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THE 
 
 ACCOUNTANT'S & BOOKKEEPER'S 
 
 A SERIES OF SHORT AND CONCISE ARTICLES 
 UPON 
 
 CAPITAL AND REVENUE EXPENDITURE 
 
 REVENUE ACCOUNTS 
 
 DEPRECIATION RESERVE AND SINKING FUNDS 
 
 ADJUSTMENT OF PARTNERSHIP ACCOUNTS 
 
 JOINT STOCK companies' ACCOUNTS 
 
 TABULAR BOOKKEEPING 
 
 AND OTHER MATTERS NOT GENERALLY DEALT WITH IN EXTANT WORKS ON BOOKKEEPING 
 TOGETHER WITH USEFUL FORMS AND DIRECTIONS 
 
 BY 
 
 G. E. STUART WHATLEY 
 
 Accountant (Exam. Inst. C.A.) 
 
 Price 7/6 
 
 LONDON : 
 GEE AND CO., 34 MOORGATE STREET, E.G. 
 
 1893 
 
 OF J 
 
(^^l 
 
 ^^Z3^ 
 
 W 
 
 SPRECKF'^ 
 
PEEFACE. 
 
 AMONG extant works on Bookkeeping there are several 
 calculated, more or less, to instruct the student and give 
 him a theoretical knowledge of the art and science of keep- 
 ing accounts ; but with these I am not entering into competi- 
 tion, it being my object to place in the hands of those who, 
 having acquired some practical knowledge of Bookkeeping, 
 seek further information upon those matters that call for the 
 particular attention of the professional Accountant, and which 
 the works before referred to either give in a scanty manner or 
 not at all. 
 
 It was while preparing for the Final Examination required 
 by the Institute of Chartered Accountants that I felt the want 
 of such a text-book — and which want I now endeavour to 
 supply, so as to put before Accountant Students and Book- 
 keepers generally such a work as will at least serve for a 
 signpost to the desired goal, if it does not impart the com- 
 plete knowledge required. It would be impossible for me to 
 convey to the reader a thorough knowledge of the subjects 
 I have treated upon without practice on his part — it is only 
 by experience and full attention to the respective require- 
 ments that the theories herein stated can be put to a real and 
 practical use. All that I can do is to lay down certain rules 
 and offer suggestions which will facilitate the acquirement of 
 this practical knowledge. 
 
 My object is to conduct the reader by the simplest methods ; 
 my language shall be plain and easy to be understood ; 
 and if it appear at times that I dwell too long on minor 
 points, at least what may be thus deemed by the professional 
 man and him who is already practically acquainted with the 
 subjects, I would beg to remind them that it is for the Student 
 I write, and that to him these minor points are the most useful. 
 
 1 29269 
 
IV. PBEFACE. 
 
 One of the great secrets of Bookkeeping is to know how to 
 make entries in the different books of account which shall be 
 as full and as explanatory as possible ; but at the same time 
 to avoid multifarious and unnecessary postings. It is a fault 
 of many Bookkeepers, when opening sets of books, to increase 
 such books uselessly ; the saving of labour is a matter of 
 moment in these go-ahead times ; and the endeavour of every 
 good Accountant should be to keep a complete record of 
 accounts with as few books as possible. This matter I have 
 fully dealt with in the chapter on Tabular Bookkeeping. 
 
 Now the work is going forth to the world, I am conscious 
 that I have not come up to the ideal I had before me in the 
 first instance ; but I trust what I have attempted may be of 
 assistance to those who are about to enter the profession of 
 Accountancy, as well as to the numerous body of Bookkeepers 
 and Accountants in commercial firms and business houses. 
 And I would ask those of my professional brethren into whose 
 hands my work may fall that they will deal leniently with me 
 for any shortcomings, but at the same time, any hints that 
 they may offer, or any required corrections they may point 
 out, I shall feel deeply indebted for, and will duly store 
 same up, so that in any future edition I may make the 
 "amende honorable." 
 
 In conclusion, I have to thank those friends who have 
 interested themselves in my labour, and have tendered me their 
 valuable assistance ; and principally I have to thank C. 
 W. P. OvEREND, Esq., Barrister-at-Law, for his legal advice 
 and assistance, C. H. Weatherley, Esq., A.C.A., who has 
 given me a helping hand when I may have been in doubt on 
 any technical point, and A. W. Stepski, Esq., for his 
 valuable information on Continental and American systems of 
 Tabular Bookkeeping. 
 
 G. E. STUAET WHATLEY. 
 
 85 Mildmay Boad, London, N. 
 
CONTENTS. 
 
 PREFACE. 
 CHAPTER I. 
 Capital and Revenue. — Capital and Revenue Expenditure — The 
 importance of distinction — What it is — When in doubt, give Capital 
 the benefit — The distinction illustrated. 
 
 CHAPTER II. 
 
 Beveniu Accounts. — I. Trading and Profit and Loss Accounts - What is a 
 Revenue Account — Subdivision of Revenue Account : {a) Trading 
 Account — its purposes — Expenses of the establishment — What they 
 are — Trading Account, hovr constituted, its balance showing gross 
 profit — Returns inward and outward — How treated — Possibility of 
 a loss being shown on Trading Account very remote — What would 
 occasion it : (6) Profit and Loss Account, the credit side showing 
 sources of income not legitimately belonging to the business — The 
 debit side showing the expenses incidental to carrying on the business 
 — The balance being net gain or loss : (c) A further subdivision of the 
 Revenue Account — Companies: Net Profit — How brought down — 
 Income tax on dividends — Reserve — Treatment of residue of profit 
 undivided — Deficiencies on previous Revenue Accounts— How dealt 
 with — Until made good no dividend can be declared — Dividend from 
 Reserve Account allowable — Preference shares, percentage payable 
 out of profits for the period — Partnerships : Division of gain or loss — 
 Revenue Account of a joint stock company — Revenue Account of a 
 manufacturing firm. Interest on capital, loans, mortgages, &c., why 
 advisable that they should appear in the 3rd section of Revenue 
 Account. Income tax to be deducted when paying interest on loans, 
 &c., an exception. 
 
 CHAPTER III. 
 
 Revenue Accounts (continued). — II. Deficiency Account, such an account 
 required under the present Bankruptcy Act — Example of a Statement 
 of Afiairs and a Deficiency Account — Form required by the Board of 
 Trade — The object of a Deficiency Account — Revenue Account shows 
 loss in trading, Capital Accounts {i.e., those representing outlay of 
 capital) loss of capital — How a Revenue Account may be raised from 
 a set of books kept by single entry or incompletely written up — 
 Revenue Account not to be confused with a Cash Account — The 
 distinction explained— Cash and other books of account used for the 
 purposes of a Journal condemned. 
 
VI. CONTENTS. 
 
 CHAPTEK IV. 
 Depreciation. — Not a polemical discussion — Depreciation depends upon 
 the character of the business — Wear and tear, it can be fairly approxi- 
 mated—The two formulae — I. Property having no residue value — II. 
 Property having a residue of value — The formulae applied — Break-up 
 value — Exceptions to the foregoing — Goodwill, shares, bonds, invest- 
 ments, &c. — Formation expenses of a company — ^^Outlay of capital in 
 mines, quarries, &c. — The latter explained in detail and illustrated — 
 Where depreciation should appear on a Balance Sheet — Deprecia- 
 tion Account — Not the same as Depreciation Fund — Other causes 
 affecting depreciation — The assessment of the charge for deprecia- 
 tion may also be affected by tenure of property, location, hours of 
 working, &c. 
 
 CHAPTEK V. 
 
 Eeserve and Sinking Funds. — What is a Keserve Fund — Its object may 
 be specified as Depreciation Fund, Replacement of Machinery, &c.. 
 Renewal Account (Leasehold, &o.), Reserve for Bad and Doubt- 
 ful Debts, Dividend Reserve, Replacement of Vessels, &c. — Objection 
 to depreciation and writing down of property appearing on lia- 
 bility side of Balance Sheet — The case demonstrated — The advisa- 
 bility of having a Reserve Fund — Sinking Fund for Goodwill and 
 for Purchase Account. 
 
 CHAPTER VI. 
 
 Adjiistment of Partnership Accounts. — I. The legal aspect of the subject, 
 payment of losses, application of the partnership assets ; unequal 
 capitals advanced, but share of profits and losses to be equal, gives 
 rise to difficulty. II. The method of writing up and adjusting 
 Partnership Accounts in accordance with the legal requirements 
 — (a) The assets on realisation being insufficient to meet the claims of 
 non-partners — The profits and losses being shared equally — Realisa- 
 tion of Assets Account — Tabular form of Cash Book — Statement 
 showing the final adjustment of the Partnership Accounts — Equalisa- 
 tion of loss. (6) The assets being insufficient to repay the partners 
 their advances ; sharing profits unequally, (c) The assets being 
 insufficient to repay the partners their respective captial, capital 
 subscribed equally ; sharing profits and losses unequally — Interest on 
 capital — The Partnership Deed, particular attention to be paid to 
 the wording and clauses, and how acted upon by the partners them- 
 selves. III. Retrospective adjustment of Partnership Accounts in 
 
CONTENTS. vii. 
 
 CHAPTER Yl.— continued. 
 
 the event of disputes between partners — Grounds on which the 
 Court will interfere— The accounts that will require adjustment — The 
 method to be adopted — An illustration — How a dissolution may be 
 brought about : (1) by operation of law, (2) by fixed agreement of the 
 partners, (3) by decree of the Court. 
 
 CHAPTER VII. 
 
 Joint Stock Companies' Accounts. — The Statistical Books— Register 
 ■ of Members— It may form one with the Share Ledger — Application 
 and allotment of shares — Vendor's shares — Signatories to the Memo- 
 randum of Association — Examples explained — Call Book, call letter — 
 Letter of request to bankers to receive call, its advantage — Interest on 
 calls overdue — Interest on calls paid in advance — Certificates to be 
 endorsed with calls paid — Journal entries, those peculiar to a joint 
 stock company — Transfers, certification, balance certificate — Care to 
 be exercised in accepting transfer deeds, what is to be noted — 
 Transfer receipts, notice to transferors — Completion of transfer of 
 shares — Share Ledger — Its description — Method of writing up Cash 
 Account of same — Objections to debiting shareholder with his pro- 
 portion of uncalled capital, reasons — Agreement of the statistical 
 portion of the Annual Summary with Shareholders' Accounts. 
 Index to Share Ledger should be separate, forms an Address Book, 
 and list of shareholders except their respective holdings. Index to 
 Transfer Guard Book — Distinction between transferor and transferee 
 — Forfeited, lapsed, or surrendered shares — Valid forfeiture, what 
 required — Forfeited shares how recorded in the Books of Account — 
 Concluding remarks. 
 
 CHAPTER VIII. 
 
 Tabular Bookkeeping. — Until recent years little used in England— Its 
 advantages — What the system is. The Cash Book in general use the 
 most simple form — The Tabular Petty Cash Book, its advantages — The 
 system adapted for all businesses — The Ledger may be tabular in some 
 accounts — Customers' Ledger for banks, shows daily balance — Hotel 
 system, the Visitors' Ledger, Rough Day Book, &c., explained — 
 Theatrical Accounts, Books required. Cash Book, Ledger, Production 
 Ledger, Monthly statement of Profit and Loss, Forms — The dis- 
 advantages of the system compensated by the advantages — The 
 
Vlll. CONTENTS. 
 
 CHAPTER Will.— continued. 
 
 Journal — Some remarks on the Journal generally — Its gradual disuse 
 — It should be used for all entries not legitimately belonging to the 
 subsidiary books— The Narration, What it should be. A loose style of 
 narration — A tabular form of Journal. 
 
 CHAPTER IX. 
 
 Concluding Remarks — Transactions and Accounts not treated of in 
 foregoing chapters — Accrued amounts, outstanding liabilities and 
 assets — Bad Debts, when they should be written off, Reserve for, how 
 raised, Bad and Doubtful Debt Ledger — Cash Book and Bank Pass 
 Book, reconciliation of Balance — Consignments, Adventures, Joint 
 Accounts described, how they should be recorded ; Skeleton form of 
 Journal entries, uncomplete Consignments at period of General 
 Balance, how treated — Contingent Liabilities, how shown in 
 Balance Sheet, what they are — Contracts, how treated — Deficiency 
 Account (Companies winding-up), Forms and how prepared — Income 
 tax, average profits, how made out, Claims for repayment of over- 
 charge — Conclusion. 
 
CHAPTEE I. 
 
 CAPITAL AND REVENUE. 
 
 CAPITAL AND EEVENUE EXPENDITUEE. 
 
 Some of the most difficult and most important items with 
 which an Accountant has to cope, when deahng with the 
 financial matters of a business or undertaking, are those of 
 Capital and Eevenue Expenditure. They call for careful 
 examination, so that no items of expenditure which properly 
 belong to Eevenue be included among those of Capital. In 
 times of depression in trade, or losses arising from other 
 causes, there often is a tendency, when it is desired to keep 
 down losses or to pay a dividend not less in amount than those 
 declared in previous years, to write up assets by charging to 
 Capital expenses which, in all strictness, should belong to the 
 Eevenue of the current period — or, in other words, to consider 
 payments made for the upholding of property, fixed plant, etc., 
 as representing an increase of the value of sunken Capital. 
 
 Items of outlay which are actual additions to, or exten- 
 sions of, property, and which increase thereby the permanent 
 value, or influence the power of production, should, without 
 doubt, come under the head of Capital Expenditure ; while 
 
2 THE accountant's AND BOOKKEEPER'S VADE-MECUM. 
 
 those which represent repass, replacement, or general up- 
 holding of property, should be regarded as Eevenue Expen- 
 diture. 
 
 It is a fact that at times it requires great discrimination as 
 well as experience to determine whether certain payments 
 belong to either one or the other ; yet where there is uncer- 
 tainty, Capital should indisputably have the benefit of the 
 doubt. 
 
 In order to explain more thoroughly the difference between 
 the two classes of Expenditure, a better plan cannot be adopted 
 than to do so by means of an illustration : — 
 
 A printing firm remove their old-fashioned printing presses 
 and replace them by the latest and most improved machinery, 
 thus materially increasing the value of their plant, as well as 
 their power of production. The old machinery stood in their 
 books at £3,000, and the new machinery cost £8,000 ; to say 
 what proportion of the cost of the latter should be considered 
 as Capital Expenditure would be a matter of judgment 
 founded upon a knowledge of the particular business; but 
 probably it would be the full cost less the amount at which 
 the old machinery stood in the books. 
 
 With regard to the £3,000, the book value of the old 
 machinery, prudence would suggest that, after allowing for 
 any amount realised by its sale, the remainder should not be 
 charged to the Revenue Account for the period during which 
 the new machinery was fitted up, but that the writing off 
 should be extended over two or three years, and there would 
 be no reason for any objection to such a mode of treatment. 
 
 If the old machinery had been properly written down by 
 yearly charges to Revenue, and supposing that it had been 
 replaced by new^ machinery of the same pattern and descrip- 
 tion, the cost would in this case also be charged to Capital ; 
 
CAPITAL AND EEVENUE. 6 
 
 for such replacement icould have been provided for by deprecia- 
 tion in past years. Any difference between the book value of 
 the old and the amount realised by its disposal would be 
 treated in the manner as before mentioned. 
 
 Had there been no writing down of the machinery, or had 
 it been inadequate, then the cost of such replacement or some 
 portion of it would have been properly charged direct to 
 Eevenue, taking into consideration, however, any " residue of 
 value." 
 
 It is almost impossible to deal with this subject to any 
 extent theoretically; it is a knowledge that can only be 
 acquired by experience and close application in discharging 
 the duties of an Accountant. An acquaintance, not a super- 
 ficial one, with the principles of actuarial valuations will be 
 of great assistance to form just and correct opinions upon the 
 somewhat knotty points of Capital and Eevenue Expenditure. 
 
CHAPTEE II. 
 
 REVENUE ACCOUNTS. 
 
 I. 
 
 TEADING AND PEOFIT AND LOSS ACCOUNT. 
 
 It is in this section intended to supply a deficiency in 
 extant works on Bookkeeping, which it is felt do not treat 
 this portion of the art as fully as its importance demands. 
 As to the proper method of raising a Trading Account, the 
 writer does not remember having ever seen an example or 
 coming across any lengthened explanation of this portion of a 
 Eevenue Account, although in a manufacturing or trading 
 concern its importance is not to be denied. 
 
 A Eevenue Account treats of Income and Expenditure, and 
 shows the total profit earned or the total loss incurred during 
 a certain period. 
 
 In a manufacturing or trading firm the Eevenue Account 
 should be divided into two parts : 1st, the Trading Account, 
 showing the gross profits ; 2nd, the Profit and Loss Account, 
 showing the net profit or the net loss. In Partnerships and in 
 
REVENUE ACCOUNTS. O 
 
 Companies there often is, and properly should be, a third part 
 — in the former giving the details of the division of the 
 profits or the individual participation in the losses, and in the 
 latter the division of the profits (if any) or a portion thereof 
 among the shareholders in the way of dividend. ' In non- 
 commercial bodies, charitable institutions, associations, &c., 
 a Eevenue Account without any such divisions would suffice 
 for all the purposes for which it would be required ; that is, to 
 show the derivation of Income, and the Expenditure charge- 
 able against the period during which the former has been 
 received. 
 
 (a) Trading Account. 
 
 The Trading Account is intended to show the gross profits 
 earned during a certain period (generally this is for six or 
 twelve months' trading, i.e., from the date at which the books 
 were last balanced to the date of the present closing of the 
 accounts), and its purpose is to show, as clearly as possible, 
 that the surplus of sales or work turned out, after deducting 
 the initial cost of goods or materials, together with the cost 
 of production (if any), is sufficient to allow a margin to fully 
 cover the expenses of the establishment {i.e., the expenses 
 incidental to carrying on the business), and to leave a surplus 
 for net profits. 
 
 The debit side will consist of the amount of Stock on hand 
 at the commencement of the period for which the accounts are 
 written up, the Purchases of Goods or Materials during the 
 same period, and any other items that would have to be taken 
 into account in selling (as carriage, freight, etc.), or that would 
 tend in a manufacturing concern to increase the cost of produc- 
 tion (as wages, the salary of a manager or other person, if 
 same be for duties solely performed in the producing depart- 
 ments) ; other salaries would come under the expenses of the 
 establishment. 
 
 The credit side will contain the Sales during the period 
 
b THE ACCOUNTANT S AND BOOKKEEPER S VADE-MECUM. 
 
 under notice (including charges for freight, carriage, insurance, 
 etc., if the same be paid by customers), and the Stock on hand 
 at the closing date ; the balancing entry being the gross profit 
 earned. With regard to Beturns outward (i.e., goods pur- 
 chased, or cases, wrappers, etc., charged for in Invoices inward 
 and returned after having been taken into Stock), and Beturns 
 inward (i.e., goods, cases, wrappers, etc., returned by cus- 
 tomers), these should be deducted from the Purchases and 
 Sales respectively. It is usual, where Eeturns are of frequent 
 occurrence, to keep a special book to record same. 
 
 The possibility of a loss appearing in this portion of a 
 Eevenue Account is very remote ; such could only arise from 
 an error of omission, from selling under cost, or from some 
 extraordinary loss (as fire, loss of cargo, misappropriation of 
 stock, &c.). 
 
 The amount of gross profit will be carried to the credit side 
 of the Profit and Loss Account. 
 
 (b) The Profit and Loss Account. 
 
 This second division of the Eevenue Account will contain on 
 its credit side the balance brought down from the Trading 
 Account, and such items of income as do not legitimately 
 belong to the business, such as Eents received. Interest on 
 Deposit at Bankers, on advances and on investments, &c. 
 
 The expenses incidental to carrying on the business^ will 
 come on the debit side ; it is customary to open Subsidiary 
 Accounts for these items, their respective balances being carried 
 periodically to this account. Depreciation of Property, 
 Plant, &c., Bad Debts written off, &c., will also appear here. 
 
 1 Kent (of office), Taxes, Salaries, Travelling Expenses, Printing and 
 Stationery, Advertising, Law Charges, Repairs, Postage, Telegrams, Dis- 
 counts, Commissions, &c., are among the items forming the expenses of 
 the establishment. 
 
REVENUE ACCOUNTS. 7 
 
 The balancing result of this account will show either net 
 profit earned or net loss incurred during the period for which 
 the account was written up. 
 
 (c) Final Division of the Ee venue Account. 
 
 In the case of a Company, net profits for the current period 
 would be added to any amount of undivided profits carried to 
 the credit side from the previous account. The debit side of 
 this third division of the Eevenue Account would show what 
 portion of the total amount appearing on the contra side had 
 been set apart — (1) to pay interest on debentures, &c., (2) to 
 pay a dividend upon shares^ (distinguishing between the 
 different class of shares, if any), (3) for the formation of a 
 reserve fund, or as an increment to one already formed, the 
 balance, if any, being carried forward to next account. 
 
 In the event of there being a deficiency on former Eevenue 
 Account, such deficiency would have to be deducted from the 
 net profits before there could be a division among the share- 
 holders ; but if the Profit and Loss Account resulted in a net 
 loss, then this would have to be added to the deficiency on 
 previous Eevenue Accounts, or if, on the other hand, there 
 had been a surplus carried forward from the previous account,, 
 then this surplus — or undivided profit of the previous period — 
 would have to be deducted from the net loss for the current 
 period, or vice versa. No dividend can be legitimately declared 
 as long as there appears a deficiency on Eevenue Account- 
 which has not been made good ; that is, all loss of capital 
 arising from whatever period must be made good or cancelled 
 before a division of profits can take place. A dividend paid 
 out of a reserve fund not set aside for some other specified 
 
 1 It is often the case that a dividend is declared free of Income Tax ;. 
 but where it is paid less Income Tax the amount of the tax has to be 
 calculated upon and deducted from each shareholder's dividend. 
 
THE ACCOUNTANT S AND BOOKKEEPER S VADE-MECUM. 
 
 purpose is allowable.^ In speaking of non-division of profits, 
 dividends on ordinary shares are referred to ; preference 
 shares, of course, would have to be paid their percentage 
 out of the profits for the period, irrespective of any deficiency 
 shown on previous accounts, so long as the Capital was 
 restored to the position it was in at the commencement of the 
 year {Dent v. Lo7idon Tramways, 16 Ch.D. 344). 
 
 With regard to a Partnership, the net profit or the net loss 
 should be brought down, the former to the credit and the 
 latter to the debit ; the debit side will show the Interest on 
 Capital, &c.. Income Tax, and the division of profits among 
 the partners according to their respective shares, each 
 partner's share being carried to his respective Capital Ac- 
 <iount. Any sum set aside out of profits as a reserve will be 
 entered here on the debit side as in Companies' Accounts. 
 In the event of a loss, the credit side will show its division 
 among the partners. 
 
 By way of illustrating the foregoing remarks two examples 
 of a Eevenue Account are appended, the one of a Trading 
 •Company, the other of a Manufacturing Firm. 
 
 I. — The London Drapery Co., Lim. 
 
 Revenue Account from the 1st July to 31st December 1887. 
 Dr. Trading Account. Cr. 
 
 1887 
 
 July I 
 Dec. 31 
 
 To Stock on hand at this 
 date 
 
 To Goods 
 purchased ■('72,544. 
 Less Re- 
 turns . . 544 
 
 £ sd 
 
 12,000 
 
 72,000 
 19,860 
 
 ' 1887 
 Dec. 31 
 
 « 31 
 
 By Sales . . £90,862 
 
 Less Re- 
 turns , . 1,562 
 
 £ sd 
 89,300 
 
 
 By Stock on hand at this 
 date 
 
 „ 31 
 
 To Balance carried 
 down, being gross 
 profit on the six 
 months' trading 
 
 14,560 
 
 
 £103,860 o 
 
 £103,860 
 
 
 
 
 ^ For the reason that a reserve fund is undivided profits carried forward 
 from a previous period ; " a reserve fund being the setting aside of surplus 
 j>rofits" (See chapter on Reserve and Sinking Funds.) 
 
Dr. 
 
 REVENUE ACCOUNTS. 
 
 Profit and Loss Account. 
 
 Cr. 
 
 1887 
 
 
 £ s d 
 
 1887 
 
 
 £ s d 
 
 Pec. 31 
 
 To Rent, Rates, and 
 
 
 Dec. 31 
 
 By Gross Profit 
 
 
 
 Taxes . . 
 
 1,515 10 
 
 
 brought down . . 
 
 19,860 
 
 „ 
 
 „ Insurance.. 
 
 
 87 5 
 
 
 „ Transfer Fees, &c. 
 
 57 15 
 
 „ 
 
 „ Office Expenses 
 
 
 300 
 
 „ 
 
 „ Interest on deposit 
 
 100 
 
 
 „ Salaries . . 
 
 
 800 
 
 
 
 
 
 „ Discounts. . 
 
 
 100 
 
 
 
 
 
 „ Bad Debts 
 
 
 200 
 
 
 
 
 „ 
 
 „ Travelling Exps 
 
 
 215 
 
 
 
 
 " 
 
 „ Depreciation on 
 Buildings 2j%on 
 £23,600 .. 
 
 590 
 
 
 
 
 
 „ Depreciation on 
 Office Furniture 
 
 
 
 
 
 
 
 
 
 
 
 and Fixtures 7% 
 
 25 
 
 
 
 
 
 „ Preliminary Exps. 
 further! off origi- 
 nal amount, re- 
 ducing the bal- 
 ance to £900 . . 
 
 300 
 
 
 
 
 " 
 
 „ Directors' Fees, 
 Managing Direc- 
 tor's Salary, &c. 
 
 1,500 
 
 
 
 
 " 
 
 „ Balance carried 
 down, being Net 
 
 
 
 
 
 
 Profit . . 
 
 14,385 
 
 
 £ 
 
 
 
 20,017 15 
 
 20,017 15 
 
 
 
 
 
 
 Dr. 
 
 Proposed Appropriation op Net Profit. 
 
 Cr. 
 
 7o Interest on Mortgage . . 
 „ Interest on Debentures, 
 
 -%on£ 
 
 „ Proposed dividend of 10% 
 
 upon amount of called- 
 
 up capital, £100,000= 
 
 £10,000 
 Less Income Tax, 
 
 6d. in the £ on 
 
 £10,000 . • , , 250 
 
 To Rent, Rates, and Taxes : 
 Income Taxi . . 
 „ Reserve Account. . 
 „ Balance carried to next 
 account 
 
 £ sd 
 
 800 O 
 360 o o 
 
 9,750 o o 
 
 250 O 
 4,500 O O 
 
 10,250 o o 
 
 £25,910 o o 
 
 By Net Profit brought 
 down 
 
 „ Balance from last 
 year's account 
 
 By Balance brought down 
 
 £ sd 
 
 14,385 o o 
 11,525 o 
 
 £25,910 o o 
 
 10,250 o o 
 
 The third portion of the above Eevenue Account has been 
 headed "Proposed Appropriation of Net Profit " on the ground 
 that such appropriation of the profits or any other scheme for 
 
 1 This would be posted to credit of Rent, Rates, and Taxes Account, to provide for 
 debit of Income Tax when clairtied. 
 
10 THE accountant's AND BOOKKEEPER'S VADE-MECUM. 
 
 the like purpose could not be carried into effect until it had 
 been laid before the shareholders at the Ordinary General Meet- 
 ing, and a resolution passed adopting the Accounts and Balance 
 Sheet then produced. 
 
 II.— Messrs. JONES, BKOWN and KOBINSON, Paper Manufacturers 
 
 Revenue Account from the 1st January to 31st December 1887. 
 Dr. Trading Account. Cr. 
 
 Jan. 1 
 Dec. 31 
 
 To Stock & Materials 
 
 on hand at date. . 
 Purchases : — 
 Straw Es- £ s d 
 parto, &c. 6,015 I 8 
 Soda, 
 
 Caustic, 
 
 &c. . . 3,462 o o 
 Waste & 
 
 Sundries 1,796 o o 
 
 Wages, including 
 Management 
 
 Carriage 
 
 Balance carried 
 down being Gross 
 Profit 
 
 £ 
 
 2,118 
 
 5,622 
 927 
 
 2,233 
 
 4 3 
 
 22,173 II o 
 
 1887 
 Dec. 31 
 
 By 
 
 Sales, including 
 
 Carriage 
 Stock & Materials 
 
 on hand at date 
 
 £ s d 
 18,632 2 3 
 3.541 8 9 
 
 22,173 II o 
 
 Dr. 
 
 Profit and Loss Account.^ 
 
 Cr. 
 
 1887 
 
 
 £ s 
 
 d 
 
 1887 
 
 
 £ s d 
 
 Dec. 31 
 
 To Repairs 
 
 230 I 
 
 9 
 
 Dec. 31 
 
 By Gross Profits 
 
 
 
 „ Salaries 
 
 281 2 
 
 
 
 brought down 
 
 2,233 I I 
 
 
 „ Discount .. 
 
 176 4 
 
 
 
 
 
 
 „ Commissions 
 
 63 4 
 
 
 
 
 
 
 „ Travelling Ex- 
 
 
 
 
 
 
 
 penses 
 
 52 I 
 
 
 
 
 
 
 „ Rates and Taxes . . 
 
 142 6 
 
 
 
 
 
 
 „ Bad Debts . . 
 
 48 II 
 
 
 
 
 
 
 „ Balance carried 
 
 
 
 
 
 
 
 down, being Net 
 
 
 
 
 
 
 
 Profit 
 To Interest on Capital 
 
 1,239 9 
 
 
 
 By Net Profit brought 
 
 
 
 £2,233 I 
 
 
 £2,233 I I 
 
 
 422 9 
 
 10 
 
 
 
 „ Capital- £ s d 
 
 
 
 
 down 
 
 1,239 9 4 
 
 
 Jones i'5 476 " 5 
 Brown J 204 4 10 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Robinson | 136 3 3 
 
 
 
 
 
 
 
 
 816 19 
 
 6 
 
 
 
 
 
 £■1,239 9 
 
 4 
 
 £1.239 9 4 
 
 
 
 
 1 Depreciation on Plant and Machinery, &c., though omitted here, would have to 
 appear in a regular account, as in the previous example. 
 
REVENUE ACCOUNTS. 11 
 
 Interest on Debentures, Capital, Loans, &c., should appear 
 in the third section of the Eevenue Account, for the reason 
 that they are not strictly expenses incidental to carrying on 
 the business, and more particularly because by so doing the 
 Balance brought down to the credit as net profit gives the 
 amount upon which the Income Tax has to be calculated (no 
 deductions being allowed for Interest on Capital, Annuities, or 
 other annual payments payable out of profits, in assessments 
 under Schedule D). 
 
 Income Tax should be deducted from Interest on Loans, 
 Annuities, &c., before paying same to the parties entitled there- 
 to. It should, however, not be deducted from the Interest 
 paid to Bankers for the Trade Account, as the Banker pays 
 the tax ; and such Interest should appear in the second section 
 of the Eevenue Account, as the Income Tax authorities allow 
 same to be deducted on assessment. 
 
CHAPTEE III. 
 
 REVENUE ACCOUNTS. 
 
 II. 
 
 DEFICIENCY ACC0I3 NT. 
 
 It is often necessary, especially where year after year losses 
 have been made, to prepare a Deficiency Account, ^o as to discover, 
 if possible, the causes of such repeated losses. The present 
 Bankruptcy Act requires such an Account, where possible, to 
 be prepared with every Statement of Affairs ; the end in view of 
 such an Account being to show how the Deficiency appearing 
 in a Balance Sheet or in a Statement of Affairs has arisen, i.e., 
 by what events in the trading it has been produced. 
 
 The answer to the following question, put at one of the 
 Examinations of the Institute of Chartered Accountants, will 
 illustrate how such an account should be prepared. 
 
 " The firm of Brown, Jones & Eobinson was compelled to 
 stop payment, and the investigation of the books showed the 
 following results : — Creditors unsecured, £39,500 ; Creditors 
 for Eent and Salaries, £500 ; Brown's capital, £2,000 ; Jones' 
 capital, £1,500; Eobinson's capital, £1,500; Cash in hand, 
 £5,500; Debtors, £17,000, of which £15,000 is good, £750 
 
REVENUE ACCOUNTS. 
 
 13 
 
 doubtful (estimated to produce £250), and £1,250 bad; 
 Bills Receivable, £4,500 ; Property, £6,000 ; Sundry projQts, 
 £15,000; Sundry losses, £3,000; Trade charges, £7,000; 
 Brown's drawings, £4,000 ; Jones' drawings, £6,000 ; Robinson's 
 drawings, £7,000. Arrange these items in the form of a 
 Statement of Affairs and a Deficiency Account." 
 
 Dr. 
 
 Statement of Affairs on the 30th November 1887. 
 
 Cr. 
 
 Liabilities. 
 
 Creditors unsecured . . 
 
 Creditors for Rent and 
 Salaries payable in 
 full, deducted as per 
 contra . . £500 o o 
 
 £ s d 
 39,500 o o 
 
 £39,500 o o 
 
 Assets. 
 
 Cash in hand 
 Book Debts- 
 Good . . £15,000 o o 
 D'btful £750 I 
 
 estimated v 250 o 
 to prod'ce ) 
 
 Bad, 
 
 1,250 o o 
 
 Bills Receivable. 
 Property . . 
 
 Less Rent, Salaries 
 payable in full, as 
 per contra . . 
 
 Deficiency 
 
 £ sd 
 
 5,500 o 
 
 15,250 O 
 
 4,500 O 
 6,000 o 
 
 31,250 O 
 500 o o 
 
 30,750 O 
 8,750 o o 
 
 £39,500 o o 
 
 Dr. 
 
 Deficiency Account. 
 
 Cr. 
 
 To Partners' Drawings 
 
 from to 1887 — 
 
 Brown . . £4,000 o o 
 Jones . . 6,000 o o 
 Robinson 7,000 o o 
 
 To Sundry Tr'de Ch'rges 
 „ Sundry Losses 
 By Bad Debts £1,250 o o 
 „ Estimated 
 
 Loss on 
 
 Doubtful 
 
 Debts . . 500 o o 
 
 £ sd I 
 
 17,000 o o 
 7,000 o o 
 3,000 o o 
 
 1,750 o o 
 
 £28,750 o o 
 
 By Deficiency, as per 
 Statement of Affairs 
 
 „ Capital at 1 887— 
 
 Brown £2,000 o c 
 Jones 1,500 o o 
 Robinson 1,500 o 
 
 Sundry Profits 
 
 £ s d 
 
 8,750 o 
 
 5,000 o o 
 15,000 O 
 
 £28,750 o o 
 
 From the foregoing Deficiency Account it will be seen at 
 once that tiie stoppage of payment has been undoubtedly 
 
14 THE accountant's AND BOOKKEEPER'S VADE-MECUM. 
 
 brought about by the excessive drawings of the partners, 
 whose separate estates would be liable to make good the 
 deficiency. 
 
 In the forms issued by the Board of Trade for a Statement 
 of Affairs, there is a special one (Sheet K) prepared to account 
 for the deficiency appearing on the front sheet of the State- 
 ment. An illustration is given here of the preparation of such 
 an Account. 
 
 It is to be assumed in the first place that, by fire on the 
 premises, J. Thompson has lost the whole of his stock, which 
 was uninsured, and, in consequence, has been compelled to 
 file his petition, the Statement of Afi'airs, when prepared, 
 standing as follows : — 
 
 Dr. 
 
 Statement op Affairs. 
 
 Cr. 
 
 Unsecured Creditors (as 
 per list A) 
 
 Preferential Creditors 
 for Rent, Rates, Taxes, 
 Wages, &c. (as per list 
 E).. .. £6i o o 
 
 Deducted contra 
 
 £ s d 
 4,900 o 
 
 3^4,900 o o 
 
 Book Debts (as per list H) 
 
 Good 
 
 Doubtful 
 
 Bad .. ..£1,500 
 
 Cash in hand 
 
 Bills of Exchange or 
 other similar securities 
 (as per list J), estimated 
 to produce 
 
 Deduct Preferential Cre- 
 ditors for Rent, Rates, 
 Taxes, and Wages, &c. 
 (as per contra).. 
 
 Deficiency as explained 
 in Statement (K) 
 
 £ s d 
 
 2,000 O 
 
 393 9 2 
 
 875 o o 
 
 £3,268 9 2 
 
 61 o 
 
 £3,207 9 2 
 1,692 10 10 
 
 £4,900 o o 
 
 From this Statement of Affairs it is seen that the deficiency 
 amounts to £1,692 10s. lOd. With regard to the explanation 
 required to b.e given in List K of the differences between the 
 amount of the indebtedness and the assets, as shown in the 
 statement, it is required by the Board of Trade that the basis 
 
REVENUE ACCOUNTS. 
 
 15 
 
 shall be on the excess of assets over liabilities, or vice versa, 
 either at tiuelve months before the date of receiving order or 
 such other date as the Official Eeceiver may fix. In the case 
 under examination it has been taken at the date of the 
 previous Balance Sheet, which v^as as follows : — 
 
 Dr. 
 
 Balance Sheet at 30th June 1886. 
 
 Cr. 
 
 To Sundry Creditors 
 „ Bills Payable 
 „ Capital 
 
 £ s d 
 
 1,461 
 2,000 
 5,832 5 8 
 
 
 9.293 5 8 
 
 
 By Sundry Debtors 
 „ Bills Receivable 
 „ Stock in hand 
 „ Cash in hand.. 
 
 £ s d 
 
 1,616 13 6 
 
 875 o o 
 
 5,857 I 6 
 
 944 10 8 
 
 9,293 5 8 
 
 So that the results finally arrived at may be clearly under- 
 stood, it will be necessary to give the Eevenue and Capital 
 Accounts at the date of the Keceiving Order. 
 
 Revenue Account. 
 
 Dr. 
 
 Trading Account from 30th June 1886 to . 
 
 To Stock in 
 
 hand, 30 June 
 
 1886 .. ..£5,857 I 6 
 To Purchases 7,565 3 6 
 
 £13,422 5 o 
 
 Less Value of 
 Stock des- 
 troyed by fire 6,000 o o 
 
 To Balance carried down 
 being gross profits 
 
 £ s d 
 
 7422 5 o 
 642 18 6 
 
 8,065 3 6 
 
 By Sales 
 
 £ 
 8,065 
 
 s d 
 3 6 
 
 ^,065 3 6 
 
 Dr. Profit and Loss Account from 30th June 1886 to 
 
 Cr. 
 
 To Rent, Rates & Taxes 
 „ Salaries 
 „ Bad Debts . . 
 „ Of&ce Expenses 
 
 £ s d 
 43 15 
 50 
 1,500 
 54 
 
 
 1,647 15 
 
 
 By Gross Profits brought 
 
 down 
 „ Net Loss, carried to 
 Capital Account . . 
 
 £ s d 
 
 642 18 6 
 
 1,004 16 6 
 
 1,647 15 o 
 
16 THE accountant's AND BOOKKEEPER'S VADE-MECUM. 
 Dr. Capital Accoukt. Cr. 
 
 To Drawings 
 „ Goods, value of Stock 
 
 destroyed by fire * 
 „ Profit and Loss A/c — 
 
 Loss 
 
 To Balance brought down 
 
 f. s 
 
 d 
 
 1886 
 
 520 
 
 
 
 June 30 
 
 6,ooo 
 
 
 
 
 1,004 16 
 
 6 
 
 
 7,524 16 
 
 6 
 
 1,692 10 
 
 10 
 
 By Balance . . 
 „ Balance carried 
 down . . 
 
 £ s d 
 
 5,832 5 8 
 
 1,692 10 10 
 
 7,524 16 6 
 
 * This is debited to Capital A/c and not to Revenue A/c, as it is loss of capital. 
 
 The Deficiency Account would be prepared from the fore- 
 going accounts, and would appear in the form following : — 
 
 Deficiency Account. 
 
 (1) Twelve m'ths 
 before date of 
 Receiving 
 Order,or such 
 other time 
 as the Ofi&cial 
 Receiver may 
 fix. 
 
 (2) These figures 
 should agree. 
 
 (3)This Schedule 
 must show 
 when debts 
 were contrac- 
 ted. 
 
 (4) Add wife and 
 children (if 
 any), stating 
 number of 
 latter. 
 
 (5) Here add any 
 other Expen- 
 ses or Losses. 
 
 Excess of Assets over Liabilities (a) on the (1) 30th day of 
 June 1886 
 
 Net Profit arising firom carrying on business from the 
 (^) 30th June 1886 to date of Receiving Order, after 
 deducting usual Trade Expenses (if any) (b) . . 
 
 Income from other sources since the (^) day of 
 
 18— 
 
 Deficiency as per Statement of Affairs 
 
 I s d 
 
 5,832 5 8 
 
 495 3 6 
 
 1,692 10 TO 
 
 (2j£ 8,020 o o 
 
 Excess of Liabilities over Assets (a) on the (^)- 
 
 (if any) 
 
 iay of 
 
 Net Loss arising from carrying on business from the 
 
 (1) day of 18 — , to date of Receiving Order, 
 
 after deducting from Profits (c) the usual Trade 
 Expenses (if any) 
 
 Bad Debts (if any) as per Schedule (3) 
 
 Expenses (d) incurred since the (^) 30th day of June 1886 
 other than usual Trade Expenses, viz. : Household 
 Expenses of self and (4) 
 
 (5) Value of Stock destroyed by fire on the loth day of 
 February 1887 and uninsured 
 
 Surplus as per Statement of Affairs (if any) 
 
 (2)£ 
 
 1,500 o o 
 
 520 o o 
 6,000 o o 
 
 8,02c o o 
 
 (a) In other words, the Balance of Capital Account. 
 
 (b) It is scarcely correct to call this Net, for bad debts are not taken into account 
 
 here. 
 (<•) Gross Profits, 
 (d) Should agree with Drawings for the period. 
 
 It is apparent from this statement of deficiency that the 
 principal cause of J. Thompson's insolvency arose from the 
 
BEVENUE ACCOUNTS- 17 
 
 fire on his business premises, and that before that event he 
 was, even with the heavy amount of bad debts, perfectly- 
 solvent. 
 
 It is therefore clear, from all this, that the direct object of a 
 Deficiency Account is, starting, where the same is possible, 
 from a period when a person is perfectly solvent, to gradually 
 from that date trace out in detail the losses and expenses, and 
 the other causes that have led to, and finally brought about, 
 his failure. The example given is naturally of the most simple 
 kind, but it, at the same time, is sufficient, it is thought, to 
 point out the way such an account should be prepared. In 
 actual cases great care would have to be exercised ; and it 
 would be more often the rule than not, that where a Deficiency 
 Account was required, many intricacies would be involved, 
 and the examination and search might possibly extend over a 
 considerable period of time. 
 
 The debit balance of Capital Account would always give the 
 total amount of deficiency, but the details would have to be 
 sought for in Eevenue Account for losses in trading, and the 
 accounts representing Outlay of Capital for loss of capital. 
 
 Before bringing this subject to a close it may be an advan- 
 tage to those who are not thoroughly proficient in the art of 
 Bookkeeping to show how, from a set of books kept by Single 
 Entry, or otherwise incompletely written up, an Approximate 
 Trading Account for a stated period may be raised. 
 
 Let it be supposed that the Books of J. Thompson had been 
 kept by Single Entry, and that it was desired to prepare a 
 Trading Account from the 30th June to the 9th December 
 1886. The Cash Book contained principally receipts on 
 account of sales for ready money and payment of customers' 
 
18 THE accountant's AND BOOKKEEPER'S VADE-MECUM. 
 
 accounts, and purchases for ready money and payment of out- 
 standing accounts for goods, and it was easy to eliminate 
 whatever receipts and payments were extraneous thereto. On 
 analysis it was found that the total receipts on account of 
 sales amounted to £6,181 17s., and the total payments on 
 account of purchases amounted to £6,126 3s. 6d. There was 
 owing by customers on the 30th June 1886, £2,491 13s. 6d. 
 (Open Accounts £1,616 13s. 6d., Bills Eeceivable £875), and 
 on the 9th of December 1886, £4,375 (Open Accounts £3,500, 
 Bills Eeceivable £875) ; and J. Thompson owed for goods on 
 the 30th June 1886, £3,461 (Open Accounts £1,461, Accep- 
 tances £2,000), and at the later date, £4,900 (Open Accounts 
 £3,400, Acceptances £1,500). Now, it follows that a portion 
 of the cash received for goods between the 30th June and 9th 
 December 1886 was for credit sales due at the earlier date, 
 and a portion on account of credit sales subsequent to that 
 date, the remainder being ready money sales. It is required to 
 find the total sales for the period. If the amount due for credit 
 sales on the 9th December 1886 (£4,375) be added to the total 
 amount of cash received on account of sales from the 30th June 
 1886 to the 9th December 1886 (£6,181 17s.) the summation 
 amounts to £10,556 17s. This sum, however, includes the Book 
 debts (£2,491 13s. 6d.) due at the anterior date ; in other 
 words, the cash which had been paid in liquidation of 
 the £2,491 13s. 6d., and the balance of that amount, still 
 outstanding on the 9th December. If these be deducted from 
 the £10,556 17s. there is left £8,065 3s. 6d., representing the 
 total sales of the period, which would be as approximately 
 correct as the circumstances would allow. The same process 
 having been gone through with the cash payments for goods 
 and the total amounts due for credit purchases, there would 
 be a result of £7,565 3s. 6d., representing the approximate 
 purchases for the period. To make the foregoing remarks 
 perfectly plain and intelligible, the form is given below that 
 such an Approximate Trading Account would take. 
 
EEVENUE ACCOUNTS. 
 
 19 
 
 
 
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 It has been said before that a Eevenue Account treats of 
 Income and Expenditure, and it may appear to some that a 
 Cash Account does the same ; such, however, is not the case, 
 a Cash Account treats solely of money receipts and money 
 
20 THE accountant's AND BOOKKEEPER'S VADE-MECUM. 
 
 payments.^ Certainly, the one may contain items that appear 
 in the other ; but at the same time both contain items which 
 are quite foreign to the other. 
 
 The Cash Account only deals with actual amounts of money 
 received and expended, the Eevenue Account " shows, on the 
 " credit side, the income or earnings, irrespective of whether 
 " the same has been actually received, or, at the date of closing 
 " the books, is due ; while on the other or debit side are set 
 " forth the expenses, irrespective of whether they have been 
 " paid or are owing at the same date."^ 
 
 " All receipts and payments relating to Capital and not to 
 " Income would be omitted in the Eevenue Account, but 
 '' would, of course, have to be included in the Cash Account ; 
 '* for example, the following items appearing in the Cash 
 " Account would be omitted in the Eevenue Account for the 
 " same period : On the Income side, Shareholders' Capital, 
 " Premiums on Shares issued. Amounts received on Mortgage 
 " and on Loan, or on Sale of Securities ; and on Expenditure 
 " side, sums paid for the purchase of Securities, sums advanced 
 " on Mortgage, amount of Mortgages repaid, and sums 
 '* advanced on Loans, or amount of Loans repaid." 
 
 " On the other hand, the following items would appear in a 
 ** Eevenue Account which would be absent in a Cash Account : 
 " On the Income side. Sales not paid for at the date of closing 
 " the books, Interest on Investments accrued, but not received ; 
 *' while on the Expenditure side would be found Purchases by 
 " the Company not paid for, and other similar entries."^ 
 
 1 Cheques are, of course, considered as cash. 
 
 2 Pixley's Auditors, page 107. 
 
 3 Pixley's Auditors, page 103. 
 
REVENUE ACCOUNTS. 21 
 
 Before bringing this chapter to a close some remarks are 
 offered upon the improper use of the Cash Book — even though 
 the subject is somewhat wide of the matter that has been 
 discussed. Perhaps instead of saying the improper use of the 
 Cash Book, the meaning would be better conveyed by terming 
 it prostituting that Book to the uses of a Journal. The Cash 
 Book should be regarded as a record of only the money trans- 
 actions of a firm — not only in the details but in the aggregate, 
 and by the latter to show the monthly, quarterly, or yearly 
 turnover that has taken place ; but the moment it is used for 
 entries not strictly cash entries this object is lost, and it becomes 
 a fruitful source of errors if not a means whereby defalcations 
 may be concealed. 
 
 Such an abuse of the Cash Book has undoubtedly been 
 brought about by the gradual disuse of the Journal ; this, 
 however, will be treated of in the chapter on Tabular Book- 
 keeping — what is now desired more particularly is to point 
 out that the Cash Book should not be used for such entries as 
 the following : — 
 
 1. The writing back of dishonoured Bills in hand {i.e., not 
 
 discounted or paid away). 
 
 2. The disposal of a Bill Eeceivable by a firm to one of its 
 
 own creditors. 
 
 3. The transfer from one Ledger Account to another, such 
 
 as, for example, in the case of a firm which both buys 
 and sells to another, and the latter, in settlement of 
 accounts between them, pays or receives the difference 
 between the account for purchases and that for sales, 
 but carries the balance of the former account through 
 the Cash Book as if paid, and the balance of the latter 
 as if received, instead of the aciwaZcas/i passing between 
 the two firms. 
 
22 THE accountant's and bookkeepee's vade-mecum. 
 
 They are not strictly cash transactions, but rather transfers 
 from one Ledger Account to another, and should therefore be 
 passed through the Journal. 
 
 In insisting, as it may appear to some, so strongly upon this 
 point, it is only with the desire to impress upon Students and 
 Bookkeepers the essentiality of keeping the several books of 
 account for the peculiar and legitimate object for which they 
 were designed, and not to make them receptacles for foreign 
 and miscellaneous entries. 
 
CHAPTEE IV. 
 
 DEPRECIATION. 
 
 There is no desire to enter into any polemical discussion 
 upon the subject of Depreciation, but rather to afford such 
 information as is strictly practical, and which experience has 
 proved to be reliable. Much depends upon the character of 
 the business or class of trade ; whether it be financial, com- 
 mercial, or manufacturing : in the one, the depreciation will 
 arise principally from shrinkage or falling off, in market value, 
 of securities and investments ; while, in the others, property, 
 such as plant, machinery, warehouses, furniture, utensils, etc., 
 will form the more important items upon which depreciation, 
 in the way of wear and tear, will have to be calculated. In a 
 business where the plant will rapidly depreciate, or the 
 property will in course of time become unproductive, the 
 question of depreciation of necessity calls for more serious 
 consideration. 
 
 Although it is almost impossible to fix any absolute method 
 for calculating the rates of depreciation, or lay down any 
 precise rule for same, the effect of wear and tear can be 
 approximated, and a couple of formulae are here given which 
 may be regarded as a fair basis for making such calculations. 
 
 I. — Property, the interest in which expires by effluxion of 
 
24 THE accountant's and bookkeepeb's vade-mecum. 
 
 time mid possessing no residue of value, should be divided by 
 the given number of years upon its original cost. 
 
 II. — Property which leaves a residue of value under any 
 circumstances should be depreciated upon its diminishing 
 amount. 
 
 To elucidate these two rules, it will be as well to apply each 
 to such general items of property as would naturally come 
 under it. 
 
 Under the head of having no residue of value would be 
 classed : — 
 
 {a) Leases. — That is, property held (either as an investment 
 or for occupation) for a fixed term. A proportion should be 
 written off yearly to debit of Eevenue Account, after debiting 
 Lease Account and crediting Interest Account with interest 
 upon the diminishing value, and by this means exhausting the 
 purchase price at expiration of the lease. In order to arrive 
 at the proportion to be written off yearly, refer (after fixing 
 the rate of interest^) in Inwood's Tables or other work, to the 
 table showing the value in years' purchase of an annuity at 
 the required rate of interest, and divide the purchase price of 
 lease with the number appearing in that column headed by 
 the required rate of interest, and opposite the years of duration 
 of lease ; the result will be the amount to be written off yearly 
 against Eevenue Account. 
 
 With regard to leasehold premises in occupation, the pro- 
 portion written off is equivalerit to rent, and should be treated 
 accordingly. 
 
 1 The rate per cent, is contingent upon circumstances, but 5 per cent, 
 would be the usual rate ; some accountants, however, adopt 6 per cent., 
 that being the rate allowed by the London County Council in cases of 
 compensation. 
 
DEPEECIATION, 25 
 
 If the lease contains a provision for renewal, then it would 
 be more proper to treat the depreciation as if the premises 
 were freehold, having always a residue of value. 
 
 Should the lease contain a dilapidation clause, provision 
 would have to be made to meet same. 
 
 {b) Blast Furnaces, Gas Betorts, Chemical and other similar 
 Fixed Plant. — These being subject to rapid depreciation and 
 constant repair, the original cost should be divided by the 
 number of years of assumed life, and such proportion written 
 off yearly until exhausted, there being little or no break-up 
 value attached. 
 
 (c) Patents, Trade Marks, etc. — The period of value should 
 be estimated, and this taken as their assumed life, and the 
 original cost divided by this term and written off in yearly 
 proportions. 
 
 Attention should be given, in this last case, as to any possible 
 augmentation of goodwill, and consequently, discretion must 
 be used in writing off as having no residue of value. Experience 
 and knowledge of the particular business will point out to what 
 extent this should be taken into consideration. 
 
 The following will be the most general items coming under 
 Eule II. as having a residue of value : — 
 
 (a) Freehold Lajid is little subject to rapid changes in value. 
 Local fluctuations may bring about either appreciation or 
 depreciation; consequently, it may be taken that its value, 
 except under rare circumstances, will remain unaltered : and 
 any change in value it is better to adjust by actual valuation. 
 
 ih) Freehold Buildings should be written off at the rate of 
 not more than 5 per cent., and not less than 2^ per cent, upon 
 diminishing value. 
 
26 THE accountant's and bookkeeper's vade-mecum. 
 
 (c) Motive Plant (Engines, Boilers, Gear, dc). — Engines 
 and gear at 5 per cent., and boilers at 10 per cent, upon 
 diminishing value. Engines and boilers might be written off 
 at a common rate, say 1\ per cent., but it would be more 
 advisable that they should be treated apart, the latter being 
 written off at a higher rate than the former, as boilers are 
 more subject to repairs and renewals. 
 
 {d) Plant and Machinery at 5 per cent, or more, not exceed- 
 ing, however, 10 per cent, upon diminishing value. In large 
 manufacturing concerns it is recommended to subdivide the 
 plant and machinery in preference to deducting a fixed amount 
 upon the whole, as certain machines may be subject to greater 
 wear than others. 
 
 (e) Furniture, Fixtures, dc. — Seven per cent, upon diminish- 
 ing value. 
 
 (/) Boiling Stock. — Locomotives 10 per cent., and wagons, 
 generally, 7^ per cent., upon diminishing value. For railway 
 wagons, however, it is somewhat difficult to fix a rate : what 
 with constant repairs and renewals, at the end of 15 years 
 little, if any, of the original wagon is left, and the prices for 
 same vary considerably ; they have been as low as £40 and as 
 high as £80 each. The rate of depreciation mentioned above 
 appears to be fair, and one that is generally accepted. 
 
 With regard to wagons leased upon the * ' Hire-Purchase 
 System," the proper method would be to arrive at the value 
 of the wagons at the date when all the instalments were paid, 
 and divide this ultimate value by the number of instalments, 
 and credit the product each time an instalment is paid to 
 Capital through a "Wagon Purchase Account," the remainder 
 of instalment being carried to Eevenue, so that, at the time 
 the purchase was completed, the " Wagon Purchase Account" 
 would show the full present value of the wagons then 
 acquired. 
 
DEPRECIATION. 27 
 
 The above applies also to plant or other property acquired 
 by the '* Hire-Purchase System." 
 
 (g) Casks used in breweries, distilleries, oil refineries, etc., 
 from 10 to 20 per cent, on diminishing value, say 10 per cent, 
 on new stock and 20 per cent, on old. It would be better, 
 perhaps, to hold up as a Stock on above basis like loose tools 
 (vide infra). 
 
 (h) Ships. — The average life of a ship is assumed to be 
 about 20 years, and the rate may be taken at 5 per cent, on 
 original cost with respect to first-class express liners ; 5 per 
 cent, on reduced values for other vessels. 
 
 The rates of depreciation that have been placed against the 
 various descriptions of property are not to be regarded as fixed 
 rates, but rather as those which are generally adopted : the 
 exigencies and nature of the particular businesses must 
 determine whether they be more or less. They maybe taken, 
 however, as fairly approximate. 
 
 In writing off annual sums for depreciation against such 
 properties or assets as come under Eule II., it must be borne 
 in mind that as soon as the original cost is reduced so as to 
 represent the break-up value,^ such annual writing off should 
 be discontinued, further depreciation being unnecessary. 
 
 The foregoing remarks have treated only of such capital 
 items subject to a charge for depreciation (1) as having no 
 residue value, and (2) as having a residue of value ; there are, 
 nevertheless, certain items which do not strictly come under 
 such a classification ; it will, therefore, be necessary to treat 
 them separately. Such would be : 
 
 (a) Loose Tools and Utensils which, from their nature, would 
 
 1 As long as property is usable it will always possess a working value in 
 addition to break-up value. 
 
28 THE accountant's and bookkeeper's vade-mecum. 
 
 be better treated as Stock, and valued as such at the periodical 
 stocktakings. 
 
 (b) Bottles used by mineral water manufacturers, wine 
 merchants, &c., should be dealt with in the same manner. 
 
 (c) Goodwill. — There is no item of capital of more uncertain 
 valuation than the goodwill of a business ; it depends so much 
 upon the contingencies of trade that it is never safe to regard 
 it as of permanent value. The best plan to arrive at its value 
 would be to take it as being worth three or five years' purchase 
 of the average profits of a stated period ; it might also be 
 gradually written off, in the case of its having been acquired 
 by purchase, by dividing the purchase-money over the number 
 of years of estimated period of value. 
 
 It must not be forgotten that patents, trade marks, and 
 valuable patterns, &c., go to augment the value of goodwill. 
 
 {d) Shares, Bonds, and similar securities and divestments , 
 being usually valued at cost price, are not subject to any charge 
 for depreciation, except in the event of the market value falling 
 below that at which they were bought. In such a case, some- 
 thing would have to be written off ; but to what extent the 
 class of security, and the state of the market at the time, would 
 determine. 
 
 (e) Formation Expenses. — These, often forming a serious 
 item in floating large companies, are the more properly dealt 
 with by dividing them in equal proportions over a limited 
 number of years, say 5 to 7. This is quite justifiable} the 
 expenditure being incurred in the interest of the permanent 
 working. 
 
 (/) Outlay of Capital in opening mines, quarries, dc, and its 
 ultimate recoupment may, with all correctness, be considered 
 under this division. And no better method, it is submitted. 
 
DEPEECIATION. 29 
 
 can be adopted than that suggested by Mr. Guthrie in a 
 lecture^ deUvered by him on the subject of Depreciation. He 
 says : — " That a normal tonnage should be estimated over a 
 " term of years taken to be the life of the undertaking. 
 *' Thus, if there should be a disappointment in respect of 
 " tonnage raised, the loss will be loss of capital in ultimate 
 " liquidation. Should there be a yield in excess of expecta- 
 " tion, the rate may be reduced and discontinued altogether 
 " when break-up values have been reached." 
 
 Mr. E. J. Evans, F.C.A., illustrates this theorem in a lecture 
 on Colliery Accounts delivered by him at SheiSield. After 
 making some remarks upon the principle of depreciation or 
 recoupment of capital, he goes on as follows : — "I will now give 
 ** you an illustration of the mode upon which the amount is 
 " assessed on a colliery lease. We will suppose a coal-owner 
 " leases 1,000 acres of coal for a term of 50 years at a royalty 
 " rent of £200 per acre, and the thickness of the seam is six 
 " feet. He has spent £70,000 upon the completion of the 
 " colliery, and now wants to know what sum he shall charge 
 '' his Eevenue Account with, before he declares any profit." 
 
 " We will assume that the whole can be drawn during the 
 "term of the lease. We h^ve to ascertain as near as we can 
 '* what will be the value of the plant, stock, &c., at the termina- 
 " tion of the lease, and also the penalties under the lease for 
 " damaged land, &c. This sum we will assume to be £5,000. 
 " The amount, therefore, of recoupment of capital is £65,000. 
 ' ' How is it to be provided for ? Would you say by an annuity, 
 "or by dividing the sum by the term of the lease? I think 
 " there are great objections to both those plans, which I will 
 " briefly explain. There is nothing fixed in a colliery lease 
 " but the term. The coal may become thinner, dislocations 
 
 1 Ic is to this gentleman's lecture that the writer is indebted for the 
 formulae given above. 
 
30 THE accountant's AND BOOKKEEPEB's VADE-MECUM. 
 
 " in the measure are exceedingly common. The coal-owner 
 " may be enabled to work out the whole of the coal in forty 
 " instead of fifty years ; or he may take additional coal, any 
 " of which would throw out an actuarial calculation. I 
 ** believe the only true basis is on the tonnage." 
 
 '' We have seen in this case that we have 1,000 acres of coal 
 *' under lease, which should produce 7,200,000 tons.^ That is 
 " the coal-owner's stock, upon which he has expended the sum 
 " of £70,000 to work and bring out of the pit. And to bring 
 " that quantity to the surface, he exhausts £65,000 of his 
 " capital. The simple plan is to divide that sum by the stock 
 *' of coal he has, which in this case is 7,200,000 tons. This 
 " will give 2-16d. per ton. If any additional coal is taken, 
 ** the extended area is brought into account and a new cal- 
 " culation on the same basis is made. Owing, as I have 
 " before explained, to the variations in a colliery business, it is 
 " necessary, every three, five, or seven years, to review the 
 " calculation, but not the principle, which should, in my 
 " opinion, be based on the tonnage." 
 
 To illustrate more closely Mr. Guthrie's formula, and adopt- 
 ing the figures above-mentioned : the normal annual tonnage 
 would be 144,000 tons, which, at the rate of 2'16d. per ton, 
 would be £1,300. This sum would have to be charged 
 annually to Kevenue Account, to provide for the recoupment of 
 capital. Should, however, the annual tonnage raised " be in 
 excess of the expectation " of 144,000 tons, then the actual 
 yield should be valued at the given rate of 2-16d. per ton in 
 lieu of the nominal tonnage and Eevenue Account debited 
 therewith, but so soon as the total amount thus set aside 
 should reach the capital expended on the development of the 
 mine, in this case £65,000, the annual charge should at once 
 
 1 100 tons per inch of thickness per acre : — 6ft. seam = 72 inches. 
 72 inches X 100 tons X 1,000 acres = 7,200,000 tons. 
 
DEPRECIATION. 
 
 31 
 
 cease, the break-up value of £5,000 having been reached. 
 But, on the other hand, if the annual yield should be less, 
 then Eevenue Account would be charged with a less sum. 
 Consequently, if the lease could not be renewed, or if the total 
 output of coal had been under-estimated, there would result a 
 "loss of capital in ultimate liquidation." 
 
 The amounts written off for depreciation should not appear 
 on the liabilities side of a Balance Sheet; they should be 
 deducted from their respective items on the assets side. 
 Depreciation is not in any sense a " Reserve," it not being 
 represented by assets ; but is a deduction from the property 
 depreciated. 
 
 For the convenience of Bookkeeping, and also to have some 
 continuous record of depreciation, it is advisable to have a 
 " Depreciation Account " ; this must not, however, be con- 
 founded with " Depreciation Fund," which will be fully 
 explained in a subsequent chapter upon "Reserve and Sinking 
 Funds." 
 
 Depreciation has been treated in this chapter, with one or 
 two exceptions, as having relation to wear and tear; there are, 
 however, other causes of depreciation, such as decline in 
 profits, reductions in the cost of labour, replacements by 
 improvements before break-up value, or the period of assumed 
 hfe, has been reached. These causes cannot be estimated in 
 anticipation, and can only be provided for by the creation of 
 a reserve to meet such contingencies. 
 
 In calculations for depreciation the following must be taken 
 into consideration : — 
 
 Tenure of Land, Premises^ dc. — It may be that the generally 
 assumed life of other property is in excess of the tenure, in 
 which case the amount to be written off as depreciation would 
 
32 THE accountant's and bookkeeper's vade-mecum. 
 
 have to be such that, by the time the holding fell in, the residual 
 value of the property depreciated would be reached. 
 
 Location. — Buildings, plant, machinery, &c.,may become of 
 little or of no value, except so long as they are usable, on 
 account of their being located in places where it would be 
 impossible to realise either at all, or only at a considerable 
 sacrifice. Such would be the case with machinery, &c., at 
 mines in isolated districts or in uncivilised countries. 
 
 Hours of Working, — The foregoing rates of depreciation have 
 been based upon the presumption that machinery, &c., is kept 
 working during the generally prescribed hours : overtime or 
 short time must be allowed for, as also where machinery is 
 running continuously. 
 
 That machinery and other property are kept in an efficient 
 state of repair has been assumed. All necessary repairs and 
 renewals of machinery, plant, existing works, &c., should be 
 charged to Bevenue, and Tradifig Account, in addition, should 
 bear an adequate charge for depreciation. 
 
CHAPTER V. 
 
 RESERVE AND SINKING FUNDS. 
 
 A Reserve Fund is the setting aside ofsiirphis profits, and is 
 represented by existing property and assets, its object being to 
 meet contingent liabilities. This object may be specified — 
 such, for example, as the following : 
 
 Depreciation Fund^ i.e., to meet future depreciation of pro- 
 perty and provide for its replacement. 
 
 Beplacement of Machinery and Motive Power. 
 
 Benewal Account to cover any expenses that maybe incurred 
 in the renewal of Leasehold property, and to provide for such 
 renewal or for any increase in the original value to be paid in 
 securing new premises upon the falling in of any old lease, or 
 for any similar purpose. 
 
 Beserve for Bad ajid Dotcbtful Debts, i.e., to provide for any 
 further loss beyond the actual amounts written off or for any 
 unexpected loss as might arise by the suspension of payment 
 of a firm which had been considered perfectly safe. 
 
 Dividend Beserve Account^ for the purpose of equalising the 
 payment of future dividends, i.e., to permit a company in a 
 
34 THE accountant's and bookkeeper's vade-mecum. 
 
 bad year to pay its dividend upon shares at the same rate per 
 cent, as it had done in previous years. 
 
 Beplacement of Vessels, in a large shipowning j&rm, to pro- 
 vide for the cost of new vessels in place of others sold under 
 the book value, or in the event of loss to provide for any differ- 
 ence between the book value and the amount received from 
 the underwriters. 
 
 It must, however, be borne in mind that a specified Beserve 
 must not be appropriated for any other purpose than that for 
 which it was intended, and no professional auditor would 
 sanction such an use — but where it is meant to meet any 
 contingency that may arise, then a Beserve Fund Account is to 
 be opened and to be unspecified. 
 
 There is a tendency among those little acquainted with 
 accounts to confound items (which should be deducted from 
 Assets) as profits set aside and forming a Beserve. This fre- 
 quently happens with respect to actual depreciation of pro- 
 perty and bad debts actually made. Nothing could be more 
 objectionable or more erroneous than letting the writing down 
 of property and assets appear on the liability side of a Balance 
 Sheet. Shareholders and others might, having such a Balance 
 Sheet put before them, be led to believe that the property 
 entered there at cost represented its real value, and that the 
 amount appearing on the liability side, representing the 
 diminished value of property from wear and tear, was an 
 amount of undivided surplus profits.^ 
 
 It is very desirable that the distinction between the sum 
 representing the diminished value to be deducted from the cost 
 of property in order to arrive at the actual present value, and 
 
 1 Writings-off shown in this manner are passed by accountants, but only 
 when there is a reference between the items, so as to permit of no mis- 
 understanding. 
 
RESERVE AND SINKING FUNDS. 
 
 35 
 
 the sum set aside out of Profits to meet the future outlay for 
 the replacement, should be clearly understood. If this be 
 done, there should be no difficulty in the way of demonstrat- 
 ing what a Beserve Fund ought to be. 
 
 For the sake of illustration, let it be supposed that A. with 
 a capital of £1,400 laid it out in the following manner : He 
 purchased a lease, having five years to run, for £800, and a 
 patent for £600. He granted a licence for the latter to a firm 
 who paid him an annual royalty of £1,000 ; this was his sole 
 source of income. With regard to the lease, an amount of 
 £189 18s. 8d. would have to be written off annually, in con- 
 formity with the method of writing off described in the 
 chapter on Depreciation (page 24), so as to gradually exhaust 
 the original cost when the lease terminated ; but in this 
 example it w^ill suffice to divide it by the number of years it 
 has to run, viz. : five, making the annual deduction £160. It 
 is further assumed that A. drew annually for his personal 
 expenditure that sum which would represent net profits. 
 His Profit and Loss Account at end of 1st year standing thus : 
 
 Dr. 
 
 Profit and Loss Account (1st year). 
 
 Cr. 
 
 To Expenses 
 „ Depreciation of Lease 
 „ Balance, being profit 
 carried to Capital 
 Account 
 
 1 
 
 £ s d 
 
 lOO o o 
 i6o o 
 
 
 740 
 
 
 £i,ooo o o 
 
 
 
 By Royalty on Patent 
 
 £ s d 
 
 [,0OO o o 
 
 ;fl,000 O O 
 
 The Balance Sheet being as follows : — 
 Dr. Balance Sheet at end of 1st year. 
 
 Cr. 
 
 To Capital 
 
 £ s d 
 1,400 o o 
 
 £1,400 o o 
 
 By Patent 
 
 „ Lease . . £800 o o 
 Less Deprecn 160 o o 
 
 Cash in hand 
 
 £ s d 
 600 o 
 
 640 o o 
 160 o o 
 
 £1,400 o o 
 
36 THE accountant's and bookkeeper's vade-mecum. 
 
 A., however, preferred to call the amount written oft" lease 
 as a *' Eeserve," and made his Balance Sheet thus : 
 
 Dr. Balance Sheet at end of 1st year, as prepared by A. Cr. 
 
 To Capital 
 „ Reserve 
 
 £ s d 
 
 1,400 
 
 160 
 
 1 
 
 1 £1,560 
 
 1 
 
 By Patent 
 „ Lease . . 
 „ Cash in hand 
 
 £ s d 
 
 600 o o 
 
 800 o o 
 
 160 o o 
 
 £1,560 o o 
 
 Supposing that in the intervening years the Expenditure 
 and Income had been the same as in the 1st year. At the 
 end of the 5th year the amounts standing to the credit of 
 Capital and to the debits of Patent Account and Lease 
 Account would remain unaltered ; on the other hand, Eeserve 
 Account would show £800 to the credit, and cash in hand 
 would also be £800. Inasmuch as the lease would have 
 expired, A. would have had to write it off, debiting " Eeserve," 
 and so closing that Account ; or he might have preferred to 
 debit Profit and Loss, in which case his Capital would be 
 reduced to £600 ; on the former supposition his Balance 
 Sheet would appear thus : 
 
 Dr. (a) Balance Sheet at end of 5th year. Cr. 
 
 To Capital Account 
 
 £ s d 
 1,400 
 
 
 £1,400 
 
 
 By Patent 
 „ Cash in hand 
 
 £ s d 
 600 o o 
 800 o o 
 
 £1,400 o o 
 
 On the latter it would be : — 
 
 Dr. (^) Balance Sheet at end of 5th year. 
 
 Cr. 
 
 To Capital 
 „ Reserve 
 
 £ s d 
 600 
 800 
 
 
 £1,400 
 
 
 By Patent.. 
 „ Cash in hand 
 
 £ s d 
 
 600 o o 
 800 o o 
 
 £1,400 o o 
 
 At the commencement it was laid down that a Eeserve Fund 
 is the setting aside of sicrplus profits ; but in the case under 
 
BESERVE AND SINKING FUNDS. 37 
 
 consideration this was not done, the so-called '* Eeserve " 
 being nothing more than the deduction required to be written 
 off periodically from the lease, so as to bring it down to its 
 present value. It is seen in the final Balance Sheet {a and h) 
 that there is nothing beyond the original amount of Capital 
 invested ; and although in Balance Sheet (6) there appears a 
 '* Eeserve " of £800 which might, apparently, on the face of it, 
 be taken as conforming with that portion of the Eule which 
 says that the Eeserve is represented in existing property and 
 assets, such an assertion could not, however, be maintained, 
 when it is considered that the Capital Account has been re- 
 duced by £800, that being tantamount to a " Deficiency on 
 Profit and Loss Account " appearing on asset side of Balance 
 Sheet, and consequently the Eeserve could not exist. ^ There 
 was, in reality, no " Eeserve Fund " : what had virtually taken 
 place, was the writing down of lease, a change from fixed 
 property to floating assets; the former (the lease in this case) 
 had been decreased, and the latter (the Cash) correspondingly 
 increased; and so A.'s capital had remained intact. A., 
 certainly, would not have put forward so false a statement of 
 his affairs as would have been done, had he made no allowance 
 for the falling in of the lease ; for, in that case, his capital 
 would have been reduced at the end of the five years by the 
 original cost of the lease. In preparing a Balance Sheet, on the 
 basis as above, with a Eeserve Fund appearing on the 
 liability side, a gross and misleading error would be made — 
 gross in not being the meaning, in strict probity, of the 
 term " Eeserve Fund " (^), and misleading, inasmuch as it 
 
 1 " No Balance Sheet can be considered correct which shows on one 
 " side a ' Eeserve Fund,' and on the other fictitious assets such 
 " as ' Preliminary Expenses,' ' Balance (deficiency) of the Revenue 
 " • Account,' &c." (Pixley, Auditors, p. 138.) 
 
 2 '« The ' Reserve Fund ' of a company should be the sum representing 
 *' the excess, or part of the excess, of the assets over the full liabilities, and 
 " the term can only be used Jionestly with this signification." (Pixley, 
 Auditors, p. 138.) 
 
38 THE accountant's and bookkeeper's vade-mecum. 
 
 would state that 
 liabilities (^) 0- 
 
 there was a fund to meet contingent 
 
 But suppose that he had properly written down his lease 
 yearly, and at the same time had put by out of surplus profits 
 and invested a sum of £180 per annum. In such a case his 
 Balance Sheet at end of 1st year would appear as follows : — 
 
 Dr. 
 
 Balance Sheet at end of 1st 
 
 year. 
 
 Cr. 
 
 To Capital.. 
 ,, Reserve 
 
 £ s d 
 
 1 ,400 o o 
 
 180 o o 
 
 £1,580 o o 
 
 By Patent 
 
 „ Lease . . £800 o o 
 L^ss Deprecn 160 o o 
 
 „ Consols 3% 
 „ Cash in hand 
 
 £ 
 600 
 
 640 
 180 
 160 
 
 s d 
 
 o o 
 
 £1,580 
 
 and at the end of the 5th year : — 
 
 Dr. Balance Sheet at end of Sth year. 
 
 Cr. 
 
 To Capital., 
 „ Reserve 
 
 £ s d 
 
 1,400 
 
 900 1 
 
 
 £■2,300 
 
 
 By Patent . . 
 „ Consols 3% . . 
 „ Cash in hand . . 
 
 £ s d 
 
 600 o o 
 
 900 o o 
 
 800 o o 
 
 £2,300 o o 
 
 A. would thus possess a Eeserve of £900 to meet any unforeseen 
 liability or loss. Say at this time he was mulcted in a sum of 
 £200 for infringement of a prior patent, and at the same time 
 lost his patent rights, he would possess a fund wherewith to 
 
 1 " As its name implies, the term ' Reserve Fund ' should be applied 
 " solely to the sum set aside and invested to meet an unforeseen or un- 
 " expected loss after due provision for all the liabilities has been made." 
 {Ibid, p. 138.) 
 
 2 No more forcible corroboration of this simple illustration can be 
 given than that of the present '* Liberator " Building Society scandal. An 
 amount of some tens of thousands stood on the Balance Sheets as a 
 Reserve, which, on examination, it was found did not exist. A further 
 proof of the advisability of the investment of the Reserve Fund in such 
 securities as those sanctioned for the investing of Trust Funds. 
 
RESERVE AND SINKING FUNDS. 39 
 
 pay the fine and recoup the capital lost, and such would be 
 the ultimate end for which a Eeserve is created. 
 
 These examples, it is trusted, will fully demonstrate what is 
 really a Reserve Fund and what is erroneously called such. 
 For the sake of argument the examples have been made as 
 simple as possible ; but actual results would reach to far larger 
 amounts, and be more complex in their nature. 
 
 It is essential that a Eeserve Fund should be provided in 
 all extensive businesses, especially mercantile concerns, where 
 there are large dealings in the way of bills receivable ; for in 
 discounting these, there is always a probability, in no way 
 remote, that heavy liabilities may be incurred by bills, that 
 have been discounted or paid away to third parties in settle- 
 ment of accounts, being returned dishonoured. 
 
 With regard to such items as Goodwill, and money paid for 
 purchase of a business, &c., a Sinking Fund should be raised 
 so as to write these off or reduce them to a realisable value. 
 Mr. Pixley, in his work on Auditors, remarks upon this subject 
 that, " so long as the company is prosperous, and its share- 
 '' holders receive a satisfactory dividend, this account (purchase 
 " of business) is apparently as good an asset as a realisable 
 " investment, but in the event of the company going into 
 " liquidation, the greater part, if not the whole, of its value at 
 " once disappears." 
 
 " It is, therefore, very desirable, instead of dividing all the 
 " profits among the shareholders, for a Sinking Fund to be 
 " raised, so that at the end of a certain period this account 
 ** may be either written off, or reduced in amount to a saleable 
 *' value. If this plan be adopted also with the fictitious Assets 
 " Accounts, and they have by that means been abolished, the 
 ** shareholders will then have their money invested in realisable 
 " securities."^ 
 
 1 Pixley's Auditors, page 147. 
 
40 THE accountant's AND BOOKKEEPER'S VADE-MECUM. 
 
 An endeavour has been made to point out the road by which 
 one may attain to a perfect knowledge ; but perfection, and a 
 full comprehension of the subject, as of all other matters 
 treated of in this work, are only to be reached by Practice, 
 and experience in all the variety of accounts and businesses to 
 be met with in an accountant's career. 
 
CHAPTER VI. 
 
 ADJUSTMENT OF PAETNERSHIP ACCOUNTS. 
 
 This chapter on the adjustment of Partnership Accounts 
 has been divided into two parts : — Ist, the legal aspect of the 
 subject ; and, 2nd, the proper method of writing up the 
 accounts relative to the legal requirements. That such 
 division is essential is beyond doubt, as the latter portion is 
 entirely dependent upon the ruling of the former. 
 
 I. The Legal Aspect of the Subject. 
 
 No clearer definition of the law upon the subject can be 
 given than that by Lord Justice Lindley in his work on Partner- 
 ship,'^'' and which is here given in extenso. 
 
 " The final adjustment of a Partnership Account frequently 
 " gives rise to questions of some difficulty. One is, whether 
 '* the principles on which profit and losses have been pre- 
 ^' viously ascertained are to be adhered to, or whether they 
 " are to be more or less departed from. Another is, whether 
 *' on a final adjustment of accounts, anything can be regarded 
 " as profit or loss until the capitals of the partners have been 
 " repaid or exhausted, as the case may be. In order to solve 
 "these and similar questions, regard must always be had to 
 "the terms of the partnership articles; but an express agree- 
 
 * Lindley on Partnership and Companies, Vol. I., pages 805 to 807. 
 
42 THE accountant's and bookkebpee's vade-mecum. 
 
 *' ment with reference to the taking of accounts may be, and 
 " frequently is, only applicable to the case of a continuing 
 *' partnership, and may not be intended to be observed on a 
 " final dissolution of the firm, or even on the retirement of one 
 **of its members (Blisset v. Daniel, 10 Ha. 493 ; Wade v. Jen- 
 " kins, 2 Giff. 509). A similar observation applies to the mode 
 ** in which the partners themselves have been in the habit of 
 '* keeping their accounts : that which has been done for the 
 "purpose of sharing annual profits or losses is by no means 
 " necessarily a precedent to be followed when a Partnership 
 " Account has to be finally closed. Bearing these observa- 
 " tions in mind, the following rules are submitted as those 
 ** which ought to be followed upon a final settlement of Part- 
 " nership Accounts, where there is nothing else to serve as a 
 " guide. 
 
 " In adjusting the accounts of partners, losses ought to be 
 ** paid, first out of profits, next out of capital, and lastly by 
 "having recourse to the partners individually {Cratushay v. 
 " Collins, 2 Euss. 347 ; and Bichardson v. Bank of England,. 
 " 4 M. & Or. 173) ; and the assets of the partnership should be 
 " applied as follows : — 
 
 "1. In paying the debts and liabilities of the firm to non- 
 " partners. 
 
 "2. In paying to each partner rateably what is due from 
 " the firm to him for advances as distinguished from 
 " capital. 
 
 "3. In paying to each partner rateably what is due from 
 " the firm to him in respect of capital. 
 
 " 4. The ultimate residue, if any, will then be divisible as 
 " profit between the partners in equal shares, unless the con- 
 " trary can be shown. 
 
ADJUSTMENT OF PARTNERSHIP ACCOUNTS. 43 
 
 " If the assets are not sufficient to pay the debts and 
 " liabihties to non-partners, the partners must treat the 
 " difference as a loss, and make it up by contributions inter se. 
 " If the assets are more than sufficient to pay the debts and 
 '' Kabilities of the partnership to non-partners but are not 
 '* sufficient to repay the partners their respective advances, 
 *'the amount of unpaid advances ought, it is conceived, to be 
 " treated as a loss, to be met hke other losses. In such a 
 " case the advances ought to be treated as a debt of the firm, 
 ** but payable to one of the partners instead of to a stranger " 
 (Wood V. Scoles, 1 Ch. 369). " If , after paying all debts and 
 "liabilities of the firm and the advances of the partners, 
 ** there is still a surplus, but not sufficient to pay each partner 
 " his capital, the balances of capitals remaining unpaid must 
 " be treated as so many losses to be met like other losses" 
 (Nowell V. Nowell, 7 Eq. 538 ; Anglesea Colliery Co., 2 Eq. 
 879 and 1 Ch. 555 ; Ex parte Maude, 6 Ch. 51 ; compare Holy- 
 ford Mining Co., Ir. Eep. 3 Eq. 208). 
 
 " The only case which practically gives rise to difficulty is 
 ** when partners have advanced, or agreed to advance, un- 
 '' equal capitals, and to share profits and losses equally. If 
 " nothing more than this is agreed, a deficiency of capital 
 ** must be treated like any other loss ; and the assets remain- 
 " ing after payment of all debts and advances must be 
 " distributed amongst the partners so as to make each 
 " partner's loss of capital equal ; and if the assets are not 
 " sufficient there must be such a contribution amongst the 
 " partners, or some of them, as to put all on an equality. 
 " But if the true meaning of the partners is that all debts 
 " shall be paid out of the assets, and that any surplus assets 
 " remaining after payment of debts shall be divided between 
 " the partners in proportion to their interests therein, or to 
 " their capitals, effect must be given to such an agreement, 
 "and those partners who agree to bring in most capital will 
 " lose most " {Wood v, Scoles, 1 Ch. 369). 
 
44 THE accountant's and bookkeeper's vade-mecum. 
 
 II. The Method of Writing up and Adjusting Partnership 
 
 Accounts. 
 
 In the second portion of this chapter on the Adjustment of 
 Partnership Accounts, it is proposed to fully explain the 
 method of writing up and dealing with the accounts that 
 shall conform with the legal requirements expounded in the 
 foregoing first part. 
 
 It is to be assumed that the partnership deeds have been 
 properly drawn up, and provision duly made therein for the 
 final settlement of the accounts in the event of dissolution of 
 the partnership through effluxion of time, through the death 
 of one of the partners, by an agreement between all the part- 
 ners, or through any other cause. 
 
 If any legal difficulty were to arise through the final adjust- 
 ment of accounts not being provided for in the deed, or 
 through there being no proper partnership articles, it would 
 not interfere with the settlement of the Partnership Accounts 
 as set forth here. The decision could only be to adjust the 
 same on the basis of one or other of the modes that will be 
 put forward later on as examples. 
 
 It very often happens, upon a dissolution of partnership, 
 that one or more of the parties forming the late firm agree to 
 take over the liabilities and assets of the partnership, and to 
 pay the outgoing partners a stipulated sum, and to indemnify 
 them against any claim to which they might be or become 
 liable as partners in the old firm ; but this is not a matter 
 requiring attention here, the settlement would be one simply 
 to be arrived at inter se on the basis of the last Balance 
 Sheet, or on a valuation of the assets of the partnership. The 
 dissolution of partnership to be dealt with in these examples 
 is one in which the assets have to be fully realised, and the 
 liabilities of the firm liquidated, the surplus, if any, being 
 divided among the partners. 
 
ADJUSTMENT OF PAETNERSHIP ACCOUNTS. 45 
 
 A deed of partnership may provide for the subscription of 
 capital and the share of profits and losses in one of four 
 different ways : — 
 
 (1) The capital subscribed to be a like sum by each partner, 
 and the share of profits and losses to be equal. 
 
 (2) The capital subscribed to be equal, and the share of 
 profits and losses to be in certain agreed proportions among 
 the partners. 
 
 (3) The capital subscribed to be certain agreed but unequal 
 amounts, and the profits and losses to be shared equally. 
 
 (4) The capital to be subscribed in unequal amounts, and 
 the profits and losses to be shared in proportion to each 
 partner's respective capital, or in such other manner as may 
 be agreed upon. 
 
 It frequently happens that in a summary final adjustment 
 of the accounts, the assets are insufficient to satisfy the debts 
 and liabilities due to non-partners as well as the claims of the 
 partners themselves ; in such an event the position of affairs 
 will be one of the three following : — 
 
 (1) Either the assets realised are not sufficient to pay the 
 debts and liabilities of the firm in full ; 
 
 (2) Or the assets realised are sufficient to liquidate the 
 claim of creditors, but insufficient to repay the advances of 
 partners ; 
 
 (3) Or the assets realised are sufficient to pay the debts and 
 liabilities of the firm and the advances of the partners, but 
 insufficient to repay each par.tner his respective capital. 
 
 There is no need here to take into consideration a case 
 where the assets realise their full value, for the accounts 
 would be closed in their natural order without any difficulty. 
 
46 THE accountant's and bookkeeper's vade-mecum. 
 
 But in any one of the three cases given above, any loss would 
 have to be made good by the partners, each contributing in 
 such proportion as there was an agreement to share profits 
 and losses, either equally or unequally (vide pages 43 and 45). 
 
 An endeavour will be made to show how the adjustment of 
 the Partnership Accounts should be dealt with when the assets 
 do not realise sufficient to satisfy not only the debts and 
 liabilities due to the partners, but those due to non-partners as 
 well, and in accordance with the different positions of affairs 
 set out on page 45. Attention is drawn to the priority of 
 payments mentioned on page 42. 
 
 Example 1. — The assets on realisation being insufficient to 
 meet the claiins of non-partners. 
 
 A. B. C. arrange to become partners for seven years, and 
 agree, among other things, to put into the business £15,000 
 subscribed in unequal sums (A. £5,000, B. £4,000, C. £6,000), 
 and to share the profits and losses equally. At the end of the 
 seven years, during which period B. has advanced £1,000, the 
 partnership expires by effluxion of time, the Balance Sheet at 
 that date standing thus : — 
 
 Dr. Balance Sheet of A., B., C. & Co., 31st Deo. 188- 
 
 Cr. 
 
 To Creditors 
 „ Bills Payable 
 „ B. for Advances 
 „ Capital Accounts — 
 
 A. . . £2,100 o o 
 
 B. .. 1,000 o o 
 
 C. .. 1,550 o o 
 
 £ s d 
 
 8,000 o o 
 
 1,500 o o 
 
 1 ,000 o o 
 
 4,650 o o 
 
 15,150 o o 
 
 By Cash at Bankers 
 „ Debtors 
 „ Stock-in-Trade 
 „ Plant and Machinery 
 „ Horses, Vans, &c. . . 
 
 4.850 
 
 5,500 
 
 2,400 
 
 700 
 
 s d 
 o o 
 
 Upon a resolution being arrived at to fully realise the assets 
 and to wind up the partnership affairs, an account would have 
 to be opened, which might be called either ** Liquidation 
 Account " or " Eealisation of Assets Account," to the debit of 
 
ADJUSTMENT OF PAKTNEKSHIP ACCOUNTS. 
 
 47 
 
 which would be carried the total assets appearing in the 
 Balance Sheet, amounting to £15,150. On the credit side 
 would appear the amounts produced by the assets respectively 
 when the same were realised to their full extent. 
 
 A specially ruled Cash Book in tabular form is recommended, 
 with the columns headed to agree with the items in the 
 Balance Sheet ; this would obviate an analysis of the cash at 
 the final closing of the accounts. (See pages 48 and 49 for 
 form of Cash Book recommended.) 
 
 Other columns might be ruled for " Interest on overdue 
 accounts," " Discount and allowances," and any contingent 
 liabilities as might arise from the firm having endorsed or 
 drawn bills which are eventually returned dishonoured. 
 
 It is to be assumed in the case under consideration that the 
 assets have, either through over-valuation of stock or plant 
 or through depression in trade, only realised £8,000, and that 
 the costs of realisation amounted to £500. 
 
 The " Eealisation of Assets Account " would stand thus : — 
 
 Dr. 
 
 Eealisation of Assets Account. 
 
 Cr. 
 
 To Estimated Value of 
 Assets at expiration 
 of Partnership as 
 per Balance Sheet 
 „ Cash — Expenses of 
 realisation 
 
 To Balance brought d'wn 
 loss on realisation.. 
 
 £ s d 
 
 15,150 
 500 
 
 
 15,650 
 
 7,650 
 
 £■7,650 
 
 
 Do. 
 Do. 
 
 Do. 
 
 By Cash at Bankers at 
 expiration of Part- 
 nership 
 Cash— Book Debts . . 
 Stock.. 
 Plant and Ma- 
 chinery . . 
 Horses, Vans, 
 
 &c 
 
 Balance carried down 
 being loss on reali- 
 sation 
 
 By Partners' Accounts 
 for transfer of share 
 of loss contra — 
 
 A. one-third £2,550 o o 
 
 B. „ 2,550 o o 
 
 C. „ 2,550 o o 
 
 £ s d 
 
 1,700 o 
 
 3,700 o o 
 
 1,300 o 
 
 1,000 o o 
 
 300 o o 
 
 7,650 o 
 
 15,650 o o 
 
 7,650 O 
 £7,650 o o 
 
48 THE accountant's and bookkeepee's vade-mecum. 
 
 FOEM OF 
 
 Dr. 
 
 RECEIPTS. 
 
 Date 
 
 
 L. 
 Fo. 
 
 Cash 
 
 Bank 
 
 Book Debts 
 received 
 
 Stock 
 
 Plant and 
 Machinery 
 
 Horses, 
 Vans, &c. 
 
 1886 
 
 
 
 £ s d 
 
 £ s d 
 
 £ s d 
 
 £ s d 
 
 £ s d 
 
 £ s c 
 
 Feb. 7 
 
 To Cash at Bankers at 
 date of expiration 
 of partnership, as 
 
 
 
 
 
 
 
 
 
 per Balance Sheet 
 
 
 1,700 
 
 
 
 
 
 « 8 
 
 „ J. Smith, Book Debt 
 „ F. Macowan, „ 
 
 1,000 
 
 
 1,000 
 
 
 
 
 
 300 
 
 
 300 
 
 
 
 
 
 „ Cash contra 
 
 
 
 1,300 
 
 
 
 
 
 1/ 9 
 
 „ T. Reeves, Book 
 Debt 
 
 
 1,200 
 
 
 1,200 
 
 
 
 
 » n 
 
 „ Jones & Co., Book 
 
 Debt 
 „ Cash contra 
 
 
 50 
 
 1,250 
 
 50 
 
 
 
 
 „ 19 
 
 „ Brook & Mills, Auc- 
 tioneers : 
 
 Plant . . 
 
 Stock . . 
 
 Horses . . 
 „ Cash contra 
 
 
 1,000 
 
 1,300 
 
 300 
 
 2,600 
 
 •• 
 
 1,300 
 
 1,000 
 
 300 t 
 
 „ 21 
 
 „ C. Rose, Book Debt 
 „ C. Wynne & Son, 
 
 Book Debt 
 „ Cash contra 
 
 Total realisation 
 of Book Debts . 
 Total realisation 
 of Stock 
 
 
 800 
 350 
 
 1,150 
 
 800 
 350 
 
 £3,700 
 
 
 
 
 
 
 £1,300 
 
 
 
 Total realisation 
 of Plant, &c. . . 
 
 
 
 
 
 
 
 
 
 
 £1,000 
 
 
 
 Total realisation 
 of Horses, &c. . 
 
 
 
 
 
 
 
 
 
 
 £300 1 
 
 Mar. I 
 
 „ A., Balance due . . 
 ,, B., „ „ .. 
 
 
 450 
 550 
 
 
 
 
 
 
 
 
 
 „ c, „ „ .. 
 
 
 1,000 
 
 
 
 
 
 M 
 
 W 1/ 
 
 „ Cash contra 
 
 
 
 2,000 
 
 
 
 
 1 
 
 
 £8,300 
 
 10,000 
 
 
 
 
ADJUSTMENT OF PARTNERSHIP ACCOUNTS. 
 
 49 
 
 CASH BOOK. 
 
 PAYMENTS. 
 
 Cr. 
 
 )ate 
 
 Bb.8 
 
 9 
 19 
 
 „ 28 
 
 ar. I 
 
 3 
 
 By B. Payable, No. 640 
 
 „ Bank contra 
 Do. 
 
 „ Cohen & Cohen 
 
 „ Auctioneers' 
 Charges, &c. 
 
 „ Bank contra 
 
 „ B. Payable, No. 641 
 
 „ Bank contra 
 
 „ Matthews & Co. . 
 
 „ Union Bank loan . 
 
 „ Carter & Co. 
 
 „ H. Cooper . . 
 
 „ Bank contra 
 
 „ Macfarlane & Son 
 
 „ Priestley & Co. . , 
 
 „ Accountants' 
 
 charges and inci 
 dental expenses 
 
 „ Law Costs.. 
 
 Cash 
 
 s d 
 
 1,300 o o 
 1,250 o o 
 
 2,600 o o 
 1,150 o o 
 
 2,000 O O 
 
 £8,300 O O 
 
 Bank 
 
 £ s d 
 1,000 O o 
 
 2,500 o o 
 250 o o 
 500 o o 
 
 360 
 
 1,040 
 
 1,650 
 
 350 
 
 1,650 
 450 
 
 150 o o 
 
 100 O 
 
 Incidental 
 Expenses of 
 Realisation 
 
 s d 
 
 250 o o 
 
 150 o o 
 100 o o 
 
 10,000 o o 500 o o 
 
 Payment to 
 Creditors 
 
 s d 
 
 2,500 o 
 
 360 
 1,040 
 1,650 
 
 350 
 
 1,650 
 450 
 
 Bills 
 Payable 
 
 £ 
 1,000 
 
 s d 
 o o 
 
 Advances of 
 Partners ^ 
 
 £ s d 
 
 500 o o 
 
50 THE accountant's AND BOOKKEEPER'S VADE-MECUM. 
 
 The Capital Accounts of the respective partners would be as 
 follows : — 
 
 Dr. 
 
 A.'s Capital Account. 
 
 Cr. 
 
 To Realisation of Assets 
 for one-third share 
 of loss 
 
 £ 
 
 .J 
 
 
 2,550 
 
 
 
 
 £2,550 
 
 
 
 
 
 
 By Amount to credit at 
 date of expiration of 
 partnership, as per 
 Balance Sheet 
 „ Cash, Amount due on 
 adjustment. . 
 
 £ 
 
 s 
 
 d 
 
 2,100 
 
 
 
 
 
 450 
 
 
 
 
 
 £2,550 
 
 
 
 
 
 
 
 "** 
 
 Dr. B.'s Capital Account. 
 
 Cr. 
 
 
 
 £ s d 
 
 
 
 £ s d 
 
 
 To Realisation of Assets 
 
 
 
 By Amount to credit at 
 
 
 
 for one-third share 
 
 
 
 the date of expira- 
 
 
 
 of loss 
 
 2,550 
 
 
 tion of partnership, 
 as per Bal'nce Sheet 
 „ Amount due on Ad- 
 justment- 
 Transferred 
 
 from Loan 
 
 Account £1,000 
 Cash . . 550 
 
 1,000 
 
 
 
 
 
 
 
 
 
 £2,550 
 
 
 
 £2,550 
 
 
 
 
 Dr. 
 
 C.'s Capital Account. 
 
 Cr. 
 
 To Realisation of Assets 
 for one-third share 
 of loss 
 
 £ s d 
 
 
 2,550 
 
 
 £2,550 
 
 
 
 By Amount to credit at 
 the date of expira- 
 tion of partnership, 
 as per Bal'nce Sheet 
 „ Cash, Amount due on 
 adjustment 
 
 £ s d 
 
 1,550 o o 
 1 ,000 o 
 
 £2,550 O 
 
 The specimen of the Tabular Cash Book given on pages 
 48 and 49 has been written up to agree with the case under 
 notice, showing the usage of same and how it is finally closed. 
 
 A statement showing how the final adjustment had been 
 carried out, and that it had been performed in a proper 
 manner would be necessary, probably appearing in the follow- 
 ing form : — 
 
ADJUSTMENT OF PABTNERSHIP ACCOUNTS. 
 
 51 
 
 Statement showing the final adjustment of the Partnership Accounts of 
 
 A., B., and C, the — th 188—. 
 
 Dr. Cr. 
 
 To Sundry Liabilities 
 payable to non- 
 partners (1) 
 „ B. for advances . . 
 
 s d 
 
 9,500 o 
 1 ,000 
 
 10,500 o o 
 
 By Realisation of Assets — 
 Proceeds £8,000 o o 
 Less Expenssoo o o 
 
 „ A.'s Capital A/c — 
 
 Amount due on ad- 
 justment 
 „ B.'s Capital A/c — 
 Amount due 
 on adjust- 
 ment . . 550 o o 
 Add advance 
 contra . . 1,000 o o 
 
 „ C.'s Capital A/c — 
 
 Amount due on ad- 
 justment 
 
 £ s d 
 
 7,500 o o 
 
 450 o 
 
 1,550 o o 
 
 10,500 o o 
 
 It has been mentioned (page 43) that where it has been 
 agreed to share the profits and losses equally, a deficiency of 
 capital must be treated like any other loss ; and that, if the 
 surplus assets are not sufficient after payment of all debts 
 and advances to make each partner's loss equal, there must 
 be a contribution amongst the partners, or some of them, so as 
 to put all on an equality. Now, in the example just given, 
 it has been seen that each of the three partners, A., B., C, 
 contributed £450, £1,550, and £1,000 respectively, to make 
 good the deficiency appearing at the final adjustment of the 
 accounts. As the agreement with regard to profits and losses 
 was to share these equally, it follows that though there was 
 an unequal subscription of capital, the final loss, however, 
 must be equally borne by the respective partners. However 
 obvious this may be to the practical and experienced accoun- 
 tant, it is as well, on behalf of those for whom this work is 
 intended, that it should be fully demonstrated here. 
 
 It was supposed that A. put into the business £5,000, and 
 that his Capital Account at the date of the dissolution of 
 
 1 Details of the liabilities might be piven, to agree with the particulars 
 in the Balance Sheet prepared at the date of the dissolution of partnership. 
 
52 THE accountant's and bookkeepeb's vade-mecum. 
 
 partnership showed there was £2,100 to his credit ; hence it 
 follows that his drawings in excess of profits during the seven 
 years amounted to £2,900, no losses having been made. B.andC. 
 put in £4,000 and £6,000 respectively, and that, at expiration of 
 the partnership, the respective amounts due to them on their 
 Capital Accounts were £1,000 and £1,550, consequently B.'s 
 drawings in excess of profits amounted to £3,000 for the 
 seven years, whilst C.'s amounted to £4,450. From the 
 following statement it will be seen that the total loss of each 
 partner was £2,550 : — 
 
 Capital at commencement. . 
 
 Amount contributed to make up deficiency . . 
 
 Less Drawings in excess of profits during 7 years . . 
 
 A. B. C. 
 
 3^5,000 o o £4,000 o o £6,000 o o 
 450 o o 1,550 o o 1,000 o o 
 
 5,450 o o 
 2,900 o o 
 
 5,550 o o 7,000 O 
 3,oco o 4,450 o o 
 
 £2,550 o o £2,550 o £2,550 o o 
 
 Example 2. — The assets being insufficient to repay partners 
 their advances. 
 
 In this second case the supposition is that, though the assets 
 are sufficient to meet the claims of outside creditors, there is 
 an insufficiency to liquidate the claims of partners for 
 advances. The terms of the deed of partnership and the 
 respective amounts of capital subscribed may remain as in 
 Example 1, but the sharing of profits and losses instead of 
 being equal will be pro rata to the capital subscribed, viz.^ 
 A 4 B -4- C -2 
 
 Dr. Balance Sheet at date of expiration of Partnership. Cr. 
 
 To Creditors 
 „ Bills Payable 
 „ B., Advances 
 „ Capital, viz. : 
 
 A. ., £2,100 o o 
 
 B. . . 1,000 o 
 
 C. .. 1,550 o o 
 
 £ 
 
 s 
 
 d 
 
 
 8,000 
 
 
 
 
 
 
 1,500 
 
 
 
 
 
 
 1,000 
 
 
 
 
 
 
 4.650 
 
 
 
 
 
 
 15.150 
 
 
 
 
 
 
 ■" 
 
 ■" 
 
 By Plant and Machinery 
 „ Horses, vans, &c. . . 
 „ Debtors 
 „ Stock-in-trade 
 „ Cash at bankers 
 
 £ s d 
 
 2,400 o 
 
 700 o o 
 
 4,850 o o 
 
 5,500 o o 
 
 1,700 o 
 
 15,150 o o 
 
 The assets realise £10,000, and the costs of realisation 
 amount to £500. 
 
Dr. 
 
 ADJUSTMENT OF PARTNERSHIP ACCOUNTS. 53 
 
 Liquidation Account. Cr. 
 
 To Estimated Value of 
 Assets at expiration 
 of Partnership, as 
 per Balance Sheet 
 „ Expenses of realisa- 
 tion 
 
 To Balance bro't down, 
 loss on realisation 
 
 s d 
 
 15,150 o o 
 500 o o 
 
 15,650 o o 
 
 5,650 o o 
 
 ;f5,650 o o 
 
 By Cash at Bankers at 
 expiration of Part- 
 nership 
 
 „ Cash, Book Debts . . 
 
 „ Do. Stock . . 
 
 „ Do. Plant & Machy. 
 
 „ Do. Horses & Vans 
 
 „ Balance carr'd down, 
 being loss on realisa- 
 tion 
 
 By Partners' Accounts 
 for transfers of 
 share of loss con- 
 tra :— 
 A. J share 1,883 6 8 
 
 1,506 13 4 
 2,260 o o 
 
 € s d 
 
 1,700 
 
 
 
 
 
 3,700 
 
 
 
 
 
 3.300 
 
 
 
 
 
 1,000 
 
 
 
 
 
 300 
 
 
 
 
 
 5.650 
 
 
 
 
 
 15-650 
 
 
 
 
 
 5,650 o o 
 
 £5,650 o o 
 
 Dr. 
 
 A.'s Capital Account. 
 
 Cr. 
 
 To Realisation of Assets 
 for J share of loss. . 
 u Cash, Amount due on 
 adjustment.. 
 
 £ s 
 
 d 
 
 
 1,883 6 
 
 e 
 
 
 216 13 
 
 4 
 
 
 £2,100 
 
 
 
 
 "~ 
 
 By Amount to credit at 
 date of expiration of 
 Partnership, as per 
 Balance Sheet 
 
 s d 
 
 £2,100 o o 
 
 Dr. 
 
 B.'s Capital Account. 
 
 Cr. 
 
 To Realisation of Assets 
 for 1% share of loss 
 
 £ s d 
 1,506 13 4 
 
 £1,506 13 4 
 
 By Amount to credit at 
 the date of expiration 
 of Partnership, as 
 per Balance Sheet. . 
 „ Amount due on ad- 
 justment, transferr'd 
 to Loan Account . . 
 
 £ s 
 
 d 
 
 1,000 
 
 
 
 506 13 
 
 4 
 
 £1,506 13 
 
 4 
 
 Dr. 
 
 C.'s Capital Account. 
 
 Cr. 
 
 To Realisation of Assets 
 for§ share of loss. . 
 
 £ s d 
 2,260 o o 
 
 £2,260 
 
 By Amount to credit at 
 date of expiration of 
 Partnership, as per 
 Balance Sheet 
 „ Cash — Amount due on 
 adjustment .. 
 
 1,550 o 
 710 o o 
 
 £2,260 o o 
 
54 THE accountant's and bookkeeper's vade-mecum. 
 
 Statement showing final adjustment of ihe Partnership Accounts 
 
 of A., B., C. & Co., — March 188 -. 
 Dr. Cr. 
 
 To Sundry Liabilities pay 
 able to non-partners 
 „ B., for advances 
 „ A.— Capital Account, 
 Amount due on ad- 
 justment 
 
 £ s 
 
 d 
 
 
 9-500 o 
 i,ooo o 
 
 
 
 
 
 216 13 
 
 4 
 
 
 10,716 13 
 
 4 
 
 
 
 ~ 
 
 By Realisation of Assets 
 Proceeds £10,000 o o 
 Less Expen* 500 o o 
 
 „ B.— Capital Account, 
 Amount due on ad- 
 justment . . 
 
 „ C. Do. do. 
 
 £ s d 
 
 9,500 o o 
 
 506 13 4 
 710 o o 
 
 10,716 13 4 
 
 Examjjle S. — The assets being insufficient to repay 
 partners their respective capital. 
 
 the 
 
 In this third and last example, it is to be supposed that, 
 though the assets realise sufficient to meet all the liabilities of 
 the partnership, the surplus is not sufficient to satisfy the 
 claims of the partners with regard to their respective capitals. 
 The terms of the articles of partnership remain the same as in 
 Example 1, except that the capital is subscribed equally, 
 namely £5,000 each, while the division of profits and losses is 
 in the following proportions, A. -383', B. -333', and C. -283'. The 
 Balance Sheet at expiration of partnership stands as follows : 
 
 Dr. Balance Sheet at date of expiration of Partnership. Cr. 
 
 To Sundry Creditors . . 
 „ Acceptances . . 
 „ Capital Accounts : — 
 
 A. .. £1,387 o o 
 
 B. . . 1,060 o o 
 
 C. . . 2,000 o o 
 
 £ s d 
 5,600 o 
 2,500 o 
 
 4,447 o o 
 
 12,547 o o 
 
 By Plant and Machinery 
 „ Sundry Debtors 
 „ Stock in hand 
 „ Cash at Bankers 
 
 £ s d 
 
 1,500 o o 
 
 7,699 o o 
 
 3,000 o o 
 
 348 o o 
 
 12,547 o 
 
 The assets realise in this case £9,500, and the expenses of 
 realisation are £600. 
 
ADJUSTMENT OF PARTNERSHIP ACCOUNTS. 
 
 55 
 
 Dr. 
 
 Realisation of Assets Account. 
 
 Cr. 
 
 To Estimated Value of 
 assets at expiration 
 of partnership as 
 per Balance Sheet 
 „ Expenses of realisa- 
 tion 
 
 To Balance brought d'wn 
 loss on realisation 
 
 12,547 o o 
 600 o o 
 
 13,147 o o 
 
 3,647 o o 
 
 £3,647 o o 
 
 By Cash at bankers at 
 expiration of part- 
 nership 
 
 „ Cash — Book debts 
 
 „ Do. —Stock . . 
 
 „ Do. —Plant and ma- 
 chinery 
 
 „ Balance carried down 
 being loss on reali- 
 sation 
 
 By Partners' Accounts for 
 
 transfers of share of 
 
 loss per contra— 
 
 A. -383' share £1,398 o 4 
 
 B.-333' « 1,215 13 4 
 
 C.-283' „ 1,033 6 4 
 
 £ s d 
 
 34H o o 
 
 5.452 o o 
 
 2,500 o o 
 
 1,200 o o 
 
 3,647 o o 
 
 13,147 o o 
 
 3,647 o o 
 
 £3,647 o o 
 
 Dr. 
 
 A.'s Capital Account. 
 
 Cr. 
 
 To Realisation of Assets 
 for "383' share of loss 
 
 £ 
 
 s 
 
 d 
 
 1,398 
 
 
 
 4 
 
 £1,398 
 
 
 
 4 
 
 
 
 
 ~" 
 
 By Amount to credit at 
 date of expiration of 
 Partnership as per 
 Balance Sheet 
 
 „ Cash —Amount due 011 
 adjustment . . 
 
 £ 
 
 s 
 
 d 
 
 1,387 
 
 
 
 
 
 II 
 
 
 
 4 
 
 £1,398 
 
 
 
 4 
 
 
 
 ■^ 
 
 Dr 
 
 B.'s Capital Account. 
 
 Cr. 
 
 To Realisation of Assets 
 for "'333 share of loss 
 
 
 £ 
 
 s 
 
 d 
 
 I 
 
 ,215 
 
 13 
 
 4 
 
 £1 
 
 ,215 
 
 13 
 
 4 
 
 
 ■^^~ 
 
 ^^ 
 
 -"1 
 
 By Amount to credit at 
 date of expiration of 
 Partnership as per 
 Balance Sheet 
 „ Cash — Amount due on 
 adjustment . . 
 
 £ s 
 
 d 
 
 1,060 
 
 
 
 155 13 
 
 4 
 
 £1,215 13 
 
 4 
 
 
 ~" 
 
 Dr. 
 
 C.'s Capital Account. 
 
 Cr. 
 
 To Realisation of Assets 
 for '283' share of loss 
 „ Cash — Amount due 
 on adjustment 
 
 £ s 
 
 d 
 
 1,033 6 
 
 ^! 
 
 96613 
 
 8 
 
 
 £2,000 
 
 
 ^ 
 
 By Amount to credit at 
 date of expiration of 
 Partnership as per 
 Balance Sheet 
 
 s d 
 
 2,000 o o 
 
 £2,000 o o 
 
56 THE accountant's and bookkeeper's vade-mecum. 
 
 Statement showing final adjustment of Partnership Accounts of 
 A., B., and C, — March 188—. 
 
 To Sundry Liabilities pay- 
 able to non-partners 
 „ Amount due to C. on 
 account of capital 
 at adjustment 
 
 £ s d 
 
 8,ioo o o 
 966 13 8 
 
 ;f9,o66 13 8 
 
 By Realisation of Assets 
 Proceeds £9,500 o o 
 Less expenses 600 o o 
 
 Amounts due from 
 partners on adjust- 
 ment — 
 
 A. .. £11 04 
 
 B. .. 155 13 4 
 
 £ s d 
 
 ,900 o o 
 
 166 13 8 
 
 £9,066 13 8 
 
 It would probably have been considered sufficient had only 
 one example of the final Adjustment of Partnership Accounts 
 been given, as the principle is clearly shown to be the same in 
 all ; but as this work is intended for those who are in some 
 degree ignorant of the modus oiDermicli, and that, consequently, 
 a difficulty might arise in their minds as to the treatment of 
 the accounts under circumstances other than that given in the 
 example, it has been thought advisable to give three examples, 
 taking into consideration the different relations between the 
 capital subscribed and the division of profits and losses. In 
 cases 1 and 2 the capital has been taken as subscribed in 
 unequal amounts by the respective partners, whilst in the 
 former the profits and losses were shared equally, and in the 
 latter they were shared in proportion to the respective capitals 
 first subscribed ; in case 3 the capital subscribed has been in 
 equal sums from each partner, whilst the profits and losses 
 have been shared in agreed proportions. 
 
 In neither of the examples given has any notice been taken 
 of interest, either on advances by partners or on capital. In 
 the former case interest would have to be calculated at an 
 agreed rate up to the date of settlement, unless there was any 
 provision to the contrary. With respect to interest on 
 capital : — " As a general rule partners are not entitled to 
 " interest on their respective capitals unless there is some 
 
ADJUSTMENT OF PARTNEKSHIP ACCOUNTS. 57 
 
 " agreement to that effect, or unless they have themselves been 
 " in the habit of charging interest in their accounts {Cooke v. 
 " Benhoiv, 8 de G. I.), and even where one partner has brought 
 " in his stipulated capital and the other has not, the former 
 " will not be entitled to interest, on the winding up of the 
 " partnership, if it has not been previously charged and 
 " allowed in the accounts of the firm [Hill v. King, 3 de G. I. 
 '* and Sur. 418) ; and where a person is paid for his services 
 " by a share of profits, interest on capital cannot be charged 
 " against him, unless there is some agreement to that effect " 
 (Bishton v. Grissell, 5 Eq. 326). "Moreover, where interest 
 " on capital is payable, the mterest stops at the date of dissolu- 
 " tion " {Barfield v. Loughborough, 8 Ch. 1, Watney v. Wells, 
 2 Ch. 250), " and undrawn profits are not necessarily to be 
 " treated as bearing interest hke the capital " (Lindley, Laio 
 of Bartnership, Vol. I., 786). 
 
 Particular and careful attention must be paid in the winding 
 up of a partnership to the wording and clauses of the partner- 
 ship deed ; but not to the terms of the deed alone, but also to 
 the manner in which they have been acted upon by the partners 
 themselves. 
 
 III. Betrospective Adjustment. 
 
 The foregoing remarks have had relation to the adjustment 
 of accounts on a dissolution of partnership, through death, 
 effluxion of time, or other cause, and when it has been 
 necessary to realise the whole of the assets and wind up the 
 affairs of the firm. Disputes among partners, however, often 
 necessitate the adjustment of the Partnership Accounts ; the 
 matters in dispute are either referred to arbitration, or an 
 action is commenced in the Chancery Courts by one or more 
 of the partners, for a settlement of the contention between 
 them. In such an event the adjustment of the accounts may 
 be on an entirely different basis. 
 
 The Court will on certain grounds decree a dissolution of 
 
58 THE accountant's and bookkeeper's vade-mecum. 
 
 the partnership in an action brought by one of the partners. 
 The principal cases coming under this head are : — 
 
 (a) Where a person has been induced by the fraud of 
 another person to enter into partnership with him (Baivlins v. 
 Wickham, 1 Giff. 355). 
 
 (b) Where one partner so grossly misconducts himself, and 
 so constantly commits breaches of the partnership contract, 
 that mutual confidence is destroyed, and the other partners 
 are practically unable to carry on the business along with him 
 {Smith V. Jeyes, 4 Beav. 502 ; Waters v. Taylor, 2 V. & B. 299). 
 However, the Court will not order a dissolution merely because 
 there are faults of temper, or because there are squabbles 
 between the partners, except the effect of them is to exclude 
 one of the partners from his interest in the partnership, or to 
 render it practically impossible to carry on the business 
 properly. (See Goodman v. Whitcomb, 1 I. & W. 589 ; Smith 
 V. Jeyes, 4 Beav. 502.) 
 
 (c) Where one of the partners becomes hopelessly insane 
 {Jones V. Noyy 2 M. & K. 125). 
 
 {d) Where one of the partners becomes liable to a criminal 
 prosecution by reason of his having been guilty of a fraud or 
 other crime {Essel v. Hayward, 30 Beav. 158). 
 
 (e) Where the partnership is for a term which has not 
 expired, and one of the partners assigns his share to a stranger 
 (Lindley, 231). 
 
 (/) Where the purposes of the partnership cannot be carried 
 into effect with any reasonable prospect of profit {Wilson v. 
 Church, 41 L.T. Eep. N.S. 50, at p. 63; 13 Ch. Div. 1, at 
 p. 65). 
 
 It may be that the correctness of the respective Capital 
 
ADJUSTMENT OF PAETNERSHIP ACCOUNTS. 59 
 
 AccouDts of the partners is called into question inter se, certain 
 transactions of one or more of the partners being impugned by 
 the others. For example, payments made by one partner out 
 of the Partnership Funds are contested by the others as being 
 ultra vires, and to be regarded as a private transaction, and 
 not as forming a part of the partnership business, or vice versa. 
 It may, moreover, happen that the disputed transactions extend 
 over a number of years. 
 
 The accounts requiring correction under such an adjustment 
 would be the Balance Sheets, the Profit and Loss Accounts, 
 and the Capital Accounts of the respective partners, and 
 possibly some accounts relating, to real property. 
 
 The best method, perhaps, in such a case would be, not to 
 interfere with the books of the partnership until the final 
 decision of the Court or the award of the arbitrator had been 
 received, but to correct seriatim the periodical Balance Sheets, 
 Profit and Loss Accounts, &c., commencing with those in which 
 the disputed item or items first appear. 
 
 It is a somewhat difficult matter to give an illustration of 
 such an adjustment ; but an endeavour is here made to explain 
 what is intended : — 
 
 It is to be supposed that after carrying on business for five 
 years (1870 to 1875) A. and B., after frequent misunderstand- 
 ings, submit their case to arbitration. Among the items in 
 dispute is the purchase, in 1871, of a parcel of land for 
 agricultural purposes by B. out of Partnership Funds for 
 £3,000. This, A. contended, was not for the use of, or to the 
 benefit of, the partnership, and, moreover, was ultra vires of 
 B., as being contrary to the terms and conditions of the part- 
 nership deed. 
 
 It has been decided (Natusch v. Irviiig, cited in Lindley, 
 p. 600) that a firm cannot engage in any other business but 
 
60 THE accountant's AND BOOKKEEPER'S VADE-MECUM. 
 
 that for which the partnership was formod, except with the 
 consent of all the partners. 
 
 Upon the Arbitrator making his award, this, among other 
 matters, was disallowed, with all outgoings incurred in the 
 purchase, or expended afterwards upon the said land (this is 
 assumed to amount to £V20). And these sums were to bear 
 compound interest at the rate of 5% per annum to the date of 
 the award (31st Dec. 1876).^ Consequently, B.'s Capital 
 Account for 1871 would have to be debited with the purchase- 
 money and the expenses and other disbursements relating 
 thereto. This besides would affect the share of loss or profit 
 of the respective partners in the year in question, as also in 
 the subsequent years. 
 
 The first thing to be done is to prepare copies of the 
 Balance Sheet, the Profit and Loss x^ccount, and the partners' 
 respective Capital Accounts for the several years from 1871 to 
 1876, each year's accounts being bound up separately, and 
 having a few clean pages at the end so as to allow for the 
 adjustment of each year's Profit and Loss Account. 
 
 Separate statements of the £3,000 and the £120 (the 
 amounts disallowed by the Arbitrator) should then be pre- 
 pared, and interest calculated yearly both on the principal and 
 the accrued interest, as in the forms subjoined : 
 
 1 Interest could only be claimed in the event "of there being some 
 agreement to that effect, or unless they (the partners) have been in the 
 habit of charging interest in their accounts, and even v^^here one partner 
 has brought in his stipulated capital and the other has not, the former will 
 not be entitled to interest on the winding-up of the partnership, if it has 
 not been previously charged and allowed in the accounts of the firm " 
 (Lindley, Law of Partnership, Vol. I., 786 ; see also supra, pages 56 & 57). 
 
ADJUSTMENT OF PAETNERSHIP ACCOUNTS. 
 
 61 
 
 Statement of £3,000 now debited to B.'s Capital Account, being the 
 amount paid for land at on 7th Aug. 1871, and disallowed 
 
 by the Arbitrator in his award of 31st Dec. 1876, with compound 
 interest thereon to latter date at the rate of 5% per annum. 
 
 1871 
 
 1872 
 1873 
 1874 
 1875 
 1876 
 
 Principal 
 
 Interest on £3,000 o at 5% from 7 Aug. to 31 Dec. 
 
 146 days 
 
 Less Income Tax 6d. in £ . . . . . . 
 
 Interest on i^'s.osS 10 o for one year at 5% 
 Less Income Tax 6d. in ^f 
 
 Interest on ^^3,207 12 6 for one year at 5% 
 Less Income Tax jd. in £ 
 
 Interest on £3,364 13 8 for one year at 5% 
 Les% Income Tax 4d. in £ 
 
 Interest on £3,530 2 7 for one year at 5% 
 Less Income Tax 4d. in £ 
 
 Interest on £3,703 13 9 for one year at 5% 
 Less Income Tax 4d. in £ 
 
 60 o o 
 I 10 o 
 
 [52 19 o 
 3 16 6 
 
 160 8 o 
 3 6 10 
 
 168 5 o 
 2 16 I 
 
 176 10 o 
 2 18 10 
 
 185 4 
 3 I 
 
 £ s d 
 3,000 o o 
 
 58 10 
 
 3,058 10 o 
 
 149 2 6 
 
 157 I 2 
 
 165 8 II 
 
 173 II 2 
 
 182 2 4 
 
 £3,885 16 I 
 
 II. 
 
 Statement of £120 now debited to B.'s Capital Account, being charges in 
 connection with purchase of land at on 7th Aug. 1871, 
 
 and disallowed by the Arbitrator in his award of 31st Dec. 1876, with 
 compound interest thereon to latter date at the rate of 5% per annum. 
 
 1871 
 
 1872 
 1873 
 1874 
 1875 
 1876 
 
 Principal 
 
 Interest on £120 o at 5% from 7 Aug. to 31 Dec, 
 
 146 days 
 
 Less Income Tax 6d. in £ 
 
 £ s d 
 
 Interest on £122 6 11 for one year at 5% 
 Less Income Tax 6d. in £ 
 
 Interest on £128 5 11 for one year at 5% 
 Less Income Tax 5d. in £ 
 
 Interest on £134 11 3 for one year at 5% 
 Less Income Tax 4d. in £ 
 
 Interest on £141 4 for one year at 5% 
 Less Income Tax 4d. in £ 
 
 Interest on £148 2 8 for one year at 5*; 
 Less Income Tax 4d. in £ 
 
 1 I 
 
 620 
 3 o 
 
 680 
 
 2 8 
 
 6 15 o 
 
 2 3 
 
 7 I o 
 2 4 
 
 £ s d 
 120 o o 
 
 2611 
 
 5 19 o 
 654 
 
 6 12 9 
 
 6 i8 8 
 
 756 
 £155 8 2 
 
 Income tax is deducted from interest on account of its having been 
 deducted on the yearly interest on capital ; vide Capital Accounts. 
 
 These two statements show the yearly interest required to 
 
62 THE accountant's and bookkeeper's vade-mecum. 
 
 adjust the several Profit and Loss Accounts, while the heading 
 forms the narration for the necessary Journal entry at the 
 final adjustment of the Books. 
 
 We now take the Balance Sheet and other accounts for 
 1871, and turning to the clean pages at the end, 
 
 Bring forward the net profit of the year, viz., £7,200. 
 
 We then add the interest on the £3,000, as per Statement I., 
 the charges disallowed, viz., £120, as they formed part of the 
 revenue expenditure of the period, and have to be written 
 back and the interest on this last amount as per Statement 
 II. This gives us £180 16s. lid. to be added to the nett 
 profits of the period ; vide accounts for 1871 as given below. 
 
 Balance Sheet, 31st Dec. 1871. 
 
 Liabilities 
 
 Sundry Creditors 
 Capital, viz. : — 
 
 £12,654 12 3 
 
 A. .. \^,^^^n^ 
 
 7,766 11 11 
 B. .. \%^\\ ^ \ 
 
 £ s d 
 6,478 5 2 
 
 20,421 4 2 
 
 26,899 9 4 
 
 Assets 
 
 Sundry Debtors . . 
 
 Land situate at 
 
 Stock-in-Trade : 
 In shops £3,642 o o 
 In warehouse 5,478 lo o 
 
 £ s d 
 15,164 14 4 
 
 9,120 10 o 
 
 Warehouse and Office 
 
 Fittings I 250 o o 
 
 Cash in hand . . . . ' 2,364 5 o 
 
 ^26,899 9 4 
 
 £'^^,m%\ 
 
 Sections I. and II. of the Revenue Account (vide pages 
 5 and 6) are not given here as they do not bear on the point 
 in question — though, of course, in an actual case they would 
 have to be set out in full. 
 
 Kevenue Account for the period ending 31st Dec. 1871. 
 Section III. 
 
 To Interest on Capital . . 
 „ Income Tax . . 
 „ A. i share £3,600 o o 
 „ B. I share 3,600 o o 
 
 £ s d 
 868 16 8 
 206 17 6 
 
 
 7,200 
 £8,275 14 2 
 
 1 
 
 i 
 1 
 
 
 By Balance 
 
 (from section II.) 
 
 £ s d 
 8,275 14 2 
 
 £S,275 14 2 
 
ADJUSTMENT OF PAKTNBRSHIP ACCOUNTS. 
 
 63 
 
 Dr. 
 
 A.'s Capital Account. 
 
 Cr. 
 
 1871 
 Dc. 31 
 
 To Transfer Drawing 
 Account . . 
 
 „ Balance 
 
 1,280 
 12,654 12 3 
 
 13,934 12 5 
 
 1871 
 
 Jan. I 
 Dc. 31 
 
 1872 
 
 By Balance 
 „ Interest at 5% 
 
 £488 8 o 
 Lfss Income tax 12 4 o 
 
 By § share of profit 
 
 By Balance 
 
 £ s d 
 9,768 o o 
 
 476 4 o 
 3,690 8 5 
 
 13,934 12 5 
 
 12,654 12 3 
 
 Dr. 
 
 B.'s Capital Account. 
 
 Cr. 
 
 1871 
 Do. 31 
 
 To Transfer Drawing 
 
 Account . . 
 „ Land purchased 7 
 
 Aug.i^iji 
 „ Charges thereon . . 
 
 u Balance . . 
 
 £ s d 
 
 1,189 12 4 
 
 3.000 
 120 
 
 7,766 11 11 
 
 1 871 
 
 Jan. I 
 Dc. 31 
 
 1872 
 Jan. I 
 
 12,076 4 3 
 
 
 By Balance 
 „ Interest at 5% 
 
 £402 14 o 
 Less Income tax 10 i 4 
 
 By § share of profit 
 
 By Balance 
 
 8,054 
 
 s d 
 
 331 15 9 
 
 m \% ^ 
 
 3,690 8 6 
 
 12,076 4 3 
 
 7,766 11 11 
 
 {Example of the entries to be made in blank pages left at end of the 
 yearly accounts for the adjttstment.) 
 
 Net Profit as per Revenue Account 
 Add 
 
 (fo. ) 
 
 Interest on £3,000 disallowed by Arbitrator in his 
 
 . award of the 31st Dec. 1876, from 7th Aug. to 31st 
 
 Dec. 1871 — 146 days at 5% per annum . . £60 o o 
 
 Less Income Tax, 6d. in £ . . . . i 10 o 
 
 Charged to B, 
 
 Amount of charges in connection with purchase of 
 
 land at 7th Aug. 1871, disallowed by 
 
 Arbitrator in his award of 31st Dec. 1876 
 
 Interest on the above £120, 7th Aug. to 31st Dec. 
 
 1871 = T46 days at 5% per annum ..£280 
 
 Less Income Tax, 6d. in £ . . . . 11 
 
 Charged to B. 
 
 {fo. ) 
 
 {fo. ) 
 
 {fo. ) 
 
 Adjusted profits for 1871 
 
 A.'s J share of profits (fo. 
 
 B.'s I share of profits {fo. 
 
 £ 
 7.200 
 
 s d 
 o o 
 
 58 10 
 
 2 6 II 
 
 
 8 
 8 
 
 16 
 
 5 
 6 
 
 II 
 
 100 
 
 10 
 
 II 
 
 
 £7,380 
 
 16 
 
 II 
 
 3,690 
 3.690 
 
 £7.380 
 
 
 
 
 We now turn to B.'s Capital Account and enter in red (in 
 
64 THE accountant's and bookkeeper's vade-mecum. 
 
 italics here) to his debit the £3,000, ruUng same out among 
 the assets in Balance Sheet. We also debit B.'s account in 
 red with the £120, and correct his entry for interest by deduct- 
 ing from the amount already entered £58 10s. Od. (interest 
 on the £3,000) and £2 6s. lid. (the interest on the £120). We 
 now finally amend the share of profit carried to each 
 partner's Capital Account, and this being done, re-cast each 
 side, bring down the corrected balance, and carry same to 
 Balance Sheet, the sides of which, on being re-cast, should 
 agree and thus prove the correctness of the work. 
 
 So far we have corrected and adjusted the accounts for 
 1871, but in so doing have efi'ected an alteration in the 
 Capital Accounts of each partner, irrespective of any change 
 made by amounts written back ; that is to say, they are 
 entitled to a further share of profits than was originally allotted 
 to them ; viz., the £180 16s. lid. appearing in the adjustment 
 of Profit and Loss Account. But as this will affect the 
 amount of interest on capital in the next and subsequent 
 years, a statement is to be drawn out in the same manner as 
 
 Statements I. and II. 
 
 III. 
 
 Statement of Interest on £180 16s. lid., the extra amount of Profit due 
 to Partners as on 31st Dec. 1871, after adjustment of accounts for the 
 year ending 31st Dec. 1871, at the rate of 5% per annum compounded, 
 from the above date to 31st Dec. 1876 ; the moieties being credited to 
 A. and B. respectively. 
 
 1872 
 
 1873 
 1874 
 1875 
 1876 
 
 Principal 
 
 Interest on £i8o i6 ii at 5% for one year 
 Less Income Tax, 6d. in £ 
 
 Interest on £189 13 5 for one year at 5% 
 Less Income Tax, sd. m £ 
 
 Interest on £198 19 6 for one year at 5% 
 Less Income Tax, 4d. in £ 
 
 Interest on £208 15 2 for one year at 5% 
 Less Income Tax, 4d. in £ 
 
 Interest on £219 o 8 for one year at 5% 
 Less Income Tax, at 4d. in £ . . 
 
 £ s d 
 
 9 I o 
 4 6 
 
 9 10 o 
 3 II 
 
 9 19 o 
 
 3 4 
 
 10 9 o 
 3 6 
 
 10 19 o 
 3 8 
 
 £ s d 
 180 16 II 
 
 8 16 6 
 961 
 
 9 15 8 
 
 10 5 6 
 
 10 15 4 
 £48 19 I 
 
ADJUSTMENT OF PAKTNERSHIP ACCOUNTS. 
 
 65 
 
 As this will be a deduction from profits in the next and 
 following years, it is always better to write it and others of 
 the same character in red ink, so as to easily distinguish them 
 from those having an opposite result.^ 
 
 The accounts for the second year are here given as a further 
 example : 
 
 As also a statement showing the treatment of the extra 
 profits for the year derived from the re-adjustment : 
 
 Dr. 
 
 Balance Sheet, 31st Dec. 1872. 
 
 Cr. 
 
 \ Liabilities 
 
 'Sundry Creditors 
 Capital, viz.— 
 
 £15fiU 13 1 
 
 A. .. \^.TO^n\ 
 10,618 6 10 
 
 £ s d 
 
 
 7.354 7 8 
 
 
 26,262 19 11 
 
 
 31^.617 7 7 
 
 
 Assets 
 
 Sundry Debtors. . 
 
 Land situate at 
 
 Stock-in-trade : 
 In shops . . £3,420 o o 
 In warehouse 6,825 o o 
 
 Warehouse and office 
 
 fittings 
 
 Cash in hand 
 
 20,692 o o 
 
 10,245 o o 
 
 230 o o 
 2,450 7 7 
 
 3^.617 7 7 
 
 Revenue Account. — It has been thought unnecessary to repeat this ; but 
 to take the Net Profit as the same as last. 
 
 Dr. 
 
 A.'s Capital Account. 
 
 Cr. 
 
 1872 
 Dec. 31 
 
 To Transfer Drawing 
 Account.. 
 
 „ Balance . . 
 
 £ s d 
 1,300 
 
 15,644 13 1 
 
 1872 
 Jan. I 
 Dec 31 
 
 1873 
 Jan. I 
 
 16,944 13 1 
 
 
 By Balance 
 „ Interest at 5% 
 
 £628 4 2 
 Less Income tax 15 14 i 
 
 By J Share of Profit 
 
 By Balance 
 
 £ s d 
 
 12,654 12 3 
 
 616 IS 4 
 
 m m X 
 
 3,673 2 6 
 
 Mm ^ ^ 
 
 16,944 13 1 
 
 15,644 13 1 
 
 ximxnx 
 
 1 In this example the amount has been treated entire, but it can, and 
 conveniently so, be divided into two statements, showing each partner's 
 share. This would the better agree with the adjustment appearing at 
 the end of each year's accounts. 
 
66 THE accountant's and bookkeepek's vade-mecum. 
 Dr. B.'s Capital Account. Cr. 
 
 1872 
 Dec. 31 
 
 To Transfer Drawing 
 Account.. 
 
 „ Balance .. 
 
 £ s d 
 
 1,200 
 10,618 6 10 
 
 1872 
 
 Jan. I 
 Dec. 31 
 
 1873 
 Jan. I 
 
 By Balance . . 
 „ Interest at 5% 
 
 £542 17 
 Less Income tax 13 11 4 
 
 By § share of Profits.. 
 £ 
 
 By Balance . . 
 
 7,766 11 11 
 
 378 la 6 
 
 
 11,818 6 10 
 
 11,818 6 10 
 
 
 
 10,618 6 10 
 
 mm ^ ^ 
 
 £ s d £ s d £ s d 
 Net profit as per Revenue Account, page . . . . 7,200 o o 
 
 /I dd— Interest on £3,058 10s. od. being amount dis- 
 allowed as on 31st Dec. 1871, with compound interest 
 
 thereon (see Balance Sheet for 1871) 152 19 o 
 
 Less Income Tax 3166 
 
 Charged to B. 149 2 6 
 
 Interest on £122 6s. iid. being amount disallowed as on 
 31st Dec. 1871, with compound interest thereon (see 
 
 Balance Sheet for 1871) 620 
 
 Less Income Tax 30 
 
 Charged to B. 5 19 o 
 
 155 I 6 
 £)edMc^— Interest on £180 i6s. iid., the extra amount of 
 
 profits due to partners as on 31st Dec. 1871 (see 
 
 Balance Sheet for 1871J 
 
 A.'s i share . . . . £go 8 5 
 
 Interest at 5% £4 10 6 
 
 Less Income Tax 23 
 
 483 
 
 B.'s J share . . . . £90 8 6 
 
 Interest at 5% £4 10 6 
 
 Less Income Tax 23 
 
 4 8 3 
 
 8 16 6 
 
 146 5 o 
 
 Adjusted profits for 1872 £7.346 5 o 
 
 A.'s J share of profits £3,673 2 6 
 
 B.'s J share of profits 3,673 2 6 
 
 £7,346 5 o 
 
ADJUSTMENT OF PARTNEESHIP ACCOUNTS. 
 
 67 
 
 IV. 
 
 Statement of Interest on £146 5s., the extra amount of Profit due to 
 Partners as on 31st Dec. 1872, after adjustment of accounts for the 
 year ending 31st Dec. 1872, with interest at rate of 5% per annum 
 compounded, from the above date to 31st Dec. 1876, the moieties 
 being credited to A. and B. respectively. 
 
 1873 
 
 1874 
 1875 
 1876 
 
 Principal 
 
 Interest on £146 5 o for one year at 5% 
 Less Income Tax, sd. in £ 
 
 Interest on £153 8 o for one year at 5% 
 Less Income Tax, 4d. in £ 
 
 Interest on £160 18 6 for one year at 5% 
 Less Income Tax, 4d. in £ 
 
 Interest on £168 16 10 for one year at 5% 
 Less Income Tax, 4d. in £ 
 
 £ s d 
 
 760 
 3 
 
 £ s d 
 146 5 
 
 
 7 13 
 2 6 
 
 730 
 
 7 10 6 
 7 18 4 
 862 
 
 8 I 
 2 8 
 
 890 
 2 10 
 
 
 £30 18 
 
 The same plan would be adopted for the subsequent years 
 until the final adjustment (in this case under date of 31st 
 Dec. 1876) ; the Statements I., II., III., IV., and others to be 
 made each year in accordance with III. and IV. would give 
 the results to be carried through the Journal to the respective 
 accounts, the totals giving the necessary figures and the head- 
 ings forming the narration of each Journal entry. The books 
 could then be closed in the usual way, and should agree with 
 the amended Balance Sheet of 31st Dec. 1876. 
 
 In an adjustment of Partnership Accounts on the above 
 basis there would probably occur items in dispute as being a 
 portion of the property of the business, and which had been 
 taken by one of the partners as personal property. In such 
 case the adjustment would be the opposite to the illustration 
 given, the Capital Account of one partner being credited with 
 the item written back, and the assets of the firm being 
 increased by the addition of such item of property. The 
 manner of procedure would be the same as given above ; it is 
 thought, however, that the example given will be sufficient to 
 
68 THE accountant's and bookkeeper's vade-mecum. 
 
 demonstrate the manner of adjusting Partnership Accounts 
 under such a condition of affairs. 
 
 In the event of a case similar to the illustration given above 
 being taken into Court, a receiver would in all probability 
 be appointed ; it is the practice, however, of the Court to 
 use great caution. The primary object of the application 
 must not be to carry on the business, but to dissolve the 
 partnership and realise the assets as quickly as possible, or 
 dispose of the business and assets to such partner who shall 
 offer the highest amount, and so pay out the other partner or 
 partners under such terms and conditions as the Court may 
 direct. Mutual confidence being the basis of a partnership, 
 it must be shown that the partner or partners against whom 
 the receiver is asked has been guilty of acts which are 
 injurious to the business, and destroy mutual confidence. 
 When a partner has been induced to join a firm by fraudulent 
 representations, a receiver will be appointed at his request. 
 The Court sometimes appoints one of the partners, on being 
 satisfied that, from his special knowledge of the business or 
 other matters, he will be more likely to beneficially wind up 
 the estate than a stranger; but he must give security, and 
 must act without salary. In the order he would be described 
 as receiver and manager. 
 
 Forms for a Receiver's Cash Account are given in the 
 Appendix. 
 
 It may be as well to say a few words, before bringing this 
 subject to a close, upon the ways in which a dissolution of 
 a partnership may take place, and to do so as clearly as 
 possible, the following remarks from a lecture''' delivered 
 
 * Vide Accountants Students' Journal, Vol, III., No. 30 : Messrs 
 
 Gee & Co. 
 
ADJUSTMENT OF PAKTNERSHIP ACCOUNTS. 69 
 
 to the London Accountant Students' Association by E. Eing- 
 wood, Esq., Barrister-at-Law, are quoted : — 
 
 ** There are three ways in which a dissolution of partner- 
 " ship may take place. In the first place, a dissolution may 
 " take place by operation of law. A dissolution by operation 
 " of law takes place : — 
 
 " {a) Where one of the partners dies, unless there is an 
 '- express agreement in the articles of partnership that the 
 " death of one of the partners is not to effect a dissolution 
 " (Gillespie v. Hamilton, 3 Mad. 251). 
 
 " [h) Where one of the partners becomes bankrupt a dis- 
 " solution takes place ipso facto, because his share is trans- 
 " ferredtohis trustee in bankruptcy, with whom, of course, 
 " the other partners never agreed to carry on business [Fcx 
 " V. Hanbury, 2 Cowp. 445). I need hardly say that 
 ** the bankruptcy of all the partners would have a similar 
 " effect. 
 
 " (c) On similar principles, if one partner in a partnership 
 " at will assigns his share to a stranger or to the other partner, 
 " a dissolution takes place. (See Lind. 698 ; Heath v. Sansoiii, 
 " 4 B. & Ad. 172.) 
 
 " (<i) A dissolution would also probably take place where 
 " any event happens which would make the partnership 
 " illegal. (See Esposito v. Bowden, 7 E. & B. 763, 784.) 
 
 " Secondly, the time of the dissolution may be fixed by the 
 " agreement of the partners. Thus, if the partnership is a 
 " partnership at will, any member can at any time give notice 
 •' of dissolution ; though, if he does so 8.t an unreasonable 
 '• time, and when ruinous loss would be caused to the concern, 
 " the Court would probably interfere. (See FeatherstonJiaugh 
 " V. Fenwick, 17 Ves. 298.) 
 
70 THE accountant's AND BOOKKEEPEE's VADE-MECUM. 
 
 ** Again, where the partnership is for a fixed term, it co mes 
 " to an end when that term has expired, unless the parties 
 " still continue to carry on the business, in which case the law 
 " holds that there is a partnership at will {Feather s to nhmigh 
 ♦* V. Fenwick, uhi sup.). 
 
 " Further, I need hardly say that, though the partnership 
 *'■ term has not expired, a dissolution may take place if all the 
 ** partners agree." 
 
 The third way is when the Court, on certain grounds, will 
 decree a dissolution of the partnership. For the principal 
 cases coming under this head, see page 58. 
 
CHAPTER VII. 
 
 JOINT STOCK COMPANIES' ACCOUNTS. 
 
 There is no intention of going into any elaborate details for 
 keeping the accounts of a company with limited liability, but 
 rather to show the method of opening and writing up the 
 Statistical books, ^ the principal of which are — 
 
 The Application and Allotment Book. 
 
 The Share Ledger (Register of Members). 
 
 The Call Book. 
 
 The Register of Transfers. 
 
 Register of Mortgages. 
 
 Annual List of Members and Summary Book. 
 
 Minute Book. 
 
 The one important book required under the Companies Act 
 1862 is a Register of Members, and there shall be entered 
 therein the following particulars : — 
 
 (1) The names and addresses and occupation, if any, of the 
 members of the company, with the addition, in the case of a 
 company having a capital divided into shares, of a statement 
 of the shares held by each member, distinguishing each share 
 
 1 Statistical books, so called to distinguish them from the Financial or 
 ordinary books of account. 
 
72 THE accountant's and bookkeepek's vade-mecum. 
 
 by its number; and of the amount paid, or agreed to be con- 
 sidered as paid, on the shares of each member. 
 
 (2) The date at which the name of any person was entered 
 in the Eegister as a member. 
 
 (3) The date at which any person ceased to be a member. 
 
 The Share Ledger compHes with all these requirements, and 
 therefore it is recommended not to keep a separate book for 
 this purpose.^ 
 
 The first thing to be done by the registration clerk of a new 
 company is to enter the applications for shares in the Appli- 
 cation and Allotment Book in the order in which they are 
 received. These are usually handed in to the company's 
 bankers, and are obtained from the bank daily, together with 
 the pass-book recording the deposits received. 
 
 The form of an Application and Allotment Book is given on 
 page 73, and has been filled up in such a manner as to repre- 
 sent every case that may occur in the application for and in 
 the allotment of shares in a company with limited liability. 
 
 1 Mr. Francis Pixley, F.G.A., however, in his excellent work on 
 Auditors, remarks that this plan has one great disadvantage. 
 
 " Section 82,'" he writes, " of the Companies Act 1862 prescribes that the 
 " Register of Members shall be open to any member gratis and to that of 
 "■any other person on the payment of one shilling, or any less sum the 
 " company may prescribe for each inspection. It might be very undesirable 
 "for the company to throiu open its Share Ledger to the inspectiofi of 
 ' ' everyone making a demand under this section, and for this reason the 
 " ShareJwlders' Ledger is usually kept as a separate book. The book 
 " which gives all the particulars required by the Act, without affording 
 ' ' any information to an inspector, except by considerable research, is one 
 " which ccnitains the shares in numerical order, with the names of their 
 " respective holders, and other particulars, in the same line with the 
 ^'number." 
 
JOINT STOCK COMPANIES ACCOUNTS. 
 
 73 
 
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74 THE accountant's and bookkeeper's vade-mecum. 
 
 The first entries should be the shares agreed to be allotted as 
 fully paid up to the vendor or vendors (and his or their 
 nominees) in part or full payment of the purchase money ^ for 
 the property or business acquired by the company, then follow 
 those subscribed for by the signatories to the memorandum of 
 association who have not otherwise applied for shares. 
 
 Application No. 1 is a case where an applicant for shares 
 has marked his form to the effect that his request for so many 
 shares includes that one for which he subscribed when 
 signing the memorandum of association. Where this has 
 not been done, and the company has eventually gone into 
 liquidation, and all the shares have not been subscribed 
 for, the liquidator is within his rights by including the signa- 
 tory in the list of contributories for the shares so subscribed, 
 even though he applied for other shares, the signing of the 
 memorandum of association and the request for shares sent 
 in after issue of prospectus being regarded as two distinct 
 applications or undertakings to accept shares. The Courts 
 have upheld this. 
 
 No. 2 is a case where the subscriber, when paying the 
 amount due on allotment, also pays the balance remaining 
 due on the shares, thus converting them into fully paid-up 
 shares. It is usual, where calls are thus paid in advance, 
 to allow interest upon the amount paid in excess of calls 
 made. 
 
 In No. 3 the applicant applies for more shares than the 
 directors allot, either through the full number offered to the- 
 public being taken up, or through there being numerous other 
 
 1 The writer recommends the adoption of such a plan, as by this means 
 the shares considered as fully paid-up are kept quite distinct from those 
 which are applied for ; the latter would then bear consecutive numbers 
 without being broken into. 
 
JOINT STOCK companies' ACCOUNTS. 76 
 
 requests for shares, with which the directors wish to comply 
 so far as the remaining shares can be divided among the 
 apphcants pro rata, or from any other cause. In the event of 
 such a case as the last, the excess amount paid on deposit is 
 applied to the payment due on allotment, and if there be any 
 sum beyond this it is either returned or allowed to remain 
 against future calls. In the example given it will be seen 
 that there was not enough to satisfy the call on allotment by 
 £50, request for the payment of which would be contained in 
 the letter of allotment. 
 
 No. 4 is a case where no allotment takes place, and con- 
 sequently a letter of regret is sent, together with a cheque 
 returning the deposit. 
 
 Immediately after the allotment of the shares, the Share 
 Ledger should be written up. The form recommended is 
 given on pages 76-7, with two examples of entries, which are 
 given to show how the vendors' shares and the ordinary 
 shares are respectively entered in that portion of the Ledger 
 set apart for the registration. A full explanation of the Share 
 Ledger and the advantage of the form here adopted will be 
 given before the close of the present chapter. 
 
76 THE accountant's and bookkeeper s vade-mecum. 
 
 13 O 
 
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JOINT STOCK companies' ACCOUNTS, 
 
 77 
 
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78 THE accountant's and bookkeepee's vade-mecum. 
 
 There is no intention to go into any lengthy statement of 
 how the certificates are prepared, or of the manner of making 
 calls, &c.^ All that is here intended is, firstly, to give such 
 instructions as will enable anyone to keep the necessary 
 books in proper order ; and, secondly, to put forward such 
 forms as it is thought will fully comply with all require- 
 ments, and will give, at the same time, all necessary informa- 
 tion without being too elaborate or too confusing. 
 
 Another book that will be almost immediately required is 
 the Call Book, the form for which is given on page 79, 
 with examples. 2 
 
 The date of the first call is usually mentioned on the pro- 
 spectus, and the articles of association should state the manner 
 in which calls are to be made and paid. Whether or not 
 the prospectus bears the date of the first or other calls, it is 
 essential that the call be made by a Board minute stating 
 both the amount and the time at which it is to be paid. 
 
 1 For such information, the reader is referred to the Secretary's 
 Manual, published by Jordan & Son, which deals with the matter 
 thoroughly. 
 
 2 It will be found more convenient to have this in loose sheets with the 
 number of call left blank, as also the amount of call per share. The 
 sheets of such call when complete can then be stitched together, having 
 a limp cover (leather or other material) at back so as to permit of the 
 whole being rolled up. 
 
JOINT STOCK companies' ACCOUNTS. 
 
 79 
 
 '2 
 
 'a 
 
 i 
 
 
 
 •2 
 1 
 
 2nd application, Apr. 30 
 Final „ May 10 
 ■ Placed in hands of Solic- 
 itors, May 28 
 On £300 paid in advance, 
 Feb. 8th, 1892 
 
 S as 
 
 junouiy 
 
 T3 00 
 m o|3 
 
 sXbq 
 
 CO l-H 
 
 •oj Jioog qsBO 
 
 vo«D tN^soo ^-^t^ 
 
 52 
 
 1892 
 Mar. 30 
 
 „ 28 
 Apr. 18 
 
 „ 20 
 
 « 23 
 July 2 
 Feb. 8 
 Apr. 20 
 
 
 £ sd 
 
 10 
 
 10 
 
 10 
 
 10 
 
 10 
 
 500 
 
 150 
 
 150 
 
 Pl9q s9JBqs JO -ON 
 
 1 8 8 
 
 Descrip- 
 tion 
 
 Clerk 
 
 Solicitor 
 
 Porter 
 
 Solicitor's 
 
 Clerk 
 Surveyor 
 
 Banker 
 
 Widow 
 
 Spinster 
 
 1 
 
 j 
 
 16, Mildmay Park, 
 
 London, N. 
 
 17, Bedford Row, 
 
 London, W.C. 
 42, Mare Street, 
 
 Hackney, London 
 17, Bedford Row, 
 
 London, W.C. 
 48, Lime Street, 
 
 London, E.C. 
 The Broadlands, 
 
 Abingdon, Berks 
 Inverness Lodge, Hyde 
 Park Place, London, W. 
 Inverness Lodge, Hyde 
 Park Place, London, W. 
 
 Z 
 
 Smith, John 
 Bruce, George 
 Finch, Ernest 
 Evans, Charles 
 Readman, John 
 Clinton, Henry 
 North, Frances 
 North, Eva 
 
 •OJ a93p9T 9JEqs 
 
 >n«OiNOo oio M M 
 
 nB3 JO 9;Bp ana 
 
 § = ».. = .= ! 
 
 S. ^ = . . . . . 
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 s9onoN 11^3 
 JO qo;Bds9p JO 9;Ba 
 
 n ::::::: 
 
 JO 9jnui] 
 SB apBui 
 
 Ai pjBog Ji9d 
 UB3 JO ajBQ 
 
 ^s * = ^ ^ ^ . . 
 
 "-!- = -- i 
 
80 THE accountant's AND BOOKKEEPER'S VADE-MECUM. 
 
 When a call is decided upon by the Board of Directors and 
 the resolution is passed, letters are at once sent out. The best 
 form for these is a threefold one, such as that given on 
 page 81. 
 
 The counterfoil, the letter, and the request to banker, should 
 all bear the respective folio in the Share Ledger ; the advan- 
 tage being that reference to the particular account in the 
 Share Ledger, in case of need, is so much easier. 
 
 Some companies do without the letter of request to bankers, 
 but it is always advisable to adopt same, as frequently the 
 names in the Pass Book are not always to be identified on 
 account of their being in a mutilated form or indistinctly 
 written. This is prevented, however, by the letter of request, 
 as that document is retained by the bankers when payment is 
 made, and handed by them to the company with the Pass 
 Book ^ in the same manner as the application for shares. 
 
 It will be noticed in the examples given that " Henry 
 Clinton " did not pay his call until long after due, and conse- 
 quently was charged with interest; and that "Frances 
 North" had interest allowed, the same being calculated on 
 the amount of £300 from the date it was paid in advance (8 
 February) to the date when the call was made (20 March). 
 This should be entered in red (italics here) so as to distinguish 
 interest earned from interest allowed. In a company where 
 there are several of such payments in advance, it is better 
 to have two interest columns, one for interest on calls overdue, 
 and the other for interest on calls paid in advance. 
 
 If the certificates have been issued previous to the call 
 being made, notice should be given to the shareholders in the 
 
 lit is advisable to have distinct Pass Books for deposits on application 
 for shares, and for each respective call. 
 
JOINT STOCK COMPANIES ACCOUNTS. 
 
 81 
 
 S^ 
 
 
 2 >^ 
 a, 
 O 
 
 s Q 
 
 I Q h 
 
 aJ n" t: "5 
 
 
 a c: ^ ^ 
 
 
 
 
 
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 on 
 
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 t 
 
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 of poun 
 
 untof the C 
 
 es in the above 
 For The 
 
 £ 
 
 h 
 
 
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 8 
 
 
 
 
 
 
 
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 a 
 
 a o s 
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 •pa^iuin '>iuBa 
 
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82 THE accountant's and bookkeeper's vade-mecum. 
 
 call letter that, upon production of the certificate with banker's 
 receipt, the company will endorse the certificate with the 
 amount of call paid. 
 
 It was stated above that there was no intention to deal 
 with the financial books, or books of account ; but, in order to 
 make the examples in the Share Ledger as complete as 
 possible, it has been deemed desirable to put before the 
 reader the Journal entries that would be necessary for such 
 purpose, and at the same time to illustrate those entries which 
 are peculiar to a limited liability company's accounts. (See 
 pages 83 to 85.) 
 
JOINT STOCK COMPANIES ACCOUNTS. 
 
 83 
 
 JOURNAL. 
 Januaey 1892. 
 
 Dr.fo. 
 
 Cr. fo. 
 
 Sundry Persons 
 
 20th 
 
 Dr. 
 
 £ sd 
 
 £ sd 
 
 
 
 ToS 
 
 hare 
 
 Capital Account.. 
 
 
 24,000 
 
 
 
 for 
 
 12,000 
 
 shares of £2 per share 
 
 
 
 
 
 all 
 
 otted 
 
 as fully paid up to the Ven- 
 
 
 
 
 
 do 
 
 r and 
 
 his nominees in accordance 
 
 
 
 
 
 wi 
 
 th the 
 
 terms of the Agreement 
 
 
 
 
 
 un 
 
 derda 
 
 te of 30 Nov. 1891, and his 
 
 
 
 
 
 let 
 
 ter of 
 
 request of Dec. 17 1891, as 
 
 
 
 
 
 pe 
 
 r Boa 
 
 rd Minute of the 20th 
 
 
 
 
 
 Ja 
 
 n. 189 
 
 2. 
 
 Shares. 
 
 
 
 S.L. I 
 
 
 Fenton, John 
 Fenton, Mary 
 
 •• 
 
 5.000 
 
 1,000 
 
 10,000 
 2,000 
 
 
 
 
 Black, WiUia 
 
 m.. 
 
 4.500 
 
 9,000 
 
 
 
 
 Marks, James 
 
 •• 
 
 1,500 
 
 3,000 
 
 
 
 
 
 20th 
 
 
 12,000 
 
 
 
 
 
 
 
 
 
 
 
 
 Sundry Sharehol 
 
 ders 
 
 Dr. 
 
 
 
 
 
 To Sh 
 
 are C 
 
 apital Account .. 
 
 
 1,605 
 
 
 
 fori. 
 
 605 sh 
 
 ares allotted to the follow- 
 
 
 
 
 
 ingp 
 
 erson 
 
 s as signatories to the 
 
 
 
 
 
 mem 
 
 orand 
 
 um of association, or in 
 
 
 
 
 
 acco 
 
 rdanc 
 
 e with their respective ap- 
 
 
 
 
 
 plica 
 
 tions, 
 
 as per the Board Minute of 
 
 
 
 
 
 the 2 
 
 oth J a 
 
 n. 1892, upon which 10/- per 
 been paid, and a further 
 
 
 
 
 
 shar 
 
 e has 
 
 
 
 
 
 sum 
 
 of 10/- 
 
 per share is now due. 
 
 Shares. 
 
 
 
 
 
 Smith John . . 
 
 
 . . . • ' - I 
 
 100 
 100 
 
 
 
 
 Bruce, George 
 
 ;■ 
 
 
 I 
 
 
 
 
 French, Ernes 
 
 t .. 
 
 
 I 
 
 100 
 
 
 
 
 Evans, Charle 
 
 s . . 
 
 
 
 100 
 
 
 
 
 Readman, Joh 
 
 n . . 
 
 
 I 
 
 100 
 
 
 S.L. 
 
 
 Clinton, Henr 
 
 y •• 
 
 
 1,000 
 
 1,000 
 
 
 II 
 
 
 North, France 
 North, Eva . . 
 
 s .. 
 
 
 300 
 500 
 
 300 
 300 
 
 
 
 
 
 
 3<-"J 
 
 
 
 1,605 
 
 
 
 
 
 20th 
 
 
 
 
 
 
 Purchase Account 
 
 Dr. 
 
 30,000 
 
 
 
 
 To .. 
 
 
 (vendors) 
 
 
 30,000 
 
 
 
 for t 
 
 he CO 
 
 nsideration to be paid by 
 
 
 
 
 theC 
 
 ompa 
 
 ny for the business , plant, 
 
 
 
 
 
 mac 
 
 hiner 
 
 y, buildings, &c., in accord- 
 
 
 
 
 
 ance 
 
 with t 
 
 he Agreement of the 30th 
 
 
 
 
 
 Nov. 
 
 1891, 
 
 this day adopted by the 
 
 
 
 
 
 Com 
 
 pany, 
 
 in the manner following : — 
 
 12,000 shares, fully 
 paid up, of £2 
 eaeh .. £^24.000 
 
 
 
 
 
 
 
 Cash.. 
 
 6,000 
 
 
 
 
 £30,000 
 
 
84 THE accountant's and bookkeeper's vade-mecum. 
 
 January 1892. 
 
 Dr.fo. 
 
 Cr. fo, 
 
 S.L. 1 
 
 To 
 
 To Su 
 
 for I 
 him 
 Boar 
 fully 
 tion 
 ness, 
 
 Sundries 
 
 To Pur 
 
 fort 
 ofth 
 nexe 
 Nov. 
 
 Goodwill 
 Buildings 
 Plant and Ma 
 Stores taken o 
 
 20th 
 
 (vend 
 
 NDRY 
 2,000 
 
 and hi 
 d Min 
 paid- 
 of the 
 plant, 
 
 20th 
 
 he tra 
 
 e folio 
 
 d to t 
 
 1891: 
 
 chine 
 ver .. 
 
 OR) Dr. 
 
 Shareholders 
 
 shares of £2 each issued to 
 s following nominees under 
 ute of the 20th Jan. 1892, as 
 up shares, in part considera- 
 amount to be paid for busi- 
 machinery, &c. 
 
 Shares. 
 
 To Fenton, John .. 5,000 
 
 „ Fenton, Mary . . 1,000 
 
 „ Black, William.. 4,500 
 
 „ Marks, James . . 1,500 
 
 Note. — The payment in Cash 
 of £6,000 passing through 
 Cash Book will close Ven- 
 dor's Account. 
 
 Dr. 
 
 E Account 
 
 nsfer to the proper Accounts 
 wing, as per schedule an- 
 he Agreement of the 30th 
 
 6,000 o 
 15,000 o o 
 6,000 o 
 3,000 o o 
 
 £ sd 
 
 10,000 O 
 2,000 o o 
 9,000 o o 
 3,000 o o 
 
 30,000 o 
 
 Apeil 1892. 
 
 Dr.fo. 
 
 Cr. fo. 
 
 S.L. 
 n 
 
 Sundry Sharehol 
 
 ToSh 
 
 forfi 
 shar 
 Mar 
 folio 
 maki 
 
 20th 
 
 ders 
 
 are C 
 
 rst ca 
 es, as 
 ch 18 
 
 Dr. 
 
 APiTAL Account .. 
 
 11 of 10/- per share on 1,605 
 
 per Board Minute of 20th 
 
 92 (for details see Call Book 
 
 £ sd 
 
 802 10 
 
 I 13 8 
 
 £ sd 
 
 802 10 
 
 
 ng £1 
 
 20th 
 
 s.Fra 
 
 nteres 
 on £3 
 ys, be 
 offirst 
 es pai 
 
 los. od. per share paid up. 
 
 Note.— By using the form of 
 the Call Book given, the 
 repetition of the debit 
 entries may be avoided in 
 the Journal by making a 
 reference to the former. 
 
 
 < 
 
 Interest Account 
 
 To Mr 
 
 for i 
 num 
 41 da 
 date 
 shar 
 
 Dr. 
 
 NCES North 
 
 t at the rate of 5% per an- 
 00 from Feb. 8 to Mar. 20, 
 ing the interest due up to 
 call on amount due on 
 d in advance. 
 
 1 13 8 
 
JOINT STOCK COMPANIES ACCOUNTS. 
 
 85 
 
 July 1892. 
 
 Dr.fo. 
 
 Cr. fo. 
 
 
 2nd 
 
 Clinton, Henry 
 
 
 To In 
 
 TERE 
 
 for i 
 
 nteres 
 
 num 
 
 on £5 
 
 73 da 
 
 ys, be 
 
 call 
 
 over- 
 
 date. 
 
 
 Dr. 
 
 ST Account 
 
 t at the rate of 5% per an- 
 00 from April 20 to July 2, 
 ing the interest due on first 
 due, and not paid till latter 
 
 5 o 
 
 Pro forma 
 
 July 1892. 
 
 Dr. fo. Cr. fo, 
 
 Share Capital A/c. 
 
 To. 
 
 (Shar 
 
 for sh 
 
 forfeited t 
 per their 
 Minute B 
 upon whic 
 called up, 
 20 April 18 
 date. 
 
 To Forfeit 
 
 for sh 
 
 registered 
 forfeited t 
 per their 
 Bookfo... 
 which £1 
 allotment) 
 
 28th 
 
 Led 
 aresN 
 his da 
 Minu 
 00k fo 
 h 30/- 
 ofwhi 
 92, re 
 
 ED Sh 
 aresN 
 
 in the 
 his da 
 Minut 
 ) of 28 
 per sh 
 
 has b 
 
 ger A/c.) 
 
 OS to 
 
 y by the Board as 
 te No. (see 
 
 . . .) of 28 June 1892, 
 per share has been 
 ch io/-per share, due 
 mains unpaid at this 
 
 are Account 
 
 OS to 
 
 name of 
 
 y by the Board as 
 e No. . . (see Minute 
 June 1892 upon 
 are (application and 
 een paid. 
 
 Dr. 
 
 £ s d 
 
 (amount 
 called up) 
 
 £ s d 
 
 (amount 
 unpaid) 
 
 (amount 
 paid) 
 
 Separate accounts might be opened in the General Ledger 
 if thought desirable, for " Application and Allotment 
 Account," " 1st Call Account," *' 2nd Call Account," etc., 
 finally transferring them to '' Share Capital Account." By 
 this means the amount of Share Capital would stand in the 
 Ledger as one sum. 
 
 Transfers. 
 
 One of the most important duties that a secretary and a 
 registration clerk have to perform, and one that requires the 
 greatest care and attention, is the transfer of shares. With- 
 out a fair business knowledge and without some acquaintance 
 with Company Law, mistakes may be easily made and errors 
 arise that may lead to serious results, either as regards the 
 company, or the secretary individually, or both. 
 
86 THE accountant's and bookkeepek's vade-mecum. 
 
 The first steps towards the transfer of shares is the produc- 
 tion at the office of the company by the transferor or his 
 broker of a transfer deed or deeds, often in blank, together 
 with the share certificate, for the purpose of a certification ^ 
 being entered upon the transfer deed. The rule of the Stock 
 Exchange with regard to certification is as follows : 
 
 " The buyer of shares or stock may refuse to pay for a 
 " transfer deed unaccompanied by coupons or certificates, 
 "unless it be officially certified thereon that the coupons or 
 " certificates are at the office of the company. But if the 
 '* transfer deed be perfect in all other respects, the shares or 
 " stock must not be bought in until reasonable time has been 
 " allowed to the seller to obtain verification." 
 
 The Certification is made by writing on the left-hand 
 margin of the deed in such form as follows: — "This is to 
 
 certify that Certificate No. for shares " {i.e., the 
 
 number to be transferred as shown by the deed) " upon 
 
 which per share has been paid, has been lodged at 
 
 the offices of the company," and is signed by the secretary. 
 An indiarubber stamp can be used for this, bearing a 
 facsimile of secretary's signature. The certificate is cancelled 
 by the registration clerk, who backs it with the particulars 
 of the transfer ; or, perhaps, better still, fixes on its face a slip 
 ruled as follows : — 
 
 Certificate No. 1 for 5,000 Shares No. 1 to 5,000, 
 amount paid per share, &2. 
 
 I 
 
 Shares Transferred 
 
 4 
 
 No. of 
 New 
 
 Certifi- 
 cate 
 
 5 
 
 Date when 
 
 Transfers were 
 
 passed by 
 
 Board 
 
 6 
 
 Share 
 
 Ledger 
 
 folio 
 
 7 
 
 No. of 
 
 Transfer 
 
 Deed 
 
 Num- 
 ber 
 
 Distinctive 
 Numbers 
 
 Remarks 
 
 
 From 
 
 To 
 
 
 I 
 
 6 
 Balance 
 
 10 
 
 30 
 
 lOO 
 
 4,86o 
 
 I 
 
 II 
 
 41 
 
 141 
 
 10 
 
 40 
 
 140 
 
 5,000 
 
 340 
 344 
 
 1892 
 July 2 
 
 July 2 
 
 II 
 14 
 
 
 
 5,ooo 
 
 
 1 This certification is not essential, as sometimes the transfer is pre- 
 sented for registration without this preliminary step. In any case the 
 share certificate must be always surrendered. 
 
JOINT STOCK companies' ACCOUNTS. 87 
 
 From the transfer deed he fills in heading and columns Nos. 
 2 and 3. An example is here given which will be followed out 
 so as to illustrate the method. 
 
 When handing back transfer deed after certification, an 
 inquiry should be made as to whether a balance certificate is 
 required, and if so a " balance " receipt should be given (for 
 form see page 88). It is, of course, to be assumed that if 
 there be any shares over and beyond those transferred a 
 balance certificate will be required, but often when a share- 
 dealer or a speculator holds a number of shares he may allow 
 his original certificate to lie at the offices of the company until 
 his holding is exhausted ; therefore it is as well to make certain 
 that a balance certificate is desired, otherwise the registration 
 clerk may make out, and the directors may sign and seal, fresh 
 certificates which will never be taken up. 
 
 The cancelled certificate should be placed on a file marked 
 "I. Certificates lodged." 
 
 When a transfer comes in for registration it should be care- 
 fully examined to see : — 
 
 I. — That it is stamped with the correct ad valorem duty. 
 
 II. — That the signatures agree with the names in the body 
 of the document. 
 
 III. — That the signatures are duly attested. 
 
 IV.— rThat the shares transferred are in the holding of the 
 transferor, and that the distinctive numbers are in 
 order. 
 
 V. — That there are no material alterations, or any other 
 matter that might invalidate the deed.^ 
 
 1 A correction in the distinctive numbers would not be a materia 
 alteration, so long as the transferor held the proper number of shares to be 
 transferred. 
 
88 THE accountant's and bookkeepee's vade-mecum. 
 
 No transfer should be accepted when there is a call due and 
 unpaid on the shares to be transferred. 
 
 In exchange for the transfer deed, usually presented by the 
 transferee or his broker (whose name should be obtained), 
 the registration clerk gives a receipt bearing the date when the 
 new certificate will be ready. The form recommended is the 
 following : — 
 
 TRANSFER RECEII 
 
 'T. 
 
 
 
 
 
 
 
 No. 1 
 
 Date 
 
 The 
 
 s 
 
 1 
 
 1 
 
 New Certi 
 Fee paid 
 
 Company, Li 
 Transfer No. 
 
 i ; 
 
 MIXED 
 
 6 
 
 Q 
 
 a 
 
 
 From to 
 
 Broker 
 
 rt 
 -. 
 
 i 
 
 1 
 
 o 
 
 
 
 
 3 
 rt 
 
 Date new Cer-) 
 
 6 
 Z 
 
 ficate 
 
 ready 
 
 "d 
 Z 
 
 6C 
 
 tificate ready [ 
 
 Fee Fee Book Fo 
 
 
 
 
 
 
 
 
 
 Note.— The receipt is filled in by recipient of new Certificate, and receipt should be 
 fixed in Transfer Guard Book, or affixed to Certificate's counterfoil. 
 
 
 balance 
 
 certificate receipt 
 
 
 
 Balance No. 1 
 *Transfer Nos.. 
 
 
 
 The 
 
 a 
 o 
 
 s 
 
 u 
 
 u 
 
 1 
 
 Company, L 
 BALANCE 
 
 IMITED. 
 
 Date 
 
 
 
 Shares 
 
 
 
 
 . . tn 
 
 ^. 
 
 1 
 
 o 
 
 1 
 
 en 
 
 
 Transferor j 
 
 Date 
 re 
 
 
 1 
 
 Date new Cer- ) 
 tificate ready j" 
 
 
 I 
 
 o 
 
 
 d 
 73 
 
 &0 
 
 K 
 
 
 
 
 Note. 
 
 -*The Transfer No. under which the Balance Certificate is given should be 
 
 filled in when new Certificate is made out. 
 No date when new Certificate will be ready can be given, as it is impossible 
 
 to know when Transfers will come in. 
 Receipt should be affixed to counterfoil of new Certificate. 
 
JOINT STOCK companies' ACCOUNTS. 89 
 
 In companies where dealings in their shares are heavy and 
 of daily occurrence, and consequently transfers numerous, it is 
 impossible to state a time when certificates will be ready, 
 owing to the amount of work to be done in preparing certifi- 
 cates, and the difficulty in obtaining the necessary attendance 
 of directors to sign and seal same. Frequently before the cer- 
 tificate is ready, the shares covered by same are transferred 
 over and over again. In this case a special form of transfer 
 receipt should be used, which could then be lodged at the 
 offices of the company in the same manner as a share 
 certificate. 
 
 The registration clerk should enter on the right hand top 
 corner of the transfer deed the number of the deed, the day's 
 date, and the Share Ledger Foho of the transferor ; an india- 
 rubber stamp in the form annexed could be used. 
 
 He should then enter the particulars in the Transfer 
 Register (see page 90 for form), and after removing the proper 
 certificate from File I, should attach same to deed or deeds 
 (fining up on slip column I), and place both on a File marked 
 '* II. Transfers registered." 
 
90 THE accountant's AND BOOKKEEPER'S VADE-MECUM. 
 
 
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JOINT STOCK companies' ACCOUNTS. 91 
 
 The same day transfers are presented for registration, 
 letters should be sent to the respective transferors, notifying 
 that such and such transfers have been presented, and re- 
 questing that, if same are not in order, information be by 
 return of post given to the company of the fact, otherwise 
 they will be passed in due order. 
 
 Before the next board meeting the new certificates should, 
 if possible, be prepared. No transfer should be submitted to 
 the board unless it has been presented at the office at least 
 three clear days previous to the next meeting, so as to allow 
 time for any notice being lodged against it. 
 
 After the board meeting the registration clerk should place 
 the transfer deeds in a Guard Book, the pages of which should 
 agree with the numbers of the transfers in the Transfer 
 Register. The old certificate should be attached to its proper 
 counterfoil after filling up columns 4, 5 and 6 in the slip 
 affixed. Should there be, however, a balance of shares 
 left and no balance certificate made out, it then 
 should be placed on a file marked '* III. Balance on 
 "Certificates"; or, if there be still any transfer outstanding, 
 and not yet passed by board, the certificate should be replaced 
 on File I. In the example given (see slip, page 86) a transfer 
 for thirty shares is supposed to be still unpresented. So lo7ig 
 as there is a transfer unregistered, no balance certificate 
 should he issued. 
 
 The counterfoil of the new certificates should be headed in 
 red ink. " Issued in lieu of Certificate No. cancelled 
 
 " by Transfer Nos. , and Balance Certificate No. 
 
 " " ; while the counterfoil of Balance Certificate should 
 beheaded "Balance. In lieu of Certificate No. , 
 
 " cancelled by Transfer Nos. 
 
 The necessary entries would then be made in the Share 
 Ledger and thus complete the transfer of the shares. 
 
92 THE accountant's and bookkeepek's vade-mecum. 
 
 An endeavour has been made to make the transfer of shares 
 such as will prevent the occurrence of errors or serious 
 mistakes, and will at the same time avoid useless loaste of time? 
 This has been the intention in recommending the form of 
 receipt given here (page 88). Some companies have a lengthy 
 form which takes time to fill up, and when done, no object, it 
 is conceived, is to be thereby gained. The form here adopted is 
 one similar to that used by the banks as a receipt for coupons 
 presented for payment. The number on receipt agrees with 
 transfer No. in Eegister as well with the page in the Guard 
 Book and the No. of the deed, thus making reference to all 
 or either a very simple matter. 
 
 Share Ledger. 
 
 On page 75 it was promised that further details of the form 
 of Share Ledger recommended would be given before this 
 chapter was brought to a close. This promise is now re- 
 deemed. 
 
 It will be seen, on reference to the rulings for Share Ledger 
 and the examples of entries, that the upper portion forms a part 
 of the financial books of a company, and that each share- 
 holder is debited with the total amount called up on his 
 shares, or considered to be called up on the shares held by 
 him, and that he is credited with the cash paid or with what 
 is considered equivalent to a cash payment. 
 
 Some secretaries and bookkeepers prefer to debit each share- 
 holder's account with the total amount represented by his shares, 
 crediting a " Sundry Shareholders' Account " with the aggre- 
 
 1 This is of moment in a company where there is a large dealing in its 
 shares, and when on the fortnightly account days of the Stock Exchange 
 the transfer office of the company is besieged as it were by a numerous 
 body of brokers' clerks. 
 
JOINT STOCK companies' ACCOUNTS. 93 
 
 gate amount of the Shares issued, and debiting this account 
 and crediting Share Capital Account with the total amount 
 called up. This, besides duplicating the entries, has the 
 great objection of not permitting what is due by the individual 
 shareholder on his shares to be easily seen, whereas the debit 
 balance of the accounts in the form recommended gives it at 
 once. Moreover, there is no material object to be gained by 
 adopting such a method, there being no necessity to debit the 
 Shareholders' Account with more than ihe amount called up 
 on his respective holding. As long as a company is solvent 
 and not being wound up a shareholder is only legally liable 
 for the amount called up on his shares, and no more. With 
 the nominal capital issued the financial books have nothing to 
 do, it is only with the called-up capital that they have to deal 
 and for which they have to account. 
 
 The statistical portion of the Share Ledger has been so 
 arranged that the total holding of a shareholder can be seen 
 at a glance, the number of shares in balance column being 
 added to or deducted from as other shares are acquired or 
 transferred. 
 
 Upon a transfer of shares the amount paid up per share on 
 those transferred is recorded in the column so headed, both 
 in the account of the transferor and that of the transferee, 
 thus showing, in the case of a future call, what is due upon 
 shares acquired by transfer. 
 
 A column is also provided for the Share Ledger folio so 
 that, in case of shares transferred, it may be seen without 
 reference to the Transfer Eegister from or to whom they were 
 transferred. 
 
 At the period of sending in the Annual Summary to the 
 Kegistrar of Joint Stock Companies each Ledger Account is 
 ruled off, the date to which the Summary is made up, the 
 
94 THE accountant's and bookkeepee's vade-mecum. 
 
 fcotal holding of shares at the prescribed date, and the capital 
 called up on such shares being shown in red ink (black type in 
 the examples given). The total number of shares held in each 
 account agrees with the annual list, while the aggregate of 
 the balance columns equals the number of shares taken up 
 and the capital called-up which appears on the front page of 
 the Summary. 
 
 The index to the Share Ledger should be in a separate 
 book, arranged alphabetically and ruled to show full name, 
 address, and description of each shareholder, with his folio in 
 the Ledger. In the case of any ceasing to be a member the 
 name should be ruled out. The index thus becomes a com- 
 plete list of shareholders, irrespective of the number of shares 
 held, and can be used as an address book or for the purpose 
 of compiling a list of members where same is requested with- 
 out having recourse to the more cumbersome Ledger, except 
 it be that the holding of each is required, which is seldom, 
 however, the case. 
 
 The index to the Transfer Guard Book should also be 
 alphabetical, but with the names of transferors in a separate 
 column to that of the transferees, so as to make it easier in 
 case of reference, it frequently happening that the name of the 
 same person appears, sometimes as the one and sometimes 
 as the other. 
 
 A few words upon forfeited, lapsed, or surrendered shares. 
 
 Among the persons holding shares in a company there may 
 sometimes be defaulters. In the event of non-payment of 
 calls the proper course for the directors to pursue, they not 
 having, it would seem, power to compound with members for 
 calls (the shares of the company being issued subject to the 
 payment of the whole amount thereof in cash), would be to 
 proceed to forfeit the shares. 
 
JOINT STOCK companies' ACCOUNTS. 95 
 
 But a forfeiture to be valid must be made by a properly 
 appointed and constituted Board, and all provisions in the 
 articles respecting forfeiture must be strictly complied with 
 (Garden Gully Coynpany v. McLister, 1 App. Gas. 39 ; Alma 
 Spinning Company, 16 Ch.D. 681). 
 
 How will such a decision of the Board affect the Books of 
 the company, and what are the necessary entries required to 
 record same ? 
 
 The Board having passed a resolution to forfeit the shares of 
 a defaulting member, entries would have to be made through 
 the Journal (page 85, Journal entries 5) writing off to a " For- 
 " feited Shares Accounts" whatever amounts had been paid 
 upon the shares ; and writing back the calls outstanding and 
 so closing the Share Ledger (Cash) Account. In the regisra- 
 tion portion of the Share Ledger an entry would have to be 
 made recording the fact, and would appear (in red ink) some- 
 what in this form: — 
 
 July 28 1892. Shares forfeited, as per resolution of Board 
 Minute. No. . (This comes in columns 1-3 of Share Ledger 
 (page 76), the remaining entries appearing in columns 4, 5, 
 6, 12, and 13 respectively) : 
 
 4 5 6 12 13 
 
 — Shares Nos. — to — £— Nil Nil 
 
 The amounts credited to Forfeited Shares Account must 
 not be taken to the credit of Profit and Loss Account, as it is 
 not a legitimate profit. The shares forfeited should, if not 
 re-issued, be separately stated in the Balance Sheet on the 
 Liabilities side, as a dividend declared would not be payable 
 in respect thereof. When these shares are re-issued, thus 
 restoring the Share Capital Account to its original amount, 
 the amount already paid may be conveniently dealt with as a 
 premium upon issue, and would be best credited to Eeserve 
 
96 THE accountant's and bookkeeper's vade-mecum. 
 
 Fund, or be applied towards the liquidation of a fictitious 
 Asset Account, such as that of " Preliminary Expenses." 
 This, however, would require the approval of the share- 
 holders. 
 
 It is conceived that shares which have lapsed to the com- 
 pany by disclaimer, under Section 55 of the Bankruptcy Act 
 1883, or by surrender to the company, can be similarly 
 treated. 
 
 With regard to Preference Shares, Debentures, etc., separate 
 Application and Allotment Books and Ledgers should be kept 
 for each, the forms being somewhat similar to those already 
 given. 
 
 On page 97 a ruling for the purpose of recording the half- 
 yearly or yearly interest on Preference Shares or on Deben- 
 tures is given. Form No. 1 is also suitable for dividends due to 
 shareholders on their respective holdings ; or for dividends or a 
 composition payable in the winding up of a company or of a 
 bankrupt's estate. 
 
 For a more comprehensive and detailed account of the work 
 to be undertaken in a company with limited liability, the 
 reader is referred to the exhaustive and excellent lecture on 
 *' Company Work," delivered by Mr. Gerard van de Linde at 
 Liverpool, to the Chartered Accountants' Students of that city 
 on the 17th January 1889.^ 
 
 1 The Accountant, Vol. XV. 1889. Messrs. Gee & Co., 3i Moorgate 
 Street. E.G. 
 
JOINT STOCK COMPANIES ACCOUNTS. 
 
 97 
 
 c« 
 
 en 
 
 en "^ 
 
 B 
 
 1 
 
 2 ^.^ 
 
 J 
 i 
 
 II 
 
 Date when 
 paid 
 
 
 lO 
 
 Net amount 
 of Interest 
 payable 
 
 
 Income Tax 
 ..d. in the £ 
 
 1 
 
 8 
 
 Interest at 
 
 ....%per 
 
 annum 
 
 1 
 
 No. of 
 Days 
 
 (2) 
 
 1 
 i 
 
 6 
 Date of 
 
 allotment 
 
 (2) 
 
 
 > 
 
 i 
 
 '11 
 
 1 
 
 
 
 2 
 
 Deb. 
 
 Ledger 
 
 Fo. 
 
 
 _ o 
 
 
 
 S2B 
 
 8Sg 
 
 4> OJ rt .22 
 
 <u 
 
 tJ 
 
 — . 
 
 w 
 
 
 
 
 h-l 
 
 OJ 
 
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 <! 
 
 
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 1 
 
 <! 
 
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 m 
 
 
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 nt 
 
 en 
 
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 >> 
 
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 g 
 
 
 
 
 F- 
 
 
 
 
 rA 
 
 
 
 
 
 fl 
 
 <u 
 
 
 Ph 
 
 cr 
 
 ^ 
 
 
 fe 
 
 
 ca 
 
 
 
 16 
 
 Remarks 
 
 
 15 
 
 Date 
 when 
 paid 
 
 
 14(8) 
 
 Amount 
 
 outstanding 
 
 at year 
 
 ending 
 
 .89.. 
 
 
 13 
 
 Date 
 when 
 paid 
 
 
 12 
 
 Net 
 
 amount of 
 
 Interest 
 
 payable 
 
 II 
 
 Less 
 Income 
 Tax at., 
 in the £ 
 
 10 
 
 Gross 
 
 amount of 
 
 Interest 
 
 payable 
 
 
 9 
 
 Interest 
 at....% 
 
 per 
 annum 
 
 
 " 1^1 
 
 
 7 
 Amount 
 at£ 
 
 per share 
 paid up 
 
 
 '6 
 
 Interest 
 at ...% 
 
 per 
 annum 
 
 
 r ^°t 
 
 
 4 
 
 Amount 
 
 share 
 paid up 
 
 
 en Pl^^ 
 
 i 
 
 2 
 
 Name of 
 Shareholder 
 
 
 I 
 
 No. of 
 War- 
 rant 
 
 1 
 
 G Si"-2 
 
 SS'Sg 
 
 ■*5 tn a; « 
 
 tn'^ (U i-T 
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 '•^rt.BSJen- ^ 
 
 00 2 <»- « 
 
CHAPTER VIII. 
 
 TABULAR BOOKKEEPING. 
 
 The system of Tabular Bookkeeping has, until recent years, 
 been little known in England, and at the present time is more 
 in vogue on the Continent and in America than in this country. 
 The use of the system in Great Britain has to a great extent 
 been confined to hotels ; hence, it has acquired here the name 
 of the Hotel system of Bookkeeping, a title that is somewhat 
 misleading, for the system is one that may, with great 
 advantage, be adapted to many other businesses of totally 
 different character. 
 
 The Tabular system not only lightens the labour of posting, 
 but permits the income or expenditure of a business (either in 
 the aggregate or in part) to be shown with far greater facility 
 than can be done by the ordinary method. The results of a 
 day or any other period are readily found without the necessity 
 of an analysis ; and the earnings or spendings of any particular 
 department can be watched and regulated with the greatest 
 ease. It is a system of continuous analysis and dissection, 
 introducing at every turn an intermediate check on the 
 accuracy of the entries made, so that before the final 
 balancing the books can be proved, as it were, page by page ; 
 and, moreover, does not involve any increase of clerical 
 labour. 
 
TABULAR BOOKKEEPING. 
 
 99 
 
 The principle of the system is the writing up of the trans- 
 actions of a day in a series of columns under suitable headings, 
 the cross cast of which gives the total result of the day's 
 business, the several columns affording at the same time full 
 information as to what has been done in the various depart- 
 ments of the concern. 
 
 Perhaps the most simple form in the Tabular system, and 
 the one that probably was first adopted, is that of the Cash 
 Book now found in general use. 
 
 CASH BOOK. (1) 
 
 Dr. 
 
 Cash. 
 
 Contra. 
 
 Cr. 
 
 
 
 Dis- 
 count 
 
 Bank (2) 
 
 Office 
 
 
 
 
 Dis- 
 count 
 
 Bank 
 
 £ s d 
 
 £ s d 
 
 £ s d 
 
 C s d 
 
 £ s d 
 
 Office 
 £ s d 
 
 A Cash Book so ruled permits the balance at the bank and 
 the cash in hand to be readily found and agreed, which, in a 
 business where payments are made either by cheque or from 
 cash in hand, could not so easily be done in the old-fashioned 
 Cash Book with a single ruling.^ 
 
 The next step in the adoption of the system was the tabulat- 
 ing of the Petty Cash Book, so as to avoid the monthly or 
 other periodical analysis of that book, or the still more 
 laborious posting of the separate entries to their proper 
 accounts in the Ledger. Subjoined is a form of such a Petty 
 Cash Book : — 
 
 1 For another form of Tabular Cash Book, see page 49. 
 
 2 This method of not banking everything as it is received, but keeping 
 back a portion of the cash in hand, and out of it paying accounts in cash 
 instead of paying everything by cheque, is not recommended, but is to be 
 considered as very objectionable. 
 
100 THE accountant's AND BOOKKEEPER'S VADE-MECUM. 
 
 Dr. 189.. 
 
 
 Month Cr. 
 
 Date 
 
 Cheque 
 received 
 
 £ s d 
 
 Particulars 
 
 Total 
 
 Station- 
 ery 
 
 P'stages 
 Tele- 
 grams 
 
 Gas 
 Office 
 cleang 
 
 Fares 
 
 Salaries 
 
 Office 
 
 ex- 
 penses 
 
 
 
 £ sd 
 
 i sd 
 
 £ s d 
 
 £ s d 
 
 £ sd 
 
 £ s d 
 
 £ ^ d 
 
 Other columns can be added/ or other headings substituted 
 to meet the exigencies of any particular business, but the above 
 are those generally required. The cross casts of the totals of 
 the columns to the right of the " Total " column should agree 
 with the summation of that, and the difference between the 
 " Total " column and that of the '' Cheques received " column 
 should be the amount of petty cash in hand. 
 
 When the completeness of detail thus afforded and the 
 saving of labour to be attained were observed and appreciated, 
 the system was adapted to the Day Books (both sale and pur- 
 chase) of such businesses, where invoices had to be dissected 
 and the amounts allocated to different departments. This 
 would apply to most manufacturing concerns and to such com- 
 mercial and trading businesses as drapery, shipping, co-opera- 
 tive stores, &c., &c. Form for a Tabular Sold Book is given 
 below, and for an Invoice Book on page 101. 
 SALES DAY BOOK. 
 
 Date 
 
 ■ss 
 
 Name 
 
 r 
 
 (1) 
 
 Total 
 
 (2) 
 
 Goods 
 
 Cases and 
 Packing 
 
 Carriage 
 
 (8) 
 
 Miscel- 
 laneous 
 
 
 
 Forward . . 
 Forward . . 
 
 
 £ s d 
 
 £ s d 
 
 £ s d 
 
 £ s d 
 
 £ s d 
 
 
 
 
 
 
 
 
 (1) This column may be divided into two ; one for details, the other for total of each 
 invoice. , , , .r 
 
 (2) This may be subdivided for different classes of goods, if necessary. 
 
 (3) This is intended for such sales as old machinery, old stores, horses, stable refuse, 
 &c., &c., and would be summarised at end of month or quarter. 
 
 1 Where personal accounts are paid through petty cash, a column can be 
 added provided with extra space for the writing in of the Ledger folio. 
 
TABULAE BOOKKEEPING. 
 
 101 
 
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102 THE accountant's AND BOOKKEEPER'S VADE-MECUM. 
 
 Accounts in the Ledger, in some cases, may with advantage 
 be also tabulated. For example, with mining companies, 
 where more than one mine is being worked, a single account 
 being opened for the working expenses of each mine, 
 columns being provided for: ''Wages,'' "Contracts," 
 "Stores," "Loose Tools," "Cartage," "Sundries," and 
 " Total." • 
 
 Another useful adaptation to the Tabular system would 
 be the "Customers' Ledger" in a banking establishment, 
 constructed to show each customer's daily transactions, as 
 in the forms submitted below : — 
 
 Dr 
 
 
 CUSTOMERS' 
 
 LEDGER (Form " 
 
 [.). 
 
 
 Cr. 
 
 Date 
 
 ■I- 
 
 rtiS 
 
 ^2 
 
 Inter- 
 est 
 
 Charges 
 
 Com- 
 mission 
 
 Total 
 
 of 
 Debits 
 
 Pay- 
 ings 
 in 
 
 i 
 
 S 
 fl 
 
 Total 
 
 of 
 Credits 
 
 
 Over- 
 draft 
 
 
 
 £ s d 
 
 £ s d 
 
 £ s d 
 
 £ s d 
 
 £ s d 
 
 ^sd 
 
 £ s d 
 
 £ sd 
 
 £ s d 
 
 
 CUSTOMERS' LEDGER (Form 
 
 IL). 
 
 
 Date 
 
 Particulars 
 
 Debit 
 
 Credit 
 
 Credit 
 Balance 
 unless 
 otherwise 
 stated 
 
 
 
 £ s d 
 
 £ s d 
 
 £ s d 
 
 The daily totals of each account kept in the above forms 
 would agree with the casts of each customer's Pass Book, and 
 thus form a verification of its correctness. The daily differ- 
 ence between the debit and credit totals would show^ the 
 balance in customer's favour, or the amount of his overdraft ; 
 the whole proving a ready means of information. 
 
TABULAE BOOKKEEPING. 103 
 
 The system, however, is the more especially adapted for 
 businesses where results have to be arrived at, or accounts 
 have to be made out on very short notice. Such would be 
 the case in hotels, where visitors are coming and going 
 daily, and bills have to be prepared at all hours and with the 
 least possible delay. 
 
 The only books it is necessary to go into any explanation 
 of here are the " Visitors' Ledger," the " Bough Day Booh," 
 and the *' Invoice Booh" the other books being, more or less, 
 in the ordinary form. 
 
 Eulings for these three books are given on pages 104 — 8. 
 
104 THE accountant's AND BOOKKEEPER'S VADE-MECUM. 
 
 
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TABULAR BOOKKEEPING. 
 
 105 
 
 00 00 
 
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 Forward . . 
 Apartments 
 
 Breakfast 
 
 Luncheon 
 
 Dinner 
 
 Supper 
 
 Soups and Sandwiches . . 
 Tea, Coffee 
 
 Dessert 
 
 Boarders 
 
 Servant's Board . . 
 
 Wines 
 
 Spirits, Liqueurs.. 
 
 Ale, Stout 
 
 Minerals 
 
 Cigars 
 
 Billiards 
 
 Laundry 
 
 Baths 
 
 Fires, Lights 
 
 Paid out 
 
 BilHards 
 
 Carriage 
 
 Postages, &c 
 
 Newspapers 
 Attendance 
 
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106 THE accountant's AND BOOKKEEPEE'S VADE-MECUM. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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TABULAR BOOKKEEPING. 
 
 107 
 
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108 THE accountant's AND BOOKKEEPEE*S VADE-MECUM. 
 
 1 
 
 c 
 
 CO 
 
 
 
 S[ISU9?n 
 pUB }UEIcI 
 
 XjBuipo 
 
 
 
 
 1 
 
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 1^1 
 
 . 
 
 
 Bed- 
 ding 
 and 
 Linen 
 
 
 
 12 
 
 
 
 
 
 
 Ale, 
 Stout, 
 Min- 
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 visions 
 
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TABULAR BOOKKEEPING. 
 
 109 
 
 The form of Visitors' Ledger given provides an opening 
 for a day, the columns being headed with the general items 
 of a hotel bill. The horizontal lines are numbered to agree 
 with the numbers of the rooms. (In large hotels different 
 sets of books(i) would be an advantage where the scale of 
 charges varies according to the floors or situation of the 
 rooms.) Columns are provided for amounts brought and 
 carried forward, so that, in the event of a visitor staying 
 beyond the one day, the final total may agree with the 
 account rendered. It is customary, when visitors are 
 staying any length of time, to render the hotel bill weekly 
 and to stipulate for a similar settlement. 
 
 Columns Nos. 8, 9 {vide page 104) would be posted up from 
 a rough Day Bookf), as would Nos. 4, 5, 6, and 7, where 
 there was no stated charge, or where extras had been had 
 (for form see pages 106-7). 
 
 An example of a hotel bill is given below, from which it 
 may be seen by reference to the Visitors' Ledgers (pages 104-5), 
 which has been filled in to agree with the last day, with 
 what celerity the bill may be prepared and the total verified. 
 
 Bone's Hotel, Dover, 
 
 Esq., July 8th 1892. 
 
 Dr. to Ghas. Sievel. 
 Room 4. 
 
 Week ending July 7th 
 
 ist 
 
 2nd 
 
 3rd 
 
 4th 
 
 5th 
 
 6th 
 
 7th 
 
 Total 
 
 Account rendered 
 
 Bed 
 
 Sitting Room 
 
 Breakfast 
 
 Luncheon 
 
 Table d'Hote 
 
 Supper . . 
 
 Wines, Spirits, Minerals, &c. 
 
 Extras 
 
 Attendance 
 
 s'/e 
 
 2/- 
 1/6 
 5/- 
 
 10/- 
 
 3/- 
 i/- 
 
 3ie 
 
 2/- 
 
 6/- 
 11- 
 
 3/6 
 
 2/- 
 1/6 
 
 $ 
 
 2/- 
 i/- 
 
 3/6 
 
 2/- 
 1/6 
 
 1/6 
 
 4/- 
 
 i/- 
 
 3/6 
 
 2/- 
 12/- 
 20/- 
 
 i/- 
 
 3/6 
 
 2/- 
 5/- 
 
 $ 
 
 i/- 
 
 3/6 
 
 2/- 
 1/6 
 
 5/- 
 
 9/- 
 
 I'l- 
 
 •• 
 
 £ s d 
 
 I "4 6 
 
 14 
 6 
 
 1 12 
 
 3 
 
 2 12 
 
 6 6 
 
 7 
 
 Less Allowances 
 
 750 
 
 £7 5 
 
 
 
 1 A separate Visitors' Ledger being used lor the different prices charged 
 for the rooms {i.e., all rooms on the same scale being contained in one 
 book). 
 
 2 Rough Day Book (Form II.) contains all the items for the day, the 
 totals of each room for the day agreeing with the total of the same in 
 Visitors' Ledger. 
 
110 THE accountant's AND BOOKKEEPER'S VADE-MECUM. 
 
 In a firm having numerous branches or agencies, which are 
 liable to be closed at very short notice, or where it is desirable 
 to know almost daily the position of such branches or agencies, 
 the accounts would have to be kept on similar lines to those 
 just previously given. The Agency or Branch Ledger should 
 have the debits and credits on an opening in tabular form, 
 with extra columns to show the daily balance in favour of or 
 against each agency. 
 
 Again, Theatrical Accounts are the more easily kept by the 
 Tabular system. Indeed, a more satisfactory method, it is 
 submitted, could not be conceived. 
 
 The books principally required are a Cash Book, a Ledger, 
 a Production Ledger, and the monthly statement of Profit and 
 Loss Book. 
 
 The Cash Book (see page 111) is ruled with nine money 
 columns (or more if required) on the debit side ; Nos. 4, 5, 6, 
 7, and 8 being appropriated for royalties on proprietary pieces 
 produced at other theatres, and for the proceeds arising from 
 sales of old scenery, properties, dresses, orchestral music, &c., 
 &c., the monthly totals of which are posted into the Ledger to 
 accounts of the same name. There are sixteen money columns 
 on the credit side ; Nos. 1 to 14 being for expenses in con- 
 nection with pieces running or in course of preparation ; No. 
 15 for the amounts paid into the private account of the pro- 
 prietor or lessee. This last is necessary in order to clear the 
 Cash Book so that it may be balanced, and the balance agreed 
 with cash at bank. The Cash Book should be balanced at the 
 end of each month. 
 
TABULAR BOOKKEEPING. 
 
 Ill 
 
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 41 
 
 
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112 THE accountant's AND BOOKKEEPEB's VADE-MECUM. 
 
 The Ledger is in the ordinary form, and is for such accounts 
 as do not appear in the Production Ledger. 
 
 The accounts in this book (see page 113) are for those having 
 direct relation to the pieces produced, each production 
 forming a Ledger Account, the unclosed accounts being 
 represented by the piece running, pieces on tour, and 
 pieces in preparation. The columns to the left of the 
 total columns of both receipts and expenditure are cast up 
 and ruled off monthly, the cross cast of these summations 
 being carried to its proper total column. The difference 
 between the monthly totals of receipts and expenditure is then 
 carried to the profit or the loss column, as the case may be. 
 When the piece is finally withdrawn, and all current out- 
 standing accounts are settled, the Ledger Account is ready 
 for closing. The monthly totals of the separate columns 
 are added, and the difference between the cross casts of 
 these will give the net profit or loss on a piece — this 
 latter result should agree with the difference between the 
 totals of the profit and loss columns. The net result is 
 then posted to the General Profit and Loss Account in the 
 Ledger. 
 
 The monthly statement of Profit and Loss (see page 114) is 
 made up from the monthly totals of the Production Ledger 
 and the monthly totals of columns 4-8 inclusive on debit side 
 of Cash Book. It is compiled to show the result up to date 
 and the result for the month of pieces running or withdrawn, 
 and for the sake of comparison with other months and years. 
 
TABULAB BOOKKEEPING. 
 
 113 
 
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 EXPENDITURE. 
 
 
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114 
 
 THE ACCOUNTANT S AND BOOKKEEPER S VADE-MECUM. 
 
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TABULAR BOOKKEEPING. 115 
 
 It has been assumed that all indebtedness incurred in 
 current month has been settled at the end of the month, if 
 not before. If there were outstanding accounts a Day Book 
 would be requisite, ruled similar to the credit side of Cash 
 Book, with exception of columns No. 1, 11, and 15, which 
 would have to be eliminated ; and in the Cash Book an extra 
 column would have to be provided for " outstanding accounts " 
 in order to prevent the duplication of items in the Production 
 Ledger. Further modifications would be required in a theatre 
 where the change of piece was of frequent occurrence, as in 
 country theatres, but the principle would remain the same. 
 
 Although the Tabular system is of much benefit in shorten- 
 ing the labour of posting, and in furnishing a great deal of 
 useful information without the necessity of dissection or 
 analysis, it still possesses some disadvantages ; for it permits 
 of errors that may not be easily noticed, especially if the 
 tabulated columns be greatly extended, from the fact that such 
 errors do not ajfect the balancing of the boohs. Nothing is 
 more easy than for a careless clerk to carry out amounts into 
 the wrong column, which might seriously affect the profit or 
 loss of the period, if not, indeed, the accounts for subsequent 
 periods; eg., an item of capital expenditure carried 
 into a column belonging to a Revenue Account, or vice 
 versa. 
 
 Nevertheless, if the system of accounts for any particular 
 business can be beneficially affected by the introduction of 
 the Tabular method of Bookkeeping, the advantages to be 
 derived therefrom will far outweigh the disadvantages, which, 
 however, can be guarded against by a careful system of 
 checking and calhng over. 
 
 An objection to the Tabular system has been put forward by 
 some on account of the difficulty found in making the cross 
 
116 THE accountant's AND BOOKKEEPER'S VADE-MECUM. 
 
 casts. So were the first sums in compound addition to the 
 schoolboy, but he overcame the difficulty by practice. 
 
 Before closing this chapter some remarks upon the use of 
 the Journal are appended. 
 
 The original use of the Journal, as its name implies, was 
 that of a Day Book, in which all transactions were entered 
 day by day and from thence transferred to the Ledger. But 
 in course of time, and as commercial transactions extended, 
 it was found necessary to subdivide the Journal into Cash 
 Book, Invoice Book, Sale Book, and Bill Book. The Journal 
 was still retained, and became, as it were, a Sub-Ledger^ its 
 use being to collect the entries from the other books in order 
 to facilitate their posting into the Ledger. 
 
 For a long time it was customary to pass periodically all the 
 entries in the subsidiary books through the Journal into the 
 Ledger. Then the Cash Book came to be considered, not 
 only as a Ledger Account (in so far as it had relation to 
 cash) that for convenience had been bound up separately, 
 but also as a daily record of money received and paid away, 
 from which it was more convenient to post direct into the 
 Ledger without having recourse to the Journal. In the 
 natural order of things it followed that the same course was 
 pursued as regards the posting of the other subsidiary books. 
 So that, at the present time, the Journal has ceased to be 
 the posting medium, excepting so far as it relates to entries 
 which cannot be passed validly through the others. Some 
 accountants and bookkeepers have gone so far as to dispense 
 with the Journal altogether. Attention has already been 
 drawn to this, as well as to the fallacious practice of making 
 the other books answer the purposes of a Journal (see chap. 
 III., page 21). 
 
 The writer is quite in accord with those who maintain that 
 
TABULAR BOOKKEEPING. 117 
 
 the Journal need not be used as a posting medium from the 
 subsidiary books, but that the Ledger may be written up 
 from them direct. Entries, however, that do not legitimately 
 belong to the several subsidiary books should be passed through 
 the Journal. It is exceedingly bad bookkeeping to make use 
 of the other books for such a purpose, or to make a transfer 
 from one Ledger Account to another without recourse to the 
 Journal as the posting medium. Q The latter is done to avoid 
 trouble, but instead, it makes it — and to a greater extent — as 
 such practice is, without doubt, a fruitful source of error.^ 
 
 1 Mr. G6rard van de Linde, F.C.A., in his work entitled " Bookkeeping," 
 page 4, pars. 9 and 10, strongly advises the use of the Journal for such 
 purposes. 
 
 " Let me here impress upon you," he writes, " never to attempt a 
 " cross or adjusting entry of any kind whatever, either from one Ledger 
 " to another or from one folio of a Ledger to another folio of the same 
 " Ledger, without first passing the entry clearly and fully in the 
 " Journal . . . ." 
 
 " If you attempt any short cut you not only lose direct record of 
 " the transaction (which is often most important), but you also run a 
 " great risk of making the entry imperfectly, and in such a case 
 " detection and correction become most difficult, for you do not know 
 " where to look for the mistake. The Journal is the book specially 
 " adapted for all such cross and adjusting entries, besides playing the 
 " all-important part of being the medium for recording all opening and 
 " closing entries. Those, therefore, who avail themselves of it will find 
 " it a real friend in need, equal to every emergency, as also a credit to 
 " themselves . . . ." 
 
 " On the continent, and elsewhere, where the Code Napoleon prevails, 
 " the use of the Journal is imperative, and the law lays down stringent 
 
 " and precise rules as to its issue, &c In Russia and Poland, 
 
 " also, the use of the Journal and correct bookkeeping are strictly 
 " enforced by the Legislature, under very heavy penalties." 
 
 2 Where the author has known such a custom to exist, and where, upon 
 an audit, he has been unable to agree the Trial Balance, he has at once 
 examined such transfers, with the result, more often than not, of dis- 
 covering the error there. 
 
118 THE accountant's AND BOOKKEEPER'S VADE-MECUM. 
 
 It may, therefore, be laid down as a principle that the 
 Journal is to he used for all entries ivhich do not belong to 
 the other subsidiary boohs. 
 
 Another fault among bookkeepers in the use of the Journal 
 is a defective style of narration. No better criterion of a 
 bookkeeper is there than the manner of his journalising. 
 
 The narration should be as precise and complete as possible, 
 so that a stranger could readily understand the reasons for 
 such or such an entry ivithout having to refer to other books 
 or documents for enlightenment. For instance, such a narra- 
 tion as the following is vague, and might lead to much annoy- 
 ance and loss of time in seeking for the reasons. 
 
 James Smith, Dr. 
 
 To Jones Brothers, 
 
 for amount transferred, posted in 
 error. 
 
 It should be in the style following, which would give all 
 details without need of further reference. 
 
 James Smith, Dr. 
 
 To JoNEs Brothers, 
 
 for cash credited in error to the 
 former on 16th June 1891, 
 instead of the latter, now written 
 back.(i) 
 
 A form of Journal on the Tabular system is given on 
 page 119. It is not a form that can be recommended in pre- 
 ference to that of the ordinary Journal (see page 83), though 
 it might be used in a business where the Journal entries were, 
 with rare exceptions, of a continually recurring kind. 
 
 (1) See the entry in form of Journal given on next page. 
 
TABULA] 
 
 .BOOKKEEPING.' ' 
 
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120 THE accountant's AND BOOKKEEPER'S VADE-MECUM. 
 
 A few examples have been given, showing how such a form 
 of Journal is written up. The sum of the debit entries agree- 
 ing with the sum of the credit entries would be proof that 
 same had been correctly journalised. The headings 2-7 
 should be totalled monthly, and the amount carried to their 
 proper accounts in the Ledger ; the debit total to the debit 
 side of Ledger Account, as "To Sundries"; the credit total 
 to the credit side, as " By Sundries." The entries in heading 
 1 should be posted separately into the Ledger in the usual 
 way. 
 
 Another form of Tabular Journal is one where the hori- 
 zontal rows stand for credits and the vertical columns for 
 debits. The Visitors' Ledger (Form I.) is based upon this 
 method; in this case the horizontal lines being debits and 
 the vertical columns credits, i.e., the rooms occupied 
 being debtors to the various charges contained in the vertical 
 columns. 
 
 In dealing with the method of bookkeeping on the Tabular 
 system, it has been assumed (as it has been throughout the 
 whole work) that the principles of bookkeeping have been 
 mastered by the reader, and that he has had some amount of 
 practice. 
 
CHAPTER IX. 
 
 CONCLUDINa EEMARKS. 
 
 This Chapter is devoted to such transactions and accounts 
 that are to be met with in an accountant's career which have 
 not received any particular attention in the foregoing pages. 
 It has, moreover, been thought that a work of this description 
 would not be complete without some such information being 
 given that would be of use to the accountant student, and to 
 him who is seeking for a fuller knowledge upon such subjects 
 as may be considered to belong to advanced Bookkeeping. 
 
 Accrued Amounts — Outstanding Liabilities and 
 Assets. — At the period of a general balancing of the books of 
 a firm, it will frequently happen that a portion of the liabilities 
 and income will have accrued, yet not be actually or legally due. 
 In that case, so much of them as are accrued must be included 
 in the Ee venue Account, either as an expense or as a gain, and 
 in the Balance Sheet as an outstanding liabiUty or asset. Of 
 these, dividends,^ interest on mortgages and loans, rent, rates, 
 
 1 Such as are derived from Government stock, railway debentures, or 
 other investments that are little liable to uncertainty as a source of 
 income. 
 
122 THE accountant's and bookkeeper's vade-mecum. 
 
 taxes, insurance, discount on outstanding accounts, wages, 
 salary, &c., &c., will form the principal. 
 
 Under this head would also come discount charged on bills 
 discounted but not yet matured; or, in other words, upon 
 which interest has been paid for the advance against same, but 
 which has not yet been earned : e.g., a firm discounts on the 15th 
 of the month bills to the value of £6,000 which have three months 
 to run — they are charged for the accommodation discount at 3 
 per cent. — viz., £45 ; on the 30th of the same month the books of 
 the firm are closed. It would not be fair to saddle their Profit 
 and Loss Account with the total of the three months' discount ; 
 had they been paying interest on the money, they would only 
 have had interest accrued for the fifteen days, therefore the 
 discount for the two months and a half still to run should be 
 charged to the Eevenue Account of the ensuing period. 
 
 There are two methods of dealing with these accrued 
 amounts : in the first, to enter these amounts to the debit or 
 credit of their respective accounts, opening a Suspense 
 Account for the corresponding entry, this latter account being 
 closed, by writing back, on the day succeeding that on 
 which the books were balanced ; in the second, to bring down 
 these amounts to the opposite side of their respective Ledger 
 Accounts in the same manner as the balance of a Personal or 
 a Property Account is treated. 
 
 The first method is to be considered the more preferable, the 
 latter being open to several objections ; the balance is apt to 
 be lost sight of, and, moreover, it may serve as k cover for 
 fraudulent acts on the part of a dishonest bookkeeper. 
 
 ''No accruing ^profits can, with safety, be taken credit for 
 upon the uncompleted voyages of ships, or uncompleted con- 
 tracts (except in special cases), nor for accruing dividends 
 
CONCLUDING REMARKS. 123 
 
 upon ordinary shares in companies, nor (under ordinary- 
 circumstances) for uncompleted consignments ; the eventual 
 result of all these transactions being generally of so speculative 
 a nature that it is not safe to do more than carry forward 
 whatever expenses may have been incurred." (Mr. L. E. 
 Dicksee's Auditing, page 124.) 
 
 Bad Debts. — Attention has been drawn on page 33 to the 
 desirability of providing a reserve fund for bad and doubtful 
 debts, but no mention was there made as to when an account 
 should be written off as bad. 
 
 No account should be considered as hopelessly lost until it 
 is undoubtedly known to be irrecoverable either through being 
 «tatute-barred, or through the payment of a composition, or a 
 final dividend, or an unsatisfied execution. The closing of an 
 account as bad requires careful consideration, for by so doing 
 it is lost sight of and forgotten ; whereas, had it been kept 
 open, even with only a nominal amount as a remembrancer, 
 some portions might eventually have been recovered. Perhaps 
 the best method of treating bad and doubtful debts is that 
 recommended by Mr. Lawrence E. Dicksee, F.C.A., in his 
 work on Auditing (p. 45). " As soon as a debt," he says, 
 '* becomes at all doubtful, or sufficiently overdue to merit 
 special attention, it is transferred to a Doubtful Debts Ledger, 
 which is ruled as follows : — On the left-hand page are spaces 
 for two or three ordinary Ledger Accounts, while the right- 
 hand page is left blank for such memoranda as ' When 
 applied for,' 'When sued,' ' When failed,' and full particulars 
 ,as to progress of subsequent realisation of the estate." 
 
 When treating of Eeserve and Sinking Funds in Chapter V., 
 there was no mention of how a provision for bad and 
 doubtful debts might be raised. The omission can, 
 
124 THE accountant's and bookkeeper's vade-mecum. 
 
 however, now be rectified. The reserve is best created 
 by taking a percentage upon the gross amount of book debts, 
 say 10 per cent., this reserve to be increased at each period of 
 balancing the books by the percentage (previously fixed) on 
 the excess of the current amount of book debts over the 
 amount of the previous period. Of course, if the amount of 
 book debts be less than the previous period the reserve must 
 be correspondingly decreased. The reserve with the net 
 present value of the Debts Eeceivable must equal the total 
 amount of debts due as shown by the books. 
 
 A true estimate of the bad debts can only be formed by 
 taking into consideration the losses that have taken place in 
 previous years ; such information would be presented by the 
 Bad and Doubtful Ledger mentioned above. 
 
 A had debt, when actually made, should be debited to 
 this reserve, i.e., the Personal Account of the defaulting 
 debtor is closed by crediting it with the amount of the 
 balance and transferring that amount to the Reserve 
 Account, thus decreasing that Account by the actual loss 
 which has been provided for out of the profits of previous 
 years. 
 
 Cash Book and Bank Pass Book — Reconciliation 
 of Balance. — When the Cash Book is balanced it should be 
 reconciled with the balance appearing in the Bank Pass Book 
 on the same date. It is seldom that they will be alike, on 
 account of payments in not having been passed to credit, or 
 cheques paid away being unpresented. 
 
 The reconciliation should be entered in short, be shown in 
 red ink, and might take the form following : — 
 
CONCLUDING REMARKS. 125 
 
 Reconciliation. 
 
 £ 
 Balance as per Bank Pass Book 
 
 Add Cheques as follows, not cleared and not credited — 
 T. Haines . . 
 S. Davey . . 
 Fry & Co. . . ... 
 
 Less Outstanding Cheques not debited- 
 
 A . Wilkins . . 
 S. f^oanes . . 
 
 Balance as per Cash Book 
 
 Consignments, Adventures, Joint Accounts. — There 
 is a class of accounts which, to some bookkeepers, present a 
 certain amount of difiBculty when first met with. These are 
 consignments of commodities either inward or outward. 
 
 Consignments inward may be of two kinds — first, they may 
 be for the merchant's own account, or he may have an interest 
 in same ; secondly, they may be on the account of another. 
 In the one the merchant is the principal, or one of the 
 principals, while in the other he acts as the agent. 
 
 Consignments outward are chiefly on account of the 
 consignor, for himself solely, or as a co-partner with others. 
 
 Consignments for a merchant's own account are more pro- 
 perly termed Adventures, to distinguish them from consign- 
 ments for the account of another. Similar transactions in 
 which the merchant is interested with others are termed Joint 
 Accounts or Ventures. 
 
 Consignments which are received to be realised for and on 
 behalf of another are best treated in the manner following : — 
 Upon receipt of the goods or invoice no entry is to be made in 
 
126 THE accountant's and bookkeeper's vade-mecum. 
 
 the books of account. They are the property of the consignor ^ 
 and in no way form a portion of the assets of the consignee. 
 They are simply to be noted in the Warehouse Stock Book, or 
 where the transactions of this class are numerous, in a special 
 Stock Book set apart for the purpose. All charges, however, 
 paid on the consignment on behalf of the consignor are entered 
 to the debit of a " Ge^ieral Consignment Account,'" as would 
 also be any advance made to the consignor or to his order 
 against same. All sales of the consignment are, on the other 
 hand, credited to a General Account under the title of '* Con- 
 signment Sales Account." When the consignee renders an 
 account sales, the " Consignment Sales Account " is debited 
 with the charges and the net proceeds, the " General Consign- 
 ment Account " being credited with the amount of charges and 
 advances transferred, while the " Consignor s Account " in the 
 Ledger is credited with the net proceeds. 
 
 Adventures on the risk and for the behalf of the shipper 
 are simply treated as any other special transaction would be. 
 An account is opened in the consignor's Ledger under the 
 
 heading of ''Adventure of to " : this account is debited 
 
 with the cost of the goods and any charges paid thereon, such 
 as freight, insurance, shipping charges, &c. And it is credited 
 with the net proceeds upon the receipt of the account sales 
 from the agent. 
 
 A Joint Adventure is when two or more parties combine to 
 participate in profits or share losses in some particular trans- 
 action. For instance, a shipper may consign some special 
 article in which he deals to a merchant in another country, 
 in which shipment they both participate ; or two or more 
 merchants dealing in any particular commodity may combine 
 to ship to another country this article on a joint account ; or, 
 again, where the number of persons dealing in a certain 
 article are few, they may combine and import such article on 
 
CONCLUDING BEMAEKS. 127 
 
 a joint account for the purpose of preventing a keen competi- 
 tion in same, and to shut out a buyer from using one firm's 
 quotation to cut down another's. 
 
 It is usual in a joint account — though all may supply goods 
 — for only one (termed the manager) to have the handling of 
 the transaction, and such a one is not infrequently allowed a 
 small percentage on the sales as a remuneration for the time 
 and trouble taken by him for the benefit of all concerned. 
 
 There are two methods of dealing with joint transactions in 
 the books of the manager. 
 
 1. To open an account in the Ledger entitled " Joint 
 
 Adventure Account to ," and to debit it with the value of 
 
 the goods, the shipping and other charges, the insurance, the 
 commission, etc., and to credit it with the gross amount 
 realised ; the balance of this account being transferred to 
 " Profit and Loss " and the partners' personal accounts for the 
 respective shares of loss or gain. 
 
 2. To open an Adventure Account for the manager's share 
 of the cost of the shipment and charges, and for each partner 
 for his share of the cost and charges, and on realisation to 
 divide the gross proceeds in a similar manner. 
 
 The skeleton form of the necessary Journal entries to record 
 the three classes of consignments mentioned are given below. 
 
 Consignments where the merchant (consignee) acts as agent. 
 
 Consignment Dr, 
 
 To Shipping Agent or Broker for freight, duty, delivery, &c. 
 
 Purchases Dr. 
 
 To Sales of Consignment for amount realised. 
 
 Sales of Consignment Dr. 
 To Consignment (for charges). 
 To Commission. 
 To Interest. 
 To Consignor for net proceeds. 
 
128 THE accountant's and bookkeeper's vade-mecum. 
 
 Adventures on Merchant's own Account. 
 
 Adventure to Dr. 
 
 To Gloods, if out of stock . or both, if 
 
 or y supplied 
 
 To Seller, if bought specially. ' in part. 
 To Charges (freight, duty, &c.). 
 To Insurance. 
 
 Agent (Consignee) Dr. 
 To Adventure to , for net proceeds. 
 
 Adventures on Joint Account. 
 1st Method. 
 
 Adventure in Co. to Dr. 
 
 ^To Goods, if out of stock ^^ 
 
 or or both, or all 
 
 To Seller, if purchased specially I if supplied 
 
 or in part. 
 
 To Partner, if supplied by him. ■' 
 To Charges (freight, duty, &c.). 
 To Insurance. 
 To Commission. 
 
 Agent (if export) Dr. 
 
 or 
 Broker , 
 
 or I (if import) Dr. 
 
 Purchaser. ' 
 
 To adventure in Co. for net proceeds. 
 
 {If a gain.) 
 
 Adventure in Co. to Dr. 
 
 To each inactive Partner for his share. 
 To Profit and Loss for Manager's share. 
 
 {If a loss.) 
 
 Each inactive Partner for his share Dr. 
 Profit and Loss for Manager's share Dr. 
 To Adventure in Co. to 
 
CONCLUDING EEMAEKS. 129 
 
 2nd Method. 
 
 Each inactive Partner for his share of cost Dr. 
 
 Adventure to for Manager's share of cost Dr. 
 
 'To Goods, if supplied out of stock\ 
 
 Qj. or both, or all 
 
 To Seller, if purchased specially \ ^^ supplied 
 or in part. 
 
 ' To Partner, if supplied by him 
 To Charges (freight, duty, &c.). 
 To Commission. 
 To Insurance. 
 
 Agent (if export) Dr. 
 
 or 
 Broker \ 
 
 or I (if import) Dr, 
 
 Purchaser I 
 
 To each inactive Partner for his share of net proceeds. 
 
 To Adventure Account for Manager's share of net proceeds. 
 
 Sometimes in Joint Accounts the Shipper may be a Partner 
 in a joint transaction with the Consignee and others. 
 
 Advances are frequently made against Consignments — these 
 are principally by bills. If the Merchant advances against a 
 Consignment to him as Agent, the Journal entry will be 
 
 Consignor Dr. 
 To Bills Payable. 
 
 If, on the other hand, the Merchant obtains an advance 
 against his own adventure, the Journal entry will be 
 
 Bills Receivable Dr. 
 To Lender (often the Consignee) 
 
 ] To Adventure Account direct for advance against shippin g 
 I documents, &c. 
 
 If an inactive Partner in a joint adventure desires to post 
 
130 THE accountant's AND BOOKKEEPEB's VADE-MECUM. 
 
 the joint transaction, or so much of it as refers to him, the 
 Journal entries will be 
 
 Adventure to Dr. 
 
 To the active Partner [i.e., the Manager) for the owner of the 
 books' share of costs and expenses ; 
 
 and, on receipt of account sales from the Manager, 
 
 The Manager Dr. 
 
 To Adventure Account, for the owner of the books' share of 
 profits. 
 
 In the case of Consignments and Adventures uncomplete 
 at time of balancing, see Outstanding Assets and Liabilities, 
 page 123. 
 
 Contingent Liabilities. — These should be notified on 
 Balance Sheet. They are not to be incorporated in the 
 figures, but should appear at the foot of the debit side. 
 
 The principal item coming under this designation is Bills 
 under discount ; others would arise from dilapidations upon 
 leasehold premises, from claims in dispute not recognised as 
 debts, from brokers' guarantees, etc. 
 
 Contracts. — Firms which undertake work of more or less 
 of a speculative character require to exercise a special care 
 and supervision over their system of accounts. 
 
 Among such are to be classed manufacturing engineers, 
 builders, shipwrights, iron-founders, and contractors generally. 
 
 The basis of their calculations, when tendering for extensive 
 undertakings, must be upon the market price of materials and 
 the cost of labour, allowing for a sufficient margin to cover the 
 incidental expenses of the business and to show a return upon 
 the actual outlay. In these times of keen competition it is 
 not only essential that the prime cos ^ should be carefully com- 
 puted, but that every precaution should be taken in the super- 
 
CONCLUDING REMARKS. 131 
 
 vision of the expenditure so as to prevent any unnecessary- 
 waste of money and material in the execution of the work. 
 Often, through looseness in calculating the cost or in keeping 
 the expenditure within proper limits, a contract which should 
 have shown a fair margin of profit has resulted in a loss. 
 
 The preparation of an estimate does not come within the 
 province of the bookkeeper, but it is his duty, however, to see 
 that the accounts of the contracts are so kept that they may 
 clearly show the expenses for any period of the work, and may 
 form a guide to the contractor when tendering for future 
 undertakings, so that he may be able to make his estimate at 
 a lower rate if large profits have been gained in a similar 
 contract, or may take steps to prevent in fresh work the 
 occurrence of a loss made on a prior occasion. 
 
 The proper method of recording such transactions in the 
 books of account so as to fulfil the above requirements would 
 be to open in the Ledger a separate account for each contract, 
 distinguishing same by a number. This account should be 
 credited with the total of the accepted tender, the person or 
 firm for whom the work is undertaken being correspondingly 
 debited. The Contract Account should be debited with the 
 cost of all materials used, and with all wages and charges 
 paid in connection therewith. On completion of the work the 
 balance of the Account would be transferred to the Profit and 
 Loss Account. The instalments received during the progress 
 of the work would be credited to the Personal Account of 
 the parties for whom the work was being done. 
 
 At the balancing period any contracts uncompleted would 
 be included in the Balance Sheet as an outstanding account ; 
 but if, however, a contract is near completion, and the extra 
 expense can with any reliability be approximated, in that case 
 this estimated expense may be debited to the Contract 
 Account through a Suspense Account, and the resulting 
 
132 THE accountant's and bookkeeper's vade-mecum. 
 
 balance carried to Profit and Loss. Care must be taken in 
 the subsequent period to charge the actual wages and cost of 
 materials to the Suspense Account in order to adjust any 
 difference in the anticipated profit or loss. 
 
 The plan to be adopted in dealing with the invoices so as 
 to arrive at the prime cost is to enter them in a Day Book in 
 tabular form so that each invoice may be " dissected " into 
 the proper account or contract to be debited, while at the 
 same time it provides for the crediting of the total amount to 
 the supplier. 
 
 Extra work on contracts forms an important item as another 
 source of profit, and, consequently, care should be exercised to 
 see that these are properly charged on each contract to a 
 
 separate account, to be called " Extras on Contract No. ." 
 
 They might properly be recorded in the Day Book mentioned 
 above, a separate column being provided for same. 
 
 Deficiency Account (Company Winding-up). — In Chapter 
 III., when treating of Deficiency Accounts, that for companies 
 winding up under the supervision of the Court was omitted ; 
 it is now given here. The Ofiicial Eeceiver requires a slightly 
 different form for companies which have been in existence for 
 more than three years prior to the date of the winding up to 
 that of companies where the winding-up order is made 
 within three years of formation of company. Both forms are 
 given on pages 135-6 ; only one illustration is provided, how- 
 ever, with the view of showing how the same should be filled up. 
 
 Illustration. — The Axim Prospecting Company was formed 
 in January 1891, and in May 1892 a compulsory order was 
 made to wind up the company. The Balance Sheet and 
 Eevenue Account at date of winding-up order was as follows : 
 
CONCLUDING BEMAKKS. 
 
 133 
 
 •C O O O O 00 
 
 en o cou-ivo »o 
 
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134 THE accountant's and bookkeepeb's vade-mecum. 
 
 The deficiency would be made out from these, as shown on 
 page 135. 
 
 The general remarks on the preparation of a Deficiency 
 Account appearing in Chapter III. equally apply to the one 
 given here. The only particular requiring any explanation is 
 that relating to (VI. in Form 1, VII. in form 2) ''Deprecia- 
 tion not written off in company's books." This refers to 
 assets appearing in the company's books, which, upon winding- 
 up the company, are unrealisable ; such would probably be 
 goodwill, development of mines, property, &c., concessions 
 and unworkable patents, and the like. 
 
 It is also to be noted that the details of miscellaneous 
 expenses (Form 1) are given, and are written in short on the 
 left-hand side.^ They should be written in red ink. 
 
 1 This is not mentioned in the directions appearing at foot of the form, 
 but the Official Keceiver, however, requires that same be so shown. The 
 writer cannot allow the occasion to pass without testifying to the 
 courtesy and readiness to give information he has met with from the 
 officials of the Companies Winding-up and Bankruptcy Departments of 
 the Board of Trade. 
 
CONCLUDING REMAEKS. 
 
 135 
 
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136 THE accountant's and bookkeepek's vade-mecum. 
 
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CONCLUDING EEMARKS. 137 
 
 Income Tax, Average Profits.— The profits from any 
 kind of property, wherever situate, and from any profession, 
 trade, employment, or occupation, wherever carried on, may, 
 for the purpose of income tax, be returned on an average of 
 three years preceding the assessment (Schedule D). If, how- 
 ever, the profession or business has not been set up three years, 
 then on an average from the period of commencing it, ending 
 either the day the annual accounts are made up, or the 5th of 
 April. 
 
 It is intended here to show how such an average may be 
 made out for the purpose of assessment, or for a claim to be 
 made for a repayment of over-charge. 
 
 Such a statement drawn out and certified to by a Chartered 
 Accountant is generally accepted by the Inland Eevenue 
 officials. 
 
 It must be remembered, however, that what is considered 
 net profit by the person interested is not so considered by the 
 officials. 
 
 " Net profit for income tax purposes is the ordinary com- 
 mercial net profit, except that the following deductions are 
 not allowed : — 
 
 " (1) The income tax paid on the profits of the concern. 
 
 " (2) Interest on capital or any annuity, &c. 
 
 *' (3) Improvements (not mere repairs) of premises, plant, &c. 
 
 " (4) Depreciation of leases. 
 
 " (5) Partners' salaries. 
 
 " (6) In colliery and other mining concerns, instalments 
 written off cost of mine, or for exhaustion of minerals, or for 
 cost of pit-sinking. 
 
 " (7) The amount of any embezzlement by a servant or other 
 person. 
 
138 THE accountant's and bookkeeper's vade-mecum. 
 
 " (8) Possibly not the whole of the amount of depreciation 
 charged in the Profit and Loss Account on machinery — wear 
 and tear only is allowed for ; depreciation being of wider 
 extent." (Accountants' Manual, Vol. II. B. 10.) 
 
 The statement of average profits for the three years would 
 be made out somewhat in the manner following : — 
 
 Statement of Profit for the purposes of Assessment (or for a Claim 
 for repayment of Over-charge), on an average of the three years 
 ending 31st December 1891. 
 
 Particulars 
 
 3ist Dec. 
 i88g 
 
 31st Dec. 
 1890 
 
 31st Dec. 
 1891 
 
 Total of the 
 three years 
 
 Net Profit or Loss as shown by the 
 Revenue Accounts for the respec- 
 tive years . . . 
 
 £ s d 
 
 9,685 
 590 
 500 
 340 
 260 
 250 
 
 1,000 
 
 £ s d 
 
 700 
 
 590 
 500 
 380 
 320 
 230 
 
 £ s d 
 
 2,150 
 
 590 
 500 
 500 
 300 
 190 
 
 ■■ 
 
 £ s d 
 
 6,835 
 1,770 
 1,500 
 1,220 
 880 
 670 
 1,000 
 
 Depreciation on Buildings 
 
 Partners' Salaries 
 
 Interest on Mortgages . . 
 
 Interest on Capital 
 
 Income Tax 
 
 Reserve 
 
 
 
 12,625 
 
 1,320 
 
 70 
 
 _ 
 
 Amount to be assessed for Income Tax for the year 
 ending 5th April 1893 
 
 13,875 o o 
 
 4,625 o o 
 
 iVo/e.— Losses are shown in red (heavy type). 
 
 Statement of Profit for the purposes of Assessment (or for Claim 
 for repayment of Over-charge), on an average of the three years 
 ending 31st December 1892. 
 
 
 31st Dec. 
 
 31st Dec. 
 
 31st Dec. 
 
 Total of the 
 
 
 1890 
 
 
 1891 
 
 1892 
 
 three years 
 
 
 £ s 
 
 d 
 
 £ s d 
 
 £ s d 
 
 £ s d 
 
 Net Profit or Loss as shown by the 
 
 
 
 
 
 
 Revenue Accounts tor the respec- 
 
 
 
 
 
 
 tive years 
 
 700 
 
 
 
 2,150 
 
 640 i 3,490 
 
 Depreciation on Buildings 
 
 590 
 
 
 
 590 
 
 590 1 1,770 
 
 Partners' Salaries 
 
 500 
 
 
 
 500 
 
 500 1,500 
 
 Interest on Mortgages . . 
 
 380 
 
 
 
 500 
 
 500 ] 1,380 
 
 Interest on Capital 
 
 320 
 
 
 
 300 
 
 240 860 
 
 Income Tax .... 
 
 230 
 
 
 
 190 
 
 180 
 
 600 
 
 Reserve 
 
 — 
 
 
 — 
 
 — 
 
 — 
 
 
 
 
 
 
 
 
 
 
 
 3 
 
 2,620 
 
 Amount to be assessed for 
 
 Income Tax for the year 
 
 
 ending 5th Ap 
 
 ril 1894 
 
 
 
 
 873 6 8 
 
 iVo/e.— Losses are shown in red (heavy type). 
 
CONCLUDING EEMARKS. 139 
 
 It will be seen that the difference between the average 
 profits for the years 1892-93 and 1893-94 is £3,751 13s. 4d., 
 the Income Tax on which, at 6d. in the £, is £93 15s. 9d. 
 Under the Acts 5 & 6 Vict., cap. 35, sec. 133, and 28 Vict, 
 cap. 30, sec. 6, relief could be claimed on the score that the 
 profits of the previous year of assessment have not reached the 
 amount of the average profits of the last three years, including 
 the said year of assessment. Repayment should, therefore, in 
 a case like this, be claimed upon the difference of £3,751 13s. 4d. 
 as shown above, the over-payment representing £93 15s. 9d. 
 
 Preliminapy Expenses. — These are those expenses 
 incurred in obtaining the share capital of a company, and are 
 incidental thereto. The gradual extinction of such as an asset 
 has been explained in the Chapter on Depreciation (page 28). 
 It is only necessary here to give the principal disbursements 
 that may be brought into the *' Preliminary Expenses " 
 Account. These would be the following : — 
 
 Advertising of prospectuses and notices ; brokerage paid 
 for placing shares ; legal expenses for the preparation of the 
 memorandum and articles of association, the necessary agree- 
 ments for the purchase of any business or property, filing the 
 necessary documents with the Registrar of Joint Stock Com- 
 panies, and generally all legal work transacted on behalf of 
 the company until the first allotment of shares ; the cost of 
 printing the memorandum and articles of association, pro- 
 spectuses, notices, plans, books of account, &c. 
 
 Conclusion. — It is trusted that the information contained in 
 the foregoing pages may be of beneficial service to the accoun- 
 tant student, as well as to those to whom a thorough know- 
 ledge of accounts is essential in order to properly undertake 
 the duties required in a mercantile career. But it is not 
 
140 THE accountant's and bookkeeper's vade-mecum. 
 
 enough to be well posted in the treatment of complex 
 accounts ; a good bookkeeper must also be methodical and 
 correct in his manner of transacting and recording business ; 
 and, above all, he must like and take an interest in his work. 
 If he has any desire to rise and get beyond the general position 
 of a mere mechanical cypher, who is only expected to get 
 through a certain quantity of work in a given time without 
 any thought of how the same is performed or with little care 
 as to the results obtained, he must associate himself with the 
 interests of his firm and let them become to him as if they 
 were his own. Far from then finding an irksomeness in his 
 duties he will realise a pleasure, and will have that feeling of 
 self-consciousness which arises from a knowledge of having 
 fulfilled his duties to the advantage of those to whom he is 
 indebted for his livelihood. 
 
 The reader cannot do better than refer to the lecture of 
 Mr. Edward H. Fletcher, F.C.A., on ''The Method and Form 
 in Bookkeeping and Accounts," (^) and Mr. Gerard van de 
 Linde's pamphlet entitled " Secretarial," f) both of which fully 
 enter into the requirements for a good bookkeeper and business 
 man ; they both descend to petty details, and talk of matters 
 which come before them every moment of their lives, remem- 
 bering as it were, and impressing upon those whom they 
 address, that success is dependent, in a great extent, on the 
 observance and strict performance of the small things of our 
 daily life. 
 
 1 The Accountants' Journal, Vol. IV., No. 39. ^ The Accountants' 
 Journal, Vol. X., No. 118. Messrs. Gee & Co., 34 Moorgate Street, 
 London, E.G. 
 
CONCLUDING REMARKS. 
 
 141 
 
 H 
 
 15 
 
 1 
 
 i 
 
 1 
 ^ 1 
 
 1 
 
 1 
 
 1 JO -ON 
 
 
 3§ 
 
 0<3 
 
 
 ^:2 
 
 
 6 
 Z 
 
 
 1 
 
 
 
 -a 
 
 c 
 
 13 
 Si 
 
 J3 
 
 
 JO -oti 
 
 I 
 
 
 1 
 
 ill 
 
 i-i 
 
 
 6 
 2 
 
 
 Q 
 
 ! 
 
i3^z)E]x:. 
 
 Account Books — 
 
 PAGE 
 
 Cash Book, Tabular, Forms of 
 
 48 49 99 
 
 Petty, Form of 
 
 100 
 
 Day Book, Sale, Tabular . . 
 
 100 
 
 „ Invoice „ 
 
 101 
 
 (Hotels) .. 
 
 108 
 
 ,, Prime Cost • . . 
 
 132 
 
 ,, Rough, for hotels 
 
 106 107 
 
 Journal, Form of 
 
 83 
 
 Tabular.. 
 
 119 
 
 Ledger, Bank Customers' . . 
 
 102 
 
 „ Hotel Visitors', Tabular 
 
 104 105 
 
 „ Theatrical „ .. .. 
 
 113 
 
 „ Share 
 
 76 77 
 
 „ Bad and Doubtful 
 
 123 
 
 Account, Books of, to be only used for their legitimate purpose 
 
 3 22 
 
 Accountants 
 
 3 116 
 
 Account- 
 
 
 Contract 
 
 131 
 
 Composition, Payment of . . 
 
 97 
 
 Deficiency 
 
 13 
 
 „ Bankruptcy 
 
 16 
 
 „ Companies' Winding-up .. 
 
 132 
 
 Depreciation . . 
 
 31 
 
 Dividends, Payment of . . 
 
 97 
 
 Hotel (Bill) .. 
 
 109 
 
 Income Tax, three years' average of profits 
 
 137 
 
 Interest, Payment of . . 
 
 97 
 
 Forms of— 
 
 
 Liquidation 
 
 47 53 55 
 
 Profit and Loss 
 
 9 10 
 
 „ monthly statement (theatres) 
 
 114 
 
 Realisation of Assets . . 
 
 47 53 65 
 
144 
 
 INDEX. 
 
 Account — 
 Forms of — 
 
 Keceriver's Cash 
 Revenue . . 
 
 Statement, showing final adjustment of Partnership 
 Accounts 
 ,, of Afiairs 
 
 Trading .. 
 
 ,, approximate . . 
 Accrued amounts 
 Address Book, Shareholders' 
 Adjustment of Partnership Accounts 
 
 Agreement as to taking of accounts may be applicable only 
 to a continuing partnership, and not to final dissolution 
 Assets applied to : (1) Paying debts and liabilities to non- 
 partners ; (2) to paying advances by partners ; (3) in 
 paying partners what is due in respect of capital ; (4) the 
 ultimate residue to be divisible as profit between the 
 partners . . . . 
 
 Contributions among the partners to make up sufficient to 
 pay, (1) non-partners ; (2) partners for advances ; (3) 
 balances of capitals remaining unpaid 
 Deed of Partnership, in winding up a partnership, careful 
 
 attention to be paid to the wording and clauses of 
 Importance of the terms of the Deed 
 Legal aspect of the question 
 Losses to be paid, (1) out of profits ; (2) out of capital 
 
 (3) by recourse to partners individually 
 Method of writing up and adjusting Partnership Accounts 
 When assets on realisation are insufficient: — 
 
 (1) To meet the claims of non-partners 
 
 (2) To repay partners their advances 
 
 (3) To repay partners their respective capital"? 
 Retrospective adjustment 
 Method of writing up and adjusting the Partnership 
 
 Accounts . . 
 What has been done for the purpose of sharing annual 
 profit and losses no precedent for the final closing of a 
 Partnership Account . . 
 Adventure Accounts 
 Remarks respecting 
 Skeleton form of Journal entries 
 
 PAGE 
 
 141 
 8 9 10 
 
 51 54 56 
 
 13 U 
 
 8 10 
 
 19 
 
 121 
 
 94 
 
 42 
 
 42 
 
 42 
 
 43 
 
 57 
 41 
 41 
 
 42 
 44 
 
 44 
 52 
 53 
 
 57 
 
 59 
 
 42 
 126 
 126 
 128 
 
INDEX. 
 
 146 
 
 Allotment of Shares 
 
 Application for and, Book 
 
 Remarks respecting . . . . 
 
 Amortization of leases 
 Annual list of members 
 
 Agreement with Share Ledger 
 Application for Shares 
 
 And Allotment of Shares Book . . 
 
 Remarks respecting 
 Appreciation 
 
 Assessments for Income Tax 
 Assets — 
 
 Depreciation of 
 
 Fictitious . . . . . . . . ■' 
 
 Remarks respecting, in adjusting Partnership Accounts 
 
 Outstanding . . 
 
 PAGE 
 
 74 
 73 
 74 
 24 
 
 93 
 
 73 
 
 72 74 
 
 25 
 
 137 
 
 23 
 
 39 
 
 48 
 
 121 
 
 Bad Debts— 
 
 Where written off 
 
 Necessity for providing for . . ... 
 
 Method of dealing with . . 
 Balance of Revenue Account 
 
 of Cash in hand reconciled with bank balance . . 
 Bank — 
 
 Interest on Bank Trade Account may be deducted 
 Income Tax assessment 
 
 Balance at, to be reconciled with balance of cash in hand 
 Bills Receivable — 
 
 Remarks on liability on, when discounted 
 
 Rebate on, when discounted, anc 
 period of general balance 
 Blast Furnaces, Depreciation of 
 Bookkeepers . . . . - 
 
 Bookkeeping — 
 
 Method in 
 
 Principles of . . 
 
 Tabular 
 
 Mr. Gerard van de Linda's work on 
 
 for 
 
 6 
 33 
 123 
 
 7 124 
 
 11 
 124 
 
 89 
 
 interest 
 
 not earned 
 
 at 
 
 
 . 
 
 .. 
 
 
 
 122 
 
 .. 
 
 .. 
 
 
 
 25 
 
 
 22 92 
 
 116 118 131 140 
 
 .. 
 
 ,, 
 
 
 .. 
 
 140 
 
 
 .. 
 
 
 .. 
 
 120 
 
 . 
 
 .. 
 
 
 
 98 
 
 , 
 
 , , 
 
 
 . . 
 
 117 
 
146 
 
 INDEX. 
 
 Books — PAGE 
 
 Financial or Account (see Account Books) 
 
 Registry or Statistical (see Statistical Books) 
 
 Boilers, Depreciation of , . . . . . . . 26 
 
 Bonds, Depreciation of . . . . . . , . 28 
 
 Bottles, Depreciation of . . . . . . . . 28 
 
 Branches, Advisability of keeping books of, by Tabular system 110 
 
 Break-up value of property . . . . . . . . 27 
 
 Brokers' guarantees . . . . . . . . 130 
 
 Buildings, Depreciation of . . . . . . . . 25 
 
 Capital — 
 
 Called up . . . . . . . . . . 78 
 
 Board minute necessary for calling up . . . . 79 
 
 Expenditure .. .. .. .. .. 1 
 
 Difference between Revenue and Expenditure . . 12 
 
 In case of uncertainty, charge to capital . . . . 2 
 
 Illustration of . . . . . . . . 2: 
 
 Interest on . . . . . . . . . . 56 60' 
 
 „ place in Revenue Account . . . . 11 
 
 Loss of .. .. .. .. .. 16 17 
 
 Outlay of, and its recoupment . . . . . . 28 
 
 Remarks respecting receipts and pa} ments on account of . . 20 
 
 Call Book .. .. .. .. .. 78 
 
 Form of . . . . . . . . . . 79 
 
 Call Letter .. .. .. .• .. 80 
 
 Form of . . . . . . . . . . 81 
 
 Carriage on gDod& . . . . . . . . 5 
 
 Cash Account — 
 
 Difference between Revenue Account and . . . . 19 
 
 Receiver's .. .. .. .. .. 141 
 
 Cash Book .. .. .. .. 47 99 100 110 
 
 Form of Petty.. .. .. .. .. 100 
 
 „ Tabular . . .- . . . . . 47 9» 
 
 „ Theatrical .. .. .. .. Ill 
 
 Improper use of, prostituting to use of Journal . . . . 21 
 
 Casks, Depreciation of . . . • . . . . 27 
 
 Certificate, Share .. .. .. .. 78 
 
 Should be endorsed with calls paid . . . . . . 82 
 
 Should be presented with Transfer Deed . . . . 86 
 
 Collieries, outlay of capital and its recoupment . . . . 28 
 
 Mr. R. J. Evans on Colliery Accounts . . . . 29 
 
147 
 
 Company — 
 
 Accounts . . , . . . 
 
 Appropriation of profits . . 
 
 Revenue Account of 
 
 Transfer of shares 
 
 Van de Linde, Mr. Gerard, on Company Work 
 Composition, Form for recording payment of 
 Concluding remarks 
 Consignments — 
 
 Remarks respecting 
 
 Skeleton form of Journal entries 
 Contingent liabilities 
 Contracts 
 Cost of Labour 
 
 Affects depreciation 
 
 Influences contracts 
 Cost of Production, to be shown in Trading Account 
 
 PAGE 
 
 71 
 
 7 
 
 6 
 
 85 
 
 96 
 
 96 97 
 
 139 
 
 125 
 
 127 
 
 33 130 
 
 130 
 
 31 
 
 130 
 
 5 
 
 Day Book 
 
 Sales, Form of Tabular . . 
 Invoice ,, „ 
 
 Prime cost 
 Debentures - 
 Interest on . . 
 
 Payment of interest on, Form for . . 
 Method of entering, in statistical books, similar to ordinary 
 shares . . . . . . . , 
 
 Debts- 
 Method of dealing with bad and doubtful 
 Remarks respecting bad and doubtful 
 Reserve for bad and doubtful 
 
 Distinction between reserve for bad, and those actually made 
 Deductions not allowed for income tax purposes . . 
 Deed of Partnership 
 Deficiency — 
 Account 
 
 ,, illustrated 
 
 in bankruptcy 
 in company winding-up 
 „ its object 
 On Profit and Loss and Revenue Accounts 
 
 100 106 107 
 
 . 101 108 
 
 132 
 
 7 
 97 
 
 96 
 
 123 
 
 6 
 
 33 
 
 34 
 
 11 
 
 41 45 67 
 
 12 132 
 
 14 16 
 
 135 136 
 
 17 
 
 7 37 
 
148 
 
 INDEX. 
 
 epreciation — 
 
 
 PAGE 
 
 Account 
 
 . . 
 
 31 
 
 „ not to be confounded with *• Depreciation Fund " 31 
 
 Calculations for, affected 
 
 by 
 
 
 Tenure 
 
 
 31 
 
 Location 
 
 
 32 
 
 Hours of working 
 
 
 32 
 
 Fund 
 
 
 .. 31 33 34 
 
 Mr. Guthrie's lecture on 
 
 
 29 
 
 Other causes of, besides wear and tear 
 
 23 
 
 Remarks on .. 
 
 .. 
 
 6 23 
 
 Two formulae for 
 
 
 
 Property having no residue of value 
 
 24 
 
 Property having a residue of value. . 
 
 24 
 
 Wear and tear 
 
 .. 
 
 23 
 
 Where shown in accounts 
 
 . . 6 21 32 
 
 Of Blast Furnaces 
 
 
 25 
 
 „ Boilers 
 
 
 26 
 
 „ Bonds 
 
 
 28 
 
 „ Bottles 
 
 
 28 
 
 „ Casks 
 
 
 27 
 
 „ Chemical Fixed Plant 
 
 
 25 
 
 „ Collieries .. 
 
 .. •• 
 
 28 
 
 „ Engines 
 
 
 26 
 
 ,, Fixtures 
 
 
 26 
 
 ,, Freeholds . . 
 
 
 25 
 
 „ Furnaces . . 
 
 
 25 
 
 „ Furniture . . 
 
 
 26 
 
 „ Gas Retorts 
 
 
 25 
 
 „ Gear .. " 
 
 
 26 
 
 „ Goodwill .. • 
 
 
 28 
 
 „ Leases 
 
 .. •• 
 
 24 
 
 ,, Locomotives 
 
 
 26 
 
 ,, Loose tools. . 
 
 
 27 
 
 ., Machinery.. 
 
 
 26 
 
 „ Mines 
 
 
 28 
 
 „ Motive Plant • " 
 
 
 . .. 26 
 
 „ Patents 
 
 
 .. 25 
 
 „ Plant . . • 
 
 
 26 
 
 „ Quarries .. 
 
 
 28 
 
 „ Retorts (gas) 
 
 .. •• 
 
 25 
 
INDEX. 
 
 149 
 
 deficiency 
 
 Depreciation — 
 Of KoUing Stock 
 ,, Shares 
 „ Ships 
 „ Trade marks 
 „ Utensils in trade 
 ,, Wagons 
 
 „ ,, on hire purchase 
 Dicksee, Mr. L. R. 
 Dilapidation clause in lease — 
 
 Provision to be made to meet same . . 
 Dissolution of Partnerships — 
 Mr. R. Ringwood's lecture on 
 Ways in which, may take place 
 When the Court will decree 
 Dividends — 
 Accrued, how dealt with at general balancing 
 Cannot be declared on ordinary shares when 
 
 appears on Revenue Account 
 Declaration of . . 
 
 „ must be sanctioned by shareholders in general 
 
 meeting . . 
 How entered in Revenue Account 
 On preference shares 
 Reserve for 
 Record of payments of 
 When declared less Income Tax . 
 When may be paid out of reserve 
 Doubtful Debts- 
 Method of dealing with 
 Reserve for bad and 
 
 ,, how should be calculated 
 
 Engmes, Depreciation of . . 
 
 Evans, Mr. R. J., on Colliery Accounts 
 
 Expenditure — 
 
 Capital and Revenue 
 
 Revenue Account treats of 
 Expenses — 
 
 Of the Establishment 
 
 Formation, how written down 
 
 PAGE 
 
 27 
 
 26 
 27 
 
 26 
 123 
 
 25 
 
 58 
 
 121 
 
 7 
 7 
 
 7 
 
 7 
 
 8 
 
 33 
 
 96 97 
 
 (note) 7 
 
 7 
 
 123 
 
 33 
 
 123 
 
 26 
 29 
 
 1 
 
 4 
 
 5 6 11 
 28 39 96 
 
150 INDEX. 
 
 Expenses — page 
 
 Preliminary .. .. .. .. 28 39 96 139 
 
 Fictitious Assets, Sinking Fund for writing off . . .. 28 89 96 
 
 Financial Books (see Account Books) 
 
 Fixtures, Depreciation of . . . . . . . . 26 
 
 Fletcher, (F.O.A.), E. H., Lecture of . . . . . . 140 
 
 Forfeited shares — 
 
 How shown in books . . . . . . . . 95 
 
 Journal entries for . . . . . . . . 85 
 
 Not to be taken to the credit of Profit and Loss Account . . 95 
 
 Remarks on . . , . . . . . . . 94 
 
 Resolution of the Board required to be valid . . . . 95 
 
 Formation Expenses — 
 
 How written down . . . . . . .. 28 39 96 
 
 Forms of Account (see Accounts) 
 
 Freehold Property, Depreciation of . . . . . . 25 
 
 Freight, where charged . . . . . . . . 5 6 
 
 Furnaces, Depreciation of . . , . . • . . . 25 
 
 Furniture — 
 
 Depreciation of . . . . . . • • 26 
 
 On hiring agreement, how written down . . . . 27 
 
 Gas Retorts, Depreciation of ..•■.. . . 25 
 
 Gear, Depreciation of . . . . . . • • 26 
 
 Goodwill — 
 
 Depreciation of . . . . . . . . 28 
 
 May be augmented by value of patents, trade marks, &c. . . 25 28 
 
 Sinking fund for writing down . . . . • • 39 
 
 Gross Profits .. .. .. .. •• 456 
 
 Guarantees, Brokers' . . . . . • • • 132 
 
 Guthrie, Mr., on " Depreciation " . . . . . . 20 
 
 Hire Purchase, Wagons and other Property, How written down 27 
 
 Hours of Working affect calculations for depreciation . . 39 
 
 Income — 
 
 Not belonging legitimately to the business, Where shown . . 6 
 
 Revenue Account treats of . . • • • • ^ 
 
 Income Tax — 
 
 Deductions for . . . . • • • • ^ 
 
INDEX. 
 
 151 
 
 Income Tax — page 
 
 Method of preparing Statement showing three years' average 
 of Profits for purposes of Assessment of . . . . 137 
 
 Treatment of, in Revenue Account . . 7 (note) 9 (note) 11 61 
 
 Interest — 
 On Calls unpaid . . . . . . . . 80 
 
 in advance 
 
 Capital 
 
 Debentures 
 
 Bank Trade Account 
 
 Investments 
 
 Loans 
 
 Preference Shares 
 Income Tax to be deducted from 
 
 ,, ,, „ Exception 
 
 Where shown in Revenue Account . . 
 Investment of Reserve Funds 
 Investments, Depreciation of 
 Invoice Book 
 
 80 
 
 56 60 (note) 
 7 
 11 
 6 11 
 6 11 
 6 11 
 11 
 11 
 11 
 6 11 
 38 (note) 
 28 
 101 108 
 
 Joint Accounts, Remarks respecting 
 
 „ Skeleton form of Journal entries . . 
 
 Joint Stock Company's Accounts (see Company Accounts) 
 Journal — 
 
 Entries peculiar to Companies' Accounts 
 
 Form of Tabular Journal. , 
 
 Its gradual disuse 
 
 Mr. Gerard van de Linde on use of the 
 
 Narration, What it should be 
 
 Faulty 
 Other books not to be used improperly for 
 Remarks on the 
 
 „ Tabular .. 
 
 Use of the 
 
 126 
 
 128 
 
 82 85 
 
 119 
 
 21 
 
 117 
 
 118 
 
 118 
 
 21 117 
 
 116 
 
 118 120 
 
 116 117 (note) 
 
 Labour — 
 
 Reduction in cost of^ aSects depreciation 
 
 Its influence on contracts. . 
 Lapsed Shares • . 
 
 31 
 
 130 
 
 94 
 
152 
 
 Leases — 
 
 
 
 PAGE 
 
 Amortization of 
 
 . . 
 
 , 
 
 24 
 
 Dilapidation clause in,- Provision for. . 
 
 
 . 
 
 25 
 
 Method of dealing with . . 
 
 
 . 
 
 24 
 
 With renewal clause to be written down as if freehold 
 
 25 
 
 Leaseholds- 
 
 
 
 
 Depreciation of 
 
 
 . 
 
 24 
 
 In occupation, proportion written off equivalent to rent 
 
 24 
 
 Ledger- 
 
 
 
 
 Bank Customers' 
 
 
 
 102 
 
 Hotel 
 
 
 
 109 
 
 Share 
 
 
 
 75 94 
 
 Tabular 
 
 
 
 102 
 
 Theatrical 
 
 
 
 112 
 
 Transfers from, to pass through Journal 
 
 
 
 21 117 
 
 Liabilities- 
 
 
 
 
 Contingent 
 
 
 
 3» 
 
 Outstanding .. 
 
 
 
 1^1 
 
 On Bills discounted 
 
 
 
 39 130 
 
 Liberator Building Society's Reserve . . 
 
 
 
 . (note) 38 
 
 Liquidation Accounts 
 
 
 
 46 47 53 55 
 
 Location affects calculations for depreciation 
 
 
 
 32 
 
 Loose tools, Depreciation of . . 
 
 
 
 27 
 
 Losses- 
 
 
 
 
 In trading, where to be sought 
 
 
 
 17 
 
 Net 
 
 
 
 6 
 
 Of capital, where to be sought 
 
 
 
 17 
 
 On Trading Account, what they may be 
 
 
 
 6 
 
 Partnership share of, how treated 
 
 
 
 8 
 
 To be paid: (1st) out of profits; (2nd) out J of 
 
 capital 
 
 
 (3rd) by recourse to partners individually 
 
 .. 
 
 . 
 
 42 
 
 To be made good before a declaration of a 
 
 dividend by 
 
 a 
 
 company can be made . . 
 
 .. 
 
 . 
 
 7 
 
 Machinery — 
 
 Depreciation of 
 
 Purchase-hire system 
 
 Reserve for replacement of 
 
 Working, Hours of 
 Management, Expenses of (see Expenses) 
 
 26 
 27 
 33 
 32 
 
INDEX, 153 
 
 Manufacturing Accounts — page 
 
 Cost of Production . . . . . . . . 5 
 
 Importance of Trading Account . . , . . . 4 
 Members — 
 
 Kegister of . . . . . . . . . . 71 
 
 „ may be amalgamated with Share Ledger . . 72 
 
 ,, Advantage of separate Register ,. ..(note) 72 
 
 Method of— 
 
 Dealing with Bad and Doubtful Debts . . . . 123 
 
 Keeping Companies' Accounts . . . . . , 71 
 
 „ Hotel Accounts . . . . . . . . 103 
 
 „ Share Ledgers . . . . . . . . 92 
 
 „ Theatrical Accounts . . . . . . 110 
 
 Writing up and adjusting Partnership Accounts . . 41 
 
 „ approximate Trading Account .. .. 17 
 
 ,, Deficiency Accounts .. ' .. .. 12 
 
 „ Statement of profits on average of three years . . 137 
 Method, Mr. E. H. Fletcher's lecture on, and Form in Book- 
 keeping and Accounts . . . . . . * * . . 140 
 
 Mines, Depreciation of . . . . . . . . 28 
 
 Mortgages, Interest on, how entered in Revenue Account . . 6 11 
 
 Motive plant, Depreciation of . . . . . . 26 
 
 Ofl&ce furniture. Depreciation of . . . . . . 26 
 
 Ordinary shares, Dividend on . . . . . . 7 
 
 No dividend declared on, as long as there is a loss of capital 
 
 not made good or cancelled . , . . . . 7 
 
 Outstanding assets . . . . . . . . 121 
 
 ,, liabilities .. ., .. .. 121 
 
 Partnership — 
 Adjustment of (see Adjustment of Partnership Accounts) 
 
 Capital subscribed, in what proportions . . . . 46 
 
 Dissolution of . . . . . . . . 68 
 
 Revenue Account . . . . . . . . 5 
 
 Sharing profits and losses., •• .. .. .. 8 45 
 
 Pass Book — 
 
 Agreement of balance in, with Bank Customers' Ledger . , 102 
 
 Balance in, reconciled with balance of cash in hand . . 124 
 
 Separate, for deposits on application for shares and calls . . (note) 80 
 
154 
 
 Patents — 
 
 Augmentation of Goodwill 
 
 Depreciation of 
 Petty Cash Book- 
 Advantage of Tabular form 
 Pixley, Mr. F. . . 
 Plant- 
 Cost of maintenance 
 
 Depreciation of 
 
 Purchase-hire system 
 Practice essential to a perfect knowledge of accountancy work 
 Preference Shares — 
 
 How entered in books 
 
 Interest on, payable out of the profits for the period 
 ,, how recorded 
 Preliminary Expenses — 
 
 How written down 
 
 What are , , 
 
 Premium on shares not to appear in Revenue Account 
 Prime Cost — 
 
 Remarks respecting 
 
 Day Book for recording 
 Production, Cost of 
 Profits- 
 Gross 
 
 Net.. 
 
 Partnership share of 
 
 Proposed appropriation of 
 shareholders . . 
 
 Undivided 
 Profit and Loss Account — 
 
 Forms of 
 
 Remarks respecting 
 
 Trading and . . 
 Property on hire-purchase, how written down 
 Provision for bad and doubtful debts . . 
 Purchase Money — 
 
 Journal entries for, in Companies' Accounts 
 
 Sinking fund for 
 Purchases 
 
 in a company to be sanctioned by 
 
 PAGE 
 
 25 
 
 25 
 
 100 
 
 20 72 
 
 32 
 
 25 26 
 27 
 40 
 
 96 
 
 8 
 
 97 
 
 28 96 
 
 139 
 
 20 
 
 132 
 
 132 
 
 5 
 
 5 
 6 
 
 8 
 
 9 
 
 7 
 
 9 10 
 
 6 
 
 4 
 
 27 
 
 33 123 
 
 83 84 
 
 39 
 
 5 18 
 
118 140 
 
 46 47 53 55 
 
 122 
 
 5 
 
 141 
 
 68 
 
 68 
 
 39 
 
 71 72 
 
 89 90 
 
 72 85 
 
 166 
 
 PAGE 
 
 Quarries, Depreciation of . . . . . . . . 28 
 
 Qualification of Bookkeeper. . 
 
 Eealisation of Assets 
 
 Eebate on Bills discounted, interest not earned at date of 
 
 general balancing 
 Receipts and Expenditure of a non-trading Association 
 Receiver (in Partnership disputes) — 
 Form of Cash Account 
 One of the Partners may be appointed 
 When the Court will appoint a 
 Recoupment of Capital 
 Register of Members 
 ,, Transfers 
 Registration Clerk 
 Repairs and Renewals — 
 
 How charged . . . . . . . . 2 
 
 To be charged to Revenue Account . . . . 32 
 
 Replacement — 
 By improvements, affect depreciation . . . . 31 
 
 How charged . . . . . . . . . . 2 
 
 Reserve for, of Machinery and Motive Power . . ... 33 
 
 „ of Vessels . . . . . . . . 34 
 
 When provided for by writing down, charge to Capital . . 2 
 
 When not provided for by writing down, charge to Revenue 3 
 
 Reserve Fund — 
 What it is . . . . . . . . . . 7 8 33 
 
 Specified . . . . . . . . . . 34 
 
 Amount paid on forfeited shares may form nucleus of . . 95 
 
 Retorts, Gas, depreciation . . . . . . . . 25 
 
 Return of Income Tax . . . . . . . . 137 
 
 Returns, inwards and outwards .. .. .. 6 18 
 
 Revenue — 
 Account . . .... . . . . 4 
 
 „ Subdivision of : (a) Trading; (6) Profit and Loss ; 
 
 (c) Appropriation of net profit . . . . 4 7 
 
 ,, of Charitable Association .. .. .. 5 
 
 „ differs from Cash Account, How .. * .. 20 
 
 „ Expenditure side of . . . . . . 5 6 20 
 
166 INDEX. 
 
 Revenue— page 
 
 Account, Forms of . . . . . . . . 8 9 10 
 
 ,, Income side of .. .. .. .. 5 6 20 
 
 Capital and . . . . . . . , . . 1 
 
 ,, in cases of doubt charge to Capital.. .. 2 
 
 Expenditure . . . . . . . . . . 1 
 
 Ringwood, Mr. R., on Dissolution of Partnership . . . . 69 
 
 Rolling Stock, depreciation . . . . . . . . 26 
 
 Royalties . . . . . . . . . . 29 
 
 Salaries, Remarks respecting . . . . . . 5 
 
 Sale Book . . . . .... . . 100 
 
 Sales . . . . . . . . . . . . 5 18 
 
 Secretary . . . . . . . . . . 85 92 
 
 Securities, depreciation . . . . . . . . 28 
 
 Shareholders — 
 
 Register of . . . . . . . . . . 71 72 
 
 Share Ledger Index forms — 
 
 Address Book . . . . . . . . 94 
 
 List of members without holdings.. . . . . 94 
 
 Share Ledger — 
 
 Form of . . . . . . . . . . 76 77 
 
 Method of keepmg . . . . . . . . 92 
 
 May serve as Register of Members . . . . . . 72 
 
 Shares — 
 
 Application for and allotment of . . . . . . 72 
 
 Certificate of 
 
 Must be endorsed with calls paid . . . . . . 82 
 
 Must be surrendered with Transfer Deed .. .. (note) 86 
 
 Balance . . . . . . ... . . 87 
 
 Depreciation of . . .... . . 28 
 
 Dividends on . . . . . . . . .. 7 9 96 97 
 
 Forfeited, Treatment of .. .. .. .. 94 
 
 Preference . . . . .... . . 8 96 
 
 Signatories' . . • . . . . . . . 74 
 
 Valid forfeiture of . . . . . . . . 95 
 
 Vendor's .. ... .. .. •• 74 
 
 Ships — 
 
 Depreciation of . . . • . . • . 27 
 
 Reserve for replacement of . . • . . . 34 
 Signatories to Memorandum of Association — 
 
 Important remarks as to shares . . . . . . ,74 
 
157 
 
 Sinking funds 
 
 
 
 PAGE 
 
 Necessity for . . 
 
 .. 
 
 . 
 
 39 
 
 Remarks on . . 
 
 . 
 
 , 
 
 34 
 
 Specified Reserve (see Reserve) 
 
 
 
 
 Specimens of Rulings (see Account Books) 
 
 
 
 Statement showing final adjustment of Partnership Accounts 
 
 51 54 
 
 Statistical Books- 
 
 
 
 
 List of most important : — 
 
 .. 
 
 
 71 
 
 Application for, and allotment of shares 
 
 
 73 
 
 Call Book . . 
 
 
 
 79 
 
 Register of Members 
 
 
 
 71 
 
 ,, Transfers .. 
 
 
 
 90 
 
 „ Debenture Stock 
 
 
 
 96 
 
 Share Ledger 
 
 
 
 76 77 
 
 Why so called . . 
 
 
 
 . (note) 71 
 
 Stock in hand 
 
 
 
 6 
 
 Subsidiary Accounts 
 
 
 
 6 
 
 Surrendered shares 
 
 
 
 94 96 
 
 Suspense Account 
 
 
 
 122 
 
 System 
 
 
 
 
 Of Company Accounts 
 
 
 
 71 
 
 ,, tabular bookkeeping . . 
 
 
 
 98 
 
 For adjustment of Partnership Accounts 
 
 
 41 
 
 ,, keeping Consignment Accounts 
 
 .. 
 
 
 125 
 
 „ „ Hotel Accounts 
 
 
 
 103 
 
 „ ,, Joint Accounts 
 
 
 
 126 
 
 ,, ,, Theatrical Accounts 
 
 •• 
 
 
 110 
 
 Tabular 
 
 
 
 
 Bookkeeping explained 
 
 
 . 
 
 98 
 
 System, The most simple form of 
 
 
 . 
 
 99 
 
 ,, applied to Agencies 
 
 
 . 
 
 110 
 
 Hotels 
 
 
 . 
 
 103 
 
 Rough Book 
 
 
 . 
 
 . 106 107 
 
 Visitors' Ledger 
 
 . 
 
 . 104 105 
 
 Invoice Book 
 
 
 . 
 
 108 
 
 Hotel Bill 
 
 
 
 109 
 
 Theatres 
 
 
 
 110 
 
 Cash Book 
 
 
 
 110 
 
 Day Book 
 
 
 
 115 
 
 Production Ledger 
 
 
 112 
 
158 
 
 INDEX. 
 
 Tabular 
 
 System applied to Theatres 
 
 Statement of Profit and Loss 
 „ adapted for various businesses 
 Tabular system, its advantages 
 „ ,, Objections to 
 
 „ Bank Customers' Accounts 
 „ Cash Book 
 „ Invoice Book 
 „ Journal . . 
 „ Ledger Accounts 
 „ Petty Cash Book .. .. 
 
 „ Sales Book 
 Tenure of land, &c., to be considered in calculation! 
 
 Depreciation 
 Theatrical Accounts 
 Tools, Depreciation of 
 
 Trading Account — 
 Approximate, how raised . . 
 Explanation of 
 Forms of 
 
 Trade Marks 
 
 Augment value of Goodwill 
 Depreciation of 
 Transfer of Shares — 
 Method of dealing with . . 
 Stock Exchange rule re .. 
 Transfer Deed 
 
 Certification of holding to be marked on 
 No material alterations must be made in 
 Should be properly stamped 
 
 The signatures to agree with names in body of Deed 
 The signatures must be attested . . 
 The shares must be in holding of transferor . . 
 Transfer Guard Book 
 
 ,, Index to 
 
 Transfer Receipt 
 ,, Form of 
 
 „ Special form of, recommended for purposes of certifi- 
 cation where dealings in the shares of a company 
 are frequent and numerous 
 
 PAGE 
 
 112 
 
 100 
 
 98 115 
 
 116 
 
 102 
 
 J 49 100 
 
 101 108 
 
 118 
 
 102 
 
 101 
 
 100 
 
 31 
 
 110 
 
 27 
 
 17 19 
 
 4 5 
 
 8 9 19 
 
 25 
 25 
 
 85 
 
 se 
 
 86 
 
 87 
 87 
 87 
 87 
 87 
 94 
 94 
 86 
 88 
 
INDEX. 
 
 159 
 
 Transfers, Register of — 
 
 Method of keeping 
 Treatment of — 
 
 Forfeited Shares 
 
 Hire-purchase . . 
 
 Income Tax . . 
 
 Preliminary Expenses 
 
 Repairs and Renewals 
 
 Uncompleted Consignments 
 
 „ Contracts 
 
 Undivided Profits 
 Use of the Journal 
 Useable value 
 Utensils, Depreciation of . . 
 
 Valuation of — 
 
 Book Debts 
 
 Colliery output 
 
 Freehold Land 
 
 Loose Tools and Utensils . . 
 
 Mining Property 
 Value — 
 
 Break up, of property 
 
 Working or useable 
 Van de Linde, Mr. G6rard, on Company Work 
 
 „ ,, Use of the Journal 
 
 Vendor's Shares ,, 
 Vessels — 
 
 Depreciation of 
 
 Reserve for replacement of 
 
 Wages as part cost of production in manufacturing business 
 Wagons — 
 
 Depreciation of 
 
 Hire-purchase of, How written down 
 Wear and tear of property , , 
 Working value of property . . 
 
 
 PAGE 
 
 .. 
 
 89 90 
 
 .. 
 
 94 
 
 
 27 
 
 
 137 
 
 
 139 
 
 .. 
 
 2 32 
 
 .. 
 
 . 122 130 
 
 
 . 122 131 
 
 .. 
 
 7 
 
 
 83 116 
 
 .. 
 
 27 
 
 • • 
 
 27 
 
 
 124 
 
 
 29 30 
 
 
 25 
 
 .. 
 
 27 
 
 
 29 30 
 
 .. 
 
 27 
 
 .. 
 
 27 
 
 
 96. 
 
 ll 
 
 117 
 
 •• 
 
 74 
 
 .. 
 
 27 
 
 
 34 
 
 26 
 
 27 
 
 2a 
 
 (note) 27 
 
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