MNIil raraiiiv UC-NRLF B ^ SIE 337 •TMSrMimi75!J!tJ!l;: LYONS' BOOKKEEPI Complete LYONS' BOOKKEEPING EDITION OF 1913 PARTS I AND II BY J. A. LYONS AND WALTER L. READ LYONS y CARNAHAN CHICAGO NEW YORK H1^5{o35 i1 fj Copyrighted 1909 by J. A. Lyons & Company Copyrighted 1910 by J. A. Lyons & Company EDUCATION PfcH, Copyrighted 1913 by Lyons & Carnahan au^ PREFACE The plan of teaching bookkeeping with business papers is a very popular one and must continue to be the favorite plan for those who wish the course to give the student, in addition to a knowledge of the principles of accounting, a familiarity with the ma- terials and the methods of a modern business office. There are in general two schemes for teaching bookkeeping by the individual "busi- ness practice" plan. The one scheme involves the use of business papers solely to accom- pany and illustrate the transactions set forth in the text. The other uses the business papers as the basis of the student's entries in his books. There is a vast difference between these two plans. The former plan makes the business papers a subordinate and auxiliary feature of the work that can be and often is slighted if not absolutely ignored. The latter plan makes the business papers the foundation of the course. The papers come to the student just as they come to him in business; from the data upon them he constructs his bookkeeping entries; and they are then systemati- cally filed and become a part of the records. Thus business papers, a knowledge of which is in itself of value, constitute the central feature of the course, and the student, through receiving them, making his entries, and disposing of them, is taught business procedure, accounting, and office methods. The plan of using business papers as the basis of the presentation of the transactions is the one which is followed in the business practice sections of Lyons' Bookkeeping and these business practice sections constitute the greater part of the course. The trans- actions are not merely illustrated by business papers, but they are based upon business papers. Preceding each of the principal sets using the business papers, a shorter section of the book, in which papers are not used, is devoted to a treatment of the accounting principles which will be involved in the work which is to follow. Thus, the student attempts no work whatever in "business practice" until he has mastered a short chapter without business papers in which he studies accounts and journalizing, and learns how to post and take a trial balance. Again, before taking up the work of the second principal set, he studies in a separate chapter, no business papers being used, the new accounting features which he will use in the second practice set. This plan of teaching accounting principles in separate chapters preceding the business practice sections dnd without the business papers, presents two distinct advantages: first, the student is enabled to concentrate upon the study of the accounting principles without any distraction, until he gets a thor- ough intellectual knowledge of the principles studied; second, the accounting principles being intellectually acquired when the student takes up the "business practice," the work of familiarizing the student with forms and driUing him in the bookkeeping operations can proceed without interruption. The student will find every step explained in detail both as to the principle involved and the procedure followed. Every difficulty is anticipated. There are no pitfalls — no ambiguities. We have avoided the introduction of puzzles and conundrums. The pupil has the right to know what every proposition is, and this right is respected through- out — he is not left to guess the intent of the authors. Nor is it presumed that he knows any of these things which he cannot know without schooling or business experience. The book was written for beginners and it is felfc that it meets fully the requirements of such a text book. 54rJ42 PREFACE TO EDITION OF 1913 Bookkeeping has been called "applied arithmetic," and for years there has been a growing tendency to teach bookkeeping from its arithmetical side. The Edition of 1913 recognizes the truth that an account is nothing more nor less than a formal statement of a proposition in arithmetic, and that the simple and only proper method of account study is that which approaches the account from its arithmetical side. The account is, therefore, approached in this way in the Edition of 1913. It has not been considered sufficient to call attention, through footnotes and in other ways, to the analogies between bookkeeping and arithmetic. The first 70 pages of Lyons' Bookkeeping have been entirely remade in order to work out the arithmetical approaches to the different accounts and statements in practical detail. Preceding the study of each account and each statement the student is given a list of problems in arithmetic which lead him into an understanding of the theory of that account or statement before he undertakes the study of it as bookkeeping. Thus the pedagogical principle of going from the known to the unknown is made fully available, and the problems themselves are made an integral part of the course, and not supplementary. Students will not secure the benefits of this carefully devised unfolding of the subject of bookkeeping, however, unless teachers fully grasp the pedagogical idea underlying it. Treated as supplementary work merely, these problems will fail of their purpose. Up to page 179, the Edition of 1913 differs in no respect from the original edition, except for the inclusion of the groups of problems found on pages 6, 10, 14, 16, 19, 22, 25, 27, 31, 33, 64 and 66. These problems have added eight pages to the length of the book, but they have been put in where they belong without the change of a word or figure else- where. The last set in the book (the Drj^ Goods set) has been changed so as to require the use of the separate merchandise accounts instead of one general account only. These are the Mdse. Sales, Mdse. Purchases, and Mdse. (Trading) Accounts. The Sales Book and the Purchase Book are both used in this set, thus making a complete classification of original entries affecting the merchandise account. It has seemed desirable to observe the same classification in the ledger accounts. A clear statement of the extent of this revision has been thought necessary for the information of teachers who are using the original edition, who are assured that no con- fusion can result from the use of the two editions in the same class aside from the minor detail of the difference in paging. LYONS' BOOKKEEPII^G CHAPTER I ACCOUNTS Bookkeeping is the science of making a systematic record of business transactions in books. A Set of Books includes all the books necessary to contain the records of the trans- actions of a particular business. This includes books of entry, books of memorandum, and books of account. The Purpose of bookkeeping is to enable those interested to ascertain at any time the condition and progress of the business. The Condition of the business is its net worth. This is shown by accounts. The condition of a business in its different parts is shown by separate accounts. These accounts, taken together, show the condition of the business as a whole. The Progress of the business is its net gain or loss. This also is shown by accounts. The separate losses and gains are shown by separate accounts. These separate losses and gains, taken together, exhibit the total loss or gain of the business. The total loss or gain for a given period of time can also be found by comparing the condition, or worth of the business at the end of that period with the worth at the beginning of the period. An Account is a list of items of a certain kind, grouped together under one head in order to show a result of some one part of the business. The Cash account shows all receipts and payments of cash. The Notes Receivable account shows all notes of other persons received and disposed of. The Notes Payable account shows all our notes issued and redeemed. A Personal account shows all transactions with a given person on account. The Real Estate account shows all real estate bought and sold. The Merchandise account shows all merchandise bought and sold. The Expense account shows all costs of expense items (and returns, if any). The Interest account shows all losses and gains from interest. The Proprietor's account shows all investments and withdrawals by the proprietor. The Loss and Gain account shows the separate losses and gains. And so on. Some accounts exhibit, by their results, the condition or worth of the different parts of the business. The result of the Cash account shows the amount of cash on hand. The result of the Notes Receivable account shows the amount of notes and acceptances on hand. The result of the Notes Payable account shows the notes payable outstanding against the business. The result of a Personal account shows how much the person owes the business or how much the business owes him. The result of the Proprietor's account shows how much the business owes to the proprietor. And so on. 5 ' y.. '.,'''.■ --<' ACCOUNTS Some accounts show, by their results, the progress of the business as to loss or gain. The result of the Real Estate account shows how much the business has lost or gained on real estate. The result of the Merchandise account shows how much the business has lost or gained on mer- chandise. The result of the Expense account shows the amcmnt of loss for expense items. The result of the Interest account shows the loss or gain from interest. And so on. The Ledger is the book of accounts. The items belonging to each account are clas- sified in the ledger, each under its proper heading. Beginning with the Cash Account, on page 7, are given descriptions of ten of the principal accounts usually found in a ledger. CASH PROBLEMS 1. During January, 1913, D. M. Libby took in $1,247.50 in cash and paid out $923.78 cash. How much cash did he have left on January 31? 2. During February, 1913, L. E. Stone received in cash the following amounts: $24.65; $52.73; $102.50; $73.49; $10.75; $82.56. He paid out cash during February as follows: $10.50, $72.69; $83.47; $53.26; $84.75; $42.01. How much cash did he have left on February 28? 3. J. H. Smith's cash transactions during March, 1913, were as follows: Mar. 1, received $15.26; Mar. 2, paid out $5.72; Mar. 4, received $10.00; Mar. 8. paid out $4.73; Mar. 10, received $5.83; Mar. 14, received $4.50; Mar. 17, received $8.73; Mar. 21, paid out $11.54; Mar. 23, received $25.32; Mar. 30, paid out $3.75. How much cash did he have left on Mar. 31? 4. State in writing, in your own words, how you find the amount of cash a person has on hand if you know what his receipts and payments of cash have been. . 5. D. R. Green began business with $21.50 in cash on April 1, 1913. During the month he took in $276.83 in cash, and paid out cash $157.86. How much cash did he have on April 30? 6. On May 1, 1913, C. W. Barnes began business with $53.47 in cash. His cash receipts during the month were as follows: $5.25, $16.72, $32.54, $31.24, $35.94, $13.21, $14.72, $17.50. His cash pay- ments during the month were: $4.25, $47.36, $3.73, $14.52, $21.14. How much did he have on hand at the end of the month? 7. Ralph M. Gray began business on June 1, 1913, with $46.72 in cash. He received and paid out during the month in cash as follows: June 2, received $10.25; June 3, paid out $28.75; June 7, received $32.00; June 16, paid out $34.50; June 22, received $24.35; June 29. received $1.23. How much did he have on hand June 30? 8. A. L. Black began business on July 1, 1913, with $50.00 in cash. During the month of July his cash receipts and payments were as follows: July 3, received $5.67; July 5, received $8.92; July 8, paid out $5.00; July 9, received $10.25; July 12, paid out $5.50; July 12, received $6.25; July 15, received $7.50; July 18, paid out $4.25; July 19, paid out $5.27; July 20, received $22.50; July 21, paid out $3.85. How much cash did he have on hand on July 31? 9. State in writing how you would find the amount of cash a person has on hand if it is known (a) How much cash he had at the time of beginning business; (b) What his receipts of cash have been since then; (c) What his payments of cash have been since then. 10. A. L. Black had on hand Aug. 1, 1913, the same amount of cash as he had on July 31, as deter- mined in problem 8. During August he received cash totaling $342.63, and paid out cash totaling $223.47. How much did he have on hand on August 31? 11. On September 1, 1913, A. L. Black had on hand the same amount of cash as he had on Aug. 31. His receipts and payments of cash during the month were as follows: Sept. 2, received $10.25; Sept. 3, paid out $2.24; Sept. 6, received $17.68; Sept. 8, paid out $4.50; Sept. 10, received $23.75; Sept. 15, received $1.72; Sept. 16, paid out $4.83; Sept. 18, paid out $4.50; Sept. 21, received $43.25; Sept. 22, paid out $2.50; Sept. 23, paid out $2.50; Sept. 24, paid out $2.50; Sept. 25, paid out $2.50; Sept. 26, received $2.50; Sept. 27, paid out $2.50. How much cash did he have on Sept. 30? 12. A. L. Black had the same amount of cash on Oct. 1, 1913, as he had on Sept. 30, but during October he took in $252.70 in cash from sales of merchandise, received $150.00 in cash from persons THE CASH ACCOUNT / who owed him, found a $10.00 gold piece, paid $100.00 in cash to people whom he owed, paid $220.25 for expenses, and through his cashier's mistake in making change lost $2.00 cash. How much cash did he have on Oct. 31? 13. State in writing how to find the amount of cash a person has on hand if you know : (a) How much he had on hand at the beginning of the month (or other period); (b) How much cash he has received during the month (or other period); (c) How much cash he has paid out, lost or otherwise disposed of during the month (or other period). ,,_- — V THE CASH ACCOUNT Purpose: To show the receipts and payments of cash. Method: Debit the account when cash is received. Credit the account when cash is paid out. Result: The difference between the two sides is the amount of cash on hand. Illustrative Exercise: 19— Sept. 1. ^Received cash from H. M. Strong, the proprietor, $2,000.00. 2. Paid cash for merchandise, $750.00. 3. Paid rent for September in cash, $50.00. 4. —Received cash from sales of merchandise, $60.00. 5. Paid cash for our note due to-day, $220.00. 6. Received cash- from John Doe on account, $23.50. 8. Paid janitor's wages in cash, $7.50. 9. Received cash for house and lot, $4,000.00. 10. Paid cash to Richard Roe on account, $100.00. 11. Received cash for interest on a note, $10.50. / Illustration ( '^^L.d^^Z^ / f~ yf- J>at» f ■ fi^lmt**tt«i% ^STu WmpuA ZOO 23 ^OOO /O fo J>att ■ 2- 3 J- n*unt yso so 220 7 / oo so /J<:^.<^i^.y>'l^^^ 30 Aj £Z,.'€^€Z^^?'7^'Oe^ ^ ^ad^ ro do'f^ Off ^7 '^ " 6 oai^

tS^r?Ut^'i'Zy \zJlnyi^€^^yi.tkH^ / X^-e^ 7 z^ /(T 6o zsoo ^c? 6o j-o ^000 ZJ- /d'^o 6o ZSoo Co ^000 s-0 Explanation: Applying the rule for debiting and crediting accounts to the first trans- action, we find that the merchandise account is to be debited $25.00 and the cash account is to be credited $25.00. This debit and credit is indicated in the journal entry hy position. The debit item is written on the first line, the name of the account being written at the ex- treme left of the wide space, and the amount being written in the left hand column. The credit item is written on the line below, the name of the account being indented to about one and a half inches from the left margin, and the amount being written in the right-hand money column. Sometimes a light line is ruled down the page to show where to write the name of the account credited. (If the wide column is ruled squarely down the middle, do not use this ruling as a guide line, as you need more space for the credit entry.) In any case this margin should be precise. This relative position should never be even slightly varied, as debit and credit are indicated in the journal by position alone. THE JOURNAL 37 The date of the transaction is written above the entry in each case, as shown in the illustration. Leave blank the narrow columns at the left — their purposes will be explained later. The first date on each page is written out in full, including the month and year. Other dates on the page may be shown by figures only. When there are more than one debit or more than one credit, they should be shown as in the following illustration. Illustrative Exercise: 19— Sept. 1. Sold J. H. Perkins, 680 La Salle St., house and lot, No. 226 Monroe St., for $3,000.00. Received in payment cash, $1,000.00, and his note due in two years for $1,000.00. Charged him $1,000.00 on account. 4. Bought of Henry Turner, 723 Polk St , 20 brl. flour at $8.00, $160.00. Paid him cash, $60.00; balance on account, $100.00. 9. Sold R. Snyder 3 shares Illinois Central Railroad stock at $125.00, $375.00, and 1 share Union Bank stock, $200.00. Received in p.ayment his note at 30 days for $200.00, and cash for balance. (Accounts are kept with Union Bank Stock and /. C. R. R. Stock.) • Illustration ....-'t^L.J.'-P^ /^il,<£-6^. 9? ^£^(2^. /ooo /ooo /io 3y^ Joao 6o / 0(? 3-/^ zoo 38 ACCOUNTS When recording the first transaction with any person, write the person's address in the journal, just opposite or just beneath the name, in a small, neat hand. Transactions to be Journalized 19— Jan. 1. Richard A. Strong has this day commenced business with a cash capital of $2,000.00. 2. Bought of Caldwell & Perkins, 723 S. Clark St., for cash, 150 lb. Elgin creamery butter at 33^^, $50.00; 75 lb. maple sugar at 15^, $11.25; 25 lb. Royal Ceylon tea at 40^, $10.00; 25 lb. Santos coffee at 18^, $4.50; 125 doz. eggs at 30^, $37.50. Total, $113.25. 3. Bought of H. C. Harriman, Winona, Minn., on my note at ten days, 50 brl. Ceresota flour at $5.50, $275.00; 75 brl. Ben Davis apples at $1.75, $131.25; 150 bu. Burbank potatoes at 80^, $120.00. Total $526.25. 4. Sold to J. D. Williamson, 3186 Westminster Ave., for cash, 50 lb. Elgin butter at 35^, $17.50; 25 brl. Ceresota flour at $5.75, $143.75; 20 brl. Ben Davis apples at $2.00, $40.00. Total, $201.25. 6. Bought of W. N. Furbeck, San Francisco, Cal., for cash, 200 boxes Cali- fornia grapes at 25^, $50.00; 50 boxes California navel oranges at $1.60, $80.00. Total, $130.00. 8. Sold to James Duncan, Hammond, Ind., on account, 80 lb. Elgin butter at 40^, $32.00; 100 doz. eggs at 32^, $32.00; 100 bu. Burbank potatoes at 75^, $75.00; 25 brl. apples at $2.10, $52.50. Total, $191.50. 9. Received from James Duncan on account, cash, $100.00. 10. Bought of E. E. Beaver, 425 S. Water St., 100 boxes California grapes at 40^, $40.00; 50 boxes oranges at $2.00, $100.00; 250 lb. maple sugar at 20^, $50.00; 25 lb. Royal Ceylon tea at 50^, $12.50. Total, $202.50. Gave in payment cash, $50.00; my note at 30 days for balance, $152.50. 13. Paid H. C. Harriman for my note of the 3d inst. Face of note, $526.25. Gave in payment 50 boxes oranges at $2.25, $112.50; 100 boxes Cali- fornia grapes at 50^, $50.00. Total, $162.50. Cash for balance, $363.75- 15. Paid cash for rent of store for the current month, $50.00. (Debit Expense.) 16. Bought of Washburn-Crosby Co., Minneapolis, Minn., on account, 50 brl. Gold Medal flour at $5.60, $280.00. Paid cash for freight on the ship- ment, $11.40. (Two entries. The freight is considered a cost to Mdse.) 18. Bought of Diebold Safe & Lock Co., 194 Fifth Ave., on account, a burglar- proof safe for my office, $100.00. (Debit Furniture & Fixtures.) 20. Received of James Duncan cash, $75.00, to apply on account. Sold to Thompson & Smith, 443 W. Randolph St., on account, 25 brl. Gold Medal flour at $6.00, $150.00; 25 doz. eggs at 44^, $11.00; 50 bu. Bur- bank potatoes at 75^, $37.50. Total, $198.50. POSTING TO THE LEDGER OR BOOK OF FINAL ENTRY You have learned that all the original entries in the journal are made in the order of their occurrence and that they are later transferred to the ledger or book of final entry, EXERCISE IN JOURNALIZING 39 where they are classified in proper accounts. The process of transferring these items is called posting. The process of posting from the journal to the ledger may be better illustrated than defined. You will therefore journalize the transactions for February and follow closely the instructions for posting. Transactions 19— Feb. 1. (Student) commenced business this day with a cash capital of $3,500.00. 2. Bought from Bronson & Baker, 1625 Dearborn Ave., 50 doz. men's linen shirts at $10.00, $500.00; 100 doz. lac^ies' linen handkerchiefs at$2.50, $250.00; 2 cases paper cambric, 4,000 yd., at 10^, $400.00; 200 yd. bleached cotton at 10^, $20.00. Total, $1,170.00. Gave in payment my note at 9 days for $600.00; cash for balance, $570.00. 3. Bought from J. V. Farwell & Co., 148 Market St., on account, 50 yd. Irish linen at 40^, $20.00; 100 yd. sheeting at 11^, $11.00. Total, $31.00. 4. Sold to W. O. Thomas, First National Bank Building, on account, 10 doz. men's linen shirts at $12.00, $120.00; 5 yd. Irish linen at 50^, $2.50. Total, $122.50. 5. Sold to D. Nugent & Co., St. Louis, on their note at 30 days, 1 case paper cambric, 2,000 yd., at 11^, $220.00; 10 doz. ladies' linen handkerchiefs at $3.00, $30.00. Total, $250.00. 7. Bought from Wanamaker & Sons, New York, on my note at 30 days, 1,000 yd. gingham at 10^, $100.00; 55 yd. black silk at $2.75, $151.25; 100 yd. broadcloth at $3.75, $375.00. Total, $626.25. 9. Sold to G. B. Fairchild, Omaha, on account, 30 yd. black silk at $3.00, $90.00; 15 yd. Irish linen at 55^, $8.25. Total, $98.25. 11. Paid Bronson & Baker cash for my note of the 2d inst., $600.00. 12. Sold to Henry Russell, Milwaukee, Wis., on account, 50 yd. sheeting at 12^, $6.00; 200 yd. gingham at 12^, $24.00; 10 doz. men's linen shirts at $12.00, $120.00. Total, $150.00. 15. Sold to Chas. W. Harms, 2329 Michigan Ave., for cash, 14 yd. broadcloth at $4.00, $56.00; 1 case paper cambric, 2,000 yd. at 12^, $240.00. Total, $296.00. Bought of J. B. Clark, 5711 Wabash Ave., store and lot, No. 185 Lake Street, for $4,000.00. Gave in payment cash, $2,000.00; my note at 60 days for $2,000.00. Total, $4,000.00. 16. Received cash from W. O. Thomas, on account, $75.00; also $50.00 from Henry Russell on account. (Separate entries.) 18. Sold to G. B. Fairchild, Omaha, Neb., on account, 100 yd. bleached cotton at 12^, $12.00; 20 doz. men's linen shirts at $12.50, $250.00. Total, $262.00. 19. Received from Henry Russell, Milwaukee, his note at 30 days to cover his account, $100.00. 20. Sold to F. E. Arnold, 1801 Michigan Ave., 20 yd. Irish linen at 50^, $10.00; 800 yd. gingham at 12^, $96.00; 16 yd. broadcloth at $4.00, $64.00. Total, $170.00. 40 ACCOUNTS Feb. 22. Received of G. B. Fairchild, on account, cash, $125.00; his note at 31 days for $200.00. Total, $325.00. 23. Paid taxes on store and lot No. 1317 State St., for current year, in cash, $18.30. (Debit Expense.) 24. Received cash of W. O. Thomas, on account, $45.00. 25. Sold to Henry Russell, on account, 50 yd. sheeting at 13^, $6.50; 50 doz. ladies' linen handkerchiefs at $3.00, $150.00. Total, $156.50. 26. Received cash of F. E. Arnold, on his account, $100.00. Paid Wanamaker & Sons cash on my note of the 7th inst., $450.00. 27. Sold to W. O. Thomas, on account, 10 doz. men's linen shirts at $12.00, $120.00. 28. Paid cash to L. H. Carter for 2 tons of coal for use in the store, at $6.50 per ton, $13.00. Received of D. Nugent & Co., cash on their note of the 5th inst., $150.00. Received cash of the following persons on account: G. B. Fairchild, $20.00; F. E. Arnold, $40.00; W. 0. Thomas, $50.00. Paid cash for the following expenses: Clerks' wages to date, $60.00; gas bill for the month, $10.80; advertising in the "Times," $12.00. Total, $82.80. Open accounts in the ledger as follows, allowing for each account one line for the head- ing, one line for the ruling, and for the entries the number of hues indicated below: Page 1. Student (your name), 5 lines; Merchandise, 13 lines; Real Estate, 5 lines; Expense, 5 lines. Page 2. Cash, 14 lines; Notes Receivable, 5 lines; W. 0. Thomas, 5 lines; G. B. Fairchild 5 lines. Page 3. Henry Russell, 5 lines; F. E. Arnold, 5 iines; Notes Payable, 5 lines; J. V. Farwell & Co., 5 lines. In opening accounts with persons, write the address on the double-ruled line just below the name. Write in a small, neat hand, far enough toward the right side to leave room for the year date of the credit side. The first transaction in the journal is: February 1, 19 — Page 1 Folio Debit Account Cash Credit Account Student Debit Amo 3500 unt 00 Credit Amo unt 3500100 Note that the Folio column is left blank at the time of making the entry. Posting The first item in the first transaction is Cash Dr. $3,500.00. Enter this amount in the cash account on page 2, on the debit side. Write the date in the date column and the amount in the money column, as instructed in working the cash account on pa^e 6. In the explanation column in the ledger write the name of the account credited in the same transaction. (In this case, the student's account. The explanation would, there- fore, be the student's name.) POSTING 41 In the folio column in the ledger write the journal page from which the entry was trans- ferred (1). In the folio column of the journal write the ledger page to which the entry was trans- ferred (2). Post the credit side of the same transaction. Enter the credit in the student's account, writing the date in the date column, the word "Cash" (the name of the account debited) in the explanatory column, the journal page (1) in the folio column, and the amount in the money column, all on the credit side, of course. Then enter the ledger page on which the student's account appears (1) in the folio column of the journal. When the first transaction has been posted, the cash account and student's account in the ledger will look like these: CASH 19— Page 2 The folio column in the journal will contain the figure 2 opposite the word "Cash," and the figure 1 opposite the word "Student." Post the second transaction in the same way. Debit the merchandise account $1,170.00, writing in the explanation column the words "Cash & Notes Pay." (the names of the credit items). Write the journal page in the folio column of the ledger, and the ledger page in the folio column of the journal. Post the $600.00 to the credit side of the notes payable account and the $570.00 to the credit side of the cash account, using the explanation "Mdse." in each case. Always write the journal page in the ledger and the ledger page in the journal in the folio column, opposite the item, at the exact time of posting. The explanation used in the ledger when posting from the journal, consists of the name or names of the account or accounts affected on the side of the transaction. If there are too many of such names to write in the small space allotted, use the word " Sundries," which means " Several." Do not fail to put the page numbers in the folio columns at the precise time of posting. These page numbers not only serve as references from one book to the other, to be used in tracing items from the journal to the ledger or vice versa, but they have another purpose which is quite as important: The entering of the page shows that the transaction has been posted, and great caution should be taken to enter it at the precise moment the posting is done, in order to prevent error. For if the bookkeeper should put down his page mark in the journal in advance, intending to make his entry later, he might forget, and the posting would be omitted. On the other hand, if the bookkeeper should post all his entries, intending to put his page marks in later, he would never know what had been posted and what had not been, and might either omit an item or get one posted twice. Leave nothing to memory. Enter the pages in both journal and ledger at the precise moment the posting is done. Do not ignore this instruction. Neglect of this causes bookkeepers and bookkeeping students more trouble than any one thing pertaining to the . detail of bookkeeping. Post the rest of the transactions. 42 ACCOUNTS THE TRIAL BALANCE In every transaction there has been an even exchange. There have been equal debits find credits in the journal for every transaction. The debits posted to the ledger have, therefore, exactly equalled the credits posted to the ledger. It follows that the total debits must equal the total credits, if no mistake has been made. The trial balance is a list of the ledger accounts and the total debits and credits of each, prepared for the purpose of ascertaining whether the total of the debits actually equale the total of the credits. If it does, the ledger is said to be "in balance." ^.J^^l^t^^Z^ /C> <^:l^C^^^ zf: Z^- y ??? n ? ?? ? r?? ??? F? ? ff??? IS ?f LL /6zsis ? f ? ? ? ? ? ? / / ?n ? ? ? ? ? ? ? ? ? / u. ??/? / ? > n LL The above trial balance is taken from the ledger footings after the transactions for February have been posted and before any accounts are closed. The amounts are to be ascertained by you. Add the debit side and the credit side of each account in the ledger. Place the footings in the money columns, in small, neat lead-pencil figures close to the last figure in the column in each case. Then make a list of the accounts, under the heading "Trial Balance, Feb. 28, 19 — ," writing the total debits and total credits opposite each account in the list. In the Folio column, place the ledger pages on which the accounts appear. Rule a single red line under the last item in the trial balance, and foot the columns. The footings of the two sides should be equal. Rule a double red line. under the footings. THE TRIAL BALANCE 43 If the debit and credit totals in the trial balance are not equal, some mistake has been made. The mistake may be in addition; it may be in posting. You must find it. To find your error, proceed as follows: Add the trial balance again. If you find your addition to be correct, compare the amounts in the trial balance with the lead-pencil footings in your ledger. As you find each amount to have been correctly entered in the trial balance, and on the proper side, place a neat check mark ( i^ ) opposite the amount in the trial balance and another opposite the footing in the ledger. The mistake still remaining undiscovered, add your ledger columns again carefully, adding downward if you added upward the first time. Then check all debit items in the ledger against debit items in the journal, placing check marks opposite each entry in the ledger and in the journal as you find them to agree. Then check all credit items in the ledger against corresponding credit items in the journal. This checking should be done backward, from the ledger to the journal, not from the journal to the ledger. Last, inspect all transactions in the journal, to be sure the debits and credits in each trans- action are equal. Inspect the ledger, journal, and trial balance to be sure that everything is checked and nothing checked twice. The advantage of this plan of checking is that you have gone over every step of your work in posting and addition in an order reverse from that in which the work was done. If the checking has been carefully done, you have discovered the mistake. When you have secured a trial balance, hand in your work. Do not attempt to close any accounts at this time. Teachers' Note. — Additional practice in journalizing is provided for in the exercises on accounts. If it seems desirable, require the students to journalize the transactions in these exercises, using loose sheets of journal paper for the purpose. The additional practice thus secured will be of great value to them, as they cannot be too well grounded in journalizing. Even if their work in journalizing has been well done thus far, they have probably had to sUidy it very carefully and work slowly. They ought to be able, before proceeding further, to journalize rapidly unthoiU error. When journalizing transactions has become almost second nature to them, their minds can be free to grasp the meaning and use of the business papers which will be introduced in'Chapter II, and free to grapple with the more difficult prob- lems in accounting which they will encounter. Review Qttestions. 1. What is bookkeeping? 2. What is its purpose? 3. What is meant by the "condition" of the business, and how is it shown? 4. The "progress" of the business? 5. Name 6 accounts which exhibit condition. 6. Name 4 which exhibit progress. 7. What is the ledger? 8. What is the purpose of the cash account? 9. The method of debiting and crediting it? 10. The result shown? 11. How is the account closed? 12. TVTiat is a promissory note? 13. Name the parties to a note and give definitions. 14. What is an endorsement? 15. What is the purpose of an endorsement of a note? 16. Name the parties to an endorsement and give definitions. 17. When is a promissory note a "note receivable?" 18. When is it a "note payable?" 19. Answer questions 8, 9, 10, and 11 as applied to the notes receivable account. 20. Answer questions 8, 9, 10, and 11 as applied to the notes payable account. 21. Answer questions 8, 9, 10, and 11 as applied to personal accounts. 22. What is an inven- tory? 23. Answer questions 8, 9, 10, and 11 as applied to the real estate account. 24. WTiat is done with the two red ink entries of an account closing with an inventory and a loss or gain? 25. What is merchandise? 26. Answer questions 8, 9, 10, and 11 as applied to the Mdse account. 27. "VVTiat are expenses? 28. Answer questions 8, 9, 10, and 11 as applied to the expense account. 29. What is interest? 30. Answer questions 8, 9, 10, and 11 as applied to the interest account, 31. When is an inventory placed upon the debit side of an account? Wien upon the credit side? 32. Answer ques- tions 8, 9, 10, and 11 as applied to the Loss & Gain account. 33. Answer questions 8, 9, 10, and 11 as applied to the proprietor's account. 34. WTiat are books of original entry? 35. What are books of final entry? 36. WTiat are aiixiliary books? 37. What is meant by "a business transaction"? 38. What is double entry bookkeeping? 39. Give the general rule for debiting and crediting accounts. 40. What is the journal? 41. What is journalizing? 42. How are debits and credits indicated in the journal? 43. When should an address be written in the journal? 44. Why are entries transferred from the journal to the ledger? 45. What is the process of transferring entries from the journal to the ledger called? Describe it. 46. What is the trial balance? 47. How do you proceed to find errors in posting? CHAPTER II PRACTICAL OFFICE WORK AND BOOKKEEPING THE STUDENT AS BOOKKEEPER BUSINESS FOR JANUARY, 19— January 1, 19 — . D. B. Stewart has today engaged in the flour and feed business at 377 Adams St., Chicago, III. You have been installed as bookkeeper and cashier at a salary of $20.00 per week. You are bojkkeeper and cashier because you are to have charge not only of the books, but of the cash as it is received and paid out. You are to look to Mr. Stewart, however, for authority to pay out cash; and Mr. Stewart will sign all checks. Transaction No. i Mr. Stewart hands you $10,100.00 in cash, which he wishes to invest in the business- The cash will be found in the envelope marked "Currency," which accompanies your outfit. Take from it one $100.00 bill and a slip marked, "This slip represents $10,000.00 in cash." Bookkeeping. Journalize the transaction and make your first journal entry, following it by a complete explanation, as shown in the illustration. Journal Entry with Explanation /. /f. /o/oo .-^.yT^Z^ <2^cl.^lJi^ JO/00 37 7 C/i^^'Ctyyn^ -'SzU:; C.^'A^c^C-tz-^^ , ^J^-v^., a^yv-e/ ■^■^^v-m-J Note. In the preliminary chapter on accounts and journalizing nothing was said about the expla- nation. This explanation should follow every journal entry and should always be full and complete. No fault of bookkeepers causes greater confusion and more misunderstandings than that of making journal explanations which are not complete or are not clear. Leave nothing to the memory or the imagination. Explanations should be worded in every case so as to show our side of the transaction. When we buy Mdse. of Smith, the explanation should read "Bought." When Jones pays us, the explanation should be "Received." And so on. Erasures in the journal are positively forbidden. In the absence of instructions, apply to your teacher in case of an error. Strive not to make errors. Be neat and orderly in 44 DEPOSITING 45 everything pertaining to your work and you will thus greatly diminish the chances of error. Be sure that you know what is to be debited and what is to be credited before you make an entry. If in doubt, write your entry out on a separate slip of paper and show it to your teacher for approval before writing it in your journal. Filing. Accompanying your outfit you will find a filing device consisting of a number of sections, each marked to show what it should contain. One of these sections is marked "Cash Register." Place in it the $10,100.00. Legal point. The journal is the only book of original entry used this month. It is the book in which entry is made in the first place — at the time of the transaction in each case. It is therefore the only book which will be received in evidence in a suit at law, because the law refuses to accept books in which entries were made subsequent to the transactions, or books to which transactions have been transferred, if a book of original entry can be secured. This, it will be seen, furnishes one good reason why erasures in the journal are forbidden — an entry which has been erased and patched up would, of course, not be acceptable as evidence. The Day Book. The old-fashioned way was to make memorandums of all transactions in a "Day Book" in the order of their occurrence, afterwards making the required entries in the journal and other books, from which posting could be made to the ledger. This necessitated an additional step in the bookkeeping. The explanatory journal combines the old-fashioned day book and journal and saves time. Some bookkeepers still cling to the day book. Transaction No. 2 ^ Deposited with the Merchants Exchange Bank at Account of January 1. Mr. Stewart has made arrangements to open a checking account with the Merchants Exchange Bank. He instructs you to deposit $10,000.00. Business point. It is not prudent to keep a large sum of money in your cash register. The bank is the proper place to keep all funds beyond what cash is necessary for making change. Nearly all business firms deposit every day. The bank becomes responsible for the funds in its possession and will pay them out as you order by your checks. Procedure. Fill out a deposit slip like the one here shown, a pad of which has been secured at the bank. Present the slip and the $10,000.00 to the receiving teller at the bank. The Bank is glad to furnish deposit slips, check- books and pass-books to its customers free of charge. You will find all these things among the supplies fur- nished you with this set. Filing. The deposit slip and the $10,000.00 are to be placed in the outgoing papers sec- tion of the file. Thia corresponds to leaving them at the bank. Teacher's Note. If your school has no bank, ap- point some student as banker. Instructions given in the text will show him how to receive the deposits, and make the pass-book entries. Some teachers prefer to authorize each student to act as his own banker, but this is confusing to the pupil, if not positively dangerous. No teacher should do this with- out being extremely careful to impress upon the student the fact that he is not acting for himself, but £or another, in doing the work. CurrtiKj,. dill, Chttis, . / O 000 46 PRACTICAL OFFICE WORK AND BOOKKEEPING Many business houses make it a rule to keep duplicates of all deposit slips, as these would contain records of detail which the bare entry in the pass book would not show. If a depositor forgets his pass book, he may secure a duplicate deposit slip and hold it until the deposit can be entered in the pass book. Bookkeeping. No entry is required in the books for this transaction. Cash in the bank is considered as on hand just the same as if it were in the cash register. In order to know the amount of cash on hand at any time it is necessary to add the amount in the bank to the amount in the cash drawer. Just now, $10,000.00 is in the bank, and $100.00 is in the cash drawer, making a total of $10,100.00, as shown by the cash account. Whenever cash is paid out of the cash drawer, or drawn out of the bank by check, cash is credited. Legal and Business Points. Banks are glad to receive deposits. The money so deposited is used by the bank in its business, and as an important part of its business is that of making loans at interest, it is amply repaid for its trouble in receiving deposits, caring for the money and paying the checks, by the interest it is able to earn on the balances remaining in the bank. Large depositors can demand and obtain interest on deposits left in the bank for a considerable time, though most banks will not pay interest on accounts against which checks are drawn from time to time. Mr. Stewart is not to receive interest, as he plans to check against his account. Some banks in large cities do not wish to be bothered with small accounts and will not accept them- THE PASS-BOOK The cover of the bank pass-book reads: ^ierchants Exchange Bank of In account with In the first blank line write the name of the city, — Chicago. In the second blank line write the name D. B. Stewart. In the lower left-hand corner of the cover write your name and write the name of your school imme- diately below it. When the receiving teller of the bank has entered your deposit in the pass-book, it will appear as shown in the illustration below. Merchants Exchange Bank In Acc't With D. a 5toar/ 19— Jan. 1 Deposit 10000 Note. The entry in the pass-book constitutes the bank's receipt for the money. The purpose of the pass-book is to contain a list of these receipts as deposits are made. When Mr. Stewart made his arrangements with the bank he was required to leave his signature at the bank. No other signature will be honored on a check. You are to make out the checks and take them to Mr. Stewart (represented by your teacher) for his sig nature. At the option of the teacher, the student may be allowed to sign the checks himself, thus: "D. B. Stewart, by (student's name)." This will save time, but is not as good a practice. Most banks would require a written authorization, called Power of Attorney, before honoring checks so signed. The Power of Attorney gives the employee power, as attorney for the employer, to do the thing or things specified in it. ISSUING A NOTE 47 THE CHECK-BOOK STUB You are to keep a record of transactions with the bank on the check-book stub. Your first entry on the check-book stub will be, "Deposit, Jan. 1, 19 — , $10,000.00/' as shown in the illustration on page 42. Transaction No. 3 January 1. A cash register has been delivered to-day by the National Cash Registey Company. Mr. Stewart has examined the cash register and found it to be in perfect condition, and the invoice correct as to amount and terms. He has therefore placed his "O. K." upon the invoice in the lower left-hand corner, thus: "0. K. — D. B. S." He hands you the invoice. The invoice will be found in the pad of incoming papers. It is the first paper that has been received and will be the top paper in the pad (Incoming Paper No. 1). Detach the invoice from the pad. Observe that the terms on which the cash register was sold are "Note 30 days." You will, therefore, detach a note from the pad of blank notes, after filling it out properly, and present it for signature to Mr. Stewart. Turn to page 9 for instructions as to filling out a note. This one does not bear interest. Make it payable at "my office." Mr. Stewart will sign the note. [Your teacher will sign Mr. Stewart's name or authorize you to sign "D. B. Stewart, by (your initials)."] Before detaching the note from its stub, fill out on the stub a record showing the number of the note, to whom and for what it was issued, its date, the length of time it is to run, the due date, and the amount. Bookkeeping. Make the journal entry, charging the amount to "Furniture and Fix- tures." When you open your ledger, an account will be opened under this title, which will be debited with the cost of all furniture and fixtures. Your explanation in the journal should be, "Bought of the National Cash Register Co. on our 30-day note, one cash register No. 350-C. Their invoice No. 235." This last refers to the invoice number which the National Cash Register Co. has placed upon the bill in the upper left-hand corner. Filing. Pin or otherwise attach the note to the invoice, and mail the two by placing them in the outgoing papers section. If you use a pin, be sure that its point is hidden between the two papers, so that it will not prick the fingers of one opening the envelope. ^^ Business Note. It is customary for business houses to number serially their invoices of goods sold. ' This is a means of quickly identifying a bill and furnishes a convenient reference. In correspondence a bill is referred to as "Invoice No. — ." This fully describes the bill without a long enumeration of date, items, etc. Mr. Stewart expects you to employ a similar system of numbering invoices when goods are sold. Note. The bookkeeping entry should always be made before the papers used in the transaction are filed, as the papers not only contain the information necessary for the entry, but serve as a reminder that the entry has not been made. Always make the journal entry at once, if possible. \ Business Point. Do not underestimate the importance of filing all papers promptly and systemat- \ically. The difference between a good bookkeeper and an incompetent one often lies in the ability of tfie former to find quickly any document he wants. 48 PRACTICAL OFFICE WORK AND BOOKKEEPING Transaction No. 4 January 1, Mr. Stewart hands you an invoice of furniture and fixtures which he has to-day received and O. K.'d (Incoming Paper No. 2 in the pad of incoming papers). Observe that the terms of this bill are "On account." You will, therefore, make a journal entry crediting The Macey Co., 82 Wabash Ave., Chicago, III, and file the invoice in the section marked, "Invoices Payable." In your journal entry refer to the invoice as "Their No. 2457." Transaction No. 5 January 1. Mr. Stewart asks you to make out a check for $125.00, for the rent of the store for January. The check is payable to J. B. Olmstead, the owner of the building. Make out the check, all except the signature, as shown in the illustration, and hand it to D. B. Stewart (represented by your teacher) for his signature. (Your teacher will give instructions as to how this signature is to be secured.) Form of Check rof ^'JA Aj( yi- A.SE> From. J. B. Olmstead To D. B. Stewart January i -19- To- December J T -19- "Briefing" the Lease. By this is meant writing on the back of the paper in a concise, brief form, the nature of its contents. On the back of the lease you will find a printed form which is to be filled in with this information. When you have filled it in, it will read as shown in the illustration. Fold the lease so that the briefing on the back will be on the outside when it is folded. File the lease in the section marked "Miscellaneous Incoming Papers." Business Point. It is usual and best to have the lease drawn up in proper form before the building is occupied. But in this case Mr. Stewart took possession first, and the lease followed as a matter of form. A verbal agreement without the formality of a written lease would be binding in most states for any length of time less than one year. It is better in any case, however, to have a written lease, thus avoiding misunderstandings and disputes. Bookkeeping. In journalizing the entry, be sure that your explanation shows that the payment was for the January rent. A sufficient explanation would be, "Paid rent for Jan., 19—, by Ck. No. 1." Filing. Deliver the check to Mr. Olmstead by filing it in the section marked "Outgoing Papers." Mr. Olmstead gives you a receipt (Paper No. 3 in the pad of in- coming papers). Examine the receipt to see that it is properly made out and file it in the section marked "Receipts." The National Cash Register Co. has returned the invoice paid today, receipted. That is, with the words, "Paid by note Jan. 1, 19 — , National Cash Register Co., by A. B." written on the bottom of the bill. You may take this paper from the outgoing papers file, have the notation made on the bottom (by your teacher or someone authorized by him to act for the National Cash Register Co.), and file it in the section marked "Receipts." Leave the note in the outgoing papers section. Transaction No. 6 January 1. Mr. Stewart hands you an invoice for goods received today from the Pillsbury- Washburn Flour Mills Co., 135 Adams St., City. (This is Paper No. 4 in the pad of incoming papers.) Mr. Stewart has O.K.'d the invoice. He instructs you to look for this O. K. on every bill before making any payment or any entry on your books. Verify the multiplications and addition of the bill. MAKING OUT AN INVOICE 51 The terms of the invoice are "Net Cash." This means you are to pay the bill at once in cash without deduction. Write out a check for the amount, and hand it to Mr. Stewart (your teacher) for his signature, or sign it yourself, as your teacher may direct. Bookkeeping. You need not itemize the bill in the journal explanation, because the invoice itself contains a detailed list of the items purchased. Pillsbury- Washburn Co.'s number (No. 2346) will be found in the upper right-hand corner of the bill, and your journal explanation should refer to their number and date, thus: "Their No. 2346, dated Jan. 1." A sufficient explanation of this transaction would be: "Bought of Pills- bury-Washburn Flour Mills Co., 135 Adams St., City, their invoice No. 2346, dated Jan. 1, 19 — . Paid net cash by our check No. 2." Filing. Pin or otherwise attach the check to the invoice and mail the two to the Pillsbury- Washburn Co., by placing them with the outgoing papers. Business Point. The Pillsbury-Washbum Co.'s mills are located at Minneapolis, Minn., but Mr. Stewart transacts all his business with them through their local office. It is customary for large houses to have local offices in all important cities. These offices usually have on hand a stock of merchandise. The local office is in a better position to get the business than the main office, can fill orders with less delay, and can make collections more readily. Transaction No. 7 January 2. A sale is made to the Boston Bakery Co., 1220 S. Clark St., on account, of 10 brl. Best Baker's Patent Flour, at $5.75. Billing. Detach one invoice from the pad of blank invoices, and fill it out as shown in the following illustration: An bUlt du« In lltw Tork or CIiic< for Shorttg* oa thii bin mutt b« madt on receipt of ioo<^cPxLJ y^^(^ayunyJ2L^!^kJ^^e^^ ^:?y?z^. ^/; /f ' -^, 1^.u^, <:z^L-^^^u<^ ? P ? ? ? ? ? ? ? ? 7 > ? 7 ? ? 7 ? ? ? ? ?. ? ? ? ?. ? ? IZL ? ? ?. ? . ? > P. ? ? 7 7 ; p ? // » '>S^a^cyn^ £z^ .-^i-eAy ^A^^iA^ i^^£u ? ? ?. ? ? p z-uy-cz^TL^ ? ^ P. ? ? / ? p ? ; ? ? P ? ? p p p p p p p p p ? ? P p p p P P ? p p p p pp pp ? p p p p p p p p p p p p p ? p p ?P p p p ? The above is one of several forms of statement. Some bookkeepers prefer to list the assets on a left- hand page and the liabihties on the opposite or right-hand page. . Again, some bookkeepers prefer to write the capital as the last item among the liabilities, so that the total of liabilities including capital is shown as exactly equal to the total of assets. The form shown, however, is more widely used. PROVING THE STATEMENTS 69 side of this account is the larger, it is apparent that the difiference between the two sides is an asset. Place it in the list of assets. The Austin Livery Co.'s account, H. N. Alkire's account, and E. C. Judson's account exhibit assets. List the amounts with other assets. Complete the examination of the trial balance. Do any of the remaining accounts exhibit assets? If not, proceed to list the liabilities. Leave three blank lines and write the heading, "Liabilities." Passing the Proprietor's account, the accounts showing loss or gain, and the accounts already listed as assets, the first account you come to is the notes payable account. This is a financial account. Its credit side is the larger. It therefore shows a liability, which is written in the left-hand money column. The Eckhart & Swan Milling Co.'s account is a personal account. The credit side is the larger; therefore it is a liability. List it as the second liability item. The last liability is the amount of the balance due The Macey Co. Rule a single red line of addition under the list of assets. Add the assets, extend the total into the right-hand column, and write opposite it the words * 'Total Assets." Rule a single red line under the list of liabilities. Add the liabilities. Extend the total into the right-hand column and write opposite it the words, "Total Liabilities." Rule a line across the second column and subtract the total liabilities from the total assets. The result shown by this last subtraction is the net capital, or worth of the business, on Jan. 3L Rule a double red line across both columns. Proof The sum of the proprietor's investment, as now exhibited in the trial balance, and the net gain, as shown by the loss and gain statement, must exactly equal the net capital, as shown by the financial statement. The accuracy of the two statements is proved by applying this test. It is called a "proof" and should be written at the bottom of the loss and gain statement for two reas- ons : First, it would not be wise to have the proof, which shows the amount of gain, on the financial statement, which is often seen by persons other than the proprietor and book- keeper. Second, there is usually more room to write it at the bottom of the loss and gain statement. Explanation: Gains are increases of assets or diminutions of liabilities. Losses are diminutions of assets or increases of liabilities. Hence the amount of gain for a given period will be exactly the same as the increase of net assets during that period. The amount of loss will exactly agree with the decrease of net assets. Mr. Stewart's gain may be ascertained in either of two ways. It is the difference between his net capital Jan. 31 and his investment, or net capital Jan. 1. Or it is the difference between his gains for the month and his losses for the month. If you find the sum of Mr. Stewart's investment Jan. 1 and his net gain for January to be exactly equal to his net capital as shown by your financial statement, write the proof at the bottom of your loss and gain statement and hand in both statements. Note. It is understood, of course, that the trial balance is merely a list of ledger accounts, and that statements could be, and often are, taken directly from the ledger. y 70 PRACTICAL OFFICE WORK AND BOOKKEEPING ADDITIONAL EXERCISES Exercise I From the following ledger footings and inventories make W. B. Hayes' financial statement Jan. 31, 19 — . Also make a loss and gain statement and proof. Use loose sheets. W. B. Hayes' Trial Balance, Jan. 31, 19—. W. B. Hayes, Proprietor Furniture and Fixtures . Merchandise Interest Expense Cash Notes Receivable. . . . John M. Smythe & Co. . C. J. Anderson . . . ,. . Steinway Bros. . . . . . L. D.Conway Notes Payable 490 2,400 43 275 3,903 1,200 125 56 8,493 99 00 00 99 00 50 00 00 50 5,460 560 69 520 459 1,425 8,493 66 00 33 00 00 00 99 Inventories: Mdse, $2,100.00. Furniture and Fixtures, $475.00. If the losses exceed the gains, the result is a net loss. In taking the proof, this must be deducted from the investment in order to find the net capital Jan. 31. Exercise II Prepare statements from the facts shown by the following footings, taken from the ledger of W. B. Owen, Feb. 28, 19 — , and the inventories. Write a proof at the bottom of the loss and gain statement. W. B. Owen's Trial Balance, Feb. 28, 19— W. B. Owen, Proprietor Merchandise Real Estate Expense Interest Cash Notes Receivable. . . John Doe Richard Roe Notes Payable 4,256 10,000 272 43 2,405 500 245 50 17,773 20 00 65 50 65 00 40 00 40 14,253 1,134 10 1,000 125 600 650 17,773 20 00 00 00 00 40 Inventories: $14.70. Merchandise, $3,678.20; Real Estate, $9,950.00; Interest due on our notes payable. Note that the interest inventory is an inventory of debt. This is called a liability inventory. It is included among the liabilities in the financial statement. It is added to the debit side of the interest account when making the loss and gain statement. CLOSING THE LEDGER Exercise III W. F. Barnes' Trial Balance, Mar. 31, 19- 71 W. F. Barnes . . . Merchandise .... Real Estate .... Expense Interest Cash Notes Receivable. . Accounts Receivable Notes Payable . . . Accounts Payable . 52,000 8,000 1,260 320 34,000 12,060 9,350 3,700 4,520 125,210 00 00 00 00 00 00 00 00 00 00 10,000 53,000 254 33,000 5,600 3,356 9,700 10,300 125,210 00 00 00 00 00 00 00 00 00 Inventories: Mdse., $6,000.00; Store and Lot, $7,500.00; Unexpired Insurance (which had been charged to Expense), $125.00. Note. Unexpired insurance is a resource inventory. It represents something of value which we stiU own, as it has never been used. CLOSING THE LEDGER Mr. Stewart has seen and approved your financial statement, loss and gain statement, and proof. He now instructs you to rule up the accounts of the ledger, so that the ledger itself will exhibit the condition of the business as sho^vn by the financial statement, and the results as ascertained in taking the loss and gain statement. Note. Before attempting to close the ledger, study carefully the following directions for ruling, and practice the ruling here assigned. Take a new pen point. Moisten it with your tongue and wipe it carefully, so that the ink will flow evenly. Do not overload it with ink, and watch it closely to guard against spilling ink. Do not start to rule a line without enough ink on the pen to finish it. Lay the ruler down on the desk, beveled edge up, and hold the pen against the edge when ruling. If you were to lay the edge of the ruler next to the paper the ink would fill in between the ruler and the paper and blot the line. Hold the pen sidewise, so as not to smear ink on the ruler's edge, and so that the two nibs of the pen will spread apart and allow the ink to flow. Make light lines by ruling with the back of the pen. Single lines will be light lines. Double lines will be composed of one light line and one heavy line. Rule with a fiill arm sweep, not too slowly. Practice making heavy and light lines. Now rule a design as follows, on a separate piece of paper: Rule double lines aroimd a 2-inch square. Mark off the four sides into quarter inches and rule heavy lines making squares } inch on each side. Rule three light lines between the heavy lines, making small squares 1*5 of an inch on each side. When you have ruled this design to your satisfaction, hand it in to your teacher. Do not underestimate the importance of good ruling. Neat ruling goes far toward the production of good work, which will be an inspiration to you and lessen the liability of mistake. First: Close with a balance such financial accounts as need to be balanced at this time. This does not include personal accounts or the proprietor's account. It includes the cash account and the notes payable account, and would ordinarily include the notes receivable account, but as the latter contains only one item, it will not be closed at this time. To close with a balance an account having only one item would be a waste of time. Close the cash account and the notes receivable account, therefore, as the first step. The 72 PRACTICAL OFFICE WORK AND BOOKKEEPING manner of closing these accounts was illustrated in the chapter on accounts at the beginning of the book. Note the amounts due from the Austin Livery Co. and E. C. Judson, the balance of the notes payable account, and amount due from the Eckhart & Swan Milling Co. Each represents one unpaid item. State which one in each case. Illustration of Merchandise Account, Closed 1 "^- 7. % zA^i> A /a— '^ ?^k.k.^^ (Page 2) i/a^yty. / &z..a. / / / zy J-o ^la^n^ Z /CIcTd^tb^zy/jiiAeytyC^, / ^7 SO J (3....^^ 2 ^ZO 3 C-T?Z-c^'^C-' / 3v f 0c^Jvtzyt^t'^U(/TZ^yLy Z ^J^o 3 uT^-cJ-^i^f^^K^yO^^-A^yY^--^' 2 Cj /J /(ty-t^^ (j&iyy-. J ¥SJ ■ 7 (-^^'Z^ (Page 3) '9- Ua^n^, ■iff 9^ so /3 ■a.^ru.J/ l^^^u^. 3' dS^ /J /J Enter the amount of the net loss or net gain on the smaller side of the loss and gain account in red ink. Enter the same amount in the Proprietor's account on the opposite side in black ink. Rule and foot the loss and gain account. Close the Pro- prietor's account with a balance, which is brought down below the rulings in black ink. Proprietor's Account, Closed ^7(fxtJ >'--> J3 0. < c 3 i-s si 3 < 0. C > Q Face When How Int. Amt. Pd. 30 Days — 19— 31 225 00 Jan. 31 Ck.No.6 225 00 15 Days — 19— 28 455 00 Jan. 28 Ck.No.5 — - 455 00 10 Days 6% 19— 6 300 00 Feb. 6 Ck.No.8 50 300 50 84 PRACTICAL OFFICE WORK AND BOOKKEEPING Take $10.00 from the cash register, and place it in the outgoing papers section, taking from the outgoing papers section a $2.00 bill, which you will return to the cash register. Transaction No. 53 February 11. We sell to J. T. Hooper, 5365 S. 63d St., City, on account, 20 brl. Pills- bury 's Best flour at $6.80, and 25 brl. Lincoln flour, at $5.20 per brl. Bookkeeping. Make the entry in the sales book. Write Mr. Hooper's address on the line with his name, writing in a small hand, so that the name, address, and terms may all be written on the same line. Transaction No. 54 February 12. Receive cash for 10 brl. "XXXX Best" Patent flour at $6.50 per barrel. The cash will be found in the envelope marked "Currency" (three $20.00 bills and a $5.00 bill). No invoice will be made out. Transaction No. 55 February 14. Receive the Austin Livery Co.'s check for $50.25, in payment of their note dated Jan. 15, $50.00, with interest for 30 days at 6%, 25 cents. The note is in the notes receivable section of the file. Cancel it and return it to the outgoing papers section. This check is Incoming Paper No. 21. Detach it from the pad and verify the amount of interest. COMPUTING INTEREST "Interest at 6%" means that six per cent of the face of the note must be paid every year by the maker to the payee for the use of the money which he owes to the payee. In this case, the Austin Livery Co. owes Mr. Stewart $50.00, and must pay him at the rate of 6% per annum for interest on it. 6% of $50.00 is found by multiplying $50.00 by .06, or six hundredths. $50.00, face of note .06, rate of interest $3 . 00 yearly interest A year has 365 days (or 366). For purposes of rapid computation, an interest year is usually counted as 360 days, divided into 12 months of 30 days each. 6% per year is one-half of 1% every month, or 1% every 2 months. The commonly accepted method of computing 6% interest is as follows: - Write the amount upon which interest is to be figured. Point off 1% of this amount by moving the decimal point two places to the left. This is the amount of Interest for 2 months, or 60 days, at 6%. Using this as a basis, add to it or subtract from it whatever part of it is necessary to give the result for the required number of days. In the above case, the interest on $50.00 for 60 days at 6% is found by removing the decimal point two places to the left — $0.50. The interest for 30 days would be just half of this, or $0.25. Bookkeeping. Make the entry in the journal and record in the bill book the date the note was paid, the manner of payment, the interest, and the full amount received by us. Cancel the note and return it to the Austin Livery Co. Transaction No. 56 February 14. Deposit the check just received, and all but $44.00 of the currency on hand. Endorse the check in blank. Enter the amount of the deposit on the stub of the check-book. TRANSACTIONS — CONTINUED 85 Transaction No. 57 February 14. Your salary has not been paid for two weeks. Mr. Stewart pays you in cash, from the cash register, $40.00. Post all transactions up to date. First, post unposted sales book items, as described after Transaction 50. Do not post the footing of the sales book at this time ; Mr. Stewart wishes this posted at the end of the month only, so that the sum posted will show the sales for the month in a single amount. Post the entries from the journal. Prove the cash. Student's Report No. 6 should be made out at this time. Do nothing with the bank proof. After filling out the report, refer to the questions on page 52, as usual. If you can answer them all satisfactorily, hand in your report. Take a trial balance. In order to secure a balance, it will be necessary to include the total of sales to date as a credit. Add the sales book, placing the total just underneath the last sale in small lead pencil figures. Include this amount in the trial balance, using the explanation, "Footing of sales book — not posted." Transaction No. 58 February 16, E. C. Judson purchases on account, 10 brl. Lincoln flour at $5.50 and 100 bu. No. 2 spring wheat at $1.15. Transaction No. 59 February 17. The Boston Bakery Co. has sent us a 10-day note to cover last month's balance. The note bears 6% interest. This is Incoming Paper No. 22. Detach it from the pad and examine it carefully. Fill out the bill book record. (This is Note Receivable No. 4.) Filing. Notes receivable are kept with the cash. Take from the outgoing papers section the bill or bills covered by this note, write a, proper receipt upon them, and return them to the same section of the file. Remember that $20.00 has already been paid on one of these bills. Transaction No. 60 February 18. H. N. Alkire purchases on account, 40 brl. Bohemian Rye flour at $6.00 per barrel and 60 bu. ear corn at 70^. Transaction No. 61 February 18. Mr. Stewart suggests that The Eckhart & Swan MilUng Co. should be paid the balance due them on last month's account. Ascertain what this amount is and write a check, which Mr. Stewart will sign. Take from the ''Invoices Payable" section the bill covered by this payment. Bookkeeping. Do not forget the record which should be made on the check-book stub. Filing. Attach the check to the invoice and mail by placing them in the outgoing papers section. Transaction No. 62 February 19. Receive The Boston Bakery Co.'s check for $128.07 in payment of their note of Feb. 4, for $127.75 with 6% interest for 15 days. 86 PRACTICAL OFFICE WORK AND BOOKKEEPING The check is Incoming paper No. 23. Detach it from the pad and ascertain whether the interest has been correctly computed. If so, cancel the note. In computing interest, bear in mind that 15 days is | of 60 days. Bookkeeping. Fill out the last four columns in the bill book. See transaction Np. 55. The canceled note should be returned to the makers. Transaction No. 63 February 19. Deposit the check just received. Do not fail to endorse it. Remember to enter the deposit on the check-book stub. The Eckhart & Swan Milhng Co. returns, marked "Paid," the invoice for which we sent our check yesterday. Take the bill from the outgoing papers section, have it canceled thus: " Paid, Feb. 18, 19—. Eckhart & Swan Milhng Co., by M. N.," and file it with the receipts. Transaction No. 64 February 20. Mr. Stewart remarks that the bill of The Macey Co. should be paid at once. It has already remained unpaid too long. Ascertain the amount due them. Take their bill for furniture sold us on Jan. 1 from the unpaid invoices file. Mr. Stewart instructs you to pay this bill as follows: Give The Macey Co. an order on E. C. Judson for $130.00, which amount he owes us; and our check for the remainder. Refer to the ledger and you will find that E. C. Judson owes Mr. Stewart SI 30.00 for goods bought Jan. 20. Mr. Stewart has a right to ask Mr. Judson to pay this. He there- fore instructs you to write Mr. Judson a letter requesting him to pay the SI 30.00 to The Macey Co. Make out a check for $36.50, in favor of The Macey Co. Mr. Stewart will sign it. Bookkeeping. Charge The Macey Co. $166.50; for we have settled with them for the entire bill. Credit cash paid out, $36.50. Credit E. C. Judson $130.00, just the same as if he had paid us direct. Filing. Mail the letter and the check both to The Macey Co. by placing them with the outgoing papers. The Macey Co.'s bill should be sent along with the remittance, so that they can receipt and return it. The letter instructing E. C. Judson to pay The Macey Co. was mailed to The Macey Co., not to Mr. Judson. The reason for this is obvious. The Macey Co. will take the letter to Judson when they go to collect the money. This order if written out in full would be called a draft on E. C. Judson. The student is not expected to prepare a draft in formal manner at this time. More will be said of drafts later. Transaction No. 65 February 20. We sell to the Austin Livery Co., on account, 100 bu. Standard oats at 72^^ and 100 bu. ear corn at Q2erforming an addition — omit the single line and footing, using the double ruling only. In making financial statements it Ls customary to arrange the items in a definite order. The assets are listed in the order of their realization (availability); that is, those most quickly and easily converted into cash are listed first. For the assets in the financial statement called for above, the arrangement should be: Cash, Mdse., Furniture & Fixtures, and personal accovmts receivable. The liabilities are arranged in the order of liquidation (pajTnent), the most pressing first. In this case, the salary due the bookkeeper would be paid first if the business should go into a receiver's hands, and it therefore comes first. Liabilities for which notes have been given are considered more pressing than liabili- ties on open account, since notes specify a day of payment, and therefore notes payable come next on the list. Accovmts payable come last. Legal Point, The Statute of Limitations declares that an open accoimt is outlawed after * years have elapsed during which time no part of it has been paid, no acknowledgment of the obligation made by the debtor, and no legal steps for collection taken by the creditor. In the case of promissory notes, however, t years must elapse under the same conditions before the debt is outlawed. In most states, notes are good for a longer time than open accounts. I'his seems to be a recognition of the superiority of the note as an evidence of debt, and might furnish one reason why notes should be listed before personal accoimts. STATE f t Ala. Ariz Ark Cal Colo Conn Del D. C Fla Ga Idaho 4 111 5 Ind e 6 Iowa 5 10 Neb. 4 Kan 5 Ky 4 La 6 Me 6 Md 6 Mass 3 Mich 5 Minn 6 6 Miss 3 5 Mo 5 10 Mont 5 10 5 5 5 6 3 6 6 6 6 10 Nev 4 N. H 6 N. J 6 N. Mex 4 N. Y 6 N. Car 3 N. Dak 6 Ohio Okla. Ore.. Pa... t 5 6 6 6 6 6 3 6 15 5 6 6 STATU R.I. S. Car 6 S. Dak 6 Tenn 6 Tex 2 Utah 4 Vt 6 Va 2 Wash 3 W. Va 5 Wis 6 Wyo 8 6 6 G 4 6 6 5 6 10 6 5 CHAPTER IV PRACTICAL OFFICE WORK AND BOOKKEEPING-Continued THE FURNITURE BUSINESS BUSINESS FOR MARCH, 19— During the past two months Mr. Stewart's profits have only been about $175.00 per month. This is not as much profit as he should have received from an investment of over $10,000.00 in cash and of his entire time and effort. He decides to retrench on expenses. His heaviest expense, aside from his rent, is the salary he has been paying you. He decides to do his own bookkeeping in future, and therefore lets you go, giving you a letter of recommendation which reads as follows: CHICAGO, Feb. 28, 19 — . To whom it may Concern: It gives me pleasure to recommend (Your name) ^^ ^ thorough and competent bookkeeper and cashier. M f Your name) j^^^^ been in my employ for the past two months and has given the highest satisfaction. (He or she) is only leaving me because I no longer find it necessary to employ a bookkeeper. Respectfully, D. B. Stewart. Question: What would Mr. Stewart's profits for February have amounted to if he had not paid you $80.00 as salary? Write a letter to H. T. Raynor, furniture dealer at 364 Wabash Ave., City, applying for a position as bookkeeper in his office. You have seen his advertisement in yester- day's Record-Herald. Tell him where you have been working and why you are leaving Mr. Stewart's employ. Enclose a copy of Mr. Stewart's recommendation, properly ar- ranged as to margins, spacing, etc., at the top of which you have written the word "copy." Request the privilege of a personal interview. Mr. Raynor will not return the copy of Mr. Stewart's letter of recommendation, If you had sent him the original of Mr. Stewart's letter, it would have been proper for you to ask for its return, provided you had inclosed a two-cent stamp for the purpose. Opening a Set of Books March 2. You are employed by Mr. Raynor as bookkeeper and cashier at a salary of $20.00 per week, the same as you have been receiving from Mr. Stewart. Mr. Raynor has not been satisfied with the system of bookkeeping he has been using and has decided to install a set of books similar to those you have been using while in Mr. Stewart's employ, with the addition of a cash book. He has ordered of A. C. McClurg & Co. 1 journal, 1 sales book, 1 ledger, 1 bill book, and 1 cash book ruled the same as the journal. McClurg's man arrives with the blank books ordered and hands you a bill for them. Ordinarily, the entry for this transaction should be made at once. As you have not yet opened the new books, however, Mr. Raynor pays the $6.00 out of his own pocket, has the bill receipted, and holds it until you are ready to make the entry. 102 OPENING NEW BOOKS 103 Filing. Place Incoming Paper No, 27 temporarily in the miscellaneous incoming papers section of the file. Do nothing else in regard to this until further instructed. TRANSFERRING THE ACCOUNTS TO THE NEW BOOKS From an examination of Mr. Raynor's books, from his inventory of Mdse., and from his valuation of property on hand, you find that his assets and liabilities at this time are as follows: Assets Cash $ 286 . 00 Bal. from O. L., page 4. Your teacher will hand you $86.00 in cur- rency taken from your old files. Take $200.00 from currency Env. Furniture & Fixtures 670 . 00 Inventory. Office furniture on hand. Merchandise 5259 .50 Inventory. This was ascertained by an actual count and valua- tion of Mdse. on hand. (See detailed list below.*) Notes Receivable **** , Bal. from O. L., page 26. (Incoming Papers No. 28 & 29.) Interest * . Inventory. Accrued interest on J. F. Sprague's note for 30 days and on W. H. Harrison's note for 15 days. Palmer House Co., cor. State and Monroe Sts 225. 00 Bal. from O. L., page 43 Harvard Hotel Co., 5714 Washington Ave 170. 50 Bal. from O. L., page 26. A. F. Harvey, La Grange, 111 56 . 75 Bal. from O. L., page 34. * INVENTORY OF STOCK. MARCH 2, 19— Cat. No. Description Article Quan. Cost Price 1982 Mahogany Chairs 30 2.50 3 1684 Mahogany Rockers 45 5.66^ 184-5 Mission Chairs 36 2.25 417 All sizes Brass beds 15 12.00 584 All sizes Brass beds 15 18.00 8030 All sizes Brass beds 18 21.00 970 Mahogany Dressers 16 21.00 630 B. E. Maple Drefeers 15 28.00 714 Tuna Mahogany Dressers 12 30.00 530 Oak Chiffoniers 6 18.00 530 Oak Dressing tables 6 17.00 530 Oak Dressers 6 21.00 417 Pine Kitchen tables 24 2.50 357 Oak Dining tables 15 12.00 1729 Mahogany Parlor suites 2 180.00 184 Qr. sawed oak Unit book shelves 50 2.00 Assorted 7x10 Jute rugs 50 15.00 Assorted 9x12 Turkish rugs 21 37.50 6529 All sizes Hair mattresses 12 16.50 2460 AH sizes Felt mattresses 30 4.10 4850 All sizes Cotton mattresses 5 2 . 00 Amount ** ** *** ** ** ** *** ** *** ** *** ** *** ** *** ** *** ** *** ** *** ** *** ** ** ** *** ** *** ** *** ** *** ** *** ** *** ** *** ** ** ** * *** ** 104 PRACTICAL OFFICE WORK AND BOOKKEEPING Liabilities Notes Payable $500 . 00 Bal. from O. L., page 48. Note at 30 days dated Feb. 10 of this year, in favor of S. Karpen & Bros., 187 Michigan Ave., and bearing 6% interest from its date. Interest *.h«* Inventory. Int. on note favor S. Karpen & Bros., ** days at 6%. The Ford & Johnson Co., 1441 Wabash Ave 450. 00 Bal. from O. L., page 60. Balkwill and Patch, 404 FuUerton Ave 320 . 60 Bal. from O. L., page 64. Bookkeeping. Your first entries in the new books will be two journal entries and a cash book entry setting forth the above assets and liabilities, as follows: In Journal MARCH 2, 19— H, T. Raynor has this day opened a new set of books. His assets, aside from cash, as ascertained from the old books and the inventories, are as follows: Furniture and Fixtures . . . Inventory of office furniture Merchandise Inventory Notes Receivable Bal. from O. L. page 26 Interest Inventory. On J. F. Sprague's note, 30 ds. at 6%, $*.**. On W. H. Harri- son's note, 15 ds. at 6%, $*.**. . . . Palmer House Co cor State and Monroe Streets. Bal. from O. L. page 43 Harvard Hotel Co 5714 Washington Ave. Bal. from O. L. page 25 A. F. Harvey La Grange, 111. Bal. from O. L. page 34 H. T. Raynor .... Investment 2 Mr. H. T. Raynor's liabilities at this date are as follows: Raynor Investment Notes Payable . . Interest The Ford & Johnson Go. Balkwill & Patch Bal. from O. L. page 48. . . On note favor Karpen, ** ds. at 6% 1441 Wabash Ave. Bal. from O. L. page 60. . . 404 Fullerton Ave. Bal. from O. L. page 64. . . * ** **** ** ** **** *** *** *** ** ** ** Explanation: In the first entry the separate assets are debited and H. T. Raynor is credited for the total. In the second entry the separate liabilities are credited, Mr. Raynor being debited for the total. When these entries are posted, the ledger will be in balance. The interest inventories represent amounts which have accrued on notes receivable and payable for the time between the date of issue and the current date (March 2) in each case. The accrued interest on notes receivable is an asset. The accrued interest on the note payable is a liability. OPENING NEW BOOKS 105 "Bal. fromO. L." Balance from old ledger. As a matter of reference, the entries should show what pages of the old ledger these accounts can be found on. In such a case the old ledger should be closed by means of an entry in each account showing to what page in the new ledger it has beea transferred. 19— In Cash Book CASH, DR. Mar. H. T. Eaynor Investment 286 Make the entries in your journal and cash book. Number the pages of the cash book, giving corresponding left and right hand pages the same number. Enter the notes receivable and payable in the bill book. Posting. Open accounts in the ledger in the order given below, allowing for each account one line for the heading, one line for the ruling, and for the entries the number of lines indi- cated. Write the names of the accounts in your very best penmanship, slightly larger than your usual handwriting. H. T. Raynor 14 lines Furniture & Fixtures 11 lines Merchandise 1 page Interest 1 page Expense 1 page Loss & Gain. 18 lines Petty Cash Sales 6 lines Notes Receivable 7 Unes Palmer House Co., cor. State & Monroe Sts. 8 lines Harvard Hotel Co., 5714 Washington St.. 15 lines A. F. Harvey, La Grange, 111 8 lines C. E. Birch, 1224 Harrison St 14 lines A. E. Robson, 4226 Central Ave 12 lines C. I. Brown, 405 Monroe St., Peoria, 111., 5 lines Louis N. Powers, 1821 Belmont Ave 14 lines B. A. Dalton, 2323 Water St 5 Unes D. G. Boleyn, 1816 Lake St 12 lines Notes Payable 18 lines The Ford & Johnson Co. , 1 441 Wabash Ave. 8 lines Balkwill & Patch, 404 Fullerton Ave 5 lines Michigan Stove Co., Detroit, Mich 10 lines Kimball & Chappell Co., 2834 Loomis St. 10 lines Detroit Folding Cart Co., Detroit, Mich. .10 lines St. Johns Table Co., Cadillac, Mich 7 lines W. P. Dunn Co., 429 La Salle St 7 lines Heywood Bros. & Wakefield Co., Gardner, Mass 7 lines S. Karpen & Bros., 187 Michigan Ave 7 lines Post the opening entries. In posting from the journal use the explanation " Inven- tory," " Bal. from 0. L. page — ," or " Investment," the same as in the journal. In posting from the cash book, use the explanation " Investment." Transaction No. z March 2. Mr. Raynor now turns over to you the bill for blank books bought of McClurg, instructing you to reimburse him from the cash register for the money advanced by himself when the books arrived. Take McClurg's bill from the Miscellaneous Incom- ing Papers section. It has already been receipted. Bookkeeping. Make the entry in the cash book, charging Expense. Note that Mr. Raynor has placed his O.K. upon this bill. He instructs you that all bills must be O.K.'d by him. Always look for this O.K. on all incoming invoices before making the required entries. 106 PRACTICAL OFFICE WORK AND BOOKKEEPING Transaction No. 2 March 2. Mr, Raynor is renting the store at 364 Wabash Ave. from M. C. Whitney, whose office is in the Monadnock Building, at a monthly rental of $100.00. He instructs you to take Mr. Whitney cash for the March rent and to bring back his receipt. The receipt is Incoming Paper No. 30 in the pad of incoming papers. Business and legal Points. Receipts have no money value, but should be carefully preserved as acknowledgments of payment. Form receipts are not as good evidences of payment as receipted bills, for a receipted bill shows positively what the payment was made for. A receipt is prima facie evidence of the payment of a debt; that is, it will be accepted as proof unless better proof to the con- trary be produced. There can be no better proof of payment than a canceled check that has been en- dorsed, but even this will not be accepted as proof that the bill was paid in full, even though the words "in full" be written upon the check. Transaction No. 3 March 3. A. H. V. Love, representing Critchell, Miller, Whitney & Barbour, agents for the Commercial Union Insurance Co., has for some time been soliciting Mr. Raynor to take out insurance on his stock of Mdse., and Mr. Raynor has finally concluded to take out a $4,000.00 policy. The rate for one year is $1.25 per hundred dollars. Compute the amount of the premium due the company on a $4,000.00 policy and pay it in cash. The policy, signed by the officers of the insurance company, accompanies your outfit. Examine it carefully. In no way can you learn more about insurance than by a careful study of the policy itself. The form of policy shown is what is called a New York Standard policy and contains all the usual provisions. Answer the following questions on important points mentioned in the body of the policy. 1. What is the extent of the company's liability in case any loss or damage occurs? (See line 1.) 2. What may the company do instead of giving cash indemnity? (Line 4.) 3. State several causes for which the policy may be declared void? (Line 7.) 4. When is the company not responsible? (Line 27.) 5. Would the company be liable if an earthquake should destroy a house and the house should then catch fire from the hot coals of the kitchen stove? (Line 32.) 6. How can an insurer know whether a man claiming to be an agent for a certain company is what he claims to be? (Line 42.) 7. May the insured cancel this policy? If so, how much of his paid premium will be retvuned to him? If the company cancels his insurance, how much wiU be returned? (Line 45.) 8. What must the insured do in case of fire? (line 59.) 9. How is the amount of a fire loss decided upon? (Line 75.) 10. What proportion of any loss will a given company pay? (liine 84.) 11. May an agent alter the printed terms of a policy? (Line 99.) Special Provisions. The regular provisions of the policy, as printed in the standard policy, may be altered by special provisions, written in or printed and attached to the policy. These provisions may be on separate printed slips (called "riders") pasted to the policy, or several of them may be printed on one form which is then attached. Study carefully the rider represented on the policy Mr. Raynor received and answer the following questions : 1. May the insured carry other insurance on the same property? 2. Will the company pay for property which has been sold but not delivered and is in the building at the time of the fire? 3. How much insurance must be carried? 4. If the insured does not carry the fuU amoimt required, what proportion of the loss must he bear himself? FIBE INSURANCE POLICY 107 It should be noted that many of these special provisions are opposed to the regiilar provisions in the body of the policy; they invalidate the regular provisions with which they conflict. The eighty per cent, co-insurance clause can be better understood after you have read the following explanation: The Eighty Per Cent Clause. This provides that the insured must carry insurance to the extent of at least eighty per cent of the value of his property (any other per cent may be specified, but eighty is usual). Assume, for illustration, that a man has property worth $10,000.00. He must carry $8,000.00 insurance. Assume that he does carry $8,000.00, having 8 policies of $1,000.00 each, in different companies. Each company agrees to bear J^ of any loss, and the eight policies cover his loss in full. But if he carries only five $1,000.00 policies, he can collect only ^4 of his loss. He is thus forced to bear % of the loss himself; this is what is meant by saying that he is "co-insurer." The com- panies do not propose to pay him in full for a small loss unless he insures in full and pays the larger pre- mium. Suppose for instance he is insured for $5,000.00 in the above case (when he should have been insured for $8,000.00) and a $5,000.00 loss occurs. The company will not pay his full loss, though the policy is big enough to cover it. They will pay him only % of his loss, or $3, 125.00. The reason the companies do riot insist that property be insured for full value (100%) is that the owner might then be tempted to burn his own property for its insurance, or that at least he might then be less careful than he would be if not fully insured. Special Rates for Residences. Residences, household goods, and rents being regarded as good risks, the companies will often insure for three years for double the rate for one year. Insurance of rents is the company's agreement that if the building should burn down they wiU continue paying the rentals to the owner until he has had time to rebuild. Take the money from the cash register and pay Mr. Love. He will give you a re- ceipted bill. (Incoming Paper No. 31.) Filing. Place the cash paid out in the outgoing papers file. Fold the policy so that the form of brief will be on the oustide, fill out the brief, and file it with the miscellaneous incoming papers. Transaction No. 4 March 4. Mr. Raynor has made a sale and hands you a "sale ticket" upon which he has written all the data necessary for your bookkeeping entry. He has adopted this plan of using sale tickets for all sales, and your information in regard to what sales have been made, and the terms of sale in each case will in future be ascertained from sale tickets. The sale tickets are in a separate pad, from which you will detach them whenever instructed to do so as your work proceeds. They are clearly marked with the numbers of the transactions they accompany, so that you can make no mistake. Detach the sale ticket marked "Transaction No. 4." Verify Mr. Raynor's figures. Make out an invoice, giving it our number 151. The next invoice of goods sold will be number 152. As a matter of convenience, you may now number several of Mr. Raynor's billheads in advance. This will save you the trouble of looking up the number each time a bill is made out. Bookkeeping. Make the entry for this transaction in the sales book. This is the first entry in the sales book, so you will write the date out in full at the top of the page. Be sure to write Mr. Birch's address in the entry. Number the pages of the sales book at this time. Filing. Place the invoice in the outgoing papers section of the file. Place the sale ticket in the envelope marked " Sale Tickets," observing carefully the instructions printed upon the envelope. 108 PRACTICAL OFFICE WORK AND BOOKKEEPING Transaction No. 5 March 4. Mr. Raynor hands you a notice of freight received, which came in the morning's mail. (Incoming paper No. 32.) There is a place on this notice for your signature authorizing the agent of the rail- road company to deliver the goods to a drayage company. Sign this, in the space marked "Consignee", but do not fill out the space indicating to what driver the freight is to be delivered. This gives the road the authority to send it out by any delivery company. Filing. Return the signed notice to the railroad company by filing it with the out- going papers. You could, if you wished, fill in the name of some particular driver or company, and hand the freight notice to him. He would present it to the freight agent, and the freight agent would be bound to deliver to him. Many firms have regular arrangements with certain drayage companies to do all of their hauling. The expressman arrives with the freight and an expense bill. This is the bill for the freight, at the bottom of which has been added the extra charge for drayage, $2.00. The expense bill is Incoming Paper No. 33. Note that it has been receipted by the rail- road. Pay the driver cash. Bookkeeping. Make an entry in the cash book, charging Mdse. Filing. Take $12.00 from the cash register and place it in the outgoing papers section. You will have to make change. Business Note. If Mr. Raynor had sent his own driver for the goods, he would have had to send the amount of the freight charges ($10.00), as the railroad demands cash before it will release the goods. Had he hired an expressman, the expressman might have advanced the $10.00 freight charges and collected $12.00, which includes his own charge of $2.00. Transaction No. 6 March. 4. Mr. Raynor now hands you the invoice for the above shipment. (In- coming paper No. 34.) The invoice was received by Mr. Raynor yesterday, having been mailed at the time the goods were shipped (March 2). It takes less time for mail to reach its destination than for freight; this explains why the bill arrived in advance of the goods. As Mr. Raynor deals in stoves, this is Mdse. See that Mr. Raynor's O.K. is on the bill. The O.K. indicates to you that the quantities and prices on the bill are in accordance with Mr. Raynor's agreement when he bought the goods. You will also find opposite each item on the bill a check mark (V) which indicates that the quantities actually received agree exactly with the quantities billed. Verify the computations on the bill. Trade Discount. The stoves are invoiced by The Michigan Stove Co. at $58.50 and $37.20. But a 25% discount from these prices is given to "the trade." This kind of a discount is called a "trade discount." You will learn more about trade discounts later. For the present simply bear in mind that the amount of the bill is $259.20, not $345.60. Bookkeeping. Enter the transaction in the journal making note of the fact that the bill is dated March 2. Filing. Place the bill with the "Invoices Payable." As you are not nov/ using in your bookkeeping system any device for reminding you when bills fall due, you must watch the "Invoices Payable" section of the file very closely. THE EXPENSE BILL 109 Transaction No. 7 March 5. Mr, Raynor places upon your desk a sale ticket which explains itself. Detach this from the pad of sale tickets. See that the ticket you detach is marked "Transaction No. 7." Make out an invoice. Filing. File the sale ticket as in Transaction No. 4. Do this with all sales tickets in future as soon as the bookkeeping entries are made. Transaction No. 8 March 5. Receive a check from the Harvard Hotel Co. for $75.00 on account (Incom- ing Paper No. 35). They ask for a receipt. Bookkeeping. Make the entry in the cash book crediting the Harvard Hotel Co. Transaction No. 9 March 7. A sale is made and the sale ticket is handed to you. You may take the proper amount of cash from the outgoing papers section. Make out an invoice and receipt it. Observe that the selling price of the stove is the same as the price on The Michigan Stove Co.'s bill to us. The profit we make is in the trade discount (25%) allowed to us from this list price. Question: What was the percentage of profit realized by us on the sale? Bookkeeping. Make an entry in the sales book debiting C. E. Birch. Make an entry in the cash book at once giving him credit for the payment. About noon to-day Mr. Raynor hears that the H. Tarrant Savings Bank is about to suspend pay- ment. This is the bank on which the Harvard Hotel Co.'s check is drawn. He therefore urges you to make all speed to the bank and cash the check if possible. Read business and legal point under Transaction No. 14, page 46, and then explain Mr. Raynor's anxiety to get this check cashed at once. Upon arriving at the bank you find that the doors are closed. Above them hangs a notice signed by the president that the bank is fully solvent and able to pay its depositors if given time, but that a run on the bank has exhausted the ready cash and therefore they have been forced to close their doors imtil they can exchange some of their securities for cash. You are therefore compelled to return to Mr. Raynor with the check uncashed. Nothing further can be done about the matter at this time. Question : Should the bank ultimately be able to pay only 60c on the dollar, what would be the extent of Mr. Raynor's loss on the check? Transaction No. lo March 7. Your salary for the first week is now due, and Mr. Raynor pays you in cash. William Johnson has been employed as clerk and stock boy at a salary of $10.00 per week. His services are to begin Monday, March 9. Make a notation of these facts in the journal. Write nothing in the money columns. Posting. As it is now the end of the week, Mr. Raynor requests you to post all original entries up to date, prove the cash, and take a trial balance. First: Post all sales book entries to the debit of the proper accounts, using the initial S as an explanation in each case. Do not post the footing to the credit of Mdse. at this time. 220 PRACTICAL OFFICE WORK AND BOOKKEEPING Neatness and Care in Posting. The ambitious student, anxious to do good work and receive good grades, will naturally bring to bear his very best efforts at all times. There is an especial reason, how- ever, for the exercise of care in posting. Posting, except at the very beginning when one is learning how, is a purely mechanical process involving no thinking or reasoning. For this reason the bookkeeper posts rapidly and sometimes carelessly. Mistakes are likely to occur, and carelessly-made figures are likely to give a great deal of trouble. Errors that arise from carelessly-made figures are very difficult to dis- cover, as the bookkeeper is ahnost certain to read a given figure, the second time he adds a column, the same way he read it at first. Second: Post all unposted journal entries. Third: Post all unposted cash debits to the credit of the accounts named in the explanatory column, and post all cash credits to the debit of the accounts named. Use the initial C as an explanation in each case. The reasons for the order of posting suggested above are: (1) The sales book contains charges against customers, and these should be posted before the credits to the customers are posted from the journal or cash book; (2) The journal contains credits to those from whom we purchase, and should be posted before the debits (our payments) are posted from the cash book. Fourth: Close the cash book with a red ink balance. This being Saturday, March 7, the balance brought down may be dated March 9. Does this balance agree with the amount of cash in the cash registel- (including the check for $75.00)? Fifth: Take a trial balance. This must include the amount of the cash balance, and must include the total of Mdse. sales (taken from the lead pencil footings) as a credit. Student's Report No. 9. You will fill out Student's Report No. 9 in the same way you have filled out former reports. You cannot fill out the cash proof and bank proof on this report, as Mr. Raynor has no bank account as yet. Your files were emptied at the end of February ; therefore your report will include nothing but Mr. Raynor's business. Transaction No. xi March 9. Mr. Raynor has just learned that the H. Tarrant Savings Bank is not insolvent, as he had feared, but will be able to pay all obligations. He has been taught a valuable lesson, however, and will make it a rule in future to hold no checks longer than twenty-four hours. After investigating the standing of the Merchant's Exchange Bank, of this city, Mr. Raynor has decided to open an account with that bank, as its resources are ample, its reputation of the best, and its directors and officers cautious in their investments and con- servative in their management. He instructs you to deposit the check and all cash on hand except $68.00 in the Merchant's Exchange Bank. He has already made arrange- ments with the bank and has left his signature. Open an account with the bank, consulting page 38 for the procedure. Use your old pass book and check book, beginning each on a new page. Did you remember to endorse the check at the time of depositing? variable selling prices Variable Selling Prices* 111 Ask your teacher to assign to you one of the following lists, and in future when selling beds or mattresses invoice them at the prices named in the list. List 1 List 2 Lists List 4 List 5 List 6 List 7 No. 417 brass beds $18.00 27.00 26.90 3.20 24.70 6.10 $17.50 27.50 30.00 3.25 24.25 5.95 $17.75 27.25 30.25 3.30 24.50 6.05 $18.00 27.00 30.50 3.25 24.75 6.15 $18.25 26.75 30.75 3.20 25.00 6.25 $18.50 26.50 31.00 3.15 25.25 6.35 $18.00 No. 584 brass beds No. 6030 brass beds 27.05 30.00 No. 91 1 iron beds 3.00 No. 6529 hair mattresses 25.00 No. 2460 felt mattresses . . 6.00 No. 417 brass beds No. 584 brass beds No. 6030 brass beds No. 911 iron beds No. 6529 hair mattresses No. 2460 felt mattresses. Lists $18.10 27.10 30.25 3.10 24.00 6.05 List 9 $18.20 27.15 30.50 3.20 24.25 6.10 List 10 $18.30 27.20 30.75 3.30 24.50 6.15 List 11 $18.40 27.25 31.00 3.40 24.75 6.20 List 12 $18.50 27.30 26.50 3.50 25.00 6.25 List 13 $18.60 27.35 26.75 3.05 25.25 6.30 List 14 $18.70 27.40 27.00 3.15 25.50 6.00 List 15 List 16 List 17 List 18 List 19 List 20 No. 417 brass beds $18.80 27.45 27.25 3.25 24.10 6.05 $18.90 27.50 27.50 3.35 24.20 6.10 $19.00 27.55 27.75 3.45 24.30 6.20 $18.05 27.60 28.00 3.50 24.40 6.30 $18.15 27 65 28.25 3.25 24.50 6.40 $18.25 No. 584 brass beds 27.70 No. 6030 brass beds 28.50 No. 911 iron beds 3.00 No. 6529 hair mattresses 24.60 No. 2460 felt mattresses 6 50 No. 417 brass beds No. 584 brass beds No. 6030 brass beds No. 911 iron beds No. 6529 hair mattresses, No. 2460 felt mattresses . List 21 List 22 List 23 List 24 List 25 $18.35 $18.45 $18.55 $18.65 $18.75 27.75 27.80 27.85 27.90 27.95 28.75 29.00 29.25 29.50 30.00 2.75 2.80 2.90 3.00 3.10 24.70 24.80 24.90 25.00 24.50 6.15 6.25 6.35 6.00 6.45 List 26 $18.85 27.50 30.50 3.20 24.25 6.00 Transaction No. 12 March 10. Receive from the Kimball & Chappell Company, 2834 Loomis St., Chicago 111., an invoice (Incoming Paper No. 36). See that it has been O.K.'d by Mr. Ilaynor as to prices and quantities listed on it. Note that the terms are "Cash." As soon as you have verified the extensions, you may give them a check. The invoice is already receipted. 112 PRACTICAL OFFICE WORK AND BOOKKEEPING Bookkeeping. Make two entries, one in the journal, crediting the Kimball & Chappell Co. for the amount of the purchase, and one in the cash book, debiting them for our pay- ment. Thus a complete record of the transaction will be shown in the ledger when both entries are posted. Mr. Raynor wishes to keep complete records of all transactions with persons from whom he buys Mdse. Whenever a purchase is made, even though settlement is made at once, the transaction is to be carried through our ledger account with the person from whom we buy. The person is credited through the journal in every case. Then if the payment is cash, the person is at once debited through the cash book. If the payment is by note, then the person is debited through the journal. If the payment is part cash and part note, entries debiting the person are required in both books. Mr. Raynor also wishes to keep complete records of all transactions with persons to whom we sell Mdse. (except in case of a 'petty cash sale, about which you will learn later). The person is charged through the sales book, in every case. Then the credit is at once made through the cash book, the journal, or both cash book and journal, depending upon whether the settlement is made in cash, by note, or part cash and part note. Transaction No. 13 March 10. Receive a check from the Palmer House Co., in full of account. Also receive a check from the Harvard Hotel Co. on account. In each case a receipt is requested. Note. When a check is given in payment of a bill, a receipt is not necessary, because the check itself operates as a receipt. In order to cash a check or to deposit it, the payee must endorse it. The bank, after paying the check or accepting it on deposit, stamps it "paid" and charges the account of the drawer if he be a depositor in the same bank; or, if the check be drawn against some other bank, returns it to that bank, which then charges the drawer. When the drawer gets his statement from the bank at the end of the month, it is accompanied by the paid checks, as you have learned. These paid checks are endorsed, each with the name of the payee. Hence one who pays by check has a receipt for such pay- ment when the check is finally returned to him, and needs no other. For convenience, however, many business men like to get receipts in every case, even though payment be made by check. The checks are primarily records of business done with the bank, and it is not always convenient to refer to them. Separate receipts are requested in such cases, and these can be filed under the name of the creditor. It goes with- out saying that whenever a customer requests a receipt the creditor will oblige him. Transaction No. 14 March 10. Make a deposit of the two checks now on hand. Transaction No. 15 March 11. A sale ticket is handed to you. The prices for the first two items are to be filled in by you from the special price list on page 103 which your teacher has assigned to you. Transaction No. 16 March 12. Mr. Raynor desires to know whether we have a large enough balance in the bank to pay by check our note favor of S. Karpen & Bros, with accrued interest for 30 days. TELEGRAMS 113 Compute the interest carefully. If you find that we have enough money in the bank, draw a check for the amount of the note and interest. Bookkeeping. Make two entries in the cash book, one for the note and one for interest. Transaction No. 17 March 12. Mr. Raynor hands you this sale ticket. Take $60.00 from outgoing papers; $20.00 from currency envelope. Make out an invoice and receipt it. Mr. Raynor's note is returned by S. Karpen & Bros., canceled. (Incoming Paper No. 39.) See that the cancellation is properly made, and file the paper with the receipts. Transaction No. 18 March 13. A notice of freight received arrived in this morning's mail. (Incoming Paper No. 40.) Sign and return it. (See Transaction No. 5, page 100.) Later in the day an expressman arrives with the freight from the Michigan Central depot, and hands you an expense bill. (Incoming Paper No. 41.) Pay it in cash. Bookkeeping and filing same as in Transaction No. 5. Transaction No. 19 March 13. Mr. Raynor hands you the invoice for this last shipment (Incoming Paper No. 42) which he has O.K.'d. Verify the extensions and addition. Transaction No. ao March 13. Make a deposit of $100.00 in currency. Transaction No. 2X March 13. August Reese has been hired to wash the windows, scrub the floors and polish furniture today. Mr. Raynor instructs you to pay him $2.00 in cash for his day's work. The cash must be paid dut of the cash register. Transaction No. 22 March 14. Last Monday Mr. Raynor received a bill from the St. Johns Table Co., Cadillac, Mich. The bill was dated March 7 and we were advised that the tables were shipped on that date via the Michigan Central; but we have not yet received them. Mr. Raynor suggests that you wire them asking that they send a "tracer" after the goods. A "tracer" is a paper sent after a shipment. It must start at the shipping point and go forward through the hands of each raiboad employee who has handled the shipment. Each employee must note thereon the time of receiving the shipment and the time it left his hands, with the reason for delay if there was a delay. The use of a tracer often aids in correcting errors in transportation, and it is supposed to accelerate the progress of the goods. Upon receipt of a request for a tracer, the railroad company will issue the tracer, sending a dupUcate of it to the consignor who makes the request. 114 PRACTICAL OFFICE WORK AND BOOKKEEPING Telegrams The sender of a telegram must write it on the telegraph company's ruled blank. The blank is rtiled into squares and the sender writes one word in each square. This is for the operator's convenience in counting. The company will charge for ten words at least. If a telegram should contain fewer than ten words, the charge will be for ten words. The usual rate for messages that do not have to go a long distance or to be transferred from one wire to another is 25c for the first ten words with 2c additional for each word in excess of ten. To guard against mistake, messages are often repeated; that is, the receiving operator wires back to the sending operator, repeating the message for comparison. For this, one-half is added to the origi- nal charge. Messages can be sent during the night for less money, as the wires are less busy diu-ing the night. Messages sent at the night rate wUl not be delivered until morning. In coimting words, each figure is counted as one word. It is therefore better to spell out such expressions as "Five thousand," "Seven thirty," etc. The rate to Cadillac is 25c. Send a ten-word message. A telegraph blank accom- panies your outfit. In order to make the change it will be necessary for you to have some 25c pieces. You will find four of these in the currency envelope. Place them in the outgoing papers section of the file so that you can make change. Pay the 25c from the cash register. Transaction No. 23 March 14. Mr. Raynor instructs you to take from the cash register the amount of your own salary and to pay Wm. Johnson $10.00 as agreed. Bookkeeping. One entry only is required in the cash book. This entry should show in detail to whom the money was paid, two lines being used thus: 19— Mar. 14 Expense Bookkeeper's salary, 20.00 Wm. Johnson's salary, 10.00 30 00 Take the cash from the cash register and file it with the outgoing papers. Posting. The posting should now be brought up to date. Do not post the total sales, nor rule up the sales book. (See instructions following Transaction No. 10.) Trial Balance. Close the cash book, and take a trial balance. The sales total must be included in the trial balance. Report No. 10 should be made out at this time. The report on papers issued should include all papers issued since March 1. Transaction No. 24 March 16. A notice is received from the Michigan Central Railroad Co. that a ship- ment has arrived for you from Cadillac, Mich. Sign and return it. (See Transaction No. 6), The notice is Incoming Paper No. 43. SHIPPING GOODS 115 The drayman arrives with the freight and an expense bill (Incoming Paper No. 44) which we pay by check. See that it is receipted by the railroad company. Bookkeeping and filing as in Transaction No. 5. Transaction No. 25 March 16. Mr. Raynor now O.K.'s the invoice received from the St. Johns Table Company (Incoming Paper No. 45) and hands it to you. Verify the extensions and addition. Bookkeeping and filing as in previous similar transactions. Transaction No. 26 March 17. C. I. Brown, of Peoria, 111., left an order today for 1 oak bedroom suite No. 530. Mr. Raynor made the sale and filled out the sale ticket in the usual way. "F. 0. B." Mr. Raynor has written on the sale ticket "F. O. B. Chicago, via C. R. I. & P.". "F. O. B. Chicago" (free on board at Chicago) means that the price at which the goods were sold is the price at Chicago, which is another way of saying that Mr. Brown must bear the freight expense. "Via C.R. I. & P." means "Ship by way of the Chicago, Rock Island & Pacific Railway." Shipping. The first thing to do is to make out the bill of lading (in triplicate) pre- paratory to taking the goods to the freight depot. The shipper does this for his own convenience. He has on hand a supply of bills of lading. His shipping clerk fills them out in advance (all except the weight and rate and the railroad company's signature) thus avoiding confusion and delay at the freight office. All that the receiving clerk at the freight office has to do is to give them a number and affix his signature as agent for the railroad. If the shipment is to be prepaid, or for some other reason the shipper desires it, the freight clerk will fill in the weight (subject to correction) and have the rate inserted by the proper official. A large shipper usually has his own supply of bills of lading in which he is allowed to have printed his own name and location, and any matter which he may wish for the convenience of his shipping clerk. A smaller shipper is usually content to use forms furnished him by the different railroad com- panies, or stock forms in which he inserts his own name and location and the name of the road over which he ships. Bills of lading may be "straight" or "order." "Straight" bills of lading are used when the goods are to go straight to the consignee. They are non-negotiable. They must be printed on white paper. "Order" bill of lading are for shipments "to the order of" some one (usually the shipper) and may be endorsed by that one over to another. They are used usually for the purpose of shipping C. O. D. in which case they will not be endorsed over to the person for whom the goods are intended until he has paid for the goods. "Order" bills of lading must be printed in colors — the first in yellow, and the second and third in blue. Mr. Raynor has a pad of stock forms of "straight" bills of lading. They are in tripli- cate, that is, they come in sets of three which are filled out at once. The first is the original; the second is the shipping order, the third is the memorandum. Detach one set of three from the pad which accompanies your outfit and fill them out all alike (this is usually done with carbon paper). Sign Mr. Raynor 's name followed by your initials in the lower left hand corner. Study the forms carefully, especially the headings, which explain the purpose and use of each of the three papers constituting the set. 116 PRACTICAL OFFICE WORK AND BOOKKEEPING £ IS Uniform Bill of Lading (^/f^}^ V STRAIGHT BILL OF LADING-ORIGINAL-NOT NEGOTIABLE.' Railroad Company^ Skipper's No>..j^.... Agent** No. iffs in effect oo tbe date of Issue of thii 19— _ FROM tbe property de^ribed below, in apparent good order, except as noted (contents and condition of contents of packac^s unknown), marked, consitrned and destined as Id* dlcated below, which said comoanr aerees to carry to its usual place of delivery at said destination, if on Its roadM>iherwise to deliver to another carrier on the route M said destinaiion. It is mutually agreed, as to each carrierof allorany of said property, over all or any portion of said route to destination, and as to each party at any time interested In all or any of said property, that every service to be performed hereunder, shall be subject to all the conditions, whether printed or written herein contained (INCLUDING CONDITIONS DM BACK HEREOF) and which are agreed toby the shipper and accepted for himself and his assigns. w The rate of freight from. to.. Is in Cents per 100 lbs. IF.TimetM IF Ut CliM IF2ilCliit IF Rule 26 IF 3d Glut IFRttla26 IF RttI* 28 IF4tliCI«n IFBtliCUn IFSthClau IF S»Mial IF (MCtal Mr Mf - - (Mail Addiew— Not for purpoaa* of DeUrerT.) Per. .j^£....^..f.t//e.?it.5/tf71..|i.j?..r€.J pe^ (TbU BUI ot Lading U to be siinied by tbe (hlpper and aceDiot^oufrierlMuliic'i When your drayman takes the shipment to the freight depot, the agent, F. L. Ham- mer (represented by your teacher), signs the bills of lading for the railroad company and gives them the number 20167. He will keep the shipping order, returning the other two to you. You are to keep the original, sending the memorandum to Mr. Brown. The memorandum is valueless to the consignee except as a memorandum. He cannot get goods from the railroad company on it. If he is not known and the company demands a bill of lading, he will have to instruct the consignor to send him the original. In the above case, had Mr. Brown requested Mr. Raynor to send him a bill of lading, you would have sent him the original and retained the memoran- dum. Filing. Mail the shipper's memorandum and Mr. Raynor's invoice to Mr. Brown by filing them with the outgoing papers. File the original bill of lading with the miscellane- ous incoming papers. Transaction No. 27 March 18. A sale ticket is handed to you. Transaction No. 28 March 19. Receive a bill from the Lord & Thomas advertising agency for ads in the Chicago papers yesterday. This is Incoming Paper No. 46. Pay it by check. straight bills of lading 117 Headings for the Three Forms A IMform Bill •! Ladla}— Standard lonii ol StnigM Bill «l Lading appromd by th« IntenUt Conimrc* Comnission by Ordtr No. 787 of JuM 27, 1908. Railroad Company. Shippers No. „, STRAIGHT BILL OF LADING— ORIGINAL— NOT NEGOTIABLE. Agents No. RECEIVED, subject to the classiScatioox and tariffs Id effect on tbe date of Issne of tbis Origloal Bill of Lading. £rc. B F«r UM in eonawiioa wtth tin Standard lorm ol Sbaiglil Bill ol Lading approved by the lnt(n!ate Co^nmerce Comnission by Order No 787 cl June 27, 1908. Railroad Company. Shippers No. ..._ THIS SHIPPING ORDER oiikI be leglbly tilled In, in Ink, in Indelible Pencil, or in Carbon, and retained by Mie AgenL ^ggnjs No. BSCCIVE, aaWwt to LI* > an acknowledgmem Hial a bill ol lading has been issued and is not the Shippers No. Original Bill ol Lading, nor a copy or duplicate, covering ttie property named herein, and is intended solely lor tiling or record. Agents No. RECEIVED, subject to tbe classifications and tariffs In effect on tbe date of tbe receipt by tbe carrier of tbe propertr described In tbe Original Bill of Lading, frc Business Point. Many business houses have their advertising written and placed by advertising firms. These firms profess to be expert at writing display ads and to have sujierior knowledge as to the best advertising mediums for different purposes. They contract with newspapers and periodicals for a large amount of advertising spqce and secure special discounts from them so that they can offer the adver- tiser the usual rates and still make a good profit. Write copy for a quarter-page newspaper advertisement and submit it to your teacher for criticism. Transaction No. 29 March 20. A sale ticket is handed to you. Insert the prices, as ascertained from the price Ust which has been assigned you, as you did in Transaction No. 15. Transaction No. 30 March 21. The W. P. Dunn Co., 429 La Salle St., submits a bill for printing adver- tising circulars for us. Transaction No. 31 March 21. Mr. Raynor hands you a sale ticket and a check (Incoming Paper No. 48) to cover the amount of the sale. Make out an invoice and receipt it. 118 PRACTICAL OFFICE WORK AND BOOKKEEPING Transaction No. 32 March 21. Pay the salaries of the bookkeeper and the stock boy in cash as on pre- vious Saturdays. You will have to get the cash from the bank. Procedure. Draw a check to "Currency" for the total salaries to be paid out. Have it signed by Mr. Raynor, and draw the money at the bank by taking it from the outgoing papers section. Then pay $20.00 to yourself as, bookkeeper, and $10.00 to the stock boy, Wm. Johnson. See Transaction No. 23. Transaction No. 33 March 21. Deposit the check received from D. G. Boleyn. Transaction No. 34 March 21. Send The Ford & Johnson Co. our 60-day note for $450.00 in full of account. The note is to bear 6% interest. As this is Saturday night you will remember to post your books up to date. Close the cash book, and take a trial balance. Student's Report No. 1 1 should be made out at this time and handed to your teacher. Transaction No. 35 March 23. A sale ticket is handed you. Proceed exactly as in Transaction No. 15. Transaction No. 36 March 24. Receive of Heywood Brothers and Wakefield Company upholstered chairs as per invoice (Incoming Paper No. 49). No terms being written on the invoice, it is assumed that the purchase is "on account." This company is located at Gardner, Mass., but has a Chicago office and the goods were delivered from the local storeroom. For this reason there is no freight bill to pay. Trade discount. The invoice reads "$162.00 less 50 and 5%." This means that 50% is taken off and then 5% is taken off of the remainder. Questions: What would the trade discount have amounted to had it been 55% instead of 50 and 5%? Why is a different result secured? In many lines it is customary to give a series of discounts in this way. Sometimes three or four suc- cessive discounts are given. In the hardware business it is not unusual to see a series like the following: "70, 25, 7* and 5%." These successive discounts are given separately because each exists for a special reason and may have been made at a different time. In some lines the same printed catalog is used for both the retail and wholesale trades. The dealer gets a discount to which the retail buyer is not entitled. The price may go down on a certain article, and instead of printing another catalog, the dealer gives a second discount. Some article may be hard to sell, and on it a third discount is given. Still another discount may be offered in a certain territory in order to meet competition. And so on. The catalog price remains the same. The real price to a certain customer is regulated by the discounts. Problems: 1. Find the net amount of $100.00 less 70, 25, 10 and 5%. 2. Find the net amount of $674.00 less 50, 10 and 7J%. 3. Find the net amount of $500.00 less 25, 10, 10 and 5%. 4. Find the net amount of $500.00 less 10, 5, 10 and 25%. 5. Why is the answer to problem 4 the same as the answer to problem 3? 6. State as a general rule the conclusion you reached in answering the last question. A BANK DRAFT Transaction No. 37 119 March 25. Receive $100.00 in cash from A, E. Robson on account. The cash may be taken from the currency envelope. Give Mr. Robson a receipt. Transaction No. 38 March 25. A sale ticket is placed upon your desk. You know what to do with it. Transaction No. 39 March 26. A letter from C. I. Brown of Peoria arrived in this morning's mail con- taining a draft on the First National Bank of this city for $80.00 (Incoming Paper No. 50). The draft was drawn by the Commercial German Nat'l Bank of Peoria, and was sent by Mr. Brown in payment for the furniture shipped to him on the 17th. Issue a receipt to Mr. Brown. Bookkeeping. The bank draft is an order for the First National Bank to pay us money, and we will receive it as cash. Mr. Brown bought the draft of the Peoria bank for $80.00, and sent it to us; therefore his account is to be credited. Bank draft. Study the form received. You will see that the Peoria bank orders the Chicago bank to pay $80.00 to H. T. Raynor. A bank draft does not differ in its nature from a check. The form of it is different and the party drawing it is a bank instead of an individual or firm, but it is an order on a bank to pay a sum of money to a certain party, the same as a check. Parties. The parties to a bank draft are the drawer, in this case the Peoria bank; the drawee, in this case the Chicago bank; and the payee, in this case, H. T. Raynor. Transaction No. 40 March 26. Deposit the bank draft, endorsing it just as you would endorse a check. At the same time deposit $50.00 in currency, as you have too much cash in your cash register. Transaction No. 41 March 27. A notice of freight received arrives in the morning's mail (Incoming Paper No. 51). Sign it and return it to the railroad company. The drayman arrives with three stoves from Detroit and an expense bill (Incoming Paper No. 52) which you will pay by check. (See Transaction No. 5.) Transaction No. 42 March 27. Mr Raynor hands you an invoice from The Michigan Stove Company which he has O.K.'d as to the prices and quantities Hsted on it. This is Incoming Paper No. 53. Verify the extensions, make the entry, and file the invoice. Bookkeeping Point. The journal explanation should state that the bill is dated March 25. Transaction No. 43 March 28. Pay the salaries in cash. Make the proper entries and attend to the filing. 120 PRACTICAL OFFICE WORK AND BOOKKEEPING This is the end of the week, but you need not post your books or make out a report until March 31. Transaction No. 44 March 30. Nothing has been done this month about the balance due Balkwill & Patch. Mr. Raynor instructs you to send them our note at 15 days, bearing 6% interest. See Transaction No. 3, page 40, for directions for making out a note. Transaction No. 45 March 30. A sale ticket is handed to you. Make out an invoice, make the entry, and file the invoice as in previous similar transactions. Transaction No. 46 March 31. R. P. Smiddy has been attending to our draying for city deliveries, at a uniform rate of 10c for each package, with a minimum charge of 25c for each delivery. A bill for this work is left at our office today. (Incoming Paper No. 54.) Mr. Raynor has O.K.'d the bill as to work done. If the charges are correctly extended pay it by check. It is already receipted. Charge Expense. The item is properly chargeable to Expense, rather than to Mdse. We charge freight and drayage on goods coming in to the Mdse. account because these items constitute a part of the cost of the goods as laid down in the store. Freight and drayage on goods going out, however, are not part of the orig- inal cost of the goods, but are expenses incurred in the carrying on of the business. Transaction No. 47 March 31. The bank delivers to Mr. Raynor to-day a statement of his account. This statement is accompanied by the checks that have been paid and canceled by the bank during the month. The statement is Incoming Paper No. 55. The checks returned are our No. 1, 2, 3, 4, 5 and 6. Take the six checks from the outgoing papers section and have them endorsed by the proper parties and canceled by the bank. What is the amount of the unpaid check? How can you explain why this check has not been canceled and returned with the rest? Post all your books up to date. Remember to post the total of sales to the credit of Mdse. Student's Report No. 12 should be made out at this time. Be sure you can answer satisfactorily all of the questions on page 52 before handing in the report. Take a trial balance. Make a financial statement, loss and gain statement, and proof. In making the statements use the following inventories: Inventories March 31. Merchandise.' $4,885.02 Furniture & Fixtures 665.00 Expense, 8,000 circulars 34.40 11 months' insurance **.** Salaries due bookkeeper and clerk, 2 days 8.57 STATEMENTS 121 Inventories — Continued Interest, Receivable on J. F. Sprague's note, ** days *.5M« Receivable on W. H. Harrison's note, ** days *.** Payable on note favor Ford & Johnson Co., ** days. . . .** Outlines for the two statements follow. These outlines show the arrangement of the statements, but the amounts are to be supphed by you. Financial Statement, March 31, 19 — Cash Furniture & Fixtures Merchandise Notes Receivable Harvard Hotel Co. A. F. Harvey C. E. Birch A. E. Robson Louis N. Powers B. A. Dalton Expense Invtys Interest Invtys Assets Inventory Inventory 66*5 4885 **** ** 8000 circulars 11 Mo. Ins. Sprague's note, ** ds. Harrison's note, **d3. Total Assets *** ** *** ** 34.40 *4: ** ** ** *** * ** ** 00 02 ** ** ** ** ** Expense In%'ty Notes Payable Michigan Stove Co. Detroit Folding Cart Co. St. Johns Table Co. W. P. Dunn Co. Heywood Bros. & Wakefield Co. Interest Invty Liabilities Salaries due, 2 ds. Note favor Ford & Johnson, ** ds. Total Liabilities Net capital 8.57 *** ** 4:4:* . ** ***. *** . ** **. **.** .** **** . ** **** . ** Note that in the above statement two of the expense inventories are listed as assets, and one as a liabiUty. Also note that two of the interest inventories are assets, and one is a liability. Give the reason for the classification in each case. Note that the assets are arranged in the order of realization — those most easily converted into cash, first. Cash itself heads the list. Then comes property. Notes take precedence over personal accounts. The liabilities are arranged in the order of liquidation — those which would have to be paid first are placed first. Each item taken from the ledger should be preceded by a folio. 122 PRACTICAL OFFICE WORK AND BOOKKEEPING Merchandise Interest Loss and Gain Statement, March 31, 19 — Gains (subtract) Cost Invty Cost of goods sold Sales Cost of goods sold Credits * Cr. Invty ** 4885.02 (subtract) He*** . ** (add) ** ** (add) Debits * Dr. Invty ** (sub) *.** Total gains * ** Losses Furniture & Fixtures Debits (subtract) Inventory Esqjense Debits (add) Dr. Invty (subtract) Cr. Invty Total losses Net gain ***. ***. *. I**!**!* . 1**I> 8.57 *** ** ** ,** *** . ** *** ** #t^^^ , n**!^ Proof H. T. Raynor's Investment March 1 H. T. Raynor's Net Gain for March Present Worth as per Fin. St. By comparing the two statements you will see that all inventories are used in both. Every in- ventory is cither an asset or a liability and appears as such in the financial statement. Every asset inventory appears in the loss and gain statement a« an increase of some gain or a deduction from the amount of some loss. Every liability inventory appears in the loss and gain statement as an increase of some loss or a deduction from the amount of some gain. To illustrate: The inventory of circulars on hand and the unexpired insurance are assets and appear as such in the financial statement. They appear in the loss and gain statement as deductions from the loss on expense. The inventories of interest accrued on the two notes receivable arc assets and appear as such in the financial statement. They appear in the loss and gain statement as an increase of the amount of gain on interest. The inventory of salaries due our help is a liability and appears as such in the financial statement. The same inventory appears in the loss and gain statement as an increase of the loss on expense. The inventory of interest due on notes payable is a liability and appears as such in the financial statement. The same inventory appears in the loss and gain statement as a diminution of the gain on interest. THE STOCK RECORD 123 Closing the Ledger As soon as your statements have been approved you may proceed to close the ledger accounts as follows: Close Notes Pavable. The following accounts should be ruled with a double red line, omitting the footings as they balance with only one item on each side: Palmer House Co., C. I. Brown, D. G. Boleyn, The Ford & Johnson Co., Balk will & Patch, Kimball & Chappell Co. Close all loss or gain accounts into Loss & Gain. Remember that both Expense and Interest have inventories on both sides. Inventories should be entered separately and brought down as separate items. Balance. the proprietor's account. Take a balance of the balances. This should correspond with the assets and liabilities shown by the financial statement. THE STOCK RECORD Read what is said on page 67 about the stock record. Prepare a stock record and inventory for March. First rule up on a loose sheet of paper a form like the following: Stock Record for March, 19- H. T. Raynor. article Bot. Sold Left Cost Price Amount No. 1982 mahogany chairs 30 30 2 50 75 No. 1684 mahogany rockers 45 2 43 5 663 243 67 No. 184-5 Mission chairs 36 6 5 9 16 2 25 36 No 417 brass bed 15 1 14 12 168 The above is only a partial form. Prepare a complete stock record. The amounts in the "Bought" column are to be ascertained from the inventory of goods on hand March 1 and from incoming bills. The items in the "Sold" column are to be ascertained from the sales book. The cost prices are to be ascertained from the inventory on hand March 1 and from incoming bills. The total of the "Amount" column should be $4,885.02, which is the amount of the inventory used in making the statements. This is a very important record in the furniture business, and one which is usually kept very care- fully by furniture dealers, each purchase and sale being recorded at the time of its occurrence. There are certain articles the storekeeper must always have on hand — the stock record will inform him when the stock is getting low. By consulting the record frequently, he can also prevent over-stocking on any particular article. No merchant wishes to have his money tied up in stock that will not be sold for a long time. The merchant is most likely to be successful who can "turn over" his investment oftenest — that is, who can keep his supply down so nearly to the demand that his sales during the year are two or three times the amount of his investment at any time. He will not plan to carry more stock than enough to last him for a few months, and will buy often and in small quantities (unless he can get a liberal discount on a large purchase). A large city offers visual opportunities to retail merchants to follow this plan, as it is a matter of only a few days or hours to buy anything needed to replenish stock. Some of the smaller merchants 124 PRACTICAL OFFICE WORK AND BOOKKEEPING in large cities, within easy reach of wholesale houses, plan to keep only one or two samples of each article of furniture. When these are sold, new stock can be ordered at once and will be delivered to the store almost before the old is sent out. Problems 1. An advertiser placed a full page advertisement in the Times through an adver- tising agency. The space would have cost him $500.00 had he placed the order direct, but the agency was able to secure a 15% discount from the newspaper. The agency made a charge of 15% of the net bill for its services in placing the advertisement and preparing the copy. How much did the advertiser save? 2. B placed the following advertisements through the C. Co. and advertising agency: Publication. Value of space. Discount Net cost Ladies' Home Journal $750.00 10% ***. Saturday Evening Post 500.00 15% ***. McClure's Magazine 400.00 12J^% ***. The C. Co. charged for services 15% of net cost ****. What did the services of the C. Co. cost Mr. B. over and above what he would have had to pay had he placed his advertising direct? 3. The catalog price of the X Z stove is $65.00. A dealer bought it at catalog price, securing 25 and 5% trade discounts, and also securing 2% discount for cash. He sold for cash at catalog price. What was his percentage of profit, based upon net cost? 4. A dealer bought $1,000.00 worth of Mdse. upon the terms 2/10 n/30 ds. Not having the money to pay cash, he borrowed it on the tenth day at 6% and secured the discount. Did he gain or lose by the transaction, and how much? TWO WAYS OF ASCEETAINING GAIN Condition I. No additional investment or withdrawals having been made by the pro- prietor during a given period. 1. The net gain of the business for that period is the difference between the gains and the losses for the period. 2. The net gain is also the difference between the capital at the beginning of the period and the capital at the end of the period. Illustration: The footings taken from A's ledger on Jan. 31 are as follows: A — capital account (unchanged since Jan. 1) 2,500 00 Mdse. (no Invty.) 1,800 00 2,200 00 Expense 100 00 Cash 2,000 00 Notes and Accounts Receivable 1,600 00 Notes and Accounts Payable 800 00 5,500 00 5,500 00 SUPPLEMENTARY PROBLEMS 125 Explanation: 1. The net gain is the difference between the gain, $400.00 (shown by the Mdse. account), and the loss, $100.00 (shown by the Expense account). 2. The net gain may also be ascertained as follows: Assets, $2,000.00 + $1,600.00 = $3,600.00 Liabilities 800.00 Net capital Jan. 31 2,800.00 Capital Jan. 1 2,500.00 Net Gain 300.00 Condition II. When the proprietor has increased his investment or has made a with- drawal during the period, this must be taken into consideration before the increase of the capital will agree with the amount of gain. In the above illustration, if Mr. A had withdrawn $100.00 cash, the footings Jan. 31 would have been: A — capital account 100 00 2,500 00 Mdse. (no Invty.) 1.800 00 2,200 00 Expense 100 00 Cash 2,000 00 100 00 Notes and Accounts Receivable 1,600 00 Notes and Accounts Payable 800 00 5,600 00 5,600 00 Explanation: 1. The net gain is, as before, the difference between the gains and the losses ($400 — $100 = $300.00.) 2. The withdrawal of $100.00 must be deducted from the capital invested Jan. 1, and the remain- der deducted from the net capital as shown Jan. 31, in order to find the amount of gain, thus: Assets Jan. 31. Cash $1,900 Notes Receivable 1 ,600 3,500 Liabilities Jan. 31 800 Net capital Jan. 31 2,700 Capital Jan. 1 2,500 .00 Withdrawal 100.00 2,400 Gain 300 126 PRACTICAL OFFICE WORK AND BOOKKEEPING Problems I. The last time Brown's ledger was closed was Jan. 31, 19- the ledger were as follows: On Feb. 28, 19—, the footings of Brown (capital) 6,000 00 Real Estate 4,000 00 Furniture and Fixtures 1,000 00 Mdse. 1,700 00 1,200 00 Expense 190 00 Cash 2,000 00 400 00 Notes and Accounts Receivable 1,500 00 1,000 00 Notes and Accounts Payable 1,790 00 10,390 00 10,390 00 Inventories: Real Estate, $4,000.00; Furniture and Fixtures, $990.00; Mdse., $1,100.00. Prepare two different statements, showing the two different ways of arriving at the amount of the 0et gain. II. Assume that in the preceding case Brown withdrew $150.00 in cash for personal use during February, and that on February 15 he received a legacy of $1,000.00 in cash which he added to the capital of his business. Show trial balance and statements Feb. 28. Note. Problems very similar to the foregoing (although more elaborate in detail) are very fre- quently found in examinations given to candidates for the degree of Certified Public Accountant. The principle involved is that withdrawals from or additions to capital do not reduce or increase profits for the period. Review Questions. 1. Describe the process of transferring accoimts from an old ledger to a new one. 2. What is an insurance policy? 3. Answer the questions on the insurance policy, at the bottom of page 98. 4. Describe how sale tickets are used. 5. What is an expense bill? 6. What may a depos- itor do if he fails to bring his pass book when making a deposit? 7. What is a "tracer?" 8. How many words are there in the following telegram: "Send me by telegraph $5000.00 at 7:30 p. M. tomorrow." Write the foregoing telegram in ten words. 9. What is the meaning of the term "F. O. B. New York?" 10. What is a bill of lading? 11. Describe the "straight" bill of lading. 12. Describe the ' order" bill of lading. 13. What is a bank draft? Name and define the parties thereto. 14. What is meant by trade discount? 15. Why is a trade discount account not kept in the ledger? 16. How is the net amount of a bill determined when the bill is subject to a series of discounts ? 17. Explain how a series of discounts might originate. 18. State two ways of ascertaining the amount of gain or loss for a given period. CHAPTER V BUSINESS FOR APRIL Transaction No. 48. April 1. Mr. Raynor instructs you to pay the rent as on March 2. Make the payment by check and bring back Mr. Whitney's receipt (Incoming Paper No. 56.) Write the check. Fill out the check-book stub and deduct the amount of the check from the balance. Detach the receipt from the pad of incoming papers. Make the bookkeeping entry. File the receipt and the outgoing check. The student is now presumed to be familiar with the bookkeeping and filing required for simple transactions. From this point on, specific directions for bookkeeping and filing will be omitted except in connection with transactions involving features which are unusual or with which the student is not familiar. Transaction No. 49. April 1. A check is received this morning from J. F. Sprague in payment of his note of Jan. 31 and interest at 6%. The check is Incoming Paper No. 57. Detach the check from the pad. Is it made out for the right amount? If so, take the note from the section of the file marked "Cash Register and Notes Receivable" and cancel it. You will do this by writing diagonally across the face in red ink, "Canceled April 1, 19 — . H. T. Raynor, by (your initials)." Make two entries in the cash book, one for the note and one for interest. Fill out the spaces under the heading "Disposed of,' ' in the bill book. File the check. Return the canceled note to Mr. Sprague by filing it with the outgoing papers. Transaction No. 50. April 2. Mr. Raynor instructs you to settle with the W. P. Dunn Company for the circulars bought of them last month, paying by check. Refer to the ledger for the amount of this bill, and write the check. Do not forget to fill out the check-book stub. This should always be done before the check is detached. Take the bill from the "Invoices Payable" section of the file and have it receipted by the W. P. Dunn Company. -Attend to the bookkeeping and filing. . Transaction No. 51. April 2. Deposit the check you received yesterday. Do not forget to add the deposit to the check book stub. Transaction No. 52. April 3. Mr. Raynor has made a sale for cash and hands you the sale ticket. Detach the sale ticket and verify its figures. Make out an invoice and receipt it. Take the proper amount of currency from the Currency Envelope. Make two bookkeeping entries, one in the sales book and one in the cash book. Attend to the filing. Transaction No. 53. April 4. Deposit $300.00 in cash. Are you remembering to add deposits to the check-book stub? Transaction No. 54. April 4. Mr. Raynor instructs you to remit by check to The Michigan Stove Co. the amount of their bill of March 4. This invoice is now in the "Invoices Payable" section of the file. Write the check. Do not forget the check-book stub. Make the bookkeeping entry. Attach the check to the invoice and mail both to The Michigan Stove Company by filing in the proper section. Transaction No. 55. April 4. Pay the salaries of yourself and Wm. Johnson in cash. 127 128 PRACTICAL OFFICE WORK AND BOOKKEEPING This is Saturday night, but you need not post your books or make out a student's report at this time, as you have had only four days' transactions since the last closing of the ledger. Transaction No. 56. April 6, A sale tfcket is handed to you. You know what to do. Transaction No. 57. April 7. Mr. Raynor needs $100.00 for his personal use. He instructs you to draw a check for the amount, payable to "Currency," and give it to .him. Filing. The Michigan Stove Go's invoice, which we paid Saturday, has been receipted and re- turned to us. Take it from the outgoing papers section, have the receipt written on it and file it with the receipts. Transaction No. 58. April 8. An invoice is received today from The Ford and Johnson Co. on account (Incoming Paper No. 58). Detach the invoice. See that it is OK'd and the quantities checked. Verify the computations. Attend to the bookkeeping and filing. Transaction No. 59. April 9. Mr. Raynor instructs you to buy $5.00 worth of 2c postage stamps for office use, paying currency from the cash register. Transaction No. 60. April 10. A sale ticket is handed to you. Observe that the sale was made on a 15-day note at 6 per cent. Look in the pad of incoming papers for the note (Incoming Paper No. 59). Detach the sale ticket from its pad and the note from the pad of incoming papers. Make out an invoice and receipt it in the following words; "April 10, 19 — . Received 15-day note for the amount of this invoice, H. T. Raynor, by " Make two entries, one in the sales book and one in the journal. Record the note in the bill book. File the note and the invoice. Transaction No. 61. April 11. The weekly salaries are now due. Your own salary is paid in cash, but Wm. Johnson has bought four No. 1982 mahogany chairs at cost, which he takes instead of his salary. No invoice is necessary for this. Take the amount of your salary from the cash register and make an entry in the cash book. Enter the $10.00 sale in the sales book, charging Expense, with the explanation, "Wm. Johnson, in lieu of salary for week." It is quite customary among business houses to sell to employees at cost. Employees should never abuse this privilege by buying goods for their friends at this special rate, as such an act is dis- honest. Post your books up to date. You need not take a trial balance. Close the cash book. Student's Report No. 13 should be made out at this time. Transaction No. 62. April 13, Louis N. Powers stepped in to the office today and made arrangements with Mr. Raynor to give us $300.00 in cash and his 60-day note at 6 per cent for the balance, to cover his account. The note is Incoming Paper No. 60. Detach the note from the pad; take $100.00 from the outgoing papers file and $200.00 from the currency envelope. See that the note is correctly made out in every respect and signed by Louis N. Powers. Consult your ledger to see whether the amount received is correct. Write receipts on the bottoms of the invoices covered by the payment. The receipts should show that the first invoice was paid in cash, and that the second was paid part in cash and part by note. Transaction No. 63. April 13. Deposit the $300.00 received today. Do not forget the check-book stub. A COMPROMISE WITH A DEBTOR - 129 Transaction No. 64. April 13. A sale ticket is handed to you. • Transaction No. 65. April 13. Mr. Raynor instructs you to mail a check to the Detroit Folding Cart Co. in settlement of the invoice received by us on March 13. Transaction No. 66. April 14. Mr. Raynor has learned that B. A. Dalton's busi- ness affairs are in bad shape and thinks it likely that his creditors may force him into bankruptcy very soon. Rather than risk the trouble, delay, and loss that bankruptcy proceedings would result in, Mr. Raynor has determined to compromise with Mr. Dalton and take $20.00 spot cash for the account against him. The balance of the bill is a loss. Take $20.00 from the outgoing papers section. Make an entry in the cash book crediting B. A. Dalton, with the explanation "To settle account." Make another entry, in the journal, debiting Loss and Gain and crediting B. A. Dalton for the amount of the loss. Follow this journal entry by a complete explanation which sets forth the conditions of the settlement in detail. Give Mr. Dalton a receipt for the full amount of his account. Transaction No. 67. April 14. Mr. Raynor instructs you to give Balkwill & Patch a check for our note in their favor due today with interest. Refer to your bill book for the facts in regard to this note. Compute the interest and draw a check for the full amount. Don't forget to fill out your check-book stub. Take the note from the outgoing papers section and have Balkwill & Patch's cancellation written upon it. Make two entries in the cash book, and make the proper memorandum of payment in the bill book. File the canceled note and the check. Transaction No. 68. April 15. A sale ticket is handed to you. Transaction No. 69. April 16. A check is received from W. H. Harrison to cover the amount of his note in our favor and interest. The check is Incoming Paper No. 61. (See Transaction No. 49.) Transaction No. 70. April 17. Deposit the check received yesterday. Filing. The Detroit Folding Cart Co. has returned the invoice we paid on April 13, receipted. Take the invoice from the outgoing pap>ers file, have the receipt written on it, and file it properly. Transaction No. 71. April 18. Pay the salaries for the week. The cash must be secured from the bank by a check to currency. Post your books. Do not post the sales book total. Student's Report No. 14 should be made out at this time. Close your cash book and take a trial balance. The trial balance should include the cash balance and the unposted pencil footing of the sales book. Transaction No. 72. April 20. A sale ticket is handed to you. Note that this ticket is different from the others which you have received. It does not contain the name and address of the party to whom the sale was made. Mr. Raynor does not care to keep ac- counts with parties making occasional small purchases for cash, and requests you to open an account called "Petty Cash Sales." This account will be debited for all such sales, through the sales book, and will be credited, at the same time, through the cash book. When both the debit and the credit of a given petty cash sale are posted, they will balance each other, so that the Petty Cash Sales ac- count will always balance. Inspection of the ledger at any time after posting will show what the petty cash sales have amounted to. 130 PRACTICAL OFFICE WORK AND BOOKKEEPING Take $3.00 from the outgoing papers section of the file. No invoice is to be made out. Make an entry in the sales book, debiting Petty Cash Sales. Make another entry in the cash book, crediting Petty Cash Sales. Transaction No. 73. April 21. A freight notice is received (Incoming Paper No, 62). Sign it and deliver it to the railroad company by filing it with the outgoing papers. Later in the day the freight arrives and we are handed an expense bill (Incoming Paper No. 63). Pay the expense bill (which is already receipted) in currency. Transaction No. 74. April 21. Mr. Raynor hands you the bill for the goods just received (Incoming Paper No. 64). It is OK'd and the item checked. Verify the computation and make the entry. File the bill. Transaction No. 75. April 22. In accordance with Mr. Raynor's agreement with the St. Johns Table Company you are to mail them our 60-day notes bearing 6 per cent interest to cover the two invoices for which we owe them, each note being dated as of the date of the invoice which it covers. Make out one note to cover the invoice received March 16, and date it as of the date of the invoice (March 7). Make out another note to cover the invoice received yesterday and date it also as of the date of the invoice (April 16). Make a journal entry in the following form : St. Johns Table Co Notes Payable Notes Payable Remitted the St. Johns Table Company our notes as follows: 60-day note at 6 per cent., dated Mar. *, to cover their invoice of same date, $***.**; and 60-day note at 6 per cent., dated April **, to cover their invoice of same date, $**.** The two notes payable are listed separately in the above entry. They will be posted separately. The items in the ledger account may then be readily compared with the bill book items. Take the two invoices from the "InvoicesPayable" file, attach to them the notes respectively cover- ing them, and mail them to the St. Johns Table Company by placing them in the outgoing papers file. Transaction No. 76. April 23. A sale ticket is handed to you. Transaction No. 77. April 24. Mr. Raynor instructs you to give Heywood Broth- ers and Wakefield Company a check for the amount of the invoice bought of them on March 24. Have them receipt the invoice. Filing. The St. Johns Table Company has returned the two invoices which we paid by note April 22. Take them from the outgoing papers section, have receipts written on the bottoms of them, and file them. Transaction No. 78. April 25. On the 1st of March and again on the 1st of April, Mr. Raynor made attempts to collect $56.75 from A. F. Harvey, La Grange, 111., for goods bought on Feb. 15. (This balance showed in the opening journal entry of Mr. Raynor's new books, March 2.) He now instructs you, without further parley, to draw on Mr. Harvey for the full amount due us on his account; this includes the invoices of March 25 and of April 15. DRAWING ON A SLOW CUSTOMER 131 Before following out this instruction, study carefully the form of draft shown below and the explanation which follows it. Form of Draft, Explanation: The above is an order, or demand, made by H. T. Raynor upon A. F. Harvey. The demand is made through a bank rather than by Mr. Raynor in person. Four principal advan- tages of making collection in this manner are: First, it is convenient. Mr. Harvey lives outside of the city. Mr. Raynor does not need to bother hunting up a collecting agency. His own bank, or any bank, will attend to the matter. Second, it is inexpensive. The bank's fee, which is deducted from the proceeds of collection (or, in case collection is not made, charged to the drawer) is very small as compared with what a collecting agency would charge. Third, the chances of collection are reasonably good, as many business men dislike to let bankers know that they are refusing to pay bills. Fourth, if payment be refused, the fact of the refusal would thus be established in a definite, formal manner. The drawer would no longer be in doubt as to whether the drawee intended to pay, and might proceed at once to take legal steps to collect. Interpretation : If the above demand were made in the form of a letter, the letter would read : (To) A. F. Harvey, La Grange, 111. Chicago, 111., April 25, 19- (Dear Sir): At sight (t. e., when you see this) pay to the order of the Merchants Exchange Bank, one hundred fourteen and no/100 dollars. (This paper is given for) value received. (When you have paid this money), charge the same to (the) account of. (Yours truly), n. T. Raynor. Parties: The parties to a draft are the drawer, who "draws," or makes demand (in this case, Mr. Raynor) ; the drawee, or party drawn upon (in this case, Mr. Harvey) ; and the payee (in this case, the bank or its order). Write out the draft upon a blank which you will detach from the pad of blank drafts. Write a short letter, as short as you can make it, to the Merchants Exchange Bank, stating that you are en- closing the draft for "collection and deposit." (That means that you instruct them to keep the returns from the collection, as a deposit to your account.) When a drawee does not wish to deposit the proceeds of his draft, but to receive them in cash, he sends the draft to the bank for "Collection and Returns," which means that the net proceeds are returned to him. 132 PRACTICAL OFFICE WORK AND BOOKKEEPING Write another short letter to A. F. Harvey, notifying him that you have drawn upon him, stating the amount drawn, and enumerating the items covered by the draft. Note. No bookkeeping entry will be made at this time. A memorandum of the fact that the draft has been drawn, made on the stub from which the draft was detached, is sufficient. Sometimes a register (or memorandum of drafts) is kept. The bookkeeping entry is made after the returns are in. If there are no returns, no entry is made. Transaction No. 79. April 25. A check is received from C. E. Birch (Incoming Paper No. 65), which Mr. Raynor informs you is supposed to cover the invoice of goods sold Mr. Birch on March 4 and Mr. Birch's note of April 10 with interest. Detach the check from the pad of incoming papers and ascertain whether the amount is correct. If you find it correct, make the entry. Receipt the invoice. Cancel the note and deliver it to Mr. Birch. You will observe that Mr. Raynor's name is spelled incorrectly on the body of the check. What are you going to do about it when you deposit? Transaction No. 80. April 25. Pay the salaries in cash. If there is not enough currency in the cash register, draw a check for the entire amount. This is the end of the week. Post your books and make out Report No. 15. Close your cash book. Transaction No. 81. April 27. Deposit the check received Saturday. When you endorse the check for deposit, write Mr. Raynor's name as it is spelled in the body of the check. Then write Mr. Raynor's name again just below this, spelling it correctly. Transaction No. 82. April 27. Mr. Raynor instructs you to pay the Michigan Stove Co. by check the balance due them. Proceed as in previous similar transac- tions. Transaction No. 83. April 28. Two sale tickets are handed to you. The amounts on one of the sale tickets are to be filled in from your list prices. For the satisfaction of yourself and your partner, make an estimate of the amount of profit made today. Estimate roughly the average daily cost of doing business by dividing last month's expenses by the number of work days in the month. Figure the profits on today's sales by comparing costs and selling prices. The diflFerence will show you approximately how much profit you have made to-day. Transaction No. 84. April 29. An invoice is received today from S. Karpen & Bros. (Incoming Paper No. 66). Observe that it is dated April 28 and that the terms are " 30-day note at 6 per cent." Detach the invoice. If it is OK'd and checked, make out a note, dating it April 28. Mr. Raynor will sign the note. Make two bookkeeping entries, both in the journal. The first entry will credit S. Karpen & Bros, and the second will debit them. Make the proper record in the bill book. The invoice is already receipted. Transaction No. 85. April. 30. A check is received in today's mail (Incoming Paper No. 67). The check is accompanied by a "voucher" (Incoming Paper No. 68). This is a form which Mr. Boleyn uses in his office, which he wants you to sign and return as a receipt. Detach the check and voucher from the pad. Read the voucher carefully. As far as you are concerned, the voucher is nothing but a form of receipt which Mr. Boleyn has prepared in advance for you, ready for your signature. He has not returned your original invoice, as is usually done^ A VOUCHER 133 because the voucher itself contains all data, and enumerates in detail the items covered by the pay- ment. Make an entry in your cash book for the amount received, in the usual way. Fill out and sign ''the receipt form in the lower right hand corner of the voucher and return the voucher. Vouchers. Some firms, rather than keep accounts with houses from which they buy, use a "voucher system" for keeping track of invoices payable. When an obligation is incurred a voucher is made out at once, and this voucher is kept on file, or left attached to its stub, until the time for the payment arrives. The voucher itself serves as a constant reminder that the bill is unpaid. When the due date, or date of the maturity of the obligation, arrives, the bill is paid. The voucher is at that time detached from its stub, or taken from the file, and mailed with the remittance. At the bottom of the voucher is a blank form in which the payee's receipt is to be written. The payee fills out and signs this receipt, and returns the voucher. When the voucher is returned to the office from which it went out, it is filed; filing is facilitated by the fact that the vouchers are all of the same size and shape. When bills are paid in cash, voucher forms are used nevertheless, the voucher being signed at once by the payee. Vouchers should be issued for all payments. Some houses, instead of using regular voucher blanks, stamp voucher forms on the backs of in- coming bills, using a rubber stamp for the purpose. This is very unsatisfactory on account of the variation in size and shape in the different incoming bills, and for the further reason that in any event the house would be compelled to have on hand regular voucher forms for use when cash pay- ments were made for items for which no bills were submitted, as for instance when postage stamps were bought for cash. Voucher Bookeeping. Posting is usually done direct from the vouchers themselves or from their stubs. The voucher is therefore an integral part of the bookkeeping system of the person paying and must always be promptly returned to him by the payee. Sometimes a Voucher Register is kept which is similar in form and nature to the bill book. You cannot at this time expect to fully understand the voucher system. It is sufficient for your present purpose if you understand what a voucher is, and realize the importance of returning promptly any vouchers which may come to you for signature. Do not confuse the word "voucher" as here used, with the more broad and general use of the word. Any receipt or paper evidencing a transaction is a voucher in a broad sense. You have been receiving and making out vouchers from the beginning of the course. The paper you received to-day is a special form of voucher used by Mr. Bolcyn. Transaction No. 86. April 30. Deposit the check received to day. Transaction No. 87. April 30. A sale ticket is handed to you. See Transaction No. 72. Get the cash from the outgoing papers file. Transaction No. 88. April 30. Louis N. Powers steps into the office today with $100.00 in cash which he wishes to apply on his note in our favor. Take $100.00 in currency from the ciirrency envelope. Take Mr. Powers' note from the "Cash Register and Notes Receivable" file and write upon the back of it in the place usually used for en- dorsement, the words, "April 30, 19 — . Received $100.00 on this note. H. T. Raynor, by (your in- itials)." Give Mr. Powers a receipt for his money. The last line of the receipt (preceding the sig- nature) should read, "To apply on note dated April 13, 19 — ." Replace the note in the "Cash Reg- ister and Notes Receivable" file. Attend to the bookkeeping and file the cash. Make a memorandum of the part payment in the "Disposed of" columns of the bill book. Do this by writing "April 30" in the "When" column, "$100.00" in the "Amount Paid" column, and "Cash" in the "How" col- umn, writing in small, neat figures close to the line above the space in which you are writing, so as to leave plenty of room for the entry which will be made when Mr. Powers finally redeems the note. Transaction No. 89. April 30. August Reese has scrubbed the floors and cleaned the windows today. Pay him $2.00 for his day's work. 134 PRACTICAL OFFICE WORK AND BOOKKEEPING Transaction No. 90. April 30. A. E. Robson pays $50.00 in cash on account. Give him a receipt. Take the currency from the outgoing papers file. Transaction No. 91. April 30. Draw a check for $13.33, the amount of your salary up to tonight, which check Mr. Raynor will sign. Proceed as in previous similar transactions. Transaction No. 92. April 30. The bank's monthly statement (Incoming Paper No. 69) arrives in today's mail, accompanied by ten canceled checks. The checks returned are hsted on the statement. Proceed as on March 31. There are two out- standing checks this month. These will have to be taken into consideration in reconciling the bank balance as per the bank statement with the balance shown by your check-book stub. This reconcihation will be shown by the bank proof, which you will fill out on this week's report. You will note that the dates written opposite the checks listed in the bank statement do not in many cases agree with the dates of the checks. This is because the date given on the statement in each case is the date of the payment of the check by the bank, which is usually later than the date on which the check was issued. Post to date. The sales book total should be posted to Mdse. at this time. Close the cash book and rule up the sales book. Report No. 16 should now be made out. Take a trial balance. When the trial balance has been approved, make statements, using the following inventories: Merchandise 5032. 02 Furniture & Fixtures 660.00 Interest Receivable Louis N. Powers' note . ** Interest Payable On note favor The Ford & Johnson Co., ** days at 6 per cent * . On note favor St. Johns Table Co., ** days at 6 per cent . ** On note favor St. Johns Table Co., ** days at 6 per cent .** On note favor S. Karpen & Bros., * days at 6 per cent .** Expense 10 months' insurance sj::!; . HsH* Unpaid salary due Wm. Johnson 5.71 Observe that one of the expense inventories is a resource, and that the other is a liability. In making the loss and gain statement, you will find that this month the losses ex- ceed the gains. Rule up the statement just as you would ordinarily, but subtract the upper figure (total gains) from the lower figure (total losses). The result is the net loss of the business for April. In the proof, this must be subtracted from the investment to give the net capital, which will then be in agreement with the net capital shown by the financial statement. Make out a stock inventory as you did on March 31. Its lesults should agree with the inventory of Mdse given above. MONTHLY STATEMENTS 135 When your statements have been approved, close the ledger. The result of the loss and gain account will be a loss and this will be closed to H. T. Raynor's account, in which it will be entered on the debit side. After the ledger has been closed, take a balance of balances. Monthly Statements. It is the custom among most business houses to submit to their customers, usually monthly, statements of account. There are many forms of statement used, but the form described in the following is probably the most popular and the most satisfactory. First, let us assume that the customer has received an invoice every time he has bought a bill of goods. This invoice has shown in detail the items sold to him at that particular time, enumerating the articles sold, the quantity and price of each, and the total of the bill. It is not necessary that all this information be repeated in the statement, as the customer should save his invoices, and can ascertain the details from them. If statements are rendered monthly, no statement needs to contain more than the transactions of the month which it covers, if the balance due at the beginning of the month be included. The first item on a monthly statement should be the balance due on the first of the month, as shown by the last statement which was rendered. This is followed by an enumeration of the dates and totals of the several invoices sold to the customer during the month, and the footing is shown. Below this is an enumeration of the dates and amounts of the several payments that have been made during the month, with the total shown. This total is subtracted from the total of debits. The result is the balance of the customer's account. A statement is not always to be considered a demand for payment. If the customer should buy goods on long time credit so that the amount will not be due for some time after the date when the statement is made out, the amount of that invoice is shown on the statement nevertheless, for his information. Statements containing such items are usually marked, ' 'This is a statement of account and is not a demand for payment," or words to that efifect. Statements of accounts which are due or overdue, often contain the words, ' 'Please remit." In some lines of business, as, for instance, the retail grocery business, monthly statements often show in detail all articles sold during the month, in spite of the fact that the articles have been listed in detail in the separate invoices which accompanied the goods. This is often done in the retail grocery business because many householders are careless and fail to save the invoices. This is called an itemized statement. On page 128 are statements of C. E, Birch's account Mar. 31 and April 30. Render statements to all of H. T. Raynor's customers who owe anything on account. The items for the statements should be taken from the ledger accounts. Submit these statements to your teacher for approval. When approved, file them with the outgoing papers. It is not necessary to make out statements to creditors, as they will make out statements to Mr. Raynor. Statements are submitted to customers only. Partnership Problems 1. A and B are partners with investments of $6,000.00 and $8,000.00, respectively, at the be- ginning of a certain year. Their agreement is to share gains or losses in proportion to their invest- ments. At the end of the year their combined investment is. $20,000.00. Neither partner withdraw- ing any profit, what is the investment of each? 2. C, D, E are partners with investments of $4,000.00, $5,000.00 and $6,000.00, respectively. Their agreement is that losses or gains shall be divided as follows: C, 25 per cent; D, 35 per cent; E, 40 per cent. At the end of the year the business is worth $21,500.00 before any profits are with- drawn. Each partner withdraws J of his gain and leaves the rest in the business. What is the invest- ment of each for the following year? 136 PRACTICAL OFFICE WORK AND BOOKKEEPING 3. X and Z are partners with respective investments at the time of going out of business of $8,000.00 and $12,000.00. Their agreement as to division of profits and losses is that X shall receive J of all profits and bear J of all net losses. The net losses incurred in winding up the affairs of the business were $750.00. How did they divide the capital remaining? 4. M, N and O are partners with respective interests of $8,000.00, $10,000.00 and $12,000.00 on Jan. 1, 1909. M is a silent partner, drawing no salary. N draws a salary of $1,500.00 per year and O draws a salary of $2,500.00 per year. Profits are divided equally. On Jan. 1, 1910, the capital of the firm is $40,000.00 before the partners' salaries are paid. If all salaries and profits are left in the business, what is the interest of each partner on Jan. 1, 1910? 5. Smith, Brown and Jones are partners under an agreement to divide profits and losses equally after each has been allowed 7 per cent on his investment. Their investments, July 1, 1909, were as follows: Smith, $7,500.00; Brown, $10,000.00; Jones, $15,000.00. On July 1, 1910, the capital of the firm is $41,350.50, no interest or profits having been withdrawn by any partner. What is the investment of each? BTAXKMEWX Chicago. Ili M_ C^c^./i,:.^Jy In ACCOUNT WITH H. T. RAYJ^OR 364 WABASH AVE. ^ i^yjy JJL u-A .f^7?l^^^y. STATEMENT Chicago. Ill„ M. C^^jS.:.^jy ^Ay..^n-\ u IN ACCOUNT w,T„ H. T. RAYNOR 364 WABASH AVE. OA^. dA i^y. i^^y LO. zA M. Slat, rtndered. .f^l^^^^y 32.2j£cl, 2./ " ^ OCT^^ /■^H:^^y^^'rt^yL- /^^y A72^ C6 c c h^l^^ LS JIo y£0_ In If If -^2-7 ^ i£^ 7~OP -7^ 2^ 2=J^^JL PRACTICAL OFFICE WORK AND BOOKKEEPING 137 REVIEW Rules for Journalizing Pe&ft Credit Cash, when cash is received Cash, when cash is paid out Notes Receivable, when a note signed by others Notes Receivable, when a note signed by others is received is disposed of Notes Payable, when we redeem our note Notes Payable, when we issue a note Persons, when they cost us value Persons, when they return or produce us value Real Estate, when it costs us value Real Estate, when it produces returns through sale Mdse., when it costs us value Mdse., when it produces returns through sale Expense, when it costs vis value Expense, when items for which it has been debited are disposed of for value or rebates on such items made to us Interest, when it costs us value Interest, when it produces returns Loss & Gain, for the separate losses of the business Loss & Gain, for the separate gains of the business The Proprietor, for his ■withdrawals and for the The Proprietor, for his investments and for the net loss of the business net gam of the business A thoughtful inspection of the rules given above will show you that there are but three rules for debiting accounts and three rules for crediting accounts, as enumerated in the following: General Summary of Rules Debit Any Account Credit Any Account When the thing it names is received When the thing it names is disposed of When the thing it names costs us value When the thing it names produces returns When the thing it names occasions a loss When the thing it names produces a gain Further reflection should show you that when a thing is received it costs; and that when a thing occasions a loss, it costs. Also that when a thing is disposed of, it produces returns; and that when a thing produces a gain, it produces a return. The foregoing being true, we can reduce our rules down to a short general rule that will cover all cases, as follows: GENERAL RULE. Debit the account of that which costs; credit the account of that which produces returns. Let us see whether this general rule can be applied to all accounts. Refer to the separate rules for each account, at the top of the page. The first one reads, "Debit cash when cash is received." Can we apply the general rule, "Debit the account of that which costs"? Yes, because cash received costs us something of value with which we have to part to get the cash. The same applies to Notes Receivable and Notes Payable — in order to receive them, we must part with something of value; therefore, they cost us. In the case of Persons, Real Estate, Mdse., Expense, and Interest, the separate rules as they stand state that these accounts are debited when they cost us value. The rule for debiting the Loss & Gain account reads, "Debit Loss & Gain for the separate losses of the business." A loss is certainly a cost. The rule for debiting the proprietor reads, "Debit him for his withdrawals." A withdrawal is certainly a cost to the business. From all of this, we have determined positively that the single rule, "Debit the account of that which costs us value," can be applied in all cases. Similarly, it can be shown that cash paid out. notes receivable disposed of, and notes payable issued, all produce returns, since we always receive something of value in exchange for things we part with. It is also e\ident that gains are returns. From this we deduce positively that the single rule, "Credit the account of that which produces returns," can be applied in all cases. Commit to memory, therefore, the general rule "Debit the account of that which costs value; credit the account of that which produces returns." Or, if it seems more clear to you, learn the rule, "Debit the account of that which is received or costs value; Credit the account of that which is disposed of or produces returns." Having learned the rule, bear it constantly in mind and apply it in all cases. You cannot make a mis- take in journalizing if you always remember this rule and never violate it. 138 RECAPITULATION AND REVIEW SUMMARY OF DEFINITIONS You now have a practical working knowledge of bookkeeping in its simpler forms. You understand the fundamental principles of accounting, and are familiar with the language of business. At this point you should thoroughly master the definitions which follow on the next two pages, the meaning of which should now be very clear to you. ^A business transaction consists of the exchange (see definitions 28 to 33), between the parties thereto (see definitions 2 to 5), of things of value (see definitions 6 to 18). 'The parties to a business transaction may be individuals, firms, or corporations. 'An individual conducting a business is called a proprietor. *A firm or partnership consists of two or more persons who unite their capital or efforts, or both, for the purpose of carrying on a business. ^A corporation is an association of individuals, existing under a state charter and acting as one individual. "Things of value which may form the subject-matter of a business transaction may be real estate, commodities, services, valuable promises (written, oral, or implied) or any other thing having a value which can be estimated in money. 'Foremost in importance among valuable things which may be exchanged are cash, property, services, written promises to pay money, and oral or implied promises to pay money. ^Cash includes coin, currency, checks, bank drafts, postal and express orders and other papers (except sight drafts not drawn on banks and demand notes, aside from U. S. currency) payable in cash or on presentation. ^Property may be real or personal. Separate accounts are usually kept with the different kinds of property, such as real estate, furniture and fixtures, merchandise, etc. ^'^Services which have a monetary value may be exchanged for money or other valuable consideration. ^^Written promises to pay are usually notes or accepted drafts. ^'An accepted draft is one which the drawee has agreed to pay. TWO PAGE STATEMENT FORMS Extending across pages 130 and 131 are shown first a Loss and Gain Statement, and next, a Financial Statement, in the two-page form. The Loss and Gain Statement shown is a sectional statement. The first seven lines compose the "trading" section, which shows the profit on Mdse., debit items being written on the left-hand page and credit items on the right. It is separated from the next section by a double ruliag. The second section shows the profits and losses of the business, losses being on the left-hand page and gains on the right. The first item of gain is the amount of the gain on Mdse., which it will be noticed LOSS AND GAIN STATEMENT Debits SH ^ Mdse. Invty Jan. 1, 19 — Purchases during Jan. 4256 1264 75 50 Total cost of Mdse. for Jan. Less Invty. Jan. 31 5521 4327 25 50 Cost of goods sold Gain on trading (Red Ink) 1193 1373 75 54 Furn. & Fix. Dr. Cr. 2567 750 210 29 Inventory, Jan. 31 540 525 15 Expense Net gain (Red Ink) 124 1255 1395 75 96 71 FINANCIAL STATEMENT Assets Cash Mdse. Invty Jan. 31, 19— Furn. & Fix. Invty Jan. 31, 19— Notes Receivable Geo. W. Arnett H. H. Keene 2346 4327 525 469 52 26 7748 72 50 50 65 87 24 RECAPITULATION AND KEVIEW 139 "Notes or accepted drafts in our favor are called A'otes Receivable or Bills Receivable. "Notes or drafts which we must pay are called Xotes Payable. **Oral or implied promises to pay are claims against persons for debt. These you have been taught to call personal accounts. ^Hnterest is the use of money belonging to another. This is a valuable thing and one which is made the subject matter of many business transactions. ^''Expense is a name given to all amounts expended for the purpose of carrying on the business. When such items are not classified imder some special title, they are called expense. **Separate records may be kept of certain classes of expense such as rent, postage, insm-ance, etc., if desired. ^Bookkeeping is the science of making a systematic record of business transactions, ^hese rec- ords are made in books of original entry, auxiliary books, and the ledger, which is the book of final entry. *^Books of original entry, as the term implies, are the books in which the transactions are directly recorded at the time of their occurrence. ^The journal, sales book, and cash book are books of original entry. ^Books of original entry are characterized by the fact that in them entries are made at the time of their occurrence and in the order of their occurrence and the fact that entries in them are posted to the ledger. ^Posting is the process of a transferring transactions from books of original entry to the ledger. ^The ledger is the book of final entry to which transactions are posted. *The ledger is charac- terized by the fact that in it transactions are classified under their proper headings, in accounts. "Auxiliary books are books of memorandum. **Every business transaction, as stated in definition 1, involves an exchange of values — one thing is given, another thing is received. "The thing which is received, costs the business, and the account with that thing is debited, ^he thing which is given or disposed of, produces a return, and the account with that thing is credited. ^^An account is a list of debits and credits affecting the same person or thing, grouped has been brought down from the trading section. Sometimes a loss and gain statement is divided into three or even four sections, but usually two sections give a sufficiently elaborate analysis. Below the Loss and Gain Statement is a P'inancial Statement. The assets are shown on the left-hand page and the liabilities on the right. The net capital is classed with the liabilities and is written as the last item on the liability side. The two sides are exactly equal in total, and for this reason this statement is called a "balanced" statement. When the balanced form is used, it is necessary to prepare the loss and gain statement first, in order to know the amount of capital. FOR MONTH OF JANUARY, 19— Credits Sales of Mdse. during Jan., 19 — Gain on trading, brought down Interest and Discbunt Cr. Dr. 2567 2567 1373 22 1395 29 71 JANUARY 31, ig- LiABiLiTiEs & Capital Notes Payable Armstrong & Force Net capital, Jan. 1, 19 — Net gain as per Loss & Gain Statement Net capital, Jan. 31, 19 — 6115 1255 126 250 7371 7748 140 RECAPITULATION AND REVIEW together under one heading in the ledger for the purpose of showing some particular result in regard to that thing. ^To debit means to charge. We debit the account of the person or thing which costs the business something. ^To credit means to give credit for. We credit the account of that person or thing whicb produces value. **Accounts may be divided, as to the results shown (see definition 19), into two general classes: (a) Those which exhibit as a result either an asset or a liability, (b) Those which exhibit as a result either a loss or a gain. The former arc called Financial accounts; the latter are called Loss or Gain accounts. ^Single Entry bookkeeping is a method of bookkeeping in which usually, accounts with persons and cash only (all Financial accounts) are kept. Hence, ordinarily, only the debit side or the credit side of a trans- action is recorded and separate losses and gains are not shown. ^Double Entry bookkeeping is a method in which a record is made of both debits and credits in every transaction. Accounts are kept with losses and gains as well as with all assets and liabilities, and hence the progress of the business can be shown as well as its condition, at any time. ^' The purpose of bookkeeping is to keep a record of all transactions in such a way that the result of any account can be determined, and that the condition and progress of the business, as a whole, can be deter- mined at any time. ^The condition of the business can be determined from the Financial accounts and the inventories. ^An inventory is a list of property showing the kinds and quantities on hand and their valuations, ^he statement setting forth the condition of the business is called the Financial Statement. *'The Financial Statement shows the assets and the liabilities. ^Assets, or resources, are property on hand or other things of value belonging to the business. ^^Liabilities are debts. **The difference between the assets and the liabilities shows the condition of the business and is called the Net Capital, x>t Net Worth, or Net Investment. **The progress of the business is its gain or loss. *'Progress is shown by accounts closing with gain or loss. *'The statement showing gains and losses is called the Loss and Gain Statement. ^Double Entry bookkeeping shows the separate gains and losses of the business, and the net gain or loss can be determined by a comparison of gains and losses. Single Entry bookkeeping does not show separate gains and losses at all, and the net profit or loss can be determined only by a comparison of the Financial Statement taken at one time with the Financial Statement taken at some earlier time. Review carefully all of Chapter I. Review the sections on Statements and Closing the Ledger, pages 56 to 66. Review the instructions on the Sales Book, page 70, the Bill Books, pages 74-75, and the Cash Book, pages 87 to 90. Answer the following questions, based on the definitions given on this and the preceding page. Each question is followed by a number indicating the number of the definition which will answer the question. QUESTIONS (1) What is a business transaction?' (2) What does eveiy business transaction involve?** (3) Who may be parties to a business transaction?^ (4) What is meant by " things of value"?* (5) Define "proprietor".^ (6) Define "partnership".* (7) Define "corporation".* (8) Name five important classes of things of value.'' (9) What is cash?' (10) Give two general divisions of property.' (11) When are services "things of value"?'" (12) Name the two principal kinds of written promises to pay." (13) What is an accepted draft?!^ (14) What are Notes Receivable?'^ (15) What are notes Payable?'* (16) What is meant by "personal accounts?"'* (17) Define Interest." (18) Define Expense." (19) What is bookkeeping?" (20) What are its purposes?^ (21) Name three classes of books. Define and describe each.2o-" (22) What is an account?^' (23) Define "debit" and " credit ".^^-ss (24) Divide accounts into two classes. How can you tell to which class a given account belongs?^ (25) What is Single Entry bookkeeping?^ (26) What is Double Entry bookkeeping? State its principal advantage.^' (27) How can the condition of the business be determined?^ (28) How can the progress of the business be deter- mmed?** (29) What is the Financial Statement, and what does it show?*"-*' (30) What is the Loss and Gain Statement?*' (31) Define "assets".** (32) What are " Liabilities" ?** (33) What is the difference between assets and liabilities called?** PART II PRELIMINARY WORK FOR THE STUDENT Review the rules for journalizing given on page 129, Part I, and be sure that you have the general rule committed to memory. Journalize the following exercises, writing your journal entries on loose sheets without explanations: EXERCISE I Jan, 1, 19 — . H. R. McComb, the proprietor, invested cash, $1800.00 Jan. 2. Pd. cash for the January rent, $50.00. Jan. 3. Bought Mdse of R. W. Coriat on account, $400.00. Jan. 4. Sold for cash Mdse invoiced at $40.00. Jan. 5. Gave our 10-day note at 6% to R. W. Coriat on account, $100.00. Jan. 6. Sold to M. B. Kelly Mdse on account, $65.00. Jan. 8. Bought a lot on Suburban St., for business purposes, $1000.00. Paid $500.00 in cash, and gave a 15-day note bearing 5% interest for the balance. Jan. 9. M. B. Kelly paid $40.00 on account in cash. Jan. 10. Paid R. W. Coriat $150.00 cash on account. Jan. 11. The proprietor withdrew $25.00 in cash. Jan. 12. Received Jas. B. Read's 15-day note at 6% for Mdse invoiced at $175.00. Jan. 13. Bought postage stamps for office use, $15.00 cash. Jan. 15. Redeemed our note of Jan. 5 with accrued interest, in cash. Jan. 16. Accepted an offer of $1200.00 for the lot on Suburban St. The buyer paid $250.00 in cash and gave his 60-day note at 6% for the remainder. Jan. 17. M. B. Kelly returned Mdse valued at $5.00, for which we gave him credit. Jan. 18. Sold for cash 250 2c stamps. Jan. 19. The proprietor increased his investment by $1000.00 cash. Jan. 20. Sold Mdse to A. N. Wagner on 30 days' credit, $120.00. Jan. 23. Redeemed our note issued Jan. 8 by giving a new note at 6% for the old note and accrued interest. Jan. 27. Jas. B. Read paid his note of Jan. 12 and accrued interest, in cash. EXERCISE II Feb. 1, 19—. The proprietor, H. E. Broker, invested cash, $1500.00; Mdse, $1250.00 and a note in his favor signed by W. L. Wilcox, $560.00. The note was dated Dec. 20, and was for 60 days at 6%. Feb. 2. Bought Mdse of C. H. Smith, $379.00. Gave him in exchange our note for 10 days at 7%, $270.00; and our 30-day note at 7% for $109.00. . , Feb. 3. Billed to H. F. McClure Mdse amounting to $416.00. Feb. 4. Sold to Fred W. Upham on account the note signed by W. L. Wilcox which was invested Feb. 1, discounting it at the rate of 5% per annum. To find the amount for which this note was sold, add to the face of the note the interest for 60 days at 6%; then discount this total for the length of time the note yet has to run, discounting at 5%. The 141 142 PRELIMINARY WORK — PART II amount credited to Interest & Discount is the difference between the face of the note and the amount for which it was sold. Feb. 5. Redeemed our 30-day note of Feb. 2 by paying in cash the face of the note plus the interest accrued to date. Feb. 6. Bought on account of Wm. A. Marshall & Co. Mdse amounting to $650.00. Feb. 7. Received H. F. McClure's 10-day note at 6%, endorsed by W. J. Hilton, for $250.00, and cash for the balance, to cover the invoice sold him on Feb. 3. Feb. 9. Clyde H. Havens opened an account with us today by the purchase of Mdse amounting to $185.00. Feb. 10. Borrowed $1000.00 for 60 days at 10% from I. N. Marks. The rate being usurious, Mr. Marks required Mr. Broker to add the interest for 60 days to the amount borrowed and make him out a non-interest-bearing note for the full amount. Feb. 11. Received Clyde H. Havens' 30-day note at 6% for $100.00. Feb. 12. Redeemed our 10-day note of Feb. 2 in favor of C. H. Smith as follows: Gave him $100.00 in cash, to be applied first on the interest accrued, and then on the face of the note. Gave him a new note for 15 days at 7% for the balance due him on the first note. Feb. 13. Clyde H. Havens returned for credit Mdse which was billed to him on Feb. 9 at $8.75, and paid cash for the balance due on the invoice of Feb. 9, $76.25. Feb. 15. Gave William A. Marshall & Co. our 15-day note at 6% for the amount of the invoice bought of them on Feb. 6. Feb. 16. Borrowed $1000.00 from the First National Bank on our 60-day note at 6%. The bank required us to pay the interest in advance in cash; we paid this out of the $1000.00. Feb. 17. Discounted at the Second National Bank our 60-day note for $500.00, dated today. Rate of discount, 6%. There is no difference between the "discount" (bank discoimt) mentioned in this transaction and the "interest" mentioned in the preceding transaction. The transactions are exactly ahke, but stated differently. Feb. 18. Presented H. F. McClure's note for payment today, and payment was refused. We had the note protested, for which service we paid a notary public 25c protest fee. A protest is a formal statement, signed by a notary, that he has personally presented a paper for pay- ment and that payment was refused. This definitely estabUshes the fact that the paper has been dis- honored, and is a necessary prehminary to charging the endorser. Feb. 22. Instituted foreclosure proceedings against a piece of property owned by H. F. McClure, and it was sold in satisfaction of our claim agamst him, viz: a note for $250.00 dated Feb. 7 and bearing 6% interest. The property was sold by the sheriff for $260.00, and of this amount $25.00 was taken for court costs and legal fees. The remainder was turned over to us. Feb. 27. Redeemed our note of Feb. 12 and interest, in cash. EXERCISE III March 1, 19 — . Discounted at the bank a non-interest-bearing 60-day note which we held against R. W. Masters. The note was for $600.00, and was dated Feb. 13. The rate of discount charged was 6%. JOURNALIZING EXERCISES J43 March 2. Discounted at the bank H. M. McGuire's note in our favor for $564.50 bearing 5% interest. The note was dated Jan. 31, and was to run for 90 days. The rate of discount was 4%. March 3. Redeemed in cash our note for $450.00 in favor of D. C. Walsh. The note was dated 60 days ago and bore 4^% interest. March 4. On Feb. 2 we issued a note in favor of M. J. Kingsley for $600.00 at 6% maturing April 3. Mr. Kingsley offered to allow us to discount this at 5% and we gave him our check for the amount due. March 5. Sold to J. H. Marion for cash a 60-day note which we held against B. F. Adams. The note was for $750.00, was dated Feb. 1, and bore 6% interest. Mr. Marion charged for discounting it at the rate of 5% per annum. March 6. J. H. Osborne endorsed over to us on account a 30-day note signed by H. M. Johnson. The note was for $425.00, was dated Feb. 16, and bore 6% interest. We accepted it at its present worth. March 7. Paid in cash J. C. Clemens' invoice for Mdse amounting to $376.00. The invoice was dated Jan. 15 and was sold on 30 days' credit with the understanding that interest would be charged at the rate of 6% per annum after maturity. March 8. Our account against B. E. Stone, amounting to $150.00, fell due on Jan. 20 last, but we extended Mr. Stone's credit on condition that he pay us 7% interest after maturity. Stone paid his account and interest today. March 9. Borrowed $800.00 cash today, giving in exchange our 60-day note with interest added at the rate of 8%. March 10. Loaned William Morris $100.00 today, accepting his 10-day note at 6%. March 10. Discounted for cash the note received from William Morris today. The rate of discount was 5%. March 11. Paid cash for our note issued on March 9, less discount at 5%. March 12. Bought Mdse of N. N. Carlson today invoiced at $390.00. Transferred to him in exchange an account which we held against O, Nelson, $120.00, gave him our 60-day note at 6% for $75.00, and paid him cash for the balance. March 13. E. C. Jackson transferred to us an account against Pettibone and Co., $72.50, and gave us his 30-day note at 6% for $56.00, to apply on account. March 15. Bought from C. C. Goodyear for cash a note which he held against Coles & Co. for $150 00. The note was dated March 1, and bore 6% interest. We accepted it at its face plus interest accrued to date. March 16. Paid H. W. Ellis cash for his business. The assets turned over to us were: Store and lot valued at $5600.00; stock of goods inventoried at $3476.50; an account against R. H. Lorimer, $156.00; and a note signed by J. T. Sullivan, $84.75, upon which interest had accrued for 44 days at 6%. DRAFTS Study again the form of draft shown on page 123, Part I, and the explana- tion which follows it. Who is the drawer? The drawee? The payee? Give definitions. Drafts are of two kinds, namely, sight drafts and time drafts. A sight draft is one which is payable "at sight" or upon presentation. It reads, "At sight pay to, etc." A time draft is one which by its terms is payable at some later time, as one which reads 144 PKELIMINARY WORK — PART II "Ten days after sight" (or "At ten days' sight," which means the same thing), or "Thirty days after date," or "On such-and-such a date," etc. To "honor" a draft is to pay it, if it is a sight draft, or to "accept" it, if it is a time draft. "Acceptance" is the agreement of the drawee to pay the amount of the draft, on the day specified, to the party named therein. The drawee writes across the face of the draft the word "Accepted" or "Good" or any equivalent term, with the date and his signature, thus: "Accepted, June 5, 19 — , John Doe." The draft is then known as an "acceptance." RULES FOR JOT7RNALIZING DRAFTS When you are the one who draws, debit the one in whose favor the draft is drawn; credit the one upon whom the draft is drawn. When you are the one drawn upon, debit the one who drew upon you; credit Cash or other thing of value disposed of, if it is a sight draft and you pay it. Credit Notes Payable, if it is a time draft, and you "accept" it. When the draft is drawn in your favor, debit cash or other thing of value received, if it is a sight draft, and the amount is paid to you; debit Notes Receivable, if it is a time draft, and is accepted in your favor; credit the person who drew it in your favor. The plan followed throughout this text is that no entry is made by the drawer of a draft, at the time it is drawn. A memorandum is made of the fact that a draft has been drawn, and the entry is made when the payee reports that the draft has been honored. It is but fair to say in this connection, how- ever, that many bookkeepers make their entry at the time they draw a draft. They rely upon the drawee to honor it, either because they have confidence in the drawee or because they have a previous arrange- ment with him to honor it. If payment is refused, the first entry can then be corrected by a counter entry. Drafts may be drawn to the order of "Self" or "Ourselves," in which case the drawer is also the payee. When a draft drawn to the order of yourself is honored, give the drawee credit and debit cash (or other thing of value received) if it is a sight draft; if it is a time draft, and is accepted, debit Notes Receivable. A sight draft at no time becomes a note payable or receivable to any party. It is valueless until honored, and when it is honored the transaction becomes a mere payment from one party to another. A time draft is of no value until honored. When it is "accepted" it becomes of the same nature as a note payable from the drawee to the payee. DISCOTJNTS Trade Discount. When a certain per cent is deducted from the listed price of an article to arrive at the real selling price, such a deduction is called a trade discount. This deduction might indicate that the price has been lowered since the present list price was established; it might be a reduction made as an inducement for a sale; it might be that the house merely uses trade discounts as a means of regulating prices without changing catalog prices; or it might be that the same catalogs are sent to all kinds of firms and the prices to each regulated through trade discounts. Trade discounts are taken off of the invoices when they are made out, and do not appear on the books. Cash Discount. After an article has been sold at a certain price, most houses will offer a cash dis- count in order to induce a payment of cash within a certain time. For instance, a house DISCOUNTS 145 might sell goods on 60 days' time, but offer a special discount of 2% for spot cash or for cash in ten days. These items are entered in a "Cash Discount" account. Discount for the ^se of money. This is classed with interest, the ledger account being named "Interest and Discount." Interest is the use of another's money, and the use of another's money has to be paid for. When we borrow money or when we hold the money of others beyond the time when it is due, we should allow them interest for it at the rate of a certain per cent per annum. On the other hand, when we prepay accounts or notes not yet due, we are allow- ing someone else to have the use of our money and should charge for that prepayment. This kind of a discount should always be classed with interest. Discounf is often allowed for the anticipation (payment in advance of their dating) of invoices which have been dated ahead. This should properly be entered in the Interest and Discount account, as it is usually based upon current interest rates, or only slightly in advance of them. Most bookkeepers, how- ever, ignore the distinction that should exist between cash discount and discount for anticipation, and class them together because it is convenient to do so. When an invoice is paid, the entire discount, includ- ing both cash discount and discount for anticipation, is "lumped" in one item, which is posted to the cash discount account. Discount on Exchange. This is a discount that affects the banking business. When exchange sells below par (100%), it is said to be selling at a discount. When it sells above par, it is said to be selling at a 'premium. Items of this kind are entered in the "Premium and Discount" account. The Premium and Discount account will not be treated in this text. An illustration follows which shows three different kinds of discount: On May 1, 19 — , A. L. Smith bought of C. D Brown a stove listed in Brown's catalog at $100.00. Brown allowed Smith trade discoiints of 20% and 10% from the list price. The invoice was made out as follows: Interest at the rate of 6 per cent per annum will be allowed for anticipation of biUs. Chicago, 111., May 1, 19—. A. L. Smith, 576 East Ave., City TO 0. D. BROWN, DR. Terms: 2/10 n/60 Dating: Sept. 1, 19—. To 1 stove Less 20% and 10% 100 28 72 00 The terms of the bill were 2/10 n/60. This means "Two per cent discount for cash in ten days, or the net amount ($72.00) paid in 60 days." Had Mr. Smith taken advantage of the cash discount, he would have made the following entry in his journal on Sept. 11: Mdse $72.00 Cash Cash Dis. $70.56 1.44 The bill was "dated ahead," being given the dating Sept. 1, 19 — . (This is often done when goods are bought early in the season, or before their season.) Had Mr. Smith decided to "anticipate" the bill by paying it on May 1, he would have been entitled, according to a strict construction of the terms printed 146 PRELIMINARY WORK — PART II on the invoice, to a discount on the $70.56 for 133 days (May 1 to Sept. 11) at 6%, which would have been $1.56. Mr. Smith's entry in this case would have been: Mdse $72.00 Cash $69.00 Cash Dis. 1.44 Int. & Dis. 1.56 As previously explained, however, the general custom is to ignore the distinction between cash dis- count and discount for anticipation. According to this general custom, the creditor would allow 2% cash discount and ^% more discount for each month of anticipation (in this case, 4 months), allowing a total deduction of 4% for payment any time between May 1 and May 11. The entry would be: Mdse $72.00 Cash $69.12 Cash Discount 2.88 It should be noted that the amount of cash discount sho'wn in the above illustration differs slightly from the accurate result secured in the illustration which precedes it. The general custom will be adhered to, however, in the transactions which follow, even though it is slightly inaccurate. EXERCISE ON DRAFTS WOBKED BY THBEE STUDENTS The teacher will divide the student body into groups of three. The members of each group we will designate A, B, and C. Each keeps his own set of books, consisting of a journal and a ledger. The exercise may be worked in two or three days. All groups go through the same procedure, as outlined in the following exercise. Invoices should be made out for all sales, and delivered to the proper parties. All cash payments are to be made by check. All checks received must be deposited the same day. If there is no school bank, transactions with the bank can be carried on with the teacher, who will receive deposits and paper offered for discount or col- lection, and will make the pass book entries; or a student may be selected by the teacher to act as banker. All transactions or communication between students must be by correspondence conducted under the direction of the teacher. The teacher will devise a method by which mail may be collected and distributed. Transactions. May 1, 19 — . Three students, A, B, and C, each invest $1500.00 in cash. Take from the currency envelope the slip marked, "This slip represents $1500.00 in cash." May 1. The three students invest Mdse as follows: A invests 4000 bu. com at 70^, B invests 2800 bu. wheat at $1.00, C invests 5600 bu. oats at 50^. It will not be necessary for students to handle this Mdse. If the teacher thinks it necessary, for this short exercise, stock records can be kept. May 1. Each student deposits all cash on hand. Deposit slips, checks, and all other blank forms necessary for the work of this exercise wiU be found with your supplies for Part II. Use pages 6 and 7 of your old pass book. May 2. A sells to B 2000 bu. corn at 780; B sells to C 1400 bu. wheat at $1.10; C sells to A 2800 bu. oats at 560. The buyer in each case gives a check for $400.00, a 30- day note at 6% for $500.00, and has the balance charged to his account. May 3. C sells to B 1400 bu. oats at 550; B sells to A 700 bu. wheat at $1.08; and EXERCISE ON DRAFTS 147 A sells to C 1000 bu. corn at 77^0. The sale is made in each case subject to a sight draft for three-fourths of the amount of the bill; balance on account. Each student draws at sight upon the student to whom he sold today and sends the draft to the bank for collection. The drafts should be made payable to the order of the bank. Each student now has on hand com, wheat, and oats, and has an accovmt with each of the other students of his group. May 4. The bank collects the amount of yesterday's draft from each of the three students, who pay by check. May 4, The bank reports to each student that his draft has been collected and the amount placed to his credit, less 50^ collection fee. Each student should now take his pass book to the bank and have the amount of the credit entered therein. May 5. A holds B's note, B holds C's note, and C holds A's note. In each case the note is for $500.00, bears 6% interest, and is due June 1. Each student now discounts the note which he holds, discounting it at the bank at 5%. Discount of this kind is classed with interest. The ledger account should be named "Interest & Discount" and all items of interest or discount (except cash discount) entered in it. To compute the discount, add interest for 30 days to the face of the note, and from the amoimt so computed deduct discount for 27 days at 5%. Each student should take his pass book to the bank and have the proceeds of the discoimted note entered therein. May 7. Each student sells to the teacher 100 bu. corn at 77 fi, 100 bu. wheat at $1.10, and 100 bu. oats at 550. In each case the sale is made on a 60-day note without interest. Make out the note for the teacher to sign, and present it to the teacher for signature accompanied by an invoice. May 7. Discount the note just received, discounting it at the bank at 5%. Have the proceeds entered in the pass book. May 8. A draws against B, B against C, and C against A, at ten days* sight, for the balance due on the bill of May 2. Draw the draft in your own favor and mail it to the drawee for acceptance. May 8. As soon as the draft drawn today is returned accepted, discount it at the bank at 5%. Have the proceeds entered in your pass book. May 9. A sells to B all corn on hand, at 750 a bushel; B sells to C all wheat on hand, at $1.05 a bushel; and C sells to A all oats on hand, at 550 a bushel. The sale is in each case made for cash less 2%, and is paid for by check. A Cash Discount accovmt should now be opened. May 10. Each student buys from the teacher for cash less 2%, as follows, paying by check: B buys 1000 bu. corn at 700, and 1400 bu. oats at 500; C buys 700 bu. wheat at $1.00, and 1000 bu. corn at 700; and A buys 1400 bu. oats at 500, and 700 bu. wheat at $1.00. To save the teacher trouble, each student may write out the invoice for the teacher to use in bill- ing these goods. 148 PRELIMINARY WORK — PART II May 11. C sells to B all corn on hand, at 760 per bu.; A sells to C all wheat on hand, at $1.09 per bu.; and B sells to A all oats on hand, at 560 per bu. The terms in each case are cash less 2%. May 18. The bank presents to each student a draft due today which the student pays by check. (No interest.) May 19. Each student now sells out all Mdse on hand to the teacher, who gives a non-interest-bearing 60-day note for the amount of the invoice in each case. A sells his oats at 560; B sells his corn at 750; and C sells his wheat at $1.10. Make out the note for the teacher to sign, as before. Present it for signature, accompanied by an invoice. May 19. Discount at the bank at 5% the note just received. Have the proceeds entered in your pass book. May 20. Each student owes an interest-bearing note which is held by the bank, duo June 1. The bank consents to having these notes discounted at 4% by the makers. Each student therefore discounts the note which he owes, giving the bank his check for the amount due on it. May 21. Post your journal, putting three accounts on each ledger page. Take a trial balance. Make statements. Close your ledger. FUNDAMENTAL PRINCIPLES OF BOOEEEEPINQ When you go out from school and into the business world, you may never have occasion to work on a set of books exactly like any set you have had in school. This should not surprise you. You have opportunity while in school to work on only six or seven different sets of books at most, and there are thousands of accounting systems used in business, no two of which are alike in every detail. Even an experienced book- keeper, in going from one position to another, would find it necessary to familiarize him- self with many new features. In respect to its exact details, every bookkeeping system differs more or less from every other. But in respect to its underlying principles, every system is exactly like every other. It is for you to learn what the fundamental principles of bookkeeping are, and how to apply them to the varying conditions of business, trade, and accounting — to learn how to construct a set of books that will show the facts and results which you want shown. First make the principles your own, and then familiarize yourself with as many as possible of the mechanical modifications of which those principles are susceptible. Among the most important principles* underlying all double entry bookkeeping are: 1. Equal debit and credit 2. Classification 3. Condensation 4. Analysis 1. The principle of equal debit and credit. This principle you have already learned in your study of journalizing. *It is contended by some that the word "principle" as applied to a truth of bookkeeping, is a mis- nomer; that bookkeeping deals with processes and has characteristics, but not "principles." FUNDAMENTAL PRINCIPLES OF BOOKKEEPING 149 2. The principle of classification. The sales book is an illustration of this. Items of a similar kind are segregated (put by themselves), so that desired facts in regard to that class of transactions can be readily secured. (If there were no such thing as a sales book, the total sales for a given period, for instance, could be ascertained only by a laborious search through the journal, or through old sales tickets.) This principle of classification finds expression in many ways. Special columns can be kept in the cash book for Expense, Cash Discount, Merchandise Sales, etc. Journals can be ruled with many columns, and entries may be classified through the use of the columns. Purchases may be set by themselves in an invoice book similar in nature to the sales book. And so on. 3. The principle of condensation. This is closely allied to the principle of classification. When entries of a certain kind are classified (as in the sales book), they occupy less space than they would in a journal, and labor in posting is saved as well. This is condensation. It is economy. 4. The principle of analysis. The expense account may be used as an illustration of this. As you have handled it thus far, there has been no attempt at an analysis of expenses, except that Interest, which is sometimes entered as Expense, has been kept in a separate account. You might, however, have kept a separate account with Adver- tising, another with Salaries, another with Insurance, etc. Whether or not a separate account is to be kept for a certain class of expenses, depends entirely upon whether or not it is considered necessary or desirable to know how much that particular item of expense amounts to. Many other principles of accounting might be named, but the above are the most important. It would be difficult to find any set of books worthy the name which did not utilize all of them to a greater or less degree. The number and kind of books used and accounts kept in any business depends entirely upon the character and scope of the business and the information desired. Whatever books and accounts are kept, how- ever, the principle of equal debits and credits must always be observed (if a double entry system is used), and the principles of classification, condensation, and analysis will be made use of to a gi'eater or less extent. In the wholesale boot and shoe business which follows, merchandise is bought and sold on 30 or 60 days' time. Discounts are secured from creditors for early cash payments, and discounts are given to customers for early cash payments. This business condition makes it advisable that special columns be kept on both sides of the cash book in which cash discounts may be entered. This is an illustration of the fact that the nature of the business itself regulates the character of the books used. The wholesale boot and shoe business is a business in which a great deal of freight is received, and many shipments made; this necessitates the use of a separate account for Freight. A great deal of adver- tising is done, and a separate account with Advertising is considered desirable. This illustrates the fact that the number and kind of accounts kept depends upon the character of the business. The special columns in the cash book illustrate classification and condensation. The Cash Dis^ count, Freight, and Advertising accoimts exemplify the principle of analysis. Make up your mind now that you will not be content merely to learn what to do and how to do it. Determine that you will master the principles of the science of account* ing, not merely the processes in the art of keeping books. If you learn processes merely, any set of books you attempt will seem strange and incomprehensible to you because it will not be just like some other set you happen to be familiar with. If, on the other hand, you learn jmnciples, all bookkeeping will be easily comprehended by you — to learn a new set will require nothing more than the time necessary to familiarize yourself with the details. BOOT AND SHOE BUSINESS Books used. The books used in the set which follows are: Journal, Sales Book, Three Column Cash Book, Ledger, and Bill Book. The journal, sales book, bill book, and ledger differ in no respect from those you have been using. THE THREE COLUMN GASH BOOK Explanation of Dr. Side. (See form below.) The first column is used for petty cash sales. Items of cash received from petty cash sales will be entered in this column. This will include all cash sales except those made to parties having accounts on our books. Items entered in this column will be checked in the folio column and not posted separately. When the books are closed, the footing of this column will be posted to the sales book. The second column is for cash discounts allowed to customers. When a customer pays for a bill of goods (and in this business most bills will be paid for separately when due) the amount of cash discount allowed him is entered in the second column and the net amount received from him is entered in the last column, which is headed "General," on the same line. Both the discount and the net amount received are posted to the credit of the customer's account in the ledger (the amount from the General column being posted first, and the discount being entered on the line below it), and the proper folio is entered in the L. F. column. The total of the discount column is posted to the 19- -. CASH DR. Petty Cash Sales Cash Dis. Dr. General June 1 / Balance 4140 50 4 5 5 1/ Petty Cash Sale E. E. Merville Expense 14 pre. Men's R. G. Blu. at 2.50 Inv. of May 26 less 1% Merville Pd. Exch. in advance 35 SO 78 85 15 6 V Petty Cash Sales For the day 23 65 *** * ** 12 Frazin & Oppenheim Inv. of this date less 1% ** ** 3 85 ** 252 ** 95 ** 25 30 30 DeMuth & Co. Mdse Sales Cr. Cash Discount Dr. Inv. of June 15 less 1% Entered in Sales Book 2 03 ** 200 ** 77 ** ** ** * - Balance **** ** July 1 V **** ** (The above is an illustration of form only) 150 THE THREE COLUMN CASH BOOK 151 debit of Cash Discount in the ledger at the time of closing. The net amount received is, as it stands, a debit to Cash. All other items of cash received are entered in the General column. They are posted to the credit of the proper accounts in the ledger, and the folio entered in the L. F. column. Explanation of the Or. Side. (See form below.) Items of expense are entered in the first column. They are not posted separately, but a check mark is placed in the folio column and the total is posted to the debit of Expense at the time of closing the books. The second column is for cash discounts allowed to us by creditors. When we pay a bill and secure a cash discount on it, the amount of the discount is entered in the second column and the amount of the net payment is entered in the last column, on the same line. Both items are posted to the debit of the party paid, and the proper page number written in the L. F. column The total of the discount column is posted to the credit of Cash Discount at the time of closing the books. The amount of the net payment is, as it stands, a credit to Cash. All other items of cash paid are entered in the general column, from which they are posted to the proper accounts in the ledger, and the folio entered in the L. F. column. Balancing the Three Column Cash Book. Rule a single line across the first column on the debit side and add. Post to the sales book, dating the entry as of the date of closing, and using the explanation "Entered in Sales Book." In the L. F. column write the page of the sales book to which the total was carried. Write the cash book page in the folio column of the sales book. Rule a double line under the amount posted, rul- ing across one column only. Write the total of this column in the general column just opposite where it now appears, so that it will be added in with the cash received. 19—. CASH CR. . 1 1 3 6 30 30 30 1/ Expense Cash Dis. Cr. General June Expense §% taxes on ^ of $35000.00 Guthmann, Carpenter & Telling Inv. of this date Bradley & Metcalf Co. Inv. of May 25 less 4% Expense Bookkeeper's Sal'y for week $20 Stenographer's Sal'y for week $16.5() Expense Dr. Cash Discount Cr. Balance {Red Ink) 35 36 ** 50 ** 23 * 84 07 ** ** 125 553 *** *** *** *** *** 16 76 ** ** ** ** ** *** ** ** = *=:: **** ** (The above is an illustration of form only) 152 BOOT AND SHOE BUSINESS Rule a single line under the second column, on the same line with the double line just ruled. Add the column. Post the total to the debit of Cash Discount, using the explanation "Cash Discount Dr." Rule up this column the same way you ruled the first column, but do not carry the total into the General column, as it is not a debit of cash (it was posted to the debit of Cash Discount). Post the footing of the Expense column on the credit side to the debit of Expense and also write the amount in the General column of the cash book, credit side, on the same line. Post the footing of the middle column to the credit of Cash Discount; but do not vxrite this amount in the General column, as it is not a credit of cash. Insert small, neat lead pencil footings in the two General columns. Ascertain the balance and write it on the credit side in red ink, on the first blank line. The debit totals and rulings should be just opposite the corresponding totals and rulings on the credit side. The double rulings should extend clear across the pages, except that they are not ruled under the explanatory columns. Bringthebalance down into the General column on the debit side. Accounts Kept. Open in your ledger the following accounts, in the order named below, allowing for each account one line for the heading, one. line for the ruling, and for the items the number of lines named. Investment 10 lines Willis & Atwood, 365 63d St 12 lines Real Estate 10 lines E. E. Merville, Cleveland, Ohio 11 lines Furniture & Fixtures 11 lines S. H. East, Indianapolis, Ind 8 lines Horses & Wagons 7 lines H. E. Montgomery, Hartford, Conn 8 lines Mdse 26 lines Sundry Debtors 12 lines Interest & Discount. 25 lines C. O. D 11 lines Cash Discount . . 8 lines Notes Payable 7 lines Freight 8 lines Guthmann, Carpenter & Telling, 222 Advertising 10 lines Franklin St 12 lines Expense 13 lines H. F. C. Dovenmuehle & Son, 248 Monroe Loss & Gain 14 lines St 12 lines Notes Receivable 12 lines Bradley & Metcalf Co., Milwaukee, Wis. . 12 lines William Anderson, 307 W. 69th St 5 lines A. A. Putnam & Son, 207 Monroe St 7 lines DeMuth & Co., 237 State St. 17 lines Hamilton Brown & Co., St. Louis, Mo 12 lines Fargo, Keith & Co., 147 5th Ave 16 lines Pingree & Co., Detroit, Mich 12 lines Frazin & Oppenheim, 266 State St 8 lines Roberts, Johnson & Rand, St. Louis, Mo. . 7 lincjj O'Connor & Goldberg, 144 Clark St 8 lines Chicago Rubber Shoe Co., 153 Franklin St. 12 lines Streeter Bros., 187 State St 15 lines Great Western Factory, Fond du Lac, Wis. 12 lines The Investment Account. This is the capital account. There are several partners interested in the business, but the accounts of the partners are kept in a Private Ledger to which no one has access except the partners themselves. All you know, and all that shows in the general ledger, is that the total investment is $74747.20, and this you keep in an account entitled "Investment." The investment account is credited for the net gain of the business or debited for its net loss. The Interest & Discount Account. This account contains all items of either inter- est or discount allowed or charged for the use of money. A strict observance of the distinction between cash discount and discount for anticipation would necess- itate including items of discount for anticipation in this account. This distinction will not be observed, however, in the transactions which follow, but the general custom will be adhered to of "lumping" cash discount and discount for anticipation in a single item and entering it as cash discount. See Discount for the use of money, page 137; and Dating bills ahead, page 146. ACCOUNTS KEPT 153 The Cash Discount Account. This account is debited with the total of the discounts allowed to customers, as shown on the debit side of the cash book. It is credited with the total of the discounts secured from creditors, as shown on the credit side of the cash book. "Cash discount" will be understood, in the transactions which follow, to incluSe any additional discount that is allowed or charged for anticipation. The difference between the debit and credit sides is the gain or the loss on cash discount; it is closed to Loss and Gain. The Freight Account. Items paid for freight are charged to this account instead of to the Mdse account. In the shoe business the buyer is usually supposed to bear the freight expense. When we buy Mdse from out of the city there will be a freight bill to pay. Usually this will be paid directly to the railroad company, but if for any reason the house shipping to us should prepay the freight charges, then payment for the freight should be made to them. When we sell, the goods are sold "F. O. B. Chicago," which means that the house buying from us must bear the freight expense. If for any reason we should prepay the freight charges, we would debit the buyer, and not debit freight. The freight account will therefore show nothing but the cost of freight coming in. In making the loss and gain statement, freight must be shown as an increase of the cost of Mdse; and in closing the ledger the freight account must be closed into the Mdse account before the Mdse account is closed. Advertising. This is a special account which will contain items of advertising which you have been in the habit of charging directly to Expense. The total cost of advertis- ing will show in the loss and gain statement as an increase of the cost of expense, and th)^ advertising account in the ledger will be closed into the expense account before the ense account is closed. Sundry Debtors. Occasionally you will make a sale to some house which has no regular account, and does not buy often enough to justify you in opening one. Charges for such sales may all be entered under the general head "Sundry Debtors." In posting these items, allow two lines for each. On the debit side write the name of the house charged and the amount of the charge on the first line, and the address and terms of sale on the second line. (See illustration on page 158.) When payment is received, write the amount received on the credit side on the same line with the amount of the charge which it settles. Enter the discount on the credit side on the next line, directly opposite the address which is on the debit side. "Sundry Debtors" is not an account, but a ledger heading under which a number of small accounts are kept. 0. 0. D. C. 0. D. items are handled in the same way as the Sundry Debtors items. All C. 0. D. sales are entered under this head, and each sale is allowed two lines. Great Western Factory. This factory is owned and operated by the M. D. Wells Co., which conducts the business represented in the following transactions. The factory bills its product to the House, however, just as any other factory would, and its account is kept in the same way as any other personal account with a creditor. Its bills are always net, and settlements with the factory are made periodically, whereas bills against us by other factories are usually settled separately as they mature. Personal accounts are kept with all creditors, and all purchases are carried through the ledger whether they are for cash or not. Personal accounts are kept with all regular customers, and all sales to them are carried through the ledger whether they are for cash or not. 154 BOOT AND SHOE BUSINESS All sales for cash that are not made to regular customers who have accounts on out books are entered as Petty Cash Sales. No account is kept in the ledger with Petty Cash Sales, as the footing of the Petty Cash Sales column in the cash book is entered in the sales book. Dating Bills Ahead. This is a common custom in the boot and shoe business, as well as in many other lines. The buyer must place his orders many months before the season opens, both in the spring and in the fall. The shipper cannot hold all orders until March 1 or August 1, as the case may be, and ship all out the same day. He prefers to fill the orders and ship them at times which suit his convenience. The buyer has no objection to this, provided he does not have to pay the bill at an early date. Hence the custom has arisen of shipping early and dating ahead. The seller is usually willing to allow the buyer to discount such a bill, allowing him a certain per cent or fraction of one percent for every month of anticipation. TRANSACTIONS FOR JUNE This set is on the individual business practice plan with which you are familiar. All cash received will be deposited daily, and all payments will be made by check. Use the same filing device you used in Part I. No instructions for filing will be given, as you should know how to attend to this without assistance by this time. Specific instructions for bookkeeping will be given only for transactions that present some new features. JUNE 1. 19—. The ledger of the M. D. Wells Co., located at the corner of 5th Ave. and Monroe St., Chicago, 111., was closed at the end of May, and the balances brought down, all dated June 1, are as shown by the following trial balance. Balance of Balances, June 1, 19 — . 1 Investment (the capital account) 74747 20 1 Real Estate (Inventory) 35560 1 Furniture & Fixtures (Inventory) 5850 2 Horses & Wagons (Inventory) 875 2 Mdse 29703 45 3 Interest & Discount (Inventories) 5 1 15 5 Notes Receivable 1250 5 Wm. Anderson, 307 W. 69th St. ' 346 75 6 Fargo, Keith & Co., 147 5th Ave. 250 8 E. E. Merville, Cleveland, 0. 79 65 8 S. H. East, Indianapolis, Ind. 126 70 10 Notes Pay. 345 60 10 Guthmann, Carpenter & Telling, 222 Franklin St. 782 25 10 H. F. C. Dovenmuehle & Son, 248 Monroe St. 1146 78 11 Bradley & Metcalf Co., Milwaukee, Wis. 576 83 13 Great Western Factory, Fond du Lac, Wis. Cash 1124 4140 89 50 1712 13 79311 94 79311 94 According to instructions, your ledger headings have all been written. Enter in the ledger the items shown in the above trial balance, with the explanation "Inventory" or "Balance" in each case. Write the cash balance in the General column on the debit side of your cash book. See the illustration of the cash book, pages 142 and 143. TRANSACTIONS FOR JUNE 155 The cash is all in the bank. Enter the amount, $4140.50, on the stub of your check book, and have it entered as a balance in your pass book. (Use your old pass book.) If your school has a bank, your banking business should be conducted through it. Inasmuch as the bank will have accounts with a number of students, your account can be kept on its books as " (Your Name) for M. D. Wells Co."* The notes receivable are Incoming Paper No. 70 and Incoming Paper No. 71. Enter them as Notes Receivable No. 1 and 2. Notes Payable No. 1 is our 30-day note in favor of Pingree & Co. It is for $345.60 and is dated May 12. It bears 6% interest. Enter these facts in your Notes Payable Book. Compute the interest secured on notes receivable and payable. Are the interest inventories correct as shown in the trial balance of June 1 ? Now take a trial balance from your own ledger to make sure that you have made no mistakes in entering the balances and inventories. You are now ready to proceed with the transactions of June 1. JUNE 1 Pay the taxes on our real estate, b}' check No. 1 for $35.00. The check should be drawn in favor of John P. Thompson, Cook County Collector. The receipt for this is Incoming Paper No. 72. Note that the receipt shows that a valuation of $35000.00 was placed upon our property by the assessor. The property was taxed one-half of 1%, based upon a one-fifth valuation. Verify the correctness of the amount of the tax, on this basis. Make the bookkeeping entry on the credit side of the cash book, in the Expense column, and place a check mark in the folio column, as shown in the illustration of the cash book, on pages 142 and 143. Deliver the check to the County Collector by placing it in the outgoing papers section of the file. In the future please bear in mind that outgoing mail is always to be placed in this section of the file. Attend to this and other filing in future without special instructions. Use your old file. Receive an invoice (Incoming Paper No. 73) and pay it at once by check. Two book- keeping entries are required. The entry in the journal is made first; then the cash book entry. You will find the cash book entry illustrated in the model on page 143. "Wos." is the abbreviation commonly used in the boot and shoe business for "Women's." In making the journal entry, it is not necessary to itemize the goods bought, because the items are shown in detail on the invoice, which you keep in your files. In your explanation it is only necessary to refer to this invoice, giving its date. (Sometimes invoices are numbered as they are received, and are referred to by number.) Read the terms carefully. Note that we are allowed to deduct interest on $126.00 for 30 days at 8% per annum if we pay the bill today. This is not, strictly speaking, a cash discount, but for purposes of bookkeeping it is entered in the cash discount account. The matter is fully discusesd in the note at the bottom of page 144. Note that the invoice is already receipted. It is assumed that this is done at the time the amount is paid by you. JUNE 2 Sell to Wm. Anderson, 307 W. 69th St., City, on account, terms 1/10 n/30: 1870 7 pairs Men's Box Calf Bluchers at $2.65 442 7 " Men's University Patent Bluchers " 2.95 675 6 " Youth's Patent Leather Bluchers "2.40 * The teacher will have to make good to the bank the amount of this balance, either by check or by a cash deposit. Blu. = Bluchers 0. G. Pat. = Patent Bals. Lea. = Leather Kang. Ox. = Oxfords Vel. Butt. = Button Gr. 156 BOOT AND SHOE BUSINESS Make out an invoice. Give the invoice our number 1. Fill in the date, name and address, and terms, in the spaces provided. Do not fill in the space opposite the words "Shipped Via," because the goods are not shipped out of the city. In filling in the items do not use the words "Stock No.," "Pairs," etc., because these words are already printed at the heads of the columns. The following abbreviations should be used in billing: =Oil Grain Pol. = Polish = Balmorals Russ. = Russet = Kangaroo Wos. = Women's =Velour Dong. =Dongola = Grain Cong. == Congress Hereafter make out invoices for all sales to persons having accounts with us without being reminded. Your attention will not be called to this again. "Terms 1/10 n/30" (1% 10 days, net 30 days) means that the bill was sold on thirty days' credit, but that the customer can secure a 1% cash discount if he will pay within ten days. These are our "Reg- ular" terms of sale for everything except rubber goods, and hereafter the expression "Terms Regular" will be used to indicate "terms 1/10 n/30." Be sure to get the stock numbers right when you make the entry in the sales book, as the description is not complete without it. The description always tells whether the article described is for men, women, youths, boys, girls, children, or infants. It usually tells the quality of the leather, as "Calf," "Patent leather," "Vici Kid," "Velour," etc., and the shape or style of the shoe, as "Blucher," "Congress," etc. Besides this it often uses a name indicating the brand, such as "Mastiff," "University," "Anchor Brand," etc. Yet with all this the description is incomplete without a stock number. There might be a dozen different shoes which could be described as "Men's University Patent Leather Bluchers," but the descrip- tion "Stock No. 442" would show definitely which one of them was meant. JUNE 3 Receive an invoice (Incoming Paper No. 74). The terms on which the goods were purchased are printed on the invoice. Be sure to make a note of them in your journal entry. Pay Bradley & Metcalf $553.76 by check. This is for goods purchased May 25 amount- ing to $576.83, on the terms 4/10 n/30. Bradley & Metcalf's account in the ledger stands credited with this amount. It is necessary to make the remittance today so that it will reach them on June 4, in time to entitle us to the discount. Enter the net amount of the payment in the General Column of the cash book, credit side, and the amount of the discount in the Cash Discount Cr. column. JTJNE 4 Sell to O'Connor & Goldberg, 144 Clark St., the following goods, terms Regular: 761 18 pairs Men's Oil Grain Seamless Balmorals at $1.50 1330 18 " Little Gents' Kid Blucher "Mastiff" " 1.35 2408 12 " Wos. Tan Vici Bluchers " 2.25 Sell for cash to a dealer who has no account with us, 14 pairs No. 427 Men's Russet Grain Bluchers at $2.50 net. Make the entry in the petty cash sales column of the cash book. It will not be necessary either to make out an invoice or to give a receipt, as the customer has not asked for either. Take the proper amount of currency from the currency envelope. Enter the amount in the Petty Cash Sales column in the cash book. Deposit the currency, and in future deposit all currency and checks received on the same day they are received. You will not be reminded of this again. TRANSACTIONS FOR JUNE 157 JUNE 5 Receive a check from E. E. Merville on account (Incoming Paper No. 75). This check is to cover an invoice amounting to $79.65 which we sold to him on May 26 on our regular terms. He drew his check for $79.00, which was 15^ more than the net amount due us, so that we would not lose the amount of the bank's fee for exchange. When a bank cashes an out-of-town check, it charges a fee for the service, except when the check is drawn upon a bank with which it has an agreement that each will cash free of charge checks drawn upon the other. This fee is called exchange. Anyone sending to another city a check drawn upon a local bank, should make his check lai^e enough to cover exchange, unless he knows that no exchange will be charged. Credit E. E. Merville for the amount of his remittance (less 15^) in the General column on the debit side of the cash book. Write the amount of the discount on the same line. On the next line, enter the amount sent to cover the exchange (15c8. 32-in. Swiss mull, 24 yds. each, *** yds. at .** Paid Marshall Field & Co.'s mvoice dated August 22, for $110.00. SEPTEMBER 2i Received the Lawndale Dry Goods Co.'s 30-day note at 6% for the invoice sold them on September 12. Bought Mdse of Marshall Field & Co. amounting to $132.30. Terms, 6/10 5/30 4/60. Paid John V. Farwell & Co. for their bill of September 12, less 6% discount. Deduct the amount of the allowance they made to us on Sept. 14 before computing the discount. Discounted at the bank at 4% the interest-bearing note received today from the Lawndale Dry Goods Co. Purchased Mdse amounting to $59.60 from Carson, Pirie, Scott & Co., terms net 30 days. Received Chicago exchange from Tom Smith, Peoria, 111., in settlement of our bill against him dated September 14. Received a credit memorandum from Marshall Field & Co., $7.35, to cover a short- age on goods received from them today. SEPTEMBER 26 Paid Marshall Field & Co.'s bill of the 17th inst., less discount. Mr. Austin submits a report of traveling expenses amounting to $51.50. Paid Mr. Leonard's salary in cash. Post your books. 198 DRY GOODS BUSINESS SEPTEMBER 28 Sold to J. H. McCabe, 716 47th St., City, terms 2/10 n/30: 4 pes. Dwight Anchor 9-4 sheeting, bleached, 41, 40J, 42, 39i— *** yds. at 24^ 3 pes. Amoskeag XX ticking, 33, 34, 34 1 — *** yds. at 13^ 5 pes. Pequot 10-4 sheeting, brown, 40, 41 1, 41, 40i, 46^— *** yds. at 260 10 pes. 27-in. White India linen, 24 yd. pes., *** yds. at .** Sold to B. Nugent & Bros., St. Louis, Mo., terms 2/10 1/30 n/60: 3 pes. Gibraltar percale, 28, 30^, 293 — ** yds. at 6i0 4 pes. Amoskeag denim, 465, 45, 47J, 49 — *** yds. at 130 3 pes. Berkeley 300 cambric muslin, 57, 59J, 58 — *** yds. at 200 8 pes. 32-in. White Persian lawn, 24 yds. each, *** yds. at .** Sold to Haskett & Co., City, terms 2/10 1/30 11/6O: 30 doz. Klostersilk floss, at 30(i 3 pes. Berkeley 300 muslin cambric, 44^, 43}, 42J— ♦♦♦ yds. at 200 3 pes. Imperial chambray, 51, 53j, 54 — *** yds. at 110 10 pes. 45-in. White French lawn, 35 yds. each, *** yds. at .** SEPTEMBER 29 Bought of John V. Farwell Co., an invoice of Mdse amounting to $84.50, terms 2/10 1/30 n/60. Sold to Geo. W. Graham Co., Crawfordsville, Ind., terms 2/10 1/30 n/60 6 pes. Berkeley 300 cambric muslin, 67, 60, 59 J, 58, 60, 60i— *** yds. at 200 6 pes. Amoskeag denim, 46^, 45, 47f, 49, 48 — *** yds. at 130 4 pes. Gibraltar percales, 28, 30^, 29 f, 29— *♦* yds. at 6i0 Also the following, billed at 6/10 5/30 4/60: 10 pes. 36-in. Handkerchief linen, sheer, 12 yds. each, *** yds. at .*• 12 pes. Princess longcloth, 12 yds. each, *** yds. at .** Petty cash sales for the day, $35.20. SEPTEMBER SO The Geo. W. Graham Co. put in a claim for $24.00 for goods received in damaged condition and we allowed this claim. Paid Mr. Austin's salary, $100.00, in cash. Post, take a trial balance, make statements, and close ledger accounts, following the instructions given on August 31. In making your statements, use the following inventories : Merchandise $12769.65 Furniture & Fixtures 875.00 Unexpired Insurance, 10 months ** ** Trunks 32.50 Salary earned and unpaid, 3 days 10.71 Int. due on note favor Lord & Thomas ^** SUPPLEMENTARY PROBLEMS The purpose of the work which follows is to give you practice in solving some of the problems most frequently arising in practical accounting, and at the same time to give you a broader comprehension of the subject through familiarizing you with many new terms, and showing you how the principles you learned can be applied to many new con- ditions. In mastering these problems, you wUl receive much more benefit than that derived from the keen mental exercise they will give you; for each problem presents some important phase of accounting or of business. A careful study of the problems in this section will give you a sharper appetite for the more advanced accounting which you will encounter in your study of Wholesale Accounting, Mercantile Accounting, and Modern Corporation Accounting. THE MERCHANDISE ACCOUNT SUBDIVIDED In all of your work except the last set, j-ou carried in your ledger one Mdse. account, which was debited with all costs of Mdse and credited with all returns. In houses where the bookkeeping is vol- uminous or it is desired to more closely anal3'ze the trading transactions, it is usual to subdivide the Mdse account. One subdivision of the Mdse account was illustrated in the last set. The following exercises illustrate several other more or less extensive subdivisions of the Mdse account. PROBLEMS Problem 1. Mr. A keeps three Mdse accounts, called respectively Mdse Sales, Mdse Purchases, and Mdse-Gerierul. Mdse-General shows an inventory of $6574.50. Mdse Sales is credited $1245.00 and debited $143.25. Mdse Purchases is debited $2369.70 and credited $175.00. Open these three accounts, filling in amounts only, without dates or explanations. Close Mdse Purchases and Mdse Sales into Mdse- General. Close Mdse-General with an inventory of $7813.69. What is the gain on Mdse? What is the cost of the goods sold? What is the percentage of profit, based on the cost of the gootls sold? What is the percentage of the "turn-over;" that is, what ratio does the cost of the goods sold bear to the entire cost of the goods handled? Problem 2. Mr. B keeps the same accounts as Mr. A in problem 1, and he also keeps an In-Freight account and an Out-Freight account (In-Freight includes freight and drayage on goods coming into the store; Out- Freight includes freight and drayage on goods shipped out.) These accounts stand as follows: In-Freight, Dr. 125.00; Cr. 13.50. Out-Freight, Dr. 64.75; Cr. 23.50. Mdse Sales, Dr. 15.60; Cr. 1343.65. Mdse Purchases, Dr. 1500.00; Cr. 120.00. Mdse-General has an inventory dated the first of the month, of $5360.00. Open the accounts. Close In-Freight into Mdse Purchases. Close Out-Freight into Mdse Sales. Close Mdse Sales and Mdse Purchases into Mdse-General. Close Mdse-General with an inventory of $5495.75. Answer the questions asked at the end of problem 1. Problem 3. Mr. C keeps a very complete system of Mdse costs and returns. The following chart will show you at a glance what trading accounts he keeps and how he closes them, as well as showing how these accounts stood at the time of the last trial balance. You will have to determine which items are debits and which are credits. Accotmts Kept by Mr. C. Cash Dis. Dr. Debit footing $74.50 ^ Out-Freight Paid for freight $49.70 I Mdse Sales Charged back to customers $10.00 (" Total Sales $1569.00 _ . .. J Rebates By Us Total allowances to customers $27.65 Cash Dis. Cr. Credit footing $210.50 In-Freight Paid ior frei^t $220.00 Charged back to creditors $76.25 Rebates To Us Total allowances by creditors $70.00 Mdse Purchases Total Purchases $1246.79 Mdse-General Last In- V e n t o ry $7895.00 Open all accounts with the items shown in the above list. Close them in the order suggested by the outline, closing Mdse-General last with an inventory of $8150.00. Answer the questions asked at the end of Problem 1. 199 200 SUPPLEMENTARY PROBLEMS COSTS AND EXPENSES SUBDIVIDED Problem 4. Mr. D, a manufacturer of Tools and Implements, must keep records not only of his purchases and sales, but of his costs of manufacturing. The outline below shows what trading and manu- facturing accounts he keeps and how he closes them, as well as showing you the condition of these accounts at the time of the last trial balance, June 1. You will have to determine whether the amounts are debits or credits. Accounts Kept by Mr. D. Materials Invty June 1, $6726.00 Purchased during June $789.50 Labor Invty June 1, $125.00 (brought down on Credit side) Payrolls during June $457.50 Buying Expense Buyers' Salaries & Exp. $476.25 In-Freight Paid for freight $72.60 Charged back to creditors $10.00 Cash Discounts on Purchases Total discounts taken $100.50 Rebates and Allowances on Pur. Total footing $25.00 Selling Expense Salesmen's Salys & Exp. $650.00 Shipping Expense Salys and Exp. $100.00 Out-P'reight Paid for freight $97.20 Charged back to customers $12.50 Cash Discounts on Sales Total discounts allowed $220.00 Rebates and Allowances on Sales Total footing $10.75 ' Mfg. Cost Sales Total sales for June, $3924.50 Tools & Implements (The Mdse ucct) ' Inventory June 1, $24350.00 Explanation The Materials account contains a record of costs of Materials purchased. This account is often greatly subdivided, separate accounts being kept with all classes of materials used. The Labor account contains a record of all costs of labor of manufacture. The inventory June 1 is the amount of unpaid wages due workmen at that time. This account is often greatly subdivided, separate accounts being kept with all the different classes of labor performed. Buying Expense. The house has to employ buyers to select the materials used. Their salaries and the expenses they incur in the business trips they must take from time to time are properly chargeable to this account. Open accounts with the balances given in the outline. Close the accounts as indicated by the out- line, using the following inventories, and dating the closing entries June 30: Materials (raw materials and unfinished tools and implements) $6543.60. Labor (unpaid wages of workmen) $56.70. Tools & Implements, $25467.75. Find the gain. SCHEDULES In most lines of business, the number of accounts in the ledger or ledgers is so great that a statement showing them all in detail would be a very long document. The custom has therefore arisen of showing condensed statements, so called because items of a similar kind are condensed into a single item in order to make the statement shorter and more easily comprehended. The items so condensed are shown on separate sheets, called schedules. Thus, all sales accounts might be shown on a schedule, and their total- only shown in the statement. Purchase accounts, notes receivable, notes payable, inventories, etc., may also be treated in this manner. SCHEDULES 201 Problem 6. CONDENSED FINANCIAL STATEMENT Assets Cash See Schedule A Properties See Schedule B Mdse Invty See Schedule C Expense Inventys-Assets See Schedule C Notes Rec. with accrued Int See Schedule D Accounts Receivable See Schedule D Total assets lAabUities Expense Invtys-Liabilities See Schedule C Notes Pay. with accrued Int See Schedule E Accounts Payable See Schedule E Total liabilities Net Investment **** ** ***** ** **** ** *** ** *** *♦ **** ** *4c«*4t ** ** ** ****** *** ** Cash Assets — Schedvile A Cash in Safe $ 250.00 Cash on Hand at Branch Store 75.50 On Deposit 1st Natl 1256.00 2d Natl 780.00 Petty Cash 45.75 Properties — Schedule B Store & Lot at 236 Main St. Barn at 5673 Church St. 2 Horses and 2 Wagons Furn. & Fix. at 236 Main St. Mortgage, 238 Main St. *4t** ** $12500.00 725.00 520.00 825.00 4000.00 ***** ** Merchandise and Other Inventories Schedule 2000 bu. Wheat at $1.05 4000 bu. Oats at .60 3000 bu. SheUed Corn at .56 Total Mdse Postage Stamps Unused 10 Mo. Fire Ins. Unexpired Total Ex. Invtys-assets Less Sal. due employees ****** **** ** $12.00 100.00 27.50 «:* ** Notes and Accts Rec — Schedule D Sales Accounts Dr J. D. Arnold E. C. Smith >■ A. L. Adams Jno. C. Stamp Less E. B. Hamilton Cr. Bal. Notes Receivable (Int. Accrued) C.O.Bowman $100.50 (2.25) R. A. Gates 475.00 (1.27) 125.00 472.00 275.65 756.70 **** ** 2 35 **** ** *** ** **** ** Notes and Accts Pay. — Schedule E Accoutits Frank P. Carson 500.00 Victor Moore 127.75 Notes (Int. Accrued) F. L. Steams $1000 .00 (4 . 50) A. D. Wilt & Co. 750 .00 (2 . 17) Prepare the five schedules and the financial statement. 202 SUPPLEMENTARY PROBLEMS CORRECTIONS AND ADJUSTMENTS / Read again the instruction for Correcting Errors, given on page 171. Problem 6. On Jan. 24, 19 — , you debited the Expense account for a freight bill of S27.50 for Mdse received. On January 27 you discovered your error and made a correction entry in the journal. Show the entry. Problem 7. During the month of January, 19 — , four C.O.D. sales were made, totaling $240.00. These were entered in the sales book at full price, and posted to the C.O.D. account. The collections were made on a basis of 1% discount, and the C.O.D. account credited with net cash returns only. What entry is necessary to balance the C.O.D. account? Adjustment Entries. An adjustment entry is an entry which is made for the purpose of changing or altering certain balances so that they shall more correctly represent business conditions. An instance of this is an entry which equalizes partners' accounts, the consideration being a payment from one partner to the other not entered on the books. Another instance is an entry crediting the partners with interest on their respective investments; such an entry equalizes or adjusts the difference between the partners arising from the fact that the investment of one is larger than that of the other. A correction entry is usually occasioned by a definite error or omission of an entry; an adjustment entry is usually made neces- sary by some wrong condition that does not show in any specific entries in the books. Problem 8. W. J. Simms and R. E. Glavis are partners under an agreement that they are to share gains and bear losses equally, the difference in their average investment being adjusted on a basis of 6% interest. At the end of the year 1910 it is found that W. J. Simms' average investment has been $9000.00, while the average investment of R. E. Glavis has been $6000.00. Three ways of adjusting the difference in investment are proposed: First, each partner to be credited with interest on his total average invest- ment; Second, W. J. Simms to be credited with interest on the excess of his investment over that of his partner; Third, one partner to be credited and the other debited with a certain amount. Make a proper journal entry for each case. State what would be the effect of each plan upon the firm's showing of profits for the year, and upon its net capital, as shown in the statements before closing; as shown by the closed ledger. Problem 9. A and B are partners in business under an agreement that they are to keep the amounts of their investments equal and are to share equally in gains and losses. The fiscal year ends July 1, 19 — , On January 1, 19 — , B withdraws $1000.00 from the firm. Money is considered worth 6%. At the end of the fiscal year, July 1, three methods of settlement are proposed: First, B to pay A a certain amount of cash; second, B to pay into the business a certain amount of cash; third, A to withdraw a certain amount of cash. State the equitable amount in each case and tell what the debits and credits on the books would be. Problem 10. H. S. Gray and W. H. Butler are partners whose investments are respectively 40% and 60% of the entire capital. They have on hand R. E. Parker's note for $750.00 which Mr. Gray con- siders bad. Mr. Butler disagrees with him, and offers to buy his share of the note for $250.00. Show the necessary journal entry, making proper explanations. PARTNERSHIP Problem 11. Jan. 1, 1910. E. M. Adler and Claude Brown united in business. Mr. Brown invested. Mdse, $3500.00; Accounts Receivable, $1500.00; and brought into the partnership debts amounting to $650.00, $100.00 of which was on a note. Mr. Adler invested: Furniture and Fixtures, $534.50; Mdse, $362.75; Accounts Receivable, $2050.00; and brought into the partnership accounts payable amounting to $750.00. Each partner deposited to the credit of the firm cash enough to bring his total investment up to $7500.00. The profits of losses were to be divided equally. Journalize the opening entries and post them to the ledger. During the year following, the business done was as follows: Mdse purchases on account, $12500.00; Mdse sales on account, $20560.00; cash sales of Mdse, $2500.00; cash received on account, $17240 00; cash paid on account, $13430.00; note paid (with $1.50 interest), $101.50; expenses for the year, paid in cash, $3875.60; cash invested in real estate, $5000.00; E. M. Adler and Claude Brown each withdrew $50.00 a month in cash, throughout the year (not salary). Make the journal entries for the foregoing, dating them Dec. 31, 1910, and post them. proprietors' private accounts 203 At the close of the year, Adler & Brown found that they had on hand fvimiture and fixtures valued at $510.00 and a stock of Mdse worth $4234.50. They valued the real estate at cost. Take a trial bal- ance and make statements, as of Dec. 31, 1910, showing the condition of the business and the investments of the partners after the profits of the business hud been credited to them. Jan. 1, 1911. Claude Brown retired from the business. Upon the consideration of his absolute withdrawal from the same line of business in the same city for five years, E. M. Adler agreed to pay him $3000.00 more than the balance of his investment. The cash balance was not large enough to permit a cash settlement with Mr. Brown, but there were several ways in which a settlement could be effected. Make the journal entries required for each of the following cases. Case 1. Claude Brown selected $6000.00 worth of customers' accounts which he considered good, and Adler & Brown assigned them to him, together with cash for the balance of his investment as shown in the ledger. E, M, Adler gave him his note for the $3000.00 bonus, charging Goodwill. GOODWILL The reputation and standing of a business house, the fact that it is well known to those who buy the things it has for sale, and many other factors, combine to produce a strong probability of future patronage, which probability has a money value, and is called Goodwill (i.e., the goodwill of the community, which the house has earned). This Goodwill often exists without any showing on the books (in fact, more often than not this is the case); but when money is actually paid out to an incoming partner for goodwill he brings with him or to an outgoing partner for goodwill he leaves behind him, an account should be opened called Goodwill, which should be charged with the amount of Goodwill purchased. Goodwill is an asset. It is an uncertain asset, it is true, because a breath of suspicion may cause it to dissolve and vanish at once and for the further reason that its value is always a debatable quantity. Hence it is a dangerous item to carry on the books, and the greatest judgment must be exercised in determining the extent to which it shall be carried. A safe rule is to carry such items only when goodwill is actually bought or sold, as suggested above. When it does appear on the books, however, it appears as an asset; if money is received from an incoming partner for his share of the goodwill of the business (i.e., goodwill is sold), the goodwill account should be credited if there is a goodwill account already on the books which adequately represents the value of the firm's goodwill; but if not, the item should be credited to the investment accounts of the original partners or paid to them in cash or other assets; thus the debit side of the good- will account will always be the larger unless the account balances. Case 2. Claude Brown owes a personal note of $5000.00 to the First National Bank, which Adler assumes; Adler gives Brown his note for $4000.00, and pays him cash for the balance due him including the $3000.00 bonus for his share of the goodwill. Note: — If Mr. Brown's share of the goodwill was worth $3000.00, Mr. Adler's share should be estimated at a like sum. If Mr. Adler should wish this additional $3000.00 worth of goodwill to show on the books, he could debit Goodwill and credit his investment account for the amount. PROPRIETOR'S PRIVATE ACCOUNTS The proprietor may wish to keep a separate record of current petty charges and credits on his own account. In this case he opens an account for this purpose which he calls his "private" account, to dis- tinguish it from his "investment" account. This plan of keeping a private account and an investment account is particularly desirable when there are partners whose investments should constantly bear a certain proportion to each other. The private accounts of the partners are debited with all small charges for merchandise or cash withdrawn, and credited with payments made on them, if any. The losses and gains of the business are usually carried to the private accounts. The investment accoimts remain unchanged, except when by special agreement a partner increases or decreases his own capital. When interest is allowed each partner on his investment, this interest is figured on the balance of the investment account, and is usually credited to the private account. Should the balance of the private account grow to any considerable amount, it or a part of it may be closed to the investment account, thus increasing or decreasing the latter. There is no legal distinction between the two accounts; the distinction is a purely technical one in bookkeeping, and the two accounts are usually kept separate for purposes of business convenience solely. \1 204 SUPPLEMENTARY PROBLEMS Problem 12. Geo. S. Harding and E. H. Swift are partners. Each has an investment account and a private account in the ledger. They are to divide gains or bear losses in the proportion which their investment accounts bear to each other. Gains are carried to the private accounts, but each has the privilege of adding to his investment as often and as much as he wishes. The smallest balance shown by a partner's investment account during a given period is the amount on which his share of the gain is to be figured. On Jan. 1, 19 — , the proprietor's accounts stood as follows: Geo. S. Harding — Invest- ment, Cr., $10000.00; Geo. S. Harding— Private, Dr., $27.50, Cr., $128.75; E. H. Swift— Investment, Cr., $7000.00. E. H. Swift— Private, Dr., $15.00, Cr., $90.13. Open four ledger accounts as above, and enter in them the debits and credits affecting them in the following transactions. 19—. Jan. 4. Geo. S. Harding withdrew $5.00 in cash. Jan. 6. E. H. Swift took Mdse for his own use, $15.70. Jan. 31. The gain for the month, $319.60, was divided between the partners. Feb. 2. E. H. Swift lost $10.00 of the firm's money. Feb. 15. Geo. S. Harding took Mdse for personal use, $24.50. Feb. 28. The gain for the month, $285.60, was divided between the partners. Feb. 28. Geo. S. Harding increased his investment $400.00, withdrawing the amount from his private account. Mar. 5. E. H. Swift withdrew $100.00 for personal use. ' Mar. 10. Geo. S. Harding took Mdse worth $12.50 for his home. Mar. 15. E. H. Swift withdrew $150.00 from his personal account and added it to his investment. Mar. 31. The loss for the month was $86.40. Close the two private accounts. Problem 13. M. H. Tiffany, E. C. Case, and G. D. Ware are partners under an agreement that each shall be allowed interest at 6% on the excess of his investment over the average investment, or charged interest at 6% on the deficiency if his investment is less than the average, the gains or losses to be equally divided. Mr. Tiffany is a dormant partner, Mr. Case draws a salary of $125.00 a month, and Mr. Ware draws a monthly salary of $75.00. Open six ledger accounts as of Jan. 1, 19 — , as follows: M. H. Tiffany —Investment, Cr. $15000.00; M. H. Tiffany— Private, Cr. $120.00; E. C. Case— Investment, Cr. $10000.00; E. C. Case— Private, Dr. $65.00, Cr. $100.00; G. D. Ware— Investment, Cr. $5000.00; G. D. Ware- Private, Dr. $23.50. 19—. Jan. 5. G. D. Ware withdrew cash $10.00. Jan. 7. E. C. Case turned over to the firm a second-hand bookcase for which he was allowed $23.50 on his private account. Jan. 20. M. H. Tiffany drew against the firm for $50.00 and the draft was honored. The salaries of the partners were credited to them. The interest on the investments of the partners was adjusted. The gain of the business for the month was $852.00. M. H. Tiffany increased his investment $3000.00 by a cash payment. E. C. Case took Mdse for his personal use, $37.50. G. D. Ware withdrew cash, $12.50. M. H. Tiffany's bill for personal taxes due the city was at his request paid by the firm in G. D. Ware's salary was paid to him in cash. Mr. Case's salary was credited to him. The interest on the investments of the partners was adjusted. The gain of the business for the month was $762.75. Each partner added $500.00 to his investment, taken from his private account. Close the partners' personal accounts. PRIVATE LEDGERS When it is desired to withhold from the bookkeepers certain important facts in regard to the business, this can be done through the use of a private ledger, the aggregate footings of this ledger, or the total of its balance, being supplied for the completion of the trial balance. Jan. 31. Jan. 31. Jan. 31. Jan. 31. Feb. 3. Feb. 7. Feb. 8. cash, $14.50. Feb. 28. Feb. 28. Feb. 28. Feb. 28. CONTROLLING ACCOUNTS 205 Problem 14. Mills & Co. is a partnership of three persons whose investment accounts are kept in a private ledger, though their private accounts are kept in the general ledger. The Real Estate account is also kept in the private ledger, the Reserve for Depreciation on Real Estate account being kept in the general ledger. The trial balance of the general ledger is as follows: Cash, $1562.50; Mdse, Dr. $8750.65, Cr. $763.49; Expense, $275.40; Accounts Receivable, $1456.70; Accoiuits Payable, $476.50; E. C. Mills (Prop.)— Private Accovmt, Dr. $10.20, Cr. $100.00; H. W. Roberts (Prop. )— Private Account, Dr. $14.50; F. E. Hauser (Prop.) — Private Account, Dr. $4.50, Cr. $50.00; Reserve For Depreciation on Real Estate, Dr. $200.00, Cr. $560.00. The bookkeeper is given the balance of the private ledger, $****.**, and is informed that $100.00 is to be allowed for depreciation on real estate. The merchandise inventory is $8500.00. Make the entry for depreciation on real estate. Prepare a trial balance before closing, statements, ftnd a trial balance after closing. (In reconciling the results of the two statements, i.e., preparing the "proof," at the bottom of the Loss & Gain statement, bear in mind that the present worth equals the sum of the Reserve for Depreciation on Real Estate and the balance of the Private Ledger.) You will have to determine from the figures you have, the amount of the balance of the general ledger in each trial balance. In practice this figure would be supplied to you or your figures would be checked by the person having charge of the genera) ledger. CONTROLLING ACCOUNTS \x This is the term applied to accoimts in the general ledger which represent in each case the aggregate balances of accounts of a certain kind kept in a special ledger, the controlling account alone appearing in the trial balance. An instance of this is the Accounts Receivable account in the general ledger, which represents the totals of the sundry sales accounts in the sales ledger. You have already worked some problems in which his account has appeared. The term "controlling account" is a misnomer, as the smaller accounts really control the larger one and indicate what its balance is. The term "representa- tive" would be a better one, but custom seems to favor the word "controlling." An extended discus- sion of controlling accounts cannot be given here, but a problem is given which will illustrate the use of a controlling account in connection with individual customers' accounts. Problem 15. Books kept: Sales Book, Three-column Cash Book (Dr. side only). Journal, Sales Ledger, and General Ledger. Rule: — Whenever items are posted to customers' accounts in the Sales Ledger, their total should be posted to the General Ledger in the usual way and should also be posted to the Accounts Receivable account in the General Ledger on the same side as that affected in the Sales Ledger. Sales were made as follows: March 1, 19 — . D. G. Calvert, $15.60; Mar. 2, T. B. Sullins, $25.75; Mar. 3, Jas. Wilson, $35.60; Mar. 7, D. G. Calvert, $23.70; Mar. 10, L. A. Arnold, $10.54; Mar. 13, Jas. Wilson, $15.20; Mar. 15, T. B. Sullins, $10.00; Mar. 20, D. G. Calvert, $40.50; Mar. 21, L. A. Arnold, $23.65; Mar. 23, T. B. Sullins, $20.00; Mar. 27, L. A. Arnold, $43.60; Mar. 28, D. G. Calvert, $23.50. Enter them in the Sales Book. Post the entries to the Sales Ledger. Post the total to the debit of Accounts Receiv- able and to the Credit of Mdse Sales in the General Ledger. Cash Payments were made as follows (The debit columns of the cash book are headed, from left to right. Cash Discount, Accounts Receivable Credits, General): March 11, 19 — . D. G. Calvert, $15.60 less 2%; Mar. 12, T. B. Sullins, $25.75 less 2%; Mar. 17, D. G. Calvert, $23.70 less 2%; Mar. 20, L. A. Arnold, $10.54 less 2%; Mar. 23, Jas. Wilson, $15.20 less 2%; Mar. 25, T. B. Sullins, $10.00 less 2%; Mar, 30, D. G. Calvert, $40.50 less 2%; Mar. 31, L. A. Arnold, $23.65 less 2%. Enter them in the cash book. Post them separately to the sales ledger. Post the total of the Cash Discount column in the cash book to the debit of the Cash Discount account and to the credit of the Accounts Receivable account. Post the total of the Accounts Receivable Credits column to the credit of Accounts Receivable and enter the footing in the general column on the debit side of the cash book. On Mar. 16, Jas. Wilson gave us his note for $35.60. Make a journal entry. Post the credit item to Jas. Wilson's account in the sales ledger and also to the Accounts Receivable account in the general ledger. The ledger is not thrown out of balance by this "double posting," since only the controlling account appears in the trial balance. The effect of the double posting is to keep the sales ledger and the Accounts Receivable account in the general ledger in agreement. 206 SUPPLEMENTARY PROBLEMS If you have followed the rule stated at the beginning of this problem, the sum of the sales ledger bal- ances should equal the balance of the Accounts Receivable account in the general ledger. Prepare an Accounts Receivable Proof, which is a list of the balances of the sales ledger accounts showing that their total equals the balance of the controlling account in the general ledger. Prepare a trial balance of the general ledger. / INVENTORIES Inventories are of three kinds. (1) Property that is bought and sold in the regular course of business — a resource inventory. (2) Property that is part of the permanent fbced investment. Real estate, furniture & fixtures, horses & wagons — resources. (3) Unexpired or unused parts of items which have been charged to Expense. "I Resources Accrued interest due us from others. j Accrued expenses of any kind for which bills have not been submitted to us. \ y . j^-i-^- Accrued interest due others from us. / ^'^DUiues. 1. Property that is bought and sold in the regular course of business. The problem of ascertaining the Mdse inventory is very simple and easily understood. All that is necessary is to count the quantities of each item on hand, multiply the quantity by the price in each case and find the total. Stock records can be kept so as to obviate the necessity for actually handling the goods (i.e., taking a physical inventory) and various schemes for keeping an inventory of Mdse by account- ing have been devised. The final test of the Mdse inventory, however, is its exact count and actual valu- ation (what it would cost to replace it at the time provided this is not higher than original cost), and there are few merchants who do not take an actual physical valuation of stock at least once a year. 2. Property that is part of the fixed investment may be coimted and valued in the same way, but ordinarily such items are simply kept on the books at a valuation which is regularly and uniformly reduced from year to year so as to provide for deterioration, wear and tear, obsolescense (going out of use) and so forth. This reduction may be accomplished in either of three principal ways: (a) The amount of the inventory may be reduced; (b) A part of the profits can be set aside as a reserve from which to repair and replace the property as it wears out; (c) Heavy repairs may be made, thus greatly improving the prop- erty and making it unnecessary to depreciate the inventory, which remains unchanged, as the repairs are charged to a separate account, which is classed as expense. If depreciation is not made periodically on the books, nevertheless depreciation is in fact constantly going on, and when a proper valuation is eventually made it will seem that a heavy loss has suddenly occurred. This loss has not been sudden in fact, but gradual; therefore, it should be distributed equitably throughout the different periods of time and should not all fall on one period. Depreciation, whether accomplished by "writing inventories down" or by the carrying of a reserve, is merely a device for taking care of losses and renewals of property gradually in advance out of the profits of the business during the time that the depreciation in fact is actually taking place. If this were not done, the time would even- tually come when a costly property, though on the books at its original cost, would be as a matter of fact worthless. To replace it with new property would occasion such a heavy outlay that the business, although in good condition, might not be able to pay profits for years. The plan of carrying a Reserve for Depreciation account is far better than that of "writing off" peri- odical amounts from the inventory. When the reserve account is carried, the original cost of the property shows in the property account unaltered by charges for repairs and replacements or by changes caused by writing off depreciation. The repairs and replacements are charged to the Reserve for Depreciation account, when such an account is kept, and do not show in the property account. If a property inventory should be written down to less than the real value of the property (and most conservative business men depreciate property inventories rapidly), it would make a showing on the books which might be prejudicial to the best interests of the proprietor if he should wish to sell the property, or if the property should be destroyed by fire and it should become necessary to prove its value to the insurance adjusters, or if the proprietor should desire to borrow money on the property, or if any other situation should arise in which it might be desired that the book valuation of the property should not appear too small. COST OF GOODS SOLD 207 3. Inventories of expense items and interest items need only be computed, but it must be known what they are and where and how to find them. Their existence as inventories is a matter of fact with which the alert bookkeeper should be conversant, and if he does not know of their existence he should be sharp enough to discover them through an examination of cash book and bill book items and of previous inventories. If the cash book shows coal and stamps purchased, or last month's inventories show items on hand which had been charged to expense, he should determine by an examination of the premises whether any of these items are still on hand. RESERVE FOR BAD DEBTS In order to provide against the loss of a certain jjer cent of the accounts receivable as uncollectible a reserve is sometimes created under the title "Reserve for Bad Debts." This reserve is created out of profits, the Loss and Gain account (or Profit and Loss account, as it is sometimes called) being debited and Reserve for Bad Debts being credited, for an amount sufficient to provide for losses of this kind. When an account is found to be uncollectible, it is closed by an entry charging its balance to Reserve for Bad Debts. Problem 16. Trial Balance. Cash, $2040.00; Lands, $9000.00; Machinery, $7000.00; Tools, $1500.00; Mdse Inventory, $4500.00; Mdse Costs, $11000; Sales, $30500.00; Sales Returns, $230.00; Discount & Allowances on Sales, $G00.00; Wages, $6000.00; Freight & Express, $800.00; Salaries, $3200.00; Taxes, $450.00; Rents, Cr. $150.00; E.xpense, $800.00; Accounts Receivable, $5030.00; Accounts Payable, $1500.00; Capital, $20000.00. Open accounts as above. Create a Reserve for Depreciation account. Make a journal entry pro- viding for depreciation as follows: Machinery, 5%; Tools, 20%, Provide a reserve of $100.00 for bad debts (journal entry). Having failed to collect from H. J. Jones $30.00 which he owes us on accoimt, charge this item to the Reserve for Bad Debts account, crediting Accounts Receivable. Post the fore- going entries, opening whatever new accounts are necessary. Also open a Mdse-General account. The Inventory of Mdse at closing is $8500.00. Expenses amounting to $110.00 have been incurred for which bills have not been received. We estimate that discounts will be allowed on outstanding sales accounts amounting to $40.00. Prepare statements, bearing in mind that the Sales Returns, and Dis- count & Allowances accounts are subordinate to the Mdse Sales account; the Mdse Inventory, Freight & Express, and Wages accounts are subordinate to the Mdse Costs account; the Mdse Sales and Mdse Costs accounts are subordinate to the Mdse-General account; the Salaries, Taxes, and Rents accounts are sub- ordinate to the Expense account; the two reserve accounts are classed with the capital in the Profit & Loss statement since they are really profits which instead of being closed to capital have been reserved for special purposes. The net profit may be called L^nreserved Profit. Close the ledger accounts, closing all subordinate accounts named above into the accounts to which they are subordinate, then closing Mdse- General and Expense into Profit and Loss, then closing Profit & Loss into capital. Prepare a trial balance as after closing. COST OP GOODS SOLD. PERCENTAGE OF PROFIT Problem 17. What was the cost of the goods sold, in problem 16 ? What was the percent of profit on Mdse (based upon cost of goods sold) ? What percent must goods be marked above cost to cover expenses? How much should the proprietor, in problem 16, receive net for an article costing (not in- cluding freight) $5.00, in order to cover original cost, freight, the net expenses of the business, and de- preciation on tools and machinery, and to make 20% ? Assuming that he loses 5% of the sale price in discounts and allowances and that he has to set aside 2% of his accounts receivable to cover bad debts, how much must his selling price on the above article be ? Problem 18. Merchandise purchases, $15640.00; merchandise sales, $11976.00; inventory at clos- ing, $8850.00. Required the cost of the goods sold. Problem 19. Merchandise purchases, $26800.00; merchandise sales, $32500.00; inventory at clos. ing, $8900.00. Required the percent of gain on the cost of the goods sold. Prablem 20. Inventory at beginning, $3290.50; merchandise purchases, $8976.30; merchandise sales, $9849.60; inventory at closing, $5243.30. Required the percent of gain on the cost of the goods sold 208 SUPPLEMENTARY PROBLEMS Problem 21. Journalize and post the following: Jan. 1, 19 — . A began business with $5000.00 in cash. Jan. 2. He paid $3000.00 for Mdse, in cash. Jan. 3. He sold half of his Mdse. for $2000.00 cash. Jan. 4. He sold the remainder of his Mdse to B for $1400.00, receiving two notes for $700.00 each. Show trial balance and statements Jan. 31, assuming that interest has accrued on one note amount- ing to $3.15, and estimating $2.63 discount on the other note. Of the four transactions in the foregoing, two involve neither gain nor loss, one involves a gain, and one a loss. Of the two inventories, one represents gain, and the other represents loss. Read the fourth and fifth paragraphs from the bottom, page 61, Part I, and then analyze the above transactions. Explain why the difference between the assets and liabilities exactly equals the difference between the losses and gains, using the foregoing transactions to illustrate your argument. / WEEKLY PAYROLLS V Large factories and other business concerns employing many workmen, find it desirable to install a regular payroll system, usually requiring the services of a time clerk (or using a time register) and a paying clerk. As it is desirable to have each workman's envelope ready to be handed to him, the time and pay sheet should show the exact change required for each. TIME AND PAY 8HEE1 No. Name M. T. W. Th. F. s. Total Hours Rate Total Due sio S5 J2 $1 5(V 25f* 10^ 5^ U 1 Jas. Strong 10 5 10 10 10 10 55 30^ $16.50 1 1 1 1 2 L. L. Williams 8 10 10 10 10 8 56 25^ 14.00 1 2 3 Frank Burns 5 10 10 5 10 7 47 20^ 9.40 1 2 1 1 1 4 Geo. Morris 10 10 10 10 10 10 60 27^ 16.20 1 1 1 2 5 Jno. Gray 10 10 10 7 4 5 46 50^ 23.00 2 1 1 $79.10 5 3 5 3 1 1 3 1 Note that the device at the right for showing exact change also, by its totals, furnishes a check upon the accuracy of the payroll total. Rule a form similar to the above and prepare a weekly time and pay sheet for the Cummins Mfg. Co. for the week ending May 16, 19 — , from the following data furnished by the time clerk. Always use the smallest number of pieces, in figuring change. Problem 22. Geo. Gannon: Monday, 10 hrs.; Tuesday, 8 hrs.; Wednesday, 8 hrs.; Thursday, 8 hrs. ; Friday, 10 hrs.; Saturday, 10 hrs.; wages per hour, 25^. William King: Monday, 10 hrs.; Tuesday, 10 hrs.; Wednesday, 10 hrs.; Thursday, 10 hrs.; Friday, 10 hrs.; Saturday, 5 hrs.; wages per hour, 22^. John Warner: Monday, 10 hrs.; Tuesday, 9 hrs.; Wednesday, 10 hrs.; Thursday, 10 hrs.; Friday, 10 hrs.; Satur- day, 10 hrs.; wages per hour, 20^. Edgar Thomas: Monday, 10 hrs.; Tuesday, 5 hrs.; Wednesday, 10 hrs.; Thursday, 9 hrs.; Friday, 9 hrs.; Saturday, 9 hrs.; wages per hour, 24 1eats Oak Park, HI., i^/1 19.rrr o .J . Mrs. William Conant Sold to A AAA.^. no S. East Ave. Salesman Address Quan. ARTICLES Price! Amount 1 Leg Spring Lamb 5 lb. 20 / 00 2 cans French Pea^ 15 SO 2 heads Lettuce 12 24 1 bat. Olive Oil SO 1 Vb. BuUer 2 38 22 Charge i Cash Slips If the customer pays for the goods and takes them with him, an order slip is not made out. A cash slip is filled out. This does not contain the name and address of the cus- tomer, but is a mere list of the items sold, with the total, if more than one item is sold. VI SINGLE ENTRY At the top of the slip ace printed the words "Pay the Cashier"— a direction to the cus- tomer. The cash shps are numbered consecutively and each is attached to a stub which bears the same number, on which the amount of the sale must be noted at the time the slip itself is made out. No. 1 $ -^^ Perforated line F.P. NISSEN, Groceries and Meats Pay the Cashier Salesman .4 OAK PARK, \LL.,1^./ L 19.— Quan. ARTICLE Price Amount 2 Bread 05 10 1 lb. Bacon 28 1 doz. Eggs 26 H 1 CASH SLIP Customers' Receipts When a customer makes a payment on account, a customers' receipt is issued for the amount recorded in the cash register as re- ceived. These are ordinarily issued in dupli- cate; one copy is given to the customer after being placed in the machine and stampedj the other copy is retained and filed. The pad of customers' receipts which accompanies your outflt consists of single slips. These are to be filed by the cashier, it being assumed in each case that a dupli- cate has been made, stamped, and given to the customer. The Cash Register In connection with the retail grocery business which is illustrated in the following single entry set, it is assumed that the student as cashier uses a cash register, now con- sidered to be an almost indispensable adjunct of an extensive retail business. The cash register is an automatically-locking device for holding money, which can be unlocked and opened only by pressing buttons or keys in front. There are five rows of these buttons consisting of nine buttons each When the cashier presses the proper buttons, the money- drawer opens and at the same time the interior mechanism of the cash register automat- ically records upon a narrow roll of paper, called the "detail strip," the amount of the sale or payment together with the initial of the salesman and the kind of sale or payment. Cash Sales, Cash Re- ceived on Account, C. 0. D. Sales, C. 0. D. Cash Returns, C. 0. D. Goods Returned, Goods Returned on Account, Charge Sales and Cash Sales, are all recorded on the detail strip in the ordei of their occurrence, and each kind indicated by a special abbreviation or sign. The machine con- stantly shows the number and the totals of each of the different kinds of transac- tions recorded. The cash register has one button marked "No sale" which can be cash register SINGLE ENTRY VI 1 pressed when the cashier wishes to open the register without recording a receipt or sale, as when it might be desired to accommodate some one by changing a bill. Whenever any sale or payment is recorded, the cashier inserts in the machine the duplicate of the order slip or other voucher used, and the machine automatically stamps upon it the record of the transaction. Some machines issue little cardboard tickets prop- erly stamped, instead of printing the record directly upon the voucher. These stamped records, whether they be printed upon the vouchers or upon separate tickets, constitute a check upon the accuracy and honesty of the cashier and show the customer that the proper records of transactions are being made. Cash Register Sheets As it is not practicable for each student to have a cash register, there are provided for each outfit several sheets of paper (Cash Register Sheets) ruled with columns to repre- sent the different kinds of transactions for which the cash register shows separate totals. Instead of actually pushing the buttons of a cash register and thus making the records on the detail strip, you will make pen and ink records in the columns of the specially ruled sheets provided. Cash Register Sheet Cash Sales Cash Rec'd on Acct. C. O. D. Sales C. 0. D. Cash Returns C. O. D. Goods Return'd Goods Return'd on Acct. Charge Sales Cash Paid Out Change in register Oct. 1, 19 — * * * * * * ** ** ** ** ** ** ** ** ** ** ** ** ** ** * ** ** ** * ** * ** * ** * ** * ** * ** * ** * ** * ** ** ** ** ** * ** * ** 0.00 0.00 ** ** ** ** File Accompanying your outfit you will find a file containing three sections. This file is for your convenience in disposing of papers that you make out. In the first section C. O. D. sales slips are placed temporarily while the orders are being delivered. In the second section are placed the cash slips, the paid order slips (which are in effect the same a? cash slips), the C. 0. D. paid slips, and the customers' receipts. In the third section are placed the charge sale slips and also the goods returned slips. It is assumed that whenever any slip of any kind is issued one copy goes in our files and one copy goes to the customer. Note that the papers in the Cash Sales and Cash Receipts section of the file will exactly check with the total cash receipts as shown by the Cash Register Sheev. Viii SINGLE ENTRY YOUB, DUTIES STJMMAKIZED (1) Fill out the order slips, cash slips, and customer's receipts as these are required. (2) Make pen and ink records on the Cash Register Sheets of amounts which would ordinarily be recorded in the cash register. (3) Make the bookkeeping entries. Following is a list of the different kinds of transactions and the procedure in each case, except as to the filing, directions for which will be given in connection with specific transactions. (a) Cash sale, taken. Fill out a cash slip and record the amount received on the Cash Register Sheet. (b) Cash Sale, delivered. Fill out an order slip and record the amount received on the Cash Register Sheet. (c) Cash received on account. Fill out a customers' receipt, make a record on the Cash Register Sheet, and make an entry in the day book. (d) C. O. D. Sale. Fill out an order slip and make a record on the Cash Register Sheet. (e) C. O. D. Cash Returns. Make a record on the Cash Register Sheet. (f) C. 0. D. Goods Returned. Make a record on the Cash Register Sheet. (g) Charge Sale. Fill out an order slip, make a record of the transaction on the Cash Register Sheet,, and make an entry in the day book, (h) Goods Returned on Account. Make an entry on the Cash Register Sheet, and give the customer credit in the day book. (i) Cash Paid Out. Make a record on the Cash Register Sheet and an entry in the cash book. If the payment be on account, an entry in the day book is also necessary. (j) Purchases on account are entered in the day book as they occur. At the end of the day, or whenever it seems desirable, the Cash Sales column, the Cash Received on Account column, and the C. 0. D. Cash Returns column of the Cash Register Sheet are footed and added together and the grand total is entered in the cash book as a receipt, as shall be explained in greater detail hereafter. In entering sales on account in the day book it is not necessary to itemize them, as we have itemized records on the order slips which are filed; nor is it necessary to itemize goods purchased, as these items would show on the invoices which would also be filed. Entries of purchases should show the date, the name and address of the person bought from, the terms of purchase and the amount. In working the following transactions, remember that there are only two things we must keep account of in Single Entry: (1) Receipts and disbursements of cash, (2) Debits and credits affecting personal accounts. Also remember that no entry records anything but a single debit or a single credit. Before beginning the work of the set, see to it that the charge slips are numbered consecutively from 1 to 30, that the cash slips and their corresponding stubs are numbered from 1 to 20, and that the custom- ers' receipts are numbered from 1 to 10. SINGLE ENTRY ix TRANSACTIONS October 1, 19 — . F. P. Nissen is engaged in the retail grocery business at 105 Oak Park Ave., Oak Park, 111. His assets at this time are as follows: Cash in bank* $500 . 00 Cash in cash register 67.60 Stock of groceries on hand valued at 5432 . 69 Horse and wagon valued at 275.00 Furniture and fixtures valued at 450.00 Customers owe him as follows: Mrs. Wm. Conant, 110 S. East Ave. $13.56 Mrs. Chas. P. French, 157 S. East Ave. 23.47 Mrs. Edwin C. Hedrick, Jr., 124 N. Kenilworth Ave. 5.89 Mrs. Louis N. Mellick, 364 S. Euclid Ave. 27 . 56 Mrs. Ward. N. Seabury, 175 Forest Ave. 16-37 Mrs. N. N. Richards, 154 Circle Ave., Forest Park 4.23 Mrs. Wm. Beye, 264 Wisconsin Ave. 12 . 50 Mrs. Phillip Furbeck, 1110 South Boulevard ' 6.78 His liabilities are as follows: National Biscuit Co., 110 N. Morgan St., Chicago |27.60 The American Cereal Co., 9 Jackson Boul., Chicago 8.Q^ H. J. Heinz Company, 1814 S. Clark St., Chicago 23.42 Armour & Co., 239 S. Water St., Chicago 17.75 Washburn-Crosby Co., 145 Van Buren St., Chicago 124.68 Steps necessary to open the single entry books 1. Enter in the cash book the amount of cash on hand. 2. Open accounts in the ledger with the proprietor, all customers, and all creditors, in the order named, allowing one-third of a page for each account. Enter in the cus- tomers' and creditors' accounts the balances shown by the opening statement. 3. Make a day book entry crediting the proprietor with the total of the assets of the business, listing the items at the bottom of the entry. Make another entry debiting the proprietor with the total of the liabilities of the business, listing the items below. Post both of these entries to the proprietor's account on page 1 of the ledger. After opening the books as above, enter the amount of change on hand ($67.60) on one of the Cash Register Sheets, at the top of the left-hand column, with the explanation "Change on hand Oct. 1, 19—." Give the sheet the number 1. You are now ready for business. OOTOBEB 1. 19— Transaction No. 1. Paid rent for October by check, $100.00. Enter this in the cash book only. As the payment was by check, the transaction is not recorded on the Cash Register Sheet. Transaction No. 2. Sold for cash 2 loaves bread, at 5^; 1 lb. bacon, 28^; 1 doz. eggs, 260. Make out a cash slip. Record the amount received on the Cash Register Sheet, in the left-hand column. File the cash slip in the section of the file marked Cash Sales and Cash Receipts. * The student is not required to keep a bank pass book, but whenever necessary he will be told what the bank balance is. X SINGLE ENTRY Transaction No. 3. Sold to Mrs. Wm. Conant, 110 S. East Ave., on account, 1 leg of spring lamb, 5 lbs. at 20^; 2 cans French peas, at 15^; 2 heads lettuce, at 120; 1 bottle olive oil, 300; 1 lb butter, 380. Make out an order slip, writing the word Charge or the abbreviation Chg. at the bottom of the shp Then record the amount of the sale in the Charge Sales column of the Cash Register Sheet, and make the day book entry charging Mrs. Wm. Conant. When this has been done file the order slip in the section of the file marked Charge Sales. Transaction No. 4. Sold for cash 1 can lobster, 250. Proceed exactly as described in the note of explanation under Transaction No. 2. Transaction No. 5. Sold to Mrs. Chas. P. French, 157 S East Ave-, on account, 2 boxes soda crackers, at 100; 1 can French peas, 150; 1 box Coleman's mustard, 150; 2 heads cabbage, at 100; 1 sack salt, 100; 1 can salmon, 150; 3 loaves bread, at 50, 1 lb. imported Swiss cheese, 400. Proceed exactly as described in the note of explanation under Transaction No 3 OCTOBER 2 Transaction No. 6. Sold to Jas H. Greenman, 231 Woodward Terrace, for cash, to be delivered, 2^ lbs. hahbut steak, at 180; ^ do?. Florida oranges, at 500; 2 cans Tele- phone peas, at 12^0; 2 cans Cupid fancy tomatoes, at 12^0; 1 8-lb. box prunes, 850. Make out an order slip, writing the word Paid at the bottom. Record the amount of the sale in the left-hand column of the Cash Register Sheet. Place the order slip in the section of the file marked Cash Sales and Cash Receipts. Transaction No. 7. Sold for cash 1 jar Southwell's imported marmalade, 230; 1 lb. creamery butter, 360; 2 boxes soda crackers, at 100. Follow the instructions given in the note under Transaction No. 2, and in future always follow this procedure when a sale for cash is made which is not to be delivered. Transaction No. 8. Sold on account to Mrs. Edwin C. Hedrick, Jr., 124 N. Kenil- worth Ave., 3 lbs. Star ham, sliced, at 280; 1 box Coleman's mustard, 150; 3 loaves bread, at 50; 1 lb. creamery butter, 360; ^ lb. imported Swiss cheese, at 400; 2 pkgs. Uneeda biscuit, at 50; 2 cans Heinz baked beans and tomato sauce, at 150. Follow the instructions given under Transaction No. 3, and in future always follow this procedure when a sale on account is made. Transaction No. 9. Sold to Mrs. Paul Peters, 740 Chicago Ave., for cash, to be delivered, 2 pkgs. Saratoga flakes, at 150; 2 pkgs. Quaker oats, at 100; 3 cans Monarch canned corn, at 150; 3 cans Monarch canned peas, at 150; 1 broom, 400; 1 bottle bluing, 100; 3 bars Naphtha soap, at 50. Follow the instructions given in the note under Transaction No. 6, and in future always follow this procedure when a sale is made for cash to be delivered. Transaction No. 10. Received of Mrs. Chas. P. French $10.00 on account. Fill out a customer's receipt. Enter the amount received on the Cash Register Sheet, in the column headed Cash Received on Account. Make a day book entry crediting the customer. Place the customer's receipt in the section of the file marked Cash Sales and Cash Receipts. These slips are usually kept on a spindle until the cashier can find time to enter them, and the same thing is done with charge orders, receipts for or memorandums of cash paid out, etc., but the student will make all day book entries and cash credit entries as the transactions occur. SINGLE ENTRY XI OCTOBEB 3 Transaction No. 11. Sold to Mrs. C. V. Clark, 789 Lake St., C. O. D., the follow- ing groceries: 25 lbs. W. C. Superlative flour, at 50; 2 pecks apples, at 600; 3 lbs. Star bacon, sliced, at 280. Fill out an order slip, writing C. O. D. at the bottom of it. Enter the amount of the sale on the Cash Register Sheet, in the column headed C. O. D. Sales, and place the order slip temporarily in the section of the file marked C. O. D. Sales. Transaction No. 12. Sold for cash 2 pecks Irish potatoes, at 200; two cans Monarch canned corn, at 150; two cans Monarch canned peas, at 150. Transaction No. 13. The delivery boy returns with $3.29, as returns on the C. O. D. sale to Mrs. C. V. Clark. If this is the correct amount, enter it on the Cash Register Sheet in the column headed C. O. D. Cash Returns. Take the C. O. D. slip from the section of the file marked C. O. D. Sales, write on it the word Paid, and place it in the section marked Cash Sales and Cash Receipts. OCTOBER 4 Transaction No. 14. Bought of H. J. Heinz Company, 1814 S. Clark St., Chicago, 111., on 30 days' time, the following bill of groceries: 3 doz. Med. Baked Beans and Sauce, at $1.40 $4.20 1 doz. 10-oz. Royal Select Queen Olives, for 2.75 2 doz. 8-oz. Octagon Ketchup, at 1 . 35 2 . 70 $9 . 65 Make an entry in the day book, crediting H. J. Heinz Company. This entry should contain the explanation "Terms, 30 days." No further instruction will be given as to the procedure in handling an entry of this kind. Transaction No. 15. Sold for cash 2 cans Heinz medium baked beans and tomato sauce, at 150; 1 bottle Royal select queen olives, 250; 2 cans Monarch canned corn, at 150. Transaction No. 16. Sold to Mrs. Wm. Conant, 110 S. East Ave., on account, 1 doz. eggs, 360; 1 leg of spring lamb, 4^ lbs. at 200; 2 cans French peas, at 150; 1 peck Irish potatoes, 200. OCTOBER 6 Transaction No. 17. Sold to W. J. Frazer, 767 W. Madison St., for cash, to be deUvered, 1 can lobster, 250; 1 bottle Queen Olives, 250; 2 loaves Quaker bread, at 50. Transaction No. 18. Received $5.00 from Mrs. Edwin C. Hedrick, Jr., on account. Follow the instructions in the note under Transaction No. 10. Transaction No. 19. Paid The American Cereal Co., 9 Jackson Boul., Chicago, $8.95, the amount of their account against us, from the Cash Register. Record this in the Cash Paid Out column of the Cash Register Sheet. Make a cash book entry at this time, and make an entry in the day book debiting The American Cereal Co. Transaction No. 20. Sold for cash 6 cans Heinz baked beans and tomato sauce, at 150; 2 bottles Heinz tomato catsup, at 150; 5^ lbs. Star ham, sliced, at 280; 6 lbs. Star ham, butts, at 120; 6 lbs. Star bacon, sliced, at 280. Transaction No. 21. Sold to Mrs. Ward N. Seabury, 175 Forest Ave., on account, 3^ lbs. shoulder lamb chops, at 140; 3 cans French peas, at 150; 3 heads lettuce, at 120; 50 lbs. W. C. Superlative flour, at 50. xu SINGLE ENTRY Transaction No. 22. Sold to Mrs. Louis N. Mellick, 364 Euclid Ave., on account, one spring chicken, 4| lbs- at 20^; 2 lbs. creamery butter, at 36^; 2 loaves bread, at 5^; 3 cans salmon, at 150; 1 broom, 400; 1 bottle bluing, 100; 3 bars Naphtha soap, at 50. Transaction No. 23. Received of Mrs. Wm. Conant, 110 S. East Ave., cash in full of account, $17.54, Transaction No. 24. Sold to Jas. W. Wilson, 317 Clinton Ave., for cash, to be delivered, 4 grape fruit, at 200; 3J lbs. Malaga grapes, at 200; 3 pkgs. Cottage cheese, at 150; 6 cans assorted soups, at 300; 1 lb. Young Hyson tea, 800; 2 qts. Baltimore oysters, at 350; 6 pkgs. Saratoga flakes, at 150. Transaction No. 26. Sold for cash 3 lbs. Finnan haddie, at 150; 2 lbs. creamery butter, at 360; 3 loaves rye bread at 100; 1 sack salt, 100; 3 heads cabbage at 100; 1 box Coleman's mustard, 150. Transaction No. 26. Received from Mrs. Edwin C. Hedrick, Jr., 124 N. Kenil- worth Ave., cash to balance her account, $2.99. Transaction No. 27. Paid the salary of the bookkeeper and cashier (yourself) for the week, $12.50, from the Cash Register. Record the payment on the Cash Register Sheet, in the column headed Cash Paid OvU. Make the proper entry and explanation in the cash book. Post to the ledger all day book entries that have not yet been posted; rule and foot all accounts that are paid in -full. Close the Cash Register Sheet as illustrated and described below. ILLUSTRATION OF CLOSING OF CASH REGISTER SHEET Footings ** ** ** ** ** ** * ** * ** 0.00 * ** 0.00 ** ** • 0.00 ** ** Deduct change Entered in cash book, p * ** ** ** ** * ♦* Spot cash sales ** ** * ** Net Chg. Sales C. 0. D. cash returns Cash Rec'd. on Acct. age — . Cash Sales C. 0. D. Sales Total cash Rec'd. Cash Pd. out ** ** ** ** ** ** Total Sales Excess of receipts Change on hand ** ** ** Cash in register Deposit Oct. 6, 19— *** ** ** ** Change in register Oct. 8, 19 — ** ** Rule a single line across the eight columns of the Cash Register Sheet, underneath the last item in the longest column, and add all columns. Then proceed as follows: (1) Deduct the amount of the change on hand Oct. 1 from the total of the first column. The result will be the total of cash sales. (2) Reconcile the three C. 0. D. columns (i.e., deter- mine whether the C. 0. D. Cash Returns and the C. 0. D. Goods Returned added equal the C. 0. D. Sales Rule these columns as shown in the model form and write the amount of the C. 0. D. Cash Returns in the left-hand column of the Cash Register Sheet, beneath the total of spot cash sales. (3) Write in the left-hand column the amount of the cash received on account and rule a double line across the Cash Received on Account column. (4) Add the three totals now shown in the left-hand column. The result is the total of cash received. (5) Write beneath this the total of the cash paid out, and deduct it. The result is the excess of receipts over disbursements for the week. (6) Add the amount SINGLE ENTRY xm of the change on hand, $67.60, which will give you the total of cash in the cash register. (7) Deposit $50.00, keeping $**.** for change. Deduct the amount of the deposit, rule, and carry forward the amount of change on hand, all as shown in the model. (8) The only columns not yet ruled up are the Charge Sales and Goods Returned on Account columns. Deduct the total of the latter column from the total of the former. The result is the net chaise sales. Add the total of cash sales and the total of C. 0. D. paid sales to the net charge sales, to show the total of all kinds of sales for the week. (9) The total of cash received during the week must be entered in the cash book and a notation to the effect that this has been done should be made on the Cash Register Sheet, as shown. The cash payments, it will be observed, have alr^idy been entered in the cash book, these entries having been made separately as the transactions occurred. In business, this closing of the cash register is usually done daily. The report on business done, as shown on your Cash Register Sheet between the two lines extending entirely across the form, is usually prepared on a special daily report blank, and summaries of these daily reports are prepared weekly or monthly. When your Cash Register Sheet has been approved by your teacher, write the amount of change on hand at the top of another Cash Register Sheet, giving it the number 2, and enter the transactions for the week beginning Oct. 8. OCTOBER 8 Transaction No. 28. Sold for cash 5 packages Saratoga Flakes, at 15^; 3 packages Quaker oats, at 10^; 4 cans Heinz baked beans and tomato sauce, at 150; 2 bottles Queen olives, at 250; 5 loaves bread, at 50. Transaction No. 29. Bought for cash, from the Heissler & Junge Co., 301 W 39th St., Chicago, 100 loaves Quaker bread, at 40, paying the money from the cash register. Transaction No. 30. Sold on account to Mrs. Wm. Beye, 264 Wisconsin Ave , 2 bottles Heinz tomato catsup, at 15^; 1 whole Star ham, 15 lbs. at 260; 3 lbs. Star bacon, sliced, at 280; 4 cans Monarch canned corn, at 150; 3 loaves bread, at 50; 3 bars Ivory soap, at 50. Transaction No. 31. Paid $3.00 from the cash register for one year's subscription to the Grocers' Guide and Holly Journal, the subscription to begin with the November issue. Transaction No. 32. Sold on account to Mrs. Ward N. Seabury, 175 Forest Ave., 3 cans Monarch canned peas, at 150; 2 pks. Northern Spy apples, at 600; 4 pks. Irish potatoes, at 200 a peck; 25 lbs. W. C. Superlative flour, at 50; 1 bottle bluing, 100; 2 lbs. Oswego starch, at 50; 2 doz clothespins, 50. Transaction No. 33. Bought on account of Reid, Murdock & Co., cor. Lake and Market Sts., Chicago, the following invoice (the explanations in parenthesis do not appear on the face of the bill): 5 cs. (cases) Monarch #2 com (in tins, 2 dz. ea.) 2 " " #2 E. J. (early June) peas (in tins, 2 dz. ea.) 2 " " #1 Tall salmon (in tins, 4 dz. ea.) 6 " " #3 Tomatoes (in tins, 2 dz. ea.) Doz. 10 4 8 10 Price $1.20 1.75 2.10 1.35 30 Days $16.80 $16.80 60 Days $12.00 7.00 13.50 $32.50 Total $49.30 Xiv SINGLE ENTRY Transaction No. 34. Bought of The American Cereal Co., Chicago, 111., on account 30 days, 4 cases Quaker oats, at 3.00 $12.00 1 brl. Oatmeal 5.50 $17.50 Transaction No. 35. Sold for cash 1 leg of spring lamb, 4| lbs. at 200; 2 cans tall salmon, at 27^0; 3 cans E J Peas, at 20^; 2 heads lettuce, at 120; 3 loaves bread, at 50; 2 boxes B & C matches, at 50. Transaction No. 36. Sold to Mrs. Louis N. Mellick, 364 Euclid Ave., on account, 2 cans lobster, at 250; 3 boxes soda crackers, at 100; 1 bottle olive oil, 300; 2 lbs. creamery butter, at 360; 1 loaf bread, 50; 1 sack salt, 100. Transaction No. 37. Received of Mrs. Chas. P. French, 157 S. East Ave., cash in full of account. Find the balance due as shown by the ledger. Note the date of the last purchase, and look through the day book, from that date on, to find whether there are any debits and credits to be posted to her account. Transaction No. 38. Sold on account to Mrs, Wm. Conant, 110 S. East Ave., 2 lbs. creamery butter, at 360; 2 doz. eggs, at 360; 1 spring chicken, 5^ lbs. at 200; 6 grape fruit, at 200; 2J lbs. Malaga grapes, at 200; 3 lbs. cottage cheese, at 150; 2 bottles Queen olives, at 250; 3 loaves bread, at 50. OCTOBER 10 Transaction No. 39. Sold for cash, 5^ lbs. shoulder of lamb, at 120; 2 lbs. creamery butter, at 360; 3 cans E. J. peas, at 200; 1 sack salt, 100; 25 lbs. W. C. Superlative flour, at 50; 1 lb. India Ceylon tea, 600. Transaction No. 40. Sold C. 0. D. to Mrs. C. V. Clark, 789 Lake St., 4 lbs. smelts, at 140; 1 bottle Queen olives, 250; 1 lb. butter, 300; 3 loaves rye bread, at 50. Transaction No. 41. Mrs. Louis N. Mellick, 364 Euclid Ave., returned 2 cans of lobster purchased Oct. 8, claiming both cans were spoiled. Enter this amount in the Goods Returned on Account column of the Cash Register Sheet. Give Mrs. Mellick credit in the day book. Make out a credit memorandum as follows: "Oct. 10, 1910. Credit Memorandum. Mrs Louis N. Mellick, 364 Euclid Ave. We credit your account 500 for 2 cans lobster returned. F. P. Nissen by ." Assuming that you have given Mrs. Mellick one copy of this, place the credit memo in the file with the Charge Sales. Note: Many retail grocers keep the customers' charge tickets filed alphabetically under the customers' names. This makes reference easy in case of dispute. Some firms keep no ledger, but rely entirely upon the slips. This is not a very reliable plan, however, unless the balances are carried forward from one slip to the next, as in the system known as the McCaskey continuous account system. When this system is followed any payment made is deducted from the balance shown by the last order slip, so that the last slip made out always shows the balance due. The slips are filed alphabetically under the customers' names. One system that is sometimes used by grocers who have a comparatively small number of customers is as follows: One charge order book with numbered pages is kept for each customer who has an account. When a charge order is to be made out, the clerk secures the customer's individual book and writes the order in it direct, or else he hands the cashier a memorandum of the filled order and the cashier writes in the customer's book. One copy of the charge slip goes with the goods, while the other copy stays in the book. The balance is carried forward from slip to slip, as in the system described in the last paragraph. Transaction No. 42. Sold on account to Mrs. Chas. P. French, 157 S. East Ave., 1 doz. eggs, 300; 2 lbs. Clover Leaf creamery butter, at 360; IJ lbs. Wisconsin cream cheese, at 260; 2 cans Queen Maud sardines, at 250; 1 doz. oranges, 250; 8 qts. new Bermuda potatoes, at 90. SINGLE ENTRY XV Transaction No. 43. Purchased on 30 days' credit from Armour & Co., 239 S, Water St., Chicago, 12 Star Hams, 180 lbs. at 15^ $27.00 16 pes. Star Bacon, 120 lbs. at 22^ 26.40 $53.40 Transaction No. 44. Sold to Mrs. Phillip Furbeck, 1110 S. Boulevard, C. O. D., one Star ham, 15 lbs. at 25^. Transaction No. 45. Sold for cash 3 lbs. chopped beef, at 16^; 1 doz. eggs, 300; 2 lbs. creamery butter, at 360; 25 lbs. W. C. Superlative flour, at 50. Transaction No. 46. Sold on account to Mrs. N. N. Richards, 154 Circle Ave., Forest Park, 6^ lbs. Star ham butts, at 80; 1 can Monarch canned corn, 150; 3 loaves bread, at 50; ^ lb. butter,' at 300; 2 lbs. sausage meat, at 200; 3 bars Naphtha soap, at 50. Transaction No. 47. Mrs. N. N. Richards, 154 Circle Ave., Forest Park, paid $1.00 on account. Transaction No. 48. Sold for cash 3 lbs. smoked halibut, at 250; 2 lbs. imported Swiss cheese, at 400; 1 lb. creamery butter, 360; 3 loaves bread, at 50. Transaction No. 49. The delivery boy returned with the correct amount of cash in payment of the C. 0. D. order sold to Mrs. C. V. Clark, 789 Lake St. (See the note under Transaction No. 13.) Transaction No. 50. The delivery boy reported that no one was at home when he called at the residence of Mrs. Phillip Furbeck to deliver the C. O. D. order He there- fore brought the goods back. Enter the amount of the order on the Cash Register Sheet in the column headed C. O. D. Goods Returned. In business the delivery boy would bring back the duplicate order slip with the goods. This would be marked "Goods Returned" and filed. You may make a memorandum of the goods returned (virtually a «!opy of the order slip) mark it "Goods Returned," and place it in the section of the file marked C. O. D Goods Returned. OCTOBER 12 Transaction No. 51. Sold to J. N. Ward, 679 Chicago Ave., for cash, to be delivered, 3 grape fruit, at 200; 1 doz. oranges, 400; 1 doz. eggs, 300; 2 lbs. creamery butter, at 360; 2^ lbs. Star bacon, sliced, at 280; 3 pkgs. Uneeda biscuit, at 50; 2 loaves bread, at 50. Transaction No. 52. Sold to Mrs. C. V. Clark, 789 Lake St., C. O. D., 2 cans Pride of Chicago tall salmon, at 180; 3 loaves bread, at 50; 1 8-lb. box prunes, 850; 1 lb. India Ceylon tea, 600. Transaction No. 53. Sold for cash 2 pks. Northern Spy apples, at 600; 3 pks. Irish potatoes, at 200; 25 lbs. W. C. Superlative flour, at 50. Transaction No. 5'i. Sold to Mrs. Wm. Conant, 110 S. East Ave., on account, 1 leg of spring lamb, 4^ lbs. at 200; 4 lbs. Star bacon, sliced, at 280; 3 heads lettuce, at 120; 3 cans E. J. peas, at 200. OCTOBER 18 Transaction No. 55. Sold for cash 1 lb. India Ceylon tea, 600; 10 lbs. sugar, at 50; 3 pkgs Nabisco, at 100; 3 pkgs. Uneeda biscuit, at 50. Transaction No. 56. Sold to Mrs. Chas. P. French, 157 S. East Ave., to be charged, 3 grape fruit, at 200; 20 lbs. sugar, at 50; 2^ lbs. Malaga grapes, at 200; 4 pkgs. Nabisco, at 100. XVI SINGLE ENTRY Transaction No. 67. Mrs. Ward N. Seabury, 175 iPores^ Ave., paid her account in full. Read the note under Transaction No. 37 for directions for determining the amount of the balance due. Transaction No. 68. Sold to Mrs. Edwin C. Hedrick, Jr , 124 N. Kenil worth, on account, to be delivered, 3^ lbs. smoked halibut, at 16^, 1 whole Star harn, 15 lbs. at 27^0; 1 bottle Heinz tomato catsup, 15^; 1 bottle Queen olives, 25^; 10 lbs. granulated sugar, at 5^; 1 lb. butter, 30^; 3 loaves bread, at 50. Transaction No. 69. Bought of Reid, Murdock & Co., on thirty days' credit: 3 half-chests Young Hyson tea, 194# at 350 $67.90 2 cases Monarch coffee, 2# cans, 96 lbs. at 270 25.92 2 cases " #2 E. J. peas, 4 doz. at $1.75 7.00 3 cases " #10 peaches, 6 doz. cans at $2.50 15.00 $115.82 Transaction No. 60. Sold for cash 3^ lbs. porterhouse steak, at 220; 2 lbs. creamery butter, at 360; 20 lbs. sugar, at 50; 3 loaves bread, at 50. Transaction No. 61. Took from the cash register enough money to pay the National Biscuit Company's account in full. This payment is recorded on the Cash Register Sheet and entries are made iti the cash book and in the day book, as explained in connection with previous similar transactions. Transaction No. 62. Sold on account to Mrs. Ward N. Seabury, 175 Forest Ave., 4^ lbs. rib lamb chops, at 220; 1 bottle mint sauce, 250; 2 cans E. J. peas, at 200; 3 loaves bread, at 50; 10 lbs. granulated sugar, at 50; 25 lbs. W. C. Superlative flour, at 5^. , Transaction No. 63. Bought of H. J. Heinz Company, on account: 4 doz. cans apple butter, at $1.50 $6.00 3 " " peach " at 1.50 4.50 6 " small crocks strawberry preserves, at $1 . 35 8.10 $18.60 Transaction No. 64. Sold for cash 3 qts. Baltimore oysters, at 350; 4 lbs. oyster crackers, at 90; 2 bottles Heinz tomato catsup, at 150; 10 lbs. granulated sugar, at 50; 25 lbs. W. C. Superlative flour, at 50. Transaction No. 65. Sold on account to Mrs. Phillip Purbeck, 1110 S. Boulevard, 1 doz. eggs, 300; 2 lbs. creamery butter, at 360; 1^ lbs. imported Swiss cheese, at 400; 2 loaves rye bread, at 50; 3J lbs. Star bacon, sliced, at 280. Transaction No. 66. Mrs. Ward N. Seabury, 175 Forest Ave., returned 1 bottle mint sauce purchased today. See Transaction No. 41 for instructions. Transaction No. 67 Paid the scrub-woman $1.50 for her work today. Transaction No. 68. Paid the bookkeeper's salary, $12.50. Post the entries in the day book, rule up any ledger accounts that balance, foot and close the Cash Register Sheet, and enter on the cash book the amount of sash received, as you did on Oct 6. Deposit $50.00. Close the cash book. Single Entry Statement As has been previously explained, it is impossible to show the separate losses and gains in single entry. A loss and gain statement can not be made out. A financial statement can be made. The single entry statement sets forth the assets and liabilities of the business. The assets are listed and added. Beneath these the liabilities are listed and added. The difference between the total assets and the total liabiHties is the net capital or present worth of the business. If the net capital at some previous time be known, the gain or loss of the business since that time can be determined by comparing the net capital today with what it was at that time. SINGLE ENTRY XVll Mr. Nissen asks you to prepare a single entry statement as of October 15. He tells you that the cash in the bank is $500.00. You know how much money there is in the cash register. Mr. Nissen values his stock of groceries on hand at $5817.36, his horse and wagon at $270.00, and the furniture and fixtures in the store at $450.00. The balances of all accounts receivable and payable can be determinad from the ledger. Prepare a statement in the following form: F. P. Nissen's Single Entry Statement, October 15, 19 — Assets Cash in bank Cash in cash register Stock of groceries on hand valued at Horse and wagon valued at Furniture and fixtures valued at Mrs. Wm. Conant, 110 S. East Ave Mrs. Chas. P. French, 157 S. East Ave. Total Assets Liabilities Na'tional Biscuit Co., 110 N Morgan St., Chicago The American Cereal Co., 9 Jackson Blvd., Chicago Total Liabilities Net capital or present worth Assets October 1 j**** *♦ Liabilities October 1 *** . ** $500.00 ** ** 5817.36 270.00 450.00 **_ ** *» ** jj**** ** Net Capital October 1 **** . ** Net gain $** . ** In order that the proprietor's account in the ledger shall show what he is worth at all times it will be necessary to credit him with the amount of the net gain as shown by the foregoing statement. There- fore you will make a day book entry crediting the proprietor for the amount of his net gain. Post this immediately to the account of the proprietor in the ledger and close the account with a bailance as of October 15. Changing from Single Entry to Double Entry The process is very simple. Open a double entry journal and let your first entry be a journal entry crediting the proprietor for his total assets and debiting each one of the items listed in the statement as assets. This will necessitate opening accounts with Merchandise, Horse and Wagon and Furniture and Fixtures. Make another journal entry debiting the proprietor for the total of his liabihties and crediting the accounts of the different creditor firms. Next open a double entry ledger and post the two journal entries. It will be observed that your double entry ledger balances will correspond in detail with the single entry ledger balances except that in the double entry ledger there will be added accounts with Mer- chandise, Horse and Wagon and Furniture and Fixtures. Take loose sheets of journal and ledger paper. Make the journal entries necessary to change F. P. Nissen's books from single to double entry on Oct, 15, Post. Take a trial balance. In order to see even more clearly how single and double entry compare, rewrite F. P. Nissen's business in double entry form, proceeding as follows: (1) Journalize all entries appearmg in the single entry day book except the last. It will not be necessary to perform the computations again, and explanatory matter may be omitted. (2) Journalize all entries appearing in the single entry cash book except the first, third, and eighth entries, which you have already journalized, as they appear in both day book and cash book. (3) Post all journal entries to regular double entry ledger sheets (center ruled). (4) Take a trial balance. (5) Make statements, using the inventories of Oct. 15 as given at the end of the single entry set. (6) Close the double entry ledger. (7) Now compare the double entry statement with the single entry statement. The single entry ledger should agree with the double entry ledger as far as it goes. Accounts of what class do not appear in the single entry ledger? Name them in detail. INDEX PAGE Abbreviations used in Dry Goods Business 156 Accounts Classified 5, 63 Account, defined 5 Advertising 117 Advertising account 153 Ascertaining Gain, two ways 124 Assets, defined 63 Auxiliary Books, defined 35 Bad Debts, Reserve for 207 Balancing an Account 8 Balance of Balances 74 Bank Draft 119 Bank Proof 74 Bank Statement 74, 89 Bill Books 82, 83 Bill Book Proof 91 Billing 51 Bill of Lading, "Order" 163 Bill of Lading, "Straight" 115, 158 Bookkeeping, defined 5 Bookkeeping, Principles of 138, 148 Bookkeeping Problems, Supplementary 6, 10, 14, 16, 19, 22, 25, 27, 31, 33, 64, 66, 70, 91, 93, 124, 126, 135, 176, 178, 182, 192, 199 Book Values and Actual Values 210 Boot and Shoe Business 150, 176 Borrowing Money 209 "Briefing" a document 50 Canceling a Note 62 Cash Account 7 Cash Book 95 Cash Book, Three Column 150 Cash Discount 144 Cash Discount account 153 Cashier 44 Cash Proof 57 Charges to Expense and to Capital 210 Check Book Stub 47, 49 Check, Endorsement of 54 Check, Illustration of 48 Checking Debits against Credits 211 Checking the Trial Balance 43, 60 Check to Currency 89 Classification of Accounts 5, 63 Classification of Books 34 Closing the Ledger 71, 91, 123 C. O. D. account 153 C. O. D. Express 170 C. O. D. Freight 163 Collecting by Draft 131 Comparative Statements 212 Compromise with a Debtor 129 Computing Interest 84 Condensed Statements 201 Controlling Accounts 205 Correcting Errors 179 Corrections and Adjustments 202 Cost of Goods Sold 207 Costs and Expenses Subdivided 200 Dating Bills Ahead 154 Day Book, described 45 Debit and Credit sides of an account 8 Debiting and Crediting accounts. Rule for 35 Debiting and Crediting Rules, in detail 137 Depositing 45 Discounts 144, 181 Discount, Cash 144 Discount, Trade 108, 118, 144 Discount for Use of Money 145 Discount on Exchange 145 Discounting a Note at Bank 159 Double Entry, defined 35 Drafts 86, 131, 143 Drafts, Exercise on 146 Drafts, Rules for Journahzing 144 Drawer and Drawee 131 Drawing on a Slow Customer 131 Dry Goods Business 180, 198 Duplicating an Order 160 Endorsee 10 Endorsement of Check 54 Endorsement, defined 10 Endorsements, Kinds of 54, 55 Endorser 10 Errors in Trial Balance 43, 179, 215 Exchange 157 Exchange, Foreign 182 Exercise on Drafts 146 Expense account 25 Expense Bill 108 Explanatory Journal 44 Filing 45 Final Entry, Book of 34 Financial Accounts 63 Financial Accounts, Condensed 201 Financial Statement 63, 121 Finding Errors 215 Fire Insurance Policy 106 F. O. B 115 Forwarding Footings 86 Freight account 153, 182 Freight Bill 108 Gains, defined 69 Gain, How to Determine 69, 124 Goodwill 203 Importing 182 Income or Revenue Statements 212 Indexing the Ledger 66 Insolvency and Bankruptcy 177 Insurance Policy, Fire 106 Interest account 28 Interest and Discount account 152 Interest, Computing 84 Inventories 18, 20, 23, 26, 91, 103, 206 Investment account 152 XVlll INDEX XIX PAGE Investments 210 Invoices, How made out 51 Jom-nal 35 Journalizing Exercises, Supplementary . 76, 141, 168 Journalizing Rules 137 Lease 49 Ledger accounts. Posting to 38 Ledger, defined 6 Letter of Recommendation 102 Liabilities, defined 63 Liability Inventories 91 Loss and Gain account 31 Losses, defined 69 Loss or Gain accounts 63 Loss and Gain Statement 65, 122, 167 Maker of a note 10 Merchandise account 23 Merchandise Account Subdivided 199 Monthly Statements 135 Notes 10 Notes Payable account 14 Notes Payable Book, See Bill Book. Notes Receivable Book, See Bill Book. Notes Receivable account 11 Notice of Freight Received 108 Opening a Set of Books 102 Opening the Ledger 40 "Order" Bill of Lading 115, 163 Order or Draft 87 Original Entry, Books of 34 Partnership 135, 202 Parties to a Note 10 Parties to a Draft 131 Part Payments 128, 133 Pass-Book 46 Payee of a Note 10 Payee of a Draft 131 Paying by Check 48 Payrolls 208 Percentage of Profit 207 Personal accounts 17 Petty Cash Sales 129 Posting 38 Posting from Sales Book 79 Posting, Order of 109 Principles of Bookkeeping 138, 148 Private Ledger 204 Problems, Supplementary 6, 10, 14, 16, 19, 22, 25, 27, 31, 33, 64, 66, 70, 91, 93, 124, 126, 135, 176, 178, 182, 192, 199 Promissory Notes 10 PAGE Proof of Statements 69 Proprietor's Account 33 Proprietors' Private Accounts 203 Purchase Book 180 Real Estate account 19 Recapitulation and Summary of Definitions. . . 138 Receipt 50, 62 Receipting an invoice 58 Reconcihation 209 Reserve for Bad Debts 207 Review 137 Review Questions. 43, 76, 93, 126, 140, 216 Rules for Journalizing 137 Rules for Journahzing Drafts 144 Sales Book 77 Sale Tickets, How Used 107 Schedules 200 Shipping 115, 158 Shipping C. O. D. by Express 170 Shipping C. O. D. by Freight 163 Statements, Comparative 212 Statements, Condensed 201 Statements, Financial 63 Statements, Income or Revenue 212 Statements, Loss & Gain 65, 167 Statements, Monthly to Customers 135 Statute of Limitations 101 Stock Record 75, 123 "Straight" BiU of Lading 115, 158 Student's Weekly Reports , 57 Sundry Debtors account 153, 166 Supplementary Journahzing 76, 141, 168 Supplementary Problems 6, 10, 14, 16, 19, 22, 25, 27, 31, 33, 64, 66, 70, 91, 93, 124,. 126, 135, 176, 178, |182, 192, 199 Suspense account 211 Tax Receipt 155 Telegrams 1 14 Terms of Sale 47, 156 Three-Column Cash Book 150 Trade Discount 108, 118, 144 Transaction, defined 35 Tracer 113 Trial Balance 42 Transferring Accounts to New Ledger 103 TripUcate Bill of Lading 115, 158, 163 Variable Price Lists, Furniture Business Ill Variable Price Lists, Boot & Shoe Business.. . . 158 Variable Price Lists, Dry Goods Business. . 185, 198 Voucher Bookkeeping 133 Voucher, Special Form of 132 Weekly Payrolls 208 / 7 (^S^ l^ '/ VD 11432 ,\ ..-'^' ' L- ^ 54 1 ii42 UNIVERSITY OF CAUFORNIA LIBRARY