THE ACCOU T¥PP KEEPER'S ;-MECUM 5. vv n^ AC of c En§ con (wit of i Cor isg At c wri del ope the A4 if tang Sprcckelg jfTun^- KS N, E.G. ^eklj^ ews- reign, 26s. 8 only medium \ccountants in Kingdom, It I Bookkeeping i^ell as Reports of Joint Stock tnerships; and Dn. newspaper. 3 of specially ions— Lectures 3t. ible addition to t each : iges. Price e Accountancy e Accountants'' es, and other which is added bjects affecting Accountancy. The Work will be in Daily Requisition in Accountants' Offices. ACCOUNTANTS' (CHARTERED) CHARGES. (Second Edition.) Price los. Sd. net. By Fras. W. Pixley, F.C.A., Barrister-at-Law. One of the great wants of Members of the Profession is a Standard work of the Charges of Chartered Accountants, to which they can refer their clients, when asked either to quote a fee for future services or to support an account of Charges already rendered. This work contains the Scale of Charges which prevails amongst the leading practising London Chartered Accountants for Auditing, making Investigations, &c. — The Charges of Liquidators. — The Charges 0/ Special Managers and Trustees in Bankruptcy, Receivers in Chancery, &c. — The Charges for Assisting Debtors and Directors of Companies in Liquidation in the preparation of the Statement of Affairs. — The Charges of Arbitrators, Witnesses, &c. ACCOUNTANTS' DIARY (Yearly), ruled, &c. Prices from IS. 6d. to I05. — Editions Nos. i, 2, 3 and 3a are specially Ruled and Headed accord- ing to the Pattern approved by most practising Accountants. the 15. 6d. contain a Directory of Accountants. All Editions except ACCOUNTANT'S AND BOOKKEEPER'S YADE-MECUM. Price ys.6d. net. By G. E. Stuart Whatley, Accountant (Exam. Inst. C.A.). The Work consists of a Series of short and Concise Articles upon Capital and Revenue Expenditure, Revenue Accounts, Deficiency Accounts, Depreciation, Reserve and Sinking Funds, Adjustment of Partnership Accounts, Joint Stock Companies' Accounts, Tabular Bookkeeping, Hotel and Theatre Accounts, and other matters not generally dealt with in existing Works on Bookkeeping, together with useful Forms and Directions. CATALOGUE OF BOOKS FREE ACCOUNTANCY BOOKS ACCOUNTANTS' MANUAL, published biennially, with Index. Subscription 3s. 6d. per annum. Vols. I., II., III., IV., V., VI., VII., VIII., now ready, price 12s. 6d. each, or 80s. the set, net. Also issued in parts every June and December, price 2s. 6d. each. jp The only complete and full set of Answers^ the Questions set at the Institute of Chartered Accountants' Examinations, dating from December 1884. These Answers are designed to give the fullest and most reliable information on each question asked, and are not merely framed with a view of showing how little information may be given by a candidate to enable him to scrape through his examination. A publication on the latter basis would not be of the slightest permanent value, whereas these Answers are compiled with a view to lasting reference, and are bound up in volumes under the title of "THE ACCOUNTANTS' MANUAL," with a copious Index. ACCOUNTANT'S COMPENDIUM, THE. Price 15s. net. (Medium 8vo., 430 pages.) By Sidney Stanley Dawson, A.C.A. Scope of Work: — Accountancy (generally), Agency, Arbitrations and Awards, Arithmetical Questions, Arrangements with Creditors, Auditing,,, Banking, Bankruptcy, Bills of Exchange, Bills of Sale, Bookkeeping, Building Societies, Carriage, Company Law and Practice (Formation, Management and Winding-up), Contracts (generally). Death Duties, Economic Questions, Executorship Accounts, Executor- ship Law, Factors, Goodwill, Guarantee, Hire-Purchase Agreements, Income Tax, Insurance, Interest (Questions involving). Investigations, Lien, Limitation of Actions, Liquidators, Manufacturers' Accounts, Partnership, Pledge, Profit Questions, Receivers, Reserves, Sale, Secretarial Matters, Shipping, Stock Exchange Terms, Stock-in-Trade (Questions affecting). Trustees, Trustees in Bankruptcy, Wills, &c., &c. ANTE-AUDIT. Price, is. each, net; ^s. 6d. |-dozen copies ; los, I dozen copies. Being the Auditor's Instructions to his Client's Book- keeping Staff. Issued in connection with the series of AUDIT NOTE-BoOKS. Nos. I, 2, and 3. It is intended that this book shall be given by the Auditor to the Bookkeeper in cases where it has not been customary for the Accounts to be audited (more especially, perhaps, in small businesses), and where, not infrequently, the Accounts are being kept in a way that does not permit of the Auditor's duties being performed without a needless drain upon his time and patience. AUDIT NOTE-BOOK. Price 6d. (net) each, 5/- per dozen, 40/- per hundred. Issued in two Series, viz. : — No. I — Suitable for a Monthly Audit. No. 2 — Produced in accordance with a suggestion received from Messrs. Turquand, Youngs & Co. Suitable for a Quarterly or Half-yearly Audit. An increased space for " Remarks " is supplied in this series, which cannot fail to prove of use. A specimen book will be forwarded (post free) 6d. Accountant's name and address will be printed on the Covers free of charge, if 100 or more copies are ordered at the same time. AUDIT NOTE-BOOK No. 3. (For Important Audits.) 48 pages. Foolscap 4to. Price is. 6d. per copy, 15s. per dozen, or 30s. for 25 copies. N.B. — If 25 copies are ordered, Accountant's name and address will be printed on cover. This series is so designed as to be suitable for any business — Manufacturing, Trading, or Financial — and to undertakings of practically any magnitude, while ample space is also afforded for notes in connection with audits that are not quite straightforward. An important feature of the present series is the space provided for entries of Ledger Balances, Trial Balance, &c., rendering the preservation of loose sheets (which so easily get mislaid) quite unnecessary. AUDITING. Fifth Edition, about 800 pages, price 21s. net. By Lawrence R. Dicksee, F.C.A, A Practical Manual for Auditors, &c. This Work has been thoroughly revised and partly re-written, and is now in every way up to date. The Legal Decisions referred to have been brought up to the beginning of the Long Vacation, 1902, and especial attention has been devoted to the consideration of the effect of the Companies Act, 1900 SPECIAL TERMS FOR PUBLISHING AUTHORS' WORKS Digitized by tine Internet Arcinive in 2007 with funding from IVIicrosoft Corporation littp://www.archive.org/details/accountantsbookkOOwhatrich 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- 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 o o o o o 3 vii lO o O 00 s }Q "{?'"' M >o m §ls S VO £■ (1) ^ cnt» Q Si ^1 Is:; S o ^t ^ CQ.i : • Q p. * * * ^ * * * 13 ■ti 13 o o o o o o o o tn . . . o o o o IH o o o o ^ i J «-+? 8 ?n ?n Q 1 I < JO -ON lO M n- w M 8 o o o o rt r^d ; Q w ca ' ' - ' ' == ~ ' ' ' ' joj paqddB o 1 88 - M M « " 1 8 8 8 sajBqs JO -ofi «^ "3 "3 ^':5 0.0-2 tn^ h 1 1 S 1 l-l Si 1 .1=1 t. > CO 1 o T3 1 a •a CO a 2 rt CQ >-l u ¥1 ^i|d ^ oh L. ^. ih 0) 5^- 0) 13 ^s^Ssor S -s ^ -s 'MM a m-. >^ >^ >, >.^'?. JO aiBQ a c o i=5 o s S "Q ~ - ~ o r-. cfl OS cd nJ rt VO o o Ov uouBoqddv "^ o G ST c ?n 6C C MO 11 JO aiBQ pire -OM > CO C/) C/3 CD W = = e J3 i-^ 0^ »* ft^ (U en Q, bo Oj S o „ C rt ra O o h h 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 CO O ^ w w -a o CO O s.^ 1 "a [0,000 9.980 9.780 s u S* z :5 - PQ U «« d § s^ ^ 10 -* -^ 00 -•-■ M C V (U 12^ : ^% - 0} o > 2 H •Ss h en ^ 1 1^ i M l-l b ^ H en 11 il : 28 K au) 2 S w •< Z's "■ rm sj^ M W ^ j,d c;z; MVO kl u H^ ■ ->-• u C n«OiNOo oio M M nB3 JO 9;Bp ana § = ».. = .= ! S. ^ = . . . . . <: 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: ^ ^ Q H # 3, being the on ED. S 1-1 s ^ s ^J £ 5h 3 "Fi -S ;3 K« » 2 1 pL, ^ Q : 2- « S ■^ 6 O u 1 1 s (/ ■=„" V-i 1 w 2 t o e of poun untof the C es in the above For The £ h :p^ 8 d a a o s S s S •pa^iuin '>iuBa aq; oj hbq jo juauiiCBd aq? qjiAv gjpua ;uas gq o; uijoj siqx 2 o 1 u o S >, o en U ^« o o P- ,o I- " c .2 ^ I . i § « s ^ 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. S 1 ^3 O O I§ w o O («•" o S?^ ir> U N onoj ^ '1- jsSpaT 9JBqs 94Bogpj83 % -f Avau JO 'o^ ^ ;^ d. & .S 2 •s§ o . o H 1(2 1 S a; c TJ 1 3 S i z (U 05 i '11 1 2 Deb. Ledger Fo. _ o S2B 8Sg 4> OJ rt .22 < G 1 > 1 EH & -3 cd 'O ^ o ^ en jH >.. _, •" en o ^ " o S S-S •:3 *j G p a CO e "• - CO O «J ctf o c B-S (u P >»o a -vo^G'g „, ■ " o "■ G - -, ac V- T) c . 'c3 nJ u &^S U) p/ o" S? — 0^ > -a ^l-SS" (u e a S 2 ^ jaSpaq 'S 'S J a • .s a 2 s TS tS ^ t« a W V- p) o VO o Wines, Spirits, Minerals, TJ o o o CT> CO O N o o o o CO o 5 T3 ^ O o o O M o (D O G en 'i-i VO VO o o o VO o Break- fast ^ O o o M o o o o Private Room or Suite I m to Si o VO o CO M O w m m o VO i 'g d ■5 t 1 1 etc i .2:; c o - !^ "^ "^ ^ 2 m gb I c HN-*tvro Ow M-WM oj VO O VO TJOVOOVOO GOVOVO O tnrofONMio VON- w ^vo O o o o\ 73 CO t^ VO T3 en lO T3 en --a •* 73 OVO OVOO OGVOVO O U3rocoNM>n von; m S^vo O o '. ^ '. o In c en « 13 en M CO 3 Q 1 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 3 tfl * ' ' 1 o •hiS 5-oS ^.iS-o Ss.: iS"r. ■^xi S» c-^ ^ o & q5 aa,-^ ^S1 rrl rt Ctf S2& 2|S ■E"'" sll ■S.sS s^"" S«5 ?^S"^ :^^ qfiS 3 O C o.t; 3 ~|8 S'fi-S OrtS yi.^ .£3.CJ3 HHH 106 THE accountant's AND BOOKKEEPEE'S VADE-MECUM. • c — >* 00 ^, W < 1 S § O >^ >^ O ^ Pi w HS — . — 73 O O OVOVO OVO vo — VO o o VO ■* >r) M U-lO^ IT '*- ^ 3 : : : : : : : : : ►4 > 2 (S -S • • • Q 6 Lunch Dinne Bottle Whisk Chartr Brand Cigar lis ^S o •* ^ • • • ■ 'S • • •?. Ul u. s eakfa Bass ciga O o P^ Pii «^: o^.-^s d3/6, nch I nner ineN hiske queur andy tenda cqjQ^^Z3m< i 13 en S 1 1 13 en •Hi 1 «" 13 en 1 • S o o Pi a rt -, o 108 THE accountant's AND BOOKKEEPEE*S VADE-MECUM. 1 c CO S[ISU9?n pUB }UEIcI XjBuipo 1 i 1^1 . Bed- ding and Linen 12 Ale, Stout, Min- erals 8! ' C tn Pro- visions £ s d 1 en -« 1 1 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 T)T3 "-■ T^ a O J. o D<"3^ Cod (/) c^qS ^ ii T! n (« o .« o -C 05 ^? -a ■3,9 >^3 So c Q^'Zt ^ ^ 8 -a ^.2 ^ en TJ «^ ents Offi nd oors en < '-' oa oiio^i J93p9T 2c & o< T) g g c U3 "-♦? Cfi jO J T) 77 T: en il 1 tJ "O • ^ : §1 Hill in T3 2 3 en 2 S 3 . -s^. ^ i ^§S ^6 .S-S — •S'S-Sb2'« ^ 1: en c • "S ca s • " : : o S. o • o : Cij 2 m fq >. o o n fa J H '1313-1-''^ T3 1 oj i: xjs Carri forwa to ne mont en c« ^_,H X) CJ3 « O en p t^H 4) =^ c g ^-° ^^i W n en"^ ^J « O 00 VO 8 si o a C/)i^ o Q PQ rt 3S|s, « III • -^Pvo , Q -w 2 o o 11-2 F-^ O o o-SB - II ll "*■ VO a s CO 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 '.■^ m u^.ti o •^ 0)' g: m ' ' ' ' o o o o « M O 0^ M t^ Tt-00 D:- • G CA) O » O o'^ 1-. u ,»- O- C Si O tJ ooo en t^vo O c8 o ct o VO O 00 '- N t^ CO d VOOOVOVIMMIH 00 m tNVO Noo o o O VOVO rOtN O 0\ J^ >0 M «S 00 M O lO T3 . • • • . . . .3 1 • .1. en G .2 S5 c 'S -S en g rt g So S" « C „- ^ J « « 2 ■• -> I M rovo '°'> •2 - p •a- ^ ;« S 5 •'• O 3 (U *^> :^^° C £ S ?i rt t: ►-' rt ■" o P o U} o u a> o Q, s I ON ■5 > Q rt£2 S I r. ^^ c o 5^ 2 ^ '=*^ t« O §,"= O 0) ■B-S w^^ v< Cxi ^"3 rt- •5 ntN.N 00 ^ 00 m N u-)io M a\ N ID moo t^ 5 s en ^ lit- •S fa^ ^ s ::3 ;== 2 « 5 ^ V i- « O^ 136 THE accountant's and bookkeepek's vade-mecum. o I (U cS o o > ^ 3^5 : a.S ". : -^ J. Sw^ O t« (u ^ -^ .5 r rt 13 1^ -n g 1-. 00 I> nl (« > 9 o • C S aj.2 G ,„ . . o ° I •- 2 Q 1-1 U rt If) ^ 3 (U O (u C en 03 _ G (U-- o sills £-Gi2«;^ ^ '" a >- o -^ 3 ti g w c/) o rt Ti aj !3Xi P-t; t! a;;G =« £r Accountant DENTS. R. DiCKSEE, Uttry, and is e it a work of Students. KSEE, F.C.A., .Bookkeeping JBookkeeping Ises specially suitable for purpose. A r themselves n. Price Accountant, together with ■ OF THE , iiu ou, HANDBOOK TO. Price 2S. /' I ^ Ci ^ / d ^nXH, A.C.A. The Book contains a full dip / J V^ » »^ (P / of the duties and fees payable upon the r /... n Duties, and, generally, the rates and particulars of all the more important Stamp Duties now in force. STUDENT'S GUIDE TO ACCOUNTANCY, THE. Price 2S. 6d. net. • The object of this work is twofold, viz. : — (a) To place impartially before Parents and Guardians the prospects offered by Accountancy as a professfon,- and the best means of securing an entrance thereto. (&) To point out to the Student the means of employing the time during his articles to the best advantage, with a view not only to passing the various Examinations with credit, but. also to obtaining a thorough and practical acquaintance with the various branches of the profession. TRUSTEES IN BANKRUPTCY AND LIQUIDATORS OF COMPANIES, A LEXICON FOR. Price 105. net. By Sidney Stanley Dawson, A.C.A., Fellow of the Royal Statistical Society, (of the firm of Dawson, Langley & Chevalier, Liverpool), Author of " The Accountant's Compendium." There is no other existing work dealing exclusively with the Rights and Duties of Trustees in Bankruptcy and Liquidators of Companies to which Practitioners can refer f )r detailed information upon the numerous points which arise in connection with these offices. Authority is quoted for practically every line in the work. TRUSTEES IN BANKRUPTCY, LIQUIDATORS AND RECEIVERS, THE LAW OF. Price 55. net. By W. R. WiLLSON, B.A. Oxon., and of the Middle Temple, Barrister-at-Law. Being a succinct statement of the law on those subjects as established by the latest Statutes and Decisions, written analytically for Students with a view to the Examinations of the Institute and Society of Accountants. AUTHORS' WORKS PRINTED AND PUBLISHED