Depreciation of Equipment and Reserve for Depletion of Mine Investment and Appreciation. The Reserve for Depreciation of Mine Equipment is carried on the Operating Books to take care of purchase of new equipment when the original equipment has become obsolete or is worn out, as explained under Operating Disbursements. When the mine has been abandoned and it is desired to liquidate the assets, the Depreciation Reserve is transferred to the Administrative Books and is distributed as Capital Dividends, as provided in Article No. 1549 of Treasury Department Regulations No. 45. The Reserve for Depreciation of Administrative Equipment is like- wise used either for purchase of new equipment or for distribution as Capital Dividends. The Reserve for Depletion of Mines is divided into Reserve for Deple- tion of Investment in Mine Property, and Reserve for Depletion of Appreciation of Mine Property above cost, as of March 1, 1913, or as of 30 days after date of discovery. The reason for dividing the Deple- tion Reserve is to obtain the realized appreciation which may be used as invested capital as here-in-before explained. The Reserve for Depletion of Mines is taken up on the Operating Books each month and is transferred to the Administrative Books at the end of the year. If new mine properties are purchased, the amount of the Depletion ADMINISTRATIVE DISBURSEMENTS 161 Reserves and the amount of original property investments should be reduced an amount equal to the new investments or until the Depletion Reserves have been exhausted. Any investments in new mine property in excess of Depletion Reserves will be considered as made out of surplus, unless provided for by new capital. The reduction in Depletion Reserve to offset purchases of new prop- erties is made by journal entry charging Reserve for Depletion and crediting Original Property Account. Sometimes it is decided to distribute the Depletion Reserves, espe- cially when such have become larger than what it is considered necessary for reinvestment in new property to continue the life of the business. Again, it is decided to gradually liquidate the business by distribution of the Depletion Reserves as Capital Dividends. When such distributions are made, either from Reserve for Depletion or Depreciations, care should be taken to meet the requirements of Article No. 1549, and to credit the Property Account and debit the Reserve for Depletion Account and amount equal to the Capital Dividends disbursed. OPERATING ACCOUNTS The amounts of remittances made to the Operating Department are charged to the Operating Account, Current Year, and the balance of this account, after being credited with the Operating Sales Settlements, at the end of the year, is closed into the Operating Account, Previous Year. The balance in this latter account must offset the balance in the Treasurer's Account, Previous Year, appearing on the Operating Ledger. DISTRIBUTION OF PREPAID DISBURSEMENTS The Prepaid Administrative Expense usually consists of Prepaid Insurance and Suspense items of Advances for Traveling, to Agents, etc. Each month the proportional amount of insurance is charged to Administrative Expense, Insurance, and Unexpired Insurance credited. Also, all Suspense items that have been adjusted are charged to Adminis- trative Expense, and Suspense credited. CHAPTER XVII ADMINISTRATIVE RECEIPTS AND CASH ADMINISTRATIVE RECEIPTS The Administrative Receipts consist principally of interest on bank deposits, investments and loans. These receipts may be taken upon the books as they become due, or as they are received. Receipts on an Accrued Basis. For instance when the books are kept on an accrued basis in the case of interest on bank deposits, the account Interest Accrued on Bank Deposits is debited and Administrative Receipts, Interest on Bank Deposits, is credited for the amount of interest due. The debit account is closed out by posting from the Cash Book after the amount of interest has been received and entered upon the Cash Book. The same method of procedure is followed in the case of interest on industrial and government bonds, and dividends on stocks, and interest on loans. Receipts on a Cash Basis. In practice only interest on loans is taken up on the books as it becomes due, as such interest payments are not always paid on due date. All other receipts such as interest on bonds, bank deposits, etc., are usually treated as Cash Receipts, and the Receipt Accounts are opened by postings from the Cash Book. Refunds and Discounts are as a rule handled on a cash basis and not put on the books until received and entered on the Cash Book, when postings are made to the Refund and Discount Account in the ledger. The Accrued Operating Receipts have been taken up on the Operating Books and therefore all cash received by the Treasurer in payment of Operating Receipts are treated as Cash Receipts. Administrative Cash. Cash is the keystone to any business. In the business of mining the amount of original cash raised as Capital should be sufficient to purchase the property, develop and equip it ready for production and to carry production until cash payments are received from sales to customers. When the business is operating at a profit the amount of cash gradually increases beyond the original amount necessary, and this surplus is used to enlarge the business, to purchase and develop other properties, to purchase the stock of proven properties, or is distributed as dividends. The amount of cash available for use in the business is shown by the Administrative Cash Book (Form No. 5), in which all cash transactions 162 ADMINISTRATIVE RECEIPTS AND CASH 163 are recorded. If money is kept in more than one bank a separate bank account must be carried in the ledger for each bank. CASH RECEIPTS The Administrative Cash originates from three sources: First. Cash put up as capital by the owners of the business for stock or shares. Second. Cash borrowed upon notes, etc. Third. Cash received from the sale of production. Of course, there are receipts of cash such as cash discounts, refunds, and cash received in payment of accounts receivable created by sales of operating supplies and labor or services of employes to others. How- ever, such cash received is nothing more than a repayment of cash ad- vances and do not, as a rule, affect the amount of cash used in the business. Cash Received from Sale of Stock or Shares. The cash put up by the owners of the business is used for purchase of mine property, its equip- ment and development, and to carry the expense of operation until the receipt of cash from sales of production. The accounting of the cash put into the business as Capital from sale of stock or shares has been illustrated in Chapters II and III, and the amount of this cash stands upon the books as Capital until the business is liquidated, when this capital, or whatever may be left of it, is returned to the owners. Cash Received from Notes Issued. Occasionally it is necessary for the business to carry its product for a greater period of time than usual, or for some reason it is found necessary to have more cash to take care of the business. To meet such needs money is borrowed. In such cases it is customary for the Treasurer to raise funds upon notes which, if in excess of the amount of credit which the business is able to obtain, are secured by refinery warrants for unsold metal, by assignment of accounts of customers, or by mortgage upon the assets of the business. When cash is so obtained, an entry is made on the debit side of the Cash Book, showing by whom the note was accepted, due date, rate of interest, etc., and posting made to liability account, Notes Payable, in the ledger. The full amount of the note should be recorded. If the note is discounted the amount of the discount should be entered on the credit side of the Cash Book and posted to the ledger account, Adminis- trative Expense, Interest and Exchange Paid. Should it be the practice of the business to issue notes, a Notes Payable Record should be kept. The form of such a record is prac- tically the same for all lines of business. Cash Received from Sales of Product. It is the usual practice for all money received in payment of sales of the principal product by the Sales Department to be delivered to the Treasurer who records the 164 MINE ACCOUNTING AND COST PRINCIPLES amount received from each sale, whether a partial or a complete settle- ment, in the Administrative Cash Book for posting to the credit ledger account, Receipts from Sales Agent. At the end of each month, or at the end of the year the amount of completed sale settlements is determined and balanced with the Operating Sale Settlement Sheets and such amount is credited to Operating Sales Settlements by a journal entry, as follows: Receipts from Sales Agent $2 , 180 ,686 . 78 To Operating Sales Settlements $2 , 180 ,686 . 78 "Crediting the Operating Department with the amount of completed sales settlements of sold product." If any balance is left in the account, Receipts from Sales Agent, it should be equal to the partial payments made on account, as shown by Sales Agents reports of partial payments received and transmitted to the Treasurer. To offset the credit given the Operating Department upon the Admin- istrative Books for Operating Sales Settlements, a charge is made to Treasurer, Current Year, upon the Operating Books, as shown in Operat- ing Cash, under "Receipts From Sale of Principal Products." If the remittances in payment of sales of secondary and by-products are made to the Treasurer, instead of to the Operating Department, they are handled in the same manner, except that subsidiary accounts for Sale Settlements of Principal Products, of Secondary Products, and of By-products should be carried to support the Operating Sales Settlements Account. POSTINGS OF CASH BOOK DEBITS At the end of each month the Cash Book should be totalled, balanced and closed. When the volume of business is large it is best to have a ruled column in the Cash Book for each class of active receipts, and one for sundries. This allows a debit summary to be made quickly, as follows : Account Folio Amount Debit Credit Cash 12 98 102 104 106 108 $2,234,509.62 $2,180,686.78 23,051.55 30,457.12 0.00 118.00 Receipts from Sales Agent Interest on Bank Deposits Interest on Investments Accounts Receivable Reserve for Dividends Unclaimed. . . Cash on Hand January 1, 1917 $2,234,313.25 1,258,641.31 $3,492,954 56 ADMINISTRATIVE RECEIPTS AND CASH 165 Only the totals as shown should be posted to the General Ledger ac- counts, which saves posting and prolongs the life of the General Ledger. The individual entries in the Cash Book of "Receipts from Sales Agent" will be supported by the Record of Sales Settlements and need not be posted unless it is desired to carry subsidiary ledger accounts for each sale. The individual entries of Interest on Bank Deposits, and Interest on Investments will be supported by the Record of Interest Received, although separate subsidiary ledger accounts may be carried for each source of interest and individual postings made thereto if desired. The individual items of accounts receivable are posted direct to the individual accounts in the subsidiary ledger, and the total to the General Ledger Account. The General Ledger should be bound, while the subsidiary ledger may be loose leaf. CASH DISBURSEMENTS Administrative Cash Disbursements are made to liquidate the ac- counts payable liabilities, as shown by the Bills Audited Record and the dividend liabilities created by dividends declared. All cash disburse- ments are made by cheque, unless a petty cash account is carried for small disbursements to be made in cash. Cash Disbursements for Bills Audited. It is the usual practice to make all Administrative Disbursements except for dividends by vouchers and to record all disbursements in the Bills Audited, or Voucher Record (Form No. 6). At the end of each month, or as occasion requires, cheques are drawn in payments of each voucher and the number of each cheque is listed in the Voucher Record, which also serves as a Cheque Register. To avoid duplication, only the total amount of cheques issued against vouchers audited is entered on the credit side of the Cash Book with proper explanation at the end of each month. It is best to have on the credit side of the Cash Book a ruled column each for "Bills Audited," "Dividends," and "Sundries." This enables a summary to be obtained quickly and makes a record that is easily analyzed. If desired a separate column can be provided for advances to operations, especially when opera- tions are carried on at more than one place. Cash Disbursements for Dividends. Dividends that have been de- clared are specified either as Earned Dividends or Capital Dividends and an entry is made on the books as of date of declaration creating a Reserve for Dividend from Surplus No. 127, or Reserve for Dividend from Deple- tion No. 128. In order to provide the funds with which to pay to each individual stockholder the amount of dividend due on the stock in his name, a cheque in favor of the bank on which the dividend cheques have been drawn is made and deposited to the credit of Dividend No. , on 166 MINE ACCOUNTING AND COST PRINCIPLES the date the dividend is due and payable. The amount of this cheque is entered on the credit side of the Administrative Cash Book with proper explanation and a debit posting to "Reserve for Dividend No. ," is made to the proper subsidiary ledger account. Special Dividend Cheques are drawn against the Dividend Account in favor of each stockholder. These cheques are entered in a Dividend Cheque Register before they are mailed to the individual stockholders in order to provide a record for use in reconcilement of each dividend account with the bank. Posting of Cash Book Credits. The Cash Book is balanced and closed at the end of each month, and a summary of the credits is made in like manner as of the debits, as follows: Account Folio Amount Debit Credit Accounts Payable, Bills Audited . . . 15 127 128 12 $2,085,019.24 350,000.00 350,000.00 $2,785,019.24 707,935.32 Reserve for Dividends from Surplus Reserve for Dividends from Depletion. . . Cash Cash on Hand December 31, 1918. . $3,492,954.56 Only the totals as shown are posted to the General Ledger Accounts. The individual entries on the credit side may be posted to subsidiary ledger accounts, or simply be supported by separate records of Bills Audited, Dividends, etc. Reconcilement of Cash Account. At the end of each month the bank statement or statements, and cancelled cheques of the Treasurer's Account are checked against the Cash Book Record of cash received and dis- bursed, and the amount of outstanding cheques if any, ascertained and recorded. Also, any discrepancy that is found is immediately adjusted, and a Reconcilement Statement is made up similar to Form 44. At the same time a reconcilement is made up for each of the dividend accounts as long as any dividend cheques are outstanding. If a dividend cheque is not cashed within a reasonable time, the matter should be called to the attention of the stockholder and arrangements made to close the account. It is very seldom that a cheque issued by the Treasurer is not presented for payment. However, should a treasurer's cheque still be outstanding after four years from date of issue, and the person to whom the cheque was issued cannot be located, it is best to clear the records by a charge to Cash for the amount of the cheque and credit Refunds and Discounts. ADMINISTRATIVE RECEIPTS AND CASH 167 When dividend cheques have been returned and the stockholder can- not be located, they may be taken up in the Administrative Cash and the amount credited to Reserve for Dividends Unclaimed and so shown on the Balance Sheet. NOTES RECEIVABLE It is not customary to accept notes from customers in lieu of cash payments. However, occasionally a customer becomes temporarily financially unable to meet his obligations, and an interest bearing note is accepted. When this is done a journal entry is made debiting Notes Receivable, and crediting Operating Sales Settlements. Upon the Operating Books an entry is made the same as if the payment had been made in cash. CHAPTER XVIII DIVIDENDS The dividend distributions made by mines consist of three kinds, as follows : 1. Cash Dividends from Earnings, 2. Stock Dividends from Earnings, 3. Capital Dividends. The present practice of mining companies is to deduct from gross income the total amount of production expense including taxes and depreciation of equipment, and to divide the remaining amount of income into net earnings and reserve for depletion. Any dividends made from the net earnings are known as Dividends from Earnings, and any divi- dends from Depletion Reserves are known as Capital Dividends. Under the present federal tax laws and Treasury Department's Regulations No. 45, "a dividend means any distribution made by a corporation, other than a personal serivce corporation, to its stock- holders or members, whether in cash or in other property or in stock of the corporation out of its earnings or profits accumulated since Feb- ruary 28, 1913." While under the federal tax laws capital distributions out of Depletion Reserves are not recognized as dividends subject to tax, nevertheless they will be considered as made from earnings or profits and be taxable unless all earnings and profits have first been distributed. Also any undistributed earnings or profits accumulated prior to March 1, 1913, may be distributed in stock dividends or otherwise exempt from federal tax, provided the earnings and profits accumulated since February 28, 1913, have been distributed. Cash Dividends from Earnings. The usual dividends distributed by mining companies consist of cash dividends paid from earnings of the current year, or from surplus and undivided profits on hand at end of the preceding year. It is customary to declare a dividend approximately 30 days prior to date of payment and to specify the date on which the stock records will be closed in order to allow time for transfers of stock, and to make and distribute dividend cheques. A statement is made up and furnished the directors at each meeting showing the amount of actual or estimated earnings undistributed for the current year, the net cash available for dividends; the surplus and 168 DIVIDENDS 169 undivided profits the beginning of the year; etc., for use in making dividend decision. Upon the declaration of a dividend by the directors, a journal entry is made for posting to the General Ledger, as follows : Dividends from Surplus $262 500 00 To Reserve for Dividend from Surplus $262 500 00 "Dividend No. 25 of 75 cts. per share, declared September 20, 1918, to stockholders of record of Sep- tember 30, 1918, payable October 19, 1918." Sometimes a dividend is declared at the end of one year, payable in the first month of the next year, as Dividend from Surplus $175 ,000 00 To Reserve for Dividend from Surplus $175,000.00 "Dividend No. 26 of 50 cts. per share declared December 20, 1918, to stockholders of record of Decem- ber 31, 1918, payable January 20, 1919." In such cases the amount of the reserve to cover the dividend is shown on the Balance Sheet at the end of the year as Reserve for Dividend from Surplus No. 26. The account Dividend from Surplus is closed into the Surplus Account at the end of each fiscal year, while the account Reserve for Dividend from Surplus is closed by posting from entry in the Cash Book made at the time a check is drawn for the amount of the dividend as explained under "Cash Disbursements for Dividends." STOCK DIVIDENDS FROM EARNINGS When it is desired to keep an unusual amount of earnings in the busi- ness for new equipment or expansion of operations, etc., it is occasionally decided to declare a stock dividend. This saves the distributing of the earnings and later the issuing of additional stock or bonds to furnish the funds required. The issuing of stock dividends by a concern that is making large earnings is a very simple method of raising capital and in addition furnishes the stockholders with certificates representing the amount of earnings absorbed by the business. These certificates of shares can be sold by the stockholder if he desires to convert his stock dividend into cash. This could not be done by the stockholder if no stock dividend were issued for the amount of the surplus and undivided profits that have been absorbed into the business. When a stock dividend is declared the amount of the surplus that has been capitalized is transferred to the Capital Stock Account by a journal entry debiting Surplus and crediting Capital Stock. Stock dividends do not reduce the amount of the Invested Capital, which is an advantage when the earnings are sufficient to require the 170 payment of an excess profit tax. Neither are such dividends taxable to the stockholder until sold by him. Dividends from Assets. During the war some of the larger mining companies invested heavily in Liberty Bonds, which have since depre- ciated in value. In some cases instead of liquidating these bonds and paying cash dividends, the bonds have been distributed pro-rata to the stockholders. When this is done, the account representing the security distributed is credited and Surplus is debited for the amount of the dis- tribution. Capital Dividends. In mining, a Capital Dividend is either a distri- bution to the stockholder in liquidation of the assets and business of a corporation upon surrender of his interest in the corporation, and closing up of the business, or is a dividend paid out of Depletion Reserves as these are accumulated. A Capital Dividend is not taxable income provided, in the case of dividends out of Depletion or Depreciation Reserve, that the surplus and undivided profits first have been distributed. However, as a Capital Dividend decreases the amount of the invested capital for use in determining the excess profits tax, such dividends are not disbursed unless the invested capital can be decreased without increasing the federal taxes. When such dividends are declared, a journal entry for posting to the General Ledger is made, as follows: Capital Dividends from Depletion $262 ,500 . 00 To Reserve for Dividend from Depletion $262 , 500 . 00 "Capital Dividend No. 8, of 75 cts. per share de- clared September 20, 1918, to stockholders of record of September 30, 1918, payable October 19, 1918." The dividend from Depletion account is closed either into the Prop- erty Appreciation Reserve, or the Capital Stock Account, depending upon whether paid out of depletion of investment or depletion of appreci- ation. Therefore, this is another reason for the segregating of Depletion Reserve into Depletion of Investment and Depletion of Appreciation. When the Depletion Reserve is so divided and Capital Dividends are declared and paid, they can be declared first as paid out of realized appreciation, as shown by the Reserve for Depletion of Appreciation. The Capital Dividends then can be charged to Property Appreciation Reserve until all of the Property Appreciation Reserve has been realized and liquidated. This leaves the original invested capital intact for reinvestment in new properties, or to be distributed to stockholders upon liquidation of the business. When a Capital Dividend is declared and paid out of realized appreci- ation, the amount of the account Capital Dividends from Depletion is closed at the end of the year by a journal entry, as follows: DIVIDENDS 171 Property Appreciation Reserve $1 ,400,000.00 To Capital Dividends $1,400,000.00 "Reduction of Property Appreciation equal to the Amount of Capital Dividends declared during the year." The account Reserve for Dividends from Depletion is closed upon payment of the dividend by posting from the Cash Book, as in the case of Cash Dividends from Earnings. Reducing the Depletion Reserve. As such Capital Dividends are paid out of Depletion Reserves, and as the dividends were declared as paid out of Reserve for Depletion of Appreciation, it is necessary to reduce the Depletion Reserve by journal entry, as follows: Reserve for Depletion of Mine Appreciation $1,400,000.00 To Mine Property Appreciation $1 ,400 ,000 . 00 "Reducing the Reserve for Depletion of Mine Appreciation and Mine Property Appreciation an amount equal to Capital Dividends distributed." It is necessary to reduce these accounts an amount equal to Capital Dividends disbursed until all of the Property Appreciation has been realized and distributed. If any further Capital Dividends are paid out of Reserve for Depletion of Investment, then the Reserve for Deple- tion of Investment and Mine Property Investment accounts will have to be reduced a like amount. The Capital Dividends Account covering such further disbursements will be a charge against the Capital Stock Account. Until the present Excess Profit Tax is repealed, no Capital Dividends should be paid unless the Darnings on the reamining invested capital on normal prices and production will be less than 8 per cent. Otherwise the business will be forced to pay an Excess Profits Tax as a result of having disbursed part of its invested capital. CHAPTER XIX ADMINISTRATIVE BALANCE SHEET A statement is taken from the Administration Ledger after posting all entries that have been made prior to the determination of the Yearly Income or Profit and Loss, and the balancing of the Surplus Account. ADMINISTRATIVE TRIAL BALANCE This is obtained by compiling the balances upon the Administrative Ledger, which will give a statement, as follows : ADMINISTRATIVE TRIAL BALANCE BEFORE ABSORBING OPERATING RESULTS Debits Administrative Expense $ 83,801.64 Federal Taxes 38,410.67 Cash 707,935.32 Accounts Receivable 17 , 844 . 65 United States Liberty Bonds 786 ,428 . 15 Dividends from Surplus 437,500.00 Reserve for Depletion of Mine Appreciation 169,952.04 Mine Property Investment 3,022,500.00 Mine Property Appreciation 3 , 926 , 515 . 62 General Office Equipment 851 . 70 Operating Account, Current Year 1 ,450,000.00 Operating Account, Previous Year 933 ,611 . 77 $11,575,351.56 Credits Interest on Investments $ 30,457. 12 Interests on Bank Deposits 23 ,051 . 55 Reserve for Unclaimed Dividends 118 . 00 Reserve for Federal Taxes 38 , 410 . 67 Reserve for Dividends from Surplus 175,000.00 Reserve for Depletion of Mine Investment 697,983.51 Appreciation Reserve 3 , 926 , 515 . 62 Capital Stock Issued 3,500,000.00 Earned Surplus 1 ,003 , 128 . 31 Operating Sales Settlements 2,180,686.78 Receipts from Sales Agent . 00 $11,575,351.56 This statement is taken to ascertain that the ledger is in balance and that all administrative transactions prior to determining profit and loss have been recorded. This statement shows the Reserve for Depletion of Appreciation as a debit, due to the fact that the Current Year's Reserve has not been transferred from the Operating Books. 172 ADMINISTRATIVE BALANCE SHEET 173 Before the Income can be determined the results of operations must be taken up on the Administrative Books. CLOSING THE -OPERATING ACCOUNT In order that the results of operations may be taken up on the Admin- istrative Books and the operating accounts closed out, the statement of accounts furnished by the Operating Department is entered in the journal for posting to the Administrative General Ledger, as follows: STATEMENT OP OPERATING ACCOUNTS BEFORE CLOSING OPERATING BOOKS FOR YEAR 1918 Debits Total Operating Expense: Copper $1,516,189.88 Lead 250,882.50 $1,767,072.38 Depreciation of Equipment: Mine 18,000.00 Mill 18,474.50 36,474.50 Depletion: Of Copper Ores 498,614.51 High-grade Lead 6,102.46 504,716.97 Cash at Mine 52 ,383 . 78 Accounts Receivable, Mine 5 , 736 . 57 Ores on Hand at Cost 4,466.46 Unsold Metal in Transit at 17.643 cts 489,373.42 Sold Metal due for Shipment 212,920.07 Due for Gold and Silver Sold 23,467.54 Lead Ore Production at Cost .^ 4,536.91 Lead Ore in Process at Cost 863 . 73 Lead Concentrates at Cost 53,874.04 Materials and Supplies 139 ,521 . 88 Suspense ^ , 735 . 91 Construction and Equipment 547,462.23 Treasurer, Current Year 730,686.78 $4,582,293.17 Credits Gross Value Production Copper $2,346,057.02 Lead 263,395.25 $2,609,452.47 Miscellaneous Operating Earnings 5 , 121 . 82 Current Accounts Payable 100,124.61 Bullion Freight and Refining Not Due 45 , 868 . 38 Selling Expense Not Due 15,713.31 Reserve for Taxes 36,760. Reserve for Accidents 58,618.82 Reserve for Depreciation of Equipment 262 ,304 . 37 Reserve for Depletion 504 > & J- Treasurer, Previous Year 933,611.77 $4,582,293.17 174 MINE ACCOUNTING AND COST PRINCIPLES All the items on this statement having been posted, it is necessary to close the Operating and Treasurer's Accounts. To do this, the Operating Account, Current Year, is credited with the amount of the Operating Sales Settlements. This will leave a credit balance in the Operating Account, Current Year of $730,686.78 and offsets the debit balance in the Operating Treasurer's Account, Current Year, for like amount. These latter accounts are then closed by entry, as follows: Operating Account, Current Year $730,686.78 To Treasurer, Current Year $730,686.78 "Closing out the connecting accounts between the Operating and Administrative Books, for the Current Year." A similar entry is made to close out the Operating Account and Treasurer's Account for the previous year. REALIZED APPRECIATION As the depletion taken up on the Operating Books and transferred to the Administrative Books is for the total amount, it is necessary to divide this into Depletion of Investment and of Appreciation, by journal entries, as follows: Depletion of Mine Investment $182,717.08 Depletion of Mine Appreciation 321 ,999. 89 To Depletion $504,716.97 "Proportioning the amount of depletion applicable to investment and to appreciation of property value." The Reserve for Depletion is also divided in like manner in order to deter- mine the realized appreciation. Reserve for Depletion $504 , 716 . 97 To Reserve for Depletion of Investment $182 ,717.08 Reserve for Depletion of Appreciation 321 ,999 . 89 "Dividing the Yearly Depletion Reserve between Investment and Appreciation." The Depletion Charge could be divided when it is taken up on the Operating Books each month, but as it is desired only to ascertain each month what amount of earnings is available for dividends, the complete charge serves the purpose and saves bookkeeping. As the recent requirement of the Regulations of the Treasury Depart- ment relating to Return of Income, is that Depletion can be taken only on production as sold, the depletion should be so charged, or an adjust- ment will have to be made when return of income is filed. ADMINISTRATIVE BALANCE SHEET BEFORE CLOSING In order to ascertain that the ledger is in balance and to obtain a statement for use in closing the books for the year, another statement of balances is taken from the ledger, as follows: ADMINISTRATIVE BALANCE SHEET 175 ADMINISTRATIVE BALANCE SHEET BEFORE CLOSING FOR THE YEAR 1918 Debits Total Operating Expense * 1 7fi7 O79 QS wi i 1 J ___ A- T-I *1,/D/,U/Z.OO Total Administrative Expense. . co em HA ~. ... , T-I oo,8Ul.o4 Depreciation 01 Equipment og 474 crj Depletion of Mine Investment 182 Vl7 08 Depletion of Mine Appreciation 321 'QQQ sq Federal Taxes 3S,4W.67 Dividends from Surplus 437 ^QQ QQ Cash Min e ' $ 52,383.78 Treasurer 707,935.32 760,319. 10 Accounts Receivable Mine $ 5,736.57 Treasurer 17,844.65 23,581 .22 Ores on Hand at Cost 4 4gg ^g Unsold Metal In Transit at 17.643 cts 439 373 42 Sold Metal Due for Shipment 212 920 07 Due for Gold and Silver Sold 23 467 54 Lead Ore Production at Cost 4 53g gj Lead Ore In process at Cost gg3 73 Lead Concentrates at Cost 53 374 04 Materials and Supplies 139 521 . 88 Suspense 8,735.91 United States Liberty Bonds 786 428 15 Mine Property Investment 3,022,500.00 Mine Property Appreciation 3,926,515.62 Construction and Equipment Mine $547,462.23 General 851 . 70 548,313 . 93 $12,873,394 14 Credits Gross Value Production $ 2,609,452.47 Miscellaneous Operating Earnings 5, 121 . 89 Interest on Investments 30,457.12 Interest on Bank Deposits 23,051 .55 Current Accounts Payable 100 , 124 . 61 Bullion Freight and Refining Not Due 45,868.38 Selling Expense Not Due 15,713.31 Reserve for Taxes Operating $ 36,760.58 Federal 38,410.67 75,171.25 Reserve for Accidents 68,618.82 Reserve for Unclaimed Dividends 118.00 Reserve for Dividend from Surplus 175 ,000 .00 Reserve for Depletion of Mine Investment 880,700.59 Reserve for Depletion of Mine Appreciation 152,047.85 Reserve for Depreciation of Equipment 262,304.37 Appreciation Reserve 3,926,515.62 Capital Stock Issued 3,500,000.00 Earned Surplus 1,003,128.31 $12,873,394.14 176 MINE ACCOUNTING AND COST PRINCIPLES This statement shows the total expense and revenue and dividends paid from Surplus for the year, as well as the assets and liabilities, etc., and gives all the information necessary for making up the Income or Profit and Loss Account and the determining of the Earned Surplus at the end of the year. CHAPTER XX YEARLY INCOME OR PROFIT AND LOSS AND SURPLUS PROFIT AND LOSS The method of determining income from mines has gone through a process of evolution during the past five years, due principally to the requirements of recent federal and state tax laws and the development of accounting and costing procedure. Prior to the enactment of the present federal income and war profits tax laws of October 3, 1917, the income of mines in excess of the total production expense, and a nominal deduction for depreciation of equip- ment was considered net income, or net earnings, and was distributed as dividends earned either in cash or stock. While it was realized that a portion of the earnings so determined represented a liquidation of the investment in the mine property as a result of the depletion of ores, nevertheless as the tax laws did not recognize such a deduction prior to September 8, 1916, very few, if any, of the metal mines set up on their books a reserve for depletion of mines by a charge against gross income. Therefore, all the net returns were considered net income or net earnings and so distributed or carried as Surplus and Undivided Profits. This did not result in any loss due to tax assessments either to the business or its stockholders until the enactment of the Special Excise Tax on Corporations of August 5, 1909, fixing a tax of 1 per cent on net income over $5,000. However, this law did not recognize depletion as a deduction from gross income. The Federal Income Tax Law of October 3, 1913, assessed a tax of 1 per cent on total net income, but did not recognize depletion as an allowable deduction in determining net income. As the tax was small and the determination of depletion deduction was difficult, nothing was done to cure the defect in the law. However, the passage of the Income Tax Law of September 8, 1916, as amended by Act of October 3, 1917, levied a 2 per cent income tax on total net income, and an additional 4 per cent war tax, and provided, "in the case of mines a reasonable allowance for depletion" to be made under rules and regulations to be prescribed by the Secretary of the Treasury. The mines then realized that to prevent payment of unneces- sary taxes on income from operations and to protect stockholders from paying taxes upon distribution of liquidated capital, that the proper charge for depletion must be determined and deducted from gross income. 12 177 178 MINE ACCOUNTING AND COST PRINCIPLES However, the wording of the clause in the 1917 Law covering the depletion allowance was ambiguous and the Treasury Department's rulings in regard thereto were uncertain, and the matter of determining depletion was not satisfactorily settled until the passage of the Revenue Act of 1918, and the issuance of Treasury Department's Regulations No. 45. At the present time all mines whose operations result in net income determine their depletion and set up a reserve for depletion by a charge against gross income. Accounting of mining operations has so developed that a uniform Income or General Profit and Loss Account now can be adopted. Items That Should Appear in the Profit and Loss Account. The items that enter into the Profit and Loss Account consist of five groups, one credit and four debits, as follows: 1. Revenue or Income; Credit, 2. Expense; Debit, 3. Losses; debit, 4. Capital Returned; debit, 5. Federal Income and Profits Taxes; debit. The items that make up the Revenue or Income group should be all the revenue received by the business plus the amount of unsold ore and bullion, etc., on hand at end of year and less the amount of unsold ore, bullion, etc., on hand the beginning of the year and the items com- posing the Expense groups should be all charges that each year's opera- tions should bear, regardless of whether or not all the revenue is taxable income and all the expense will be allowed in determining the income tax. If, during the year, there has been any losses that should not be charged to production expense, such should be shown under Losses in the Profit and Loss Account. All items of revenue that are exempt from taxation and any expense and losses that will not be allowed in determining net taxable income, should be so carried in separate general or subsidiary accounts as to be quickly ascertained in making up the statement of taxable income. Determining the Yearly Profit and loss. In closing the books to determine the yearly Profit or Loss, the "Administrative Balance Sheet Before Closing for the Year" is consulted and a journal entry is made first closing out the revenue or income accounts, as follows: Profit and Loss $2 ,668 ,083 . 03 To Gross Value of Production $2 , 609 , 452 . 47 Miscellaneous Operating Earnings 5 , 121 . 89 Interest on Investments 30,457. 12 Interest on Bank Deposits 23 ,051 . 55 "Closing out the Yearly Revenue to Profit and Loss." YEARLY INCOME OR PROFIT AND LOSS AND SURPLUS 179 For the Expense, Profit and Loss is debited and Total Operating and Total Administrative Expense is credited. The Capital Returned is closed out by debiting Profit and Loss and crediting Depreciation of Equipment and Depletion of Mine Investment and Mine Appreciation. The Federal Taxes are then credited and Profit and Loss debited. These entries are posted and the Income or Profit and Loss Account ruled, and a statement made up, as follows: INCOME OK PROFIT AND Loss ACCOUNT FOR YEAR 1918 Income Gross Value of Production $2,609,452.47 Miscellaneous Operating Earnings 5 , 121 89 Interest on Investments 30 457. 12 Interest on Bank Deposits 23,051.55 $2,668,083.03 Expense Total Operating Expense $1,767,072.38 Total Administrative Expense 83,801.64 1,850,874.02 Gross Operating Returns $ 817,209.01 Capital Returned Depreciation of Equipment $ 36,474.50 Depletion of Mine Investment 182,717.08 $ 219,191.58 Depletion of Mine Appreciation 321,999.89 541,191.47 Net Income $ 276,017.54 Federal Taxes 38 ,410 . 67 Net Profit for Year to Surplus Account $ 237 , 606 . 87 At rate per share of It is not necessary to detail the expense charges, as this information is shown on the Cost Statement furnished the directors, which is embodied in the Yearly Report to Stockholders. SURPLUS The profit for the year amounting to $237,606.87 is now transferred from the Income or Profit and Loss Account to Surplus. The dividends from earnings declared during the year amounting to $437,500.00 are closed into Surplus, and the balance left in this account appears on the Balance Sheet as Surplus. Should the results of any year's operatings show a loss in excess of the balance in the Surplus Account, the Surplus Account would show a debit and appear on the Balance Sheet as a^deficit. In reporting dividends paid out of surplus for purpose of determining taxable income, any dividend distributed during the first 60 days of any taxable year is deemed to have been made from earnings or surplus accu- mulated during the preceding taxable year. Any distribution made during the remainder of the taxable year is deemed to have been made 180 MINE ACCOUNTING AND COST PRINCIPLES from earnings accumulated between the close of the preceding taxable year and the date of distribution to the extent of such earnings. Therefore, at the end of each year the stockholders should be advised of the amount of dividends paid out of the current year's earnings and previous year's surplus. Adjusting the Surplus Account. In determining whether or not the income for the year is subject to excess profits tax, the Surplus for use as Invested Capital must be analyzed and made to conform to the require- ments of the Treasury Department, as set forth in Regulations No. 45. When the amount of Surplus as determined according to the Treasury Department's Regulations does not coincide with the amount as deter- mined by the accounting methods used in the business, as the result of improper accounting it is best to correct the accounting methods. When there is a difference due to refusal to allow certain items of expense or depreciation that it is considered to the best interests of the business to charge to operations, it is best to keep a subsidiary surplus account, or a memorandum of the adjustments to be made to bring the Surplus to the amount allowed by the Treasury Department in determing taxable income and invested capital. Surplus Account for the Year. An analysis of the Surplus Account after closing would give a statement, as follows: SURPLUS ACCOUNT Balance, January 1, 1918 $1,003,128.51 Net Profit for Year 1918 237,606.67 $1,240,735.18 Dividends Nos. 23 to 26 437,500.00 Balance, December 31, 1918 $ 803,235.18 CHAPTER XXI BALANCE SHEET All the business transactions for the year having been properly recorded upon the books according to accounting principles and approved accounting procedure, and the results of the year's operations and divi- dend disbursements having been determined, as shown by the Profit and Loss Statement and the Surplus Account, it is now necessary to make up a Balance Sheet from the balances appearing on the General Ledger in proper form so as to show the true condition of the business at the end of the year. GROUPING OF BALANCE SHEET ITEMS In taking the balances from the ledger to make up the Balance Sheet, the items should be grouped so as to show the true condition of the busi- ness and to enable the President, Treasurer and the other officers and directors, to readily ascertain the facts as to each group of assets and lia- bilities of the business. Each item appearing on the Balance Sheet should be included in the proper one of the following groups: Assets Liabilities 1. Current or Operating Assets 1. Current or Operating Liabilities 2. Investment Assets 2. Investment Liabilities 3. Deferred Charges 3. Deferred Credits 4. Property Investment or Fixed As- 4. Property Reserves sets 5. Appreciation Reserve 5. Property Appreciation 6. Capital Issued 7. Surplus Any item carried on the ledger belongs in some one of the above groups, and sufficient attention should be given each item to insure that it is properly grouped. ARRANGEMENT OF GROUPS AND ITEMS The arrangement of the groups of assets and liabilities can be made as above, or to conform to the individual ideas of the Treasurer or President of each business. The arrangement as shown places the most important group, as far as operations are concerned, i.e., Current or Operating Assets and Liabilities, first, and the other groups follow in natural order as to their importance from an operating standpoint. In arranging the items composing each group the most important item of the group should appear first in each group, and the other items should follow according to importance. The most important item does not necessarily mean the largest amount. Cash is always the most im- portant item of Current or Operating Assets, regardless of the amount of cash on hand. 181 182 MINE ACCOUNTING AND COST PRINCIPLES BALANCE SHEET STATEMENT The items appearing upon the ledger having been arranged into groups, and the groups and items arranged as to importance from an operating standpoint, a balance sheet statement would be obtained, as follows: BALANCE SHEET AT CLOSE OF BUSINESS, DECEMBER 31, 1918 Assets Current or Operating Assets Cash $ 760,319.10 Current Accounts Receivable 23,581 .22 Sold Metal Due for Shipment 212,920.07 Due for Gold and Silver Sold 23,467.54 Unsold Metal in Transit at Cost 489 ,373 . 42 Lead Concentrates at Cost 53 ,874.04 Lead Ore Production and In Process 5 ,400 . 64 Ores on Hand at Cost 4,466.46 $ 1 ,573,402.49 Investment Assets United States Liberty Bonds 786,428. 15 Deferred Charges Materials and Supplies $ 139 ,521 . 88 Suspense 8.735.91 148,257. 79 Property Investment Construction and Equipment $ 548,313.93 Mine Property Investment 3,022,500.00 3,570,813.93 Property Appreciation Mine Property Appreciation $5,326,515.62 Less Depletion Distributed 1,400,000.00 3,926,515.62 $10,005,417,98 Liabilities Current or Operating Liabilities Current Accounts Payable $ 100,124.61 Accrued Accounts Payable 136 ,752 . 94 Reserve for Dividend from Surplus 175,000.00 Reserve for Accidents 68 ,618 . 82 Reserve for Unclaimed Dividends 118.00 $ 480,614.37 Property Reserves Reserve for Depletion: Of Mine Investment $880 , 700 . 59 Of Mine Appreciation 152,047.85 $1,032,748.44 Reserve for Depreciation of Equipment 262 , 304 . 37 1 , 295 , 052 . 81 Appreciation Reserve Property Appreciation Reserve $5,326,515.62 Less Capital Dividends Paid 1,400,000.00 3,926,515.62 Total Liabilities $5,702,182.80 Invested Capital Capital Stock Issued $3 , 500 ,000 . 00 Earned Surplus 803,235.18 4,303,235.18 $10,005,417.98 BALANCE SHEET 183 BALANCE SHEET SCHEDULES Schedules analyzing the items appearing in the Current Asset and Liability Groups, as shown by the Operating Schedules in Chapter XII should accompany the Balance Sheet and should give the information necessary, to enable the Treasurer to determine whether or not the Current Assets will take care of current and investment liabilities as they become due, and what amount of cash, if any, will be available for dividend disbursements. Also, it is well to make up schedules of Investment Assets, of the Deferred Charges, and of the Property Investment in Construction and Equipment. The Schedule of Investment Assets will act as a guide in determining the possible future income from investments. The Schedule of Materials and Supplies should be as to stocks only and not individual items. This schedule is of value for comparison with past schedules and in determining future policy of purchasing. The Schedule of Construc- tion and Equipment is of use for reference as to cost of equipment and the undepreciated balances, in determining amount of insurance that should be carried, the amount of investment that would be scrapped if replaced by more efficient equipment, whether or not the rate of depre- ciation being charged is too large or too small to take care of actual wear and tear and obsolesence, etc. To obtain the proper perspective of the business from the Balance Sheet and Schedules and the Profit and Loss Account, the Cost Sheets and Production Statements, as well as the Statement of Ore Reserves and the present condition and possible future trend of the metal market also must be considered. When furnished with a Balance Sheet and Profit and Loss Statement properly drawn, together with Statements of Costs, Production and Ore Reserves, the directors are fully informed as to the results and condition of their business, and are in position to balance this information against the present market conditions and to determine intelligently what policy should be pursued for the coming year. It will be noted that the Mine Property Appreciation and the Property Appreciation Reserve Accounts are shown for the total amount with the amount of Capital Distributions deducted. It is best so to show these accounts on the Balance Sheet in order that the amount of Capital Distributions will be known. INVESTED CAPITAL The Invested Capital appearing on the Balance Sheet is not neces- sarily the amount that is used in determining whether or not the income for the year shall bear the Excess Profits Tax. The amount of Invested Capital in the business, as shown on the Balance Sheet, must be adjusted 184 MINE ACCOUNTING AND COST PRINCIPLES to meet the requirements of the Treasury Department's Regulations No. 45. Due to the fact that the amount of Undistributed Realized Appreciation, the Reserve for Accidents, and the Reserve for Taxes, may be added to the Surplus when determining the amount of Invested Capital for use in ascertaining the Excess Profits Tax, it is best to keep a memorandum of the allowable Invested Capital and to allow the ledger accounts to stand as created. RE-OPENING THE CONNECTING ACCOUNTS After the Income for the year has been determined and the Balance Sheet drawn, the connecting Operating Accounts and the Treasurer's Accounts are re-opened by reversing the closing entries, as follows: Treasurer, Current Year $730 ,686 . 78 To Operating Account, Current Year $730 , 686 . 78 "Opening up the Current Year Operating Account." Operating Account, Previous Year $933 ,611 . 77 To Treasurer, Previous Year 933 ,611 . 77 "Opening up the Previous Year's Operating Ac- counts." The connecting Operating Accounts having been re-opened, the "Current Year's Accounts" preparatory for the operations of the new year are closed into the Previous Year's Accounts by entries, as follows: Treasurer, Previous Year $730,686.78 To Treasurer, Current Year $730 ,686 . 78 "Closing out the Current Year Treasurer's Account to coincide with Operating Books." Operating Account, Current Year $730,686.78 To Operating Account, Previous Year $730,686.78 "Closing the Administrative Current Year Account." In order to bring the Operating Account on the Administrative Books into agreement with the Treasurer's Account on the Operating Books, the results of the year's production operations, as well as the year's depletion as shown by the Operating Books, is credited to the Treasurer's Account that has been transferred from the Operating Books, to the Administra- tive Books by entries, as follows: Operating Account, Previous Year $306,310.51 To Treasurer, Previous Year $306,310.51 "Crediting the Operating Account Treasurer with amount of operating profit for year 1918, absorbed from Operating Books." Operating Account, Previous Year $504,716.97 To Treasurer, Previous Year $504 , 716 . 97 "Crediting the Operating Account Treasurer with amount of 1918 depletion token up on Operating Books and transferred to Administrative Books." BALANCE SHEET 185 Upon posting these entries, it will be found that the Administrative "Operating Account" and the Operating "Treasurer's Account" each show a balance of $1,013,952.47. Closing off the Operating Accounts. In order to close the Operating Accounts appearing on the Administrative Ledger, a journal entry of the remaining operating accounts that were not closed to Profit and Loss is made, as follows: Cash at Mine 52 383 78 Accounts Receivable, Mine 5 736 57 Ores on Hand at Cost 4 '466 46 Unsold Metal In Transit 439 373 42 Sold Metal Due for Shipment 212 920 07 Due for Gold and Silver Sold 23 467 54 Lead Ore Production at Cost 4,536.91 Lead Ore in Process at Cost 863 73 Lead Concentrates at Cost 53 874.04 Materials and Supplies 139 , 521 . 88 Suspense 8,735.91 Construction and Equipment 547 f 462 . 23 $1,543,342.54 Current Accounts Payable $ 100 , 124 . 61 Bullion Freight and Refining Not Due 45,868.38 Selling Expense Not Due 15 , 713 . 31 Reserve for Taxes 36,760.58 Reserve for Accidents 68,618.82 Reserve for Depreciation of Equipment 262 , 304 . 37 Treasurer, Previous Year 1 ,013 ,952.47 $1,543,342.54 "Closing the Operating Accounts from the Administrative Ledger." There will now appear upon the Administrative Ledger only the balances of the Administrative Accounts, which, together with the Operating Accounts closed out, should be ruled preparatory to the work of the new year. ACCOUNTING FOR HOLDING COMPANIES It is the practice of some of the larger mining companies having numerous mines, smelters, etc., to have a separate organization for each mining group and to have a holding company into which the operating results of each group is delivered. In such cases the same accounting procedure is followed as herein illustrated, except the Administrative Accounting of the holding company will have a separate connecting account for each subsidiary company, and will carry separate receipt and administrative expense accounts for each subsidiary company. 186 MINE ACCOUNTING AND COST PRINCIPLES The general income or profit and loss account and the general balance sheet will be consolidated in the same manner as herein illustrated for Administrative Accounting. LIQUIDATION OF THE BUSINESS As the Accounting required to close a business upon liquidation is simple, it is not necessary to detail the entries. When a development company fails to make a discovery of ore, or has mined out the ore that has been discovered, and is unable to proceed with further development, it is then customary to liquidate the current assets and liabilities and to dispose of the mining equipment. Whatever amount is left after all liabilities have been met and provision made for future taxes is usually distributed to the stockholders as a capital dividend and the capital stock account is reduced a like amount. If the mining property is patented, it is customary to hold the ground, pay the State and County Taxes and keep the corporation in existence by holding a stockholders' and directors' meeting once a year, in order to be able to transfer the mine property should a purchaser be found. When a development property that has proven a failure or a proven mine that has become exhausted closes its business entirely the assets including mine equipment and mine property are reduced to cash, the liabilities satisfied and any surplus is first distributed as regular dividends, and the remainder as capital dividends, which are delivered upon receipt of stock certificates or evidence of shares of interest from the stockholders or partners and the proper accounts in the stock ledger are debited and closed. If there is sufficient cash to pay capital dividends equal to the amount of the original capital, the capital account is balanced and the general books closed. If there is not sufficient cash to return the original capital in dividends the amount left in the capital account after payment of capital dividends is closed to the profit and loss account as a loss, and the general books as closed will show a loss. As the amount that can be obtained by sale of mine equipment, after a mine becomes defunct, is usually very small, it is best to charge to operations by depreciation all of the equipment investment before exhaus- tion, and to consider the receipts from sale of equipment as income. SECTION 4 COST ACCOUNTING 187 lu J Q, EXPENSE .C *n .0; t O a 3 > 64 U. c c c - b r p PS 1 5 f- S 1 - . - *^ ! -Ij" f; s 3 i3 s 1 2 198 MINE ACCOUNTING AND COST PRINCIPLES 47 and 49, and against the total pay-rolls. Any discrepancy that is found must be adjusted before any further work is done. Summary of Labor Distribution. When the distribution of the labor expense has been balanced with the pay-rolls, a summary of the segregations of underground and surface labor is made in proper order as to expense and asset and indirect disbursement accounts upon Sum- mary of Labor Distribution (Form No. 50). One summary is made for DAILY LABOR REPORT SHATTUCK ARIZONA COPPER CO. WHERE APPLIED HOCKS AMOCNI ~~~ 1 TOTAL n a t 199 r. ite_pet_D *y, $ NaTr, Approrad FORM 48. the direct labor and one each for the indirect labor of Shops and Power. The indirect labor to Shops and Power is posted direct to these accounts which are distributed later. This summary is used in compiling the cost data for the detail costs of labor as shown in column 1 and for postings from columns 2, 3 and 4, to the Cost Ledger (Form No. 51). Posting the Labor Distributions. There is kept in the Cost Ledger a record of the Indirect Disbursement Accounts of Shops and Power, and of the Prepaid and Asset Accounts, as well as of the Departmental Expense Accounts. COST ACCOUNTING 199 200 MINE ACCOUNTING AND COST PRINCIPLES One cost ledger sheet is used for each cost account, and one sheet for each control cost account, or general ledger account. In posting to the Cost Ledger from summary Form No. 50 the amount shown in column 3 is posted to the control account, and the supporting amounts in col- umn 2 are posted to the cost accounts. To balance the Cost Ledger, the total postings to cost accounts are checked against the totals of the control accounts. Summary of Labor Distribution o Cott Dili A. ' '0-l leJgct Co.t ( ^ Jvbil CltrJll I.I oratiuo & Det-lupnifol: - I t-/i; Dtiltin: E J^j; UBH'Mii^n @ i.K, -..-'. 14 itf^Xucken 5.10 i J 14 TiirUriEcll (of 5.GO ;> 4(/ Fuul,^ Kotus 1 ' rE I R.i.inj, ; -5S 2;? 170 Miner* @ J 2i n CJ \ Q 1 G2*i Muckers <<| 5 10 XK ;) -i C^ Timbetmoi @ S 6J ,: [GO Fuuta?e Bonus mt iJt Or Eitrrtk>n - goo '.'.'. -1 Sloping , J. 314 ZO IJCSJ, XliDcri @ ', ;i : ;;: ;. S1835* JIUTkm (6) 5.10 113: Yi >$ TimWrctti ^ S 00 7,", - r w -Etc - - |! p^ 50. It will be noted that the Cost Ledger provides one line for each month and sufficient columns to accommodate the expense elements. To obtain an average cost for the year, or the year to date, the columns are added and the total production factors to date divided into the added total. The detail segregations of each expense element shown in column 1 of form No. 50 are posted first to 4he monthly detail cost sheets and then to Segregated Cost Sheets (Form No. 52). One line is used for each month on the Segregated Sheets so that the total of each detail segregation may be quickly ascertained any time during the year and the average cost obtained by dividing the total expense by the total product- ion or operating units. The recording of the monthly details in this COST ACCOUNTING 201 o N 2 5 W o O w S o < fl W ~ OQ IflJ 202 MINE ACCOUNTING AND COST PRINCIPLES manner allows an examination and comparison of the expense and the units to be made quickly at any time and puts such information in proper form for ascertaining average costs. If the accounting and costing is done in one office the totals of columns 3 and 4 of Form No. 50 are used to support the journal entries upon the general ledger. If the costing is done in a separate office, either a com- plete copy of the Summary of Labor Distribution Sheets, or a Summary of columns 3 and 4 is furnished the Accounting Department. EXPENSE DISTRIBUTION OF SUPPLIES The distribution of all supplies is made by the storekeeper, either from supplies stored in the warehouse, or from outside stocks upon properly signed requisitions (Form No. 14) except for fuel oil, which is obtained by measurement of tanks each month, and of timber which is obtained from summary of reports made on Form No. 46, and by Carpenter Foreman, of timber used, which reports are checked against reports of Sawmill and Yard Foreman of timber issued, and balanced against the inventory of sawed timber on hand taken at the end of each month. The Storekeeper's report of supplies issued for each unit is made on Form No. 16, and the Record of Supplies Issued is kept upon Form No. 18, one sheet for each unit, as explained in General Accounting under heading of Supplies Issued. Requisitions for supplies issued at the mine originate from four sources; from the Mine Department for underground work; from the Mechanical Department for all repairs and replacements of equipment or construction of new equipment; from the Surface Department for all surface work; and from the Engineering and Assaying Department for engineering and assaying work. The supplies issued to the Mine Department consist of timber, powder caps and fuse, tools and carbide. The supplies for air drills, pumps, track and mine cars, electric wiring and lights, etc. used underground are issued through the Mechanical Department. The supplies issued to the Mine Department are reported by each shift boss on Daily Distribution Sheets 46 showing the amount used at each job, the timber being reported as to pieces and sizes in the space provided, and the powder, caps and fuse being copied from the Powder Monkey's Record of explosives issued to each place. The amount of the timber shown on each Daily Report is converted into board feet by use of a table that adds sufficient percentage for sawing, waste and blocks, and the number of board feet for each class of timber is entered on the proper Monthly Distribution Sheet, 47, together with the number of sticks of powder and number of caps and feet of fuse. At the end of each month any reasonable discrepancy between timber and explosives as charged to the mine by the Storekeeper and as reported COST ACCOUNTING 203 by Shift Bosses is prorated to the different units before summarizing the sheets. As it would be impracticable to distribute the tools and carbide used underground to each place, and as the amount of such expense that would be obtained by such distribution would be too small to justify the labor of segregation, the usual practice is to charge the tools to "General Underground," "Tools and Sundries." and the carbide to "General underground," "Lamps and Carbide." This gives the total of such ex- pense for each month which can be better analyzed and watched than if pro-rated. All other supplies issued through the mechanical and other depart- ments are recorded in detail upon Supplies Issued Sheets 18. Check of Supply Distributions. A check of supplies issued is made by comparison of inventory of stocks against the Stock Cards (Form No. 17) each time an inventory is taken of outside stocks, or each time a purchase requisition is placed for supplies of warehouse stocks. Any dis- crepancy between stock and record of stock should be covered by a requisition obtained from the proper operating head in case of shortage. The matter of overage can be adjusted on charge tickets issued for supplies requisitioned in the future. As a further check, the signed requisitions Form No. 14 are checked against Supplies Issued Charge Tickets Form No. 16, and then the signed requisitions are returned to each department which issued them. Summary of Supplies Distributed A summary of supplies distributed, as shown on Forms No. 47 and No. 18, is made in regular order as to expense and asset accounts and to indirect disbursement accounts upon Form No. 50, in the same manner as shown for Labor. In the "Cost Data" column there is shown for each account the amount of supplies dis- bursed fron each of the mine stocks as enumerated on Chart of Accounts XIV, subsidiary accounts Nos. 131 to 139 inclusive. The amount of Handling is pro-rated over the charges, as explained in General Accounting under Supplies Issued. Posting the Supplies Distributed. The posting of supplies distributed during the month is made to the Cost Segregation Sheets and Cost Ledger in the same manner as done with the labor distributions. The supplies issued for Expense, Prepaid Expense and Asset Accounts are posted to the proper accounts, while the supplies issued to the indirect accounts are posted to the Shops and Power Accounts. EXPENSE DISTRIBUTION OF BELLS AUDITED All bills are audited and paid by the Accounting Department, and to avoid duplication the distribution of the Bills Audited Expense is made by the accounting Department upon the vouchers and entered in the 204 MINE ACCOUNTING AND COST PRINCIPLES Bills Audited Record at the same time that the vouchers are entered, as illustrated in General Accounting under Bills Audited. In small organizations the accounting and costing is preformed by the same force, and it is an advantage to keep the segregation of expense in the Bills Audited Record. Even in large organizations the bills audited expense is handled in the same manner. Therefore, at the end of each month the detail segregations shown by the Bills Audited Record are summarized in order as to accounts upon Form No. 50 and postings are made to the Cost Ledger, and compilations made to the detail cost sheets in the same manner as done with labor and Supplies. Summary of Shops Distributio T =0 Cost Data CeLtra I. i;rer Acrts. Machine LU trL-:tl Carpenter Saw Mill S ub-Total Co t Ao rt! Debit! Credit, e Extraction: :t ' H 01 Tools Jt Sundries tSSQ nwy i !0 W 51 Maint Sbalt & Drift! -- 4 1 52 Stations, 1 1 ' . a-.,. Deuu Ariz Copper Co gjp in :>i Doak fffi J5(> ' Bcplaremeuts Iji raw Air Line to Pumps U4K7 :/-//;: ' Drill SLarpeucr Tools ;,":! 3&S Fuse House m m /., TOW iliue Cars m \ 1660. Steel J5i \fcs T Sorting Platform ot tt lie i v ' - r^ TJ-- - - T rrrr 1 - FORM 50- A. EXPENSE DISTRIBUTION OF SHOPS The summary sheets of Shop Labor, Form No. 49, for each shop having been totalled and balanced, as explained under ' ' Expense Distribution of Labor," the total shop labor for each department and unit account is extended into the "Total Labor" column, and the total of this column is entered at the top of the sheet. To this amount is added the proper proportion of "Overhead Labor" of Foreman, etc., the amount of supplies consumed by each Shop consisting of tools for Machine Shop, coal and oil for Blacksmith Shop, etc., and the amount of Bills Audited Expense, of water, light, etc. Thus the total expense for each Shop is obtained and this total is divided by the total Shop Labor and a factor obtained, which applied to each item in the "Total Labor" column will COST ACCOUNTING 205 give the "Total Expense" to be distributed to each sub-department and sub-department unit account appearing on the summary sheet. Summary of Shop Distribution. The summaries of each of the Shop Sheets are then entered upon Form No. 50 in the manner shown by Form No. 50-A, and postings are made from the Summary of Shop Distribution to the Cost Ledger and detail cost sheets as with the other expense. Summary of Repairs Distribution O I aJxir Supplies Shops Coot Dt C A.:c Ort mcnl I J;ei Aectt Mmti C bit C rcdHl e Extraction: ||| | | I ;:?i: Tramming & Tracks ; 1 1 1 j t (.;.; Cars JS?^ sqci J 173S Underground Tracks i'/jW ':,!-> mic Station Tending & Caging; -I |] j 148-i Chairs j4 i 701 tCi'i 0.^4 1 Electric Bells 7.AC .:,:;'.- :(:>'. Hoisting; 1 ! iss Ii General \40L 4027 '''-:'' OitM Cages \ 1 ~i .' ii>i 'MX Dinky Hoist inc 11 1C Top Lauding 4 Tramming: } 1 VMS Surface Tracks 1330 ., X 8*0 C71& Waste Haulage Car '*rF itys | General Underground; || j KIS Distributing Supplies \ ..':>.; -;yj Water & Lights IT L>. X 1-11-1 MW Telephones *5M ^'J -Etc. . I 1 i II ~"- i ^r 1 FORM 50-5. EXPENSE DISTRIBUTION OF REPAIRS While the Repairs are shown as a Prepaid Expense, whenever prac- ticable to do so, the Repair Expense should be closed out in the same month that the repair work was done. Some prefer to carry the repairs for one month to be charged out the next, or to be proportioned over several months. When the repair work is large and covers several months, it is some- times best to do this, in order to distribute the repair charges evenly over a number of months, as done with replacements. However, as a rule the repair work each month is not large enough to unduly fluctuate the costs and should be closed out in the same month in which the work was done. This method is more popular with the operating force. 206 MINE ACCOUNTING AND COST PRINCIPLES Therefore, the amount of each month's labor, supplies and shop charges for repairs are kept separate for each repair job, and summarized upon Form No. 50 in the manner shown by Form No. 50-B, making a separate summary for repair charges to Power. Postings are made in the same manner as the other expense. EXPENSE DISTRIBUTION OF REPLACEMENTS The Replacements consist of labor, supplies and shop charges for the replacement of minor and major equipment, of mine cars and other haulage equipment, hoist cables, sheave wheels, air drills, steel, retubing boilers, and other mine, mill and smelter equipment, the life of which is less than the average life used for all equipment in setting aside depre- ciation reserve, or is for equipment made necessary to maintain the normal output because of increased length of haul or depth or workings, as allowed by Article 222 of Treasury Department's Regulations No. 45. Such charges each month are made direct to Replacement Accounts which are cleared by charges to operating expense accounts the following month for minor charges and pro-rated over several months for major items. Some mines include their replacement charges in the labor and supplies charged direct to expense accounts. However, to do this results in wide fluctuations in the labor and supply expense from month to month, and in confusion to those in charge of operations, as well as burying the replacement expense. Also such procedure makes it difficult to analyze the operating labor and supply costs and leads to indifference on the part of the operating heads to large fluctuations in costs, which are attributed to replacement charges having been included and the matter dismissed without further consideration. The replacement expense should be kept separate from the regular operating expense in order that it may be known whether or not it would be more profitable to discard the present equipment entirely for some- thing better, or whether the equipment is being abused. Also, by segre- gating the replacement charges from the direct operating expense any fluctuations in the latter creates an interest as to the reason therefor which can be quickly ascertained from the detail statements of cost and production. The replacement charges on the books the first of each month are analyzed and the total of minor charges and the proper proportion of major charges are summarized upon Form No. 50 and postings made to the Cost Ledger and detail cost sheets in the same manner as done with the other expense. COST ACCOUNTING 207 EXPENSE DISTRIBUTION OF POWER The detail of the Power Expense as shown upon the General Ledger is recorded upon the Cost Ledger for each power unit of Boilers, Air Compressors, Air Drills, etc., and distribution of the expense of each is made separately. Boilers. The distribution of the expense of the Boilers or Steam Plant is made according to the amount of steam furnished the different units of equipment such as, compressors, hoist, pumps, etc., and as used for heating. This distribution is furnished at the end of each month usually by the Mechanical Department. Air Compressors. The expense of the Air Compressors is distributed according to the air consumed by the several operating units, such as air drills, pumps, etc., as reported by the Mechanical Department each month. Air Drills. The Air Drill expense is composed of upkeep of each drill, air lines, hose and fittings and general expense of new steel, sharpening old steel, wrenches, etc. This expense is distributed to the cost accounts according to the hours air used, which are reported on Form No. 46. Each shifter keeps a list of the machines on his run, giving the make and shop number, and he reports each day the number of hours each machine used air. The shop number on each machine is according to the amount of air capacity. The amount of air hours for each place is entered on Form No. 47 for each place and the amount of air hours each machine was operated is again entered each day opposite the name of the machine on the Air Drill Record using Form No. 49. At the end of each month the air hours compiled on Forms No. 47 for all accounts are totalled and the amount divided into the total Air Drill Expense, and the rate per hour thus obtained is applied to the total hours for each account and the amount of the Air Drill Expense for each account is obtained. Electric Plant. The total amount of Electric Plant Expense is distributed by dividing the total kilowatt hours of electricity consumed by all the different units of the plant as shown by meter readings into the Electric Plant Expense, and the cost per kilowatt hour thus obtained is used to distribute the expense to each unit according to the amount of electricity consumed. Summary of Power Distribution. The detail of the Power Expense is made on Forms No. 50 in the following order: 1. Boilers, 2. Compressors, 3. Air Drills. The distribution of the Boiler or Steam Plant Expense is made first, the Compressor Expense is distributed second, and the Air Drill 208 MINE ACCOUNTING AND COST PRINCIPLES Expense last. This is necessary on account of the boilers furnishing steam to the compressors and the compressors furnishing air to the air drills. A summary is then made of the charges to the cost accounts in the same manner as illustrated on Form No. 50-A, for Shops, and postings are made of the details to the segregated cost sheets for Power Accounts, and of the summary totals to the Cost Ledger. DISTRIBUTION OF SUSPENSE ITEMS, ETC. In order that the cost record may be complete and fully support the general accounting records, it is necessary to make up on Form No. 50 a monthly summary of the distribution of Suspense Items, Accrued Expense, and Miscellaneous Operating Charges and Credits, to the departmental expense and asset accounts, as illustrated in General Accounting under "Distribution of Accrued Disbursements," and "Miscellaneous Charges and Credits." All the elements of expense having been distributed to the cost accounts, it is next in order to determine the development overhead expense and to distribute the departmental overhead expense, if the pro-rated method of cost determination is used. DETERMINING THE DEVELOPMENT OVERHEAD The expense of mining divides itself into two general divisions of Exploration and Development and of Ore Extraction. The Exploration and Development Expense prior to a mine becoming a producer is all of the expense at the mine and is charged to Property Account and is pro-rated when production has commenced to production through the depletion charge. However, after the mine has reached the production stage, it is customary to include the exploration and development expense incidental to maintaining and enlarging the known ore reserves as part of the cost of mining, especially that part of the development work that is carried on by the same force and organization as look after the Ore Extraction. Theoretically a certain proportion of the expense of each of the sub- departments of Ore Extraction, except Stoping, is chargeable to Exploration and Development, and whenever the Development Expense is being charged to Property Account, the correct proportion of the expense of Tramming and Tracks, Station Pending and Caging, Hoisting, etc., should be determined and the sub-departments of Ore Extraction credited and ''Exploration and Development, Development Overhead," should be charged. There are several methods of determining what shall be charged to Development. One is to divide the total shifts of development work COST ACCOUNTING 209 by the total shifts of work in the mine, and apply the factor so obtained to the expense of each of the sub-departments of Ore Extraction, except Stoping, and to credit each sub-department and charge Development Overhead with the amounts so obtained. Another method is to obtain the factor to be used by dividing the total cars of ore and waste into the cars of waste. Still another method is to keep the expense of each sub- department segregated into expense for development and expense for ore extraction whenever possible, such as tramming and tracks, etc., and to pro-rate the expense of those sub-departments that cannot be so segregated. While it is theoretically correct to do this, even when the total Exploration and Development Expense is being charged against current production, so to do does not change the total mining costs, but simply decreases the Ore Extraction Expense and increases the Exploration and Development Expense a like amount. There is really nothing gained in determining the development overhead when the total of the Exploration and Development Expense is being charged to current production. The labor and expense involved in making the segregations to determine Development Overhead, the complication of the costs to the operating man, and the delay in obtaining the costs, more than offsets any theoretical value attached to the deter- mining of this Overhead charge. At best it is only an averaged charge and many times part of the charge is fictitious as certain of the expense would go on even though there were no development work. However, the pro-rating of the expense between Development and Ore Extraction is a fixed part of the cost procedure of some of the larger mines who will probably continue the method, until they are convinced that the cost of making the change will be more than offset by the benefits. DISTRIBUTING THE OVERHEAD EXPENSE The Overhead Expense of mining consists of: Departmental Overhead, and General Overhead. When the mine is producing only one principal product, there is no need to distribute any of the overhead expense, either departmental or general. However, when there are two or more separate products which are pro- duced and sold separately, it is then necessary to distribute the overhead expense. This is best done at the mine on a tonnage basis. It is the practice of some mines to classify the expense of each depart- ment into direct or productive accounts and indirect or non-productive accounts, and then to distribute the expense of the indirect or non- productive accounts over the direct or productive accounts. This results in additional segregation expense, complication of the u 210 MINE ACCOUNTING AND COST PRINCIPLES costs and delays the time in which the cost data can be delivered to the operating heads. There is no real benefit obtained from this pro- rating of the indirect departmental expense, as the total department expense is the same in both cases. However, this method is popular with some mines, and having become established and the operating heads having become familiar with the costs so presented, the method will probably be continued. COST FACTORS The factors used in obtaining mining costs consist of: 1. Production Factors, and 2. Operating Factors, which must be carefully compiled, if accurate costs are to be obtained. Production Factors. The production factors are three in number, as follows: 1. Ton of Ore Mined and Treated, 2. Pound of Refined Base Metals, 3. Ounce of Refined Precious Metals. The production factors are used in obtaining the Profit and Loss Cost. That is, to determine whether or not the business as a whole, or any department, is operating at a profit or a loss. The ton cost is also used for some departments as an efficiency cost. As a rule, however, the operating factors will give a better efficiency cost than the tonnage cost. Compiling the Tonnage Factors. Copy of the daily assay reports of contents of ores mined as shown by Form No. 19 is furnished the Cost De- partment, and the number of cars of ore shown thereon from each place is compiled on Underground Distribution Sheets (Form No. 47). The actual weight of ore shipped each month plus the estimated weight of ore in bins the last of month, less weight of ore in bins the first of month, is divided by the number of cars of ore mined. The factor so obtained is applied to the total cars from each place and the total tons thereby ob- tained. If ores of different weight and character are mined their weight is determined separately, and the proper factor is applied to the cars obtained from each place. A similar method is followed in obtaining the tonnage of ores milled and smelted. For ores transported, the actual weights of course are taken. As a check upon these weights the ore as taken from each stope in mine cars should be weighed once each six months. Summary of Tonnage Factors. The tonnages for the different de- partments having been ascertained, a summary for use in costing and of taking up the production in process and on hand upon the books, is made as follows: COST ACCOUNTING 211 SUMMARY OP ORE TONNAGES YEAR 1918 Lead Ores, Tons Copper Ores, Tons Wet Dry Wet Dry In Bins 1-1-18 50.000 28,356.000 1,637.060 48.610 27,690,854 1,586,172 353.000 108.140 93,617.000 7,970.910 326.702 104.928 86,503.764 7,358.297 From Development and Repairs Totals 30,043.060 224.000 29,325.636 219.520 102,049.050 322.000 94,293.691 298.526 93,995.165 328.924 94,324.089 94,091.667 Remaining in Bins 12-31-18 Shipped (Lead Estimated) 29,819.060 248.830 29,106.116 242.380 101,727.050 358.500 At Smelter and in Process 1-1-18 Smelted and Treated 30,067.890 29,244.230 29,348.496 28,549.546 102,085.550 101,834.960 At Smelter 12-31-18 823 . 660 798.950 250.590 232.422 At Mill and On Track 668.000 50.000 48.000 57.660 647.960 48.500 46.608 55.882 At Smelter 12-31-18 Hand Sorted Summary of Final Production Factors. Generally the tonnage factors are used for departmental costs of mining, milling, smelting and trans- portation, and sometimes as in the case of iron ore and coal, the ton factor is the final cost factor. However, in the case of metals other than coal and iron et al, the final production factor is the pound for base metals and ounce for precious metals. Therefore, in the case of metal mines, the recoverable contents of each ton of ore must be obtained. In the case of base metal mines, the precious metal by-products are treated as a credit, while in precious metal mines, the base metal by-products are treated as credits. The time of determinating the final production factor is a matter that must be settled first. In the case of those mines that smelt and refine their products, if the final production factor is not determined until the refined metal is produced, the final cost will be obtained from 3 to 4 months after the ore is produced, and only that portion of the expense applicable to the refined metal produced can be used, the remainder being held in suspense. This delay in obtaining final costs and the complicated bookkeeping involved is not desirable. Therefore, it has become the practice to treat the smelting and refining as separate departments and to make a flat or sliding scale charge both for smelting and refining and to agree upon fixed deductions for smelter and refinery losses, so that the final production factors for costs and credits can be determined as soon as the ores or concentrates have been sampled by the smelter, and assay contents thereof have been agreed upon. This enables the final production factors for costs and credits to be determined and the final cost to be obtained at the end of each month, 212 MINE ACCOUNTING AND COST PRINCIPLES leaving only that portion of ore and concentrates in suspense that has not been sampled by the smelter. Each month as the shipments to the smelter are sampled and assays agreed upon the final production factors are determined and complied upon Form No. 26 for principal production and upon Form No. 29 for secondary production and summaries of production factors for costs and credits are made up, as follows: ANALYSIS OF ORES SAMPLED FOR SMELTING PRINCIPAL PRODUCTION Grade Tonnage Rec'y Contents Per Dry Ton Wet Per cent Moisture Dry Ounces Silver Ounces Gold Per cent Copper Oxide 98,852.97 2,891.77 90.22 7.76 2.43 1.15 91,181.034 2,821.450 89.183 1.160 19 . 154 15.96 0.0127 0.0205 0.0351 4.07 28.98 15.30 Hi-Grade Hi-Grade Special . . Totals 101,834.96 7.60 94,091.667 1.714 0.0130 4.83 RECOVERIES FROM ORES SAMPLED AND SMELTING PRINCIPAL PRODUCTION Per Wet Ton Per Dry Ton Total Gold 0.0120 0.0130 1,220.12 oz. Silver 1 . 5832 1.7135 161, 230. 00 oz. Copper f 89.1800 Ib. 96 . 5200 Ib. 1 9, 081, 959. 00 Ib. \ 4.4600 percent 4 . 8300 per cent J ANALYSIS OF PRODUCTION CREDITS PRINCIPAL PRODUCTION Per Dry Ton Per Pound Copper Total 1,220.12 oz. Gold at $20.00 0.2594 0.00269 24,402.40 161,230.00 oz. Silver at 0.9778 cts 1 . 6755 0.01736 157,647.29 Refunds an i Discounts, Etc 0.0529 . 00055 5,126.89 1.9878 0.02060 187,171.58 SUMMARY OF ORE AND CONCENTRATES SMELTED SECONDARY PRODUCTION Per cent Moisture Dry Tons Recovery Contents Per Dry Ton Ounces Per cent Gold Silver Lead Iron Lime Insolubles Mill Concentrates. . Ore Shipments 11.10 2.65 2,926.06 1,213.30 . 2426 0.1086 22.76 5.03 32.06 21 . 15 17.14 18.25 22.33 36.93 COST 1 ACCOUNTING RECOVERIES FROM ORES AND CONCENTRATES SMELTED SECONDARY PRODUCTION 213 Ounces Pounds Gold Silver Lead Copper Mill Concentrates . . 709.47 7.73 3.16 66,592.0 606.0 1,423.0 1,876,240 31,186 480 1 27.290 1 Sorted Lead Ore Sorted Lead-Copper Ore Mill Production 720.36 131.60 68,621.0 6,103.0 1,907,426 513,264 27.770 1 Direct Shipments Total Production 851.96 74,724.0 2,420,690 27,770 l 1 Credited to Lead and included in Principal Production of Copper. ANALYSIS OF PRODUCTION CREDITS YEAR 1918 SECONDARY PRODUCTION Pounds Lead Per Pound Lead Total Gold, 709.47 oz 0.00744 $ 14,189.02 Silver 66 592 oz 0.03527 67,277.31 Sorted Lead Ore 0.00333 6,356.09 Total Mill Credits 1,907,426 0.04604 $ 87,822.42 Direct Ore Shipments, Net 513,264 20,423.07 Total Credits l 2,420,690 0.04471 $108,245.49 OPERATING FACTORS As a rule there is a certain factor of production, consumption or operating movement for each unit of operation or equipment that is the correct unit of measurement of efficiency and cost, as, for instance, for: Drifting, Raising and Sinking The feet advanced. Stoping The tons broken. Tramming Cars per 1,000 feet. Hoisting Cars hoisted. Top Landing Cars landed. Pumping Gallons pumped. Assaying Assay units determined. Supervision Shifts supervised. I Gallons water evaporated. Boilers | Barrels oil consumed. Air Drills Air hours. etc. 214 MINE ACCOUNTING AND COST PRINCIPLES These operating units should be carefully compiled and recorded in the spaces provided therefor on Form No. 52. As a rule operating information of more value can be obtained from the efficiency statements worked up on these units than can be gotten from the cost statements. For instances, the feet advanced per man shift in drifts, raises, etc., gives more valuable information to the operating man than cost per foot, especially when accompanied with statements of timber and of powder per foot advanced. The increase or decrease in wages, or cost of supplies, will fluctuate the cost per foot and is something over which the foreman or boss has no control. However, the advance per shift and the powder and timber per foot are matters for which the supervisor is responsible, and are units of measurement which he can understand and utilize. Standardization in the determinations of operating units and the compiling of the expense and operating data in a uniform manner by all mines would result in great benefit to the mining industry in establish- ing standards of achievement and educating supervisors as to what are standard results. TIME The remaining principle to be considered in compiling cost data is Time. There must be decided not only what costs shall be kept, but also what periods of time each cost shall cover. It is best so to compile the cost data that costs may be readily taken from the records for each month, for the year to date and for each year with the least possible effort. Also, where there are wide fluctuations in certain costs from day to day, or where it is necessary to have the cost each day or each week in order to maintain the efficiency, the cost data should be compiled so that daily and weekly costs can be obtained with least lost of time, expense and effort. I am inclined to the opinion that monthly costs, if obtained within a few days after the close of each month, are sufficient in all cases, and that daily statement of production units per man shift, etc, give all information necessary to maintain efficiency and are of more value than daily costs which can never be complete nor accurate except for labor and supplies, and in numerous cases not even accurate for these two items. CHAPTER XXIII COMPILING THE COSTS Having established a Chart of Cost Accounts to conform to the Units of the Organization and distributed the Elements of Expense thereto, and having compiled the Production and Operating Factors, for the periods of time in which costs are to be determined, it is then possible to compile the costs in as detail a matter as desired. KINDS OF COSTS The Costs that are usually compiled by mines consist of six groups as illustrated by Chart XV, as follows: 1. Total Production Costs, 2. Departmental Production Costs, 3. Departmental Unit Costs, 4. Shops and Power Costs, 5. Prepaid Costs, 6. Asset Costs. Of course, there are the Estimated Costs made by the Engineering and Mechanical Departments of proposed construction, etc. However, such estimated costs are not entered upon the accounting records, but are used by the manager and directors when deciding whether or not certain work shall be done. When new work is to be done, the bills of material accompanying these estimated costs are used by the Purchasing Department in placing orders for materials. Production Costs. The Production Costs consist of: Total and Net Products Costs, and Departmental Production Costs. The total Production Cost is the total cost without consideration of credits for by-products, refunds and discounts and miscellaneous administrative and operating production earnings. The Net Production Cost is the total cost less the credits. The Departmental Production Cost is the production cost for each department of administration and operation. Total and Net Production Costs. As each month's results are determined by the Operating Department, a complete statement of accounts, showing total production costs and credits, etc., as well as production is forwarded to the Administrative Department. Upon 215 216 MINE ACCOUNTING AND COST PRINCIPLES 5 ki Q. M I JdMQfj puo sdoq$j.o COMPILING THE COSTS 217 receipt of this statement the Administrative Books have been closed for the month and a total and net production cost can be obtained. How- ever, as the accrued federal taxes are usually determined and taken up on the Administrative Books only at the end of each quarter and at the close of the year, the total and net production costs are generally determined only at the end of the quarterly and yearly periods. As soon as the Operating Books are closed at the end of each year, and before all the costs are determined, a statement of operating accounts and of production is forwarded to the Administrative Department and this statement of operating accounts is taken up on the administrative records and the Income Account and Balance Sheet is made out, as ex- plained under Administrative Accounting. As a complete statement of accounts is then in possession of the Administrative Department showing the total production charges and credits a statement of total and net production costs for the year can be obtained before the detail operating costs are received. To obtain the total costs when there is only one product produced a statement of the total charges, as shown by the Income Account, is made up and divided by the total production units, and to obtain the net production cost the amount of the credits is subtracted from the total charges and the remainder divided by the total production units. When there is a secondary production as well as a principal produc- tion, or more than one product produced, the total amount of the admin- istrative charges must be pro-rated to each product, as shown by a statement of charges taken from the Administrative Books, as follows: PRINCIPAL SECONDARY TOTAL PRODUCTION PRODUCTION EXPENSE Operating Expense $1,516,189.88 $250,882.50 $1,767,072.38 Administrative Expense 83 , 801 . 64 83 , 801 . 64 Federal Taxes 38,410.67 38,410.67 Depreciation of Equipment 18,000.00 18,474.50 36,474.50 Depletion of Mine Investment. . 176,614.62 6,102.46 182,717.08 Total $1,833,016.81 ?275,459.46 $2,108,476.27 By reference to the Individual Operating Profit and Loss Statements for Copper and Lead which support the Combined Operating Profit and Loss Statement as illustrated on page 147, it is found that there was a loss of $12,064.21 on the secondary production of lead. Therefore as there was no income from the lead production, all of the federal taxes are charged to copper production. As there were no funds from lead turned over to the Administrative Department, and no service performed by the latter department for the lead production, all of the general administrative expense is charged to copper. Of course, when the secondary production shows a profit, the proper amount of federal taxes and of administrative expense will be pro-rated to it according to the 218 MINE ACCOUNTING AND COST PRINCIPLES percentage that the secondary income is to the total income. However, the proper proportion of depreciation and depletion of investment is distributed each to the principal and to secondary production. When the depletion charge is based upon Discovery Value or Value as of March 1st, 1913, which is in excess of investment value, only the amount representing the depletion of investment should be used to get the cost of depletion. Referring to the operating production records of the principal and secondary products and credits summaries of which are shown on pages 212 and 213, and copies of which have been furnished the Administrative Department, we find that the total production factors are, as follows: COPPER POUNDS LEAD Principal Product 9,081 ,959 Secondary Product 2,420,690 and that the total operating credits, are: For Principal Production $187 , 171 . 58 For Secondary Production 108,245.49 By reference to the Administrative Ledger, we find that the only administrative credit is Interest on Bank Deposits amounting to $23,051.55, all of which is applicable to the principal production, as the secondary production had no funds on which to collect interest. There- fore by summarizing the operating and administrative expense and credits that have been ascertained, from the Administrative Books and Operating Reports and applying the production factors thereto, there is obtained Total and Net Production Costs for both Principal and Second- ary Production, as follows: TOTAL AND NET PRODUCTION COSTS YEAR 1918 Per Pound of Principal Product Per Pound of Secondary Product Total Per Pound Total Per Pound Operating Expense $1,516,189.88 316,826.93 $0.16695 0.03488 $250,882.50 24,576.96 $0.10364 0.01015 Administrative Expense Total 1,833,016.81 0.20183 275,459.46 0.11379 Operating Credits 187,171.58 23,051.55 0.02061 0.00254 108,245.49 0.04472 Administrative Credits Total Credits 210,223.13 0.02315 108,245.49 0.04472 Net Total $1,622,793.68 $0.17868 $167,213.97 $0 . 06907 Total Production 9,081,959.00 96.52 2,420,690.0 423.0 641.2 Pounds Per Ton Ore ... . Pounds per Ton Concentrates . COMPILING THE COSTS 219 When both the Operating and Administrative Records are kept by the same force, the total and net production costs are obtained at the same time as the detail operating costs. However, when there is a separate Administrative Department the total costs are ascertained by the Administrative Department. This total and net production cost is furnished the directors and officers as soon as possible after the close of each period and is a concise statement that can be easily compared with past results to locate any fluctuations either in the operating or administrative expense and cost. In order that it may be readily seen whether increases or decreases in cost are due to increase or decrease in expense, in total production, or in recovery per ton, a summary of production and recovery is shown below the statement of costs. Such a simple statement of costs can be easily remembered and is of great value when used for comparison with market price of metal, and for reference in determining policy of production operations and dividend disbursements, etc. However, to thoroughly understand fluctuations in the operating and administrative costs it is necessary to have statements of greater detail than the statement of Total and Net Production Costs. PRODUCTION DIVISION COSTS It is necessary to obtain separate costs of each division of adninis- tration and operation for each period for comparison with previous periods, so as to know in what department any increase or decrease occurred, and the reason therefor. The production division Costs consist of two groups to correspond with the two divisions of Administration, and Operation, as shown by Chart XI, as well as Chart XIII. Administrative Production Costs. The expense of each of the depart- ments of administration is kept in the General Administrative Ledger and not in the Cost Ledger, which usually is confined to recording the expense of the Operating Departments, Sub-departments, etc., unless both the Administrative and Operating Records are kept by the same force, when the expense of Administration may be recorded in the Cost Ledger. To obtain the Administrative Departmental Costs, the total expense of each department, and the credits, are compiled and distributed to the principal and to the secondary production, if any, as illustrated under Total and Net Production Cost, and the total of the production units is 220 MINE ACCOUNTING AND COST PRINCIPLES then divided into the amount of expense of each department and into the amount of the credits as shown by the following statements: TOTAL ADMINISTRATIVE PRODUCTION COST OF PRINCIPAL PRODUCTION OF 9,081,959 LB. OF COPPER YEAR 1918 COST PER TOTAL DEPARTMENT ACCOUNT POUND COPPEH EXPENSE General Administration $0.00923 $ 83,801 .64 Federal Taxes 0.00423 38,410.67 Depreciation of Equipment 0.00198 18,000.00 Depletion of Mine Investment 0.01945 176,614.62 Total Administration $0.03489 $316,826.93 Credits Interest on Bank Deposits $0 . 00254 $ 23,051.55 Net Total Administration $0 . 03235 $293,775.38 TOTAL ADMINISTRATIVE PRODUCTION COST OF 2,420,690 LB. OF SECONDARY PRODUC- TION OF LEAD YEAR 1918 COST PER TOTAL ACCOUNT POUND LEAD EXPENSE General Administration $ . 00 Federal Taxes . 00 Depreciation of Equipment $0 . 00763 18 ,474 . 50 Depletion of Mine Investment 0.00252 6,102.46 $0.01015 $24,576.96 The Administrative Expense consists of fixed charges, except " General Administration," and only the latter account is analyzed any further than shown by the above statements. There should accompany the statement of Administrative Production Costs, the detail of General Administrative Expense. It is not necessary to detail the other charges, except that in the report transmitting the statement of costs, there should be stated the rate of charge for depreci- ation and depletion, and what amount of the Federal taxes is for Income, Excess Profits, Capital Tax, etc. Operating Production Costs. The Operating Departmental Pro- duction Costs are the costs of production for each department. These costs are summarized in concise form for the use principally of the manager, and are determined upon the final production unit of pound or ounce of metal and per ton of ore. To obtain the Operating Departmental Production Costs, the amount of the expense for each department, is taken from the Cost Ledger, and the amount of the credits is taken from the production records for both the principal and secondary production, if any, and these are divided by the amount of the production, and statements of costs per pound and per ton are made up, as shown by the following forms : COMPILING THE COSTS 221 TOTAL OPERATING PRODUCTION COSTS PER POUND OF PRINCIPAL PRODUCT, YEAR 1918 Number of Men Department Account Cost per Pound Copper Total Expense 47 298 Exploration and Development. . .0.01877 \ Ore Extraction 06280 / $0 08157 $ 170,497.08 570 355 09 12 Ore Transportation 00444 40 348 49 11 Operating Overhead 01937 175,868 36 1 Smelting 03652 331,664 74 Bullion Freight and Refining 0.02203 200,082 26 Selling 0.00301 27,373.86 369 Total Operating $0 16694 $1,516,189 88 Credits: Gold and Silver, By-products $0.02005 $ 182.049.69 Refunds and Discounts, etc 00055 5,121 89 Total Credits.. $0.02060 $ 187.171.58 Net Operating I $0.14634 $1,329,018.30 TOTAL OPERATING PRODUCTION COSTS PER POUND OP SECONDARY PRODUCT, YEAR 1918 Account Pounds Lead Produced Cost Per Pound Lead Total Expense Lead Mill Production $0.09741 $182,752.84 Lead Concentrates Smelting 0.01022 19,169.09 Lead Concentrates Freight .... 0.00811 15,228.13 Lead Bullion Refining and Selling 0.01500 28,143.60 Milled Lead Operating Total 1,876,240 $0.13074 $245,293.66 Mill Production Credits: Gold and Silver Bv-products .... $0.04271 $ 81,466.33 Sorted Ores 31,186 0.00333 6,356.09 Total $0.04604 $ 87,822.42 Milled Lead Operating Net 1,907,426 $0.08470 $157,471.24 Credit, Net Direct Shipments 513,264 20,423.07 Tjp.fl.ri Onpratins:. Net. . 2,420,690 $0.05662 $137,048.17 222 MINE ACCOUNTING AND COST PRINCIPLES OPERATING PRODUCTION COSTS PER TON Tons Account Cost per Wet Ton Dry Ton Total Expense 121,969 114,195 27,691 86,504 93,995 94,092 Exploration and Development. Ore Extraction . . Total Per Wet Ton Stoped Total Per Dry Ton Stoped Dry Tons Lead Ore Credits Net Per Dry Ton Copper Ore Stoped . Ore Transportation: Tramway Expense Per Dry Ton Copper Shipped Ore Freight: Per Dry Ton Copper Smelted Smelting Expense Operating Overhead $1 . 3979 5.8781 7.2760 0.1579 0.2791 $1.4930 6.2782 $7.7712 5.2936 $8.5644 0.4370 $170,497.08 716,939.22 $887,436.30 146.584.13 $740,852.17 40,348.49 3.5249 331,664.74 1 . 8691 175,868.36 $14.3954 $1,288,733.76 DETAILS OF LEAD MILL PRODUCTION COST YEAR 1918 LEAD ORE PRODUCTION WET TONS TOTAL 29 , 993 Stoped and Developed Ore $146 , 584 . 13 299 On Hand and at Smelter 1-1-18 Making 30,292 Tons an average of @4. 8390 Mining $146,584.13 of which 30,118 Tons were shipped @0 . 1644 Tramway 4,950.99 30,292 Tons Mined, etc., Average 5.0025 $151 ,535. 12 of which 1,294 Tons were shipped direct to Smelter. . . @4 . 3051 5 , 570.84 Leaving 28,998 Tons at Average of 5.0336 $145,964.28 of which 28,823 Tons Shipped to Mill @0 . 1192 Ore Freight 3 ,436^98 Making a total of 28,998 Tons Mined, etc., Average @5.1521 $149,401.26 of which 28,106 Tons went to Mill 5. 1521 144,864.35 892 Tons on Hand 12-31-18 @5.0862 $ 4,536.91 393.000 At Mill 275. 000 On Track 224 . 000 At Mine COMPILING THE COSTS 223 LEAD ORE IN PROCESS WET TONS COST PER WET TON TOTAL 28, 106 Tons Delivered to Mill @$5. 1521 $144,864 35 Milling Expense Treating 27,851 Wet Tons or 27,336 Dry Tons.... @ 3.4306 93,778.47 28,106 Tons to Mill in 1918 @ 8.4908 $238^642.82 of which 27,851 Tons were Concentrated. . @ 8.4962 $236,626.88 93TonsHand- Sorted Lead Ore Smelted... @$7.7444 $720.23 54 Tons Hand- Sorted Copper Ore Smelted.. @$7.9996 431.98 $ 1,152.21 Making a Total of 27,998 Tons Concentrated and Smelted .. @ 8.4927 237,779.09 Leaving 108 Tons in Process 12-31-18 @ 7.9996 $ 863.73 50 Tons in Mill 58 Tons Hand Sorted Ore at Mill LEAD CONCENTRATES DRY TONS COST PER TON TOTAL 3,929.710 Tons Concentrates Produced from 27,851 Wet Tons Milled in 1918 @*>60.2148 $236,626.88 2,926.060 Tons Smelted During Year @ 62.4570 182,752.84 1,003.650 Tons on Hand 12-31-18 53.6781 $53,874.04 934 . 205 At Smelter 69.445 At Mill Fluctuations in the cost per pound may be due to fluctuations in the expense or they may be due to fluctuations in the recovery per ton. Therefore by consulting the cost per ton along with the cost per pound as well as the production statements of recoveries of products and by-prod- ucts, the cause of the fluctuations, if any, can be quickly ascertained. The tonnage costs for secondary product illustrate the indirect method of obtaining production costs as mentioned in "Operating Accounting" under Production. Departmental Production Costs. While the Operating Production Costs per pound and per ton along with the production reports as illlus- trated under Production Factors, will enable the Manager to locate the fluctuations and the cause therefore, they are not in sufficient detail to be of much benefit to the department heads to whom the Manager looks for results and explanations. Therefore, it is necessary to furnish each department head with a statement showing the costs based upon the production of his department for each sub-department and for each element of expense as compiled in the Cost Ledger. 224 MINE ACCOUNTING AND COST PRINCIPLES Such an analyzed statement is furnsihed the head of each department of Mining, Milling, Smelting, etc., as shown by the Statement of Costs for the Mining Department, as shown by form on page 226. Upon the receipt each month of such a statement of costs, the head of each department can quickly compare the costs with the previous month or months, and ascertain in what sub-departments there were increases or decreases, and in what elements of expense the increases or decreases occurred. Also, by comparing the production statements with previous months it can be seen whether or not there were any fluctuations in production and what was the result in the costs. While these departmental production costs enable each department head to readily ascertain all fluctuations in his department and to locate the source of any fluctuation, they do not give sufficient detail to inform him as to what is the item of expense that caused the fluctuation. To obtain such information, it is necessary to detail the expense of each sub- department, and in order to make the details of the sub-departments of value to the supervisors of these departments, the proper production or operating unit for each department is compiled and the unit cost for each sub-department shown as explained under Departmental Unit Costs. DEPARTMENTAL UNIT COSTS It is possible for the expense of some of the sub-departments to fluctuate from month to month regardless of the amount of the produc- tion of the department, on which costs have been determined and with- out any change in efficiency, wages or costs of supplies, etc. For instance the production cost of Exploration and Development may either increase or decrease when there has been the same rate of mine pro- duction, and the same efficiency in development work, due to more or less development work done. The same may occur with Pumping due to increase or decrease in flow of water, and to Maintenance of Shafts and Drifts, as a result of more or less work done, and to Supervision as a result of vacations, as well as to Stoping as a result of increase or decrease in amount of shipping ore encountered in development, etc. Therefore, it is necessary to determine the costs for the sub-depart- ments upon the production or operating unit applicable to each depart- ment, such as per foot advanced in Sinking, Drifting, Raising, etc., per wet ton stoped for Stoping; per car of ore and waste for Tramming, Station Tending and Caging and for Top Landing; per thousand gallons of water pumped for pumping, etc. Thus the proper cost is obtained for each supervisor, and the efficiency of each sub-department, or unit is ascertained. To obtain the departmental unit costs, the detail of the expense for each sub-department is taken from Form No. 50, and the total production or operating units for each sub-department is divided into the amount of COMPILING THE COSTS 225 the departmental expense, and detail statements of sub-departmental costs and expense made up, as follows: DETAILS OF EXPLORATION AND DEVELOPMENT EXPENSE Drifting: 960 feet @ $9 . 7235 $9 , 237 35 Labor $4,896.31 44856 Miners @$5. 35. .. $2,400.14 447> Muckers @ 5 . 10 ... 2 , 280 . 97 14 Timbermen @ 5 . 60 ... 78 . 40 Footage Bonus 136 . 80 Supplies 2,709.49 Explosives $2,568.04 Timber 141.45 Air Drills 1,631.55 Feet advanced per man shift 1.0441. Raising: 308 feet @ 12.8087 3,945.07 Labor $1,758.22 176 Miners @ 5 35 $941 .60 62% Muckers @5.10 302.02 69% Timbermen @ 5.60 390.60 Footage Bonus 106 . 00 Supplies ] ,539.92 Explosives $622 . 92 Timber.. 917.00 Air Drills 646.93 Feet advanced per man shift 0.999. Total Exploration and Development Expense $13,182.42 DETAILS OF ORE EXTRACTION EXPENSE Sloping: 9,366 Wet Tons @ $3.3428 per ton . . $31 , 309 . 06 Labor ................................. 22,324.20 1, 768 M Miners @$5.35 ........... $9,459.47 2, 1 83 H Muckers @5.10 ........... 11,137.13 Timbermen @ 5 . 60 ........... 1,727.60 Supplies ............................... 5,544.39 Explosives ........................... $ 2,054.87 Timber ............................. 3,489.52 Air Drills ............................. 3,440.47 Tons stoped per man shift 2.198. etc. 15 226 MINE ACCOUNTING AND COST PRINCIPLES 00 * &H s *> Nt-<^if4WCVOOlQr4CV X t>. 00 1C * O CO 00 =O O 00 O CO g 01 ro i t- H BH et Tons II OO y O O fi Oi 00 o * w co O >-< CO O O o o o o o o o o o o M -: o s C4 i s 8 H -/. fc a 121,969 W Replace- ments rl (O 00 CO CO tO O CO O S3 2 2 S o o o o o o o o o s s so s i s 5 S O. T3 '3 2 g S CONONCO'O'Ht^'OCO TfOSrtOiOt^-fCOOiNOO COOCOOOCO >o IN s N c t~ OS i 1 a o 1 a giONNNNUSCO^'O'-'OO OOrtt-HCOO5O-^' X * CO t~ O CO t^ fl" 1< -r r^ g O 00 oooooooooooo w ~ o o o g V3 < g X) t.OOOOO5'*t~O5O5COlO'-lO lO'l't^-t^CO^Ot^^OINO N'*O-*NTl >-H O h- 'T O LO -H IO CO M t- 10 g H S b 3 INOOOOOOOOOOO M fi o o o o * T" &> 1 ft. H b a o a H O5CO'-lO5ClOO'-ltDO5COt^.l^ OOC^COO5COCOO5 ao^csia^jot^^-t-- NiOi-i'^.'-i'OCOOlNO'-ilN ?1 X r eq r~ us oo co c'* OO'COOSt^'-itD-fl'COO'-iCS ?J C^) IN C! t^ C5 O> i-l X o o CO CO t 1 1 ^i-Her-iTji-HOswos-H t^i-iiai-C OO'* CO si COCOt^ ^M i 1! OS t^ M h o Tfr-cN m cooo o> o CN OS CO 1 O> CNO CM COTfCM co CN co CN 1 | O fcc 1 IO CO t> 00 N- CNCOO CNOO COCOiO ICCN CN 00 00 "5 a H CNO OO os o ^j* M COCO U5CN i OS O5 I OOCNO *OOCMTfl-Ort'^t>. 00 CO ^f CO I s * l^ i < O O OS t^ 00 0! It coos OCM SS 'C IN 1 " H CO co co < ^gSSKS ]{2 1 OOO'-" OOO " M^H i^ i-i 1-1 (N CO -< 1C oco CO p ;gso OOCO CiTf CO o 00 O5 IN i.- B M t~ O ^ X iH INCO'J'CN INO ^ -r co- co- i 1 "a ^ CO *-" Tf CO CO CN O t^- O O O 1C CO CO N es rc CN 1 0) COt^ CNINt^OOOOi "CU5 t- t>. OOCN ~. o o IN M OOCO 1 300 oooooo |cNco CNN^OO^ ; ; ; -. . a N "So HH 5 o 3 2 o 'a : : ' ''.'.'.''. s TjJ^CS WCOO_^ o| CC O"S OOCM IH O "c O| i &* gS Et- >* a * O t-~ 00 CO 00 IN O Q"| t, O IN iry 93 AVERAGE I| 0 |S 2 c"o 00 t- O CO t^OO CM OOO o o oo h O O f ; i Ij j "3 ~ 3 ."2 9 9 's u O ce O O ffi H M S"32'PQ'! g CaoOOSHS 2 GO d i S i V O. V OOCOCNO]-*-* * CiOiCOO 0000 O ! CiC H OOO D M Q oooo oo 1 O !> 0) O B :_> : :_; fe B ^ o J^ "o Q |&|A^ _!WrH < ^ -o O OOMCN t^oooo coooo 00 a s oc A -go CO 1C t^ OOCN c O * ' IN H (N C-l 1 OOCO OiCO a ()@@ T3 1 d K * & 8-gJ CO J\w\r-\ o n n COMPILING THE COSTS 229 In place of showing the expense for Labor, Supplies, etc., for each place and the total cost per ton for each place, the cost for each element of expense can be shown as well as the total cost if the operating department head and supervisors prefer. A summary of the assays obtained on mine and smelter samples of ores stoped is shown for information of the one in charge of sampling. Usually the assays from mine samples are high and the comparative assay statement is given each month to inform the mine department and manager of the amount of the discrepancy. A similar statement of the expense and cost of each Shaft, Drift and Raise is made, as shown on page 230. There is summarized upon the statements of development costs the amount of development ore dumped into the shipping bins. A check should be made of this ore to see that it pays for itself. When the mine consists of a number of shafts or divisions, Detail Unit Costs are determined for each shaft or each division, and at the end of each month . or quarter comparative costs can be compiled as ghown by the statement on page 231. Such comparative costs are made on all the sub-departments, as well as on- the details of each sub-department at any time that it is desired to ascertain the reason for differences. In making up such comparisons the factors that fluctuate the costs should be summarized below the comparative costs, as shown on page 232. Practically all the factors that would fluctuate the costs for the two shafts are shown except feet trammed per car of ore and waste. By a careful examination of such a statement the reasons for most of the differences in costs can be obtained. DAILY AND WEEKLY COSTS The Exploration and Development and the Stoping are usually the largest sub-departments, in amount of expense, in the number of men, and number of places being worked. On account of the great number of men and places worked in these sub-departments and the rapid turn over of the labor, it is sometimes desirable to have daily costs of labor and supplies for each place that is being worked, to assist the supervisors to maintain a consistent and high degree of efficiency. To provide for this, the Underground Distribution Sheet, Form No. 47, is so drawn as to enable daily or weekly statements of cost of labor and supplies to be made up for each drift, raise and stope, by the mine timekeeper and furnished to the proper operating heads, as shown by Form No. 53. In determining these daily and weekly costs the amount of labor expense is correct and usually the item of supplies is correct, but other expense items cannot be shown except as an estimate. However, any 230 MINE ACCOUNTING AND COST PRINCIPLES "3 o o >> "c "3 'C V C) C 1 1 I fe C V 9) CJ'S "^ J 33 J 1 3 <3> O O OS it- t-00 CD H PS 3 o 00 CO 00"5 FHOS CO CO ^ CO O W U5 INFH OCO FHT 00 H C( ooooooooooooc ooooooooooooc <0 i Q t- CM COO oooor- NCN COCO OCO ICO -HO COCO c oooo g b CO CO Tj. CO IN ^ 5 S rqoo -~o CO IN CO OS OS E COCOOCN FH Q M x CO 00 t- CO COS "O"O oo co "5 oo o 3 FHCOTfCO co C 8 COCOOCN IN F-J e a g u 01 a) ^ > tj ill O 1 " 1 COMPILING THE COSTS 231 3 Normal Basis CO OS i-( 1-1 00 i i-< O 1O CO i i os CN n o oo c CN -( O O -< i o o >o >! 00 3 8 CO OS t> i i f*3 f CO t>- -^H CO IO C * 00 1-1 O >O C 31 1-1 O O 1-1 4 10 00 3 CO CO I - 1 E -8 * "O CO N! CN 5 C os co i-i co 1-1 c CN CO 1-1 O >O Ci 3 >O 10 I OS ;) XX a 02 M JJ-TO - Cj ; III >o o' "3 - 5 8 OS 00 !-H l-< ^ C* co 1-1 r- CN co T OS ^ 1-1 O tO O 1 oo oo 3 * CN O O i-i a e i CN i-i I f| o os TJ^ ts. oo o t~ co >o t~ 10 o CO 00 O O O Cf ) 00 OS b- i-< > co t~ 1 02 1 W CN O O O IH T . o o fa 01 e 3 3 a -*J O CO 00 00 t^ CN i~ co t~ co t- oo t> "3 CN O O C O 00 OS i ^ 0. + CO -H -c CC i O c ll CO O CN * * CC >O CN 1-1 "O 00 <* ^ CN 1-1 O O O- O -i OS CO CO CO 05 Q S3 03 1 m S "^ "^ rt -< O 2 SH CO 6 ll 00 CO ^ T)( CN * 00 OS CN -H CN Tf IO t^ i O CN t~ O 1-1 05 CO CO CO 2 8 Ol O C5 C5 CO CN ^ CO "O 00 b- O 00 t^ O O O5 I s - l^ CO CN t~ CN CN 3 jM - -. OC !-< 1-1 |j OS t^ OS >O O O -H o co co oo i- 1 CN O OS 1-1 OS 00 O 00 OS CN Tj< OS O 05 03 CO 1-1 O O 1-1 JO - 1 6 "3 -u 3 a * O 00 00 CN CO IO OC CO CO CN 1-1 CO O >O 00 OS CN Tt ns O 3 >O FH O O i-l g rt Labor Explosives Framed Timber Other Supplies Power Total Feet Feet Per Shift 232 MINE ACCOUNTING AND COST PRINCIPLES COMPARATIVE ORB EXTRACTION COSTS PER WET TON FOR FEBRUARY 1917 Mine Department Shaft No. 1 Shaft No. 2 Over No. 1 Under No. 1 Stoping $1 . 1656 $3.0117 $1.8461 Tramming and Tracks: Tramming Ore $0 . 3772 Tramming Waste 0.3628 Underground Tracks. 0.1316 0.8716 0.4106 $0.4610 Station Tending and Caging Hoisting 0.1136 0.4443 0.0651 0.2148 0.0485 . 2295 Top Landing and Loading Ore . . Repairs Shafts, and Drifts Underground Lighting . . $0 . 0549 Underground Ventilating .0124 General Underground. . . . 3616 . 2349 . 8388 0.4290 0.1067 0.0937 0.2595 0.2559 0.1412 . 5793 0.1731 Engineering and Assaying 0.1492 Pumping 0.1983 . 0643 0.1340 Underground Supervision 0.2144 0.2081 . 0063 General Surface . 0840 0.1301 0.0461 Net Cost Under No. 2 $4 . 5945 0.1193 $4.7138 $1 . 7729 $1.8922 Total Wet Tons Stoped $4.7138 11598 17977 6379 Wet Tons Per Man Shift Stop- ing 7.66 2.65 5.01 Per Cent Copper Per Wet Ton. . Number of Stopes Worked 5.30 20 4.36 37 0.94 17 Total Tons from Largest Stope. . Average Tons Per Stope 3400 580 2286 486 1114 94 Total Feet Development 2528 2125 403 Feet Development per Ton Stoped . . . 0.218 0.119 0.099 Feed Advanced Per Man Shift . 1.274 1.238 0.036 increase or decrease in wages of labor and cost of supplies will fluctuate the cost per ton, or per foot, regardless of the efficiency as shown by the tons per man shift. When both prices and efficiency are fluctuating, as has been the case during the war period, it is difficult for the foremen and shift bosses to determine what proportion of the increase or decrease is due to fluctuation in prices and what to efficiency. For this reason there sometimes has been substituted for the daily or weekly statement of costs of Stoping, Drifting, Raising, etc., a Daily and Weekly State- ment of Production, as shown by the following form : COMPILING THE COSTS 233 hi M O 2 ^ TO 1-1 to b- mm Nl^TtltOmtONr-l -lOCOOO-HON o IH < > -U PH o o o oooooooo O5 sf "d e H CO 00 Oi -i to n> o CO CO O IN 00 CM 10 >n co o oo t- Tjt rt 00 IN 05 >o RUARY k 1 a> t, 5 es 2 o t. > < PH co e* e i-l IN i-l i-l 1-1 H H s Pi "o H 00 "5 tO . 1 1 1 1 B ' -O ) rt J 4 K O>O T)iT)O to STATEM 000 o o o rH IN IN N OOOOOOOO OOOOOOOO t^OOOOOOO3OO5O! S bd H o I E '. C *--'-- ^ co ao,aaaag. OOOOOOOO O O O O +3 *i *> -*^ OD 09 CC CQ IN IN - > 234 MINE ACCOUNTING AND COST PRINCIPLES Such a statement gives the factors concerned in production or oper- ation for which the supervisors are directly responsible, and these factors are always the same regardless of prices of supplies or scale of wages. They are the things that are seen and contacted each day, and such statements are of more interest and value to the operators in charge than statements of results in dollars and cents. A number of small producers do not wish to go to the expense of determining daily costs, but instead get out a daily labor and production Daily Statement of Cost Report of Slope Costa For 10 Place .NoCars Ore ,No 'M, bb;(tj Uljot Tut.l Cost Cost f*, Ion MID Sbilt Remarks Jl H'.l Lal>,r TjjS Po4<:l Laboi ^"PP Tola! FORM 63. report for the information of the head of the mine department similar to Form No. 54. Similar reports can be made up for Milling, Smelting, etc., and will keep the department head in daily touch with the work being performed. COMPARATIVE COSTS It is customary for some mines to make up comparative costs for each department, sub-department and unit for each period. While such costs are of great value, it is doubtful whether or not the benefit to the operating heads of comparative costs on each sub-department and unit for each period will offset the expense involved and the delay that results in getting out such cost statements. However, it is best to furnish each department head each month with a comparative departmental cost statement as shown by the following form: COMPILING THE COSTS 235 fc B s B K O < m a 55 2 O | ,v Si g 03 05 II O x o " fo S o 5 S x Q a - S O O S a O Q 15 iiiiiiiiiiii I 2 IN CO ~ CO I a 5 I COOOOOOOOOOOO 8 s * u 1 H J3 0. g SS IIIIIIII1III s: 5 CO CO 00 5 ~ H CN 1 1* CO oooo ooo oo w o S ss CN CO O 00 V 1 CN US O "3 00 00 O -H CN CO CN CN * CO O d o d d o d X X d d o" i o 1- CO 3 CO O ss > "a cooSsss^ooooo c O CO oo o 3 I IS 00 CO (N oo co CO oocooooooooo S O c s SE 1 O o .fl lilllllillll re II -r t- M r- M h- O CO CN 00 C! CNOOOOOOOOOOO O S')" 99 ' : ^ S ' c S <~ '.'.'.'.'. : a IT)' nd Developme O 51 a a a H 3 ; ' : a ^ M S x i : : rj -a C S3 50 t. G irt G) 2 M a > c o isisilliiilii 1 111111111 III n Total Ore Extractio Drifting Raising Total Exploration a Total Mining Total Last Month. . Total Year to Date 236 MINE ACCOUNTING AND COST PRINCIPLES aa Xissy * IMSV aig no-sin [ir*V COMPILING THE COSTS 237 If the cost of any particular sub-department or element of expense shows an unreasonable increase or decrease, then detail and comparative costs can be worked up to show the reason therefor. In this manner, the expense and time involved in obtaining exhaustive detailed com- parative costs is avoided, and the operating heads are not burdened with voluminous cost statements of uncertain value. SHOPS AND POWER COSTS When the size of the shop force will justify a cost system, accurate shop costs of each job should be kept. However, the power costs should be ascertained each month regardless of the size of the power plants. Shop Costs. When the amount of the shop work is large, there should be kept shop costs for each job, using a form similar to Form No. 55 No. Date 191 JOB LABOR SUPPLIES Workman Hours Rate per Day Material Date Item Completed Shop Expense Cost per Item Charged FORM 55. Daily Job Report. The amount of the daily shop labor charges for each job being compiled from Daily Labor Reports, Form No. 48 and the amount of the supply charges being compiled from Supplies Issued Record Sheets, Form No. 18 and the proportional charge for Shop Expense being taken from the Shop Sheets, Form No. 49 at the end of each month. A statement of cost for each job is made when the work is completed. However, when the shop force is small and fixed from month to month as is usually the case with the majority of mines, a simple method of showing the shop costs is to distribute the expense for each job from each shop upon Shop Sheets, Form No. 49 and to summarize the shop charges upon From No. 50 and make up statements of Shop Expense for each job, as follows: 238 MINE ACCOUNTING AND COST PRINCIPLES SHOP EXPENSE AND COSTS FOR JANUARY 1919 Expense Machine Shop Blacksmith Shop Carpenter Shop and Sawmill Total Labor: Expense: Shops $3,935.62 $ 754 . 50 $1,142.29 $5,832.41 Overhead 221.21 42.42 235.13 498 . 76 Total Labor $4,156.83 $ 796.92 $1,377.42 $6,351.17 Supplies: General Operation: $ 44.43 $ 65.19 $ 0.57 $ 110.19 2.20 2.20 1.97 1.97 13.04 0.46 13.50 0.27 2.50 2.77 33.89 0.82 34.71 Tools 48.24 4.38 14.62 67.24 Supplies: Drill Sharpener: 1.03 1.03 Fuel 120.95 120.95 Machinery 0.92 0.92 Total Supplies $ 139.87 $ 197 . 40 $ 18.21 $ 355.48 Bills Audited: Water 5.00 5.00 Electricity 18.27 4.60 13.24 36.11 Total Bills Audited 18.27 9.60 13.24 41.11 Total Shops $4,314.97 $1 ,003.92 $1 ,408 87 $6 727 76 Costs Details of Work: Underground Track New $ 17.16 $ 67 . 69 $ 84 85 3 79 3 79 Underground Tools and Sundries 77.29 127.14 $ 80 76 285 19 3.82 51 4 33 Surface Heating 3.77 3.77 Total Development Overhead $ 98.27 $ 202 . 39 $ 81.27 $ 381.93 $ 282 . 01 $ 282 01 Boilers Pumping Water 31 56 31 56 Sharpening Steel $ 480.15 480.15 Total Power $ 313.57 $ 480.15 $ 793.72 Shaft Hoist Repairs $ 105.74 $ 105 74 127 60 127 60 Bell Signals 127 78 127 78 32 33 20 79 53 12 Hoist General 32.91 3 79 36 70 Hoist Brake Blocks 11 24 11 24 Hoist Sheave Wheels Changing 33 26 33 26 Hoist Cable Changing 14 26 14 26 Hoist Cages 96.05 96 05 Surface Tracks 25 06 25 06 Underground Water and Lights 23.17 23 17 668 99 668 99 167 42 24 62 192 04 Pumps Discharge Line 99.07 99 07 107 52 4 09 111 61 14 89 14 89 COMPILING THE COSTS SHOP EXPENSE AND COSTS FOR JANUARY 1919 (Continued) 239 Machine Shop Blacksmith Shop Carpenter Shop and Sawmill Total Ore Chutes 8.51 0.91 $ 397 . 90 22.66 20.25 3.52 60.12 119.59 $ 3.78 24.45 5.68 $ 16.36 2.55 13.28 3.06 $ 16.36 2.55 12.29 14.91 400.96 47.11 20.25 3.52 60.12 125.27 Buildings Assay Office Supervision Dwellings Occupied Boilers General Boilers Tools Boilers Steam Lines Boilers Oil Pumps Compressors Air Drills Total Repairs $2,284.45 * 83.11 $ 75.64 $ 2,443.20 Boiler Tubes Replacements. . $ 97 . 86 442.05 39.32 193.86 $ 7.56 120.68 42.94 $ 97.56 6.13 $ 97.86 $ 449.61 97.66 45.45 314.54 42.94 New Dinky Hoist New Dinky Hoist House New Boiler Feed Pumps New Dinky Cages New Drill Steel Total Replacements $ 773 . 09 $ 171.18 $ 103.79 $1,048.06 New Mine Cars $ 189 . 08 72.71 389 . 76 $ 13.26 20.83 $ 54.19 $ 202.34 72.71 54.19 410.59 Flue Rattler First Aid Boxes Ventilation Blowers Total Construction and Equipment $ 651.55 $ 34 . 09 $ 54.19 $ 739 . 83 Framing Timber. ... . . . . $ 24 . 68 $1,031.63 8.18 $1,031.63 24.68 8.18 Miscellaneous Handling $ 24 . 68 $1,039.81 $1,064.49 Eaton & Smith $ 19.08 63.35 18.17 11.71 29.42 14.04 13.59 $ 16.00 1.88 5.66 7.58 1.88 $ 54.17 $ 16 . 00 54.17 20.96 5.66 70.93 1.88 18.17 11.71 29.42 14.04 13.59 Shattuck Arizona Copper Co Mill Platform Mill Pumps Mill Tools Mill Crusher Mill Launders Mill Tanks Mill Unloading Track Mill Classifier Mill Miscellaneous Total Accounts Receivable % 169.36 $ 33 . 00 $ 54.17 $ 256 . 53 Total Shop Work $4,314.97 $1,003.92 $1,408.87 $6,727.76 At the end of each quarter the Shop charges can be summarized as to total charges for each job and will serve as a guide as- to whether or not the shop charges are excessive. Theoretically there is always a certain amount of dead time in the shops which should be rjro-rated. However, in operation it is difficult to ascertain the amount of dead time, unless the shops are sufficiently large to justify a timekeeper at the works who will check the distributions of each man's time. Due to the fact that it is necessary to keep the shop force intact from month to month, a certain amount of miscellaneous 240 MINE ACCOUNTING AND COST PRINCIPLES work is always kept in reserve to be done on dead time, and any dead time for each day that cannot be put upon such work is absorbed in making daily distributions. POWER COSTS The Power Costs are determined upon the production or operating factors of the Compressor Plant, Electric Plant and Air Drills, all of which are under the supervision of the Mechanical Department. Boiler Horse Power Costs. To obtain the Boiler Horse Power Cost for each period it is necessary to keep an accurate record of the amount of fuel consumed and of the amount of water evaporated. From these two factors the amount of Boiler Horse Power Produced, and the efficiency of the boilers is obtained, usually by the Mechanical Department. To obtain the cost per boiler horse power, the amount of the average horse power is divided into the total and into each element of expense, as shown by the following statement: BOILER HORSE POWER COST FOR JANUARY 1919 Boiler Expense: Barrels Fuel Oil 3 , 756 . 24 Gallons Water Evaporated 1,878,120.00 Gallons of Water per barrel of Oil Average Boiler Horse Power 666 . 45 Efficiency of Boilers, Per Cent 74 . 41 EXPENSE COST PER B.HP. Labor 91 Firemen @ $5.85 $ 532 . 35 $ . 798 Supplies Fuel Oil 9,992.27 14.993 Shops 313.57 0.473 Scaling $ 282 . 01 Pumping Water 31 . 56 Repairs 1,861.41 2.792 General $1 , 790 . 53 Surface Steam Lines 20 . 25 Boiler Oil Pump 3.52 Tools _ 47.11 Bills Audited Water 475.25 0.713 ^placements Retubing 30 . 44 . 045 $13,205.29 $19.814 The determining of the cost of steam is one of great importance and should be carefully ascertained each month and occasional checks should be made against the boilers by computing the amount of steam consumed by the different units, to be sure there is no material loss in transmission. FACTORS NECESSARY TO DETERMINE BOILER HORSE POWER The pounds of water that should be evaporated per hour per Boiler Horse Power will depend upon the gauge pressure and the temperature COMPILING THE COSTS 241 of the feed water. For a gauge pressure of 125 Ib. and a feed water temperature of 165, the factors for determining Boiler Horse Power and the efficiency are, as follows: FACTORS FOR FIGURING BOILER HORSE POWER Heat Units necessary to change one pound of water to steam with a gauge pressure of 125 Ib. and the feed water at 165 ... 1 , 059 200 Pounds water evaporated per hour per boilers horse power ... 31 . 608 Pounds water one pound fuel oil should evaporate 17 230 (18,250 divided by 1,059.2) One gallon of water weighs 8 . 3448 Ib One gallon of fuel oil weighs 7. 7500 Ib The Cost Department should keep the record of water to boilers and of oil consumed and have the formulae for determining boiler horse power, so that the Mechanical Department's reports on boiler horse power can be checked. Compressor Costs. The cost of compressed air is computed per thousand cubic feet of free air against the expense of operating the compressor in the same manner as in obtaining Boiler Horse Power Cost. Air Drill Operating Cost. The cost of operating Air Drills is deter- mined per hour of air consumed by Air Drills. To obtain the total Air Drill's Hours, a summary is taken from the Distribution Sheets, Form No. 47 and the total hours are divided into the total and into the detail expense compiled from the Cost Ledger and from Summary Sheet, Form No. 50 and a Statement of Air Drill's Costs is made up in form similar to that shown for Boiler Horse Power Cost. Air Drill Repair Costs. In order to know what drills are efficient and which are not it is necessary to keep a record of operating repair costs of each class of drills. Such a record is usually compiled as shown on page 242. The drill that requires less repairs is usually the one that is most efficient of its class. However, a record should be kept of the footage obtained from each class of drill for each class of ground. While the air drill expense itself is not large, upon the efficiency of the drills depends to a large degree the efficiency of the development and of stoping, usually two of the largest items of expense in mining. 16 242 MINE ACCOUNTING AND COST PRINCIPLES AIR DRILL REPAIR COSTS FOR MONTH OF MAY 1918 Make and Type of Machine Class of Drill Shop No. Times Re- paired Labor Sup- plies Total Total 8-Hour Service Units Cost per 8-Hour Service Number of Machines in Service Chippie Stoper Jackhammer Jackhammer Jackhammer Water Water 5 14 15 1 1 1 0.67 1.32 0.66 1.00 2.56 1.68 1.67 3.88 1.34 8.81 Mine Supplies. . . . Waugh F-16 2.65 5.24|16.70 97.000 0.1722 19 7 1 0.67 0.35 1.02 1 . 76 Mine Supplies. . . . BCRW-430 Inger- soll 0.67 | 0.35| 2.78 |l!8.375 0.0024 23 10 2 2.03 11.18 13.21 59.94 Mine Supplies. . . . Cochise 24 2.03 |11. 18)73.15 32.500 2.2508 10 1 1 0.67 0.68 1.35 0.02 Mine Supplies. . . . Cochise RHH 36. . Mine Supplies. . . . Denver Clipper. . . Mine Supplies. . . . Waugh 60 0.67 0.68 1.37 1.750 0.7830 1 2 1 0.66 0.68 1.34 22.30 1 0.66 0.6823.64 ! 1 4 5 10 12 1 1 1 1 0.66 0.67 0.67 0.66 4.03 1.83 1.64 0.28 4.69 2.50 2.31 0.94 26.91 ; 2.66 7.7837.35 63.625 0.5871 16 5 6 11 1 1 1 0.67 0.67 0.66 0.33 2.52 0.08 1.00 3.19 0.74 14.43 Mine Supplies. . . . i 2.00 2.93 19.36 J136.375 0.1420 10 COST OF PREPAID EXPENSE The principal items of Prepaid Expense consist of Repairs and Replacements. The Prepaid Insurance Cost is shown as one charge the first of each year, and the cost of Suspense Items of advances for travel- ing, matters in suspense, etc., are shown either by Detail Expense State- ments or in some of the other cost statements after the Suspense Items have been cleared. A separate account is kept for each Repair and Replacement Job, and at the end of each period statements of Cost Details of Repairs and of Replacements are furnished to the Operating Head and to the Depart- ment Supervisors along with the other statements of costs. The statements are usually made up, as shown by the following: COMPILING THE COSTS DETAILS OF REPAIRS ' 243 Labor Sup- plies Shops Bills Audited Sub- Total Total Tramming and Tracks: Mine Cars $3.69 4.75 1.38 6.51 2.90 1.38 4.22 16.46 $17.76 9.90 145.47 270.92 34.19 80.44 1.31 $242.27 83.16 94.38 111.27 6.73 313.96 8.14 76.22 102 . 10 24.50 590.77 6.04 17.06 10.31 82.08 33.37 3.75 82.56 39.23 $260.03 83.16 $343.19 94.38 450.30 8.14 348.29 869.11 293.98 121.79 14.53 Underground Tracks Station Tending and Caging: Chairs 94.38 Bell System Hoisting: Cages 114.96 6.73 328.61 Dinky Hoist General Top Landing and Tramming: W. H. Tracks 8.14 General Underground: Water and Lights 221.69 102.10 24.50 Tools and Sundries Telephones Pumping: General 863.07 6.04 Columns Surface: Buildings 57.76 13.21 163.90 1.31 33.37 7.97 16.46 Ore Bins Water and Lights Heating Telephones General Fire Protection Assaying: General 82.56 39.23 Furnace Supervision: Dwellings Occupied 14.53 14.53 Total Ore Extraction Repairs $41. 29 $559. 99 $1,942. 43 $2,543.71 Boilers: General $20.00 $19.79 136.26 341.47 $93.16 8.43 1.52 56.35 18.47 13.36 88.49 112.45 $132.95 8.43 1.52 $142.90 74.82 692.03 Steam Lines Feed Lines Compressor: General 56.35 18.47 Condenser Air Drills: Air Lines 13.36 224.75 453.92 Hose and Fittings General Total Power Repairs . . . $20 . 00 $497 . 52l $392 . 23 $909 . 75 244 MINE ACCOUNTING AND COST PRINCIPLES These statements keep the Operating Heads informed of the amount of Repairs and Replacements for each job and in total, and such segrega- tions allow the Repair and Replacement charges to be shown separately upon the Operating Cost Sheets. If any item of expense is unusual the Detail Sheets are consulted for the facts. The Asset Costs consist of Administrative Asset Costs and Operating Asset Costs. The Administrative Asset; Costs of Mine Property and Investments are shown by the accounts in the Administrative Ledger. The Cost Details of Development of Mine Property that is charged to the property account are kept in the same manner as the Development Costs of Operation. The principal Operating Asset Costs consist of : Construction and Equipment, Materials and Supplies, and Accounts Receivable. CONSTRUCTION AND EQUIPMENT COSTS Segregations of the expense are kept for each unit of Construction and Equipment and recorded upon Summary Forms No. 50 and in the Cost Ledger, in the same manner as with Repairs and Replacements, and statements of the details of the expense are made up from Form No. 50 for each unit for each period in the same form as for Repairs and Replacements. ACCOUNT =0- FORM 56. Record of Equipment. However, in order that a concise summary of the Construction and Equipment may be obtained, a control account for the total equipment of each department is also carried in the ledger, as shown on Chart XIV and by Cost Accounts Numbers 110 to 127 inclusive. The detail unit costs of equipment are checked against the estimated costs and also can be used for establishing schedules of depreciation when the latter is based upon the life of each piece of equipment. COMPILING THE COSTS 245 The control equipment accounts serve to show the amount of equip- ment assets in concise form and are used as reference and when deter- mining the amount of insurance that is to be carried. In order to have a complete record of all equipment, the description of each item together with total cost, and the date each item was charged out, is recorded upon Form No. 56. At the end of each year a copy of this record is made and a check obtained by inventory of the equipment. If any equipment cannot be located, a satisfactory explanation must be given by the one responsible therefor. By this means, the loss of small equipment by theft, having been loaned and not returned, etc., can be reduced to the minimum. Also the correct description of any piece of equipment, and its cost can be quickly ascertained and its life known. MATERIALS AND SUPPLIES COSTS The cost of each item of materials and supplies is not obtained from the Segregation Sheets but from the invoices of material purchased, and from the expense bills of freight paid. The procedure and records involved in the purchase, transportation and storage of materials and supplies is under the jurisdiction of the Pur- chasing Department, and not the Accounting Department. However, the costing and recording of the materials and supplies as received and as disbursed are done to conform with the requirements of the Accounting and Costing Departments. Upon the receipt of each invoice by the Puchasing Department, or by the Accounting Department, if there is no Purchasing Department, and after the invoice has been checked against the order, and as to prices and extensions, the items appearing on the invoice are listed upon a Goods Received Cost Sheet (Form No. 57), which, together with the invoice and expense bill are delivered to the Storekeeper. The Storekeeper checks the quantity of materials and supplies as received against the invoice and ascertains the accurate net weight of each unit. He then en'ters the invoice and freight cost for each item on the Goods Received Sheet. If the handling is pro-rated over the supplies as received, he also enters the proportional cost of handling. The total cost for each invoice item is listed in the "Total Cost" Column, and the unit cost entered in the "Cost Per Unit" Column A "Stock Record" Card (Form No. 17) or sheet is made out for each item giving complete description and the necessary data entered thereon under the heading of "Stock Received." The stock record cards or sheets are kept in an alphabetic file as to stocks, and show the delivered cost of each item of materials and supplies purchased, and support the cost of each stock appearing in the Cost Ledger and the Materials and Supplies Account in the General Ledger. 246 MINE ACCOUNTING AND COST PRINCIPLES | 1 | g. a i = 1 a 1 1 . u "o 1 r .3 c I 2 J- - C4 CO ^ o > 1 5 1 I CO T3 a > porxns -2 OS j 5 ^ . P S t>I s 1 1 o I r, -3 31 si |- S I o M ^ O U M P H W it I 1 = ATTUCK ARIZONA COP ta I u a w > 3 9 1 1 J3 a E SI Arrlvd ,1. ARTICLE H 09 ^ - C4 m ^i 10 to t" 00 a> COMPILING THE COSTS 247 As supplies are issued to operations they are written off of the supply cards and charge tickets made, as explained under Supplies Issued. Accounts Receivable Costs. Accounts Receivable originate as a result of purchases made or work or jobs performed for others. If purchases are made for others, the cost of the purchase is ascertained in the same manner as the cost of materials and supplies. If work or jobs are performed for others the cost is ascertained along with the operating costs. Usually a certain percentage is added to cover overhead and bookkeeping in determining Accounts Receivable Costs, and this percentage is credited to "Refunds and Discounts, Operating Sales," when the account is collected. Distributing the Cost Sheets. The detail unit costs for each period of Sinking, Drifting, Raising, Stoping, etc., are the ones that are com- piled first, and sufficient copies of these costs are furnished the proper department heads to give each supervisor a copy. The departmental production costs and departmental unit costs are then ascertained and a copy furnished each department head. Copies of all operating costs are furnished the Manager and as much of the operating costs as are desired are furnished the directors and officers. Assembling the Cost Sheets. All the operating costs except the Detail Unit Costs of Sub-departments should be compiled upon sheets of uniform size, and sufficient copies made to supply the Manager, Officers and Directors. These cost sheets should then be assembled, as follows : First: Total Operating Production Costs, and Summary of Production and Credits, Second: Departmental Production Costs, Third: Departmental Unit Costs, Fourth: Repair and Replacement Costs, Fifth: Shop and Power Costs, Sixth: Construction and Equipment Costs. After the cost sheets for each period have been assembled they should be combined with the Operating Statement and Schedules and the Profit and Loss Statement, and enclosed in an appropriate binder with an index to allow of convenient and ready reference to be had to the results of any one period. There should accompany the Cost Statements to the Manager and other officers, a report analyzing the Operating Statement and Schedules and the profit and loss for the period, and showing the fluctuation in costs and the reasons therefor. In order to make this report valuable, it should be confined to matters of interest to the Manager and Directors. Neither the Material and Supply Costs nor the Accounts Receivable Costs are detailed on Cost Sheets. The cost of each item of materials 248 MINE ACCOUNTING AND COST PRINCIPLES and supplies is scrutinized by the Purchasing Department when received from the Storekeeper, who also compares the cost with previous costs when making entries on stock record cards. STATISTICS In order to analyze properly the results of operations in costs, effic- iency, etc., for any period of month or year, it is necessary to compile monthly and yearly statistic of costs, efficiency, earnings, market prices of metals, etc. from the beginning of production to date. The statistics will need to be of such a nature as to meet the requirements of each business. They should not be too much in detail but more of a general nature, so that the increases and decreases from month to month and year to year of the principal factors of costs, efficiency, earnings, etc. can be quickly ascertained and the tendency towards higher or lower levels of costs or earnings can readily be seen and explained. Without the proper statistics for comparison with the results of each period, it is difficult to analyze the accounting and costing data, or make a proper report of the results of operations for any one period. ECONOMIC ACCOUNTING After the accounting and costing procedure have been firmly estab- lished and accurate costs are being obtained, attention should be given to determining mine, mill and smelter losses at different prices of metals. When the market prices of metals are high the losses are much greater than when metal prices are low. When metals are high the problem is to obtain the best possible economic recovery. But when prices are low, it is sometimes better to get the best possible cost at the expense of a high recovery. At times the gain in cost is more than offset by the increase in losses, while again the increase in cost is less than the decrease in losses. The most economical cost is not always the lowest cost, neither is the highest recovery always the most economical one. In some instances a standard of mill or smelter recovery or costs is set on low prices of metals and adhered to even when the price of the product has doubled. The solving of these problems requires great pains and a close working contact between the accounting, production and engineering departments, and is a field of activity in which a great deal of intelligent effort can be exercised to the benefit of the industry. FORMS Forms are a necessary means of obtaining uniformity in accumu- lating accounting and cost data, and should be so constructed as to conduce to efficiency and the obtaining of correct data without dupli- cation. COMPILING THE COSTS 249 Forms improperly drafted and ruled are always a source of annoyance and result in waste of time and material, and the compiling of data improperly. The forms illustrated herein are only the more important ones used in operations. They have been arranged in the order in which they are compiled in actual operations of a mining business. However, as the requirements of each business and the methods of mining and disposing of the products, as well as the laws of each state, etc., are not uniform, it is impracticable to construct forms that would be applicable to all classes and kinds of mining. The forms presented are simply complimentary to the text and for use of mines of the nature designated, but of course, can be used as guides in drafting forms for mining operations differing in methods of operation or character of products. In drafting a form the principal consideration is to obtain the ruling and arrangement that will allow the compiling of the data with the least effort, and that will give all the information desired or obtainable. However, other considerations are the quality of the paper, the size of the form that can be cut with the least waste, and that the columns are neither too large nor too small to accommodate the data to be com- piled and that there is no duplication of information contained on other forms. A careful consideration of such matters will result in large savings in purchase of supplies as well as in labor of compiling. Some of the forms presented are of great value as they have been worked out after careful experimentation and much thought and exper- ience and will result in saving of labor and time and the obtaining of facts in a clear concise manner by anyone having use for them. Each form should bear a heading concisely stating for what purpose the form is to be used. Some of the forms herein do not bear the proper headings, but have been presented as they had been drawn. Some of the forms are original, while others are more or less standard in mine accounting practise. CHAPTER XXIV APPENDIX SIMPLE SYSTEM OF MINE ACCOUNTS Practically all of the mining companies expend large sums in explora- tion of outside properties taken under option. Such work is generally done on a small scale at the beginning under the direction of a superin- tendent who also attends to the keeping of the records and the disbursing of the money. Therefore, a simple system of records and reports must be devised that can be easily handled by the one in charge of operations, and that will furnish the information necessary to allow of proper book- keeping at the head office. A large percentage of such prospects are eventually abandoned and an elaborate and expensive system of accounts is not desired. To fill the need of such operations, a simple system of records and accounts must be devised that can be easily handled by the mine superintendent at the beginning of operations, and later by a timekeeper and supply clerk. An outline of such a system is given, as follows: INSTRUCTIONS TO SUPERINTENDENT IN CHARGE OF OPERATIONS, ADVIS- ING or NECESSARY REPORTS AND RECORDS TO BE MADE AT THE MINE The books of the Mine will be kept in the General Office. However, you will keep records, make distributions and reports, as follows : RECORD AND PAYMENT OF LABOR You will record on the pay-roll furnished you Form No. , the record of all labor performed either by daily wages, or by contract, and issue cheques in favor of each person on pay-roll for the net amount due each after all deductions for store, etc. have been made. You will take a signed receipt, Form No. , from each person upon delivery of cheque. At the end of each month after you have closed and balanced your roll you will make a copy of the monthly pay-roll and forward it to the General Office. RECORD AND PAYMENT OF INVOICES AND BILLS You will pay all bills of expenses and invoices of material, which should be submitted to you in duplicate. As soon as the bills have been checked and found correct, you will make vouchers in duplicate for each bill or invoice, or for all invoices in any one month of the same Company, Firm or Person. You will mark one of the vouchers original and the other duplicate and attach the original invoice and the duplicate invoice to the vouchers and will enter upon the voucher record Form No. , a record of 250 APPENDIX 251 each voucher made. After the vouchers have been made out and record- ed you will make out cheques for the amount of each voucher and upon delivering the cheque to the proper person you will have receipted both the original and duplicate vouchers. If you have to mail the vouchers and cheques you will notify the persons to receipt and return both the original and duplicate vouchers. At the end of each month when you have paid all of the bills for which you have received invoices you will total the voucher record for that month and make a copy of it, and as soon as you receive back the receipted vouchers you will return the original vouchers with a copy of the voucher record to the General Office and keep your original record and the dupli- cate vouchers. RECORD OF SUPPLIES RECEIVED AND USED For the present you will not need to keep any record of supplies as used, but will charge out all supplies as purchased to one or more of the four general accounts named hereafter. To make it convenient for you to segregate and charge out the supplies as purchased you should group your supplies when ordering so as to have all supplies to be used for min- ing operations together and all supplies for construction together, also all the supplies for the store, etc., so it will be simple for you to make distribution when paying the bills. However, for your convenience in keeping a record of supplies used on any particular job at the mine, you are furnished with a number of supply sheets Form No. RECORD OF CHEQUES ISSUED You will draw all cheques upon the company, using the cheque fur- nished you, Form No. , in making payment for all labor or expense. You will report each day, whenever you issue a cheque either for labor or for bills paid, a record of the cheque issued on Form , to the General Office, so that we may know how much money you have drawn out of your account and to enable us to keep sufficient funds in your account to cover your cheques. This is very important and should not be overlooked. PURCHASES In making purchases ask for and obtain invoices in duplicate, and in ordering your supplies arrange your orders separately for supplies, for construction and equipment, for mining, for store, etc. so that you can easily distribute them to the proper accounts when paying the bills. You will, for the present, not keep any stock account of supplies for mining, but charge out all supplies as purchased, regardless of whether or not they will be used immediately or at a later date. 252 MINE ACCOUNTING AND COST PRINCIPLES DISTRIBUTION OF EXPENSE Labor. Each day you will keep a record as to the proper distribution of each man's time, using ordinary small time books, or a piece of paper, and at the end of each day you can summarize and enter these distribu- tions upon a large sheet Form No. furnished you. The total amount of the money entered on this distribution sheet each day should equal the total amount of your pay-roll for each day. Vouchers. You will make on the back of each voucher a distribution of the expense or bills of material covered by the voucher and will enter such distribution in one or more of the columns on the voucher record, Form No. , when making your record of vouchers issued. If you wish to keep a more detailed record of the expense as paid, or of the materials as they are used, you can do this in any manner most convenient to yourself, and it would be well for you to keep as detailed a record of charges to the four general accounts as it is practicable for you to do. Supplies. As here -to-fore stated you will not need to keep any record of the mining supplies as used unless you desire to do so but will charge out all supplies to one of the four accounts upon making payment for supplies purchased. However, we are furnishing you with supply sheets which you may use to keep a record of the supplies as they are used for each job or piece of work in order to get a correct cost of each item of con- struction or mine operation. All supplies that are not for immediate use should be stored under lock and distributed by yourself or someone who is responsible. DISTRIBUTION ACCOUNTS In making your distribution of all labor, expense or supplies to the General Office you need not segregate the labor expense or supplies any further than the four general accounts, as follows : 1. Construction and Equipment. To this you will charge all labor and supplies for all items of construction such as roads, houses, horses and burros, and all large equipment other than small tools, keeping your record of the cost of each. 2. Mining Operations. To this will be charged all labor and supplies and small tools used in mining, keeping for your record a cost of each department of expense, such as Tunnel No. 1, Open Cut No. 2, Drift No. 2, Shaft No. 1, Cost of Distribution of Supplies, if there should be need for pack animals or other means to distribute supplies to different works, etc. 3. General Expense. To this you will charge keep of horse, if any, expense for yourself, office expense, and all incidental expense not directly applicable to mining, operations or to construction and equipment, or to store. APPENDIX 253 4. Store. If you run a store, then charge all expense in connection with the store and the cost of all goods purchased for the store to ' ' Store " on the vouchers in payment of such. Sales from store should be made at a price to cover invoice and freight cost plus 20 per cent or whatever is necessary to meet competition or give the men the proper service. CREDITS TO THE STORE As you sell merchandise from the store to the men working for you, charge to each individual the amount of each purchase, keeping a record on store charge tickets Form , furnished you, and each day you will sort these tickets and total them for each person and enter the amount against each man's time on the pay-roll so that you will know at all times how much store charge there is against each man's time and avoid anyone over-buying his account. At the end of each month when you total and balance the monthly pay-roll you will draw a cheque for the total amount of the store deduct- ions, making the cheque in favor of the company and forward it to the General Office. This cheque should be entered on the roll and on the cheque register the same as any pay-roll cheque and extended to pay-roll column in cheque register. Pay-roll Statement for this cheque should be made out to the Company and sent to the General Office with the cheque. All pay-roll deductions should be handled in this way making cheque and statement to the person or company in whose favor deduction is made. CASH SALES BY STORE Cash taken in over the counter should be used for small purchases for store, such as eggs, etc., and should not be taken into your General Cash Account. Do not report these cash sales to the General Office. Treat your store as though it did not belong to the mine at all, and keep it separate. KITCHEN AND BOARDING HOUSE If you run a kitchen and boarding house handle all expense in con- nection therewith by vouchers, using new account No. 5 for Kitchen. Charges made by store for supplies to kitchen should be vouchered and cheque drawn in favor of the company and sent to General Office. Make charge to Kitchen Account on back of all such vouchers. Supplies, etc. for kitchen purchased elsewhere should be paid by voucher direct. Supplies sold from store to mine operations can be vouchered in same manner as to Kitchen. This will keep your store account clear by charges made at General Office. If you make deductions for Board, etc., on pay-roll handle the same as store deductions showing "Kitchen Deduction" on pay-roll statement. If you get cash for meals you can use money to pay for small supplies for kitchen. 254 MINE ACCOUNTING AND COST PRINCIPLES CASH ACCOUNT We are placing with the Bank, all monies subject to your cheque, and you will keep a record of the amount of cheques against this ac- count and report amount of each cheque drawn against the account so that we may make deposits from time to time to take care of all cheques drawn by you. We will notify you when deposits are made but it is probable that the notification may not reach you at a very early date. Mark all your cheques" ." PERSONAL CASH ACCOUNT. (CASH ON HAND) In order to be able to take care of all purchases which must be paid by cash you will draw voucher and cheque payable to yourself as agent. In order to renew this cash as it is spent, from time to time, make out a voucher and cheque to yourself as agent for the amount of cash you have disbursed, attaching the receipts and charge these items to their respec- tive accounts on back of voucher, and cash the cheque. This will put all your payments through your voucher register or pay-roll. In case of part payment made in cash, make out two cheques to cover the amount of voucher and have the person endorse the check to you to cover the amount of cash paid. These cheques may be re-endorsed and cashed by you as you need the money. Mail. You should make arrangements for your reports to the General Office to be delivered to a point where they can reach us at the earliest date possible, and notify us immediately where to address your mail so as to get the best delivery to you. You should address all mail to the Company. , Freight. Arrangements should be made with, a responsible freighter to bring out your supplies as ordered for the store and mine. You can pro-rate freight charges to different accounts according to class of supplies freighted. General. Any information that you may wish in regard to the records and reports not covered by the above, will be furnished upon your request. Also we may issue instructions contrary to the above at any time in the future should we see fit to do so, or we may add to the above instruc- tions. NOTE: A simple set of forms to accompany the above instructions can quickly be designed to meet the requirements of each prospect. INDEX Accident to employes, 56 Accounting, administrative, 25, 153 definition of terms, 5 divisions, 13, 45 operating, 44 principles, 9, 10, 41, 150 procedure, 13 relationship to the business, 2 statement for the treasurer, 144 Accounts receivable schedule, 131 payable schedule, 131 Administrative accounts, 151 cash book, 21 journal, 18 ledger, 18 voucher record, 22 Appendix, 250 Appreciation of property, 158 Assay record, 94 Assay report, 88, 93 B Balance sheet, 174, 181 Balance sheet schedules, 183 Bills audited, 60 disbursement account, 63 distribution, 78 record, 61 Books of record, 26 Business of mining, 1 Business reorganization, 34 Cash, book, administrative, 21 book, operating, 116 disbursements, 124, 165 discounts and credits, 61 petty account, 126 receipts, 115, 163 reconcilement, 128, 166 settlements, schedule, 134 Chart of accounts, 11, 42, 50, 85, 151, 190 Chart of principles, 9, 41, 48, 150, 189 Charges, miscellaneous, 82 Cheque register, 125 Cheques unpaid, 128 Condition of business, statement of, 23, 36 Cost accounts, 190 Cost accounting, 192 assets, 244 comparative, 234 compilations, 215 daily and weekly, 229 departmental production, 223 departmental unit, 224 detail unit, 227 division production, 219 factors, 210 ledger, 201 methods, 192 principles, 189, 193 prepaid, 242 segregation sheet, 201 sheets, 247 shops and power, 237 total and net production, 215 Capital 16 expense, 46 for prospecting, 16 for operating, 46 receipts, 22, 48 stock journal, 19 ledger, 20 Capitalization, 16, 34 Cash, 114, 131, 162 Daily distribution reports, 196, 198 Delivery of by products, 122 Delivery of principal production, 110 of sales, 110 Departments of organization, 194 Depreciation of equipment, 29, 72, 145 Depletion of mine, 72 reserve, 171 Development accounting, 33 255 256 INDEX Development, determining the, 28, 29, 31 operations, 25, 27 overhead, 208 stage, 32 Dividends, 168 cash, 168 capital, 170 stock, 169 Divisions of organization, 193 Disbursements, administrative, 155 accrued, 70, 79, 155 actual direct, 52, 77, 155 indirect, 68, 78 capital, 22, 48 chart of, 50, 156 deferred, 71, 81, 158 distribution of, 76, 158 operating, 27, 51, 68 summary of, 68, 74, 82 E Expense, capital, 22 cost, 195 distribution of, 195 operating, 82 summary, 144 Economic accounting, 248 Forms, 13, 248 G General accounting, 7 accounts, 26 Handling of supplies, 66 Holding company, 185 I Income statement, or account, 177 Inventory, adjustment to books, 141 of ore, bullion, etc, 142 Invested capital, 183 Invoices and freight bills, 60 check of, 61 Labor, 52 disbursement account, 57 distribution of, 77 distribution summary, 200 employment of, 52 reports, 53 Ledger, administrative, 18 operating, capital stock, 20 Liquidation of the business, 186 Loss on sales, 111 M Material and supply stocks, 133 inventory, 142 Mine production, 88 Mining methods, 12 Monthly distribution sheets, 197, 199 N Notes receivable, 167 O Operating accounting, 26, 44 accounts, 161 accounting department, 25 capital, 46 development, 47 disbursements, 27, 51 factors, 213 organization, 25 profit and loss, 138 receipts, 27 statement and schedules, 129, 137 Orders, 57 Ore shipment record, 92 Ores loaded, 89 Ores sampled for treatment, 91 Organization of accounting department, 8 the business, 4, 17, 25 Organization units, 193 Overs and shorts on deliveries, 111 Overhead, 194 development, 208 distribution of, 209 Oversales, 132 Journal, administrative, 18 operating, capital stock, 19 Pay rolls, 57 Power disbursement account, 69 distribution of, 79, 207 INDEX 257 Prepaid expense, 80 Principles of accounting, 9, 10, 41, 150 Production, 84 accounts, 84 accounting divisions, 45 chart, 86 factors, 210 inventory, 84 methods, 87 of mine, 87 of mill, 99 of smelter, 99 of refinery, 101 of by-products, 96 of secondary products. 97 record, 93, 95 Production and refinery deliveries, 102 Production and sales schedules, 132 Profit and loss, 138, 144, 147, 177 Promotion of business, 16 Property appreciation, 158 Purchase data, 133 Purpose of accounting, 7 R Realized appreciation, 174 Receipts, 107 administrative, 162 capital, 17 for deliveries of production, 110 by products, 112 secondary production, 112 miscellaneous, 113 operating, 27 Reconcilement of cash, 128 Refinery and sales deliveries, 132 Reorganization accounting, 35 Reorganization of the business, 34 Repairs, 80, 205 Replacements, 80, 206 Requisition for supplies, 64 Reserve for loss on sales, 111 Revenue accounts, summary, 143 Ruling the accounts, 147 S Sales, 103 contract, 104 of by-products, 107 of principal product, 103 of secondary products, 106 Sales, record, 106 report, 119 settlement check, 119 record, 120 undelivered, 107 Sampler's record, 91 Sampling of ores, 91 Schedule of charges and credits, 12, 195 Shops disbursement account, 68 distribution of, 79, 204 Sold metal in transit, 132 Stages of operation, 14 Statement of condition of business, 23, 29, 46, 130, 154, 173 Statistics, 248 Supplies issued, 63 account, 67 distribution of, 77 handling, 66 record, 65 report, 64 Surplus, 179 Suspense, 81, 208 Time, 214 Time statement, 56 Treasurer's accounts, closing of, 146 opening of, 184 Tonnage factors, 210 Trial balance, 129, 172 U Underground distribution sheet, 197 Understanding of accounting, 5 Unexpired insurance, 81 Units of organization, 193 Unpaid cheques, 128 Unsold bullion inventory, 132 Valuation of mine, 34 Vouchers, 61 Voucher Cheque, 63 Voucher record, administrative, 22 operating, 61 W Weight and moisture certificate, 90 Working factors, 11, 48, 153 UNIVERSITY OF CALIFORNIA LIBRARY Los Angeles This book is DUE on the last date stamped below. Form L9-32m-8,'58(5876s4)444 Graduate Sc-ol -r of