t:^i^^^^^.^ <2^!^k^2m^^^ niocrslt^ of dv 4 4 California d (filaus Sprcckcls IK una -^i?^--JH^;?^i:^.fe?^^^!^^?^ LIBRARY OF ALLEN KNIGHT CERTIFIED PUBLIC ACCOUNTANT 502 California Street SAN FRANCISCO. CALIFORNIA Digitized by the Internet Archive in 2007 with funding from IVIicrosoft Corporation http://www.archive.org/details/bookkeepingforacOOdickrich Bookkeeping for Accountant Students. BY THE SAME AUTHOR. PRICE "Advanced Accounting" (Second Edition) - - 21/- " Auctioneers' Accounts." (Second Edition) - - 3/6 "Auditing." (Sixth Edition) .... 21/- " Bankruptcy Trustee's Estate Book." (Second Edition) ■ - - - . - 4/- " Bookkeeping Exercises for Accountant Students." (Second Edition) « - . . . 3/5 " Bookkeeping for Company Secretaries." (Third Edition) ...... 2/6 " Depreciation, Reserves, and Reserve Funds " - 3/6 " Goodwill, and its Treatment in Accounts." {In the Press.) " Profits Available for Dividend " - - - 2/6 " Solicitors' Accounts " - - - - - 3/6 " Student's Guide to Accountancy " - - - 2/6 GEE & CO., Publishers, 34 Moovi^ate Street, London, E.C. BOOKKEEPING ACCOUNTANT STUDENTS LAWRENCE R. DICKSEE, M.Com., F-CA, {of the firm of Sellars, Dicksee & Co.) Professor of Accounting at the University of Birmingham. FIFTH EDITION London : GEE & CO., Printers and Publishers, 34 Moorgate Street, E.C. 1906. ' ■ New York. ^ c, c , c t C I c - t ' c « ' ' t < c c t t t CONTENTS. PAGE Preface to First Edition vii. Preface to Fifth Edition ... .. ... ... xi. PART I. I. — General Introduction I II. — Simple Ledger Accounts ... ... ... 15 III. — Closing the Ledger 30 IV. — Transactions of Henry Jackson 44 V. — The ** Continental " System ... ... ... 56 VI. — Closing the Ledger on the ''Continental" System 66 Exercises 73 /I iTv O 4 PART II. PAGE VII. — Commercial Terms, with their French and German equivalents, defined 81 VIII. — Accounts of Traders (Cash Book, Bill Books, Discounts, Partners' Capital and Drawing iVccounts) ... ... ... ... 90 IX. — Accounts of Traders (co7itinued) (Goods Accounts, Purchases, Sales, Consignments) 113 X. — Transactions of Fox & Crane (Opening the Ledger, the Subsidiary Accounts) ... ... 126 XI. — Transactions of Fox & Crane {continued) (Trial Balance, Closing the Ledger) : Consignees' Accounts 139 XII. — Adjustment Accounts and Self-Balancing Ledgers ... ... ... ... ... 160 Examination Papers 172 PART III. PAGE XIII. — Accounts of Manufacturers (Wages Accounts, Stores Accounts, Cost Accounts) 189 XIV. — Transactions of a Manufacturing Company (Share Accounts, Allotments, Transfers, Debentures, etc.) ... ... ... ... 200 XV. — Transactions of a Manufacturing Company (continued) (General and Trade Ledgers)... 214 XVI. — Transactions of a Manufacturing Company [continued) (Cost Accounts, Closing the Books, Dividends) 232 XVII. — Forms of Accounts and Account Books (Double-Account System, Single- Account System, Ledgers, Journals, Cash Books)... 214 XVIil. — Miscellaneous Questions of Account ... 262 Index to the Complete Work 273 PREFACE TO FIRST EDITION. T^HE extremely unsatisfactory results which, it will be admitted, usually attend instruction in the principles of elementary Bookkeeping afford good grounds for supposing that there is some radical fault in the method of instruction generally adopted. The principle of Bookkeeping may be likened to the principle upon which an arch is constructed, where each stone rests upon every other stone for support, and of which the keystone — which is at the top of all — is the most important and the most distinctive. No one wishing to impart instruction upon the principles upon which an arch is constructed would commence with a detailed exposition upon the properties and characteristics of each separate stone ; rather would he first exhibit to the student a model of the completed arch, and then pull it to pieces for the student's edification. In Bookkeeping, however, the mode of instruction usually adopted is to weary the student with a minute description of the various parts before he is even told that they will eventually form one component and Vlll. PREFACE TO FIRST EDITION. harmonious whole ; the immediate consequence being that the minute portion of his attention that is not aUenated by the apparent aridity of his subject is exclusively occupied in relatively unimportant matters of detail, and when the course is finished it is found that, while perhaps more or less conversant with the letter of the theory, he has not even so much as learned whether there be a spirit. The position of such an one may be likened to that of the student of physiology who, while well acquainted with the form of some of the principal bones in the human frame, has not the remotest notion of the relative positions of such bones in the skeleton as a whole. Until the whole can be con- ceived as a whole, the most minute study of its component pa,vts will be found singularly stale and unprofitable. In view, therefore, of the necessarily unsatisfactory result of all instruction in the science of Bookkeeping conducted upon the old lines, it is felt that no apology is necessary for the method adopted in the work now placed before the public. It may be added, however, that the Author's system has been found to work well in practice, and to secure for its disciples a thorough knowledge of the theory of Double Entry in a remarkably short space of time. PREFACE TO FIRST EDITION. 1X» It IS desirable that all the exercises upon each chapter should be thoroughly worked out before the next chapter is commenced, and that each Part should be properly mastered before proceeding to the subsequent Part. Although the present work is primarily intended for the use of Accountant Students, it will be found equally suitable to those preparing for the Civil Service, Society of Arts, and other similar examinations. LAWEENCE R DICKSEE. Cardiff, Uth December 1892. PREFACE TO FIFTH EDITION CINCE the first edition of this work was published, a little more than fourteen years ago, four editions (representing 6,000 copies) have been exhausted ; and the fact that each successive edition has been sold out in a shorter space of time than the previous one is, it is thought, sufficient indication that the hopes expressed in the preface to the first edition have been justified. It has not been thought desirable to make any material alterations in the general scheme of the work, as originally presented, but the opportunity has been taken to embody a few improvements and to correct misprints. Any attempt to make the present volume really exhaustive would have necessitated a great increase in size, and would have entirely altered the original arrangement. The Author has, however, now issued a more complete work upon " Advanced Account- ing," which has already reached a second edition, and to which the reader is referred for information upon all points too advanced to be included in the scope of the present volume. It may be added that, in order to meet a wish which has been expressed in several quarters, the Author has published, in a separate form, a series of 100 questions under the title of " Bookkeeping Exeicises for Accountant Students," which may be regarded as a supplement to the present work. A skeleton key is appended to these exercises, so that students may see for themselves whether their answers are correct. LAWEENCE R. DICKSEE. Copthall House, E.G., 12th March 1906. -GENERAL INTRODUCTION. Bookkeeping may be defined as the science of correctly recording in books transactions involving the transfer of money or money's worth. In recording these transactions there are two objects to be aimed at : — (1) It is necessary that the record be so explicit that, at any subsequent time, the exact nature of the transaction may be readily perceived without the aid of the memory. (2) It is necessary that the transactions should be so classified that at any time the combined effect of such transactions during any given period, or at any given- time, may be readily ascertained. It is the necessity for combining these two fundamental principles that makes the main difficulty of practical Book- keeping ; the expression " practical " Bookkeeping is used advisedly, for if time and labour were no object to the book- keeper, the difficulty might be got over with comparative ease. As it is, however, it is extremely rare, except in businesses of the simplest kind, to find a set of books perfect upon both B A BOOKKEEPING. points that do not involve an amount of labour out of all proportion to the result achieved. In England it is a very general custom for bookkeepers to rely upon Copy Letter Books, Invoices, and other extraneous sources, to elucidate transactions which ought to have been made plain to an outsider merely examining the books of account themselves. In fact, many English books on Book- keeping totally ignore the first of the requisites just named. On the other hand, in France, Italy, and Spain (and also to a great extent Germany), the system usually adopted involves almost twice the labour on the part of the bookkeeper ; but, while it minutely records the nature of each individual transaction, it is inferior to the English method in point of classification and in other matters of convenience. Foreign bookkeepers for the most part appear to labour under the impression that businesses were made for books, and not books for businesses, but surely the latter is the more correct supposition. The two principles named (viz., the explicit record of each transaction, and a ready classification of such transactions when recorded) are in reality both vital and both equally important, and it is therefore very necessary that the reader should bear them constantly in mind if he wishes to follow the why and the wherefore of a good system of Bookkeeping. GENERAL INTRODUCTION. 6 Having now ascertained to a certain extent the nature of the records it is necessary to make, attention may be directed to the things in which the records are made, viz., the Books. It goes without saying that the same books are not always equally suitable for the record of all kinds of transactions, or, in other words, that different kinds of business each require a different set of books ; in fact, it is frequently desirable that businesses of the same kind should have their accounts kept differently, in order to meet some slight variation involved by a different class of trade. But in all cases (whether the books be those of a bank, an insurance office, a chimney-sweep, or a private gentleman) they are kept for the same purpose — the record of transactions involving the transfer of money or money's worth — and consequently vary in matters of detail only, ihe ruling principle being the same in all. Books, then, are divisible into two great classes : — (1) Books of Account, or Financial Books. (2) Memorandum, or Statistical Books. The first book of account ever used was probably a mere record of transactions entered as they occurred, and conse- quently in chronological order, being, in fact, little more than a Memorandum Book. A very few moments' consideration B 2 4 BOOKKEEPING. will show that, as soon as these transactions became either very numerous or very varied in their nature, a mere chrono- logical record w^ould be all but useless, and that some method of classification became absolutely necessary. This being perceived, it became the custom to sort out the various transactions into their several classes, and to re-write them in another book (the Ledger) under separate headings,, keeping each class of transaction under its proper heading, and referring to such heading whenever any information wa& required upon that class of transaction. It may be considered that Bookkeeping itself dates from this time, for Books of Account, properly so called, hardly existed before this period ; while all that has been done since has been to follow up and improve upon the lines thus indicated, and the complexity of modern Bookkeeping is due to the multiplicity of detail required by the growth of modern commerce, rather than to any radical alteration of the principle of the original design. / The tw^o books named are, in fact, the only Books of Account in use even at the present time : the first, called the Journal, or daily register (so called because it contains a record of each day's transactions), in some form or other still retains all its ancient functions, and although in the course of centuries it has been found convenient to divide the book into sections, and call the various parts Sales Book or Day Book, GENERAL INTRODUCTION.. Invoice Book or Purchase Book, &c., yet, in fact, they are merely so many " Journals " ; and to this day in all Con- tinental houses of business, and in many EngHsh ones, all transactions are carried through some form of Journal, although subsidiary books are often used to record the fuller details. The second book named is the Ledger, so called because in that book the entries of all the transactions are laid or stored up, for future reference. Most businesses have also a Cash Book, but it will save the reader a great deal of confusion at a subsequent period if, at this early stage, he learns to regard the Cash Book as neither more nor less than an account in the Ledger, bound up separately for the sake of convenience. The Ledger, as already stated, contains a record in classified form of transactions involving the transfer of money or money's worth. Thus, if A. sold John Smith goods to the value of, say, £20, there would be a page in A.'s Ledger headed ''John Smith," showing that he was A.'s debtor for £20 on account of goods sold to him. When Smith paid A., say, £10 on account, that £10 used to be subtracted from the £20, JOHN SMITH. 1460 Jan. I Goods sold him Cash paid by him £ s d 20 o o £10 o o b BOOKKEEPING. and the difference showed the amount still owing by Smith to A. It was very soon found, however, that there were two weighty objections to this manner of proceeding : (1) The bookkeeper was always liable to add instead of subtracting , and vice versa, in which case the error would not be specially obvious ; (2) without reading the whole account, it would not appear whether John Smith owed the money to A. or A. owed it to him. To meet this difficulty each Ledger Account was divided into two : — Upon one side were placed the items for which ha was A.'s debtor, and upon the other side (the contra Account) those items for which he was A.'s creditor, the balance being readily ascertainable at any time by adding up the two sides and striking a balance. Dr. JOHN SMITH. CONTRA. Cr. 1500 Jan. I To Goods . . £ s d 20 1500 Jan. 20 By Cash £ s d 10 At first sight the reader may possibly have some little diffi- culty in seeing how, when Smith owes A. £20, he becomes A.'s creditor upon payment of £10 ; but in Bookkeeping, as in many other things, we must examine each transaction by itself as it arises ; the time to set one off against another being after they have been placed side by side in the Ledger. Now that the Ledger had been separated into two sides, it became necessary to distinguish in the Journal upon which GENERAL INTRODUCTION. 7 side of the Ledger each transaction should appear, and thus two columns soon found their way into the Journal, one for sums to be placed on the Dr. (debtor) side of the Ledger Account, and one for the Cr. (creditor) side. JOURNAL. By this time it will be perceived that Bookkeeping had already become a matter of some little complexity, and doubt- less at that remote period the errors made by the bookkeeper were a source of considerable annoyance and loss ; it was therefore but natural that men should begin to see if they could not devise some means by which such errors should become self-evident. Then, doubtless, they asked themselves what was the exact nature of the transactions they recorded in their books, and arrived at the conclusion that the transac- tions they recorded were — as stated at the outset — transfers. Let us ask ourselves, what is a transfer ? A transfer is a " conveyance of anything from one person or place to another." A transfer thus (and consequently the class of transactions with which we deal in Bookkeeping) involves a tioo-fold act — if A. pays John Smith £20, he, receiving the cash, is A.'s debtor ; but A.'s Cash Account, being so much the poorer, is (so far as that one transaction goes) his creditor. Thus A. is 8 BOOKKEEPING, enabled to record this one transaction on both sides of his Ledger ; and by recording all his transactions on both sides of his Ledger, it will readily be seen that at any time, by adding up each side of his Ledger, and comparing the total amount on the Dr. side with the total of the Cr. side, a check is at once obtained ; for, if there be a mistake, it is unlikely in the extreme that the two sides will agree. At first sight, however, the advantage seems to be more than compensated by the extra labour — for certainly it nearly amounts to keeping the books twice over. But notwith- standing this, no subsequent discovery has caused us to abandon the principle of Double Entry thus founded. More than four hundred years have now elapsed since the first treatise on Double Entry Bookkeeping was published, but although many modifications and improvements have been made since then, by means of which the amount of labour involved has been enormously reduced, the fundamental principle of Double Entry has remained unchanged. Indeed, it is only in this country that any serious attempt has been made to lessen the extra labour involved by Double Entry, and — bearing in mind that ** the whole is equal to the sum of its parts" — to attempt a form of classification in the Journal by which a vast number of small entries in the Ledger may be obviated. These preliminary remarks upon books w^ould not be com- plete without some reference to the second class of books GENERAL INTRODUCTION. 9 named, viz., Memorandum, or Statistical Books. These books vary with every class of trade, and are merely used to record details that could not conveniently appear in the Books of Account, or if they do so appear are not in a form suitable for convenient reference. The Policy Books of an Insurance Office, the Ground Rent Register of a Mortgage Company, and (frequently) the Cost Book of a contractor are examples of such books. It should, however, be carefully borne in miud that they are not Books of Account, and (from a Bookkeeping pohit of view) have no value except in so far as they serve to explain entries appear- ing in the Books of Account that might otherwise be obscure. It may be added that many frauds have remained undetected through want of attention to this most important point. The object of this chapter being merely to give a general (although necessarily extremely superficial) idea of the whole subject, rather than to consider any one point exhaustively, we will now return to the Ledger — which the reader need hardly be reminded is the book — and try and convey a rough idea of the principle upon which a Balance Sheet is prepared. Uf) to the present time Accountants have not agreed upon any precise form in which a Balance Sheet shall be drawn up, consequently specimens are to be found in several different forms. This is very confusing to the beginner, and it is not 10 BOOKKEEPING. therefore intended at the present time to further distract the reader with a discussion as to the merits of the various forms in use. It will suffice to explain what a Balance Sheet really is. A Balance Sheet is a statement showing upon one side the assets of the person or firm in question, and on the other side the liabilities. ^ If the assets exceed the liabilities the surplus is the capital of the person or firm, and is entered on the liabilities' side so that the totals on both sides may agree.. On the other hand, should the habilities exceed the assets, the difference is called a deficiency, or capital overdrawn, and is entered on the assets' side. At first sight this may appear somewhat strange. *' If I have a capital of £1,000," the reader says, ''how can it appear on the liabilities' side; surely it is an asset ? " True, but he must always remember to look upon the business as something quite apart from the person or persons to whom it belongs. The business has a surplus of £1,000, which belongs to its owner ; therefore that owner is a creditor of the business for £1,000. It will thus appear that the business makes no distinction between its owner and any other creditor. Scottish readers, whose mercantile law recognises the existence of a firm as something distinct from its individual partners, will doubtless grasp the situation more readily. Inasmuch as the Ledger contains, in a classified form, a record of all the transactions, it is obvious that, from the GENERAL INTRODUCTION. 11 Ledger, we can at any time readily ascertain both the assets and the liabiHties of the business. That is to say, the Ledger keeps a continuous record of the amount owing to the business, the amount owing by it, and of the property belonging to it. The excess of the assets over the liabilities is (as already stated) the capital, and if the capital at the end of any period is greater than at the commencement of that period, the difference will be the profit made during that period — assum- ing, of course, that no fresh capital has been brought in or withdrawn during that period. Similarly, if the capital has become reduced, there will have been a loss. In taking out a Balance Sheet from the Ledger, however, numerous accounts will be found that represent neither assets nor liabilities, but sources of expense or of income. In this connection the following rules will be found most useful : — (1) When an item is on the left-hand or Dr. side of the Ledger : (a) If the amount will eventually be received, it is an asset. (b) If the amount will not eventually be received, it is a loss. (2) When an item is on the right-hand or Cr. side of the Ledger : ' (a) If the amount will eventually have to be paid, it is a liability. (b) If the amount will not eventually have to be paid, it is a gain. 12 BOOKKEEPING. This rule never fails ; but, of course, the question as to whether an amount will eventually be received or not requires a knowledge of the facts of the particular case for its correct disposal ; and, even then, may be a point of much difficulty — in fact, this is one of the difficulties of correctly reporting upon the affairs of any business — for because A. owes B. £100 it does not in the least follow that B. will ever receive his £100 from A. If he does eventually receive it, of course it was one of B.'s assets, but if not, B. must look upon it as a loss. For theoretical purposes, however, one may readily suppose the distinction made. That having been done, the losses and gains are collected into one account, usually called the Profit and Loss Account in trading concerns, and the Eevenue Account in non-trading concerns. In this account the losses will appear on the Dr. side and the gains on the Cr. side, while the difference between the two sides will show the total gain or loss, as the case may be. As every source of gain or loss has been included in this account, the total gain made during the period under review (as shown by this account) added to the Capital at starting (or the total loss deducted from the Capital at starting, as the case may be) will give the Capital at the end of the period. If there is no error in the books this will be the same thing as the Capital shown on the Balance Sheet drawn up at the GENERAL INTRODUCTION. 13 end of the period, and here, again, the check of the Double Entry comes in. It is here also that the especial value of the Double Entry shows itself, for a very few moments' con- sideration will show that the question "How have I made my profit ? " is in reality almost more important than the question " What profit have I made ? " As, however, the point involved here belongs to Accountancy rather than to Bookkeeping, it is unnecessary to pursue it further at the present time. 14 BOOKKEEPING. Questions on Chapteh I. 1. What is Bookkeeping ? 2. What are the two objects to be aimed at in every system of Bookkeeping? 3. What is a Journal ? 4. What is a Ledger ? 5. What is understood by the signs *' Dr.," " Cr." ? 6. In what respect is every transaction recorded by Book- keeping of a two-fold nature? 7. What is Double Entry? 8. What is a Balance Sheet ? 9. What is understood by the term " Capital " ? 10. How is the Net Profit or Loss arrived at from a set of books ? II.— SIMPLE LEDGER ACCOUiNTS, The Ledger has already been defined as a classified record of transactions. It is now proposed to deal more in detail with the various Ledger Accounts required in books of the simplest kind ; and, for the purpose of giving a more definite interest to this and the two following chapters, the accounts required to be kept by a person owning a set of chambers, let out to various tenants, will be described in detail as beins. perhaps, one of the simplest sets of accounts conceivable. Ledger Accounts are usually divided into three classes : — (a) Eeal Accounts, dealing with actual property. (b) Personal Accounts, showing the record of transactions between the owner and the various persons with whom he has business transactions. (c) Nominal Accounts, dealing with various forms of Income and Expenditure. There is no essential difference between Eeal and Personal x\ccounts. 16 BOOKKEEPING. (a) Taking Real Accounts first, the various accounts required for the set of books now being considered are as follows : — (1) Cash Account. — This account, as its name implies, records all transactions in cash, whether received or paid by the owner. Dr. CASH CONTRA. Cr. 1891 £ s d 1891 £ s d Jan. I To John Smith 50 Jan. 16 By Bank 150 16 „ Thos. Brown . . 123 31 „ Do 50 21 „ Wm. Robinson. . 35 „ Attendant 3 6 8 Mar. 27 „ James Jones . . 75 Feb. 28 Do 368 Mar.31 „ Do 3 6 8 " „ Bank 50 In the above example the items on the Dr. side are those which have been received by the owner from the various persons named. In Bookkeeping it is the custom to consider that the owner does nothing for himself, consequently it is assumed that when a person pays in a sum of money it is not he that receives it, but his Cash Account, which — having received it for him — is accordingly his debtor for the amount so received. Perhaps the transaction will appear clearer to the reader if he looks upon this account as an account between the owner and his cashier, who, having received the money on his employer's behalf, is liable to account for it subsequently, and is meanwhile a debtor for the amount so received. The word "To" in front of each name on the Dr. side signifies that — so far as that one transaction is concerned — *' Cash " SIMPLE LEDGER ACCOUNTS. 17 (or the cashier) is " debtor to " the person frora whom the amount was received. In a similar maaner Cash (or the cashier) is entitled to take credit for (or " by ") the amount of the payments made from time to time out of Cash. Thus, in the example it appears that £250 has been paid away to "Bank" and £10 to " Attendant." The actual amount for which Cash is "Debtor" (i.e. accountable) on the 31st March is thus, not £285 (the total amount received), but £285 less £260 (the :amount of the payments), which leaves £25 for which Cash is still Debtor. This is what is called a '* Debtor Balance," which may be defined as the amount by which the Dr. side of ^n account exceeds tlie Cr. side. Hence the meaning of the word " Contra " at the head of the account. The two sides of the account represent similar, but opposite, transactions, which may be set off against each other. The method of balancing the Cash Account, as it is called, will be dealt with later, under the heading of Closing of Ledger. (2) Bank Account. — This account is, in reality, a ''Per- sonal " Account, but on account of its likeness to the Cash Account it may, perhaps, be more conveniently dealt with under this head. c 18 BOOKKEEPING. Dr. BANK. CONTRA. Cr. I89I £ s d 1891 £ s d Jan. 16 To Cash 150 Feb. 7 By Portland Estate 31 „ Do 50 Ground Rent . . 12 10 Mar. 31 „ Do 50 Mar. 6 „ H. Jackson (private expenses) 100 22 „ Repairs 17 10 In this Account, as in the Cash Account (and as, also, in every other Ledger Account), the amounts received are entered on the Dr. side, and those paid on the Cr. side. It v^ill be noticed that the " debit entries " (as receipts on the Dr. side are called) correspond with the payments into Bank recorded in the Cash Account. The " credit entries " are for payments- made by the Bank upon orders signed by the owner, which are commonly known as cheques. The item of £100 paid on March 6 is for a sum withdrawn by H. Jackson (the owner) for his own private expenses. How this is dealt with we shall see at a later stage. The difference between the Dr. and Cr. sides here represents the balance at the Bank. (3) Proi^erty Account. — This account will record the value of the property owned by Mr. Jackson, together with any transactions that may increase or decrease its value. Dr. PROPERTY. CONTRA. Cr. I89I f s d 1891 f. s d Jan. I To Balance from last account (value at this date) . . 15,000 Mar. 31 By Depreciation Lease . . ot 100 SIMPLE LEDGER ACCOUNTS. 19 The item on the Dr. side represents the value of the property on the 1st January, which is said to be due to the owner from this account. If any structural alterations had been made during the quarter whereby the value of the property was increased, the amount of such increase would have been entered on the Dr. side, and so have increased the £15,000 by that amount. In the present case, however, the value of the property is supposed to have decreased, by reason of the term upon which a lease of the property is held being shortened. This decrease (or depreciation, as it is called) has been estimated at £100, and is accordingly entered to the credit of the Property Account, the value of the property on 31st March being accordingly reduced to £14,900, the balance of the account on that date. (b) Under the heading of Personal Accounts the first to be dealt with is the (1) Capital Account. — This is the account between the owner and his business. The set of books under considera- tion do not comprise the whole of H. Jackson's affairs, but only those relating to the particular set of Chambers referred to. Whatever may be due to thi^ business, either from debtors or investments, are called assets, and any out- standing debts due by this business are called liabilities. The amount by which the assets exceed the liabilities is called the c 2 20 BOOKKEEPING. capital ; but this capital belongs not to the business itself, but to H. Jackson as owner. The business can make no profits and hold no property for itself ; both belong entirely to the owner, and, until they are drawn out of the basiness by the owner, he is the creditor of the business for the amount of such property and profits. The Capital Account, then, is the account showing the extent to which the business is indebted to the owner. Dr. CAPITAL ACCOUNT. CONTRA. Cr. I89I f s d 1891 f s d Mar. 6 To Bank (private Jan. I By Balance at this expenses) . . 100 date . . 15,197 10 Mar. 31 " Revenue Account 166 5 In the above account it will be seen that, on 1st January, £15!, 197 10s. was due to H. Jackson as representing the capital of the business at that date. On the 6th March this sum was reduced by £100, which he drew out of the bank for his own private expenses. On the other hand, the Eevenue Account prepared to the 31st March [vide page 33) shows that a profit of £166 5s. has been made during the quarter. This profit, as already explained, belongs not to the business, but to its owner, and (not having been received by him) is owing to him. His Capital Account will accordingly be credited SIMPLE LEDGEB ACCOUNTS. 21 with this amount, and the sum due to him on the 31st March then becomes £15,263 15s.''' (2) Business Debtors. — The following are the Ledger Accounts showing the indebtedness of the four tenants of Mr. Jackson's Chambers : Dr. JOHN SMITH. CONTRA. Cr. I89I £ s d 1891 £ s d Jan. I To Balance at this date . . 50 Jan. I By Cash 50 Mar. 31 „ Rent for the quarttt 50 Dr. THOMAS BROWN. CONTRA. Cr. I89I £ s d 1891 £ s d Jan. I To Balance at date this 125 Jan, 16 By Cash 125 Mar. 31 „ Rent for quarter the 125 Dr, WILLIAM ROBINSON. CONTRA. Cr. I89I £ s d 1891 £ s d Jan. I To Balance at date . . this 35 Jan. 21 By Cash 35 Mar. 31 „ Rent for quarter the 50 * This latter transaction is recorded in italics in tlie example. 22 BOOKKEEPING. Dr. JAMES JONES. CONTRA. Cr. 1891 Mar. 3 1 To Rent for the quarter £ s d 75 o o 1891 Mar. 27 By Cash £ s d 75 o o Taking John Smith's account in the foregoing example, it will be noticed that the account is debited with the rent due from him, and that he receives credit for the amount paid by him. At the commencement of the year Smith still owed for the quarter's rent due on the 31st December, but paid cash for the same on the 1st January. On the 31st March another quarter's rent became due, but remained unpaid on the closing of the accounts on the 31st March. Smith, therefore, owed £50 on this date, which is shown on the account by the total of the Dr. side exceeding the total of the Cr. side by that amount. The same remarks apply to the accounts of Thomas Brown and William Robinson ; but, in the case of the latter, it will be noted that the amount of rent due for the March quarter is £50, while the sum due on the 1st January was £35 only. The explanation is that at the end of 1890 Robinson's rent was raised from £140 to £200 a year. It is, however, to be noted that the account, as shown, would have appeared the same had the rent for the December quarter also been £50, provided £15 had been paid on account before the close SIMPLE LEDGER ACCOUNTS. 23 of the year ; as, in that case also, the amount due on 1st January would have been £35. In the case of James Jones it will be noticed that he follows the commendable practice of paying his rent a few days in advance ; consequently nothing was due from him on the 1st January, and nothing is due on the 31st March. (3) Business Creditors. — In the set of books now under consideration the only example of these accounts is the following : Dy. PORTLAND ESTATE. CONTRA. Cr. I89I £ s d 1 1891 £ s d Feb. 7 To Bank .. 12 10 Jan. I Mar. 31 By Balance due this date .. „ Ground Rent to date 12 10 650 It will be noticed that on 1st January the Portland Estate were creditors for £12 10s. for a half-year's ground rent, but that they received a cheque for this amount on 7th February. On the 31st March a further quarter's ground rent had accrued (£6 5s.), and this amount was still owing to them when the accounts were closed. It will be noted that the total of the entries on the Cr. side exceeds the total of entries on the debit side by £6 5s. (c) Nominal Accounts (or, as they are sometimes called, Impersonal Accounts) naturally vary in name accord- ing to the nature of the business recorded. In this set 24 BOOKKEEPING. of books there is only one source of income or profit, and this is recorded in the (1) Eent Account, in which the rent is entered on the Cr. side as it becomes due. Dr. RENT. CONTRA. Cr. 1891 Mar. 31 1 " " By John Smith . . „ Tb OS. Brown . . „ Wm. Robinson „ Jas. Jones £ s d 50 125 50 75 The entries in the above example will be found to corre- spond with the amounts debited to the accounts of the various tenants. They are placed to the credit of Eent Account because they are transactions in which a benefit has been imparted by the business to other persons who have received a corresponding benefit. It will be remembered that, in just the same way, Bank Account parted with £12 10s. to the Portland Estate, and was credited with that amount ; while the Portland Estate, having received a corresponding benefit, was debited with the amount. Eeturning to the Eent Account, if any rent had been allowed to a tenant, it would have been necessary to debit the Eent Account and credit the Tenant's Account with the amount so allowed ; but — fortunately for Mr. Jackson — no such transaction has to be recorded. SIMPLE LEDGEK ACCOUNTS. 25- There are four Expenses (or Loss) Accounts in this set of books, viz. : — (2) Attendant Account. (3) Ground Rent Account. (4) Repairs Account. (5) Depreciation Account. Dr. ATTENDANT. CONTRA. Cr. 1891 Jan. 31 Feb. 28 Mar. 31 To Cash „ Do „ Do £ s d 3 6 8 368 368 . Dr. GROUND RENT. CONTRA. Cr. 1891 Mar. 31 To Portland Estate . . 650 Dr. REPAIRS. CONTRA. Cr. 1891 1 £ s d Mar. 22 : To Bank 17 10 t Dr. DEPRECIATION. CONTRA. Cr, 1891 Mar. 3 1 To Property Account . . £ s d 100 1 26 BOOKKEEPING. The Attendant Account records the cash payments to the attendant for looking after and cleaning the chambers. It is a benefit received by the department represented by this account, which is accordingly debited ; but, inasmuch as no future benefit will result to the business from its payment, it is a business expense for the quarter, and goes towards the reduction of the profit. A similar remark applies to the Ground Eent and Eepairs Accounts ; but, with regard to the latter, it is to be noted in passing that, had there been any repairs executed but not paid for, they would be debited to Eepairs Account (increasing the balance of that account) and credited to a Personal Account opened in the name of the creditor, in precisely the same manner as the amount due for ground rent has been dealt with. The object of the Depreciation Account has already been explained ; when the closing of the books is further dealt with, the final effect of this transaction will be obvious. Before leaving the Nominal Accounts it may be added that — unlike the Personal and Eeal Accounts — the Nominal Accounts are closed each quarter (or at whatever other period the books are balanced) and the balance of each collected into one account, called the Eevenue or Profit and Loss Account, the balance of which account shows at a glance the net result of the period's transactions. This point will, however, be fully explained later on. SIMPLE LEDGEE ACCOUNTS. 27 TEIAL BALANCE. Having now explained the meaning of each entry in the Ledger of Mr. Jackson, it is time to consider what is known as the balancing of the accounts. The two-fold nature of each transaction in Bookkeeping — by which each benefit conferred involves a corresponding benefit received — has already been dwelt upon ; and it will be noticed that this two-fold aspect of the transactions (or transfers, as they really are) has been strictly maintained in the set of books with which we have been dealing. In order to test the clerical accuracy of work — a most necessary pre- caution where the number of entries is very numerous — it is usual to take out what is called a '' Trial Balance," of which the following is a specimen : — TRIAL BALANCE, 31st March 1891. Totals. Balances. Cash Bank Dr. ^ Cr. £ s d 1 £ s d 285 1 260 250 1 130 15,000 100 100 15,197 10 100 00 50 250 00 125 85 35 o 75 75 12 10 18 15 1 300 10 650 17 10 100 Dr. Cr. £ s d £ s d 25 Property . 14,900 00 John Smith Thomas Brown William Robinson James Jones Portland Estate Rent Attendant Ground Rent . . Repairs . . Depreciation . , 50 125 50 10 650 17 10 100 650 300 £16,291 5 £16,291 5 £15,403 15 £15,403 15 1 * It is to be remembered that the figures in italics on the credit side of this account do not find their way to that place until a later period than that now being considered. The Revenue Account has not yet been compiled— still less its balance ascertained and tramsferred to Capital. \ 28 BOOKKEEPING. The first column of figures in the above example represents the total amount on the Dr. side of each account, the second column the total amount on the Cr. side of each account, the third column the amount by which the Dr. column exceeds the Cr. column, and the fourth, the amount by which the Cr. column exceeds the Dr. column. If each transaction has been correctly recorded as a transfer, affecting two accounts in equal and opposite ways, it follows that the totals of the first two columns must be the same, and, consequently, that the totals of the second two must be the same. If, therefore, the totals do actually agree, there is good ground for supposing that the transactions are correctly recorded ; and it is the check thus afforded by the Trial Balance which forms one of the great advantages of Double Entry. Having now ascertained, by means of the Trial Balance^ the accuracy of the record of the transactions, the book- keeper may — as shown in the following chapter — proceed to " close the books " and prepare a Revenue Account and Balance Sheet. SIMPLE LEDGER ACCOUNTS. 29 Questions on Chapter II. 1. How many different classes of accounts are there? 2. Name them. 3. Give examples of each class. 4. State the use of each of your examples. 5. What would a Dr. balance upon each of your examples imply ? 6. What would a Cr. balance imply ? 7. What is a Trial Balance ? 8. What is its object, and how is it effected III.— CLOSING THE LEDGER. The object of "closing" the Ledger is two-fold, (1) to ascertain the net result of {i.e., the profit or loss arising from) the transactions recorded, and (2) to place on record, in a form convenient for subsequent reference, the state of each account on the date at which the books are closed. It has already been stated that, when the books are closed, the balance of each Nominal Account (or, in other words, the total profit or loss derived from every source) is transferred to one account, generally called, in trading concerns, the Profit and Loss Account, and, in non-trading concerns, the Eevenue x\ccount. It is now proposed to proceed to compile a Revenue Account from the transactions recorded in the last chapter. As the Revenue Account is merely a collection of the balances standing on the various Nominal Accounts, it is obvious that Dr. balances will be transferred to the Dr. side or the Revenue Account, and Cr. balances to the Cr. side of the Revenue Account. Further, it is obvious that a Dr. balance on a Nominal Account cannot, after having been transferred to the debit of Eevenue Account, still remain standing to the debit of the Nominal Account ; it is therefore necessary when CLOSING THE LEDGER. 31 a debit balance is transferred to the Eevenue Account, that the Nominal Account should at the same time be credited with the same amount. In the same way, if it is desired to transfer the Or. balance of a Nominal Account to the Cr. of the Eevenue Account, it is necessary to both debit the Nominal Account and credit the Eevenue Account with the amount of such balance. The two sides of the Nominal Account will then total up to the same amount — "balance" as it is called — and such total is then entered on both sides to bear witness to the fact that such account does balance, and a double line is ruled under each total to signify that the account is *' closed." Eeferring back to the Eent Account given in the last chapter, it will be perceived that there is a credit balance on this account of £300. To transfer this balance to the credit of Eevenue it is necessary to debit Eent Account, and credit Eevenue Account with £300. Then add up both sides of the Eent Account, insert the total (£300) on each side, rule a double line under the total, and the Eent Account is closed ; but there remains, of course, a Cr. balance of £300 on the Eevenue Account. In the same way the four remaining Nominal Accounts are closed by crediting Attendant Account with £10, Ground Eent Account with £6 5s., Eepairs Account with £17 10s., and Depreciation Account with £100, at the same time debiting Eevenue Account with all four amounts. These four Nominal 32 BOOKKEEPING. Accounts can then be added up and closed, but there is left standing to the debit of Eevenue £133 15s., exactly the same amount as was formerly standing to the debit of the four Nominal Accounts collectively. The following examples will show these transactions clearly, the italics representing the closing entries described above : — Dr. RENT. CONTRA. Cr. I89I May. 31 To Revenue Account £ s d 300 i 1891 Mar.31 By John Smith „ Thos. Brown „ W. Robinson . . „ Jas. Jones £ s d 50 125 50 75 £300 £300 Dr. ATTENDANT. CONTRA. Cr. I89I Jan. 31 Feb. 28 Mar. 31 To Cash . . £ s d 368 368 3 6 8 1891 Mar.31 By Revenue A ccount. . £ s d 10 £J0 £10 Dr. GROUND RENT. CONTRA. Cr. 1891 Mar. 31 To Portland Estate £ s d ' i«9i 650! Mar.31 By Revenue A ccount . £ s d 3 Dr. REPAIRS. 1891 Mar. 22 To Bank CONTRA. £ s d 17 10 o I89I Mar.31 By Revenue A ccount . Cr. £ s d 17 10 CLOSING THE LEDGEE. 33 Dy. 1891 Mar. 31 DEPRECIATION. CONTRA. £ s d To Property A/c . . 1 100 o o Cr. 1891 ! £ s d Mar. 31 \ By Revenue Account t 100 Dr REVENUE ACCOUNT. CONTRA. Mar. 31 To Attendant „ „ Ground Rent „ „ Repairs „ „ Depreciation £ s d 1891 10 Mar. 31 6 5 17 10 100 By Rent Cr. £ s d 300 It will be noticed that where there is only one line on each side of an account (as in the Ground Eent and the two follow- ing accounts) the total is not repeated, a double line merely being inserted under the figures on each side. In order to make it quite clear to the reader that the above transactions have in no way affected the agreement of the Trial Balance, another Trial Balance is given below, as it would appear if extracted at this time — namely, afte7' the Nominal Accounts have been closed: — 3i BOOKKEEPING. TRIAL BALANCE, 31st March i8gi. (After closing the Nominal Accounts.) Totals. Balances. Dr. Cr. Dr. Cr. Cash Bank . . Property Capital . . J ohn Smith Thomas Brown Wm. Robinson James Jones .. Portland Estate Revenue Accomit £ s 285 o 250 o 15,000 o 100 o 100 o 250 o «5 o 75 o 12 10 133 15 £ s 260 o 130 o 100 o 15,197 10 50 o 125 o 35 o 75 £ lao 14,900 50 125 50 d , s d 15,097 10 o 6 166 £16,291 5 o (£16.291 5 o £i5>27o o o |£i5,27o It will be remembered that the Revenue Account has been credited with every source of income, and debited with every source of expense or loss ; it therefore follows that the amount by which the credit side exceeds the total of the debit side is the net profit for the period over which the transactions extend. This net profit is £166 5s. As already stated, this net profit does not belong to the business, but is owed by the business to its proprietor, H. Jackson. H. Jackson is thus a creditor of the business, not only for £15,097 10s. (the balance of his Capital Account) but also for this £166 5s. of profit. This fact is recorded by crediting the Capital Account with £166 5s. (as shown by the italics in the Capital Account stated in Chapter II.), at the CLOSING THE LEDGER. 35 same time debiting Revenue with that amount, and closing the account thus : — Dr. REVENUE ACCOUNT. Cr. I89I £ s d 1891 / s d Mar. 31 To Attendant . . 10 Mar. 31 By Rent .. 300 ^ „ Ground Rent.. 650 „ „ Repairs 17 10 „ „ Depreciation. . 100 " „ Capital Ale {net profit for the quarter) J66 3 1 £300 £3U0 The Revenue Account, being merely a collection of the balances of the Nominal Accounts, is itself merely a Nominal Account (although, for the sake of brevity, it has hitherto been spoken of as " Nominal Accounts " in contrast to *' Revenue Account "), but now that all the Nominal Accounts are closed, and only Real and Personal Accounts left open, the bookkeeper is in a position to apply the second important check afforded by Double Entry — the agreement of the Balance Sheet. As will be remembered. Real Accounts represent Assets, and Personal Accounts either Assets or Liabilities. The credit balance of the Capital Account represents the sum by which the assets exceed the liabilities due to outside creditors (that is, creditors other than the proprietor), and such assets and liabilities are the balances of the Real and Personal Accounts D 2 36 BOOKKEEPING. (except the Capital Account). If, therefore, the accounts are correctly stated, a Balance Sheet comprising the balances of all the accounts except the Capital will show the same balance as that shown by the Capital Account. The following is a Balance Sheet drawn up on these lines : BALANCE SHEET, 31st March 1891. LlABILITIKS. £ s d Assets. £ s d Portland Estate 650 Cash Bank Property John Smith , . Thos. Brown.. Wm. Robinson 25 120 14,900 50 125 50 It will be seen that the assets' side of this Balance Sheet amounts to £15,270, while the liabilities' side is £6 5s. The difference is therefore £15,263 15s., representing the Capital, and this is the amount shown as the balance of the Capital Account. ^ To express this in another way. The business, as such,, can own no property, but owes everything to its proprietor. It consequently follows that, if the accounts are correctly recorded, all the assets will be equal to all the liabilities (that is, all the liabilities including the Capital Account), or, in other words, the total of the debit balances will always equal the total of the credit balances. CLOSING THE LEDGER. 37 To show that this is so in the present case, the Balance Sheet is here given in its complete form. The items have been re-arranged in the manner in which they would usually be stated, but the reader will have no difficulty in following each Ledger balance to its place in the Balance Sheet. BA.LANCE SHEET, 31st March 1891. Liabilities. Capital A ccoimt : Balance i Jan. ;f 15,197 10 o Less withdrawn 100 o o Net Profit for the quarter Creditors : Portland Estate £15,097 10 o 166 5 o s d :5,263 15 o 650 Assets. Property Account : Balance i Jan. £15,000 o o Less Depreciation 100 o o Debtors : John Smith Thos. Brown , . VVm. Robinson . Cash : At Bank In hand £50 o o 125 o o 50 o o 120 o 25 o o £ s d 14,900 O 225 O £ 15,270 o o ^ It may here be usefully repeated that the great advantage of Double Entry is that it not only affords a most valuable check upon the clerical accuracy of the books, but also — by means of the Revenue or Profit and Loss Account — it furnishes full details of the manner in which the profit, or loss, has been arrived at. It is thus possible to compare the various items of income and expenditure of different periods, and to consider whether or no certain sources of income are paying their way, and whether (and, if so, where) further economies can be effected. It is with this end in view that the 38 BOOKKEEPING. various Nominal Accounts are kept, and the balance of each finally transferred to the Eevenue Account. It will be obvious that the balance of the Eevenue Account would have been just the same if all items of income or expenditure had been posted to it direct, instead of being first posted to the various Nominal Accounts and then transferred ; but in the former case — especially if the items were numerous — the record vrould be too confused to afford any data for the com- parison of the various details in different periods. It is, indeed, possible to go even a step further, and say that the balance of the Capital Account would have been the same if all income and expenses had been posted to that account direct, without availing oneself of the analytical advantages of Nominal Accounts. The Eeal and Personal Accounts still remain to be dealt with, not because the balances have to be transferred to any other account, but because — as stated at the commencernent of this chapter — it is desirable to place on record, in a form convenient for subsequent reference, the state of each account on the date at which the books are closed. The following example will show, better than any mere explanation, the method in which these accounts are dealt with. The process is called "bringing down the balances." CLOSING THE LEDGER. 39 Dv CASH. CONTRA. Cr. I89I £ s d 1891 £ s d Jan. I To John Smith 50 i Jan. 16 By Bank 150 16 „ Thos. Brown . . 125 1 31 „ Do 50 21 „ W. Robinson . . 35 „ Attendant 3 6 8 Mar. 27 „ Jas. Jones 75 Feb. 28 Do 3 6 8 Mar. 31 Do 368 „ Bank .. 50 " „ Balance .. 25 £285 ; £285 1891 April 1 To Balance .. 25 j i Dy. BANK. CONTRA. Cr. IS9I Jan. 16 31 Mar. 31 To Cash „ Do „ Do To Balance .. £ 150 50 50 s d I89I Feb. 7 Mar. 6 22 31 By Portland Estate, Ground Rent . . „ H. Jackson (pri- vate expenses) . „ Repairs . . „ Balance . . £ sd 12 10 100 17 10 120 £250 £250 1891 April 1 120 Dr. PROPERTY. CONTRA. Cr. I89I Jan. I To Balance from last Account (value at this date) . . To Balance . . £ sd 15,000 1891 Mar. 31 By Depreciation of Lease . . „ Balance .. £ s d 100 14,900 £15,000 £15,000 1S91 Aptil 1 14,900 40 BOOKKEEPING. Dr. CAPITAL ACCOUNT. CONTRA. Cr. 1 891 Mar. 6 31 To Bank (private expenses) „ Balance.. 100 o o 15,26315 15,36315 1891 Jan. I Mar. 31 April 1 By Balance at thij date . . „ Revenue A/c . . By Balance . . 15,197 10 o 166 5 o 15,36315 15,263 15 Dr. JOHN SMITH. CONTRA. Cr. I89I Jan. I Mar. 31 To Balance at this date . . „ Rent for the quarter To Balance .. £ s d 50 50 1891 Jan. I Mar.31 By Cash „ Balance . . £ s d 50 50 £100 £100 1891 April 1 50 Dr. THOMAS BROWN. CONTRA. Cr. 1891 Jan. I Mar.31 April 1 To Balance at this date . . „ Rent for the quarter To Balance . . £ s d 1891 Jan. 16 125 May. 31 125 £250 125 1 ! By Cash „ Balance £ s d 125 o o 125 £230 CLOSING THE LEDGER. 41 Dr. WILLIAM ROBINSON. CONTRA. Cr. 1 891 [an. I Mar.31 1 891 April 1 To Balance at this date „ Rent for the quarter To Balance £ s 35 50 d 1891 Jan. 21 Mar.31 £'85 50 By Cash „ Balance Dr JAMES JONES. CONTRA. Dy. PORTLAND ESTATE. CONTRA. £ s d 35 o o 60 £85 o o Cr. 1 891 £ s d 1891 £ s d Mar. 31 To Rent for quarter the 75 Mar. 27 By Cash . . 75 Cr. 1891 I Feb. 7 ' To Bank Mar. 3 J \ „ Balance £ s dj 12 10 t 6 5 £18 15 1891 ! Jan. I 1 By Balance due at this date Mar.31 I „ Ground Rent to date 1891 April 1 By Balance £ s d 12 10 o 650 £18 15 6 5 It will be observed that these balances, when brought down as shown above, are in a very convenient form for future reference (even after subsequent entries have been added), but that in no case do they effect any alteration in the balance standing on the account when the Balance Sheet was taken out. 42 BOOKKEEPING. It is hardly to be supposed that, at this early stage, the student will have thoroughly grasped the whole of the process set forth in this and the preceding chapter ; but it is hoped he will have gathered a sufficiently general idea of the purpose of the various Ledger Accounts to enable him to intelligently follow the progress of the transactions recorded in the next chapter, where the transactions of Henry Jackson during the succeeding quarter are fully dealt with. CLOSING THE LEDGER. 43 Questions on Chapter III. 1. What are the objects of " closing " a Ledger? 2. What does the process consist of? 3. What account shows the net profit and why? 4. What is done with the balance of the Revenue, or Profit and Loss Account? 5. Why must the Revenue Account be completed before the Balance Sheet can be prepared ? 6. What is the object of keeping Nominal Accounts ? 7. Wherein lies the advantage of Double Entry? 8. What is meant by " transferring " a balance ? 9. What is meant by " bringing down " a balance? IV.— TRANSACTIONS OF HENRY JACKSON. The following are the transactions of Henry Jackson during the quarter following that which was considered in the previous chapters : — TRANSACTIONS during Quarter ending 3otli June 1891. Received from Thomas Brown, Rent due from him Paid into Bank Received from Wm. Robinson, Rent due from him Received from John Smith, Rent due from him , . Paid into Bank Paid Attendant Drew Cheque for private expenses . . Paid Attendant Paid for various Repairs (cheque) Paid Attendant Sent out the following accounts for Rent due : John Smith William Robinson Thomas Brown James Jones James Jones paid Rent due by him Received Henry Williams' account for Repairs . . Ground Rent due to Portland Estate for quarter Depreciation to be written off Lease of Property Drew Cheque for private expenses £ 125 140 50 50 100 3 100 6 o 3 6 12 16 3 6 50 50 125 75 75 4 6 105 100 It will be remembered that, in Chapter I., it was stated that the original method of bookkeeping was to record all transactions daily, in the order of their occurrence, in a book called the Journal, and at a subsequent date to record the TKANSACTIONS OF HENKY JACKSON. 45 same transactions in the Ledger in a classified form. In Chapter II. an endeavour was made to show the form of classification that would be adopted in a case like the present one ; and in Chapter III. the object and meaning of the particular form adopted was further explained. The reason for deahng with the Ledger Accounts before explaining the form in which the Journal is kept has been that the form of a Journal entry is entirely dependent upon the form of the subsequent Ledger entries which have to be made from the Journal; and accordingly it was thought best to first give the student a clear idea of the object and meaning of each Ledger entry, before endeavouring to explain the form of the Journal entry from which the Ledger entry is made. It is important to remember that the Ledger contains, in itself, a complete record of every transaction, and that, there- fore, it would be possible to dispense altogether with any other book ; but the risk of error, or omission, would be so considerable that, in all probability, no time or trouble would be saved by so doing. In the case of cash transactions, however, it has become very general to dispanse with the Journal and keep the Ledger Account for " Cash " in a separate book from the other Ledger Accounts. The reason for this departure from the 46 BOOKKEEPING. general rule is as follows : When every transaction is journal- ised, it is, of course, usual to keep the Journal written up daily, but — by reason of press of business, or from various other reasons — it frequently happens that the posting of the Journal into the Ledger is a week or more behind. Now it is, of course, of the greatest importance that the balance of the Cash Account be always readily ascertainable, and from this necessity arose the practice of keeping the cash trans- actions somewhat differently from the rest. Other incidental advantages doubtless exist, but this is probably the actual reason that led to the original departure. The Cash Book is ruled exactly the same as the Ledger, and in it the cash received or paid is recorded in exactly the same manner as it would be in a Ledger Account, except that each transaction is recorded as it occurs, instead of being recorded in the Journal first and afterwards posted. By this means the balance of the account may be at any time ascertained ; but this in itself, of course, constitutes no -*' Double Entry." How this is obtained the reader will, perhaps, best see by carefully following the process of writing up the Cash Book fi'om the above transactions. It must not be forgotten, however, that Jackson commenced the quarter with a cash balance of £25 in hand, as shown on the Balance Sheet on page 37. TRANSACTIONS OF HENRY JACKSON. 47 The transactions involving a transfer of cash are Nos. 1, 2, 3, 4, 5, 6, 8, 10, and 15, vidiich should be recorded in the manner already explained — the receipts on the Dr. side and the payments on the Cr. side, thus : — Dr. CASH. CONTRA. Cr. 1 891 April I June 30 £ s d 1891 To Balance from April 6 last account 25 13 „ Thos. Brown ■^ 125 1 30 „ W. Robinson 6 so May 3 1 „ J no. Smith.. „ Jas. Jones . . 4 50 Juneso 7 75 1 By Bank „ Do. „ Attendant . . II Do. .. 11 Do. . . II £ s J 140 o o 100 o o 368 368 368 Now take the remaining transactions and proceed to show the Journal entry required for each. The object of the Journal entry is to clearly indicate what account in the Ledger has to be debited, and what account credited, in order to record each transaction. The form usually adopted is to first write the name of the account to be debited, with the amount, in the first (or Dr.) column ; and then the name of the account to be credited, the amount being repeated, in the second (or Cr.) column ; a full explanation of the transaction is then written underneath. The form of Journal entries for transactions Nos. 7, 9, 11, 12, 13, 14, 16, 17, 18, and 19 is as follows :— 48 BOOKKEEPING. JOURNAL, 1891. Dr. Cr. i s d i s d 7. May 12 Capital Account 3 100 W II To B.ink I 100 (For cheque drawn this day for private expenses.) 13 12 16 9. June 15 Repairs To Bank (For cheque drawn this day in pavment of various I 12 16 repairs.) 4 50 II. June 30 John Smith II II To Rent 10 50 12. „ „ William Robinson 6 50 II II To Rent 10 50 13- " " Thomas Brown 5 125 To Rent 10 125 14- „ „ James Jones 7 75 To Rent (Being the amounts of accounts sent them this day for rent for the quarter now due.) 10 75 16. June 30 II II Repairs 13 4 14 To Henry Williams (Being the amount of his account for repairs.) P 4 14 12 6 5 17. June 30 Ground Rent To Portland Estate (Being one quarter's Ground Rent, making in all ;f i2'ios. now due, as per their half-yearly 8 650 account.) 14 105 18. June 30 Depreciation " " To Property Account (Being the amount written off lease for the 2 105 quarter.) 3 100 19. June 30 Capital Account " " To Bank (For cheque drawn this day for private expenses.) I 100 A careful comparisoD of these entries with the records of the transactions themselves will serve to show the reason for the form of each entry — and it need hardly be added that, until the student can assign a reason for every entry he TRANSACTIONS OF HENKY JACKSON. 49 makes, he has made but little progress in the science of bookkeeping. It will be seen that, at this time, a record has been made somewhere for every one of the transactions shown at the com- mencement of this chapter. Those transactions involving the transfer of cash have been recorded in the Cash Book, and those transactions not recording the transfer of cash have been recorded in the Journal. The next step is to write up (or post) these records in the Ledger. It must be remembered that each transaction requires to be entered once upon each side of the Ledger. It has been further explained that the Cash Book is, in reality, a Ledger Account, but that the Journal is not. It therefore follows that those transactions that are recorded in the Cash Book have already, in point of fact, been recorded once in the Ledger ; to complete the record of these transactions, there- fore, it is necessary that they should find their way once more into the Ledger upon the opposite side to that on which they are entered in the Cash Book. The Dr. side of the Cash Book must therefore be posted to the Cr. of the various accounts of the persons who have paid Jackson the money, and the Cr. side of the Cash Book to the Dr. of the various accounts upon whose behalf he has incurred the expenditure, and the record of the cash transactions is complete. The 50 BOOKKEEPING. transactions recorded in tlie Journal, on the other hand, require to be passed into the Ledger tivice, once to the Dr. and once to the Cr., and for this reason the form of the Journal entry has been adapted to facilitate this process. The amounts in the Dr. column are posted to the Dr. side of the Ledger Accounts named, and the amounts in the Cr. column of the Journal are posted to the Cr. of the various Ledger Accounts. The Ledger Accounts so posted are given below ; they should be carefully compared with the Cash Book and Journal, already given — a process that can easily be accomplished by the aid of reference folios. It will be noticed that the balances standing upon the various accounts at the date of our last Balance Sheet have been brought forward intO' these accounts. Dr. BANK. CONTRA. Cr, IS9I April I 6 13 To Balance „ Cash .. „ Do £ s d 120 1 j 140 I 100 1891 May 12 June 15 30 By Capital Account „ Repairs.. „ Capital Account J.I £ sd 100 12 16 100 Dr. PROPERTY ACCOUNT. Cr. lapi April I To Balance £ sd 14,900 o o I89I June 30 By Depreciation J.I £ sd 105 o o TKANSACTIONS OF HENRY JACKSON. 61 Dy. CAPITAL ACCOUNT. Cr. 1891 May 12 June 30 To Bank « Do J-i £ sd 100 100 1891 April I By Balance £ sd [5,263150 Dr. JOHN SMITH. Cr. I89I April I June 30 To Balance „ Rent .. J.I £ s d 50 50 1891 April 12 By Cash . . I £ s d 50 Dr. THOMAS BROWN. Cr. I90I April I June 30 To Balance „ Rent .. J.I £ s d j 125 00 125 1 1891 April 6 By Cash .. 1 I £ s d 125 Dr. WILLIAM ROBINSON. Cr. I89I £ s <•! 1891 £ s d April I To Balance 50 °i April 10 By Cash . . r 50 June 30 „ Rent .. J-i 50 °i 1 Dr. JAMES JONES. Cr. 1891 June 30 To Rent . , T i ^ ' ^ J.I 75 o o 1891 June 30 By Cash £ s d 75 o o E 2 52 BOOKKEEPING. Dr. PORTLAND ESTATE. 1801 April I ' By Balance June 30; „ Ground Rent.. J.I t s d 650 650 Dr. HENRY WILLIAMS. Cr. 1891 June 30 By Repairs Ji £ s d 4 14 o Dr. RENT. Cr. \ 1891 June 30 By J. Smith „ Wm. Robinson „ T. Brown £ s d J.I 50 „ 50 „ 125 ; " „ J.Jones ., 75 Q Dr. ATTENDANT. Cr. 1891 April 30 May 31 June 30 To Cash „ Do. „ Do. £ s d 368 368 368 Dr. GROUND RENT. Cr. 1 891 June 30 ! £ s d To Portland Estate J . i i 6 5 o TRANSACTIONS OF HENRY JACKSON. 53 Dr. REPAIRS. 13 Cr. I89I June 15 To Bank J.I £ s d 12 16 30 „ H.Williams.. " 4 14 Dr. DEPRECIATION. 14 Cr. 1891 June 36 To Property A/c . . £ s d J. 1 1 105 o o It will now be seen that every transaction has been posted twice into the Ledger — thus giving effect to the two-fold nature of each transfer. Those accounts that have received benefits have been debited, and those that have imparted benefits have been credited ; and, consequently, the total debits in the Ledger will be equal to the total credits. As already explained, it is very desirable that there should be some means of ascertaining that the entries that have actually been made do really come to the same thing as those which should theoretically have been made. To test this, the bookkeeper would proceed to extract a Trial Balance, in the same manner as shown in Chapter II. 54 BOOKKEEPING. The following is the Trial Balance of Henry Jackson's Ledger on the 30th June : — TRIAL BALANCE, 30th June i^ £ s d £ s d £ s d £ s d C. I. Cash 325 250 75 L. I. Bank 360 212 16 147 4 2. Property 14,900 105 14,795 3- Capital 200 15,263 15 15,063 15 4- John Smith.. 100 50 50 5- Thomas Brown . . 250 125 125 6. William Robinson 100 50 50 7- James Jones 75 75 8. Portland Estate . . 12 10 12 10 9- Henry Williams . . 4 14 4 14 10. Rent 300 300 11. Attendant . . 10 10 12. Ground Rent 650 650 13. Repairs 17 10 17 10 14. Depreciation 105 105 •• ^16,448 15 £16,448 15 £15.380 19 £15,380 19 Before proceeding to close the books for the quarter, it will be well to say something concerning the Continental system of Bookkeeping ; and for the purpose of more clearly showing the differences of detail between the two methods, it is pro- posed to deal with the same set of transactions as those already considered above. TRANSACTIONS OF HENRY JACKSON. 00 Questions on Chapter IV. 1. What is gained by not journalisinc; cash transactions ? 2. How are cash receipts and payments recorded ? 3. What entries are necessary to record the fact that A. has become my debtor ? 4. What entries are necessary to record the fact that B. has become my creditor ? 5. If certain property that I hold has become less valuable, how should I record the fact ? v.— THE "CONTINENTAL" SYSTEM. It will be remembered that, in the first chapter, attention was drawn to the fact that the system generally adopted on the Continent is somewhat different to that in use in this country. The reason for going more deeply into the matter now is that the Continental system is theoretically more complete than our own, and will therefore help the student to more clearly understand the abbreviated method in general use in this country. It may, however, be mentioned that for some businesses the Continental method is the best to adopt, and that a general acquaintance with its details will, there- fore, be by no means a waste of time — even to the student who thoroughly understands the English system. The essential feature of the method which the reader is now called upon to consider is the supreme importance of the Journal. Every transaction is passed through this book in the fullest detail, while the Ledger entries are made as few and as general as possible. The Journal thus becomes the book to which the merchant constantly refers, while the use of the Ledger becomes restricted almost to the position of a mere collecting medium for the Revenue Account and Balance Sheet items. THE " CONTINENTAL SYSTEM. 57 It may interest the reader to know that, in many countries^ every trader is compelled by law to record all his transactions in a Journal. For the purpose of showing more clearly the exact differ- ence between the two systems, it will be well to take the position of Henry Jackson upon the 1st April, and his trans- actions for the subsequent three months, and show the method by which they would be recorded upon the Conti- nental system. It will be noticed that the form of the Journal here given is somewhat different from the ordinary English form ; the outside column being used for both Dr. and Cr, items, and the inside one for details of the " Sundries." The Ledger folio of the Dr. posting is to the extreme left, w^hile the date is placed at the head of the entry. JOURNAL, i8gi. £ s d £ s d April I. * Sundries to Opening Balance For the following assets due to me at this I 15,270 date, viz. : — 2 Property 14,900 3 John Smith 50 4 Thos. Brown 125 5 Wm. Robinson 50 6 Bank 120 7 Cash 25 I Opening Balance to Sundries For the following liabilities due from me at this date, viz. :— * 15,270 • Capital 8 15,263 15 Portland Estate 9 650 April 6. 7 Cash to Thos. Brown Being the amount received from him this day. 4 125 58 BOOKKEEPING. Bank to Cash Being the amount of cash paid into bank this day. April lo. Cash to Wm. Robinson , Being the amount received from him this day. Cash to John Smith Being the amount received from him this day. April 13. Bank to Cash Being the amount of cash paid into bank this day. April 30. Attendant to Cash Being the amount paid to attendant this day, for salary. May 12. Capital to Bank Being the amount of a cheque drawn for private expenses this day. May 30. Attendant to Cash Being the amount paid to attendant this day, for salary. June 15. Repairs to Bank Being the amount of a cheque drav?n for various repairs on this day. June 30. Attendant to Cash 7 Being the amount paid to attendant this day, for salary. Sundries to Rent ! 12 Being the amount due from various persons I for one quarter's rent due this date, viz. :— ! John Smith > Wm. Robinson Thos. Browrn '.'. \ James Jones 1 June 30. Cash to J as. Jones Being the amount received from him this day. 50 o o 50 o o 125 o o 75 o o £ s d 140 o 368 368 12 16 O 368 THE " CONTINENTAL SYSTEM. 59 II Repairs to Henry Williams Being the amount due to him for repairs, as per his account of this date. 14 2 6 £ s d £ s d 4 14 15 Ground Rent to Portland Estate Being the amount due to them for one quarter's Ground Rent to this date. 650 16 Depreciation to Property Being the amount written off property at this date for depreciation of lease (at 5% interest). 105 8 Capital to Bank Being the amount of a cheque drawn for private expenses this day. 100 £31,718 15 It will be noticed that the Continental system requires Journal entries for the outstanding assets and liabilities at the commencement. Upon the English system — after the books have once been opened — this is not required, the balances on the books being merely carried forward. With the Continental system, on the contrary, the books are literally "closed " each time a Balance Sheet is prepared — no balances whatever being left upon the Ledger — and conse- quently it is necessary for them to be formally " opened " again at the commencement of the subsequent period. It will be necessary to deal more with this question when coming to the closing of the Ledger, and we may therefore pass on now to the posting of the Journal. 60 BOOKKEEPING. The following shows the Ledger Accounts resulting from the transactions already recorded : — Dr. OPENING BALANCE. Cr. I89I £ s d 189 1 pril I To Sundries i 15,270 April I By Sundries I £ s d 15,270 o o Dy. PROPERTY ACCOUNT. Cr. 1891 April I To Sundries £ s d 14,900 o o 1891 June 30 By Sundries I 3 £ s d [05 o o Dr. JOHN SMITH. Cr. I89I £ s d I89I 1 £ s d April I To Sundries I 50 April 10 By Sundries I 50 o- June 30 2 50 Dr. THOMAS BROWN Cr. I89I £ s dl I89I £ s d April I To Sundries I 125 April 6 By Sundries I 125 June 30 " 2 125 ° i WILLIAM ROBINSON. Cr. I89I £ s d I89I £ s d April I To Sundries I 50 April 10 By Sundries I 50 June 30 " " 2 50 1 THE "CONTINENTAL SYSTEM. 61 Dv. BA.NK ACCOUNT. Cr. 1891 1 £ s d 1891 t s d April I To Sundries ' i 120 May 12 By Sundries 2 100 6 „ It f, 140 June 15 w w „ 12 16 13 • ' r 100 30 " " ' 100 Dy. CASH ACCOUNT. Cy. I89I April I To Sundries I £ s d 25 1891 April 6 By Sundries I i S d 140 6 It It „ 125 13 It It 2 100 10 It It 50 k, 30 n It • 368 „ It It „ 50 May 30 II » 3 6 8 June 30 " 3 75 1 June 30 " " 3 6 8 Dy, CAPITAL ACCOUNT. Cy. 1 891 April 30 June 30 i To Sundries £ s d 1891 100 April I 100 By Sundries 15,263 s d 15 By. PORTLAND ESTATE. Cv. ■ 8„ April 1 June 30 1 By Sundries i 3 / s d 650 650 Dv. ATTENDANT ACCOUNT. Cy. 1891 April 30 To Sundries 2 May 30 „ 'una 30 » u \ " i s 3 6 3 6 3 6 62 BOOKKKKPING. Dr. REPAIRS ACCOUNT. Cr. I89I June 15 30 To Sundries 2 3 £ s d 12 16 4 14 1 Dv. RENT ACCOUNT. Cr. 1891 ; June 30 i By Sundries £ s d 300 o o 13 Dr. JAMES JONES. Cr. 1891 I June 30 To Sundries £ s d 75 o o I89I I June 30 1 By Sundries £ s d 75 o o 14 Dr. HENRY WILLIAMS. Cr. 1891 June 30 By Sundries £ s d 4 14 o 15 Dr. GROUND RENT ACCOUNT. Cr. 1891 June 30 To Sundries £ s d 650 16 Dr. DEPRECIATION ACCOUNT. Cr. 1891 June 30 To Sundries £ s d 105 o o THE "continental" SYSTEM. 63 It will be noticed that no explanation is added to any of the Ledger entries ; it is not, however, intended that the word "Sundries" be invariably used; what is meant to be shown is rather that it may be used at any time (it is always used where one credit corresponds to several debits, and vice versa), and that consequently the Journal is the only sure means of ascertaining any further particulars that may be required. It will further be noticed that, had the Ledger Account " Opening Balance " been posted in detail, it would have exactly corresponded with the Balance Sheet on 31st March, shown in Chapter III. It is very important that the student should realise this fact quite clearly. The Trial Balance is the same, in principle, as those already taken out ; but, in consequence of every entry having been passed through the Journal, it follows that the totals of the two first columns of the Trial Balance, in addition to agreeing with each other, will agree with the total of the Journal. This is a very valuable check, as it shows that every item in the Journal has been posted. It will be obvious that the fact of an entry being left entirely unposted would still leave the total debits of the Ledger equal to the total credits, but in that case both these totals would be less than the total of the Journal by the amount of the omitted item. Further, in 64 BOOKKEEPING. the event of the Dr. and Or. columns of the Trial Balance not agreeing, it is possible — by comparison with the Journal — to ascertain lukich is wrong, and so localise the error, and, to a great extent, facilitate its discovery. These checks are undoubtedly very valuable, and form almost the sole advan- tages of the "Continental" system. The Trial Balance of the Ledger is given below : — TRIAL BALANCE, 30th June 1891. Dy. Cr. Dr. Balance. Cr. Balance £ s d £ s d £ ^ d r s d I, Opening Balance . . 15,270 15,270 2. Property Account.. 14,900 105 14,795 3. John Smith 100 50 50 4. Thomas Brown . . 250 125 125 Q 5. William Robinson 100 50 50 6. Bank Account 360 c 212 16 147 4 7. Cash Account 325 250 75 8. Capital Account . . 200 15,263 15 15,063 15 g. Portland Estate . . 12 10 12 10 10. Attendant Account 10 10 II. Repairs Account .. ij 10 17 10 12, Rent Account 300 300 13. James J ones 75 75 14. Henry Williams . . 4 14 4 14 15. Ground Rent Account . 6 5 6 5 16. Depreciation Account . 105 105 £31,718 15 £31,718 15 £15,380 19 £15,380 19 i THE '* CONTINENTAL " SYSTEM. 65 Questions on Chapter V. 1. What is the pecuHar characteristic of the " Conti- nental " system ? 2. Are there any local circumstances to account for it ? 3. What is an Opening Balance Account ? 4. What are the principal advantages of the "Conti- nental " system ? 5. What are its disadvantages ? VI.— CLOSING THE LEDGER ON THE "CONTINENTAL" SYSTEM. The method of closing the Ledger upon the " Continental "■ system is very similar to that already considered, the main difference being that every entry, as before, passes through the Journal. The Nominal Accounts are first collected into one account — the Eevenue Account — and the balance of this account is then transferred to Capital. The only accounts then left upon the Ledger are those recording assets and liabilities — which are, of course, always equal in amount. These accounts, under the former system, formed the materials of the Balance Sheet ; but the actual balances were always brought down on each account ready for the commencement of the next period — thus the books were not, in fact, ever actually closed. Under the " Continental " system the balance of every Eeal or Personal Account is transferred to an account called *' Closing Balance " ; the Assets, or Dr. balances, being trans- ferred to the Dr. side of this account, and the Liabilities, or Cr. balances, to the Cr. side. The Dr. and Cr. sides of the Closing Balance will thus be equal in amount, and, conse- quently, every account in the Ledger can be, and is, balanced and CLOSING THE LEDGEB ON THE " CONTINENTAL " SYSTEM. 67 ruled off ; the Ledger being actually and literally " closed " every time a Balance Sheet is prepared. When the Ledger has been thus closed, it, of course, becomes necessary to ''reopen" at the commencement of the succeeding period. The Journal entries necessary to close the Ledger are as follows : — JOURNAL, 1891. 17 Forward . . Rent Account to Revenue Account For Income earned during the quarter, now transferred to Revenue Account. Revenue Account to Sundries For various expenses incurred during the quarter, now transferred to Revenue Account, viz. : — Attendant Repairs Ground Rent Depreciation Revenue Account to Capital Account . . Being the amount by which the Income for the quarter exceeded the Expenses for the quarter — constituting the net profit of the quarter. Closing Balance to Sundries , . . . As follows, viz. : — Property Account John Smith Thos. Brown William Robinson Bank Account Cash Account Sundries to Closing Balance As follows, viz. : — Capital Account Portland Estate Henry Williams 14,795 50 125 50 147 75 j £ s d 31,718 15 o I 300 o o 10 o o 17 10 o 650 105 O 15,225 o o 12 10 O 4 14 o 161 5 o 15,242 4 o 15,242 4 o £62,803 3 o A Trial Balance taken out after the posting of these entries would give the same total as that shown above, viz., £62,803 3s. F 2 68 BOOKKEEPING, By this time the attentive student should experience no great diflSculty in posting the above entries to their respective Ledger Accounts ; but, in order to remove any possibility of misapprehension, the Ledger Account " Closing Balance " is given below : — i8 Dr. CLOSING BALANCE. Cf. 1891 June 30 To Sundries.. £ s d 15,242 4 o 1891 June 30 By Sundries.. £ s d 15,242 4. o It will be seen that, before any transactions for July are recorded, the books must again be " opened," so that the various accounts may record the actual state of affairs. This is accomplished by two Journal entries similar to the first two in our pro forma Journal of Chapter V. ; being, in facfc, the closing entries reversed. It will be convenient here to consider the difference between the two methods. Under the " Continental " method, the whole of the transactions pass through the Journal into each side of the Ledger. The profit is arrived at by collecting the various Income and Expenditure {i.e., Nominal) Accounts into one general (Eevenue) Account. This profit is then carried to Capital Account, and nothing but Real and Personal Accounts remain open. In order to ascertain the actual state of affairs, these Real and Personal Accounts are collected into one account — the Closing Balance Account — and every account in CLOSING THE LEDGER ON THE ** CONTINENTAL " SYSTEM. 69 the Ledger is ruled off. The agreement of the Closing Balance proves that the stated assets are equal to the stated liabilities and capital taken together ; while any information required concerning the particulars of the various items forming the Closing Balance can be obtained by reference to the Journal entry. The system is very complete, but the labour involved is enormous ; it is, however, desirable that the student should give some attention to the method in order that he may the more clearly understand the English method, which is really nothing but an abbreviation of the " Continental." To revert to the English method. The method of recording transactions previous to their entry in the Ledger effects a considerable saving upon the ''Continental " method, because cash items are not passed through the Journal ; at a later period it will be seen that still further economies may be effected in the preliminary record of the transactions, but whatever the precise method adopted here, the final record in the Ledger will always be practically the same — each transaction being entered once on each side of the Ledger. The transfer of the balances of the Nominal Accounts to the Revenue Account must always be the same, likewise the transfer of the balance of Revenue Account to Capital Account ; it is, however, to be noted that sometimes — with the English method — these transfers are not passed through the Journal, but made direct from the one Ledger 70 BOOKKEEPING. Account to the other. The complete closing of the Ledger (i.e., the transferring of all real and personal balances to a Balance Account) and the subsequent reopening on the following morning is regarded by English bookkeepers as a needless expenditure of time ; the system therefore adopted is to bring each balance forward on its own account, as shown in Chapter III. A very little consideration will show that this process will produce Eeal and Personal Accounts exactly similar in form to those of the "Continental" system, but that, up to the present, we have not provided any summary of assets and liabilities, or Balance Sheet — a most important omission. It is, however, quite possible to make a summary of these accounts without actually transferring the balances to a Balance Account (we have already done the same sort of thing when taking out the Trial Balance), and such a summary as this is what the English bookkeeper calls his " Balance Sheet." There are two forms of Balance Sheet in use : one follows the form of the Closing Balance, placing the assets on the Dr. side and the liabilities on the Cr. side ; while the other follows the form of the Opening Balance, in which case the liabilities fall on the Dr. side, and the assets on the Cr. side. It will be remembered that when the books were first opened an Opening Balance was created, as under the "Continental " method ; it therefore appears desirable that — as the first Balance Sheet must take the form of the Opening Balance — CLOSING THE LEDGER ON THE *' CONTINENTAL " SYSTEM. 71 all subsequent Balance Sheets should be prepared on the same lines. This argument is now very generally conceded ; but, as some old-fashioned accounts are still kept the other way, it is necessary that both methods should be mentioned. It is, however, to be noticed that the English form of Balance Sheet is not — after the first — a Ledger Account, and that consequently the terms ** Dr. to " and " Cr. by " do not strictly apply, although their use in this connection is by no means infrequent. What is considered to be the best form for a Balance Sheet on the English system has already been shown at the conclu- sion of Chapter III. The student who has intelligently followed thus far should :find little difficulty now in recording all ordinary transac- tions connected with non-trading concerns. The accounts of traders present many difficulties which have not yet been dealt with, and these will claim attention in the succeeding Part. 72 BOOKKEEPING. Questions on Chapter VI. 1. What is the difference between the '* Continental " and. the English method of closing the Ledger ? 2. Which is the more complete ? 3. What is the essential difference between the Balance Sheet prepared upon the two systems? 4. How is it that the assets are not always placed upon the same side of a Balance Sheet? 5. Which side appears to be the most natural? EXERCISES EXERCISE I. Write up the Cash Book for the followiDg entries : — January 1 1892, balance in hand at this date, £37 17s. January 13, paid J. Cummings £5 10s.; received from T. Jones, £17 5s. 3d. January 15, paid for House Expenses, £2 14s. 6d. ; received from F. J. Smith, £14 17s. 6d. ; paid for Sundry Expenses, £1 5s. ; paid T. Manning, £6 3s. 6d. Balance the Cash Book and bring down the amount of Cash in hand. (Answer: Totals, £69 19s. 9d. ; balance £54 6s. 9d., Dr.) EXERCISE II. Write- up the following transactions in the Petty Cash Book (a Petty Cash Book is a secondary Cash Book used for record- ing payments of a small amount) : — March 1 1892, received from cashier for Petty Cash, £10. March 2, paid for Cartage, IBs. 6d, March 3, paid for Postage, 74 BOOKKEEPING. 3s. 6d. March 5, paid Housekeeper, 2s. 6d. March 6, paid ior Eepairs to Clock, 10s. 6d. ; paid Porter's Wages, £1 5s. ; paid Cab-hire for Mr. H., 3s. 6d. Find the balance in hand and carry down ready for next week's entries. (Answer : Totals, £10 ; balance £6 16s. 6d., Dr.) EXEECISE III. Write up a Bank Account, recording the following trans- actions : — January 1 1892, balance at bank on this day, £4,724 10s. January 3, drew cheque for Sims & Co., £81. January 5, paid in £362 7s. 6d. January 12, paid P. Bright, £70. January 15, William Wright paid into my account £1,347 16s. 8d. January 16, drew cheque for J. Kerr, £868 10s. January 20, paid in £420 17s. 5d. January 23, drew cheque for Poor Rate, £5 3s. 4d. January 26, drew cheque for Jones & Young, £614 15s. January 29, paid in £170. January 31, drew cheque for salaries, £12 10s. Balance the account, and bring down the balance ready for next month's entries. (Answer : Totals, £7,025 lis. 7d. ; balance, £5,373 13s. 3d., Dr.) . .. EXERCISES. 75 EXEECISE IV. Write up the following Property Account : — February 10 1892, purchased property in Cecil Street for £1,000. February 20, paid J. Milner, on account of alterations and improvements, £150. March 17 paid J. Milner balance ■of his account, £350. May 29, sold half this property to Edward Bunting for £600. On 30th June 1892 the unsold property is valued at £550. ■Complete the account and bring down the balance. (Answer : Loss to date, £350 ; balance, £550, Dr.) EXEECISE V. Write up the following Bank Shares Account : — July 2 1892, bought this day 100 £10 shares in the North Indian Banking Company, Limited, £2 10s. per share called up, for £240. August 20, paid this day call of £2 10s. per share, £250. On 30th September the value of the shares stood at £4 10s. per share. Complete the account and bring down the balance. (Answer : Loss to date, £40 ; balance, £450, Dr.) 76 BOOKKEEPING. EXEECISE VI. ^ Write up the following Capital Account of Thomas Brown : — October 1 1892, balance of capital this day, £1,067 8s. 4d. October 31, withdrew £50. December 16, withdrew £50. December 31, net profit for the quarter, £159 16s. 2d. Complete the account and bring down the balance. (Answer : Totals, £1,227 4s. 6d. ; balance, £1,127 4s. 6d.,. Gr.) EXERCISE VII. Write up the following Capital Account of James Simpson : — October 1 1892, balance of capital this day, £369 2s. lOd. October 16, paid in the further sum of £250. November 30, withdrew £100. December 31, loss on business for the quarter, £587 16s. Id. Complete the account and bring down the balance. (Answer : Totals, £687 16s. Id. ; balance, £68 13s. 3d., Dr.) EXERCISE VIII. Write up the following Dividends and Interest Account : — July 1 1892, received the following dividends : Great British Banking Co., £11 5s.; South AustraUan Telephone EXERCISES. 77 €o., £6 ; Central Gas Co., £12 10s. July 9, paid interest on Mortgage, £26 7s. 6d. Eeceived : August 16, Great Western Water Co., £114 8s. August 31, Northern Water Co., £50. Close the Account as on 30th September 1892, and transfer the balance to Eevenue Account. (Answer : Totals, £194 3s. Od. ; profit to date, £167 15s. 6d.) EXERCISE IX. Write up the following Expenses Account, and transfer the balance to Profit and Loss Account, as on the 31st December 1892 :— October 16 1892, paid for Interest, £41 3s. 2d. October 31, paid Trade Expenses, £37 lOs. ; Salaries, £69 14s. 2d. November 20, incurred Bad Debt for £146 Is. 9d. November 30, paid Trade Expenses, £31 2s. 6d. ; Salaries, £69 14s. 2d. December 12, allowed as Discount, £2 16s. 8d. December 31, wrote off Lease, for depreciation, £20 ; paid Trade Expenses, £27 15s. ; Salaries, £51 16s. 8d. On 31st December a further sum of £12 10s. was owing for Trade Expenses. (Answer : Totals, £510 4s. Id. ; transfer to Profit and Loss Account, £510 4s. Id.) 78 BOOKKEEPING. EXERCISE X. Close the books of Henry Jackson on 30th June 1891 {vide Chapter IV.), according to the EngHsh method. EXERCISE XI. Open the same books, as on 1st July 1891, acccording to the "Continental" method. EXERCISE XII. Starting with the position of affairs set forth in the last exercise, record the following further transactions of Henry Jackson, and finally close the books. [This exercise should be separately worked out according to both the English and the '' Continental " methods.] £ s d July 2 — Received from William Robinson... 50 ,, 5 — Received from Thomas Brown .,. 125 „ 12 — Received from John Smith ... 50 „ „ —Paid into Bank 300 „ 15— Paid Portland Estate by cheque .. . 12 10 EXERCISES. 79 £ s d July 24— Drew Cash from Bank 25 „ 31— Paid Attendant 368 Aug. 10 — Let Ground-floor premises to Johnson & Co., as from the half-quarter day, at £800 per annum. Aug. 19— Paid Henry Williams 4 14 Q 31 -Paid Attendant 3 6 8 Sept. 30— „ 8 6 8 „ Sent out the following accounts for rent due this day : — £ s d John Smith ... 50 WilHam Eobinson 50 Thomas Brown... 125 James Jones ... 75 Johnson & Co. ... 100 — 400 Sold Property this day to Henry & Coleman, for 15,000 Keceived their cheque for same (less proportion of Ground Eent due) 14,993 15 ■80 BOOKKEEPING. Sept. 30 — Henry & Coleman took over all Eent now due, and gave their cheque for same (less 5 per cent, discount) 380 „ Paid into Bank 15,384 1 (Answer : Balance at Bank, £15,793 15s. Od. ; net profit -to date, £568 15s. Od. ; balance of Capital Account, £15,793 15s. Od., Cr.) VII.— COMMERCIAL TERMS. Note : The following are a few of the more common commercial terms that appear to require more explanation than can he conveniently accorded to them in the text of this loork. The words in italics after each term are its equivalent in French and in German — the former being given first in each case. Acceptance {AcceiUation : Accept). See under Bill op Exchange. Accommodation Bill {Effet fictif : Kelleriuechsel). A Bill for which no bond fide consideration has been rendered. The term applied to a Bill that has been either drawn, accepted, or endorsed, without value having been received therefor, and for the purpose of lending the name of the drawer, acceptor, or endorser to some other person. Account Cukrent (Compte courant : Laufende Bechiiung). A running account kept open and added to from day to day. When the balance involved is of sufficient importance it is usual to charge interest upon the daily balance, an additional cash column 'being ''placed upon each side of the account for that purpose. 82 BOOKKEEPING. Account Sales {Comjjte de Vente : Verkaufsrechnu7ig). An account rendered by an agent, furnishing particulars of sales made from consignments. Accountants {Experts Comptables : Biicherrevisoren). Experts in the science of accounts. Actuaries {Galculateurs : Begistratoren). Expert calcu- lators, employed in the preparation of insurance tables, etc. etc. Assets {Masse active : Activa). Property : in accounts the total of the Dr. balances of the Eeal and Personal Accounts. Auditors {Aucliteurs des comptes : Auditoren). Persons appointed to examine accounts and to verify their accuracy. Balance {Balance : Bilanz). The difference between the Dr. and Cr. sides of an account. Balance Sheet {Balance : Bilanz). A statement showing the assets and liabilities of an undertaking. Bill of Exchange {Lettre de change : Wechsel). An uncon- ditional undertaking to pay to a stated person, or his order, or to the bearer, a definite sum, either on demand or at some definite (or determinable) future date. COMMERCIAL TERMS. 83 The following is the usual form of a Bill of Exchange (or Acceptance) : No. 46. £780 0. g Warrington, ^nd January 1893. ^ — ^ Four ® "g 'O months af a ter date, pay to the ( ^81- \ 81- \ >i^ "" "*^ Stamp I order of Mest'^Ssrs. Si}ns8(&Co._^ I btamp I ^^. ^ seven hundred ^ '^'B andeighty^pounds—Yalueieaeimi. To Messrs. Fox & Crane, < % SIMS & Co. London. ^^ In the above example Sims & Co. were the creditors, and Fox & Crane the debtors : Sims & Co, treated the Bill as a " Bills Receivable," and Fox & Crane as a '* Bills Payable." The Bill was prepared by Sims & Co., who are called the "Drawers" {tireurs : ausstellern), and addressed to Fox & Crane, who are called the " Drawees " {tires : bezogenern). The party i n whose name this Bill is made payable is called the " Payee " {pre7ieur : remittent) ; sometimes, however, a Bill is made payable to " Bearer " (yorteur : mhaber). A Bill is a "negotiable instrument"; i.e., it may pass, by Negotiation {negociation : hegehung), from hand to hand. It is necessary, however, that the payee should sign his name upon the back of the Bill before parting with it : this con- stitutes an Endorsement (endorsernent : indossament) — •endorsement by the payee or by any other person will render G 2 84 BOOKKEEPING. him liable for the amount of the Bill, if it be not met upon maturity. A Bill taken up before it becomes due is said to have been Retired (retire : eingelost). Bills payable thirty or more days after date are not due for repayment until three days after the expiration of their term : these days are called Days of Geace {jours de faveitr : rcsioecttage). A Bill pay- able in this country requires an ad valorem stamp. Bill of Lading (Connaisement : Konnossement). A docu- ment by which the owner of a ship acknowledges the receipt of goods to be conveyed by the ship. • Bullion {or][argent'\ en barres : Ungemi'inztes Gold [Silber]^ fremde, ungangbare Munze). Gold or silver uncoined ; also sometimes applied to foreign coin. y Capital [capital : hapital). [a) Excess of Assets over Liabilities, {b) The amount of shares a company is authorised to issue — called "■ Nominal Capital." (c) The amount of shares issued by a company — called '' Subscribed Capital." [d) The amount paid up on the shares issued by a company — called " Paid-up Capital." Capital Expenditure. The amount expended by a com- pany in acquiring or equipping its undertaking. Expenditure for which value remains, as opposed to Revenue Expendi- ture, which means the amount expended, or lost, in earning. or seeking to earn a Revenue. COMMERCIAL TEEMS. 85 Cash Book {livre cle caisse : Kassenhuch). A book used for recording the receipt or payment of money. Cheque (cheque : check). A bill of exchange, drawn on a banker and payable on demand, for some specified sum. A cheque requires a penny stamp. C.I.F. An abbreviation of " Cost, Insurance, and Freight." Commandite, Societies en. A company in which only the directors incur unlimited liability. Consignment [consignation : loarensendung) . Goods sent by one person — the consignor — (expediteur : ahsender) — to another who is his agent — the consignee (co7isignataire : Konsignatdr) — for sale on commission. Credit-note {accreditif : akhreditive). A memorandum correcting an overcharge in an invoice, arising from an error in the .quantity, price, or calculation. Dk. — Cr. [Doit — Avoir : Soil — Hahcn). Abbreviations of the words "Debtor" and "Creditor" at the head of an account. Day Book (a) Sales Book (livre de ventes : verkaufshuch). A book recording particulars of goods sold, (h) Purchases 86 BOOKKEEPING. Book {livre d' achats : einkaufsbuch). A book recording par- ticulars of goods bought. Depreciation {de;preciation : herabsetzung). A decrease in value; the loss arising from such decrease. Discount [cscompte : rabatt). An allowance paid in con- sideration of the immediate advance of a sum of money due at a future date. To discount a Bill is to part with a Bill (Receivable) before it becomes due, allowing discount upon the cash received in its stead. Firm [raison sociale, maison de commerce : firma). The collective name given to the proprietor or proprietors of a business. F.O.B. An abbreviation, " Free on board (ship)." Freight {fret : fraclit). The cost of forwarding goods by ship. Goodwill {association : genossenschaft). The benefit accruing to a business by reason of the support accorded by its customers. Insurance (assurance : versicherung). A contract either to indemnify against a loss that may arise upon the happening of some specified event, or to pay on the happening of some COMMERCIAL TERMS. 87 event a certain sum to the person insured. The consideration paid by the insured is called the premium [lorimc : iwdmie). Insurance may be against fire, death, accident, sickness, fraud, or almost any conceivable contingency. Interest {inter et au capital : kapitalzins). The premium paid by a borrower for the use of money. Invoice" (facture : fakPiira). A memorandum containing particulars as to the description, quantity, and value of goods sold. Journal [journal : journal). A book containing, in chrono- logical order, a record of transactions, so arranged as to readily admit of their being posted into the Ledger. Ledger [grand livre : haupthuch). A book containing, in a classified form, a complete record of transactions. In practice the Ledger is frequently subdivided into several portions {sec postca). Liabilities {passif : passiva). Engagements to pay moneys or goods to others. In accounts the total of the Cr. balances of the Real and Personal Accounts (usually) excluding the Capital Account. Limited Companies {Societes anonymes : Gesellschaftcn mit begrenztcr Haptflicht). Associations having a corporate 88 BOOKKEEPING. character, in which the liability of the members is limited to a fixed amount prescribed by the Memorandum of Associa- tion. An Unlimited CoMrANY {societe en nom coUectif : actiengesellschaft) is a corporation in which there is no limit to the amount of each member's liability. Partnership [association : genossenschaft). *' The relation which subsists between persons carrying on a business in common with a view to profit." Promissory Note {seule de change : solawechsel, hand- wechset). A plain and direct engagement in writing to pay a sum specified at the time therein named to a person therein named, or to his order, or to bearer. The most usual promis- sory note is one payable to bearer on demand, issued by a bank and called a Bank Note {billet de banqice : banknote). Eebate. An allowance of any kind — often used to signify the discount upon an unmatured Bill. Eeserve Fund (reserve: reservefonds). A sum set aside out of profits, either to meet future losses, to equalise dividends, or to increase working capital. The name of an account recording the setting aside of such a sum. Shares {actions : actien). Definite portions of the capital of a company, the capital of which is " divided into shares." COMMBRCIAL TERMS. 89 SiJ^KiNG Fund (caisse d' amortisscment : das Tilgicngsaipitalf der Tilgungsfond). A fund set apart to accumulate, so that at the end of a certain time it may amount to the sum required to meet the purpose of its creation — e.g., the redemption of a loan, or the replenishing of a wasting asset. Specie {especes : gemilnztes). Coined money — as opposed to Bullion. Wages {salaire : arheitslohn). Eemuneration paid to workers. English bookkeepers distinguish betw^een Wages (the remuneration of productive workers — charged against Trading Account) and Salaries (the remuneration of unpro- ductive workers — charged against Profit and Loss Account). VIII.— ACCOUNTS OF TRADERS. It is now proposed to deal with the Accounts of Traders — i.e. J those persons whose occupation consists of buying and selling goods. It will be obvious that the system of accounts described in Part I. will require some modification to adapt it to the altered conditions now introduced, but the student must remember that the fundamental principles of bookkeeping are as unalterable as the laws of the Medes and Persians ; the various additional accounts that will now be described are therefore merely developments of the system already discussed, and their introduction is not a matter of vital necessity, but rather one of convenience. Theoretically, it would be quite possible to correctly record every class of transactions by the use of the Journal and Ledger alone ; but, in practice, such a course would be found to be extremely inconvenient, on account of the enormous amount of unneces- sary labour involved. The objects, then, of the various modifications now about to be described are to economise ACCOUNTS OF TRADERS. 91 the labour of the bookkeeper, and to add to the clearness of the record of the various transactions. Cash. These accounts, it will be remembered, have hitherto been recorded in — (a) The Cash Book, which records the receipt and payment of cash by the proprietor or his cashier. (b) The Bank Account in the Ledger, which records the receipt and payment of cash by the proprietor's bankers. It will be remembered that the entries in the Cash Book are made direct (as the transactions occur), and that the entries in the Bank Account are posted up periodically, the debit side being posted from the credit side of the Cash Book, and the credit side being posted from the Journal. When the transactions are numerous, there are two objections to this mode of record, both of which are of considerable importance. They are as follow : — (a) The Bank Account — not being a book of first entry — w^ill not continuously show the balance at the bank. (b) The labour of journalising every cheque drawn is considerable. It will be remembered (c/. page 45) that these are the identical reasons that originally led to the introduction of a 92 BOOKKEEPING. separate Cash Book, and the present difficulty has led to the same result : viz., the separation of the Bank Account from the remainder of the Ledger Accounts and its formation into a separate book, into which the various transactions concerning it are entered direct as they occur. Payments by cheque are thus posted direct from the credit of the Bank Book to the debit of the various accounts chargeable with the expenditure, and the necessity for a Journal entry recording such transactions is obviated : on the other hand, the payments from the credit of Cash to the debit of Bank are referenced to and fro in exactly the same way as before. This system of keeping separate books for Cash and Bank is frequently to be met with in practice. The follow- ing example shows the Cash x\ccount and Bank Account of Henry Jackson {vide pp. 47 and 50) re-cast upon this principle : — Dr. CASH. CONTRA. Or. 1 891 April I 6 10 12 June 30 1891 July I To Balance „ Thos. Brown „ W. Robinson „ J. Smith .. „ Jas. Jones . . To Balance 4 7 i £ s d 25 125 50 50 75 1891 April 6 13 30 May 31 June30 £325 75 ACCOUNTS OF TRADEKS. 9S Dy. BANK. CONTRA. Or. I89I April I 6 To Balance „ Cash .. „ Do To Balance X I I / X £ s d 120 140 100 1891 May 12 June 15 30 1 By Capital Account „ Repairs „ Capital Account „ Balance down 3 13 3 X £ s d 100 12 16 100 » 147 4 360 ' i 360 a 1891 July I 147 4 A further modification is, however, frequently thought desirable, it being found inconvenient to keep two separate books for Cash and Bank. Double money columns are there- fore provided in one Cash Book for the record of both cash and Bank transactions. Under this system, the transactions recorded in the preceding example would appear in the following form : — 94 BOOKKEEPING. O -c o o o o o -M ir. O vo O Tt- o 5 ^ 2 -2 ^ 3 s^ •Q O OOO 00 00 O o "^ U) O O^O _VO _ _VO o o O O m " ro * ' roin lO 5 _00 ^ M cn« rn.riM X • • 'O • -c • • • • 3 • • 3 • c o o O : -c^c . >o ■ O O " "O yn xn «^N M in .n tx tx ^^ Qyin^O^-Ot^ X <*- 1 i- .^ O . 2 -.-• .3 u. ".r— i • o Balance Thos. B Cash W. Rob J no. Sm Cash James J 1 o ^ ^ > ^ ^ ^ H ^ «0 - O CJ roO « ^^ s 0 O O >r, o o O c. >o O O M £ • ^ J O ^ J tv. ^ ^ To Balance „ Th OS. Brown.. „ Cash .. „ Win. Robinson „ J no. Smith .. „ Cash .. „ James Jones . . „ Discounts re- ceived To Balance down M vo a O M ro O a ^ 1 1^ 106 BOOKKEEPING. It will be seen that the Cash and Bank balances together amount to £207 16s. lOd., as against £222 4s. when no dis- counts were allowed or taken ; the difference (£14 7s. 2d.) is expressed as a balance to be carried to the debit of Profit and Loss from Discounts Account, which the following example shows to be the case : — 15 Dr. DISCOUNTS ACCOUNT. 15 Cr. 1891 June 30 To Sundries £ s d 15 o o £15 o o I89I Junes© By Sundries . . „ Profit and Loss Ac- count 16 £ s d O 12 10 14 7 2 £15 O O In practice, however, it is usually considered preferable to carry the total loss on Discounts to the debit of Profit and Loss, and the total profit thereon to the credit, so that the Profit and Loss Account may show the full particulars. It is not anticipated that the student will experience any difficulty with the treatment of discounts upon Bills, but, to save misapprehension, the question will be noted as it arises- Paetnership Accounts. Hitherto; for the sake of sim- plicity, only the accounts of persons carrying on business alone — i.e., without partners, have been dealt with ; it is now desirable that the student should become acquainted with the ACCOUNTS OF TEADEKS. 10? modifications required in the books when the business belongs to a number of partners, or a "firm." In the previous chapter a definition of a partnership has been given ; it may, therefore, be assumed that the student is acquainted with the circumstances of the case, and his attention will therefore be confined to the explanation of the entries required to give effect to these altered circumstances. First, take the case of a trader A., who takes into partner- ship B., who pays £1,000 for a half-share of profits, and agrees to put another £1,000 into the business. The first £1,000, of course, goes straight into A.'s pocket, and does not require any entry in the firm's books ; if, however, it is paid into the firm's banking account, it will be entered on the debit side of the Cash Book in the bank column and posted to the credit of ^.'s Capital Account. The second £1,000 is entered in a similar manner in the Cash Book and posted to the credit of -B.'s Capital Account. It will thus be seen that a separate Capital Account is required for each partner, and it may be added that each partner's Capital Account is debited with his drawings, and that the credit balance of the Kevenue or Profit and Loss Account {i.e., the Net Profit) will be posted to the credit of the partners' respective Capital Accounts in the proportions previously arranged, or — if no arrangement has been made — in equal shares. A debit balance of Profit and Loss Account {i.e., a Loss) must be debited to the partners 108 BOOKKEEPING. Capital Accounts in the same proportions as profits would have been divided, had any been made. In order to make these transactions quite clear the follow- ing example is given. Suppose that A.'s Balance Sheet on the 31st December 1892 was as follows: — BALANCE SHEET, 31st December 1892. Liabilities. A., Capital Account Sundry Creditors £ s d 950 o o . 1,250 o -('2,200 o o Assets. £ s d Stock-in-hand 1,500 o o Sundry Debtors 650 o o Cash at Bank 50 o £■3,200 o o and that B. joins him in partnership, as from the 1st January 1893, upon the terms named, and ihat A. pays into the firm's banking account the £1,000 received by him for goodwill. Then the position of the firm will be as follows : — BALANCE SHEET, ist January 1893. Liabilities. A., Capital Account B., Capital Account Sundry Creditors £ s d 1,950 1,000 1.250 £4,200 1 Assets. £ s d Stock-in-hand i ,500 o o Sundry Debtors 650 o o Cash at Bank 2,050 o o £4,200 o o There is another way of looking at this transaction : If A. is willing to take £1,000 for a half- share in his business, this ACCOUNTS OF TRADERS. 109 is the same as saying that he considers the Goodwill of his business worth £2,000, and that, if B. will contribute half the value of the Goodwill and £1,000 as working capital, he will admit him into partnership upon equal terms. This is the principle sometimes adopted in framing the accounts, and where it is so done the entries v/ould be as follow : Debit Goodwill Account and credit A. Capital Account with the value of the Goodwill ; and debit Bank Account and credit B. Capital Account with the ivliole amount paid by B. Where this method is adopted our two Balance Sheets will assume the following form : — BALANCE SHEET, 31st December 1892. Liabilities. A., Capital Account Sundry Creditors £ s d 2,950 o o 1,250 o o £■4,200 o A sseis . Stock-in-hand . . Goodwill Account Sundry Debtors . , Cash at Bank £ s d . 1,500 o o . 2,000 o o 650 o o 50 o o £4,200 o o BALANCE SHEET, ist January 1893. Liabilities. A., Capital Account B., Capital Account Sundry Creditors £ s d 2,950 2,000 1,250 £6,200 °l 1 Assets. Stock-in-hand . . Goodwill Account Sundry Debtors.. Cash at Bank £ s d , 1,500 o o . 2,000 o o 650 o o . 2,050 o o £6,200 o o A comparison of these four Balance Sheets will be found a most profitable occupation for the student. 110 BOOKKEEPING. Now, suppose it be decided to amalgamate the business of A. and B. with that of C, whose Balance Sheet (including value of Goodwill) is approved at the following figures : — BALANCE SHEET, ist January 1893. -T s 1 2,750 i 750 . 500 i 1 £4,000 1 Liabilities. \ Assets. .. , £ s d C, Capital Account .. .. 2,750 o o | Stock-in-hand 1,200 o o Sundry Creditors .. .. 750 o o j Goodwill Account .. .. 1,500 o o Overdraft at Bank .. .. 500 o o I Sundry Debtors 1,300 o o £4,000 o o The Balance Sheet of the firm A., B., and C. will then be as follows : — BALANCE SHEET, ist January 1893. Liabilities. Assets. £ s d ! £ s d A., Capital Account .. .. 2,950 o o ! Stock-in-hand 2,700 o o B., Capital Account .. .. 2,000 o o ' Goodwill Account .. .. 3,500 o o C, Capital Account .. .. 2,750 o o j Sundry Debtors r,950 o o Sundry Creditors .. .. 2,000 o o I Cash at Bank 1,550 o o £9,700 o o j £9,700 o o Where new books are to be started by the firm, the opening entries will be upon exactly the same lines as those indicated upon pages 57 to 59 ; separate Journal entries being made for the assets and liabilities of each partner, but only one Open- ing Balance Account (identical with the last preceding Balance Sheet) being employed. ACCOUNTS OF TRADERS. Ill The process to be adopted where the old books are con- tinued, and the detailed treatment of the various trade accounts, will occupy our attention at a later stage. Partners' Drawings. In practice it is usually found .convenient to open a distinct account for the drawings of each partner. This account will be credited with the partner's share of profits, and with any interest upon capital to which he may be entitled ; and whatever balance may be shown at the closing of the books is brought forward in the ordinary way. If, however, it is provided by the terms of the partner- ship that all profits in excess of a certain amount are to be left in as capital, the amount of any such surplus profit must be transferred from Drawings Account to the credit of Capital Account. This method possesses the advantage of keeping unneces- sary detail out of the Capital Account, and of clearly show- ing the relation between a partner's share of profits and his drawings. 112 BOOKKEEPING. Questions on Chapter VIII. 1. What are the advantages of a double -column Cash Book? 2. Describe the mode of entering discounts in the Cash Book, and trace the system to both sides of the Ledger. 3. How would you record the receipt of a Bill Receivable, and its payment upon maturity? 4. How would you record the issuing of a Bill Payable, and its payment upon maturity ? 5. What do the balances of the Bills Receivable and Bills Payable Accounts in the Ledger show respectively ? 6. Describe the opening entries in the books of a firm. 7. What is the advantage of a separate Drawings Account ? 8. How is it kept, and what does the balance signify upon each side? IX.— ACCOUNTS OF TRADERS (continued). Next comes the consideration of these accounts that specially characterise the affairs of traders — the accounts relating to the sale and purchase of goods. These accounts -are focussed into one account, variously described as " Goods Account," '* Trading Account," and " Stock Account," and it will be in keeping with the general scheme of the present work to consider the nature of this account first, and then proceed to trace the various items to their respective sources. It will facilitate the student's comprehension of the Trading Account if he considers it first as an account relating to quantities of goods only — disregarding for the moment the money value of such goods. The general scheme of the account is that it is debited with all goods xeceived {i.e., with all purchases), and credited with all goods sent out {i.e., with all sales), the debit balance at any time representing the amount of goods in hand, or " Stock." It will be seen that this is exactly the same principle that 1 lU BOOKKEEPING. governed the treatment of the Cash Account, and the student •will find it a help to look upon the Trading Account as an account kept by the proprietor as a tally upon a stock-keeper in whose charge the goods are supposed to be. To take the case of an iron merchant : his stock on the 1st January 1893 may be supposed to have been 1,584 tons 12 cwt., his purchases for the month 467 tons 3 cwt. 1 qr., and his sales 591 tons cwt. 2 qrs., leaving a stock on hand of 1,460 tons 14 cwt. 3 qrs. on the 31st January. The Trading Account will then assume the following form : — Dr. TRADING ACCOUNT. Cr. 1893 Jan, I 31 To Stock on hand „ Purchases for the Month . . To Stock on hand T. Cwt. Qr. 1,584 12 467 3 I 1893 Jan. 31 By Sales for the Month „ Stock on hand T. Cwt. Qr. 591 2 1,460 14 3 2,051 15 I 2,051 15 I Feb. I 1,4.60 14 3 Had any of the goods purchased been returned, they would have been placed to the credit of this account ; and, con- versely, had any of the sales been returned to the merchant^ he would have debited this account with the amount so received by him. In practice, such an account as the above would never quite balance, on account of waste and ACCOUNTS OF TRADERS. 115 inaccuracies in weights ; but this consideration need not now be considered. Now, it will be obvious that this account cannot be incor- porated into the financial books without putting a money- equivalent upon the various items ; for the sake of simplicity- let us suppose that the merchant purchases at a uniform price of 95s. per ton, and sells at a uniform price of 100s. per ton^ then — putting these sterling equivalents against the various items in our account — we arrive at the following result : — Dr. TRADING ACCOUNT. Cr. 1893 T. Cwt Qr £ s d 1893 T. CwtQr £ s d Jan. I To Stock on Jan.31 By S a 1 e s hand . 1,584 12 7,526 17 for the 31 „ Purchases for the month „ Stock on 591 2 2,955 2 6 month . . 467 3 I 2,219 5 hand. . 1,460 14 3 6,938 10 It will be seen that this account shows a credit balance of £147 15s. Id., and a little reflection will suffice to show that the reason for this discrepancy is that the sales have been extended at £5 per ton, and the other figures at 95s. per ton — the difference, viz., 591 tons cwt. 2 qrs. at 5s. per ton amounting to £147 15s. Id., being the amount of the credit balance. Now this amount represents the 5s. per ton profit on the month's sales, or, in other words, the profit on the sales for the month. It being a profit, the proper course is to carry it to the credit of Profit and Loss Account. Therefore I 2 116 BOOKKEEPING. debit Trading Account and credit Profit and Loss Account with £147 15s. Id. The Trading Account can now be balanced and the position is as follows : — Dr. TRADING ACCOUNT. Cr, 1893 T. Cwt Qr £ s d 1893 T. Cwt Qr £ s d Jan. I To Stock on Jan.31 By Sales for hand . . 1,584 12 7,526 17 the m'th 591 2 2,955 2 6 31 „ Purchases 11 „ Stock on for the hand . . 1,460 14 3 6,938 10 month . . 467 3 I 2,219 5 „ Profit and Loss A/c. (Profit on Sales for the m'th) To Stock on 147 15 I 2,051 15 I £9,893 12 6 2,051 15 I £9-893 12 6 Feb.i • hand . . 1,460 14 3 6,938 10 Dr. PROFIT AND LOSS ACCOUNT. Cr. 1893 Jan. 31 By Trading Account £ s d 147 15 I The reader will now notice a distinguishing feature peculiar to the Trading Account : At rest {i.e., when balanced off) the Trading Account is a Eeal Account, the balance representing the value of stock on hand ; but in motion {i.e., while the account is kept open for the record of further transactions) the Trading Account is a Composite Account — partly Eeal, and partly Nominal — the balance representing nothing definite, but being compounded of the value of the stock and the profit earned on the sales. ACCOUNTS OF TRADEES. 117 In such a case as the above, where the profit upon every separate sale can be actually determined, it would have been possible to credit Profit and Loss Account with the amount of such profit at once, carrying only the cost price of the articles sold to the credit of the Trading Account ; but such ideally simple cases would not be found in actual practice, and in any case the number of entries involved would be greater than by the above method. To those who are famihar with the use of mathematical formulae, the following equations will make the position even clearer that the preceding concrete example: — Suppose S = value of stock at commencement, S' = value of stock at close, P = value of purchases, C = cost price of sales, T = profit on sales, and Y = the amount of the sales. Then V = C + T, and S + P = C -f SS therefore S + P + T = 0+Si + T = V + S*. We therefore see that, even when C and T are unknown, their value may be deduced from the known values of S, P, V, and S^ Hence it becomes important for every trader to periodically ascertain the value of S, S^ (his stock in hand). In practice it is frequently not feasible to arrive at this by 118 BOOKKEEPING. keeping an accurate account of the stock in quantities {vide the example on page 144), on account of the number of different articles, and qualities of articles, in which the trader deals, and it therefore becomes necessary for the value of the stock to be ascertained by actual inspection and inventory. The total purchases and total sales will, however, always be shown by the books. Purchases. Goods purchased would ordinarily be accom- panied by an invoice (or, if not actually accompanied by an invoice, the latter would be received by post practically simultaneously), of which the following may be cited as a typical example : — Excelsior Works, Warrington, 2nd January 1893. Messrs. Fox & Crane. To Sims & Co. T. C. Q. 100 No. 492. Angles. £8 £ s d 800 ^ Less 2^% @ 4 Acceptance enclosed, per L. S N. W. By. months. 20 £780 As the goods are received they are compared with the invoice as to weight, description, and price ; and, if correct, passed on ACCOUNTS OF TBADERS. 119 to the counting-house for entry. If incorrect, a corrected invoice is applied for and substituted for the original invoice, or a supplementary invoice or credit note is forwarded and the original invoice left to stand. A credit note is usually printed in red ink to distinguish it from an invoice. It is no part of the scheme of this work to discuss the relative methods of dealing with invoices ; let it, therefore, suffice to say that, after being entered in the Purchase Book (also called Bought Book, Invoice Book, Bought Journal, Purchase Journal), they are numbered and arranged so that they can readily be referred to, should occasion arise. The following is a typical form of Purchase Book. It may be entered up from day to day or at the end of the month, as is considered expedient : — PURCHASES for the Month ( 3f January 1893. Weight No. of Inv. Name i Total Angles Bars Fish- plates Rivets Sleep'rs 1 n J8 jT s d 800 13 4 300 800 £ s d £ sd £ sd 13 4 £ sd 200 Sims & Co. 12 o Percy Bright 40 3 Western Steel Co. 300 UO 12 1,113 4 800 •• 13 4 300 : Fo.o i i Fo.8 Fo.9 120 . BOOKKEEPING. The student who has read thus far will hardly need to be reminded that each purchase has to be debited to the Trading Account (as having been received by the store- keeper) and credited to the Personal Account of the person from whom it was bought. In the above example, therefore, it is necessary to post £800 to the credit of Sims & Co., £13 4s. to the credit of Percy Bright, and £300 to the credit of the Western Steel Company ; these several amounts will require to be debited to the Trading Account, but it will answer every purpose equally well to post the total of £1,113 4s. instead of the various items, and by so doing a considerable amount of unnecessary labour is saved. In many businesses it is thought desirable to divide the transactions into " Departments," so that it may be possible to ascertain the profit resulting from the sale of each different class of goods dealt in ; in the foregoing example the Purchase Book is arranged so that the transactions in " Angles,' ''Bars," "Fish-Plates," "Eivets," and ** Sleepers," may be separately recorded. In such a case, instead of debiting one- Trading Account with the month's total purchases, it is neces- sary to open five separate Trading Accounts, one for each department, and the total of each departmental column will require to be debited to its proper Trading Account. The full working out of this system will be shown in detail in the following chapter. ACCOUNTS OF TRADERS. 12t Sales. As with purchases, so with sales, there are many different methods of dealing with the initial record. In every case, however, a detailed invoice will have been supplied to the debtor, of a similar nature to that which is received when goods are purchased, as shown above. Sometimes the Day Book, in which the sales are daily recorded, will contain a facsimile of the invoice sent out ; but a more convenient method seems to be to take a press copy of the invoice and enter the sale in the Day Book in a summarised form. Where this is done the same book can be used for the purpose of analysing the sales into departments, as follows : — SALES for the Month of January 1893. Weight No. of Inv. Name i Total Angles Bars Fish- plates Rivets Sleep "rs T. C. Q. 1 3 4 ? 13 14 14 £ sd 180 96 1215 850 £ sd £ sd 180 850 £ sd 96 £ s di £ s d SO Henry Dale 1215 12 10 Hugh Forbes 13 Hugh Forbes 10 100 William Wright \ 132 10 1,138 15 *" 1,030 96 1215 0\ Fo.6 Fa. 7 Fo.8 The items in the Sales Day Book are posted to the debit of the various customers to whom goods are supplied, and the monthly departmental totals are posted to the credit of the various departmental Trading Accounts. 122 BOOKKEEPING. Returns received back from customers, as also overcharges, are acknowledged by ** credit notes " of a form similar to the original invoices, but printed in red ink. They are usually entered in a separate ** Sales Return Book," ruled like the Sales Day Book, which is posted like the Purchase Book ; but occasionally they are entered in the Sales Book in red ink, being subtracted in the additions of the various columns, which practically produces the same eifect. The latter plan is not often adopted, however, except where the occurrence of a return or an overcharge is a very uncommon one. Before leaving the question of the treatment of Purchases and Sales, it will be convenient to notice two important modi- fications that are frequently to be found in the method that has been described. First, it is a common thing to find a separate Sales Day Book in each •* department " of a business; and in such cases there is no longer any necessity for these books to be provided with analytical columns. x\gain, it is not unusual to find Day Books duplicated, so that they may be used on alternate days — one being in use in the entering room, while the other is being posted up in the counting-house ; in large businesses, this duplication of subsidiary books becomes a matter of necessity, as well as convenience. ACCOUNTS OF TRADERS. 123 Secondly, it not being usual to prepare a Balance Sheet at the end of each month, it is found in practice to be incon- venient to post the monthly totals of the Purchase Book and Sales Day Book direct to Trading Account. These totals are, therefore, respectively posted to "Purchases Account" and *' Sales Account," and thence transferred to Trading Account when the books are closed. Consignments will be best dealt with as they arise in the course of the succeeding examples, but a few general points will not be out of place in the present chapter. When a merchant sends out a consignment, what he really does is to transfer a portion of his stock-in-trade to the temporary custody of the consignee, who has instructions to sell it upon such terms as may have been arranged, and to remit the proceeds. He, therefore, credits his general Trading Account with the value of the consignment, and debits a particular Trading Account (distinguished as " * A ' Consignment Account ") with a corresponding sum; freight, insurance duty, and other expenses incurred on the venture are likewise debited to this account — as increasing the total cost of the consignment — and the proceeds are credited, as and when received from the consignee. When the consign- ment is all sold, the remittances received, and the expenses charged up, the Consignment Account becomes a Nominal Account — i.e., if it shows a credit balance, there is a profit to 124 BOOKKEEPING. be carried to the credit of Profit and Loss Account ; while, if it shows a debit balance, there is a loss to be carried to the debit of Profit and Loss Account. From the point of view of the consignee, the problem may- be conveniently dealt with as follows : — Upon the receipt of the goods he opens two accounts — one " Consignment from M. Account," to which he debits the value of the goods received, the other " ' M.' (Consignment) Account," which he credits with a like sum. The former account he keeps as a pure Goods Account, crediting sales as contracted until the whole consignment is sold; if the consignment has realised a profit, this account will show a credit balance which must be transferred to the credit of the second account ; and, conversely, if there has been a loss, it will be shown as a debit balance on the first account, and must be transferred to the debit of the second account. The second account will have been debited with any expenses incurred by the consignee, his commission, and such remit- tances as may have been made ; interest will be provided for, and the balance of this account will show the amount due to the consignor to close the account. Some bookkeepers prefer to keep the whole matter in one account, instead of two ; but it is thought that the method explained above is clearer, and equally concise. ACCOUNTS OF TRADERS. 125 Questions on Chapter IX. 1. What is a Trading Account, what items appear upon each side, and what does the balance represent ? 2. How may the profit on sales be deduced from the Trading Account? 3. Is the Trading Account a Eeal or a Nominal Account ? 4. What is the object of Departmental Trading Accounts? 5. How is the Purchase Book posted ? 6. How is the Sales Book posted ? 7. How would you record a consignment sent out by a merchant ? 8. How would you record the same in the books of the consignee ? X.— TRANSACTIONS OF FOX & CRANE. Opening the Ledger — The Subsidiary Books. Having now disposed of a few of the leading difficulties- connected with Traders' Accounts, it is well to proceed from theory to practice, and show how an ordinary example of transactions should be dealt with in the books of a trading firm. For the purpose of giving a more definite interest to thi& and the following chapter, the example that has been selected has been taken from an examination paper set a few years ago by the Society of Arts ; but it is only fair to add that thia paper has been somewhat modified, to provide scope for the introduction of Departmental Trading Accounts. The example is as follows : — Henry Fox, iron merchant, at January 1st 1893, had a balance at his bankers of £1.724 10s., and cash in office £85 16s. 4d. His bills in hand amounted to £704 7s. 6d., being acceptances No. 74^ £186 17s. 6d. ; No. 76, £300 ; and No. 77, £217 10s. Debts owing to him on open accounts were, by Joseph Ball, £58 19s. ; Thomas King. £275 ISs. 4d. ; William Wright, £285 9s. 9d. ; and Henry Dale, £178 10s. TBANSACTIONS OF FOX AND CRANE. 127 He had also goods on consignment with Henry Poole, Smyrna, of the cost value of £680. His freehold business premises were valued at that date at £1,740. His Stock-in-Trade was as follows : — tons cwt. qr. 50 200 20 14 1 100 371 4 1 Angles @ £8 . . Bars @ £7 15s. Fish-plates @ £7 10s Rivets @ £22 . . Sleepers @ £7 10s. . 400 1,550 150 26 13 6 750 £2,876 13 6 He had given acceptances, which were then current, as follows : — No. 43, £281 10s. ; No. 44, £250 ; No. 45, £140 16s. 8d. He owed on open accounts, to Sims &Co., £85 Is. 6d. ; Jones & Young, £41 17s. ; Percy Bright, £60 ; and John Kerr, £102 5s. 6d. Find and credit his capital. For the purpose of recording these transactions, it is desirable to make use of the following books : — Cash Book. Sales Book. [Sales Keturn Book — not required in this case] . Purchase Book. Purchase Eeturns Book. Journal. Bills Eeceivable Book. ' . Bills Payable Book. Ledger. 128 BOOKKEEPING. It not being the purpose of the present work to show the precise points in which convenience requires that the accounts of iron merchants should differ from those of ordinary traders, this example will be dealt with upon strictly general lines ; but the student will hardly require to be told that the accounts of each different class of traders present (in practice) more or less important modifications in detail {vide page 3). As regards the opening of the Ledger, there are two methods in general use : — (a) To make the opening entries in the Journal {vide page 57), and post thence to the various Ledger Accounts. ih) To make the opening entries in the Ledger direct, with- out the intervention of the Journal. Having already described the former mode, we will now show how the latter may be effected ; but it may be added that this latter method is not viewed with any particular iavour. First, then, proceed to construct a Balance Sheet as on the 1st January 1893, thus : — TRANSACTIONS OF FOX AND CRANE. 129 24 Dr BALANCE SHEET. Cr. 1893 £ s d 1893 £ s d Jan. I To H. Fox (capital) li 7,648 13 9 Jan. I By Freehold 1,740 j^ „ Sims & Co. .. I15 85 I 6 Premises I20 „ „ Jones & Young „ Percy Bright . . I16 41 17 „ „ Stock-in-trade, „ I17 60 viz. :— £ s d „ John Kerr „ Bills payable. . I19 102 5 6 Angles . . 400 I5 „ I4 672 6 8 Bars .. 1,550 16 Fish-plates 150 17 Rivets .. 2613 6 18 Sleepers 750 I9 2,876 13 6 " By Consignment at Smyrna I21 680 „ „ Joseph Ball . . „ Thomas King . . iio 58 19 „ In 275 18 4 „ „ William Wright I12 285 9 9 „ „ Henry Dale .. I13 178 10 „ „ Bills receivable I3 704 7 6 ^^ „ Cash at Bank.. CI 1,724 ID £ „ Cash in hand . . ci 85 16 4 8,610 4 5 £8,610 4 5 Then open Ledger Accounts for each item named therein (except cash at bank and cash in hand), and credit all accounts debited to Balance Sheet, and vice versa ; the cash at bank and in hand are debited in the Cash Book, no Ledger Accounts being required for these two amounts. The folios shown in the Balance Sheet are the folios of the various accounts — these accounts will all show the folio of the Balance Sheet (folio 24). It will be seen that the effect of these cross entries is to debit the Ledger (which, of course, includes the Cash Book) with £17,220 8s. lOd., and to credit it with a like sum, so that a Trial Balance taken out at this period would show the Dr. and Cr. sides balancing. It is not, of course, necessary to 130 BOOKKEEPING. take out a Trial Balance at this period ; but, as there are not any further entries to be made in the Balance Sheet, it is as well to rule off that account as shown in the example. It has not been thought necessary to show the opening of each Ledger Account ; but, if the student should feel any doubt upon this subject, let him refer to the full Ledger in the following chapter. To proceed with the example, the transactions are as follow : — 1. On the 1st January Henry Fox admitted as partner Joseph Crane, who paid into the Bank Account £3,000 as his capital, to receive, in accordance with the deed of partnership, one-fourth of the profits, Henry Fox guaranteeing the debts then owing to the concern, and reserving a preferential claim to the extent of £50 on the first month's profit in respect of basiness previously done. £ s d 2 & 3. Jan. 2 Bought of Sims & Co. for 4 months' bill 100 tons angles at £8 (at 2J per cent.) 4. 3 Paid them cheque . . They allowed discount 6. Sold Henry Dale for prompt cash, less 2^ per cent., 20 tons bars at £9 6. 5 Received payment of bill No. 74. . 7. Sold Hugh Forbes for 2 months' bill, 12 tons fish-plates at £8 96 800 81 4 1 6 180 186 17 6 TRANSACTIONS OP FOX AND CRANE. 131 £ s d 8. Jan. 6 Shipped on consignment to Henry Poole, Smyrna, 80 tons angles at £8 . . . . 640 9. Paid freight, insurance, and charges thereon 56 2 9 10. Debited Sims & Co. for short delivery angles, 1 ton 15 cwt. at cost . . . . 13 13 11. 6 Paid wages 450 12. 8 Paid fire insurance on office and warehouse 3 5 18. Received payment bill No. 77, due this day 217 10 14 & 15. 10 Sold on commission at 2s. 6d. per ton for the Western Steel Co. to Joseph Ball, 70 tons steel rails at £7 per ton on 3 months' acceptance .. .. .. 490 16. 11 Endorsed and forwarded acceptance to Western Steel Co. 17. Debited them with commission . . . . 8 15 18. 12 Bought of Percy Bright, 12 cwt. rivets at 22/- 13 4 19. Paid him 70 Discount allowed . . 3 4 20. 13 Sold Hugh Forbes 10 cwt. rivets at 25s. 6d. for net cash at 1 month . . . . 12 15 21. Paid wages .. .. 450 22. 15 Received of Hy. Poole, Smyrna, account sales and sight draft 750 6 8 28. Received of William Wright, cheque . . 280 24. 16 Paid John Kerr 100 Discount allowed by him 2 5 6 26. 17 Paid water rate 2 12 6 26. Received Western Steel Company's cheque for commission . . . . 8 15 27. 18 Retired under discount acceptance given to Sims & Co., 2nd inst. for .. .. 768 10 28 & 29. 19 Sold William Wright for 3 months' bill, 100 tons bars at £8 10s. net . . . . 850 30. 20 Paid wages 450 31. 22 Bought of Western Steel Company, 40 tons steel sleepers at £7 10s 300 32. Paid cheque, less 2J per cent, allowed . . 292 10 K 2 132 BOOKKEEPING. £ s a 33. Jan. 23 Paid poor rates 5 3 4 34. • 25 Paid acceptance due this day No. 43 . . 281 10 35. Eeceived of Henry Dale, cheque on account 150 36. 26 Paid Jones & Young 40 15 (> Discount allowed . . . . . . . . 12 37. 27 Received of Trustee of Thomas King, jfirst and final dividend of 19s. in the £ . . 262 2 5 38. Debited loss hereon to Henry Fox's separate account . . . . . . 13 15 11 39. Paid wages 4 5 40 & 41. 29 Received account sales, sight draft and stock account from Henry Poole, Smyrna consignment 420 42. 30 Paid plumber's account, warehouse roof 2 19 43. Paid acceptance No. 44, due this day . . 250 44. 31 Paid clerk's salary 12 10 45. Debited depreciation of premises and furniture .. .. 500 46. The stock-in-trade being taken this day, was found to be as follows : — tons cwt. qrs. 68 5 Angles at £8 .. £546 80 Bars at £7 15/- . . 620 8 Fish-plates at £7 10/- 60 16 1 Rivets at £22 . . 28 17 6 140 Sleepers at £7 10/- 1,050 11 4 £2,804 17 6 47. Value of stock on consignment, Smyrna 338 4 6 48. Petty expenses paid for month . . . . 4 13 8 49. Credited Henry Fox for travelling expenses 10 All amounts for £5 or over were paid by cheque, all under that amount in cash, unless otherwise stated. All moneys received were paid into the bank the same day. TRANSACTIONS OF FOX AND CRANE. 133 One or two of these transactions require a little explanation. 2 and 3. This item consists of two separate transactions — the purchase of goods from Sims & Co., and the payment for same (less discount) by acceptance of the bill forwarded by them. 6. This item, which is dealt with through the Journal, would in practice probably be entered in a ** Consignments Outwards " Book, of a hke character to the Sales Book. 10. Is an instance of an overcharge. It will be entered in the Purchase Eeturns Book and posted to the debit of Sims & Co., and to the credit of Angles Account. 14. This should be dealt with through the Journal, as the goods have not passed through Fox & Crane's hands. 17. The Journal may be used for this also, but in practice such entries would probably be sufficiently numerous to render a special Commission Book desirable. 12, 17, 33, 42, 44, 45, 48, and 49. In practice there would be separate Nominal Accounts opened to each of these ; but as the example only gives one entry to each account, it has been thought unnecessary to show all these accounts in the j)ro forma example about to be given. The subsidiary books required to give effect to the above transactions are now shown. 134 BOOKKEEPING. c 1 1 £ s (t 81 56 2 9 70 100 768 10 292 10 3 3 4 281 10 40 13 250 12 10 3,042 6 1 ;o S3 c & ;2 ^?5^^?5s^ ^S5 ss^ ^;??5 ^ ^^ » •;: 1 1 i a^^l.ri.t|L.\|l -..Ell 2^2. a; *-5s sa=asas aa aa asa a aaa i ;:^S225^^^?:5 §^ s?;^ ^^^ ^ ?^ ■^ ^ i/ig Ci tN^ too V2<=> .1 4 18 Dr. WESTERN STEEL CO. CONTRA. Cy. 1893 Jan. 10 22 To Commission . . „ Bills received. „ Cash and Dis- count ji I £ s d 8 15 490 300 1893 Jan. 10 17 22 1 By Joseph Ball . . „ Cash .. „ Goods . . ji I p. , ; B d 490 8 15 300 £798 15 £798 15 19 Dr. 1893 Jan. 16 JOHN KERR. To Cheque and Discount . . £ s d 102 5 6 CONTRA. 1893 Jan. ] By Balance '24 Cv. £ s d 102 5 6 Dr. FREEHOLD PREMISES. CONTRA. Cr. 1893 Jan. I To Balance To Balance I24 20 £ s d 1,740 1893 Jan. 31 By Depreciation.. „ Balance down. 3i 20 £ s d 500 1.735 £1,740 £1,740 Feb. I 1.735 150 BOOKKEEPING. Dr. CONSIGNMENT ACCOUNT (HY . POOLE, SMYRNA) Cf, 1893 Jan. I 6 31 To Balance „ Angles „ Cash (freight, &c.) .. „ Profit and Loss Account . . To Balance I ji I I26 £ 21 680 640 56 2 9 i 132 8 5 1893 Jan. 15 29 31 By Cash .. „ Do „ Balance (Stock unsold) I I 21 £ £ s d 750 6 8 420 338 4 6 1,508 n 2 1,508 II 2 Feb. I 338 4 6 Dr. 1893 Jan. 31 DISCOUNTS. To Suspense Ac- count „ Profit and Loss Account J2 I26 £ s d 4 10 o 45 3 o £49 13 o 1893 Jan. : CONTRA. By Sims & Co. „ Sundries 23 Dr WAGES. CONTRA. Jan. 6 13 20 27 To Cash . . „ Do " Do „ Do I £ s d 450 450 4 5 4 5 1893 Jan. 31 By Profit and Loss 125 £ s d 17 £17 £17 Dr. 25 BALANCE SHEET. (The Opening Balance Sheet was shown on page 129.) Dr. SUSPENSE ACCOUNT. 1893 Jan. 31 By Discounts 32 26 D) TKANSACTIONS OF FOX AND CRANE. PROFIT AND LOSS ACCOUNT. 161 Cr. 1893 £ s d 1893 £ s d Ian. 8 To Fire Insurance . . C.I 350 Jan. 10 By Commission J. I 8 15 17 „ Water Rate 2 12 6 31 „ Bars L.6 100 23 „ Poor Rate . . „ 5 3 4 „ Fish-Plates L.7 600 30 „ Repairs „ Salaries .. „ 2 I 9 „ „ Rivets L.8 I 15 31 „ 12 10 „ „ Consignment L.21 132 8 5 „ Petty Cash „ 4 13 8 „ „ Discounts . . L.22 45 3 „ „ Depreciation T-i 500 " „ Travelling Ex- penses . . 10 „ „ Angles Account . . L.5 070 „ „ Wages .. .. L.23 17 „ Net Profit, viz. : £ s d Hy. Fox , . 186 I 2 J.Crane .. 45 7 L.I L.2 231 8 2 £294 I 5 £294 1 5 27 Dr. BALANCE SHEET. Cr, 1893 ■ £ s d 1893 £ s d Jan.31 To Henry Fox (Capital) L.I 7,830 19 1 Jan.31 By Freehold Premises L.20 1,735 „ „ Joseph Crane (Do.) L.2 3,045 7 „ Stock-in-Trade,viz.: „ „ Bills Payable L.4 140 16 8 Angles . . £546 L.5 » „ Suspense Account L.25 4 10 1 1 Bars . . 620 Fish-plates 60 Rivets . . 28 17 6 L.6 L.7 L.8 i Sleepers 1,050 L.9 2,304 17 6 " 1 „ Consignment at Smyrna . . L.2I 338 4 6 „ Joseph Ball L.IO 58 19 „ „ William Wright .. L.I2 5 9 9 „ „ Henry Dale L.I3 208 10 „ „ Hugh Forbes L.I4 12 15 1 „ Sims & Co L.15 13 13 1 „ „ Bills Receivable . , r-3 1,246 „ Cash at Bank C. I 5,042 6 ■ £ i „ Cash in hand 56 3 5 11,021 12 8 ;fll,021 12 8 It is usual for each partner to be supplied with a book con- taining copies of the Balance Sheets and Profit and Loss Accounts, signed by both partners and the auditor. The following would represent such a book in the present example, and it may be added that the forms here shown would — in practice — be those adopted in the firm's Ledger. 152 BOOKKEEPING. 00 -s X o O en na 000 c/) in «nt>. ^ OVOM &° PQ ' ' -c IN en 0000 *H? t^m M lo i| c B o o 13 000 o\ U) ^ M Si N ^ N N O M tN CO E ^ TRANSACTIONS OF FOX AND CRANE. 163 T3 O VOVO CTiO 1^ rf ^o O M 00 HI CO N 8^ o V~t SJ O O O VO o O O O IN.O VO O Qoo O ^ r < CQ fc (i:; c/) "o-T . a 'O o ooo o m O^^N^O O o >oo ■* r 1 I ' «-rt 3 O . o ^ -t 'I- O O S2 "-^Si ' ^ ft It oo ^ u Tj o 1 o o^ o '" . ° . ° M . . "t ^5 ^ "8 " 8 ^ " ' CO en ^ 6 CO M -1- »" ^ X ^ fc III 6 I ; ; < u • • • UJ • en • • • W) -^ ^ "d •-1 . o^ o 111 li^l feOSJH O MSQ >- a a a a a a •^yO 0\ 00 a a V ^ . '" S HU 1 -73 ovo O O O O O CO o\ C^ C\ ^ tn O t^O rnO\0 0\^ -* -i- o a M •-1 ^ 8o^2^^§^;? ^ i? s 00 X -*• 1^ 'COO o 0^ (7. c^ en O O o '♦■ -* o "~^8 8 8 ^ » % l4 Ti voooooom cr^ o ty. Sold edge tn t^ O fO c^ O 0^vo •* o 't '-' ^ ' 's.s^^g^^ o lO 1 -! N o N « M ■* CO 1^ o' MC»HCf? •ON lOBJ^UOQ 194 BOOKKEEPING. For the total of the right-hand column in this book a cheque is drawn and cashed, and the amount of each fore- man's summary forwarded to him ; this amount will, of course, enable him to pay his week's wages and restore his petty cash balance to its former amount. If the contract is in another town it is usually convenient to remit a separate cheque, but this is merely a matter of detail. The amount of the weekly cheque, or cheques, is posted to the debit of ** Wages Account " in the General Ledger — the detailed analysis being required only for the purposes of the Cost Accounts. Stores Accounts. — Certain kinds of goods are usually kept in stock, instead of being purchased specially for each contract, and for this reason it is necessary that Stores Accounts should be kept, recording the goods issued from^ store for each contract. Stores Accounts vary very muct in general design. Some aim at keeping a complete record of the stores received and issued under each separate head, so that the books actually show from time to time the quantity in stock of each different article. In the case of a large and really important under- taking this system is really imperative, but with relatively small concerns it is both unnecessary and impracticable. In such cases it will suffice if stores be issued only in exchange for properly authenticated requisitions ; these requi- sitions being afterwards priced at the cost price of the goods (without deducting cash discounts), and analysed, under the heads of the various contracts, upon weekly, fortnightly, or monthly sheets, similar in form to the following : — ACCOUNTS OF MANUPAOTUEEES. 195 It -a en 6 ii d 1^ tn 6 ;2; 1 U V2 6 1 u 13 05 6 ;2; §2 6 O T3 t/) d d u T3 en d O 2 196 BOOKKEEPING. The column to the left of the money column is for the reference to the numbers of the requisitions, which latter are filed away in numerical order, and can always be readily referred to. A Stores Ledger is unnecessary under this system. Each contract is debited in the Cost Ledger with the monthly total of stores issued, while the grand total of the monthly analysis is passed through the General Journal to the debit of *' Stores Issued Account" and the credit of *' Stores Account " ; as the latter account is debited with all stores purchased, through the Purchases Book, it follows that the debit balance of the "Stores Account" in the General Ledger should represent the actual amount of stores in stock. If at any time there is a serious deficiency it may be desirable to compare the merchants' invoices with the requisition notes, and ascertain where the discrepancy occurs ; but, with proper management, such cases would be very rare. For all ordinary purposes the above system will, therefore, be found both con- venient and sufficient. Cost Accounts. — It is not desirable to give more than a general description of these accounts at the present time. The principle of the Cost Ledger is as follows : all the items of income and expenditure (i.e., the Nominal Accounts) are analysed under the headings of the various contracts from ACCOUNTS OF MANUFACTURERS. 197 which they result ; the account of each contract thus shows the profit or loss in which it has resulted, and a tabular sum- mary of these accounts shows (horizontally) the profit or loss upon each contract, and also (vertically) the total income and expenditure under each head, agreeing with the Profit and Loss Account in the General Ledger (vide pp. 234-5). The following is a specimen page in the Cost Ledger, show- ing a convenient ruling for that book : — 198 Contract No. 462. Dr. BOOKKEEPING. WAREHOUSE AT WEST BUCKNELL Wages Days 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 90,000 £ s d 250 o o 250 o o 250 o o 250 o o 250 o o 250 o o 250 o o 250 o o 250 O 250 o o Materials Plant £2,500 o o s d Fo. 7,500 o o 2,500 o o 56 £ s d 500 o o £10,000 o o £500 o o Quarter ending 1 Stores £ s d 500 o 450 O 500 o o £1,450 o o ACCOUNTS OF MANUFACTUREBS. STREET. Tender No. 926. Archway, Architect. 31st December 1892. 199 Cr. Petty Cash £ s d 30 o o 10 o o 10 o o Establishment Expenses Fo.l 96 / s d ! 1 £50 o o Contract Price Fo. ^500 o o £ s d Stores Returned Plant Returned Fo. £ s d Fo. £ s Dr. SUMMARY. Cr. From Folio . . Wages . . Materials Plant . . Stores . . Petty Cash . . Establishment To Folio Profit .. Total 2,500 10,000 500 1,450 50 500 £15,000 o o From Folio Contract Price Stores Returned Plant Returned To Folio 168 . . Loss Total £ s d 15,000 o o ■ £15,000 o o XIV.— TRANSACTIONS OF A MANUFACTURING COMPANY. SHARE AND DEBENTURE LEDGERS, ETC. This is not the proper place to enter into any lengthy explanation concerning the constitution of joint stock com- panies; but it is perhaps desirable to briefly review some of their distinguishing features, so far as may be necessary for the purpose of explaining the accounts of these undertakiiftgs. It will be remembered that, in the case of a single individual, the amount of his capital embarked upon the venture is credited to his Capital Account, and the profits made by him are also credited to his Capital Account (as- increasing the value of his interest in the undertaking, while they remain undrawn) ; and that losses and withdrawals of capital are debited to that account — thereby reducing the amount of capital remaining in the undertaking. TRANSACTIONS OF A MANUFACTURING COMPANY. 201 In the case of private firms a similar course is adopted — a separate account being kept for each partner, so that the- amount of each partner's capital may at any time be readily perceived. In the case of a joint stock company, the following conditions obtain : — (1) When the company is registered the amount of its capital called {" Nominal Capital ") is fixed ; and, except under special circumstances, remains unalterable. (2) The amount of the nominal capital is divided into a certain number of shares of definite value. These shares may be of different classes {e.g., preference shares, ordinary shares,, deferred shares), and it is not necessary that the shares belonging to different classes should be of the same value. (3) Shares are " allotted " by the directors to such persons as may desire to become shareholders, in response to applica- tions received from such persons. The shares so allotted constitute the " Capital Issued," or " Capital Subscribed." (4) Subject to the regulations of the company, the directors- may call up upon the shares issued, or upon any class of shares issued, any sum not exceeding the nominal value of such shares. The total amount so called up constitutes the " Paid- up Capital." 202 BOOKKEEPING. (o) Shareholders whose " calls " are not paid up are liable (subject to the regulations of the company) to have their shares forfeited by the directors. Forfeited shares may be re-issued to other persons upon such terms as the directors may impose. (6) Except by forfeiture, no share — being once issued — can be cancelled. (7) No return of capital can be made upon shares, except under special circumstances {see " Eeduction of Capital"). (8) It is competent for directors — upon the execution of a contract in the required form, which must be filed with the Registrar of Joint Stock Companies — to accept payment for certain specified shares in kind, instead of in cash ; but shares may not be issued at a discount. (9) Upon the profits made from time to time, the company in general meeting may declare dividends among the share- holders : shares of a like class being entitled to participate equally, and different classes of shares being entitled to participate in accordance with the terms upon which such classes of shares were issued. (10) Shareholders cannot be called upon to pay up their share of any loss that may be made (except indirectly, by TRANSACTIONS OF A MANUFACTURING COMPANY. 203 calling up any unpaid amount upon their shares) ; but no dividend can be declared out of any subsequent profits until such loss shall have been worked off. (11) A company may not purchase its own shares. (12) Subject to the regulations of the company, share- holders may sell their shares — or any portion thereof — to any person, whether a shareholder or not, upon such terms as they may think proper. These few brief notes will, it is thought, suffice to enable the reader to formulate the necessary accounts for the books of a joint stock company. In the first place, it is usual to keep the shareholders' accounts in a separate Ledger (this, indeed, is required by Act of Parliament), and to keep in the General Ledger merely Adjustment Accounts. It is sometimes thought convenient to open a separate Adjustment Account for each class of shares. By way of exemplifying the best method of dealing with Share Accounts, we will suppose that " Bricks & Company, Lim.," has been registered for the purpose of acquiring the business of Messrs. Bricks & Mortar, builders and contractors, for the sum of £100,000, payable half in cash and half in 204 BOOKKEEPING. fully-paid shares [vide paragraph (8), page 202, ante] ; that the nominal capital of the company is £100,000 in 500 6 per cent, cmnulative preference shares of £100 each, and a like number of ordinary shares of equal value; 200 preference shares and 300 ordinary shares are to be allotted to the vendors, as fully paid-up : the directors invite applications for the remaining 300 preference shares and 200 ordinary shares^ accompanied by a deposit of £10 per share ; £15 per share to be payable on allotment, £25 per share on the first of the following month, and the remaining £50 per share a month later. These applications come in in due course, and are entered in the '' Applications and Allotments Book " — the ordinary and preference shares being kept separate. It is convenient to reproduce this book, pro forma, at the present stage ; but the student will understand that — by the time the subscription list closes — only the first seven columns will be filled in. TRANSACTIONS OF A MANUFACTURING COMPANY. 205 O o w ^ 2 <: S OS w o O o •oj jaSpa-T 9JBqs 1 M (M cnrt 1 Oi dnpiBdiBioi Isj 1 III § OqOg 1 en cnrorr, \ | paAiaoaj qsBQ o o o o l\ 9jBqs J9d oSJiOipOpuz 1 1 1 Ol[Og 1 N m CJ m M 1 1 P9AI909J qSB3 O m mm in § 9jBqsJ9d 1 ^ ^J?K| 8 oqog 1 " : H. : : : 1 P9uju;9j qsBQ <^ 8 : 8 : : : 8 || oqoH 1 : f, : cj = * 1 1 P9AI909J qSB3 m in m m 1 O h ^ : iS : P5^ i^ ^ il 9aBqsa9dS23^ ^ .^^^| § I ! iu9ui;o|[v uo 9nQ ^ * " ' ?. S ^ 1 ° i| Distinctive Numbers of Shares allotted From To 1 • ^ -Hi t : - :^^g 1 1 panoiiB S9JBqs ■ m . mmm §11 i9aS9H JO J9»9T[ ;o jaquinM M : « : ; : a9;}9T ju9ui;oi[V j JO aaqran^ ; M . M cOTt- i . oqoj i M * * . * * 1 i ! 9JEqs J9d j 01 jf JO jisod9c[ ^i a §p§ 8 M - 1 joj pgqddB j s9JBqs JO J9qmnfj § ?. 28?,§ 1 Merchant . . Contractor .. Civil Servant Banker Ironmonger. . Gentleman . . Address 12 Green-st., E.C. . . 24 White-st., E.C. .. 36 Black St., E.C. . . 48 Red-st., S.W. .. 60 Metal-st., E. 72 Store-sq., W. 1 John Abel Thomas Bowen James Cloud . . William Deeds Robert Eccles.. Arthur Frank . . uoi^Boiiddv JO oj^ 1 w M to •<*• mvo 1 - 1 III (U • . • -w Cfl O CTJ S ? |=i « ra (U O U (U _ c c^ o 206 BOOKKEEPING. A separate Cash Book, called the " Capital Subscribed Book,** is employed to record the sums received from, and returned to, applicants for shares, and shareholders ; and from this book the " Deposit of £10 per share " has been posted. Only the daily totals of the Capital Subscribed Book are entered in the " General Cash Book." If, however, the number of applica- tions is sm^ll, the deposits, &c., may be entered in the General Cash Book in an inner column and the daily totals extended. The directors then proceed to allot shares. There being more shares applied for than were offered for subscription, they make a selection of the applications, allotting some in full, some in part, and declining others altogether. Upon reference to the *' Shares allotted" column it will be seen that the applications of John Able, James Cloud, and Jacob Keen are declined and the deposits returned, while a reduced number of shares is allotted to Thomas Bowen, William Deeds, Robert Eccles, and Arthur Frank, the shares applied for by Henry Green, John Hughes, and Frederick Jones being allotted in full. The allotment being settled, distinctive numbers are assigned to the shares held by each shareholder, as shown in the column provided for that purpose. The next thing to be done is to forward ** Letters of Allot- ment " to each shareholder, intimating that so many shares have been allotted to him and that so much is due thereon. TRANSACTIONS OF A MANUFACTUEING COMPANY. 207 These letters make the allotment binding and bear a sixpenny stamp if they represent shares of a value of £5 or upwards, and a penny stamp if below that amount. " Letters of Eegret " are sent to those whose applications have been declined, enclosing cheques for the amounts of their respective deposits. In practice it is usual to provide a column in the Applications and Allotments Book for the serial numbers of both Allotment Letters and Letters of Regret. It will be noted that, where a lesser number of shares have been allotted than were applied for, the excess paid upon application is not repaid to the applicant, but applied in reduction of the amount due upon allotment. As the amounts due upon allotment and in payment of calls are received, they are entered in the Capital Subscribed Book, and thence posted to the Applications and Allotments Book, as shown in the above example. In these ]j^'0 forma accounts, the whole amount of shares is called up within two months of the date of allotment ; and, in such a case, it is convenient to deal with the calls through the Applications and Allotments Book, as here shown, trans- ferring the various accounts to the Share Ledger, after the shares have been fully paid up. The folio upon the extreme right in the above example records this transfer, the " Total amount paid up " in the previous column being the cross-total of the sixth, thirteenth, eighteenth, and twenty-first columns. I 208 BOOKKEEPING. If it had been decided not to call up the whole amount of the capital subscribed for, the amounts transferred from the Applications and Allotments Book to the Share Ledger would, of course, have been the actual amounts called up, whatever they were ; the amounts received in payment of any subse- quent call being posted to the Share Ledger instead of to the Applications and Allotments Book. It may be remarked, at this stage of the proceedings, that the allotment of fully paid shares to the vendors would also he recorded in the Applications and Allotments Book, but it is convenient to record the allotments of fully paid up shares to vendors and their nominees upon a separate page from the general applications. The totals of the " Total paid up" columns are posted to «,n Adjustment Account (or to two Adjustment Accounts — -one for ordinary and one for preference shares) in the Share Ledger, completing the double-entry of that Ledger and forming a connecting link with the General Ledger. The following example shows the account of Eobert Bricks upon folio 8 of the Share Ledger. It will be seen that he is credited with 150 fully paid up ordinary shares (posted from folio 2 in the Applications and Allotments Book), and with 100 fully paid preference shares (posted from folio 3 in the same book). He is likewise debited with 20 and 50 ordinary •shares which he has disposed of, the entry being posted from iolio 1 in the " Register of Transfers," also shown below: — TRANSACT LONS OP A MANUFACTURING COMPANY. 209 o a n m 4J H < W !T1 C4 C/D H C/5 >H ^ « iz; 1— I ^^ Q ^ t/3 1 3t5 § 11 <~fi 8 < 7) •^^ < 62 2^5 eg 23 10 S rO J5 ^ xi Q ^ fe ^ ST) Q 2-3 <«+? = a. <; ^c 6 2 a Zt) a D D! ?, < ^0, r' < II E U 22 g b •0£ (M „ OJ ro nJ r^ e Q •— > _^ rt 'h? 8 s S a. «4 10 2 i2 J ll < 1^ s „ „ Uh •OH :r ' a; rn >o » a f f, b 1 1 I ^ 1 6 i 1 8 1 c8 CO 1 ^ ^ e rt \ 1 210 BOOKKEEPING. ! 1 § c I i c & i i -S !^ 1 1 ^ i *j . ^ . en iii^Si^ ' ^ f. iwijw 0) l-l c ^ (/) c 'V ; £ < O CQ 1 ^ 1 1 ^ % (U -o -§ E -a o rt ! 1 ^ 1 "i •OJ J9}Sl89H 2 S l-i 9?nuii\[ JO -on ■* 1 : S^ TRANSACTIONS OF A MANUFACTUEING COMPANY. 211 New accounts have therefore to be opened in the Share Ledger for John Abel and for James Cloud ; and, upon refer- ence to the pro forma Eegister of Transfers, it will be seen that 20 shares have been posted to Abel's credit on folio 10 in the Ledger, and 50 shares to Cloud's credit upon folio 11. Transfers of preference shares are best recorded in a separate register, but sometimes the same register is used and an additional column inserted before the '' No. of shares trans- ferred," in which the class of shares is noted. Debentures. — Suppose that Messrs. Bricks & Co., Lim., have invited applications for 100 debentures of £500 each. For an exact definition of the word " debenture " the student is referred to a legal text-book, but it will suffice for our pre- sent purpose if he regards debenture-holders as preferential creditors, to whom bonds are issued in much the same way as shares are issued to shareholders. For the sake of variety, it is assumed that no deposit is asked upon applications for debentures, but that the whole amount is payable upon allotment. The Applications and Allotments Book then assumes the following more simple form : — P 2 212 BOOKKEEPING. ja3p97 ajn}uaq9Q onod[ N N f ) ro a « cu H " -"Si: panonis -o OO o I o o o o o 9;o_s[ ;u9uno[iv ' JO -ON joj p9^ddB sajnjuaqaQ jo -oisl t! fib ■go CO O vj i3c c c 2 4J o rt 2: uopBoi^ddv JO 'o^ ivo TRANSACTIONS OF A RIANUFACTUEING COMPANY. 213 The forms of the Debenture Ledger and the Eegister of Transfers of Debentures do not materially differ from the forms shown above for the use of shares. Sometimes redeemable debentures are issued, i.e., deben- tures due for repayment at the end of a certain specified time, or upon a specified notice. A convenient way to deal with these redemptions is through a Register of Redemptions, somewhat similar to the Register of Transfers, through which the debenture-holder's account is debited, and the Adjustment Account credited. Debentures may be issued at a discount or at a premium ; and in either case the nominal amount of such debentures is the amount recorded in the Debenture Ledger ; the General Ledger entries being made as shown later on (vide pages 216, 222, and 265). XV.— TRANSACTIONS OF A MANUFACTURING COMPANY (continued). GENERAL AND TRADE LEDGERS. To turn to the trade books. Let it be supposed that the company takes over the land, buildings, plant, machinery, stock, book debts, and contracts in progress, of the vendors ; paying therefor the sum of £100,000 : viz., £50,000 in cash, £20,000 in preference shares, and £30,000 in ordinary shares. The assets taken over are valued as follov^s : — Freehold and leasehold lands and buildings £20,000 Plant and machinery ... Stores on hand Book Debts ... Contracts in progress ... The amount paid for goodwill is thus 15,000 10,000 5,000 25,000 25,000 £100,000 The whole of the share capital (£100,000, in £500 six per cent, preference shares of £100 each, and 500 ordinary shares TRANSACTIONS OF A MANUFACTURING COMPANY. 215 of £100 each) has been allotted, and the whole amount called up in accordance with the terms of the prospectus. The student is invited to compare these transactions with the following Journal entries, which are designed to complete the opening of the General Ledger : — (1) JOURNAL 1893. I>y. Cr. I January. Shareholders' Account To Preference Shares Capital Account „ Ordinary „ „ „ Being the amount due upon the allotment of 300 Preference Shares and 200 Ordinary Shares {iC, £25 per share), allotted at Board Meeting held this day. Bricks & Mortar To Preference Shares Capital Account „ Ordinary „ „ „ Being an allotment of 200 fully-paid Preference Shares and 300 fully-paid Ordinary Shares, allotted to vendors in part payment of pur- chase-money in accordance with agreement dated ist December last, and allotted at Board Meeting held this day. Freehold and Leasehold Lands and Buildings Plant and Machinery Stores Contract Ledger (book debts) Sundry Debtors for contracts in progress Goodwill To Bricks & Mortar For sundry assets purchased by company in accordance with agreement dated ist December last, adopted by the Board at their meeting this day. Carried forward 12,500 o o 50,000 o o 20,000 15,000 10,000 5,000 25,000 25,000 162,500 o o 7.500 5,000 20,000 o 30,000 o o 100,000 o o 162,500 216 BOOKKEEPING. (2) JOURNAL 1893. Dv Cr. Brought forward Debenture-holders' Account To Debentures Account Being 100 four per cent, debentures of £"500 each issued at Board Meeting held this day, and payable in full on i6th January next. 5 6 3 , I 2 3 I 2 3 £ s d 162,500 50,000 12,503 25,000 £ s d 162.500 50,000 I Februarv. Shareholders' Account To Preference Shares Capital Account „ Ordinary „ „ „ Being a first call of £25 per share made on ist January last, and due this day. 7,500 5,000 I March. Shareholders' Account To Preference Shares Capital Account „ Ordinary „ „ „ Being a second and final call of £50 per share made on ist February last, and due this day. 15,000 10,000 Carried forward 250,000 250,000 There is nothing in these various entries that calls for any detailed comment; the "Shareholders' Account " is debited with the amount from time to time called up upon shares (i.e., the amount due from shareholders), and the same account is credited with the cash received from shareholders. The daily totals only of the " Capital Subscribed Book " being entered in the General Cash Book, this does not involve a very large amount of detailed posting in the General Ledger. The Preference and Ordinary Share Capital Accounts and TRANSACTIONS OF A MANUFACTURING COMPANY. 217 the Debentures Account are the Adjustment Accounts in connection with the Share and Debenture Ledgers. The following may be taken as a copy of the General Cash Book for the quarter ending the 31sc March 1893 : — (1) Dr. CA.SH. CONTRA. Cr 1893 £ s d i 1893 £ sd Jan. I To Shareholders' A/c. 3 5,600 Jan. 2 By Shareholders' A/c. 3 400 7 Ditto 3,00c 1 „ „ Office Cash 13 150 9 Ditto „ 4.300 , 7 „ Wages .. 16 3,000 16 „ Debenture-holders' 1 14 „ Ditto „ 2,700 Account. . 5 40,000 1 18 „ Bricks & Mortar.. 4 50,000 17 „ Ditto 10,000 21 „ Wages .. 16 2,500 31 „ Contract Ledger 1 28 „ Ditto „ 3,200 0- Account. . 10 15,000 31 „ Bought Ledger „ Shareholders' A/c, 3 8,000 Account. . 14 4,800 „ „ General Expenses 15 450 To Balance down i Feb. I „ Balance down . . By Deposit at Bank . . 2 17 18,700 £85,900 £85,900 Feb. I 18,700 12,500 ,, „ Shareholders' A/c. 3 4,500 4 „ Wages 16 3,000 28 „ Contract Ledger II „ Ditto „ 2,500 Account.. 10 12,500 18 „ Ditto 2,400 II „ Shareholders' A/c. 3 20,000 25 28 „ Ditto „ Bought Ledger Account. . 14 2,100 8,500 „ „ General Expenses 15 500 To Balance down 2 Mar. I „ Balance down By Deposit at Bank . . 3 17 24,200 £55,700 £55,700 Mar. I 24,200 20,000 „ „ Shareholders' A/c. 3 5,000 : 4 „ Wages 16 2,000 31 „ Contract Ledger i II „ Ditto ^^ 1,800 Account . . 10 15,800 i ^« „ Ditto 'I 2,100 25 „ Ditto „ 2,300 i 31 „ Bought Ledger Account.. 14 7,750 II „ General Expenses 15 550 To Balance down 3 . i 1 „ Balance down . . 4 * 8,500 £45,000 £45,000 April I 8,500 218 BOOKKEEPING. The General Journal may be written up either monthly or quarterly ; it is compiled from the various subsidiary books, viz. : — Contract Journal. Analysis of Purchases. Analysis of Plant Issued. Analysis of Plant Returned. Analysis of Stores Issued. Analysis of Stores Returned. Petty Cash Book. Bought Ledger Cash Book. Let it be supposed that the following Journal entries correctly recapitulate the transactions recorded in these books during the quarter ended the 31st March 1893 : — (3) JOURNAL 1893. Df Cr. Brought forward 31 March Contract Ledger Account To Contracts Account Being the agreed price of contracts completed during the current quarter, as per Contract Journal. 2 10 18 18, II II 18 4 £ s d 250,000 60,000 25,000 .. 36,000 £ s d 250,000 60,000 Contracts Accounts To Sundry Debtors for Contracts Out- standing Writing back the amount held in suspense on I January last. 25,000 Sundry Debtors for Contracts Outstanding To Contracts Account Being the amount now estimated to be earned upon works in progress. 36,000 Carried forward 371,000 ; 371.000 TRANSACTIONS OF A MANUFACTURING COMPANY. 219 (4) JOURNAL 1893. Dr. Cr. Brought forward Wages Account To Sundry Creditors For current week's wages not yet paid. Stores Plant Rent, Rates, &c General Expenses Materials To Bought Ledger Account . . As per analysis of purchases tor the quarter. Plant issued Account To Plant Account As per analysis of plant issued for the quarter. Plant Issued Account To Plant Account Being the value of plant standing at various contracts on i January last. Stores Issued Account Ditto Ditto To Stores Account As per analysis of stores issued for the three months. Stores Issued Account . . 23 To Stores Account . . 9 Being the value of stores standing at various ! contracts on i January last. Plant Account [ 8 To Plant Issued Account 22 As per analysis of plant returned for the quarter. 23 Carried forward £ s d 371,000 o o 2,250 o o 9,000 o o 250 o o 500 o o 750 o o 23,500 o o 5,000 o o 5,000 o 5,000 o o 3,oco o o 2,000 o o 3,000 o o 434,250 O £ s d 371,000 o o 2,250 o o 34,000 o o 5,000 o o 5,000 o 5,000 o 4,000 o o ^,000 O 434,250 o o 220 BOOKKEEPING. (5) JOURNAL 1893. Dr. Cr. Brought forward Stores Account To Stores Issued Account As per analysis of stores returned quarter. for the 4 9 23 24 13 14 25 £ s d 434,250 500 100 • • 500 £ s d 434,250 500 Petty Cash Account To Office Cash Account For sundry expenses, as per analysis Cash Book. ot Petty 100 Bought Ledger Account To Discount Account As per Bought Ledger Payments Book. 500 Total 435,350 JC435.350 It now remains to post the General Ledger from the above- shown General Journal and General Cash Book, and to extract the Trial Balance. This will be found fully dealt with in the following pages ; the closing of the Ledger is, however, postponed for further consideration at a later period. TEANSACTIONS OF A MANUFACTURING COMPANY. 221 The GENERAL LEDGER of Messrs. Bricks & Co., Limited. I I Dr. PREFERENCE SHARES CAPITAL ACCOUNT. Cr. 1893 Jan. I By Shareholders i J. i Feb. I Mar. I „ Bricks and Mortar Shareholders Shareholders £ s d 7,500 o o 20,000 O O 7,500 O O 15,000 O Dr. ORDINARY SHARES CAPITAL ACCOUNT. Cr. i«93 Jan. I By Shareholders J.I £ s d 5,000 . " „ Bricks and Mortar „ 30,000 Feb. I „ Shareholders 2 5,000 Mar. I „ Shareholders 10,000 Dr. SHAREHOLDERS' ACCOUNT. Cr. 1893 £ s d 1893 £ s d Jan. 1 To Sundries . . J.I 12,500 Jan. 1 By Cash.. I 5,600 2 „ Cash.. 400 7 „ Do 3,000 Feb. I „ Sundries . . 2 12,500 9 „ Do 4,300 Mar. I „ Do. „ 25,000 31 „ Do 8,000 Feb. I „ Do 4,500 28 „ Do 20,000 Mar. I „ Do 5,000 222 BOOKKEEPING. Dr. BRICKS & MORTAR (Vendors' Account). Cr. 1893 £ s d 1893 ^ s d Jan. I To Shares Jan. I By Sundries allotted 1. 1 50,000 (being pur- 18 „ Cash . . 50,000 chase price of under- taking) . , J.I 100,000 Dr. DEBENTURE-HOLDERS' ACCOUNT. Cr. 1893 Jan. I To Sundries . . J.2 £ s 50,000 o 1893 Jan. 16 17 By Cash, „ Do. . £ s d 40,000 o o 10,000 o o Dr. DEBENTURES ACCOUNT. Cr 1893 Jan. I By Debenture- holders. . J.2 £ s d 50,000 o o Dr. LAND AND BUILDINGS ACCOUNT. Cr. 1893 Jan. I To Bricks and Mortar J.I £ s d 20,000 ! Dr. PLANT AND MACHINERY ACCOUNT. Cr. 1893 £ s d 1893 £ s d Jan. I To Bricks and Mar. 31 By Plant issued I 4 5,000 Mortar I.I 15,000 Do. 5,000 Mar. 31 „ Sundries .. „ Plant issued 4 250 4,000 TRANSACTIONS OF A MANUFACTURING COMPANY. 223 Dr. STORES ACCOUNT. Cr. 1893 Jan. I Mar. 31 To Bricks and Mortar „ Sundries . . „ Stores issued j £ s d J. I 10,000 o o 4 9,000 o o 5 500 o o 1 1893 I Mar. 3 1 By Stores issued J. 4 Do. 8,000 5,000 Dr. CONTRACT LEDGER ACCOUNT. Cr. 1893 jr s d 1893 £ s d Jan. I To Bricks and Jan. 31 By Cash I 15.000 Mortar 1 I 5,000 Feb. 28 „ Do. „ 12,500 Mar. 31 „ Contracts .. 3 60,000 Mar. 31 1 1 „ Do. 15,800 II ir Dr. SUNDRY DEBTORS for CONTRACTS in PROGRESS. Cr. 1893 £ s d 1893 £ s d Jan. I To Bricks and Mortar T I 25,000 Mar. 31 By Contracts . . J 3 25,000 Mar. 31 „ Contracts . . 3 36,000 Dr. GOODWILL ACCOUNT. Cr. 1893 Jan. I To Bricks and Mortar J.i 25,000 o o 13 Dr. OFFICE CASH ACCOUNT. Cr. 13 1893 Jan. 2 To Cash £ s d I 1 150 o Mar. 31 \ By Petty Cash. I £ ^ d 5 1 100 o o ^24 BOOKKEEPING. 14 Dr. 14 BOUGHT LEDGER ACCOUNT. Cv. 1893 f. s d 1893 1 /■ s d l^u- ^l To Cash • ' 4,800 Mar. 31 By Sundries .. J. 4 34.000 Feb. 28 „ Do. . 1 „ 8,500 Mar 31 „ Do. • ' II 7,750 H „ Discount . .■|J.5 500 15 Dr. GENERAL EXPENSES ACCOUNT. 15 Cr. 1893 Jan. 31 Feb. 28 ^ar.31 To Cash « Do. „ Do. „ Bought Ledger A/c J- 4 £ s d 450 00 500 550 750 16 16 Dr. WAGES ACCOUNT. Cr, 1893 £ s d Jan. 7 To Cash I 3,000 14 „ Do. n 2,700 21 „ Do. • 2,500 28 „ Do. II 3,200 Feb. 4 „ Do. II 3,000 II „ Do. II 2,500 18 „ Do. II 2,400 25 „ Do. II 2,100 Mar. 4 „ Do. II 2,000 II „ Do. II 1,800 18 „ Do. II 2,100 25 „ Do. II 2,300 31 „ Sundry Credito rs J. 4 2,250 • 17 Dr. 17 DEPOSIT AT BANK. Cr. Feb. J Mar. 1 To Cash ,1 Do. £ s d 12,500 o o 20,000 o o TEANSACTIONS OF A MANUFACTURING COMPANY. 225 l8 Dr. CONTRACTS ACCOUNT. i8 Cr, 1893 Mar. 31 To Sundries £ s d J. 3 25,000 o o 1893 Mar. 31 By Sundries Do. 1893 I £ s d Mar. 31 To Sundries .. J. 4 23,500 o o £ s d J. 3 60,000 o o „ 36,000 o o 19 Dy 19 SUNDRY CREDITORS. Cr. Mar. 31 By Wages J.4 £ s d 2,250 20 Di 20 RENT. RATES, &c., ACCOUNT. Cr. Mar. 31 \ £ '^ d To Sundries . . J . 4 500 j 21 Dr 21 MATERIALS ACCOUNT. Cr. Dr. PLANT ISSUED ACCOUNT. Cr. 1893 £ s d 1893 £ s d Mar. 31 To Sundries . . J 4 5,000 Mar. 31 By Sundries . . 1.4 4,000 * Do. ■ " 5,000 1 23 23 Dr • STORES ISSUED ACCOUNT. Cr. 1893 Jan. 31 Feb. 28 Mar. 31 To Sundries . . Do. Do. „ Do. J.4 £ s d 3,000 2,000 3,000 5,000 Mar. 31 By Sundries . . J- 5 £ s 500 d 226 BOOKKEEPING. 24 Dr. PETTY CASH ACCOUNT. 24 Cr. Mar. 31 To Office Cash.. J. 5 £ s d 100 o o 25 Dr. DISCOUNT ACCOUNT. 25 Cr. 1893 Mar. 31 By Sundries J-5 £ s d 500 o o TRIAL BALANCE, 31st March 1893. Dr. Cr. Dr. Cr. £ s d £ s d £ s d £ s d I Preference Shares. . 50,000 50,000 2 Ordinary Shares . . 50,000 50,000 3 Shareholders 50,400 50,400 4 Bricks and Mortar.. 100,000 I JO, 000 5 Debenture-holders 50,000 50,000 6 Debentures 50,000 50,000 7 Land and Buildings 20,000 20,000 8 Plant and Machinery 19,250 10,000 9,250 9 Stores 19,500 13,000 6,500 10 Contract Ledger . 65,000 43,300 21,700 II Sundry Debtors . 61,000 25,000 36,000 12 Goodwill . . 25,000 25,000 13 Office Cash . . 150 100 50 14 Bought Ledger . 21,550 34,000 12,450 15 General Expenses. 2,250 2,250 16 Wages 31,850 .. 31,850 17 Deposit at Bank . 32,500 32,500 18 Contracts .. 25,000 96,000 71,000 19 Sundry Creditois . 2,250 2,250 20 Rent, Rates, &c. . 500 500 21 Materials 23,500 23,500 22 Plant Issued 10,000 4,000 6,000 23 Stores Issued 13,000 500 12,500 24 Petty Cash . . 100 • • I»0 25 Discount 500 500 4 Cash at Bank 8,500 8,500 £579,050 £579,050 £236,200 £236,200 i TRANSACTIONS OF A MANUFACTORING COMPANY. 227 TRADE LEDGERS, etc. It is now time to consider the Contract and Bought Ledgers, and the various books subsidiary thereto. Taking first the Contract Ledger (which is equivalent to the Sold Ledger of an ordinary trading concern), the Ledger itself is of the usual type, embracing the personal accounts of the customers, (perhaps) the Bills Receivable Account, and the General Ledger Adjustment Account. The postings are made — (1) From the Contract Journal — a simple form of Day Book, in which the amount chargeable for each contract is entered upon the completion thereof — to the debit of the various customers' accounts, the quarterly total being credited to the Adjustment Account. (2) From the Contract Cash Book {vide top of page 166, ante) — a simple form of one-sided Cash Book (or, more properly, " Journal ") in which is entered every amount received from customers, either directly or as the proceeds of Bills Receivable. The details of this book (which, if necessary, is provided with a column for discounts) are credited to the various accounts in the Contract Ledger, and the monthly totals debited to the Adjustment Account. The total of the cash column is included upon the debit side of the General 228 BOOKKEEPING. Cash Book {vide .page 217, ante), and the total of the discount column (if any) forms the subject of an entry in the General Journal. (3) From the Bills Receivable Book, with the manipulation of which the reader has already been made familiar. It is very usual for payments to be made by the customer during the progress of a contract. Inasmuch a§ the customer is not debited with the amount of his contract until its com- pletion, it necessarily follows that credit balances in the Con- tract Ledger will be frequent ; these credit balances act as a set-off against the debit balances, and reduce the balance shown upon the Contract Ledger Account in the General Ledger. The amount accruing due upon contracts in progress is computed from the Cost Ledger, and will occupy attention in the following chapter. Where there is a jobbing trade done, it is convenient to have a "Jobbing Ledger" subsidiary to the Contract Ledger — the latter containing the aggregate of the jobbing transactions in an Adjustment Account. It will usually be found that the tabular form of Ledger makes the most convenient Jobbing Ledger : the following ruling will be found very suitable : — TRANSACTIONS OP A MANUFACTURING COMPANY. 2^9 JOBBING LEDGER for th e Quarter ended 31st March 1893. 6 2: Name Address IS 1 1 < 1 c3 .-2 2 nJ Q 1. < 11 ^0 d Z ^ sd ;f sd ;C sd £ sd £ sd If accounts are rendered monthly, it may be found desirable to extend the number of columns so as to allow the three months' accounts to be dealt with upon the same folio. The Bought Ledger now claims attention, and the oppor- tunity is here afforded of describing a fresh mode of dealing with purchases that may sometimes be found convenient : — All invoices received from creditors are placed in a '* Guard Book" in order of date. They are then entered in a " Bought Journal," which is ruled as follows : — BOUGHT JOURNAL. i2 6 Date Description of Goods Amount of Invoice Stores 1 6 "1 7)^ - £ s d £ s d ■ £ sd £ s d £ sd £ s d - '■ ■ 230 BOOKKEEPING. A separate page is devoted to each creditor ; and, as the book is provided vpith an index, every faciHty is afforded for ready reference. Once a month, or once a quarter, the book is added and the totals transferred to the ''Analysis of Purchases, &c., Book," of which the following; is a specimen : — ANALYSIS OF PURCHASES, Etc., FOR THE Quarter ended 31ST March 1893. Name ^ Total Stores Plant Rent, Rates, &c. Other Expenses Special Materials u Abel & Sons . . . Thomas Bowen.. H enry Green . . &c. &c. I 2 10 27 82 500 £ sd 2,160 1,500 340 £ s d 2,000 250 £ sd 250 £ s d £ sd 160 1,000 340 470 471 170 „ 171 £■34,000 £9,000 £250 £500 £750 £23,500 ! The last column in the analysis is for goods that are ordered for special contracts, and which therefore do not come into the Stores Account : these are posted to the various contracts in the Cost Ledger, as will be shown later on. So far as the Bought Ledger is concerned the items in the "Total" column are credited to the various personal accounts, and the total of that column (the £34,000) is posted to the debit of the TRANSACTIONS OF A MANUFACTURING COMPANY. 231 Adjustment Account upon folio 500 of the Bought Ledger. It will be noticed that the totals of the various columns correspond with the entry in the General Journal shown upon page 219. The remaining subsidiary books in connection with the Bought Ledger are the *' Bought Ledger Cash Book " and the " Bills Payable Book" ; these books correspond to the Con- tract Cash Book and Bills Keceivable Book of the Contract Ledger series, and thus call for no further description. XVI.— TRANSACTIONS OF A MANUFACTURING COMPANY {continued). COST ACCOUNTS— CLOSING THE BOOKS. Next come the Cost Ledger and its various subsidiary- books. These subsidiary books are : — (1) Abstract of Wages, a specimen of which was given upon page 193. (2) Analysis of Purchases, a specimen of which was given upon page 230, and of which the column headed " Special materials " is posted to the debit of the various contracts in the Cost Ledger. (3) Analysis of Stores Issued, a specimen of which was given upon page 195. (3a) Analysis of Stores Eeturned — a similar book recording the return of all surplus stores and materials into stock. (4) Analysis of Plant Issued — a similar book recording the issue of plant {e.g., scaffolding, &c.) for the general stock. (4a) Analysis of Plant Returned — a similar book recording the return of plant into stock. The returns are priced at a lesser amount than when issued, thus making depreciation fall upon the various contracts. TRANSACTIONS OF A MANUFACTURING COMPANY. 233 Sales of stores or plant will rarely occur ; but, when they do, they may be posted from the General Cash Book to the credit of Stores (or Plant) Issued Account, and also to the credit of the Contract in the Cost Ledger. (5) Analysis of Petty Cash — a Tabular Petty Cash Book, by means of which each contract is debited with all special expenses incurred at the ofiQce and works. (It will be remembered that all petty expenses incurred at the site of the contracts are included in the wages.) (6) Contract Journal, which, in addition to being posted to the Contract Ledger, is posted in detail to the credit of the various contracts in the Cost Ledger. The double-entry check of the Cost Ledger is obtained by opening a ** Contracts Account," to which all totals are posted. On account of the special ruling of the Cost Ledger, it is convenient to depart from the usual practice in connec- tion with Adjustment Accounts, and to post these totals upon the same side of the Ledger as the items have been posted. The aggregate of the balances upon the various contracts thus agrees with the balance of the Contracts A.ccount, and falls upon the same side of the Ledger. The totals of the various columns of the Contracts Account also agree with the corresponding totals of the periodical " Summary of Cost Ledger," thus localising any error that may occur. The following example is supposed to represent the '' Sum- mary of Cost Ledger," in Messrs. Bricks & Co.'s (Lim.) books for the quarter ended 31st March 1893 : — 234 BOOKKEEPING. Dr. SUMMARY OF COST LEDGER FOR THE Fo. Total to Debit from last A/c Wages .2 'u 1 Plant Stores Petty Cash Establish- ment Expenses Total to Credit carried forward loo's of days Amount 462 469 470 471 472 168 169 170 171 172 15,000 20,000 150 200 225 300 250 £ 4,000 5,oco 8,500 6,850 7,500 500 2,OCO IO,COO 2,000 9,000 £ 350 3,000 750 900 £ 1,000 750 2,750 500 3,000 £ 25 50 25 £ 300 400 450 600 500 £ £35.000 £31,850 £23.500 £5,000 £8,000 £ico £2,250 Sundries £25,000 Stores . . 5,000 Plant .. 5,000 £35,000 TRANSACTIONS OF A MANUFACTURING COMPANY. 235 QUARTER ENDING 31ST MARCH 1893. Cv. Net Profit Total Total to Credit from last A/c Contract Price ^1 Total to Debit carried forward Loss Total boo 21,600 £ £ 20,000 £ 100 £ 1,500 £ £ 21,600 28,500 25,000 400 1,800 1,300 28,500 .. 24,725 •■ 24,725 24,725 4.950 15,700 20,925 15,000 700 20,925 15,700 20,925 £5.750 £111,450 •• £60,000 £500 £4.000 £45,650 £1,300 4,450 £111.450 N et profit for the q uarter . . £5,750 Sundries . £36,000 Stores . . 5,750 Plant .. 3,900 £45,650 •236 BOOKKEEPING. It will thus be seen that the quarter's working has resulted in a net profit of £4,450, allocated as follows : — Profit on Contract No. 462 £800 „ „ No. 471 4,950 £5.750 Less Loss on Contract No. 469 1,300 £4,450 It will also be noted that Contracts Nos. 470 and 472 are carried forward at cost only, no profit being reckoned upon them while in progress. This is the safest course to pursue, but it is not always acted upon in practice. On the other hand, if a loss is anticipated upon any uncompleted contract, it should always be provided for. It remains to be added that foHos 170 and 172 in the Cost Ledger (relating to the two uncompleted contracts) are now closed, the '* Total to debit " being carried forward to the fresh accounts about to be opened for the following quarter. The two columns " Total to credit " will be found useful when some of the stores or plant upon a contract are sold or returned, the contract remaining uncompleted at the end of the quarter. The totals to debit and credit will then both be carried forward to the next quarter's account, instead of a balance being struck. Before leaving this question, it would be well to explain the manner of arriving at the constitution of the item '* Total to Debit, £45,650." The amount in question represents the TRANSACTIONS OF A MANUFACTURING COMPANY. 237 expenditure to date upon the two uncompleted contracts Nos. 470 and 472 : a portion of this relates to stores and plant issued, and as this portion has to be shown as a balance upon the "Stores Issued" and ** Plant Issued " Accounts in the General Ledger, the total expenditure is analysed as shown^ The item " Sundries, £36,000 " will be found in the General Ledger debited to " Sundry Debtors " and credited to ** Con- tracts " (vide pages 218 and 223, ante). The apportionment of the establishment expenses is a question upon which some variety obtains in practice. The following methods are in use : — (1) A proportion varying according to the cost incurred on account of the contract. (2) A proportion varying according to the amount of wages paid on the contract. (3) A proportion varying according to the amount of time spent on the contract. y If the object be to apportion to each contract its fair share of the cost of rents, supervision, office expenses, &c., it is obvious that the first method is untenable, for a contract necessitating expensive materials does not, therefore, involve a larger degree of supervision. For a like reason the second method is also inaccurate — • although less so than the former — as it cannot be seriously argued that a contract employing masons necessarily involves heavier establishment expenses than one employing bricklayers » :238 BOOKKEEPING. The third method, taking the time occupied as the basis of the calculation, appears to be the fairest, and to involve but little extra trouble, and it has accordingly been adopted here ; but it is only fair to add that the second method is in more general use. CLOSING THE LEDGEES. The Closing of the Cost Ledger has already been described, -and the closing of the Contract and Bought Ledgers presents no new features ; it is, therefore, proposed to pass on at once to the closing of the General Ledger. The following are the Journal entries required for this purpose : — JOURNAL 1893. Dr (6) Cr. Brought forward 5 26 16 21 23 22 24 18 26 26 25 27 27 20 27 28 £ 435~350 64,300 71,000 6,700 500 2,750 4-450 s d £ s d 435.350 Trading Account To Wages „ Materials „ Stores Issued „ Plant Issued „ Petty Cash 31,850 23,500 6,750 2,100 100 Contracts To Trading Account 7i,oco Trading Account Discount To Profit and Loss Account 7,200 Profit and Loss Account To General Expenses „ Rent, Rates, &c 2,250 500 Profit and Loss Account To Profit and Loss Apportionment Ac- count 4,450 £585,050 £585,050 . TRANSACTIONS OF A MANUFACTURING COMPANY. 239 There are but few features in these closing entries that call for comment : the balance of net profit for the quarter (i^4,450), is, it will be seen, transferred to the credit of a *' Profit and Loss Apportionment Account " instead of being added to the capital, as would have been done in the case of a private undertaking. It may be added here that, for the sake of reducing the number of Ledger Accounts as far as possible (and so simplify- ing the example), the amount due for interest on debentures and directors' fees has been included under the heading of General Expenses. For a like reason the interest earned upon the deposit at the bank has been disregarded. From the above Journal entries the student will be able to close the General Ledger of Messrs. Bricks & Co., Limited, without difficulty ; but the following accounts are appended as specimens of form, and should be carefully studied. The figures in italics refer to the folios of the different Ledger Accounts, and are added only for the convenience of the reader. 240 Dr BOOKKEEPING. BRICKS & COMPANY, Statement of TRADING ACCOUNT, 16 21& 23 22 2i 27 Dr. To Wages „ Materials and Stores „ Depreciation of Plant „ Sundry Expenses w Balance carried to Profit and Loss Ac- count £ 31,850 30,250 2,100 100 s d o o £ s d 64,300 o o 6,700 o o £71,000 O PROFIT AND LOSS ACCOUNT, 20 15 To Rent, Rates, &c „ General Expenses, Salaries, &c „ Interest on Debentures „ Directors' Fees „ Balance (being Net Profit for the Quarter) carried to Profit and Loss Apportion- ment Account Proposed Apportionment of Profit : — Preference Shares, Dividend at 6% Ordinary Shares Do. 10% (free of income-tax) Reserve Fund Carried forward to next Account . . £ s d 500 1,500 500 250 £ s d 2,750 4,450 28 750 1,250 1,500 950 £7,200 1 £4,450 BALANCE SHEET. Liabilities. Nominal Capital Capital Subscribed :— 500 6% Preference Shares of £100 each, fully paid 500 Ordinary Shares of £100 each, fully paid Debentures (too of £500 each at 4%) . . Interest on ditto Trade Creditors Sundry Creditors Profit and Loss Account— Balance to credit, as above £ s d 100,000 £ s d 100,000 50,500 12,450 1,750 4,450 i 2 50,000 50,000 6 19 50,000 500 14 19 k8 •• £169,150 TRANSACTIONS OF A MANUFACTURING COMPANY. 241 LIMITED. Accounts. for the Quarter ended 31st March 1893. Cr. for the Quarter ended 31st March 1893. Cr 26 25 By Gross Profit as per Trading Account . . „ Discounts . £ s d k,7oo • 500 £7,2co 31st March 1893. 7 8&22 9&23 12 lO&ll 17 ci 13 Assets. Freehold and Leasehold Land and Build- ings at cost Plant and Machinery {less Depreciation) , . Stores Goodwill at cost Trade Debtors Cash :— viz.. Deposit at Bank Current Account at Bank Cash in hand £ s d 32,500 8,500 50 £ s d 20,000 15-150 12,250 25,000 57,700 £169,150 [. 242 BOOKKEEPING. The above is in the form in which the company's accounts would be submitted to the shareholders, but it may be added that it is not usual to pubUsh the Trading x\ccount. DIVIDENDS. Should the proposed apportionment of profit be approved by the shareholders, necessary entries in the books have next to be considered. The dividend is dealt with by passing a Journal entry, debiting Profit and Loss Apportionment Account, and credit- ing a new account called "Dividend Account," with £2,000. The ordinary dividend (being " free of income tax ") is pay- able in full, but income tax at the current rate must be deducted from all dividends paid to preference shareholders. A Journal entry will be passed, debiting Dividend Account, and crediting ** Income Tax Account " with £18 15s., being 6d. in the £ upon £750. A cheque will now be drawn for £1,981 5s., and posted to the debit of the Dividend Account, which will now balance ; this cheque is paid into a separate banking account (Bricks & Co., Lim., Dividends Account), a list is made of the balances of the Share Ledger on 31st March, the dividend computed, and a cheque drawn upon the Dividend Account for the amount due to each shareholder. "When all the dividends are paid there will remain no balance in the bank upon this account ; meanwhile the balance shown by the Pass Book represents the amount of unpaid dividends. A similar plan is adopted with regard to the payment of TRANSACTIONS OF A MANUFACTURING COMPANY. 243 debenture interest, but in this case the cheque for £487 10s. (viz., £500 less income tax) is debited to folio 19 in the General Ledger, and a Journal entry is passed, debiting folio 19, and crediting Income Tax Account, with £12 10s., being the amount of tax upon the debenture interest. The Eeserve Fund is dealt witji by means of a Journal entry, debiting Profit and Loss Apportionment Account, and crediting a new Ledger Account called *' Reserve Fund." The above entries having been posted, the balance remain- ing to the credit of Profit and Loss Apportionment Account will be £950, as shown above : this balance is carried forward to the next account, when it is increased by the net profit made during the subsequent period. It is hardly necessary to add that it is most unusual for companies to divide their profits quarterly, but this con- sideration does not affect any of the principles or methods just described. Where the number of shareholders is very small it is undesirable to open a separate banking account for dividend purposes ; in such a case it will be found more convenient to draw the cheques for dividends upon the General Banking Account, and to post these separate cheques to the debit of Profit and Loss Apportionment Account, or to the debit of a '* Dividend Account; " — having first debited Profit and Loss Apportionment Account, and credited Dividend Account, with the total amount of the dividend by means of a Journal entry. R 2 XVIL— FORMS OF ACCOUNTS AND ACCOUNT BOOKS. THE DOUBLE-ACCOUNT SYSTEM. Up to the present only what is known as the "Single- Account System " has been described, under which system all the assets and liabilities are focussed in a single account, or Balance Sheet. There yet remains to be considered the " Double- Account System." This latter system is of comparatively modern origin — its first statutory recognition, apparently, being in 1868, when the " Kegulation of Railways Act " was passed, prescribing a form of accounts designed upon the principle of the " Double-Account." The principle of the Double- Account System is that the capital of a company is contributed by the shareholders for the definite purpose of constructing or acquiring certain works, which — when constructed or acquired, as the case may be — are to be employed for the purpose of earning an income for such shareholders. The form of account employed FORMS OF ACCOUNTS AND ACCOUNT BOOKS. 245 is calculated to show exactly (1) what capital has been raised, (2) how much of such capital has been spent in constructing or acquiring the undertaking, and (3) what amount of capital remains over for the purpose of carrying on the undertaking, and so earning income. In accounts kept upon this system, the amount of Expenditure {i.e., the cost price of assets) is the amount always stated ; the under- taking has to be kept in a state of working efficiency out of revenue, but all fluctuations of value are disregarded. As a matter of practice, it is not unusual to find, in accounts kept upon the Single- Account System, that assets are stated in the Balance Sheet at cost price, irrespective of their actual market value. This is, however, technically incorrect (where not actually misleading) ; for it is the distinctive feature of the Single-Account Balance Sheet that all assets and liabilities should be so stated that the actual financial position may be made apparent. The most convenient method of disclosing the actual difference between the two systems is to show the same financial position, first in the form of a Single-Account, and then ae a Double x\ccount. For this purpose the accounts of a mining company are selected, this especial class of accounts being chosen because they are, as a matter of fact, sometimes drawn upon the Single- Account System, and sometimes upon the Double. 246 BOOKKEEPING, SINGLE-ACCOUNT THE A. B. COLLIERY Balance Sheet, Liabilities. Nominal Capit £"200,000 o Capital subscribed : A shares (£10 each, £5 per share called up) . . £50,000 o o B shares (£10 each, fully paid) iod.ooo o o Debentures (at 5 per cent.) Reserve Fund Trade Creditors : Bills payable £5.000 o o Open Accounts 5.000 o o Profit and Loss Account 150,000 o o 50,000 o o 20,000 o o 10,000 o o 20,000 o o £250,000 o o FOEMS OF ACCOUNTS AND ACCOUNT BOOKS. 247 SYSTEM. COMPANY, LIMITED. 30th June 1893. Assets. Lease of Mines, Plant, Machinery, &c. (as per last account) £150,000 o o Extensions to date 20,000 o 170,000 o o Less Depreciation 12,000 o Stock on hand Consols (at cost) Trade Debtors Cash at Bank and in hand s d 158,000 o o 10,000 o o 20,000 O O 30,000 o o 32,000 o o £250,000 o o 248 BOOKKEEPING. Recast, upon the Double-Account System, this Balance Dr. DOUBLE- THE A. B. COLLIERY Capital Account for the year Expenditure u a a 1 Total to 30th June 1893 To Lands acquired „ Sinking Shafts and opening up Pits „ Plant and Machinery above sur- face „ Wagons „ Office Buildings „ Workmen's Cottages ^ s d £ s d 5,000 o 100,000 o o j 12,500 _ 25,000 4,500 10,000 1 2,500 2,500 00 7,500 00 500 £ s d 5,000 112,500 29,500 12,500 2,500 8,oco „ Balance of Capital Account 150,000 20,000 170,000 30,000 £200,000 General Balance Sheet, Liabilities. Capital Account— Balance to Credit g Reserve Fund £ 30,000 20,000 12,000 10,000 20,000 s d Depreciation Fund Trade Creditors : — Bills Payable /■c 000 Open Accounts . . j> Profit and Loss Account ' £92,000 FORMS OF ACCOUNTS AND ACCOUNT BOOKS. 249 Sheet appears as follows :- ACCOUNT SYSTEM. COMPANY, LIMITED, ended 30th June 1893. Cr. By A. Shares „ B. Shares „ Debentures i Certified Rp^pSvpH Total Receipts to June 30 1893 r s d ! £ s d 50,000 1 50,000 1 50,000 50,000 £ s d 50,000 100,000 50,000 150,000 50,000 200,000 £200,000 ; 30th June 1893. Stock on Hand Consols j Trade Debtors Cash at Bank and in Hand £ s d 10,000 o o 20,000 6 o 30,000 o o 32,000 o o £■92,000 o 250 BOOKKEEPING. The above example has been purposely kept as simple as possible ; but it will suffice to explain the essential difference between the two systems. The essential features of the Double-Account System are : — (1) Keceipts are divided into two classes — Capital and Eevenue ; all amounts received from shareholders and debenture-holders are regarded as " capital receipts," and are credited to Capital Account. (2) Expenditure is divided into two classes— Capital and Eevenue ; all amounts expended in constructing, extending, or acquiring the undertaking from which the revenue is earned are regarded as " capital expenditure," and are debited to Capital Account. Expenditure upon repairs, renewals, &c., and all other current expenses, are regarded as " revenue expenditure," and debited to Eevenue Account. (3) No deduction is ever made from the amount to debit of Capital Account ; but, if necessary, a " Depreciation Fund " is raised by debiting Eevenue and crediting " Depreciation Fund Account " — the latter appearing as a liability in the General Balance Sheet. It is a very usual thing to hold special investments for the amount of the Depreciation Fund. It is perhaps desirable to add that, in the foregoing example, it is supposed that the £12,000 written off for depreciation on the 30th June 1893 is the first amount so FORMS OF ACCOUNTS AND ACCOUNT BOOKS. 251 written-off. In all cases under the Double-Account System the total to the debit of Capital Account will be the total amount of capital expenditure since the commencement, and the amount to the credit of Depreciation Fund Account will similarly be the total amount of depreciation written off since the start. The Double-Account System is compulsory in the case of such Kail way Companies and Tramway Companies as are governed by the Regulation of Railways Act, 1868 ; and also in the case of all gas companies incorporated by special Act of Parliament adopting the Gas Works Clauses Act, 1871. It is especially applicable to all such companies as invest the greater part of their capital in what may be styled '' permanent assets" — i.e., land, buildings, machinery, &c., which are held as a means of earning income, and not for purposes of re-sale. The Double-Account System thus appears to be the best system to adopt for Railway Companies, Tramway Companies, Canal Companies, Shipping Companies, Gas Companies, Water Companies, Electric Light and Power Companies, 252 BOOKKEEPING. Telegraph Companies, Telephone Companies, Property Companies (^.e., companies holding lands or buildings for letting purposes, but not for sale), Mining Companies, and Quarrying Companies ; it is, however, less suitable for Investment Trust Companies, as these companies do not, as a rule, hold their investments permanently. It is now proposed to give a few forms of ruling for special books that will be found convenient under certain conditions. LEDGERS. Form of ruling for the Depositors' Ledger of a Building Society, or in any similar case where it is desirable to readily perceive the balance from day to day. Dr. Cr. Deposits withdrawn Interest withdrawn Date Fo. Deposits paid in St Intered credite £ s d 50 o £ s d •• 1893 January i March 3 June 30 £ s d 100 £ s d 100 It will be seen that, in this form of Ledger, each transaction occupies an entire line — the transactions, whether to credit or to debit, being in strictly chronological order. FORMS OF ACCOUNTS AND ACCOUNT BOOKS. 25a o o o OS CD <0 'O 0) • CO 1 p 1 • ^ CO 03 d) W (-* h^ Q ;-. v:] S " OuQ 00 • u M C c« c« OS 254 BOOKKEEPING. G S o O en O X5 *3 w O Q Q H <: -1 < o S>|JEUI9^ sjTBaaav sj9iJBn5 aaqmaoga puB 'aaqma^das 'aunf srji joj suuinpo aBjiuiis =2 ! ^ 1 tc •£ -5 c lU a: Ui < a- > j •1 "" ■ON 9 AissaaSojj M M FOEMS OF ACCOUNTS AND ACCOUNT BOOKS. 255 Where the number of accounts is considerable, and the number of transactions upon each account few, but regular, the Tabulated Ledger is very convenient on account of the ease with which it may be balanced. Water rates, municipal rates, telephone subscriptions, rent accounts, hotel accounts, etc., may be advantageously kept upon this system. The following forms of " Bill Ledgeks " will be found very convenient where the transactions in bills are very numerous : — 256 BOOKKEEPING. ;unoosia puB qsE3 JO ^unouiy •o} -a-o 1 1 P9AI303^ qsB3 aaqM 9}bct 1.1° 1 ina JO junouiy ^3 p9Monv ;unoosia V2 oipj -TS P9A1909H uioqM uiojj c 1 •09a •AON •JOO ^d9S •any j 1 Xinf 1 9unf i XBiV 1 ludy i qojBjAi •qaj ■UBf 1 1 i jo;d30ov J9MBJa P9AI909^ 9;Ba d I •09a 1 •AON 1 ■130 1 •;d9s 1 ■any , Xinf 1 1 9unf 1 1 /ivn 1 1 UJdy 1 ! qojBJM 1 i •qaj 1 •UBf 1 s U H (U 8 53 (/) o^ '-f? i •oj -Ta i 1 1 s o c 4= g ^.^ o (so H -*- o_ 0 o C 3 §8 1^ --^^^ ! •OJ aaSpaq cno^ .SiU9II3 M (S -2 3 W ^^ O'ScS O rt u „, pq rt iioog Xdo3 N m ssaad ui -OJ c< CO « en a •— > FORMS OF ACCOUNTS AND ACCOUNT BOOKS. 259 A word of explanation is advisable here : each client is debited in the Clients' Ledger with the amount of his account ; the total " Disbursements " is credited to " Disbursements Ledger Adjustment Account," and the total '' Charges " is credited to "Private Ledger Adjustment Account" — this completes the double entry of the Clients' Ledger. In the Disbursements Ledger the details of the "Disbursements" column are posted to the credit of the various clients' accounts, and the total of that column is debited to " CUents' Ledger Adjustment Account." The detailed amounts in the " Time Occupied" columns are credited to the various clients' accounts in the Time Ledger (closing these accounts), and the total time occupied is debited to the " Outstanding Charges " Account in the Time Ledger. The balance of this latter account thus always shows the amount of time spent upon matters for which no account has yet been rendered. CASH BOOKS. The following form of Cash Book does away with the necessity for either Bill Books or Bill Ledgers ; it is, however, deficient in detail, which doubtless accounts for its not being more generally used : — s 2 260 BOOKKEEPING. >iuBa J93paq cr. ;q8noa ^ aiqeyCBd junoosiQ t^- OHOJ (2 1 IIUBH -^ • 1 Si aaSpaq PPS ^ aiqBAi909H siiia (A. j junoosiQ 1 ■T3 OROil 1 3 O 1 a^EQ FOEMS OP ACCOUNTS AND ACCOUNT BOOKS. 261 A good form of Petty Cash Book will always be found of the greatest value ; the following specimen of ruling may prove use- ful in this connection — the analytical headings being, of course, varied to meet the circumstances of the particular case : — c/) 1 — •c 4J S > 3 'J2 "C 3 <| •vtJ SCtn G (U TJ ;r: (n — c (/) rt Oh u. '^. "-^ Hu: {/i ojS^ ^3 o -< §1 s •v tUD rt tft o ^J (/) TS .- j5 tn j^ V? ^ -^ -c "" ri rt-f= U) O^ a ^ (X ■s t3 3'2 Ort !/) SOh < ^ 11 OJ -^ ^ o o §^ > (/) u J3 3 1 1 .y 1 i-i ^ 2 'ca a 1 -a 3 S; o'3 Hi c o <;2 '^ •oj -e-o i) % a XVIII.— MISCELLANEOUS QUESTIONS OF ACCOUNT. In order to keep the various examples shown in this work sufficiently simple to be readily comprehended, it has been necessary to postpone the consideration of several questions relating to accounts that are too important to be altogether neglected. It is proposed to deal with these various matters in the present chapter. Bad Debts and Doubtful Debts. — Theoretically, the treatment of bad and doubtful debts presents no especial difficulty ; the situation is that the whole (or a portion) of the debit balance shown upon a Personal Account is irrecoverable ; to the extent that it is irrecoverable the balance represents a loss instead of an asset. To this extent, therefore, the balance is the balance of a Nominal Account, not of a Personal Account. All that has to be done is to alter our books in accordance with the ascertained facts. This is done by crediting the debtor's (Personal) Account, and debiting the " Bad Debts " (Nominal) Account, with the amount of the ascertained loss. MISCELLANEOUS QUESTIONS OF ACCOUNT. 263 The practical difficulty arises from the fact that it is always desirable to make provision for probable and possible losses, as well as those that are actually known. This involves the raising of a Suspense Account called " Provision for Bad Debts Account," which is credited with the estimated con- tingent loss, the Bad Debts Account being debited as before ; in the Balance Sheet, the credit balance of the Suspense Account is deducted from the amount of the book debts, instead of being separately stated on the liabilities' side. It is unnecessary to consider here the best mode of ascer- taining the proper provision to be made against loss by bad and doubtful debts, as that is a question of auditing rather than bookkeeping, and has been fully dealt with in the present author's work upon Auditing. Bills Discounted. — The best method of dealing with bills receivable discounted varies with the practice of the bankers or brokers with whom they are negotiated. The usual practice of bankers is to give credit for the face value of the bill, and to debit the customer's account with the amount of the discount ; on the other hand, some bankers deduct the discount from the face value of the bill and give credit for the net proceeds. Brokers likewise, when purchasing bills, deduct discount and pay net. In the lirst case, the full value of the bill will be entered on the debit side of the Cash Book in the bank column, and 264 BOOKKEEPING. posted to the credit of Bills Eeceivable Account, while the amount of the discount will appear on the credit side of the Cash Book (also in the bank column) and be posted thence to the Discount Account in the Ledger. In the last two cases the amount of cash actually received will appear in the bank column of the Cash Book on the debit side, and the amount of the discount allowed inserted in the Dr. discount column ; the figures in both columns are posted to the credit of Bills Receivable Account. When it is the practice to negotiate bills with creditors (i.e., to endorse them over to creditors in payments of amounts due), it will be found very convenient to use the form of Cash Book set forth on page 260 — the credit entries being written in red ink in the " Bills Payable " column. When this plan is not followed, the only possible way is to pass Journal entries, debiting ihe Personal Account of the indorsee and Discount Account, and crediting Bills Receivable Account. Bills Dishonoured. — When the dishonoured bill has been discounted this problem presents no difficulty ; a cheque is drawn for the amount of the bill and charges and paid over to the holder (the bill being received in exchange), and the whole amount is debited to the account of the person from MISCELLANEOUS QUESTIONS OF ACCOUNT. 265 whom the bill was originally received. Any further com- mission or interest that may be charged is debited to the customer through the Journal. If the bill has not been discounted, it is dealt with in the same way as a negotiated bill {vide ante). Debentures issued at a Discount. — As already stated on page 213, the Debenture Ledger deals only with the nominal value of debentures ; it therefore follows that the credit balance on the Debentures Account in the General Ledger is for the nominal, or face, value of the debentures likewise. Whatever is credited to Debentures isocount is also debited to Debenture-holders' Account ; if, therefore, the debenture- holders have paid less than the face value for their bonds, it naturally follows that this latter account shows a debit balance equal to the amount of discount allowed up to the issue. To correct this, raise a " Cost of Issue of Debentures Account," and debit it with the amount of the discount allowed, crediting Debenture-holders' Account with a like amount — so balancing the latter account. Commission paid to underwriters, &c. (if not ultra vires), may also be debited to this account. The total amount debited to this account must be written off out of Revenue during the currency of the debentures, and in the meantime the balance may be treated as an asset in successive 266 BOOKKEEPING. Balance Sheets, or it may be deducted from the amount appearing as a liability under the head of ''Debentures"; but; when the latter course is pursued, the nominal amount of the debentures should also be stated. Debentures issued at a. Premium. — In a like manner, if the debenture-holders have paid more than the nominal value for their bonds, the Debenture-holders' Account in the General Ledger will show a credit balance. The proper mode of deal- ing with this credit balance (which represents the premium received upon the issue) is to transfer it to the credit of Eeserve Fund. Debentures Redeemed. — In the Debenture Ledger open a " Debentures Redeemed Account," and transfer all redemp- tions from the holders' accounts to this account. It is con- venient to set aside a few pages of the Transfer Journal for this purpose, or,' if the redemptions are very numerous, a special "Redemptions Journal" may be preferred. In the financial books post the cash paid upon redemption to the debit of a '* Debentures Redeemed Account," and transfer the balance of this account periodically to the debit of Debentures Account, thereby gradually reducing the credit balance of the latter. If the debentures have been originally issued at a discount, it is necessary every time a portion of the issue is redeemed to write off a proportionate part of the Cost of Issue of MISCELLANEOUS QUESTIONS OF ACCOUNT. 267 Debentures Account. This is done by crediting the latter account and debiting Profit and Loss Account. Depkeciation. — Depreciation may be provided for in various ways, of which the more usual are — (1) As a fixed proportion of the original value of the property. ("Fixed Instalment" method.) (2) As a fixed percentage upon the diminishing value of the property. (" Eeducing Instalment" method.) (3) As a fixed proportion upon the original value, less interest at a fixed rate upon the diminishing value of the property. ("Annuity" method.) (4) By setting aside, and specially investing, a fixed pro- portion of the original value of the property. (" Sinking Fund " method.) If it be desired to reduce £200 to £100 in ten years, the annual instalments would be as follows : — Time ist Method 2n, ,, Description of.. .. 160 163 M ., Pro /o/7?ta Cash Book for . . 165 ,. „ ,, Journal for 166 216 218 „ Tabular, Form of .. .. ..229 254 Trade .. .. .. .. 227 229 Losses of Partners, how dealt with . . . . 270 Manufacturers' Accounts .. • . . . . 189 Method of closing the Ledger . . . . 30 140 ,, ,, ,, on the Continental System . . 66 ,, Trading Account .. .. 140 ,, dealing with accounts of consignees .. 154 „ ,, ,, consignors .. 123 136 ,, ,, allotments of shares 201 206 215 271 ,, ,, amalgamation of firms .. 108 t, ,. bad and doubtful debts .. 262 „ ., bills accepted .. ..100 102 ,, ,, ,, discounted.. .. 263 ., ,, ,, dishonoured .. 264 .1 ,, ,, received . . . . 95 98 ,, ,, debentures issued at a dis- count , , . . 265 „ „ debentures issued at a pre- mium . . . . 266 M I, discounts . . . . 102 142 I, ,, ' forfeitures of shares . . 202 269 2ai Method of dealing with issues of debentures 211 265 266 partners' drawings . . Ill partnership accounts . . 107 270 270 118 229 271 122 121 271 109 240 267 ,, purchases ,, reduction of capital of company ,, returns ,, sales , , shares issued at a premium stating goodwill in Balance Sheet Modes of providing for depreciation Nature of Double-Entry Necessity for Cost Accounts ,, Stores Accounts Nominal Accounts, Description of Object of Bookkeeping „ Trial Balance Opening entries for company Origin of Double-Entry Partners, Drawings of ,, Pro forma Accounts of Partnership Accounts, Form of ,, ,, how dealt with Definition of .. ,, losses, how dealt with Payment of dividends 7 37 196 194 15 23 1 27 215 7 111 108 152 270 108 152 107 270 88 270 242 282 Payment of wages 192 Personal Accounts defined .. 15 , Description of .. 21 23 Petty Cash Book, Form of . , 261 Practice of English and Continental Bookkeepers.. 2 Premium upon debentures, how dealt with 266 >> shares, how dealt with 271 Preparation of Balance Sheet .. 36 67 >> Revenue Account .. 30 67 Primitive Ledger, Form of . . 5 Profit and Loss Account explained 12 Pro forma Account Sales 156 Accounts of Partners 108 152 270 ,, Rendered Book . . 258 Adjustment Accounts .. 168 169 Analysis of Stores Issued . . 195 Wages 193 Applications and Allotments Book .. 205 212 Balance Sheet . . 37 108 109 110 241 246 248 „ of a company 240 246 248 „ trader 129 144 151 158 167 ,, upon Double - Account System 248 Bill Book .. 97 101 „ Ledger 256 Cash Book for traders 94 105 134 Closing Balance Account . . 67 68 Company's Cash Book 21 „ General Ledger .. 22 283 Pro fwma Consignees' Accounts . . . . 158 ,, Consignors' Accounts .. .. 150 ,, Contractor's Balance Sheet.. .. 240 „ Profit and Loss Account . . 240 ,, ,, Trading Account .. 240 Cost Ledger .. .. .. 198 234 ,, Invoice .. .. .. 118 Journal 48 57 67 136 166 215 218 238 257 ,, ,, for opening Ledger of a company 215 ,, Self-balancing Ledger 166 216 218 Ledger .. 39 50 144 221 252 253 ,, ,, of a trader .. .. 144 Opening Balance Account . . 57 60 Partnership Accounts . 108 152 Pay Sheet . 192 Petty Cash Book.. . 261 Profit and Loss Account of a \, company. . 240 >> M trader 151 152 Purchases Book . . 119 229 Returns Book 135 Revenue Account . 35 Sales Book . 121 Share Ledger . 209 Summary of Cost Ledger . . 234 Tabular Cash Book .94 105 134 165 260 Journal.. . 257 ,, Ledger .. . 229 254 Trading Account . 116 145 146 240 >, M of a compa ay 240 284 INDEX. Pro forma Transfer Register , , Trial Balance Property Account, Description of Provision for bad and doubtful debts , , , , depreciation . . Purchases, Analysis of , , Book, Form of . . ,, how dealt with .. Real Accounts defined Reduction of company's capital Register of Transfers, Pro forma Relative advantages of English and Continental methods Reserve Fund, how created. . Returns Book, Form of ,, how dealt with Revenue Account explained . . ,, ,, Form of .. „ ,, Preparation of expenditure Sales, Analysis of ,, Book, Form of ,, how dealt with Self -balancing Ledgers, Advantages of.. „ ,, Description of.. ,, „ Form of Cash Book for „ „ „ Journal for 210 27 34 54 64 139 18 262 267 120 122 230 .. 119 229 .. 118 229 15 .. 202 271 209 inental 68 243 135 19.9. 12 35 . . 30 67 250 .. 121 122 121 121 161 . . 160 163 Eor . . 165 166 216 218 285 Share Ledger, Pro forma . . . . . . 209 Shares in company, Allotment of . . 201 206 215 271 „ „ Forfeiture of .. ..202 269 Single- Account System explained . . . . 245 „ ,, Pro /orma Balance Sheet . . 246 Stock Account {vide " Trading Account.") Stores Accounts . . . . . . . . 194 ,, Ledger, Necessity for . . . . 196 Suspense Account, Description of . . . . 142 Tabular Cash Book, Pro /orwa ..94 105 134 165 260 ,, Journal ,, .. .. 257 „ Ledger ,, .. ..229 254 ,, Petty Cash Book, Pro /orma .. .. 261 Trade Ledgers . . . . . . .. 227 229 Traders' Accounts . . 90 129 144 151 153 167 raders, Form of Gash Book for . . 94 105 134 Trading Account, Description of . . . . 113 140 Form of .. .. 116 145 146 240 „ ,, Method of closing .. .. 140 Transfer Register, Pro forma . . . . 210 Trial Balance, Description of . . . . 27 63 Form of .. .. 27 34 54 64 139 „ Object of . . . . . . 27 Wages Accounts . . , . . . . . 191 14 DAY USE RETURN TO DESK FROM WHICH BORROWED LOAN PEPT. This book is due on the last date stamped below, or on the date to which renewed. Renewed books are subject to immediate recall. 27Nov'64PG rf^' '^ ' '^ j'AN' l.r S'S I pft ^ LD 21A-40m-ll,'63 (E1602slO)476B General Library University of California Berkeley yC 25258