>• > N- ^^^•^4^-" J^■ '^'* J? v^' ^f^ > ^=^".^- ^ MODERN ACCOUNTANT REVISED J. A. LYONS AND WALTER L. READ J. A. LYONS & COMPANY CHICAGO NEW YORK ' ^' Copyrighted, 1911, by J. A. LYONS & COMPANY EDUCATlOiMi oeir*» PREFACE TO THE REVISED EDITION This edition is a complete revision of the old Modern Accountant. It is not a revision in the common acceptation of the word, for the text has been entirely rewritten. The material used for the transactions is entirely new and has been brought up to date. But the method of presentation and the general plan of development, which users of the old edition have found so effective, have been retained. Account study and journaHzing are developed together from the start. Journalizing is made clear by an understanding of accounts, and the inter-relation of accounts is more readily appreciated when journalizing is understood. The point of attack is the account, but the early introduction of the journal brings the student quickly to the trial balance. The sales book and cash book are introduced simultaneously, at an early stage. The natural result of this plan of presentation is to greatly shorten the preliminary period during which it will be conceded that the student gets no comprehensive view of book- keeping. The purchase book and the six-column cash book are introduced simultaneously, at a later stage. Bookkeeping is a problem that is subdivided into many smaller problems. These problems are stated in the form of accounts. The facts from which the problems are formulated are the transactions of business. The problems of bookkeeping are simple in themselves. Arithmetically they present no difficulties to the student of ordinary intelligence. If bookkeeping heretofore has been considered mysterious and difficult, it has been because the student has not been taught to see the simple underlying problem in each account, but has been confused by the form, and by the necessity for learning rules which he cannot understand. The method of presentation in Modern Accountant is inductive. Each account is first presented as a simple problem, no technical language being used and no rule being given. The solution of this problem is easy and the student discovers the rule for him- self, the text carefully guiding him toward a correct solution. The problem itself being understood by the student, he has no difficulty in learning the rule, which is then stated in a formal way. Some of the forms and minor bookkeeping details have been changed slightly, in the revised edition, to conform to changing usage. Unnecessary ruling between entries in the journal and sales book is omitted, as well as unnecessary closing of personal accounts in the ledger. Trial balances are taken by differences. Provision is made for the use of the two-page statement forms instead of the one-page forms, if desired. Closing the ledger through journal entries, though not advised, is illustrated, and this method of closing can be used, if desired, in the last set. The work of Modern Accountant is elementary. It brings the student up to the point where he is ready for Wholesale Accounting, the second part of the Lyons Accounting Series. It is believed that it lays a thorough foundation for this and the more advanced texts which follow in the series. 3 54IH41 PRELIMINARY PROBLEMS To THE Student: Bookkeeping is not a difficult and mysterious subject. It consists of simple arithmetical problems that any person of average intelligence and a common school education can solve without any knowledge of bookkeeping forms. It teaches you how to record the facts from which those problems are constructed in proper form and how to record the results in proper form. In short, it requires of you nothing that you do not already know except that records shall be made in certain customary forms, and those forms are taught as your work progresses. To show you that bookkeeping is very simple mathematically, we give herewith fourteen problems which present all there is to the mathematical side of Chapters I and II. Problem 1. During January, A took in $873.50 in cash. During the same month he paid out $542.65 in cash. How much cash had he left? PnoBLEM 2. B's cash receipts for February were as follows: .$42.56, $53.75, $61.38, $82.43, $194.79. He paid out in cash during February: $23.62, $35.00, $10.50. How much cash had he left? Problem 3. C received $100.00 in cash on Mar. 1; On Mar. 2 he paid out $10.60 in cash; on Mar. 4 he received ca-sh, $22.89; on Mar. 7 he paid out cash, $5.75; on Mar. 8 he paid out cash $4.00; on Mar. 15 he received $27.50 in cash; on Mar. 16 he received $10.00 in cash; on Mar. 20 he paid out cash, $8.76. How much cash had he left? Problem 4. D bought a house for $4000.00 and sold it for $4650.00. Did he gain or lose, and how much? Problem 5. During April, E purchased goods as follows: $150.00, $262..50, $137.85. His sales for April were $60.00, ,$95.00, $123.46, $27.85, $75.60, $28.95, $82.93, $95.67, $60.24. He had no goods remaining after the last sale. Did he gain or lose in his dealings in the goods, and how much? Problem 6. F bought goods during May amounting to S7500.00. His sales for May amounted to $3000.00 and on May 31 he had goods wortli $5600.00 remaining on hand. Did he gain or lose in his dealings in goods during May, and how much? Problem 7. On June 1, Mr. G had goods worth $2000.00. During June he bought goods costing him $1,500.00. His sales for June were $1800.00 and on June 30 he had goods remaining on hand worth $2100.00. Did he gain or lose in liis dealings in the goods during June, and how much? Problem 8. Mr. H, starting with $1000.00 in cash on July 1, bought goods for cash on July 2 cost- ing him $250.00. On July 3 he sold goods for $100.00, receiving cash in exchange. On July 6, he bought goods for cash, .$425.00. On July 8, he sold goods for cash, $1.50.00. On July 10, he sold goods for cash, $223.60. On July 31, he .sold all goods remaining on hand for cash, $351.40. What was his profit on goods for July? How much cash did he have on hand July 31? Problem 9. On Aug. 2, J bought from me on credit goods worth $100.00. On Aug. 3 he paid me $12.50. On Aug. 6 he bought from me on credit goods worth $56.00. Later he made me the follow- ing payments: $26.70, $35.00, $5.00. How much did he .still owe me? Problem 10. Your emplover bought goods from H & Co. amounting to $150.00 on Sept. 5. On Sept. 15 he paid H & Co. $100.00. Later he bought from H & Co. bills of goods as follows: $225.00, $260.00, $123.40, and made the following payments: $200.00, $300.00, $50.00, $25.00. How much did your employer still owe H & Co.? Problem 11. On Oct. 4, I received K's note for $100.00. On Oct. 6, I received L's note for $57.50. On Oct. 24, K paid for his note and I gave it back to him. On Oct. 25, I received M's note for $125.00. On Oct. 26, L paid me $25.00 on his note. Now much was still due me on other persons' notes? Problem 12. N paid $2.67 for interest on Nov. 2. On Nov. 3, he received $3. .50 from R for interest. Other receipts for interest: $5.63, $2.34, $1.85. Other payments for mterest, $2.34, $3.78, $12.50. Did N lose or gain on interest, and how much? Problem 13. S invest<>d $5000.00 in business on Dec. 1. On the tenth of the month, he added $1000.00 to his investment. On Dec. 15, he withtlrew $25.00. Other withdrawals: $10.00, $5.00, $20.00. His gain for the month was $540.00, which he added to his investment. What was the business worth on Dec. 31? Problem 14. T paid $50.00 for January rent on Jan. 1. On Jan. 3 he paid $10.00 for postage stamps. Other expenses during January were: $12.60, $1..50, $2.75, $18.00, $5 00. On Jan. 20, he .sold to W $4.00 worth of postage stamps. AMiat was the total of T's expenses for January? How much did his expenses cost him, allowing for returns from the sale of stamps on Jan. 20? The student may be assured that he will i?ncounter nothing more difficult in principle than the fore- going fourteen problems, throughout the first two chapters. Problems will be longer, but will not be difficult of comprehension. Do not look for something hard. As you have seen, the mathematical side of bookkeeping is easy. All you must do is to learn the proper forms, and the work will not be difficult for you at any point unless you' allow the forms to confuse you and thus lose sight of the simple problem presented by each account. 4 MODERN ACCOUNTANT REVISED CHAPTER I ACCOUNTS Lesson I. The Cash Account Cash, as the word is used in bookkeeping, is money or tlie equivalent of money. In its narrow sense, cash includes only currency and coin, but in practice checks and other orders for money payable instantly upon demand at banks, postofEces, and express offices are treated as cash Suppose that I have received and paid out cash as shown in the Illustrative Exercise below. As each receipt and payment has occurred, I have made a record of it, as shown in the Illustration. Trace each receipt and each payment from the Illustrative Exercise to the Illustration. 7. Paid out cash, $142.30 10. Received cash, $ 76.20 11. Paid out cash, $ 26.10 16. Paid out cash, $ 65.00 ILLUSTRATIVE EXERCISE 191— Sept. 1. Received cash. $160.00 Sep1 2. Paid out cash, « 80.45 4. Paid out cash, $ 25.43 5. Received cash, $ 40.60 6. Received cash, 1128.30 ILLUSTRATION .5^.. L^^-zzA-^t^ jsi^. /Co ^0 /z rj fo < , , , ,,, _ 7, , In order to fix the form of the account in your mind, write the heading Cash at the top of a loose sheet of paper ruled like the model (ledger paper) and make the entries required for the illustrative exercise. Note carefully across what columns in the illustra- tion the single horizontal line (the line of addition) is ruled; make the same observations regarding the double line (used for balancing). Be sure to get the year dates in the right places. Be sure that the single vertical red ruling in each money column divides dollars from cents. Order of Closing an Account -with a Balance 1. Add each column. For convenience you may write the totals in the columns, making small, neat lead pencil figures. 2. Find the difference and enter it on the smaller side in red ink, dating the entry properly and writing the word "Balance" in the wide column. Place a check mark in the narrow column between the wide column and the money column. 3. Rule a single line across the debit and credit money columns and add each column. The totals must agree and must be on the same line. 4. Rule a double line across all but the two wide colunms, on the first line below the footings. 6. Bring down the balance in black ink on the side opposite that on which it appears in red. Summary of the Cash Account Cash is money or its equivalent. An account* headed Cash is kept by the bookkeeper. Entries. All receipts and payments of cash are entered in the cash account. ■ Rule. Debit the cash account when cash is received. Credit the cash account when cash is paid out. Result. The difference between the total of the debit side and the total of the credit side at any time, is the amount of cash which should be on hand at that time. This is called the balance. Note. The cash account is one of several different kinds of account. The same ruled form is used for all, and all are ruled in the same way at the time of closing. The forms shown are known as "skeleton" or incomplete forms. Later you will learn the use of the columns which are not filled out in the skeleton forms. All accounts are kept in the ledger, or book of accounts. Prepare Exercise 1 on a sheet of ledger ruled paper, or on the back of the sheet on which you copied the illustration of the cash account, and submit it to your teacher for approval. When Exercise 1 has been approved, prepare Exercise 2 on the same page, leaving six blank lines between the two exercises. Write the heading Cash again, and one line below it rule a double line across the page, so that it will look like the heading of a new page. See the illustration on page 9 of an account opened below the top of the page. After Exercise 2 has been approved, copy the page containing the two exercises on page 1 of your ledger (Blanks No. I, Book B). In preparing these exercises, enter cash on hand at the beginning on the debit side. The following transactions contain the facts from which a cash account is to be con- structed. Open an account headed Cash, and make the entries required. Then close the account as shown in the illustration on page 6. *The student will have a better understanding of accounts if he will think of each account as a simple problem in arithmetic, in which certain facts are given from which he must determine certain results. The problem of cash, simply stated, is this: If I receive stated sums of money, and pay out stated sums of money, how much money have I remaining? In order to keep a record of the facts and at the same time have them arranged in convenient form for easy solution, they are entered in accounts. ACCOUNTS EXERCISE 1 191— Jan. 1. I had cash on hand, $500.00. 3. I paid cash for insurance, $57.50. 3. I paid cash for taxes, $101.76. 5. I received cash for a horse which I sold, $175.00. 6. I paid a cash fee to a notary, $1.25. 7. I paid for merchandise in cash, $84.63. 8. I paid Smith & Co.'s bill in cash, $31.71. 9. I received cash from Brown & Co., which they owed me, $42.75. t- id I paid freight charges on merchandise in cash, $12.67. 13. I paid cash for harness, $43.25. 14. I received cash due me for interest, $17.16. 15. I paid C. E. Burton $15.00 in cash, a part of what I owed him. 17. I paid workmen in cash for painting my store, $65.00. 19. I donated cash to a charitable association, $25.00. 20. I paid the clerk's wages for one week in cash, $12.50. 21. I received cash for merchandise sold, $73.56. 21. Close the account with a balance Jan. 21, bringing the balance down as of Jan. 22 (That is, date the balance brought down Jan. 22, as it indicates the amount on hand on the morning of that day). EXEBCISE 2 191 — Feb. 1. Cash on hand, $103.09. 1. I paid my store rent for February in cash, '$50.00. 2. I sold merchandise for cash, $35.25. 4. I paid the clerk's wages for one week in cash, $12.50. 6. I received F. R. Wheeler's check for an amount due me, $27.60. 7. H. W. Roberts gave me his check for what he owed me, $24.50. 8. I paid for merchandise by check, $32.50. 10. My cash sales of merchandise today amounted to $18.65. 11. I paid the clerk's salary in cash, $12.50. 11. I paid the scrubwoman $1.75. 14. I sold Geo. N. Patten goods worth $21.65 and received cash from him in payment. 15. On opening my mail, I found a postal money order for $15.00 sent by E. N. Harris in payment of my bill against him. 16. I mailed to the First National Bank my check for $6.00, due for interest on money borrowed. 17. I bought merchandise for cash, $23.78. 18. I paid the clerk's salary as before. 19. I received a check for $40.00 from Harry N. Lawton, who owed me $75.00. 20. I paid for postage stamps in cash, $5.00. 21. I paid the drayman $2.30 in cash. THE MERCHANDISE ACCOUNT .-9; Lesson II THE MERCHANDISE ACCOUNT Merchandise is the goods or wares bought and sold for profit in any certain hne of business. In the grocery business, groceries are merchandise. At the butcher sliop, meats arc merchandise. ■ The coal man deals in coal as his merchandise. The clothier considers suits and overcoats merchandise. A man owning a hardware store might buy groceries, meats, coal, and clothes throughout the year, yet these things would not be merchandise to him. Why? One of the problems of bookkeeping is to determine the amount of profit or loss in handling merchandise. To determine this, I must first know what the merchandise sold has cost me and what I have sold it for. I keep a record of these matters under the head Merchandise in the ledger, entering costs (amounts of purchases) on one side of the account, and entering returns (amounts of sales) on the other. Trace the following transactions from the Illustrative Exercise to the entries in the Illustration. In tracing these transactions, j'ou are to consider nothing but merchandise. Ask yourself in each case what ]\Idse. was bought or what Mdse. was sold. (Jlerchandise is abbreviated "Mdse." It is not customary to abbreviate it as a heading of an account.) ILLUSTRATIVE EXERCISE 191— Sept. 1. I bought Mdse., $720.00 2. I bought Mdse., 420.00 3. 1 bought Mdse., 560.00 5. I sold Mdse., 480.00 6. I sold Mdse., 520.00 There were no other transactions durin or gain on Mdse. for September. Sept. 8. I sold Mdse., $140.00 9. I bought Mdse., .300.00 10. I sold Mdse., 750.00 15. I sold all Mdse. then on hand for 640.00 ; September. Find the amount of my loss ILLUSTRATION y^^'A-'C^i^ '^-T-z^.Cc.-L^y "Z.. ->S^z:z.^-'7^^- 24^ yso '10";; ; ,*, *''- ACCOUNTS A bookkeeper sometimes has to write more than one heading on a ledger page. The illustration shows how an account will appear which is opened below the top of the page. Explanation. The foregoing is an illustration of a merchandise account as it appears when all goods have been sold. The small figures at the bottom of each column of black ink entries represent lead pencil footings. Study the form carefully and answer the following questions: QUESTIONS Entries of what kind are on the debit side? Entries of what kind are on the credit side? What was the selling price of all goods sold during September? What was the cost of all goods sold during September? What was the gain, and how was it found? Why? What result would have been shown had the debit side been the greater? What was the percent of profit; that is, at what percent above cost did the goods sell? In order to fix the form of the account in your mind, prepare it on a loose sheet of ledger ruled paper. Do not copy from the model, but cover the model and do your work independently. When this has been done, compare your work with the model as to every detail. Is the result correct and placed in the right place? Is your exercise ruled exactly like the model? Is there a year date at the top of each date column? Are dollars and cents separated by the single vertical red ruling in each money column? Summary of the Merchandise Account Merchandise is the goods or wares bought and sold for profit in any given business. A merchandise account* is usually kept in the ledger of a trading business. Entries. All amounts of Mdse. bought and all amounts of Mdse. sold are entered in the merchandise account. Rule. Debit the merchandise account when Mdse. is bought (that is, when Mdse. is received or costs value) ; credit the merchandise account when Mdse. is sold (that is, when Mdse. is disposed of or produces returns). Result. When all Mdse. is sold, the difference between the debit and credit totals shows a gain, if the credit side be larger; or a loss, if the debit side be larger. Prepare Exercise 3 on a loose sheet of ledger paper or on the back of the sheet you used for the illustration. Remember that you are considering only the purchases and sales of Mdse. Ask yourself in each case whether Mdse. is being bought or sold. EXERCISE 3 191 — March 1. I bought Mdse. for cash, $1170.60. 2. I paid $45.37 in cash for Mdse. 2. I purchased Mdse. valued at $12.75. 5. I sold Mdse. for cash, $274.25. *Remember that the Mdse. account is nothing but a problem in arithmetic. Simply stated, the problem is: I made certain purchases of Mdse. and certain sales. When all had been sold, what was my profit or loss? THE MERCHANDISE INVENTORY 11 March 6. I sold Mdse. to W. J. Burnham on credit, $157.20. 7. I paid $46.50 for Mdse. by check. 9. I bought Mdse. for cash, $215.46. 10. F. H. Waddell gave me his note for Mdse., $645.00. 15. I sold all Mdse. then on hand for cash, $625.00. No other transactions took place during March. Find the amount of gain or loss for March. THE MERCHANDISE INVENTORY In the foregoing illustration and exercise it was assumed in each case that there was no Mdse. on hand when the account was opened and that all was sold before closing the account. This is seldom the condition. There is usually some Mdse. on hand at the beginning of the period which the account covers and some Mdse. on hand at the close of that period. The Mdse. on hand at any time is called the Inventory. Trace the following transactions from the Illustrative Exercise to the Illustration. ILLUSTRATIVE EXERCISE 191— Oct. 1. Mdse. inventory on hand, $1275.00. 2. I bought Mdse. of J. V. Farwell & Co. on credit, $1324.50. 3. I sold Mdse. to Harry N. Kirby on account, $524.75. 3. I sold Mdse. to Fred H. Pollard for cash, $196.50. 5. B. F. Dyer bought Mdse., giving me his note for it, $243.60. 6. D. H. Lloyde gave me his cheek for Mdse., $245.00. 15. I paid cash for Mdse., $126.50. 16. I sold Mdse. to H. B. Boyles on credit, $405.00. No further sales were made during the month. On Oct. 31 worth $1200.00. What was the gain or loss for October? ILLUSTRATION oods were on hand ^^^^^^-^ ''>^ /vjl"'^^ 6U ^ '-^/■^/ ^ ' 2-6?0 ^(L. v^ / t/42-'*'Tf<»2.^^-7^ Explanation. an inventory. The above is an illustration of u merchandise account closed with 12 _ ACCOUNTS QTTESTIONS What was the inventory of goods on hand Oct. 1? What was the total of goods purchased during October? What was the inventory of goods on hand October 31? Where and how was it entered? What was the cost of the goods sold during October? What was the total of sales during October? What was the gain on Mdse. for October? What was the per cent of gain, based upon the cost of goods sold? Could the amount of gain have been ascertained if the inventory had not been known? Note. The inventory on hand Oct. 1 was not a part of the purchases for the month, nor was the inventory of Oct. 31 a part of the sales for the month. Yet these must be known before the Mdse. gain can be found. The in\'entory on hand at the first of the month must be added to the purchases, and from the sum the inventory on hand at the last of the month must be deducted, in order to arrive at the true cost of the goods sold. The former is added to the purchases by being placed in the debit column, but as there is no way to show subtraction in bookkeeping, the latter is entered on the opposite or credit side, and this has the same effect as a deduction from the debit side. It is entered in red ink because it is not a sale, though appearing in the sales colunm. In bookkeeping, add the Mdse. inventory at the time of clo.sing to the credit side; the difference between the total so secured and the debit total will be a gain or a loss and is entered on the smaller side in red ink. When will it be a gain? When a loss? The account is then ruled and footed. The inventory is brought down into the debit side, to be added to the cost of Mdse. for the next month. Note. Sometimes it is said that the bookkeeper is to imagine that all goods on hand are sold at inventory price at the end of the month and at once bought back. For several good reasons which you cannot at this time appreciate, this line of reasoning is false. However, you may treat it just as you would treat a sale and subsequent repurchase, so far as making the entries is concerned, and this will make the entries easy to remember. Summary of the Merchandise Inventory The gain (or loss) on Mdse. cannot be determined unless it be known how much unsold stock is on hand. The unsold stock is counted and a valuation (cost price or less) placed upon it. The list of quantities, kinds, and values of stock on hand is known as the inventory. The total of the inventory on hand at the beginning of a certain period must be added to the purchases for that period and the inventory at the end of the period deducted in order to find the cost of the goods sold. This deduction is accomplished by a red ink entry on the opposite or credit side. Prepare Exercise 4 at the bottom of the same sheet on which you wrote Exercise 3, leaving at least six blank lines between the two accounts. Remember that you are considering nothing but purchases and sales of Mdse. When both exercises have been approved by your teacher, copy them or write them without copying (as your teacher shall direct) on page 2 of your ledger (Blanks 1, Book B). EXEBCISE 4 191— Apr. 1. I bought Mdse. amounting to $1475.50. 2. I purchased of C. B. Hawkins Mdse. invoicing at $.585.75. 4. I sold to Jas. B. King, for cash, Mdse. invoicing at .$45.60. THE MERCHANDISE INVENTORY 13 Apr. 7. H. M. Adams bought on credit a bill of goods worth $20.50. 9. Sold to G. J. Kingsbury, on his note, Mdse. worth $75.62. 10. Bought Mdse. billetl at $105.10, giving my check in payment. 14. Sold Mdse. to H. M. Adams on account, $241.26. The stock of goods on hand April 15 was inventoried at $1996.75 (cost price). Before closing the account answer the following questions: aUESTIONS What was the cost of goods purchased? What was the value of goods remaining on hand? What was the cost of the goods sold? What was the total of sales? Was there a gain or loss, and how much? What was the percentage of profit or loss, based upon the cost of the goods sold? Close the account as of April 15, proceeding as follows: Order of Closing Accounts having Inventories 1. Foot the two sides, making a neat lead pencil footing close beneath the last item in each column. 2. Enter the inventory in red ink. (When it is an inventory of value belonging to the business, as in the foregoing instance, it is entered on the right-hand side.) 3. The difference between the two sides as they now stand is a loss or a gain. Enter it upon the smaller side in red ink with a proper explanation. 4. Rule the single lines of addition opposite each other on the same blue line and foot the two columns. The footings should be equal and just opposite each other. 5. Rule the double line of balancing, across all but the two viride column.s. 6. Bring the inventory down in black ink upon the side opposite that on which it appears in red. Continue the transactions of Exercise 4 — Continued, on the same account, leaving no blank lines on either side below the rulings. EXERCISE 4— Continued 191 — Apr. 17. Bought Mdse. for cash, $265.35. 20. Sold Mdse. to B. C. Ordway for cash, $36.79. 21. B. F. Andrews bought Mdse. from me on credit, .140.00. 22. D. B. Renway & Co. sold me Mdse. on credit, $75.60. 24. Geo. H. Gibbs gave me his note for Mdse., $65.63. 25. Paid for Mdse. in cash, $103.26. 26. Sold B. F. Andrews on credit Mdse. invoicing at .S87.50. On Apr. 30 the Mdse. inventory (taken at cost) amounted to $2257.28. Answer the following questions before attempting to close the account: aUESTIONS What was the cost value of goods on hand Apr. 15? What was the total of goods purchased between Apr. 15 and Apr. 30? What was the cost value of goods on hand Apr 30? What was the cost value of goods sold between Apr. 15 and .Apr. 30? ■\Miat was the total of sales between Apr. 15 and Apr. 30? Wliat was the amount of gain? What was the per cent of gain? Under what circumstances would a loss have been shown? Close the account. 14 ACCOUNTS Lesson III ACCOUNTS WITH CASH AND MERCHANDISE The one series of transactions following involves two separate accounts, one with cash and one with merchandise. Open an account headed Cash with a balance of $5000.00 on May 1, and open an account with Merchandise with an inventory of $7650.00 on Maj^ 1. Then enter the following transactions. Note that both accounts are affected in each transaction. When Mdse. is bought, cash is parted with. When Mdse. is sold or parted with cash is received. Make both the cash entry and the Mdse. entry for one day before proceeding to the next. Give each account a half page. KXESCISE 6 191— May 2. Bought Mdse. for cash, $256.25. 3. Sold Mdse. for cash, $54.60. 4. Received cash for Mdse., $45.75. 7. Paid cash for Mdse., $110.00. 8. Sold Mdse. for cash, $90.00. 9. Sold for cash Mdse. amounting to $3.3.63. 10. H. C. Updike gave me h's check for Mdse., $25.00. 12. Bought Mdse. invoicing at $57.60, giving my cheek for it. 14. Sold Mdse. for cash, $110.65. Goods on hand May 15 were valued at $7884.25. Close both accounts properly. When they have been approved, copy them (or again work them, if your teacher shall so direct) on page 3 of your ledger (Blanks No. 1, Book B). Rule for Debiting and Crediting You have learned that two of the accounts a bookkeeper has to keep are the cash account and the merchandise account; that an account headed Cash and an account headed Merchandise are opened in the ledger; that transactions involving cash received and cash paid out (or disposed of) are entered in the cash account and transactions involv- ing Mdse. p.urchased (or received) and Mdse. sold (or disposed of) are entered in the Mdse. account. You have learned that the accounts are Similar in form; that each has two sides, a left and a right; that the left side is called the debit side, and that the right side is called the credit side. You have learned that when cash is received tl^e cash account is debited, and that when Mdse. is received the Mdse. account is ece^ed. This is true of all accounts — whenever anything is received, the account of that thing is debited. Similarly, it is always true that whenever anything is disposed of or parted with, the account of that thing is credited. Hence the following rule, which you are now asked to learn: Debit the account of that which is received; credit the account of that which is disposed of. ACCOUNTS WITH CASH AND MERCHANDISE 15 REVIEW QUESTIONS What is cash? How many sides has an account and wiiat are they called? 'VMiat is the cash account and how is it Ivept? What is meant by the "balance" of the cash account and how is it found? How is the cash account closed? What is Mdse.? Explain why what is Mdse. to one person may not be Mdse. to another. WTiat is the merchandise account and liow is it Icept? What is a Mdse. inventory? What is done with the inventory in clo.sing? WTiat result is shown by the merchandise account? Descrilie the closing of the mercliandise account. How can you find the cost of the goods sold during any certain period? How must the percent of profit be found? Can the merchandise account ever show any result but a gain? Explain fully, CHAPTER II JOURNALIZING Lesson IV - THE JOURNAL. THE REAL ESTATE ACCOUNT Examine the following transactions and see if you can tell what took place in each case. Then tletermine what it is that takes place whenever any transaction occurs. 191— Sept. 1. I bought Mdse. for cash. What thing was received or cost value? What thing did it cost? What thing was disposed of or produced returns? What thing did it produce? Sept. 2. I sold Mdse. for cash. What was received or cost value? Wliat did it cost? What was disposed of or produced returns? What did it produce? Sept. 3. I bought a store building (Real Estate) for cash. I What was received or cost value? What did it cost? What was disposed of or produced returns? What did it produce? ' Sept. 4. I exchanged the store building for a stock of Mdse. What was received or cost value? What did it cost? What was disposed of or produced returns? What did it produce? Being engaged in the furniture business, I recorded all the transactions of my busi- ness in the order in which they occurred, in such a way that the form of the entries would show what was received (or cost value) in each case, and what was disposed of (or pro- duced returns). Trace the following transactions from the Illustrative Exercise to the Illustration and see for yourself how this is done. ILLUSTRATIVE EXERCISE 191 — Sept. 1. I bought for cash 5 oak dining tables, at $20.50, $102.50. 2. I sold for cash 2 oak dining tables, at $.33.00, $66.00. 3. I bought for cash 36 Mission oak dining chairs, at $4.00, $144.00. 4. I bought a store building and lot for cash, $9500.00. 5. I sold for cash, 6 Mission oak dining chairs, at $6.75, $40.50. Explanation. The form shown is apart of the journal. This form of journal is some- times called the "explanatory journal" to distinguish it from the old-fashioned journal, which did not contain the explanatory matter. The old way was to write the histor" of the transactions, without journalizing them, in a "day book." This was done aS^t 16 THE JOURNAL 17 transactions occurred. Later each transaction was journalized, without explanation, in a separate book which might be called a non-explanatory or skeleton journal. The modern practice of combining both books in an explanatory journal is certainly more economical of time and space. ILLUSTRATION /,/f/- N^CB Of AOeOWHT to B8 DSBITZD VP^d^L^y. iKOUNT seb: rea VaU^y J tX^-d^i^CTTH^'-i f^A^. /i/^ f^iPO ^OUNT C £^ fJ'i^O ^0 ■■Q^|^^^-^<^-'^c^eui^n^^y7^■c^d<^^t-^7-?2yff-^^^l^^ QUESTIONS: (To assist you in studying the above form.) What is the meaning of the abbreviation above the left-hand money column? What is the meaning of the abbreviation above the right-hand money column? Where is the year date written? Where is the date of each transaction written? Where is the name of the thing received (or which cost value) written in each ease? On what line and in which column is the amount of the thing received (or which cost value) written in each case? Where is the name of the thing disposed of (or which produced a return) written in each case? On what line and in which column is the amount of the thing disposed of (or which produced a n) written in each case? Where is the explanation of what took place written in each case? 18 JOURNALIZING By inspecting tlie form shown, you will see that a journal entry consists of six parts, a.s follows: (1) The date. The date is written above each entry. At the top of each page the name of the month and the year date must appear, but the day of the month alone is sufficient above the other entries, except when a new month is begun. (2) The name of the account to be debited. (3) The amount of the debit item. (4) The name of the account to be credited. (5) The amount of the credit item. (6) A full and com- plete explanation of the transaction, from which no essential detail nor any fact that may be valuable for reference should be omitted. Each part must be exactly in its proper position as shown by the model form. For uniformity of appearance, the date should be sqoarely in the center of the blank lines. Note carefully the indentation of the name of the account to be credited, and the indenta- tion of the first line of the explanation. The amount of the debit item must be on the same line as the name of the account to be debited, and in the left-hand money column. The amount of the credit item must be on the same line as the name of the account to be credited, and in the right-hand money column. The explanation should always be worded as from the standpoint of the business; thus when money is received from Smith we would say "Rec'd from Smith" not "Smith paid," etc. THE REAL ESTATE ACCOUNT Among the things shown as received (or costing value) in the illustration of the journal, is real estate. You will naturally infer that it is desirable to keep records of real estate received (or which costs) and disposed of (or which produces returns), and that one of the problems of bookkeeping is to determine the gain or loss on real estate. An account is opened in the ledger under the head Real Estate, which is kept exactly Uke the Mdse. account. No special description or illustration of this account is necessary. Entries. Amounts of all purchases and sales of real estate are entered in the real estate account. Rule. Debit the real estate account when real estate is received (or costs value). Credit the real estate account when real estate is disposed of (or produces returns). Result. When all real estate is disposed of, the difference between the debit and credit totals is a gain if the credit side be the larger. If the debit side he larger, a loss is shown. Inventory. Real estate on hand at the time of closing the account* is always a credit inventory, as in the merchandise account, and is handled in exactly the same way. Closing. Close the account, for the present, precisely as you have learned to close the merchandise account. *Since the value of real estate is usually arrived at by deducting a certain per cent of its original value, for depreciation, it is sometimes contended that the inventory is the real result of the account, and that the loss or gain can be considered the result only when real estate is being traded in for profit. Two facts are certain, however: — (1) The real estate account does have an inventory, and (2) The real estate account does show a loss or gain (usually a loss, when it is an investment account and not a trading account). These two facts being true, some ground is furnished for either view of the case. It matters not, however, whether the inventory be considered the result, or the loss be considered the result, when the simple form above described is used, as the process of closing is the same in either case. It is easier for the student at this point to follow the line of reasoning suggested above in the text. THE REAL ESTATE ACCOUNT 19 Summary of Journalizing Business consists in the trading, or exchanging between the trading parties, of things having value. A business transaction consists of the equal exchange of things having value; one thing is received (or costs value), and some other thing is disposed of (or pro- duces returns). Separate accounts are kept in the ledger with things having value in which the busi- ness deals. Whenever any business transaction takes place, the account of the thing received (or which costs value) is debited, and the account of the thing disposed of (or which produces returns) is credited. These accounts in the ledger are not debited and credited directly, but a statement of the debits and credits arising in each transaction is made in the journal. You understand the cash, merchandise, and real estate accounts. One entry is made in the journal for each transaction, and the transactions are entered in the journal at the time of their occurrence and in the order of their occurrence. Each entry in the journal shows what account is to be debited and how much, and what account is to be credited and how much. The journal must use the exact titles of the accounts to be debited and credited. It follows that in order to journalize correctly the bookkeeper must know what accounts are kept in the ledger and the rules for debiting and crediting each. These facts being known, all that is necessary is to determine in each case what is being received (or what costs value) and what is being disposed of (or what produces returns) and to note this information in the journal in proper form. Journalize the following transactions taken from the furniture business. Your explanations should be full and complete. Be very careful in your writing. Make plain, neat, compact letters and be sure that your figures are clean-cut and easily read, and placed squarely in the column in which they should be. Be sure that dollars and cents in each column are separated by the single vertical red line. Avoid blots by being sure that your pen isn't too full of ink. Keep your hands clean and avoid soiling the page. Your writing should not be ornamental or shaded, but plain and business-like. EXEKCISE 6 191 — June 1. Bought from the Acme Furniture Co., for cash, 2 doz. elm kitchen chairs at $14.70, $29.40. Since this is the furniture business, chairs, tables, beds, and other furniture bought and sold for profit must be considered Mdse. Mdse. was received; it cost value (that is, it cost you the cash paid out for it). Cash was disposed of; it produced returns (that is, the cash parted ^vith produced in return the Mdse. received). June 2. Bought from the Balk will & Patch Furniture Co., for cash, 1 doz. cane seat oak dining chairs, $27.00; 7 oak dining chairs at $2.70 each, $18.90; total $45.90. June 3. Sold to W. G. Black for cash, 3 elm kitchen chairs, at $2.25, $6.75; 3 oak dining chairs, at $4.50, $13.50; total, $20.25. What was received, or cost value? What was disposed of, or produced returns? June 3. I sold to D. C. Gibbs, for cash, 6 cane seat oak dining chairs, at $3.50, $21.00. June 4. Bought from Yawman & Erbe for cash, for office use, one sectional filing case, four sections and base, $37.50. (See the note at the top of page 20.) 20 JOURNALIZING The thing received was not Mdse. Why? You will have to consider this furniture. The furniture & fixtures account is handled exactly like the merchandise account with which you are familiar. Assuming that you are keeping an account with furniture and fixtures, make the proper journal entry, using the abbreviation Furn. & Fix. in the journal entry. June 6. I bought from the Detroit Furniture Co., 15 weathered oak dining chairs, at $3.70 each, $55.50; 18 leather seat oak dining chairs, at $7 50 each, $135.00; total, $190.50. Paid them by check. June 7. I received a letter from F. J. Lane ordering 6 leather seat oak dining chairs, at $11.25 each, and inclosing a postal money order for $67.50 in payment. If you cannot get all of the entry for the following transaction in the space remaining on page 1, turn the page at once; do not divide the entry. Write the full date, June 9, 191 — , at the top of page 2. V June 9. I sold to W. F. Fuller for cash 4 cane seat oak dining chairs, at $3.50 each, $14.00; and 3 elm kitchen chairs, at $2.25 each, $6.75; total, $20.75. June 11. I bought from Jas. S. Spiegel & Sons 3 green fibre rush settees, at $16.00 each, $48.00; 2 kitchen cabinets, oak front, at $36.00, $72.00; total, $120.00. I paid them by check. June 13, I sold to F. J. Lane, for cash, 1 green filH-e rush settee, $24.75. June 14. I bought from the Tobey Furniture Co., for cash, 1 revolving stool, liirch, for office use, $7 50. This was not Mdse. Why? What was it? June 15. I bought a building and lot at 6914 Indiana Ave., the building l)eing for use as a storehouse, and paid for it by check, $4590.00. June 16. I sold to W. F. Fuller 1 kitchen cabinet, oak front, $47.50, and 1 green fibre rush settee, $24.75, receiving his check for $72.25 in payment. June 17. I bought from Ford & Johnson 12 all iron bedsteads, at $4.80 each, $57.60; 6 cotton mattresses, at $3.00 each, $18.00. Total, $75.60. Gave them my clieck in payment. June 22. F. J. Lane returned to me 1 green fibre rush settee for which lie had jniid me $24.75 in cash. I gave him his money back. June 23. I sold to W. G. Black for cash 1 white wood kitchen table, $10.75; 1 exten- sion dining table, oak, $37 50; 1 Mission ctiina closet, quartered oak, $56.50. Total, $104.75. June 24. John Smulski, a carpenter, built an addition to my storage building (Real Estate). He furnished all materials and labor, and submitted a bill for $150.00, which I settled by delivering to him furniture as follows: 1 brass trimmed bedstead, $15.00; 1 Turkish spring box mattress, $37.50; 1 extension dining table, oak, $47.50; 6 oak dining chairs, at $4..50, $27.00; 1 green fibre rush settee, $23.00 Had the above work been for repairs, it would not have been proper to debit Real Estate. June 24. I sold for cash 1 all iron bedstead, $6.75; 1 Royal cotton mattress, $4..50. ' Total, $11.25. June 26. I bought for office use, giving my check in payment, 1 oak desk, $36.00. June 28. I sold to F. J. Lane 1 quartered oak veneered dresser, $39.75. He delivered to me in payment a United States Express money order for $39.75 properly endorsed. When your work has been approved, copy it carefully in your journal (or rework it, as your teacher shall direct). The journal is Book A of Blanks No. 1. The exercise will require three pages of the journal. PROMISSORY NOTES 21 Lesson V PROMISSORY NOTES Below is shown a printed business form which has been filled out in writing. Read every wortl of it, both printed and written. Then answer the questions which follow: FORM OF A PROMISSORY NOTE 7- . ^.Aca^.J ^ , -^^^^ ^. yM- "7?^'^ ^^v ^^^^^ /7^'j/j^^^/^ yd/wiij^j^^tf/^ aUESTIONS Who promises to pay? When did he make the promise, and where was he when he made it? To whom did he make the promise? How much did he promise to pay? When is the money due? How is this date determined? Where does the promisor agree to meet the promisee to pay it? May Davis give Stewart Mdse. worth $200.00 instead of the money? To whom is the above a note for money receivable? To whom is it a note for money payable? Explanation. The words "Value received" constitute an acknowledgment that vduc has been received for which the note was given. It is not necessary, in most States, that these words appear. Parties to a Note. There are two parties, originally, to a note, called the maker and the payee. The maker is the person who signs it and becomes responsible for its jjayment. He is the payer. The payee is the person to whom the note is payable. The date of maturity is the due date. This must be fixed definitely and usually is so fixed by its dating and words showing how many days or months after that date it is payable. Notes may be payable "on demand." The prineipal is the amount due as written in the note. The principal is sometimes referred to as the "face" of the note. The amount due is the principal plus the amount accrued for interest up to the date of pa^rment 22 JOURNALIZING A note may be transferred by the payee to some one else. This transfer must be evidenced by endorsement. The person owning the paper at any time is called the holder. An endorsement is the signature of some person other than the maker, made either for the purpose of guaranteeing the note or transferring it, usually both. The endorse- ment is usually written across the back of the left end of the note and when it is so written it means that the person signing the paper transfers it to some one else, and guarantees it. Thus the payee of a note could transfer it to some other person by endorsing it as shown in the following illustration. ILLUSTRATION The above is an illustration of a note endorsed in full. There are several other kinds of endorsement. Endorsement in blank (the signature only) is very common. Endorse- ment in full is better for the endorsee than any other kind. Lesson VI THE NOTES RECEIVABLE ACCOUNT Payments are not always made in cash. Sometimes notes are given instead of money. When a note is in favor of the business, it is said to be a "note receivable." One of the problems of the bookkeeper is to determine the total of notes receivable which should be on hand at any time. In order to do this he must keep a record of notes receivable received and disposed of. He therefore opens an account in the ledger headed Notes Receivable. Trace the following transactions from the Illustrative Exercise to the Illustration. THE NOTES RECEIVABLE ACCOUNT 23 ILLUSTRATIVE EXERCISE 191— Sept. 1. Received W. H. Stedman's note for $160.00. • 2. Received a note from B. V. Giles for $225.00. 3. C. D. Norton gave me his note for $57.50 for Mdse. 12. Disposed of B. \. Giles' note for $225.00 by selling it to the bank. 14. Geo. H. Rogers gave me Richard Roe's note for $100.00 in exchange for Mdse. 16. W. H. Stedman paid me $160.00 in cash and I gave him back his note. 18. C. D. Norton paid for his note in cash and I returned the note to him. 19. Received B. H. Patterson's note for $160.40. No notes were received or disposed of during the rest of September. Find the lial- ance of notes on hand Sept. 30. ILLUSTRATION y/ij^-Z^ L/p^^:^>^^i.^A22,^^£2^ /f/- /f/ — isC/a, z 3 /AzJiz^^'l^C&^ / (>0 / (,0 sv ^0 e^^ 72- Jo /&43.«^e-#2^&ij^ y ^0 y^z fo 70Z <70 / / 2-(:0 ^0 Explanation. The above is a notes receivable account. The explanations Dr. and Cr. are not written above the left and right sides, respectively, of the account, because it is assumed that by this time the student is familiar enough with the form of an account to make these explanations unnecessary. aUESTIONS Items of what kind are entered upon the debit side of the account? Items of what kind are entered upon the credit side of the account? What does the total of the debit column indicate? What does the total of the credit column indicate? What does the difference between the two totals indicate? How can I tell whether the result of the account is correct or not? Which side of the account can never be the larger? How is the account closed? 24 JOUBNALIZING What is done with the balance after closing? Why? How can notes receivable come into my possession except when they are made out in my favor? How can I dispose of a note receivable without waiting for it to be paid by the person who made it? You have now studied the cash, Mdse., real estate, and furniture & fixtures accounts. Which one is the notes receivable account like? Summary of the Notes Receivable Account A note is a written promise to pay a certain sum of money on a certain day to a certain person or his order. When notes are in favor of the business, they are notes receivable. An account is kepi in the ledger with notes receivable. Entries. The notes receivable account contains records of all notes receivable received and all notes receivable disposed of, at face value. Rule. Debit the notes receivable account when a note receivable is received either from the person who made it or from some other person. Credit the notes receivaljle account when a note receivable is disposed of either to the person who made it or to some other person. Result. The difference between the total of debits and the total of credits is the balance on hand, and should agree with the notes in the drawer or safe. Items always appear on the debit side first. The debit side is always the larger. Closing. The account is closed just as you learned to close the cash account. Write the heading Notes Receivable at the top of a loose sheet of ledger paper and make the entries required for the following transactions: EXSBCISE 7 191— July 1. I have on hand notes amounting to $1256.50. 2. I bought P. A. Quigley's note. Face of note, $420.75. 3. I sold to Jacob Kern Mdse. invoicing at $120.60, and received his note in payment. 5. One of the notes I had on hand July 1 was paid in cash, $250.00, and I returned the note to the person who made it. (It is always assumed that a note is returned to the maker when it is paid.) 6. Andrew J. Hitchcock gave me his note for $50.00 which he owed me. 8. Received R. H. Lowden's note for $116.75 12. P. A. Quigley paid his note in cash, $420.75. 13. Sold Mdse. to H. A. Babcock on his note, $126.45. 14. Received cash from Perry & Co. for their note due this day, $76.95. 16. R. L. McGuire, who had owed me $70.00 for some time, gave me his note to cover the amount due me. 18. Jacob Kern gave me his check for $120.60, in settlement of his note due today. No other notes receivable were received or disposed of during the month. Balance the account, dating the balancing entry July 31 and bringing down the balance as of Aug. 1. THE NOTES PAYABLE ACCOUNT 25 Lesson VII THE NOTES PAYABLE ACCOUNT When a person issues a note and becomes responsible for its payment, it is a note payable, as far as that person is concerned. The terms notes receivable and notes payable define themselves, and need no special explanation except to remind you that in using these expressions you are always viewing the notes from the standpoint of the proprietor of the business — for what is a note receiv- able to him will be a note payable to the other party to the transaction, and vice versa. ILLUSTRATIVE EXERCISE 191— Oct. 1. 2. 3. 11. 12. 17. 18. 19. I issued my note for $125.50. I bought Mdse. invoicing at $160.00 and gave my note in payment. I mailed a promissory note to Brown & Co. for the amount I owed them, $250.75. I paid $125.50 in cash for the note issued Oct. 1, and received it back, canceled. I gave Jacobs & Holmes my 60-day note for $200.00 due them. I redeemed in cash the note issued on Oct. 2. I bought i\Idse. on my 15-day note, $136.75. I paid Brown & Co. $250.75 in cash in settlement of the note they held against me. ILLUSTRATION /((?-ti^ (y^Z^y^^l-fH!^ J/ y 33 C xz. 7-^ ^^ 2- 3 /Z ■T^yCtiy v^ /ZJ-J-O r-76 33C/'y^ J- r 30 O^.-^ t;r?-Z'Z-<^<>^.^W^ v^ y A • » / 2 i^-^ ^o Explanation. The above is an account with interest, with both debit and credit inventories, closed. UTJESTIONS On which side are costs of Mdse. entered in a Mdse. account? On which side are entered costs of interest in the above illustration? On which side are entered returns for interest? On which side are entered costs which have accrued but are not yet paid? On which side are entered returns which have accrued but are not yet paid? What does the lead pencil total on the debit side show? What does the first lead pencil total on the credit side show? What does the second lead pencil footing on the credit side show? After the inventories have been entered, what does the excess of the debit side over the credit side show? Had the credit side been the larger, what result would have been shown? How are the inventories brought down? What are these called? What are these called? Summary of the Interest Account Interest is the use of money for which consideration is paid. When I receive the use of Smith's money I should pay for that use. When I give Smith the use of my money he should pay me for that use. When I receive the use of others' money, therefore, and give value for it, interest costs me. When I part with the use of my money, and receive value in exchange, interest produces returns to me. Entries. The interest account contains records of all items of cost of our use of money belonging to others, and all returns to us from others for their use of our money. (Stated more briefly, the co&ts and returns arising from interest.) Rule. Debit the interest account when interest costs us. Credit the interest account when interest produces us returns. 32 JOURNALIZING Result. When all amounts due for interest from us and to us are paid, the interest account shows a loss if the debit side be larger, or a gain, if the credit side be larger. Inventories. Costs for interest which have accrued up to the time the account is closed, but have not yet been paid or otherwise adjusted, are entered upon the debit side in i-ed ink and added to the costs which have been actually paid or otherwise adjusted. Returns for interest which have accrued up to the time the account is closed, but have not yet been paid, are entered on the credit side in red ink and added to the returns which have been actually made. Closing. The loss or gain is entered upon the smaller side in red ink, and the account is ruleil and footed. The inventories are brought down, each being entered in Ijlack ink upon the side opposite that on which it was entered in red. EXERCISE 10 - Open an interest account by writing the heading Interest on a sheet of ledger paper and make entries in this account for the transactions following. Do not attempt to jour- nalize. Enter the interest items only and enter them direct in the ledger account. 191— Oct. 1. Received $10.00 in cash from L. L. Snell for interest due me on money borrowed. Oct. 4. Paid $6.50 to the First National Bank for interest on my note in their favor. Oct. 7. I held a note against S. S. Parkinson for $100.00 due this day. Interest had accrued amounting to $1.60, and he gave me his check for $101.60 in settlement. (Enter the item of interest only.) Oct. 12. The Citizens Bank presented a note signed by me for $250.00, due this day, with $2.67 interest accrued. I paid it by check. Oct. 16. The semi-annual interest on a mortgage which I held against Fairview Farm fell due and was paid to me in cash, $45.00. Oct. 18. I held a note against Harold E. Smith due today with $7.50 interest accrued. Smith could not pay the note, but he paid me $7.50 for interest and secured an extension of the note. Oct. 20. S. T. Herman gave me his check for $152.25, for his note due today, $150.00, and interest, $2.25. Oct. 24. I paid E. E. Trotter $263.00 in cash for my note in his favor, due today, $257.50, and interest, $5.50. Oct. 31. Interest accrued on my money being used by others, $23.50. (Red ink entry of inventory, on credit side.) Oct. 31. Interest accrued on money of others being used by me, $17.60. (Red ink entry of inventory, on debit side.) Find the gain or loss for interest for October and enter it on the smaller side in red ink. Rule the account and foot the columns. Bring the inventories down below the double rulings, each on the side opposite that on which it was entered in red. When your work has been approved, copy the account (or work it again, as your teacher shall direct) on page 4 of your ledger, leaving four blank lines below the notes payable account. ACCOUNTS WITH PERSONS Lesson X ACCOUNTS WITH PERSONS Trace the following transactions from the Illustrative Exercise to the Illustration. Illustrative Exercise 191— Sept. for which Sept. Sept. S25.00. Sept. Sept. Sept. Sept. 33 1. I sold B. L. Thompson, 3346 Indiana Ave., Mdse. invoicing at $47.50, he did not pay me at the time. 2. I sold B. L. Thompson on account a bill of goods, $23.76. 3. I received B. L. Thompson's note in part payment of what he owed me, 14. Sold B. L. Thompson on account goods invoicing at $17.75. 15. B. L. Thompson paid me $20.00 in cash. 26. B. L. Thompson returned Mdse. which I had sold him, $2.30. 27. Sold Mdse. to B. L. Thompson on credit, $12.50. illustration jj4^<: 2J^. 3. 2/ Explanation. The above is an account with a person,* or personal account. When persons get something of value from us without making settlement at the time, a claim against them is established in our favor. When we get something of value from others without making settlement at the time, a claim is established against us in their favor. An account is opened with each person against whom we receive such claims or to whom we give such claims against us and the amounts of these claims and of payments made in settlement or reduction of them are entered in the account. All such dealings with persons are said to be "on account" because they are to be recorded in the account with the person. A personal account should always be headed with the name and address of the person. A person who owes us is our debtor; one whom we owe is our creditor. The terms debtor and creditor apply to persons only, not to the sides of an account. The left side of an account is the debit side, and the right side is the credit side. *The word "person" as used throughout this lesson, will be understood to mean person, firm, or corporalion. 34 JOURNALIZING Accounts of this class far outnuniljer all other accounts in the ledger of an ordinary concern doing a credit business. aXTBSTIONS With what person does the above account show that I have had business deaUngs? What is his address? Upon which side was the entry made when I received a claim against him? Upon which side was the entry made when he paid me and thus reduced the amount of my claim? What was the total of claims against B. L. Thompson received by me during September? What was the total of B. L. Thompson's payments in reduction of my claims against him? How much does he still owe me? Note. The foregoing illustration is an account with a customer. The debit entries or claims against him (charges) amount to more than do the credit entries, which represent his jjaymcnts. An account with a person from whom I buy would probably show a larger credit side than debit side and its balance would be payable rather than receivable. Summary of Personal Accounts Entries. Claims against others on account, claims of others against us, and pay- ments by or to us on account are entered in personal accounts. Rule. Debit the account of a person when we receive a claim against that person on account; credit the account when he pays. Credit the account of a person when we give that person a claim against us on account; debit the account when we pay him. Result. The difference between the two sides shows whether the person owes us or we owe him, and how much. If the debit side be the larger he owes us; if the credit side be the larger, we owe him. A neat lead pencil footing is placed close beneath the last item in each column. The difference between these two footings is then ascertained and written in small lead pencil figures at the left of the larger footing, just outside of the money column. Closing. Personal accounts are not customarily ruled, except when they are paid in full and the two sides are equal; in forwarding, the better plan is to forward the balance only. Note. It will be observed that the rule for personal accounts is not different from every other rule you have learned; nor will you ever learn any different rule. The rule "Debit what is received; credit what is disposed of" is of universal application. In the case of a personal account, it is apparent that we are keeping records of claims against and in favor of persons, and that this record is debited when a claim is received and credited when a claim is disposed of. It follows naturally that when payments are made in reduction of claims the entries are made on the side opposite that on which the claim was entered; so we credit the accounts of persons who make payments on account and debit the accounts of persons to whom we make payments on account. Note Accounts with persons to whom we sell can be compared to the account with notes receivable, and accounts with persons from whom we buy can be compared to notes payable. In the case of notes, the promise to pay is always written, whereas in the case of personal accounts the promise to pay is either a verbal promise or an implied promise, but the accounts are handled in the same way. One form of dissimilarity is that a personal account may contain items both payable and receivable, so that some- times the balance is on the opposite side from what would ordinarily be expected. Sometimes two accounts are kept with the same person, one account showing what we have bought from him, and payments thereon; the other showing what he has bought from us, and payments thereon. Open accounts with McNeil & Co., 569 S. Water St., L. W. Sherman, 4827 Yale Ave., and R. L. Peterson, 5132 Princeton Ave. Give each account one-third of a page. Write the names in a bold, strong hand; the addresses should be written neatly and legibly, but very small, on the next line. Do not attempt to journalize. Simply enter the debits and credits of personal accounts directly into the accounts. 191- THE proprietor's ACCOUNT 35 SXSBCISE 11 Nov. 1. Bought Mdse. from McNeil & Co. on account, $276.28. 2. Sold Mdse. to L. W. Sherman, on account, $10.52. 3. Sold Mdse. to R. L. Peterson, on account, 18.93. 4. Purchased from McNeil & Co., on credit, Mdse. invoicing at $153.65. 5. Sold on credit to L. W. Sherman, goods billed at $22.50. 6. Sold a bill of goods on credit to R. L. Peterson, invoicing at $12.75. 8. Paid McNeil & Co. cash on account, $100.00. 9. Received from L. W. Sherman cash on account, $15.00. 10. Received from R. L. Peterson cash on account, $10.00. 11. McNeil & Co. billed to me Mdse. on credit, $87.50. 13. L. W. Sherman bought Mdse. on account, $5.67. 14. R. L. Peterson purchased Mdse. from me on account, $7.87. 14. I returned Mdse. to McNeil & Co., $12.60. 16. L. W. Sherman returned Mdse. to me, $2.22. 17. R. L. Peterson gave me his note, $15.00. 18. I gave McNeil & Co. my note for $100.00. 19. Sold L. W. Sherman Mdse. on account, $11.34. 20. R. L. Peterson bought Mdse. from me on credit, $4.86. 22. I purchased Mdse. from McNeil & Co., on account, $23.65. 22. R. L. Peterson paid me cash in full of account, $ . After making the entry rule and foot the account. 23. I paid McNeil & Co. cash on account, $50.00. 24. I collected cash from L. W. Sherman, $15.00. 25. Sold to R. L. Peterson Mdse. billed at $15.62. 26. Paid cash to McNeil & Co. to balance our account with them, $ . After making the entry, rule and foot the account. 28. Sold to L. W. Sherman Mdse. billed at $6.73. Show the amount due from L. W. Sherman, making neat lead pencil figures in the wide column on the debit side, as shown in the illustration on page 33. THE PROPRIETOR'S ACCOUNT The proprietor's account is the account in which are shown the investments in the business made by the proprietor, and the withdrawals from the business made by him. The net gain of the business, as periodically determined, is usually allowed to remain in the business as an additional investment; if a net loss be shown instead of a net gain, the net loss is treated as a withdrawal. Entries. These are the investments made by the proprietor and his withdrawals, as described above. Rule. Debit the account for amounts invested by the proprietor. Credit it for his withdrawals. Result. The difference between the two sides of the account shows the amount of the proprietor's net investment (the net capital of the business) if the credit side be the larger; if the debit side be the larger, a net insolvency is shown. Closing. The proprietor's account is closed with a balance, at the time of closing other ledger accounts. 36 JOURNALIZING Note. — The business itself is the property of the proprietor. Hence it cannot be said, in a logical sense, that the business owes the proprietor any tiling. In a strictly .formal bookkeeping sense, however, the books appear to show that the business owes the proprietor the balance of the proprietor's account. This is sometimes referred to as an "inside" liability. The proprietor cannot be sure of that balance, how- ever, until all debts to outside creditors are paid, and even then the business would not owe it to him, because he owns the business, and therefore has the assets of the business in his own possession. The resemblance between the proprietor's account and an account with a creditor is close enough, however, to permit of a comparison of the rules for debit and credit, thus: Credit the account of the { -^^Hor^^ j f„, ^^^, ^^ | .gives^ j Debit the account of the { ^n^^.r } ^^ -^-* 1 heTtL^a'vs i The resemblance above noted is so evident that it is not considered necessary to give an illustration of the proprietor's account here. Sufficient instruction has been given to enable the student to make the entries required before he reaches page 68, where there is shown a full form of the proprietor's account. THE EXPENSE ACCOUNT Items of expenditure for the conduct of the business* are called expense. This includes such items as rent, coal, salaries and wages, non-productive labor, and all smaller inci- dental expenses. An expense account is usually kept in the ledger. Illustrative Exercise 191— Paid rent for September in cash, $75.00. Bought postage stamps for cash, $20.00. Bought from Smith & Co., on account, 4 tons coal at $3.60, $14.40. Paid the clerk's salary in cash, $14.00. Sold for cash 200 20 stamps. Paid the clerk's salary in cash, $14.00. Inventories Sept. 30. Coal on hand, 2 tons at $3 60, $7.20. Salary due clerk, $30.00 illustration Sept. 1. Sept. 2. Sept. 4. Sept. 6. Sept. 8. Sept. 13. fe CM/ l/' 4^-^^ 7^ / /^ .J-a. / Cy 7^ OO: ^^J^f'2.'2/-e^'n^en^ ^ 7 /C? lAo * "Expenditure for the conduct of the business" must be understood as exclusive of outlay for trading and investment items. This does not include interest, however, or any other class of expenditure for which an independent account is kept. Items of tangible property are not usually considered expense unless they are consumed in the using. REVIEW EXERCISES 37 Entries. Items of cost incurred in running the business and rebates or returns from such items, are entered in the expense account. Rule. Debit the expense account for all items of cost incurred in running the business; credit the expense account for rebates or returns from such items, if any (as when postage stamps, the cost of which has been charged to expense, are sold for cash). Inventories. Anything remaining on hand at the time of closing the account which has been charged to expense (e. g., coal, postage stamps, floor oil, etc.), must be entered as an inventory on the credit side in red ink before closing. Any obligations for expenses which have accrued but have not yet been met, such as clerks' wages or salaries earned and unpaid, must be entered as an inventory on the debit side before closing. Result. When the account contains none but debit items, the total of the debit side shows the cost of expense for the period covered by the account. If there are any credit items these must be deducte^l. Closing. The account closes with a loss. Inventories must be brought down in red ink, in each case onto the side opposite that on which it was entered in red. Lesson XI EXEBCISS 12 REVIEW EXERCISES IN JOURNALIZING Journalize the following transactions, beginning on a new page of the journal. 191— Paid cash for December rent, .$75.00. Bought for cash 12 brls. Washburn-Crosby Superlative flour, at $4.50, $54.00. Paid the bookkeeper's salary for the week in cash, $12.50. Sold to J. W. Swinton on his 20-day note at 6%, 225 bu. oats, No 2 white, at 32^ a bushel, $72.00. Sold to W. S. Rankin, 383 La Salle St., on account, 4 brls. Washburn- Crosby Superlative flour, at $5.60, $22.40. 'UTien a personal account is opened, the person's address must appear in the first entry that is made, as shown in the illustration herewith. ILLU.STRATION Dec. 1. Dec. 2. Dec. 3. Dec. 5. Dec. 6. ^.^U^. '/^J-^. ■3^jJ^^zJ3faJ£^jdA a^ XX i.2. Dec. 6. Bought from B. F. Harman the building and lot located at 1231 State St. for $12,000.00, giving in payment our check for $7000.00 and our 15-day note at 6% for $5,000.00. 6. Sold for cash 75 bu. No. 3 yellow corn, at 49 (^, $36.75. Dec. 38 JOURNALIZING Dec. 7, A. J. Brock, 4265 N. Robey St., invoiced to us, terms cash 10 days,* 300 bu. wheat, at $1.02, $306.00. Dec. 8. Sold to H. B. Pitton 100 bu. wheat, at $1.07A, $107.50, receiving his check in payment. Dec. 10. Gave the bookkeeper a check for his salary, $12.50. Dec. 12. B. F. Wylie, 7647 Peoria St., ordered by telephone 50 bu. No. 3 yellow corn, at 56^. We delivered this to him and charged the amount of the bill to his account. Dec. 13. Bought for cash 400 bu. wheat, at 95(t, $380.00. Dec. 13. Paid the drayman $12.50 for deliveries made for us during November. Dec. 16. W. S. Rankin gave us his note for $22.40 to cover his bill of Dec. 6. The note was a 30-day note at 6%, and was dated Dec. 6. Dec. 17. In accordance with the terms of our agreement with A. J. Brock we gave him our check for the amount due on his bill of Dec. 7. Dec. 18. Paid the bookkeeper's salary, $12.50, giving him $2.50 in cash and our check for $10.00. Dec. 20. Sold 100 bu. oats, No. 2 white, to C. J. Andrews, at 320. He gave us in payment his 60-day note at 5%, for $32.00. Dec. 20. Bought from Farson and Son on our 60-day note without interest 500 bu. corn, No. 4 white, at iUi, $222.50. Dec. 21. Our 15-day note dated Dec. 6 fell due this day, and we paid for the note, $5000.00, and interest accrued on it for 15 days at 6%, $12.50, by giving our check for $5012.50. Dec. 24. B. F. Wylie claimed that part of the corn we sold him on Dec. 12 was not up to grade, and returned 10 bu., for which we gave him credit at the purchase price, 56^* (Dr. Mdse. $5.60; Cr. B. F. Wylie, $5.60). Dec. 24. Saturday the 25th being a holiday, we paid the bookkeeper's salary tonight in cash. Dec. 27. The 25th being a holiday, and the next day being Sunday, J. W. Swinton's 20-day note of Dec. 5 was not paid until the 27th. He gave us his check to cover the note for $72.00, and interest at 6% for 22 days, 260. Total of check, $72.26. Dec. 27. Borrowed $1000.00 from the Second National Bank on our note for 30 days at 6%. As customary in such cases the bank deducted the sum due for interest, $5.00, in advance, paying us $995.00 in cash. Dec. 28. Sold to T. J. Hart on his 30-day note without interest, 100 bu. wheat at $1.09, $109.00. Dec. 29. Bought from Carson, Pirie, Scott & Co., cor. Adams and Market Sts., for cash, 1 No. XX98 display case, oak, for $4.25. Dec. 30. Discounted at 6% our 60-day note for $222.50 in favor of Farson and Son dated Dec. 20. This means that we paid it 50 days before it was due in order to secure a discount. Farson and Son allowed us to deduct for 50 days' interest at 6%, $1.85, paying them $220.65 in cash. *This means he allowed us ten days in which to pay the bill. REVIEW EXERCISES 39 Dec. 31. T. J. Hart discounted at 6% his 30-day note for $109.00 in our favor dated Dec. 28. This means that he paid it 27 days before it was due, in order to secure a discount. We allowed him to deduct for 27 days' interest at 6%, $.49, paying us $108.51 in cash. Journalize the transactions for June given below, which assume the following accounts to be kept in P. S. Spangler's ledger: Cash, Mdse., Real Estate, Furniture & Fixtures, Interest, Expense, Notes Receivable, Notes Payable, personal accounts, P. S. Spangler- Proprietor. ^g^ EXERCISE 13 June 1. P. S. Spangler has this day invested in business cash, $12500.00 (Debit Cash; credit P. S. Spangler-Proprietor). June 1. Bought from R. E. Morris the retail gi-ocery business located at 2113 Broad St., Your City, paying in cash for the following properties: Mdse., $3750.00; building and lot, .$6500.00; store furniture and fixtures, $550.00; and a 30-day note for $200.00 signed by G. C. Claybaugh, dated May 9, on which interest had accrued at 6% amounting to 77(*. (The explanation should make a complete statement of what took place and no important detail should be omitted.) June 2. Bought from H. T. Jett, 2738 Topeka St., on account, 100 doz. cans No. 2 Telephone peas, at $1.10, $110.00. June 3. Purchased from F. E. Lakey, 1816 Michigan Ave., on our 10-day note at 6%, 144 doz. cans No. 2 extra standard apricots, at $1.50, $216.00. June 4. Sold to H. S. Clay, 1312 Lexington St., on account, 90 lbs. California prunes, at 17^, $15.30; 3 boxes Muscatel raisins, 150 lbs. at 90, $13.50; total, $28.80. June 6. Bought from the Remington Typewriter Co., 154 Wabash Ave., on our 15-day note at 6%, 1 No. 10 machine, $105.00; 1 8-drawer typewriter desk, $15.00; 1 stenographer's chair, $6.75; total, $126.75. June 6. Paid the clerk's salary for the week ending today, in cash, $15.00. June 8. G. C. Claybaugh paid cash for his note due today, $200.00, and interest, $1.00. June 9. Bought from B. J. Still & Bros., 1625 Rolfe BouL, on account, 66 lbs. Santos coffee, at 20^, $13.20; 150 lbs. finest Mexican coffee, at 180, $27.00; total, $40.20. June 10. Sold to Geo. H. Zinnel, 1927 Nicolet Ave., 50 lbs. extra choice Formosa tea, at 700, $35.00. Received in exchange his 15-day note, at 6%. June 11. Sold to C. C. Parlin, 2536 Wausau Ave., on account, 70 lbs. fine Japan tea, basket fired, at 400, $28.00. June 12. Paid H. T. Jett in cash the amount of his invoice of June 2, $110.00. June 13. Paid in cash for our note in favor of F. E. Lakey, $216.00, and interest for 10 days, $.36. June 13. H. S. Clay paid cash to settle our bill of June 4, $28.80. June 13. Paid the clerk's salary for the week in cash, $15.00. June 15. Paid the scrubwoman cash for services, $3.50. June 16. C. C. Parlin paid us $10.00 in cash to apply on account. June 18. Sold to H. S. Clay on account, 9 doz. bottles Mammoth olives, at $7.50, $67.50. June 19. Sold to Geo. H. Zinnel, 1927 Nicolet Ave., on account, 90 lbs. imported Westphalia ham, at 350, $31.50; 4 boxes Kingsford's Silver Gloss starch, at $4.75, $19.00; total, $50.50. 40 JOURNALIZING June 20. Paid the clerk's salary in cash as before. June 21. Received from tt. S. Clay on account his 60-day note, at 6%, for $50.00. June 21. Paid by check our note in favor of the Remington Typewriter Co., $126.75, and interest for 15 days at 6%, $.32. June 22. Sold to C. C. Parhn on account 3 boxes Fels Naphtha soap, at $4.25, $12.75. June 24. Geo. H. Zinnel paid in cash his note in our favor dated June 10, $35.00, and interest for 14 days at 6%, $.08. June 24. Petty (small) sales of Mdse. for cash amounted to $69.43. June 24. P. S. Spangler, the proprietor, withdrew cash for private use, $25.00. June 26. Received $18.00 in cash from C. C. Parlin for the balance due on the invoice sold to him June 11. June 27. Paid the clerk's salary in cash as before. June 27. Received $12.50 cash from Geo. H. Zinnel on account. June 29. Sold to H. S. Clay, on account, 8 doz. cans clam chowder (quarts), at $3.00, $24.00; 6 doz. cans chicken gumbo soup (quarts), at $3.25, $19.50; total, $43.50. June 30. Bought a straight-backed chair for the stenographer, for cash, $2.25. June 30. Sold the stenographer's old chair at second hand for $4.25 cash. INVOICES An invoice is a written list of the items of some particular sale of goods, showing the quantity, name, price, and amount of each item sold, and the total of the sale. It is NEW YORK, / /.h ? /^3^.-rr^ ^^^/-^y^yf . '~Y7^.^^. -7— ^ Bought of MASON & OSGOOD Terms: 30 Days J2- ^Jr^ . 'T/ . r/^.f,. I=i2-z2^1. /^ A^O Y^ ' ,, 'C4^^,^7^^ ( ^. Aj- — ZJ.: C-. 4^///. U£y i z^ r/ r/ 2-Zi ZZd yj'ro jj'ro THE LEDGER 51 ( / ~ fet^n^. / Zo ^<^/£ 2S ^ A Z^9-t^ C<1 e>^ "T'- /f/- Jlii-yu'. Z 1-0 /■/ (U-n^. d lO 22 so lA 2-0 / / 2 s-o t 2./ ? ? >'.'' 7 7-0 ? ? ?? f // /3 /S- 2/ 2/ 21 2/ ? ? ? ? > ? > ? f ? ? /f/- ^ U^, 2--C^^Uy U. '^ <»^ ■uyLc-c^ Ua^ny. J ZO 2-/ 7-2d ^ ? ? ^ ? /f/- -i 7 ^^»- 7'^' 7 J /^ / 2-0 Ai6/C IS ^^hi^^T^. 2 2o r/ / i./ } ? * 7 ' ■> 3W^ > ? >^^ z^/- 3 lA /f /f 2o 2o 2/ 2/ 22d /J- ? ? ? ? lUa^>u. 'A i-o //Z J'o 52 MODEL FORMS THE TRIAL BALANCE (o^c^:■^L^'z'"2?><^^«2^' Z6f ? ? ? ? 7 ? ? ? ? 2-2- ? ? ? ? 7 ? ? > ? ? ? / / z 12J- ; ? footings.* When all amounts are entered in it, the total of its debit column and credit column should exactly agree. At the top of the page write the heading Trial Balarice, Jan. 18, 191 — . For con- venience, and to save yourself the trouble of again adding the ledger columns down to this point, you may now foot all columns in the ledger, making small, neat lead-pencil figures just below the last item in each column, as shown in the models of ledger accounts, being careful in- each case to leave room for the item that is to be written later on the next line below. In the folio column at the left of the names of the accounts ILsted in the trial balance, write the page on which the account is found in the ledger, for reference. A model form of trial balance is shown above. Your trial balance will be like it in form, but you will have to determine the correct amounts yourself and your folios may be different. When your trial balance has been approved, copy it, or prepare it again independentl}', as your teacher shall direct, on page 1 of Book 3, Blanks No. I. Checking the Trial Balance It may be that the debit and credit footings of the trial balance you prepare will not agree. If so, some mistake has been made. They must agree exactly. You will have to check over your work in order to find your mistake. This checking is done in an order exactly reverse to that in which the work was done, for reasons which you will readily understand: (1) You are more likely to discover an error if you check over your *Trial balances are usually taken by differences; i. e., the difference between the two sides of each account is shown only, instead of the full footings, both debit and credit. You will learn about this later. TRANSACTIONS FOR MODEL SET — CONTINUED 53 work in an order different from that in which it was done. If you should go over your work in the same way you went over it the first time, you might make the same mistake. (2) The error will probably be discovered more quickly, because the chances are that the error was in the latter part of the work. Note that you are to check the work, not merely to inspect it. It seems slower to check work than to glance over it, but experience has proved that the discovery of errors is much more sure and quick when the checking is done. Proceed as follows: (1) Again add the columns of the trial balance, adding in the direction reverse to the direction in which you first added them. (Whenever you have occasion to test your own addition, add downwards if you added upwards before, or vice versa.) Check the footings as you find them correct. (2) Check back from the trial balance items to the ledger footings, placing a check mark opposite each trial balance item and a dot opposite the ledger footing which it repre- sents as you find them to be in agreement. (3) Again add the ledger columns, verifying the accuracy of j'our first addition. Check the footings as j'ou find them to be correct. (4) Check back from the ledger to the journal, placing a check mark opposite each ledger item and another check mark opposite its corresponding journal entry as you find them to be in agreement. (5) Inspect the journal to see that every item has been checked once, and no item checked twice. (6) Inspect the journal to be certain that the separate entries contain equal debits and credits. When there are many complicated entries in the journal, this may be done more readily by adding the debit and credit columns for an entire page than by the slower process of inspecting each entry. As soon as an error or errors are discovered which will account for the discrepancy in your trial balance, your search is at an end. Further checking would be to no purpose. In checking, form the habit of placing the check marks ( /) neatly in a column, always making them the same size and shape. They are more easily seen if they are in a neat column, and need not be large or made heavily. Nothing looks worse than a ledger covered with scrawling checkmarks of various sizes and shapes. Enter the remaining transactions for the month of January, as shown below. The transaction dated Jan. 20 is entered just below the last entry in the journal as though there had been no interruption for posting. Lesson XVII Transactions for January — Continued Jan. 20. Sold to L. V. Bradley, on account, 3 doz. men's suede gloves, at .$16.50, ■149.50; 3 doz. men's woolen gloves, at .S6.50, $19.50; 1 doz. ladies' long kid gloves, $32.50; also one of our plate glass show cases, second hand, for $52.00; total charged to him, $153.50. Jan. 22. Redeemed our note in favor of F. White & Co. The note was dated Jan. 7 and was for 15 days at 6%. Face of note, $75.50; interest, 19^; amount of our check, $75.69. 54 POSTING Jan. 23. H. E. Runyon gave us his check for $59.50, in full settlement of our bill against him dated Jan. 8. Jan. 24. We discounted our note dated Jan. 14 in favor of Yawman & Erbe, mail- ing them our check for the net amount due. This note was for $187.50, and was due 60 days from its date without interest. Discount for 50 days at 6%, $1.56; amount of our check, $185.94.* Jan. 25. Paid the bookkeeper's salary in cash, $16.00. Jan. 27. C. E. Rayburn paid us in cash for his note of Jan. 6, $22.50, and 8^ for interest for 21 days at 6%; total cash received, $22.58. Jan. 27. Bought from Dale & Allen, on account, 10 doz. men's silk-lined kid gloves, at $9.50, $95.00; 9 doz. men's silk-lined suede gloves, at $9.50, $85.50; total, $180.50. Jan. 28. Sold to H. K. Armstrong, 4759 S. Park Boul., on his 60-day note at 6%, 5 doz. men's silk-lined kid gloves, at $12.50, $62.50. Jan. 29. Sold to H. E. Runyon, on account, 4 doz. men's silk-lined suede gloves, at $12.75, $51.00. Jan. 30. L. V. Bradley glive us his 30-day note at 6% for $153.50, the amount of our bill against him of Jan. 20. The note was dated as of Jan. 20. ' Jan. 31. Bought from the Etna Woolen Mills, 7548 Emerald Ave., 3 doz. men's woolen sweaters, at $9.75, $29.25; 3 doz. Juvenile sweater coats, at $12.00, $36.00; 2 doz.. ladies' knit golf vests, at $15.00, $30.00; total, $95.25. Gave them our 60-day note at 6% for the amount of the bill. Post all the transactions from Jan. 20 to Jan. 31 inclusive and take a trial balance. In adding the columns in your ledger it will only be necessary to foot the amounts entered since Jan. 18, including the lead pencil footings entered at that time. The trial balance of Jan. 31 can be written on the lower half of page 1 of the Trial Balances and Statements Book — Book 3 of Blanks No. I. *The student will note that interest and discount, being similar in nature, are recorded in tlie same account. Discount of this kind must not be confused with cash cHscount, about which you will learn later. CHAPTER IV STATEMENTS* Lessont XVIII THE FINANCIAL STATEMENT Two principal facts about his business whicii a man wishes to be in a position to ascertain are (1) Its condition; (2) Its progress. By "condition" is meant the worth of the lousiness at a given time. "Progress" refers to the gain or loss, as the case may be, during a certain period, or from one date to another. Neither condition nor progress can be determined entirely from the ledger, as tlie inventories must be known before condition and progress can be determined, and the ledger does not show present inventories. Most of the necessary facts, however, are shown in the ledger. The condition of the business is shown by a specially prepared statement of the busi- ness called the Financial Statement. Before proceeding to analyze this statement or to study its form, solve the following problems. If you do this work thoughtfully, you will be led unconsciously into an understanding of the principles underlying the Financial Statement, though its form will still be unfamiliar to you. PROBLEMS Problem 1. On Jan. 31, 191 — , A's ledger showed investments as follows: Cash, $5464.75; Notes Receivable, $560.50; due from B, $225.00. W'hat was the condition of the business (what was it worth)? Problem 2. On Feb. 28, 191—, Mr. B's ledger showed: Cash, Dr $5000.00, Cr. ,$2673.-10; Notes Receivable, Dr. $650.00, Cr. $325.40; A. R. Barnes, Dr. $450.75, Cr. $225.90; E G. Holm, Dr. $226.76, Cr. $59.72. He had on hand furniture and fixtures valued at $475.50 and a stock of goods worth $4376.80 — facts not shown in the ledger. What was the worth of the business? Problem 3. Mr. C, desiring to ascertain the condition of his business, told his bookkeeper: "Our merchandise inventory on Mar. 31, 191 — , was $7560.00, our furniture and fixtures inventory was $740.69, and I valued tliis store and lot, which I own, at $15,000.00. Make me a statement showing the condition of this business on Mar. 31." The bookkeeper referring to the ledger found that on Mar. 31 the accounts had stood as follows. Cash, Dr. $4560.70, Cr. $2389.60; Notes Receivable, Dr. $789.20, Cr. $384.50; I. J. Green, Dr. $326.07, Cr., $100.00. A\'hat was the worth of the business on Mar. 31, as reported by the bookkeeper? Problem 4. On April 30, 191—, D had $167.20 in the cash drawer and $.3000.00 in the bank. He held a note against W for $450.00, and X owed him $224.67 on account. He owed Y $370.60, and there was outstanding against him a note in favor of Z for $275.75. He valued his furniture and fixtures at $780.93 and his stock of Mdse. at $3467.25. AVhat was D's business worth? Problem 5. Accounts in E's ledger stood as follows on May 31; Cash $5467.20 $2869.46 Notes Receivable 482.29 321.40 B. F. Adams 300.50 210.00 H.A.Dow 250.00 105.50 Notes Payable 200.00 R. L. McNeal 1 00 . 00 640 . 76 Inventories: Mdse., $4756.82; Real Estate, $6500.00; Furniture & Fixtures, $295.00. How much was E's business worth? ♦Teachers who prefer to use the two-page statement forms will instruct students to study pages 144 to 148 of the appendix at this time, omitting Lessons XVIII and XIX, except as reference to parts of these lessons is made in the corresponding lessons of the appendix. 55 56 STATEMENTS Study carefully the illustration below and the explanation accompanying it, and make a financial statement for F. R. Elliott's business as it stood on Jan. 31. It is assumed that all the accounts in your ledger are correct, and that your trial balance of Jan. 31 has been approved by your teacher. In order to make the financial statement, you must know the inventories, which are as follows: Mdse., $314.56; Furniture & Fixtures, $350.00. (Accrued interest on notes receivable, being very little, is not taken into consideration here as an inventory.) In form, your statement will be like the model shown herewith. The amounts will have to be supplied by you. Form of Financial Statement CpS^^l^t^^^-l^<^ ^^U^y. i^^t>'^ : ? ? r: ^f THE PROOF 59 The model statement given herewith will show you the proper form, but the proper amounts will have to be determined by you. The loss and gain statement for January should be \\ritten on page 2 of your trial balance and statement book, four lines below the financial statement. Explanation: As previously stated, there are some accounts which do not show an asset or a liability. These show either gains or losses. The amount of gain or loss in each case can be determined from the footings of the ledger and the inventories. The gains are shown in the first group. Open your ledger to the first page of F. R. Elliott's business (page 6), and consider the accounts in their order. Omitting F. R. Elliott's account, which is the capital account, the first account you come to is Mdse. The foot- ings tell you that the purchases amount to $544.75, and the sales, $416.50. It is apparent that when the inventory, $314.56, is taken into consideration, a gain will be shown. List this account then, as showing a gain. The form is as follows: First write the total cost, which is the debit footing of the account, and deduct from it the amount of the inventory. This gives the cost of the goods sold. Beneath this write the total of sales (the credit side of the account) and deduct from it the cost of the goods sold as just ascertained. The result is a gain, which is carried into the left-hand money column, on the same line with the last item. The next account in the ledger (Furniture and Fixtures) is a loss or gain account, and an inspection shows that it exhibits a loss. The expense account also shows a loss. Pass both of these for the present. The next account in the ledger is the interest and discount account. It shows a gain. Subtract the debit total from the credit total, as shown in the form, and enter the amount of the gain on interest and discount in the left-hand money column below the amount of gain on Mdse., on the same line with the last item in the explanatory column. No other accounts show gain. Add the two items of gain, as shown in the form. It has been previously noted that the furniture and fixtures account and the expense account each show a loss. The loss on furniture and fixtures is found thus: First sub- tract the credit footing from the debit footing. This gives the net outlay for furniture and fixtures. Subtract the inventory of Jan. 31. The result is a loss and is written in the left-hand money column. Write beneath this the loss for expense. Add the losses and write the total of losses in the right-hand money column beneath the total gains. Subtract. The difference is the net gain for the month. Lesson XX THE PROOF You recognize it as true that the total of things invested equals the capital of the business (the investments being debits and the capital a credit). You have learned, further, that every business transaction consists of an equal exchange of values, the thing or things received being exactly equal to the thing or things disposed of (the former being credits and the latter being debits). The logical conclusion is that the ledger, if correct, must always be in balance. Starting with the same truth (Total of things invested =capital of the business) let US see how each transaction affects the business, and trace these transactions from the 60 STATEMENTS journal into the statements. For simplicity substitute the word "assets" for the expres- sion "things invested." We now have the equation Assets (say $5000.00 cash) =Capital ($5000.00) Case 1. A transaction may be a simple exchange of assets, as when $1000.00 cash is given for Mdse. worth $1000.00. This changes only one side of the equation thus: Cash $4000.00+ Mdse. $1000.00 =Capital $5000.00 Case 2. Instead of parting with some asset for another, we may receive an asset (say Mdse. $1000.00), creating a liability to offset it. (Let us say that in this case we become indebted to Smith for $1000.00). The liabilities are placed upon the credit side (with the capital account, which is in a bookkeeping sense a liability of the business to the proprietor) as an offset to the assets, which as you have seen are debits. We now have Cash $4000.00+ Mdse. $2000.00 =Capital $5000.00+ Smith $1000.00 Case 3. We may part with an asset in order to reduce or settle a liability. Suppose we pay half of what is due Smith in cash. We part with an asset and reduce a liability. The equation now stands Cash $3500.00+ Mdse. $2000.00 =Capital $5000.00+ Smith $500.00 Case 4. We may discharge one liability by the creation of another. Suppose we issue a note in favor of Smith to cover the amount due him. The change is all on one side, and the equation now stands Cash $3500.00 + Mdse. $2000.00 =Capital $5000.00 + Notes Pay. $500.00 All of the four cases above assume changes in assets and liabilities, liut there has been no change in capital. There have been no gains or losses. Since business is conducted for profit, the four cases following are of especial impor- tance. Gains are: (a) Increases in total assets; (b) Decreases in total liabilities. Losses are: (a) Decreases in total assets; (b) Increases in total liabilities. Mere changes in assets and liabilities which do not change the amount of the capital show neither gain nor loss. Case 5. When assets are increased without a corresponding increase of liabilities, a gain is made. Suppose we sell for $500.00 cash, Mdse. which cost $400.00. This increases the cash on hand $500 00 and decreases the Mdse. on hand $400.00. This being the case, the assets amount to $100.00 more than before. A gain of $100.00 has been made, and the capital account must be increased accordingly. The equation now stands Cash $4000.00 + Mdse. $1600.00 =Capital $5100.00 + Notes Pay. $500.00 Note. Gains of this kind are not recorded separately as shown above. The gain on Mdse. is com- puted in one sum when the Mdse. account is closed. The principle is the same, however. A gain i. ? At ? ? > ? 3 / JUi^f^ c f // /3 /s ZO zr Zf 3/ Zo Z/ z/ Z/ z/ Z/ z/ zz zz zz ? , ? ! ; ? > ? > > } ; .9 / ^ So ? ? > ? > ? > ? ? P > ? 73/ oi 73/ ffi. / 4^ si:. ^ Qa^rw. J ^ij^^f^^^l^-iyyiy^tr/y z/ zzd ' ? ? p ? Ua-->^ Zo 3/ 3/ Z/ ^7 j-z // ^/3 J-o U/3 3-0 / y^ 3^0 7 > 7 <- 7 7 > > > ? ? > ? 7 7 > sa ..^^ / •' ? ? ? ? ?? The explanation "Net capital" or "Net investment" or "Present wortli" may be used in closing the proprietor's account, if desired, instead of the explanation "Balance" as shown in the above form. BALANCE OF BALANCES The ledger was in balance before closing. The equality of debit and credit was not departed from in a single instance in making the closing entries. Whenever any account was ruled, equal debit and credit totals were eliminated. It follows logically that the ledger is now in balance after closing. To test this, take a balance of balances in the form shown below. Note that although the personal accounts were left open, the balances only are shown. Write this on page 3 of your trial balance and statement book. T t2^ /,/f/ ^ ^^1j^.6:ja^^ ^y^/ jy ^ ??^.u^. 3 /iA j-i ^ c2«;<>i-»tX A'^^'sr^i^a^. 3S0 7 '~^ a^A-JL^ ? ? 7 ? 7 > 7 l^^t^^^. ? ? ? f c^rrfe^ /K^t'?^^^<^«'-?^^ ? ? 7 f r ^^7^W^ 7 7 7 i

'Ly ? > 7 ^^73 Z^ s/7^ 7^ If the total of deljit balances does not exactly equal the total of credit balances, some mistake has been made. To find it, check yuur balance of balances with the assets and SUMMARY AND CLASSIFICATION OF ACCOUNTS 69 liabilities shown by your financial statement. The debit balances should correspond in detail with the assets shown in the statement. The credit balances should correspond in detail with the liabilities shown by the statement and the net capital (which, as has been remarked, is in a bookkeeping sense a theoretical liability). Even though your balance of balances shows the ledger to be in balance, it will be well to check it with your financial statement, as this will help you to see the resemblance that should exist between them. Tlie loss or gain accounts have all been closed into Loss & Gain, and that account closed into the proprietor's account. Since the net gain must agree with the increase of net assets, as you have learned, it is apparent that the proprietor's investment (net assets at the beginning) plus his gain (increase of net assets) must equal his net assets at present, as shown by the financial statement; or, in other words, the balance of the proprietor's account, or capital account, must equal the net capital shown by the financial statement. See the "proof" on page 62. Since the ledger is in balance after closing, the balances of the different accounts are included in the next trial balance. Lesson XXIII SUMMARY AND CLASSIFICATION OF ACCOUNTS The ledger is the book of accounts. Each account in it shows the result of some one part of the business. Accounts are of two classes as to result shown: (a) Financial Accounts; (b) Loss or Gain accounts. Financial accounts are those which individually show the condition of certain parts of the business; collectively they show the condition of the business as a whole. The result of an account of this class is a balance, and when closed it is closed with a balance, which is either an asset or a liability.* Cash, Notes Receivable, Notes Payable, and per- sonal accounts belong in this class. The results of the separate financial accounts, together with the inventories, constitute the data from which the financial statement is constructed. Assets are things of value belonging to the business. An asset may be cash, property, or claims against others. Claims against others may be written (notes receivable) or on account. Liabilities are debts. They may be written (notes payable) or on account. Loss or gain accounts are those which individually exhibit as a result the progress (loss or gain) of some particular part of the business; collectively they show the net loss or net gain of the business as a whole. Accounts of this kind close with either a loss or a gain.f Merchandise, Furniture & Fixtures, Expense, and Interest are accounts which belong in this class; there are many others. *The Cash account must show an asset, unless it closes without a balance. The same is true of Notes Receivable. Notes payable must show a liability, if anything. A personal account may show either an asset or a liability. fThe expense account always shows a loss. The Mdse. account ought to show a gain in every case. A property accouat will usually show a loss, because property is subject to wear and tear. Interest, in an ordinary business, is much more likely to show loss than gain. Except as to the expense account, however, there can be no certainty (as far as the bookkeeper may know) that the result will be one way or the other. Other loss or gain accounts may be kept such as the character of the business may require or the desires of the proprietor may suggest. In this beginning course, only a few typical loss or gain accounts are kept. 70 STATEMENTS While Cash, Notes Receivable, Notes Payable and personal accounts cover the financial accounts usually kept in an ordinary mercantile business, the loss or gain accounts vary widely in different lines of business. The expense account, as you learned in a previous chapter, is often subdivided, many subordinate expense accounts being kept in connection with a general expense account. In a mercantile business, a merchandise account is always kept, but it may be kept under some specific title, such as Boots & Shoes, Groceries, etc.; it may be subdivided to show separate results for separate departments, such as Green Groceries, Dried and Canned Goods, Staples, Bakery Goods, Meats, and Sundries, all closing into a general Mdse. account; or it may be subdivided into Mdse. Purchases, Mdse. Sales, and Mdse.-General; or in any other way which suits the particular require- ments of the business or the wishes of the proprietor. What property accounts are kept will depend primarily upon what property is owned and secondarily upon how the pro- prietor may wish to classify it; he may consider it perfectly satisfactory to keep it all in one general Property account, or he may wish to keep a number of independent accounts. Inventories must be taken into consideration in finding the results of loss or gain accounts. Whether or not there is an inventory for any particular account is a matter of fact, and what the amount of that inventory is, is a matter of fact or opinion. The books do not show these facts as to inventories. Their existence must be known, and their amount must be determined by count and valuation, estimation, or computation, as the case may be. You will learn more about inventories later, and in the meantime inventory figures will be given whenever necessary. The results of the loss or gain accounts constitute the data from which the loss and gain statement is constructed. The financial statement shows the separate assets and liabilities of the business and from these the condition of the business at the time of taking the statement is determined. If the assets exceed the liabilities, the amount of the excess of assets is the net capital, or net assets of the business. Should the habilities exceed the assets, the business would obviously be unable to pay its debts — it would be insolvent. The result of the financial statement would be a net msolvency. The loss and gain statement shows the separate losses and gains of the business and from these the net loss or net gain of the business is determined. This net loss or net gain is for the period of time between the last closing of the books and the date of the statement. If the gains exceed the losses, a net gain is shown for the period. If the losses exceed the gains, a net loss is shown for the period. The net gain of a business always corresponds exactly with the increase of net assets, as is fully proved in Lesson XX. Consequently when the net gain for a certain period is added to the net capital at the beginning of the period, the result is the net capital at the end of the period, provided the proprietor has not increased his investment nor with- drawn any part of it. The net loss of a business always corresponds exactly with the decrease of net assets. Consequently, when the net loss for a certain period is subtracted from the net capital at the beginning of the period, the result is the net capital at the end of the period, pro- vided there have been no additions to or withdrawals from investment in the meantime. Should the net loss for the period exceed the net capital at the beginning of the period, the result would be an insolvency. EXERCISES IN MAKING STATEMENTS 71 Should there be an insolvency at the beginning of a period, instead of a net capital, the gain for the period would decrease the amount of the insolvency; if there were a loss for the period, the amount of the insolvency would be increased. If the gain for the period were larger than the insolvency at the beginning of the period, the result would be the net capital at the end of the period. Loss and gain statements are usually made annually or semi-annually in business; if made oftener, the burden of extra work would usually be too great considering the benefits derived; if made less frequently, the proprietor would not be kept in touch with the condition and progress of the business as closely as he should be. Such a statement could be made every month if desired. It is customary to close the ledger after taking a loss and gain statement. If this were not done, the work would have to be done over again when the next statement was made. Suppose that a loss and gain statement were made on Jan. 31, for instance, cover- ing the period from Jan. 1 to Jan. 31, and the books were not closed. If another loss and gain statement were made on Feb. 28, this statement would have to cover the period from Jan. 1 to Feb. 28. Naturally more time and labor would be required to prepare a state- ment covering two months than one. It is also apparent that the figures for January would have been gone over twice. The ledger is closed as follows: First: The financial accounts (all except the personal accounts*) are closed, the balances being brought down. Second- The loss or gain accounts are closed into Loss & Gain. Third: The loss and gain account is closed into the proprietor's account. Last: The proprietor's account is closed with a balance. Closing the loss or gain accounts in the ledger is sometimes accomplished through journal entries. To illustrate: Instead of closing the expense account with a red ink entry on the credit side and making a black ink entry of the same amount on the debit side of the loss and gain account an entry is made in the journal debiting the loss and gain account and crediting the expense account. When this entry is posted it is found that the expense account balances, and it is ruled to close. The debit item being posted to the los.s and gain account, the condition of the ledger is the same as though the closing had been done directly in the ledger, as is the more general custom. State what you consider to be the advantages and disadvantages of both plans. Closing through the journal is more fully discussed on page 125. Before making any further entries in it, the balance of the ledger should be verified either by taking a balance of balances, or by checking its balances as they stand with the separate assets and liabilities shown by the financial statement. Lesson XXIV EXERCISES IN MAKING STATEMENTS Exercise 1 From the following amounts taken from D. B. Fisk's ledger and inventories, prepare a financial statement as of Jan. SI, 191 — . Also make a loss and gain statement and proof. Use loose sheets. *Some bookkeepers prefer to leave the notes receivable and notes payable accounts open, ruHng them only when they balance, or when they are to be forwarded, treating them in this respect just as personal accounts are treated. 72 statements Footings from D. B. Fisk's Ledger, Jan. 31, 191- D B. Fisk, Proprietor Furniture & Fixtures. Merchandise Interest Expense Cash Notes Receivable. ... C. A. Faust H. J. Holm Notes Payable Miner & Co Stephens & Hill 500 2390 43 275 3203 1900 125 56 560 69 459 1159 520 Inventories: Mdse., $2090.00. Furniture & Fixtures, $485.00. If the losses exceed the gains, the result is a net loss. In preparing the proof this must be deducted from the investment in order to find the net capital Jan. 31. Exercise 2 From the balances and footings following, taken from the ledger of C. V. Rousch, Feb. 28, 191 — , and the inventories below, prepare statements. Write a proof at the bottom of the loss and gain statement. Footings fkom C. V. Rousch's Ledger, Feb. 28, 191 — • C. V. Rousch, Proprietor Real Estate Merchandise Expense Interest Cash Notes Receivable H. A. Wasson Notes Payable J. R. Hadley 10000 4256 272 43 2405 500 245 50 17773 55 14134 1253 10 1000 725 650 17773 55 Inventories: Real Estate, $9875.50; Mdse., $3579.36; interest due on our notes payable, $16.79. Note that the interest inventory is an inventory of debt. This is called a liability in th^ financial statement. It is added to the debit side of the interest account in making the loss and gain statement. Exercise 3 Footings from H. T. Adams' Ledger, Mar. 31, 191 — H. T. Adams Real Estate Merchandise Expense Interest Cash Notes Receivable . . Accounts Receivable Notes Payable Accounts Payable. . . 8500 43000 1260 320 36000 6460 5994 12500 44000 254 33000 6000 5780 THE PROBLEMS OF BOOKKEEPING 73 Observe that the personal accounts are not listed separately. The accounts receivable have appar- ently been scheduled separately and the total only listed in the above trial balance. The same is true of the accounts payable. Inventories: Store and Lot (Real Estate), $8000.00; Mdse., $6000.00; Unexpired Insurance (which had been charged to Expense), $125.00. Note. Unexpired insurance is a resource inventory. It represents something of value which we still own, as it has never been used. Note. It is not to be inferred that it is customary in business to prepare statements from the trial balance and inventories, for such is not the case. Careful accountants prefer to go back to the ledger for the information, thus avoiding one chance of error. Furthermore, the trial balance which is taken by differences (the customary plan) lack the necessary information as to amounts of purchases and sales of Mdse., totals of costs and returns on interest, etc. The Problems of Bookkeeping Bookkeeping consists of problems. Each account constitutes a separate problem. The results of these separate problems (and the inventories) furnish the data for the construction of larger problems, which in turn furnish the data necessary for the solution of the "grand problem," which is the present capital of the business. The outline below shows the relation of these problems to each other and to the grand problem. GRAND PROBLEM Present Capital SUB- PROBLEMS ACCOUNT PROBLEMS a. Assets today . b. Debts today . r Separate Assets shown by Accounts [ Inventories (not usually Bkpg. Probs.) f Separate Debts shown by Accounts 1^ Inventories (not usually Bkpg. Probs.) C. Net Capital before closing . . . . / shown by Proprietor's Account d. Net Gain (or Loss) since last J Separate Gains shown by Accounts closing [ Separate Losses shown by Accounts Explanation. The results of the "account problems," combined with the inventories, constitute the data for the "sub-problems." The result of the "grand problem" can be determined from the data furnished by sub-problems a and b or from the data furnished by sub-problems c and d, and in double entry bookkeeping it is determined in both ways, the result being the same in either case. CHAPTER V SET TWO Lesson XXV TRANSACTIONS FOR FEBRUARY— RETAIL Following are two months' transactions. Enter the transactions for February in your journal, post, and attend to the other duties of the bookkeeper, proceeding as follows: 1. Journalize the transactions of Feb. 1 to Feb. 13 inclusive. 2. Post the foregoing. 3. Take a trial balance as of Feb. 13. 4. Journalize the transactions of Feb. 16 to 27 inclusive. 5. Post the foregoing. 6. Take a trial balance as of Feb. 27. 7. Prepare statements. 8. Close the ledger. 9. Take a balance of balances. Unless your teacher shall instruct otherwise, have your work approved at each of the above points before proceeding with the next step. The accounts kept and the number of lines allowed for each, in addition to the line for the heading and the line for the year date, are as follows: Fifth Page Mrs. C. S. James, 6432 Yale Ave. Mrs. T. J. Foster, 7221 Lowe Ave. South Side Bakery, 7920 Normal Ave. Sixth Page Mrs. Geo. E. Weeks, 5429 Drexel Boul. Notes Payable Jas. P. Smith & Co., 59 S. Water St. Sprague, Warner & Co., 600 W. Erie St. The headings for the above accounts may be written in the ledger at this time, or you may do this just before posting on Feb. 13, as your teacher shall direct. Condition of the Ledger at Beginning Feb. 1, 191 — . A. B. Moore is engageil in business at 6327 Englewood Ave. On this date his assets and debts are as follows: Cash on hand, .11200.75; real e.state, $7500.00; furniture and fixtures, $826.50; horses and wagon.s*, $1627. .50; Mdse. Invty., $4326.75; he holds a 30-day note against F. A. Bright, dated Jan. 17, for $2.50.00, with interest at 6%t; and accounts are due him as follows: Mrs. C. S. James, $27.50; Mrs. T. J. Foster, $36.25. There is outstanding against him a 60-day note in favor of Dan J. Hartnett&Co. for $263.50, dated Jan. 19, with interest at 6%t; and he owes Jas. P. Smith & Co. on account $275.00. The foregoing assets and liabilities should show on A. B. Moore's ledger; and as you have learned, the balance of the capital account should be the difference between the assets and liabilities. Make the necessary entries in the ledger, dating all of them Feb. 1, *If the delivery service were by Auto-truck or Delivery Auto, an account could be opened with either of these headings, instead of the Horse & Wagon account. At the present time, automobile delivery service by retail Houses is mostly confined to Houses ha\'ing a large number of long hauls. fStrictly speaking, accrued interest should be computed on both the note receivable and the note payable. Since these items amount to about the same, however, they are here omitted for the sake of simplicity and in order not to confuse the student at this early stage. 74 First Page A. B. Moore, Proprietor 11 lines Real Estate 7 lines Furniture & Fixtures 10 lines Horse & Wagon 9 lines Second Page Merchandise 1 page Third Page Expense 15 lines Interest 12 lines Loss & Gain 12 lines Fourth Page Cash 30 lines Notes Receivable 11 lines 13 lines 13 lines 13 lines 9 lines 9 lines 10 lines 9 lines TRANSACTIONS FOR FEBRUARY 75 in each case using tlie explanation "Balance" or "Inventory," as may be proper. When this has been done, test the balance of the ledger before proceeding further. Transactions — Set Two 191—. Feb. 1. Sold to Mrs. C. S. James, 6432 Yale Ave., on account:* 2 lbs. golden Rio coffee, at 1.3^ 1 lb. Orange Pekoe Ceylon tea 1 tin Bakers' Breakfast cocoa 1 bottle India curry powder $0.26 $1.45 The explanation in the journal consists of a list of the items and jirices as shown above. The total shows in the money columns only. The words "Sold on account" may be omitted as superfluous, since the journal entry shows clearly what has taken place. Feb. 3. Sold on account to Mrs. T. J. Foster, 7221 Lowe Ave.: 2 lbs. Penang cloves, at 55^ $1 . 10 2 cans Royal Dutch mustard, at 12^ .24 2 bottles vanilla, at 20s! .40 $1.74 Feb. 4. Received a check from C. S. James for .S27.50, in settlement of the account against Mrs. C. S. James up to Feb. 1. You understand that this check is received as cash. FORM OF CHECK FIRST NATIONAL BANK Pay to the order of , C ^ . ^ y~ ??^ /- r .- ^. ■^A ^-'^/ H. T. RAYNOR 364 WABASH AVE. Slalrtndertd. i^A/ ' IJ^W ^^ CC 7^- Zl. (fyyiA (^^^^,?-^ w^y c c So c>er,67-oz^X- ^Jy. 3^j iJIS. 2-00 ■7^ 2^ 7^ CHAPTER VI CLASSIFICATION OF ENTRIES Lesson XXVIII THE SALES BOOK If there were no other book of original entry than the journal, and if it were necessary to record in it separate debits and credits for each transaction, afterwards posting each one of these debits and credits separately to the ledger, bookkeeping would be a very monotonous thing and very tedious in a business of any magnitude. Fortunately, it is not necessary to adhere to this slow and tedious method. The great majority of transac- tions are not entered in the journal, but in some special book of original entry, transactions of the same certain kind being entered in the same book. This not only classifies the transactions, but through the arrangement of the entries in the books a great deal of the labor of writing and posting is saved. One book of original entry that helps the book- keeper to classify his transactions and economize his labor, is the Sales Book. An examination of your journal as you have conducted it up to date will reveal the presence of many entries in which the merchandise account is credited. This entry occurs whenever merchandise is sold. The account debited may be different in each case, but the merchandise account is always credited. When such transactions are entered in the journal there are at least two items written (a debit and a credit) and two postings. When a sales book is kept, however, these transactions are omitted from the journal and entered in the sales book. The form of the sales book is much more simple, and it requires less posting, as you shall see. Journalize the following transactions on loose sheets of paper, without explanations: 191—. Oct. 2. Sold to Jno. R. Thompson, 1234 State St., on account, 3 leather-seated dining chairs, at $8.50, $25.50; 1 pedestal extension table, oak, $40.00, total, $65.50. Oct. 3. Sold to Gus E. Ericson, 3949 N. Robey St., on account, 1 extension dining table, oak, $27.50; 1 oak writing table, $20.00; total, $47-50. Oct. 6. Sold to Harry K. Feldman, on his 10 -day note at 6%, 1 white maple bed- room set, 3 pes., $126.50. Oct. 9. Sold to Geo. W. Chambers, 1239 Main St., on account, 1 Mission china closet, $87.75; 6 Mission oak dining chairs, at $6.00, $36.00; total, $123.75. When you have journalized the four transactions, compare your journal entries with the sales book entries on page 91. the sales book Form of Sales Book, Unposted ■ lirUfedJ iJi^c^^^tri^-eA^ Z, /a/— f-fir,idressj ' 91 fTerms) f/tfrns} . f-Tofa/sf 3 '<^^-i!Z-^A.^.-4^-..d^'€t'Zi'e^ ^^^..■^n.'t''>z^ jO^-tz-cd^ O^-^. f ^7 3i, 7-^ Cj-j-o ^7 /zd /ZJ 3^3 7^ xs Explanation. In entering the sales in the sales book, it is always understood that Merchandise is the account credited. Hence it is only necessary to state the account to be debited without stating in each case that the merchandise account is credited. The form shown is self-explanatory. The separate amounts are later posted to the debit side of the accounts named, and the total posted to the credit of the merchandise account at the end of the month or other period. It is improper to insert folios except at the precise moment of posting, hence the folios are not shown in the above un^Dosted form. QUESTIONS What is the amount of the debit to the account of Jno. R. Thompson as shown in your journal? In the sales book? What is the amount of the debit to the account of Gus. E. Ericsou as shown in your journal? In the sales book? What is the amount of the debit to the account of Notes Receivable as shown in your journal? In the sales book? What is the amount of the debit to the account of Geo. W. Chambers as shown in your journal? In the sales book? How do the debits in your journal compare with the debits in the sales book? 92 CLASSIFICATION OF ENTRIES What four credits to the merchandise account are shown in your journal? What is the amount with which the merchandise account is credited as shown in the sales book? How was tliis amount secured? How does the single merchandise credit in the sales book compare with the total of the four mer- chandise credits in your journal? Process of Posting from the Sales Book The separate entries are posted to the debit side of the account named, the total only being entered in the ledger for each sale. As each is enteretl the ledger page to which it was posted is entered in the L. F. column of the sales book and the sales book page is noted in the ledger. Periodically, usually once a month, the sales book Totals column is footed, and the amount of the footing posted to the credit of the merchandise account. When this entry is made, the ledger page to which the item was posted is entered in the sales book, and the sales book page is noted in the ledger. Form of Sales Book This is usually as shown in the model. The dates are sometimes written in the narrow column at the extreme left. The student, unless otherwise instructed, will always follow the forms shown in this book. aXTESTIONS How many debits are posted from your journal entries of the four transactions? How many credits? How many postings all told? How many debits are posted from the sales book entries shown in the model form? How many credits? How many postings all told? How many postings saved? How many debits would be posted from 100 journal entries of sales? How many credits? How many all told? How many debits would be posted from 100 sales book entries? How many credits, if all were in the same month and the sales book total were posted monthly? How many postings all told? How many postings saved? About what percentage of the labor of posting sales is saved when a sales book is used instead of a journal? What line of writing is saved in every sales book entry? How many times is the total of a sale written in a journal? In a sales book? It is not to be assumed that the saving in labor of writing and posting is the only advantage or even the principal advantage of a sales book. The total of the sales for the month is in itself information which is valuable and it would not always be easy to get this from the ledger if sales were posted separately. When a sales book is kept, the amount of sales for the month, week, or day can be very easily ascertained. Often the recording of sales is attended to by one person, and the general bookkeeping by another, either because the volume of transactions recorded requires the services of two persons, or for some other reason. In such a case, the advantages of a separate sales book are apparent. Sometimes records of sales are kept on the original order sheet or sale ticket and posted from these slips to the debit side of the accounts of the individual purchasers, the total being computed on a separate sheet called the "recapitulation sheet," from which it is posted to the credit of the merchandise account. Make the sales book entries for the following transactions, heading the page "Sales Book, November 1, 191 — ." Then post the entries and take a trial balance. As each item is posted, write in the L. F. column of the sales book the page of the ledger to which THE CASH BOOK, DEBIT SIDE 93 it is posted, and in the ledger indicate the sales book page, using the abbreviation S (to indicate Sales Book) just to the left of the folio column, as shown in the following illustration: Z^^ifT /z.ja^. '7h,y>^.>J/- ^^^.,-^^S-Cifij^2-^ ■SO Note — The second account credited on Oct. 16 maj' be called Interest or Interest & Discnmit. Explanation. The above form is the left-hand page of the cash book, which extends across two pages, a left and a right. As you will note from the explanatory headings, items of Cash Dr. are entered on this page. Such items are omitted from the journal. We indicate in the cash book the name of the account to be credited. Cash is debited in each case, from the very fact of the entry of the amount on this page. aUESTIONS How much is the account of F. P. Norbury to be credited as shown by the entry in your journal? In the cash book? How much is the account of Jno. R. Thompson to be credited as shown by the entry in your journal? In the cash book? How much is the account of Gus. E. Ericson to be credited as shown by the entry in your journal? In the cash book? How much is the Notes Rec. accoimt to be credited as shown by the entry in your journal? In the cash book? How much is the interest account to be credited as shown by the entry in your journal? In the cash book? How much is the account of Jno. R. Thompson to be credited as shown by the entry in your journal? In the cash book? How do the credits in the Cash Dr. form above compare with the credits in your journal? What six debits to the cash account do you find in your journal? What is the sum of the six debits to the cash account which your journal shows? What is the total of the six debits to the cash account in the form above? Process of Posting from the Debit Side of the Cash Book The separate entries are posted to the credit side of the accounts named. The total might be posted to the debit sitle of a Cash account in the ledger, thus preserving the THE CASH BOOK, CREDIT SIDE 95 equality of debit and credit in the ledger, but this, though sometimes done, is not cus- tomary. The same result is secured by simply considering the cash book as a part of the ledger for the purpose of taking a trial balance. Only one side of the cash book is shown above and this is self-explanatory as to form. Make the cash book entries for the following transactions on the first left-hand page of your cash book, heading the page "Cash Dr." Then post the entries, using loose ledger sheets, and take a trial balance, which should include the Cash Dr. total. As each entry is posted, indicate in the L. F. column of the cash book the 'edger page to which it was posted, and in the ledger indicate the cash book page, using the initial C to indicate "Cash Book." This initial should be written just to the left of the folio column in the ledger, as previously illustrated for the initial S used in posting from the sales book. 191—. Dec. 1. A. B. Doyle, proprietor, invested in business cash, $7000.00. Dec. 2. Received from J. H. AVhite, on account, his check for $2 1.3. .50. Dec. 3. G. V. Black gave us his check for $42.75 in settlement of our bill against him of Nov. 23. Dec. 4. A. B. Doyle increased his cash investment $1000.00. Dec. 5. J. H. White paid $100.00 on account in cash. Dec. 6. Received G. V. Black's check for .$20.20 in settlement of our bill against him of Nov. 26. Dec. 9. Mr. Doyle took in a partner, C. V. Henley, who invested $1000.00 in cash. Dec. 10. Received cash for Henry Altman's note of Nov. 10, $500.00, due today with interest for 30 days at 6%, $2.50. Dec. 11. Received a bank draft from G. V. Black on account, $100.00. Dec. 12. J. H. White endorsed over to us on account an express money order for $50.00. Dec. 13. Each partner increased his investment $1000 00 in cash. Dec. 15. G. V. Black gave us his check for $12.75 in full of his account to date. Dec. 16. Received W. L. Millard's check for $202.00, in settlement of the note we held against him for $200.00, maturing this day with interest accrued for 60 days at 6%. Lesson XXX THE CASH BOOK, CREDIT SIDE Journalize the following transactions on loose sheets of paper, without explanations: 191—. Oct. 1. Paid the rent for October by check, $70.00. Oct. 2. Bought from the Sterling Furniture Co., for cash, their invoice of mer- chandise No. 2675, $276.60. Oct. 4. Bought merchandise for cash, Palmer& Anderson's invoice No. 927, $364.20. Paid in cash the bookkeeper's salary for the week ending today, $18.00. F. P. Norbury, the proprietor, withdrew in cash for his personal use $25.00. Paid the bookkeeper's salary in cash as on Oct. 6. Paid cash for office letterheads and envelopes, $7.80. Oct. 6. Oct. 8. Oct. 13. Oct. 18. 96 CLASSIFICATION OF ACCOUNTS Oct. 19. Bought merchandise for cash from The Hoffman Co., their invoice No. 1348, $225.60. Oct. 20. Paid the bookkeeper's salary in cash as on Oct. 6. When you have completed journalizing the foregoing transactions, carefully compare your journal entries with the entries in the form shown below headed "Cash Cr." Credit Side of the Cash Book, Unposted (Explanation J (-^^o„nt) C^rJ: /jfeW-/^4^^ 6>fe«4- /^. 0,-g^ /a!-J Explanation. The above is the right-hand page of the cash book, which as previously stated extends across two pages, a left hand and a right. As j'ou will note from the explanatory headings, items of Cash Cr. are entered on this page. Such items are omitted from the journal. We indicate in the cash book the name of the accoimt to be debited. Cash is credited in each case, from the very fact of the entry of the item on this page. QUESTIONS How much is the expense account debited, in the first entry in your journal? In the cash book? How much is the merchandise account debited, in the second entry in your journal? In the cash book? How much is the merchandise account debited, in the third entry in your journal? In the cash book? How do the separate debits as noted in the form above compare with the separate debits in your journal? What is credited in each case in your journal? What is the total of all the cash credits as shown by your journal? What is the total amount credited to the cash account as indicated above? EXERCISE ON SALES BOOK AND CASH BOOK 97 Process of Posting from the Credit Side of the Cash Book The separate entries are posted to the dehit side of the accounts named. The total might be posted to the credit side of a Cash account in the ledger, thus preserving the equality of debit and credit in the ledger, but this, though sometimes done, is not cus- tomary. The same result is secured by simply considering the cash book as a part of the ledger for the purpose of taking a trial balance. Make the cash book entries for the following transactions, on the first right-hand page of your cash book, that is, just opposite the "Cash Dr." page which you have written, heading the page "Cash Cr." Then post the entries to loose sheets and take a trial balance, which should include the Cash Cr. total. As each entry is posted, indi- cate in the L. F. column of the cash book the ledger page to which it was posted, and in the ledger indicate the cash book page, writing the initial C, to indicate the book from which the entry was posted, just to the left of the folio column. 191—. Paid the rent for December by check, $85.00. Bought from Stearns & Morris, terms net cash, their invoice No. 3214, Harmison & Co. sold us Mdse. valued at $265.20, as per their invoice We gave them our check in payment. Paid cash for 500 2<^ stamps. Paid the salary of the bookkeeper for the week ending Dec. 5, in cash, $20.00. Paid by check for our note in favor of Hough & Co. and accrued interest. The note was for $250.00 and interest had accrued on it for 60 days at 6%, $2.50. The proprietor, A. B. Doyle, withdrew $30.00 in cash for his personal use. Paid for 2 M letterheads and envelopes in cash, $15.50. Paid the bookkeeper's salary as on Dec. 5. Bought Mdse. for cash, $240.00. (Potash & Perrin's invoice No. 3261.) Paid the janitor in cash $5.00, for special services. Lesson XXXI EXERCISE ON SALES BOOK AND CASH BOOK Enter the following transactions in the sales book and cash book: 191—. Oct. 1. F. P. Norbury, proprietor, invested in business $5000.00 in cash. Oct. 1. Paid rent for October in cash, $70.00. Oct. 2. Bought merchandise from the Sterling Furniture Co., for cash, their invoice No. 2675, $276.60. It is not necessary to itemize in the cash book the merchandise purchased, because we have the original invoice, which we will keep on file. Oct. 2. Sold to Jno. R. Thompson, 1234 State St., on account, 3 leather-seated dining chairs, at $8.50, $25.50; 1 pedestal extension table, oak, $40.00; total, $65.50. Oct. 3. Sold to Gus. E. Ericson, 3949 N. Robey St., on account, 1 extension dining table, oak, $27.50; 1 oak writing table, $20.00; total, $47.50. Dec. 1. Dec. 2. $167.20. Dec. 2. No. 4576. V Dec. 4. Dec. 5, Dec. 7. The note was Dec. 8. Dec. 10. Dec. 12. Dec. 14. Dec. 15. 9» CLASSIFICATION OF ACCOUNTS Oct. 4. Bought merchandise for cash, Palmer & Anderson's invoice No. 927, $364.20. Oct. 5. Received cash from Jno. R. Thompson on account, $50.00. Oct. 6. Sold to Harry K. Feldman, on his 10-day note at 6%, 1 white maple bed- room set, 3 pes., $126.50. Oct. 6. Paid the bookkeeper's salary for the week ending today, in cash, $18.00. Oct. 8. F. P. Norbury withdrew for his personal use $25.00 in cash. Oct. 9. Sold to Geo. W. Chambers, 1239 Main St., on account, 1 Mission china closet, $87.75; 6 Mission oak dining chairs, at $6.00, $36.00; total, $123.75. Oct. 10. Received cash from Gus. E. Ericson, on account, $25.00. Oct. 11. Sold to Jno. R. Thompson, on account, 2 brass beds No. 2104, at .$32.00, $64.00; 2 hair mattresses, at $17.25 each, $34.50; total, $98.50. Oct. 13. Paid the bookkeeper's salary in cash as on Oct. 6. Oct. 16. Harry K. Feldman gave us his check for $126.71 to redeem his note of Oct. 6, $126.50, and interest for 10 days at 6%, $.21. Oct. 17. Sold to Gus. E. Ericson, on account, 1 colonial mahoganj- pedestal, $52.50; 1 mission arm chair, $24.25; total $76.75. Oct. 18. Paid for office stationery and envelopes in cash, $7.80. Oct. 19. Sold to Geo. W. Chambers, on account, 1 oak extension dining table, $18.75; 6 oak dining chairs, at $2.25, $13.50; total $32.25. Oct. 19. Received cash from Jno. R. Thompson to cor plete the payment of our bill against him of Oct. 12, $15.50. Oct. 19. Bought merchandise for cash from The Hoffman Co., their invoice No. 1348, $225.60. Oct. 20. Paid the bookkeeper's salary in cash as on Oct. 6. Oct. 22. Sold to F. N. Wright on his 30-day note at 6%, the following items for his new hotel: 3 oak dining tables, at .$12.25, $36.75 12 oak dining chairs. at 2.50 30.00 4 pine kitchen tables. at 2.75, 11.00 6 brass beds, No. 2675, at 9 . 60, 57.60 6 cotton mattresses, at 2.55, 15.30 $150.65 Oct. 23. F. P. Norbury withdrew $25.00 in cash. Oct. 24. Sold to Jno R. Thompson, on account, 1 colonial bedroom set, 3 pes., $137.75. Oct. 25. Received from Gus. E. Ericson cash to complete the payment of our bill against him of Oct. 3, $22.50. Oct. 26. Bought merchandise from the Sterling Furniture Co., for cash, their invoice No. 2993, $420.00. Oct. 27. Paid the bookkeeper's salary as on Oct. 6. Oct. 29. Sold to Gus. E. Ericson, on account, 1 Morris chair, oak, $27.50. Oct. 30. Received Gus. E. Ericson's check to cover our bill against him of Oct. 17, .$76.75. In connection with your study of the sales book and the cash book in preceding chapters, you were taught that in posting from either of these books the book from which an item was posted must be indicated by the use of the initial S or C, for Sales Book or Cash Book, as the case might be. The reason for this is that you are now using three EXPLANATIONS IN THE LEDGER 99 books of original entry (the journal, the sales book, and the cash book), and it is necessary in connection with each ledger entry that the book in which it originated should be indicated. Explanations in the Ledger Up to this point nothing has Iseen said about explanations in the ledger for entries posted to it. This feature has not been mentioned, solely that you might the more easily learn the process of posting. You must now learn to make, in connection with the ledger entries posted, such explanations as are considered by practical accountants sufficient to indicate the nature of the entry in each case. In posting from the sales book the use of the initial »S as previously described, is ordinarily sufficient. The bookkeeper knows, when he sees the S written in the explan- atory column near the folio number 49, that the entry was posted from the sales book, page 49. This shows him that the charge was for merchandise, since all sales book entries are alike in kind. Ordinarily it also indicates the terms of sale, which usually are the same for all customers; but if the house sells a bill of goods on terms other than the regular terms, that fact should be noted in the sales book and then noted m the ledger when the entry is posted. Thus, if our regular terms are cash in ten days it is unnecessary to note this information in the ledger whenever a sale is made and posted; but if we sell a bill of goods on thirty days time, instead of the usual ten, this should be noted in the explanatory column of the ledger. In posting from the cash book, the initial C is used as previously described. This is ordinarily sufficient, but there are some special cases in which it is customary to make special explanations. These will be described when you come to them; for the present the initial C is all the explanation you will use in posting from the cash book. In posting from the journal, instead of writing the initial J, it is customary to write in the explanatory column of the ledger the name of the account affected on the other side in the same transaction — or as it is sometimes called, the contra account affected in the same transaction. For instance, in posting the journal entiy. Notes Rec. $100.00 Jas. P. Smith .SIOO.OO the explanation "Jas. P. Smith" would be written in the notes receivable account and the explanation "Notes Rec". would be written in Jas. P. Smith's account. Any one examining the notes receivable account would see that the note for $100.00 was received from Jas. P. Smith; and an examination of Jas. P. Smith's account would show that the $100.00 with which the account stood credited was for a note which he had given. The omission of an initial indicates that the entry was posted from the journal. The initial J may be used, however, if preferred. The mere abbreviation / would never show the nature of the entry and this could not be determined without laborious reference to the journal, if there were no explanation other than the initial. When the bookkeeper sees the initial S or C, he knows what the transaction was, but in the case of entries jiosted from the journal a further explanation is customary. Special explanations are customary in posting certain journal items, and in posting any items to certain accounts. To enumerate all of these at this time is unnecessary and might be confusing. Attention will be called to these as occasion arises in each case. The following illustration will show the appearance of a ledger account containing entries posted from the journal, sales book, and cash book: 100 classification of accounts Illustration of a Ledger Account with Explanations 2^Cf '7^Z7^ /^Zz^ V^^ e/ 3 Z 7^ fO^ ^'^ ro aUESTIONS What kind of an account is the above? Is it a customer's account or a creditor's account? What was due on the account on April 30? On May 4? On May 6? On May 8? On May 11? On May 15? How did Mr. Milton settle the account? Assuming that the two entries dated May 16 are for the same transaction, tell what must have taken place. What one of the above entries was posted from the journal? '-°,%'fl /2./ry C-flccount to ie credited/ fr.rpUnatinn/ f-fr,„ nt> (%/, 6U /' /f:S-■ft■Ct^^?^-^l.^y ^0 c / ZC J'Z/ J .^2/ 7 THE CASH BOOK, CLOSED .i-or. Open the following ledger accounts, allowing for each account the number of lines named: F. P. Norbury, 7 lines; Merchandise, 4 lines; Expense, 11 lines; Interest, 5 lines; Loss & Gain, 8 lines; Notes Receivable, Jno. R. Thompson, Gus. E. Ericson, and Geo. W. Chambers, one-fourth page each. Post, following the instructions for posting previously studied, from the sales book and from the cash book. Post from the sales book first, as it would not seem reasonable to post a payment from the cash book until the charge is posted from the sales book. When you have posted all the sales book items, post the sales book total to the credit of the merchandise account in the ledger. In posting the sales book total, use the date Oct. 31 and use the explana- tion "Total." Do not post the cosh book footings. These cash book footings (or the cash balance, which amounts to the same thing), will be included in the trial balance. Take a trial balance. Balance the cash book, following the form shown herewith. Date your balancing entry Oct. 31 and bring the balance down as of Nov. 1. Prepare statements, using the following inventory: Mdse., $742.66. Both of the statements and the proof may be written below the trial balance on page 1 of Book C, Blanks No. II, if no lines are left blank. Close the ledger. fl.r^ f—ZTccount to ie deiite'a) fEJtplanattonf (-m„ ni) O^ -y U^, l^n^^i'^^ -P^' /fc34z-i^2^^?«-€:-tf--- ( In><.J JO /r 2-S /r 7 Z2S ^o ro ,rz/7 zo 102 CLASSIFICATION OF ACCOUNTS Lesson XXXII Partnership T\Tien two or more persons unite their money, goods, labor, knowledge or skill in a business enter- prise in which they mutually share profit or loss, the business organization so formed is a partnership. The relations between partners give rise to many of the most interesting problems of accounting. Problem 1. A and B are partners, under an agreement to share and share alike regardless of the amounts of their separate investments. The profit for the month of January is $347.68. How much does each receive? Problem 2. Suppose that in Problem 1 the arrangement had been that Mr. A, being the senior partner, should always receive | of the profits, and Mr. B, \. How much would the share of each have been? Problem 3. Suppose that in Problem 1, A's investment had been $5000.00 and B's investment had been $3000.00 and the agreement had been that they divide the profit or loss in proportion to their respective investments, what would the share of each have been? Problem 4. Suppose the investments have been as in Problem 3, but the agreement has been that the partners were each entitled to a salary of $60.00 a month to be taken from the profits, the balance being divided in proportion to investments. How would the partners have divided the $347.68? Problem 5. Suppose the investments had been as in Problem 3, but the agreement had been that each partner should be allowed interest on his investment at 6%, and that the profit remaining should be divided equally. How would the partners have divided the $347.68? Problem 6. Harris, Dodd, and Winthrop are partners with respective interests on July 1, 1911, of $9000.00, $7500.00, and $6000.00. During the year ending July 1, 1912, the profits of the business were $7750 00. State how much profit each received, under the following conditions: (a) Profits to be divided. Harris, 50%; Dodd, 30%; Winthrop, 20%. (b) Profits to be divided in proportion to investments. (c) Profits to be divided in proportion to investments after each partner has drawn a salary of $100.00 a month. (d) Profits to be divided share and share alike after each partner has been allowed interest on his investment at 6%. Proble.m 7. Suppose that the investment of Harris, Dodd, and Winthrop on July 1, 1911, were as in problem 6, but during the ensuing year the following changes in investment took place: Oct. 1, 1911. Harris increased his investment $1500.00. Jan. 1, 1912. Dodd received $1000.00 from Winthrop, and assigned to him in payment $1000.00 of his interest in the firm. Apr. 1, 1912. Harris withdrew $1000.00. Present solutions for cases 6, c, and d as in problem 6, showing the amount of the interest of each partner on July 1, 1912, in each of the three cases. (The three accounts will have to be averaged before problems 7-b and 7-c can be solved. At the discretion of the teacher, these may be omitted.) Problem 8. W. H. Heckler's ledger shows that on Aug. 1, 191 — , his inventories were as follows: Real Estate, $7500.00; Furn. & Fix., $650.00; Mdse., $5000.00. During August his purchases of Mdse. amounted to $2500.00, his sales of Mdse. amounted to $4400.00, and his expenses were $250.00. On Aug. 31 his inventories were: Real Estate, $7450.00; Furn. & Fix., $625.00; Mdse., $3600.00. What was his net gain for August? Problem 9. On Aug. 31, 191 — , W. H. Heckler's ledger showed the following assets: Cash, $3400.00; Notes Rec, $1500.00; due from J. G. Cameron, $450.00. His liabilities on Aug. 31 were: Notes Pay., $700.00; due Woodbury & Co., $150.00. His inventories on Aug. 31 were as shown in problem 8. If his net capital on Aug. 1 was $16,000.00, what was his net gain for August? Problem 10. What kind of a statement did you prepare in solving problem 8? In solving problem 9? From the data given in the two problems, construct a trial balance as of Aug. 31 before closing. CHAPTER VII SET THREE Lesson XXXIII TRANSACTIONS FOR APRIL Make entries for the transactions of April, 191 — , using the following books of original entry: The sales book, the cash book, and the journal. Periodically, as instructed through- out the transactions, you will post, take trial balances, prepare statements, etc. As a matter of convenience, you may open the ledger at this time. Allow for each account one line for the heading, one line for the year date, and the number of lines indi- cated in the following list: FmsT Page— Lines FrrrH Page — Lines John A. Colby, Partner 9 Blackstone Hotel, Michigan Ave. L. E. Stacey, Partner 10 & Hubbard PI 10 Geo. N. Miller, Partner 8 LaSalle Hotel, 120 LaSalle St 9 Real Estate 9 H. E. Wendell, 1024 N. Robey St 10 Second Page — Sixth Page — Store Furniture & Fixtures 9 Chas. E. Madson, 4279 Indiana Ave 7 Merchandise 21 L. B. Austin, 6679 Normal Ave 9 In-Freight 9 Notes Payable 7 Third Page — Mortgages Payable 6 Interest 15 Seventh Page — Expense 26 Berkey & Gay, Grand Rapids, Mich 8 Fourth Page— Rockford Cabinet Co., Rockford, 111 6 Loss & Gain 17 Imperial Furniture Co., Grand Rapids, Mich. 6 Notes Receivable 15 The Mayhew Co., Milwaukee, Wis 6 J. A. Stephens, 6941 Emerald Ave 7 General Instructions: Post the entries from the sales book at frequent intervals throughout the set. A good bookkeeper always keeps his sales po.sted up to date. It is sometimes embarrassing to have to ask a customer after he has paid his account, think- ing that he has paid it in full, to pay for items that were overlooked at the time settle- ment was made. In posting to the accounts of the proprietors and to the expense account, write specific explanations in the column provided in the ledger for explanations; these will be sug- gested in connection with the transactions as your work progresses. This is in accordance wdth the general principle previously stated, that special explanations shall be written in the ledger when necessary in certain cases to make the meaning of an entry clear. When cash is paid for expense, for instance, it is desirable that the ledger show what the money was spent for, if items are posted in detail to the ledger. Transactions Apr. 1, 191 — . John A. Colby and L. E. Stacey are partners in the furniture busi- ness at 148 Wabash Ave., Chicago, 111., under the firm name Colby & Co. Profits are to be divided in proportion to investments. The assets and Habilities of the business and the investments of the proprietors, on Apr. 1, are as follows: 103 ;104 SET THREE Cash Real estate Store Furniture & Fixtures Mdse. Invty.* Notes Receivable Interest on above Blackstone Hotel H. E. Wendell Notes Payable Interest on above Berkey & Gay Rockford Cabinet Co. Imperial Furniture Co. John A. Colby L. E. Stacey $3246.78 28000.00 625.00 105.50.40 132.00 1.10 560.25 400.75 .$2000.00 7.50 585.62 195.30 225.46 25314.00 15188.40 INVENTORY OF STOCK APRIL 1, 191-. (S ame f 3r all lists.) STOCK NO. DESCRIPTION HOT. SOLD LEFT COST PRICE AMODNT 102E refrigerator 6 $10 75 $** ** 1126 kitchen chairs, elm 7 dz. 10 50 ** ** 2936 kitchen table, pine 25 2 10 ** ** No. 6 Hoosier kitchen cabinet 8 6 24 92 00 50 *** *** ** 2786 Colonial bedroom set, 4 pes, mhgy. ** 396 mahogany dresser U 36 50 *** ** 4001 leather-covered mhgy. davenport 15 62 50 *** ** 397 mahogany dressing tab'e 13 18 00 *** ** 20 B mahogany phonograph record cabinet 12 12 50 *** ** 2787 Circassian vv'alnut dining room set, 4 pes. 9 110 00 *** ** 398 chiffoniers, Circassian walnut 21 25 00 *** ** 483 Mission china cabinet, wea. oak 24 20 00 *** ** 484 Mission dining table, wea. oak 28 15 00 *** ** 486 Mission dining chairs, wea. oak 104 3 00 *** ** 485 Mission buffet, weathered oak 30 15 00 *** ** Style E auto-valet, quarter-sawed oak 6 30 00 *** ** 425 cheval glass, white maple 24 18 00 *** ** 526 Flanders bedstead, white maple 40 21 50 *** ** 0016 brass bed 43 12 00 *** ** 1006 iron bed 50 2 25 *** ** 40 lb. hair mattress 30 30 00 *** ** 600 X cotton mattress 100 4 00 *** ** 2788 mahogany parlor set, 3 pes. 9 90 00 *** ** 1+**** ** Add 5% for freight *** ** ****** ** *It is customary in retail furniture stores to keep a record of each individual piece of furniture received. This record is kept in a stock book or stock register, which is an auxiliary book. The advantages of this plan are many: The salesman has a constant record of stock on hand, and this record may be extremely useful to him in making sales; the order clerk has no excuse for ever getting out of stock on any piece of furniture that should be kept on hand; the bookkeeper may secure an inventory from the stock records whenever he needs to know it, without an actual count of stock. In order that you may get some practice in keeping such a stock record, we present above a list of the furniture on hand at this time. TRANSACTIONS FOR APRIL 105 Copy the foregoing list, adding thereto as purchases are made and also recording the items sold, so that at the end of the month you can figure the inventory for yourself; or you may omit this feature of the work, as your teacher may instruct. The gross amount of the inventory will be given for the con- venient use of those who do not keep the stock record. Note that every article of furniture has a stock number. This number is a factory number and constitutes a complete description. All items of furniture except cheap chairs are bought, sold, and inventoried by the piece, not by the dozen. Enter the cash balance in the cash book, in the total column, and the other balances in the ledger, testing the ledger to make sure that it is in balance before proceeding further. Remember that the cash on hand and the sales book total must always be included in the trial balance. In making the entries in the ledger, use the explanation " Bal- ance" or "Inventory" as may be proper in each case. 191—. April 1. Received cash from the Blackstone Hotel, $243.50, to settle our bill against them of Mar. 22. The entry for this transaction is made on the debit side of the cash book, in the amount column, and omitted from the journal. April 1. Paid the janitor $2.00 in cash for work today. The entry for this transaction is made on the credit side of the cash book, and omitted from the journal. In posting, write the word "Janitor" in the explanation column of the ledger. April 2. Sold to the LaSalle Hotel, 120 La Salle St., on account 10 days,* 4 No. 484 Mission dining tables, weathered oak, at 124.50 $98.00 2 No. 485 Mission buffet, weathered oak, at $22 .75 45 . 50 $14.3 . 50 The entry for this transaction is made in the sales book, and omitted from the journal. The first line of the sales book entrj- should contain the name of the customer, the address, and in this case the terms " 10 days" written just to the left of the first money column. Use a very narrow margin in writing the items, and abbreviate when possible. Weathered may be abbreviated wea. April 3. Bought from The Mayhew Co., Milwaukee, Wis., on 10 days time, 24 Flanders arm-chairs, No. 527, fumed oak, at $4.30, $103.20. The entry for this transaction cannot be made in either of the special books of original entry, so it must be made in the journal, which in this set receives all entries which cannot be made in the sales book or the cash book. ■ April 3. Paid in cash the freight bill for the Mdse. received from ililwaukee, $5.75. Make this entry in the cash book, charging In-Freight. April 4. Sold to H. E. Wendell, 1024 N. Robey St., on account, 1 No. 102E refrigerator $16. 50 4 No. 1126 kitchen chairs, elm, at $1.50 6.00 1 No. 2936 kitchen table, pine 3.75 $26.25 April 4. Paid cash to the Rockford Cabinet Co., $195.30, in settlement of a bill bought from them on Mar. 5, at 30 days net. TMien this entry is posted, rule up the account, as this payment settles the account in full. April 5. Sold to J. A. Stephens, 6941 Emerald Ave., on account 20 days, 1 No. 2786 Colonial bedroom set, 4 pes., mahogany, $145.00. (Abbreviate mahogany mhgy.) April 6. Bought from Berkey & Gay, Grand Rapids, Mich., net 10 days, 8 No. 1625 library tables, mahogany, at $17.50, $140.00. *For variable price lists, see page 167. 106 SET THREE April 6. Paid tlie freight bill on the above in cash, $6.50. April 6. Received a check for .1316.75 from the Blackstone Hotel, to cover our bill of Mar. 27. This balances the account. WTien this entry is posted, rule up the account. Api'il 6. Paid salaries for the week ending today as follows: Geo. N. Miller, book- keeper, .$20.00; Myra Keating, stenographer, .115.00; H. R. Dunn, salesman, $12.00; total, $47.00. The explanation should show that the salaries paid were for the week ending today, and should give the name of each employee and tlie amount paid to each. By writing small, and interlining, all this can be written on two lines. The total should be written in the money column opposite the last line of explana- tion, as shown in the illustration below. In posting, use the explanation " Salaries." ^:=(h^-^:S4-4^c-i^'4^ 7 ''^ ^^z^ C^/r-'^^i ^7 April 8. Sold to the LaSalle Hotel, on account, 6 No. 0016 brass beds, at $18.00, $108.00 18 No. 1006 iron beds, at $3.75, 67.50 24 No. 600 cotton mattresses, at $6.50, 1,56.00 April 9. Received H. E. Wendell's 10-day note at 6% for $427.00, the balance due on his account to date. By agreement the note was dated April 4, the date of Mr. Wen- dell's last purchase. When this entry has been posted, rule and foot the account. April 9. Remitted to Berkey & Gay by bank draft, $285 62, to cover their 10-day invoice of Mar. 31. Cost of the draft, $285.62 plus a fee of 100. Use two lines in the cash book, for this transaction. On one line write the entry crediting cash and debiting Berkey & Gay; on the next line enter the 10^, debiting the expense account, all as shown in the illustration following the last transaction on April 6. In posting to the expense account, use the explana- tion "Exchange." Note. This is the same as a cash payment. To secure the draft, we have to pay cash or a check to the banker who issues it, including a small fee for exchange — in this case 10(^. For a fuller description and illustration of a bank draft, see page 113, in the section on "Drafts." April 11. Received a check from Henry M. Rand for $133.32 to cover his note in our favor for $132.00 and accrued interest at 6%. The note was dated Feb. 10, and interest was therefore due for 60 days. Two entries are made in the cash book. In posting to the notes receivable account, use as an explanation the name of the person whose note was paid. TRANSACTIONS FOR APRIL 107 April 11. Paid the scrubwoman $1.50 for work today. Ai)iil 11. Bought from The Mayhew Co., Milwaukee, Wis., on 30 days credit, the following: 6 No. 1346 extension dining tables, oak, at $18 . 25, $109 . 50 12 No. 625 mahogany serving tables, at $7 . 50, 90 . 00 3 No. 600 leather settees, at $18 00, 54 . 00 $253 . 50 April 11. Paid freight charges on the above in cash, $11.50. April 12. Sold to Chas. E. Madson, 4279 Indiana Ave., on account 10 days, 1 No. 102 E refrigerator 116 50 1 No. 20 B mahogany phonograph record cabinet 20.00 .$30.50 April 12. Received a check from the LaSalle Hotel for $14,3.50, in settlement of the invoice sold them on April 2. April 13. L. B. Austin, 6679 Normal Ave., arranged with us for furniture as shown below, which we delivered to him. He paid us $100.00 in cash and gave us his 30-day note at 6% for the balance. 1 No. 2788 mahogany parlor set, 3 pes, $150.00 1 No. 2787 Circassian walnut dining room set, 4 pes, 165.00 1 No. 2786 Colonial bedroom set, mahogany, 4 pes, 142.50 1 No. 2936 kitchen table, pine, 3 . 50 6 No. 486 Mission dining chairs, wea. oak, at $4.50, 27.00 3 No. 1126 kitchen chairs, elm, at $1.50 each, 4.50 1 No. 102E refrigerator, 18.00 $510.50 Charge the entire bill through the sales book, terms " Cash & note." Give credit for the cash, through the cash book; and for the note, through the journal. When all three items have been posted, rule and foot the account. April 13. Mailed our check to The Mayhew Co., Milwaukee, Wis., for $103.20 to cover their 10-day bill of April 3. April 13. Paid the salaries in cash as on April 6. April 13. H. E. Wendell paid us by check the amount due on his 10-day note in our favor dated April 4, $427.00, and interest for 9 days at 6%, 64 0. In posting this entry, use as an explanation the name of the person whose note was paid April 13. Bought from The Macey Co., Detroit, Mich., for cash, 32 No. 7 bookcase sections, fumed oak, at $2.00. (Describe this in the cash book as "The Macey Go's. Inv. No. 1429.") The freight charges on this shipmerit were paid by the shipper. April 13. Sold to J. A. Stephens, on account, 1 No. 397 mahogany dressing table, $28.50 1 No. 396 mahogany dresser, 56.50 1 No. 2788 mahogany parlor set, 3 pes, 145.00 $230.00 Post, as follows: Post all the debits to personal accounts from the sales book. Make a lead pencil footing in the sales book, but do not post its total at this time. Post all the items on the debit side of the cash book to the credit side of the accounts named, except the first item, which is a balance brought down. In posting the items on Apr. 6 and Apr. 14, follow instructions as to the use of explanations. Foot the Cash Dr. column in lead pencil but do not post the footing. Post all the items on the credit side of the cash book to the debit side of the accounts named. In posting to the debit of the expense 108 SET THREE account, make a proper explanation in the ledger for each item. Foot the credit column in lead pencil, but do not post the footing. Post the journal entries, remembering to use as an explanation for each item posted the name of the account or accounts affected on the other side in the same transaction. Take a trial balance, which should include the total footing of the sales book and the balance of the cash book, which have not been posted to the ledger. April 16. Mailed our check for $140.00 to Berkey & Gay in settlement of their 10-day invoice of April 6. April 17. Sold to Chas. E. Madson, on account, 1 No. 2787 Circassian walnut dining room set, 4 pes., $165.00. April 17. Paid $25.50 for 5M letterheads and envelopes, printed. April IS. Bought from the Rockford Cabinet Co., Rockford, 111., on ."^0 days time, 6 No. 336 writing tables, mahogany, at $11 .00, $66.00 5 No. 6^ umbrella stands, walnut, at $4.00, 20.00 $86.00 April 18. Paid freight charges on the above in cash, $6.75 April 18. Sold to the Blackstone Hotel on account, 24 No. 486 Mission dining chairs, weathered oak, at $4.50, $108.00. How to Forward the Sales Book Total Forward the footing of the sales book fi'oin page 3 to the top of page 4 as follows; Rule a single line beneath the last entry in the Totals column of page 3. Foot the column, writing the total in ink below the ruUng, with the explanation "Footing forwarded." Check in the folio column. Write the same total on the first line below the triple ruling at the top of page 4, in the Totals column with the explanation "Footing brought for- ward." Check in the folio column. The date of the next sale will head page 4. April IS. Paid cash for 500 2i stamps. April 18. Remitted $300.00 to Berkey & Gay by bank draft, to cover their 30-day invoice of Mar. 19. Cost of the draft, 10^?.. April 19^^ Bought from the Imperial Furniture Co., Grand Rapids, Mich., on account 30 days, 12 No. 590 mahogany rocking chairs, at $9.00, $108.00. April 19. Sold to H. E. Wendell, on account, 1 No. 0016 brass bed, $18.50 1 40 lb. hair mattress at $1.00 a pound, 40.00 $58.50 April 20. Paid the salaries in cash as on April 6. April 22. Sold to the LaSalle Hotel, on account, 12 No. 0016 brass beds, at $18 . 50, $222 . 00 12 No. OOOX cotton mattresses, at $6.50, 78.00 $.300.00 April 22. Received cash from Chas. E. Madson to settle our bill against him of April 12, $36..50. April 25. Remitted $225.46 to the Imperial Furniture Co. by bank draft to cover their 30-day invoice of Mar. 26. Cost of draft, 10(i. April 25. Received cash from J. A. Stephens to settle our bill against him of April 5, $145.00. TRANSACTIONS FOR APRIL 109 April 26. Sold to Chas. E. JIadson on account, 1 Style E auto-valet, quarter-sawed oak, $47.50. April 27. Paid the salaries in cash as on April 6. April 29. Bought from Berkey & Gay, on account, 10 days net: 10 No. 4269 Princess dressers, birdseye maple, at $21 .00, S210.00 8 No. 063 porch chairs, wicker, at $4.75, 38.00 5 No. 065 Spanish swinging settees, canvas, at $9.25, 46.25 $294.25 Abbreviate birdseye maple B. E. maple. April 30. Sold to the Blackstone Hotel, terms .30-day note at 6%, 2 No. 102E refrigerators, at $15.00 $30.00 2 Hoosier kitchen caljinets. No. 6, at $36.00 72.00 5 Auto- Valet, style E, at $42.50 212.50 2 No. 2788 mhgy parlor sets, 3 pes. each, at $125.00 2.50.00 24 Flanders arm chairs, No. 527, at $6.. 00 144.00 8 library tables, mhgy. No. 1625, at $25.00 200.00 6 No. 336 writing tables, mhgy, at $15 .25 91 . 50 $1000 . 00 Make two entries, one in the sales book debiting the account of the Blackstone Hotel, the other in the journal, crediting the account of the Blackstone Hotel. April 30. Sold to L. B. Austin, on account, 1 No. 102E refrigerator $15.75 5 No. 1126 elm kitchen chairs, at $1.50 7.50 3 No. 600 leather settees, at $27.50 82.50 $105.75 Post, following the instructions given on April 15, except that the sales book total is to be posted to the credit of the merchandise account, as previously described. Take a trial balance, remembering to include the balance of the cash book. Prepare statements, using the following inventories : i Interest receivable on L. B. Austin's note for .S410.50, dated Apr. 13, is-days at 6%, .I LOuT Interest payable on our note in favor of C. B. Churchill dated Mar. 4, for $2000.00, 57 days at 5%, $15.83. Salaries earned and unpaid, $15.67. Real Estate, $27850.00. Store Furn. & Fix., $618.75. Mdse., $9420.65. The inventories of interest and salaries should be verified by you before you enter them. You can verify the Mdse. Invty.* by preparing a stock record as pre- viously described, adding 5% to cost for freight charges. The loss and gain statement should be prepared in such form as to show In-freight as subordinate to Merchandise. The illustration at the top of page 110 will give you the proper form for the loss and gain statement. Close the loss or gain accounts. These should be closed to conform with the loss and gain statement, which means that In-Freight should be closed into Merchandise before Merchandise is closed into Loss & Gain. An Interesting Bookkeeping Device Some bookkeepers like to make canceling entries in the notes receivable and notes payable accounts opposite each other. Thus a payment on Sept. 25 of a 10-day note for $100.00 dated Sept. 15 would be written on the same line with the entry made Sept. *Invcntory all stock at last purchase price. If there were no purchases during April, use the cost prices of the Apr. 1 inventory. 110 SET THREE LOSS St GAIN STATEMENT. APR. 30, 191- GAINS Merchandise Invty Apr. 1 10550.40 Purchases April xxxx.xx In. •Freight April XX. XX Total cosi XXXXX.XX Invty Apr. 30 9420.65 Cost of goods sold XXXX.XX Sales April xxxx.xx Cost of goods sold xxxx.xx xxxx.xx LOSSES Real Estate Dr 28000.00 Cr Invty 27850.00 XXX. XX Store Purn & Fix Dr 625.00 Cr Invty 618.75 x.xx Interest Dr x.xx Dr Invty 15.83 XX. XX Cr x.xx Cr Invty 1.23 XX. XX x.xx Expense Dr XXX. XX Dr Invty 15.67 XXX. XX Net gain for April PROOF Jno. A. Colby II n L. E. Stacey Net capital of firm Apr. 30 Investment 5/8 of net gain share capital Apr. 30 Investment 3/8 of gain share capital Apr. 30 25314.00 XXX. XX XXXXX.XX 15188.40 XXX. XX XXXXX.XX XXXXX.XX 15, although there might be a blank line just above it that could have been used. This plan is not a good one when there are many partial payments, as it would be necessary in this case to make several entries on one line. When this plan is followed, the account is never balanced, but whenever the items cancel down to a certain line, the bookkeeper rules off all above that line by single line rulings. This latter device can be applied to any account and will often be found of convenience, especially in reducing the amount of labor necessary to find the balances due on personal accounts. Following is an illustra- tion of a notes receivable account which illustrates the various points of this paragraph. It is not advised that the student follow this form, which is shown simply in order that he may become familiar with it. Ill Q^^. ^ o /3 2^.'- _IJ_^ Notes: The credit on Sept. 13 was written on the second line though the first Une was then blank. Later the credit on Sept. 16 was entered on the first line, opposite the item canceled by the payment. It was then observed that the items above a certain line canceled, and two single lines were ruled. These single rulings are on the same line in the form shown, but in ruling ofT personal accounts in the same way it seldom happens that the rulings are opposite each other. Part payments were made to cover the credit item of Sept. 9, and these are both written on the same line in small handwriting. The line on the credit side opposite the unpaid debit item of Sept. 10, is left blank. The balance is determined by Inspection. DRAFTS A Draft is an order instructing one person to pay another person a certain sum of money at a certain time. It is assumed that the person who issues an order has a right to ask that the payment be made as ordered. The person drawing (ordering that payment be made) is called the drawer of the paper. The person drawn upon (ordered to pay) is called the drawee. The person to whom payment is to be made is called the payee. As to time of payment, there are sight drafts and time drafts, the former being pay- able at sight, the latter being payable at a future time. When payable at a future date, that date may be specified in the draft, it may be stated as a certain number of days or months after the date the draft bears, or it may be stated as a certain length of time "after sight" — that is, after the drawee sees it. A draft does not become effective until the drawee has paid it or has agreed to pay it. If it be a sight draft it will be paid at once, or payment will be at once refused. If it be a time draft the drawee will indicate (usually in writing) his willingness to pay it when the time comes, or will refuse at once to be hable for it. Refusal to pay a sight draft or refusal to agree to pay a time draft is called "dishonoring," or refusing to honor, the paper. The drawee usual'y indicates his willingness to pay a time draft on the date specified or indicated, by writing across the left end of the face of the draft the word "Accepted" or "Good" or some other word of similar import, with the date of acceptance, and his signature. The paper is then called an accepted draft, or acceptance. 112 SET THREE FORM OP DRAFT, AFTER ACCEPTANCE Explanation: If the above draft had been written in the form of a letter, the letter would have read as follows: Chicago, III, August 1, 191—. J. W. Hunter, Springfield, 111. Dear Sir: At thirty days' sight (that is, thirty days after you see this) pay to James Anderson, or (to his) order, five hundred dollars. (This draft is given for) value (which has been) received (by me). (When you have paid the amount it calls for), charge the same to the account of (Yours truly), M. Snowden. It must be assumed that Mr. Snowden had the right to draw against Mr. Hunter for this $500.00, either because Mr. Hunter owed him money or because there was an agreement between the two that Mr. Snowden's drafts would be paid. Otherwise it would have been useless for Mr. Snowden to issue the draft. It must also be assumed that Mr. Snowden had some reason to give Mr. Anderson the paper. We shall consider three possible reasons: (a) Mr. Snowden owed Mr. Ander- son $500.00 which he wished to pay in this way. (b) Mr. Anderson, wishing to travel from Chicago to Springfield but unwilling to carry with him $500.00 in cash, turned the money over to Mr. Snowden, receiving in exchange Snowden's order payable in cash in Springfield, (c) Mr. Snowden, wishing to collect $500.00 from Mr. Hunter, used Mr. Anderson as his collector, expecting Mr. Anderson to return the proceeds of the collection. Drafts all three parties to which are private individuals or firms are no longer common. Yet they are occasionally found and the relation of the parties should be familiar to all. Bank drafts, however, and drafts through the bank, are widely used. Drafts through the bank are largely used for the collection of bills. A iliaft of this kind is one in which the bank is the payee, the creditor being the drawer and the DRAFTS 113 debtor the drawee. Following is a form of a draft through the bank. Drafts for collec- tion are usually in this form. Mr. Raynor could have made out the draft in his own favor, however, and coukl then have endorsed it over to the Merchants Exchange Bank. DRAFT FOR COLLECTION Bank Drafts are largely used for the transfer of funds from one locality to another. The drawer of a bank draft is a bank; the drawee is also a bank. The payee is a person. FORM OF BANK DRAFT 413294.^ t.^^^y^^Ae^l<^i^:f^^^ l/fu-»^^^ DEC 30 y^ ~i fc< s < A •-s <: m o Z Days 191— 60 fi% 191- 11 132 Apr. 11 Check 1 32 133 32 10 6% 191- 14 427 Apr. 13 Check 64 427 64 30 6% 191 13 410 50 30 6% 191- 30 1000 30 6% 191- 1 212 60 Some accountants prefer to use the notes receivable and notes payable books as books of original entry. This is done by omitting the journal entries altogether when notes are received or issued and posting from the notes 'receivable and notes payable books. This necessitates extra columns in these books for the name of the account to be posted to and for the ledger folio. The plan is not a good one, because of the great confusion that arises, as for instance when a note signed by one person is received from another. The modelforms shown on pages. 116 and 117 contain the proper memorandums for April. Study these forms carefully, and write the memorandums for April in your notes receivable and notes payable books. . Throughout May, you will make the proper memo- randums in the notes receivable and notes payable books at the time of making the original entry in each case. Transactions, Continued 191- May 1. Geo. N. Miller, who has been in the employ of the firm for some time, has saved $2000.00 out of his salary. He is permitted to invest this amount in cash and will share in the profits in the proportion which his investment bears to the entire invest- ment. He will continue to draw his weekly salary as bookkeeper. Make the entry in the cash book with the explanation "Investment, see Journal, page — ." Then make a memorandum in the journal which will explain the transaction in detail. May 1. Bought from Berkey and Gay, terms 10 days net, 10 No. 065 Spanish swing- ing settees, canvas, at $9.25, .$92.50. Paid freight charges on this shipment in cash, $3.65. May 2. Sold to the LaSalle Hotel, on account, 12No. 0016 brass beds, at $17.50 S210.00 12 No. 1006 iron beds, at $3.75 45.00 24 No. 600X coy^on mattresses, at $6 . 50 156 . 00 $411. 00 PAYABLE Rate of Int When due Redeemed Time Year i < 3 a >~i 3 < 1" 1 2 Q Face When How Int. Amt. Pd. Davs 60 5% 191- 2000 191— May 3 Cash 16 67 2016 67 118 SET THREE May 2. Received from Chas. A. Maclson his 30-day note at 6% for $212.50, tl:e balance of his account to date. After making the required journal entry, make a proper memorandum in tlie notes receivable book. May 3. Our note in favor of C. B. Churchill fell due today, and we paid it in full with interest. Face of note $2000.00; interest for 60 days at 5%, $16.07; cash paid, $2016.67. After making the required entry, make a proper memorandum of the payment in the columns at the right in the notes payable book. May 3. Sold to J. A. Stephens, on account, one No. 2787 Circassian walnut dining room set, 4 pes. $175.00. May 4. Sold to L. B. Austin, on account, 1 No. 1346 extension dining table, oak $31.50 1 No. 20 B mhgy. phonograph record cabinet 20.00 S51.50 May 4. L. E. Stacey, partner, withdrew $1000.00 in cash. In posting this entry use the explanation "Withdrawal" in the ledger. May 4. Paid the salaries in cash as on April 6. May 5. Sold to the Blackstone Hotel, on account, 2 No. 2786 Colonial bedroom sets, 4 pes., at $150.00 $300.00 4 No. 1346 extension dining tables, oak, at $24 .50 98 . 00 12 No. 7 bookcase sections, fumed oak, at $3,40 40.80 $438.80 May 6. Bought 1000 2t postage stamps for cash. May 7. Received a check for $108.00 from the Blackstone Hotel in settlement of our bill of Apr. 18. May 7. Sold to H. E. Wendell, on account, 1 No. 2787 Circassian walnut dining room set, 4 jjcs. $175.00 4 No. 7 bookcase sections, fumed oak, at $3 . 60 14.40 $189.40 May 8. Received a check for $331. .50 from the LaSalle Hotel to cover our bill of Apr. 8. May 8. L. E. Stacey, partner, again made a withdrawal of cash. This time the amount withdrawn was $1800.00. May 9. Paid in cash Berkey & Gay's invoice of April 29, $294.25, sending them a bank draft for the amount. Exchange on the draft, 10^. May 9. Sold to L. B. Austin on account, 1 No. 2788 mhgy. parlor set, 3 pes. $145.00 1 No. 6 Hoosier kitchen cabinet 37.50 4 No. 7 bookcase sections, fumed oak, at $3.50 14.00 $196.50 May 10. Sold to the LaSalle Hotel, for cash, 5 No. 6i umbrella stands, walnut, at $6.75 1 No. 2788 mhgy. parlor set, 3 pes. 8 No. 063 porch chairs, wicker, at $7.90 63.20 $246.95 Since the LaSalle Hotel has an account with us, the foregoing tran,saction should be carried through the ledger. Debit the account of the LaSalle Hotel through the sales book, and credit it through the cash book. When both entries have been posted, the entire transaction will appear in the ledger. $33.75 150 .00 63 .20 TRANSACTIONS FOR MAY 119 May 11. Paid the Mayhew Company in cash the amount due on their bill of April 11, $253.50. May 11. Paid the salaries in cash as on April 6. May 11. Paid Berkey and Gay by bank draft the amount of their invoice of May 1, $92.50. Exchange, 10^ May 13. Received cash from L. B. Austin for his note of April 13, $410.50, and interest for 30 days at 6%. May 13. Mr. Stacey having informed us that he would need about $2500.00 in cash at once for his personal use, we borrowed $3000.00 from the City National Bank for six months at 5%, giving a mortgage on our real estate to secure the loan. (Credit Mort- gages Payable.) Make a memorandum of this mortgage in the notes payable book. Strictly speaking, it does not belong there, but since we have only one mortgage payable it may be listed with the notes payable for convenience, in order that we may be reminded when it falls due. The notes payable book being only a memorandum book, no harm can be done by this procedure. May 13. L. E. Stacey, partner, withdrew in cash all of his investment in excess of $10,000.00. May 13. Sold to H. E. Wendell, on his 15-day note at 6%, 1 No. 278S mahogany parlor set, 3 pes., $150.00. Follow the instructions given in connection with the sale to the Blackstone Hotel on April 30. May 14. Sold to the Blackstone Hotel, receiving $500.00 in cash to be applied on the bill, 2 No. 27S6 Colonial bedroom sets, mhgy., 4 pes. each, at $147.50 .$295.00 6 No. 396 mhgy. dressers, at $51.75 310.50 6 No. 625 mhgy. serving tables, at $12.50 75.00 $680.50 Charge them the amount of the entire bill. Give them credit for the cash payment. May 14. Bought from The Mayhew Co., Milwaukee, Wis., 6 No. 2787 Circassian walnut dining room sets, 4 pes. each, at $110.00, $660.00. Gave them our 10-day note at 6% for the amount of the bill. Paid the freight charges on the shipment in cash, $12.78. The purchase should be carried through the ledger, as previously described. After the required entries are made, make the proper memorandum in the notes payable book. Hereafter make memo- randums in the notes receivable and payable book whenever necessary. Remember this instruction, as it will not be given again. Forwarding the Cash Book Footings The credit side of the cash book is now full. Forward both debit and credit foot- ings to the next two pages of the cash book, as follows: Rule a single line across both money columns on both the debit page and the credit page, on the blue line on which the last credit item is written. Below this line write the footings of the three columns in which you have figures. Opposite the debit footings, write the e.xplaaation "Footings forwarded." Opposite the credit footing, write the explanation "Footing forwarded." Write the cash book headings for the next debit and credit pages and on the first line below the headings wi-ite in the proper columns the amounts forwarded, with the explan- ation " Footings brought forward " on the debit side, and the explanation " Footing brought forward," on the credit side. No entries after this date are to be written on either of the pages which have been ruled and footed. Note. The debit and credit footings are forwarded at the same time as a matter of convenience. Each page could be forwarded as filled, without regard to the other page, but it is easy to see that this would occasion a great deal of extra turning of pages. Sometimes separate debit and credit books are kept. 120 SET THREE May 15. Received a check from J. A. Stephens for $230.00 in settlement of our invoice of April 15. May 15. Sold to L. B. Austin, on his 10-day note at 6% (two entries). 1 No. 483 Mission china cabinet, weathered oak $32.50 1 No. 484 Mission dining table, weathered oak 24.00 1 No. 485 Mission buffet, weathered oak 23.75 6 No. 486 Mission dining chairs, weathered oak, at $4.50 27.00 $107.25 Post all entries up to date, but do not post the footings of the sales book. Take a trial balance, which should include the sales book and cash book footings. May 15. L. E. Stacey having announced that he would withdraw from the partner- ship, $100.00 in cash was paid to him as his estimated share of the May profits to date. (Debit Loss & Gain; credit Cash.) In accordance with the terms of a private arrange- ment between L. E. Stace^ and Geo. N. Miller, the balance of Mr. Stacey's capital account was transferred to the credit side of Mr. Miller's account. Mr. Miller was paid his salary up to date in cash, $10.00, and no further salary was to be paid to him. May 16. Sold to the LaSalle Hotel the items listed below. Received their 10-day note at 6% to cover the balance of their account, including this invoice. (Two entries.) 4 No. 396 mhgy. dressers, at $51.90 $207.60 2 No. 2788 mhgy. parlor sets, 3 pes. each, at $150.00 300.00 $507.60 May IS. Received a check for $58.50 from H. E. Wendell in payment of our invoice of April 19. ■ May 18. Mailed to the Rockford Cabinet Co. our 10-day note at 6% to cover their bill of April 18, $86.00. May 18. Remitted $108.00 to the Imperial Furniture Co. by bank draft, to cover their bill of April 19. Cost of the draft, 100. May 18. Paid salaries as follows: Myra Keating, $15.00, H R. Dunn, $12.50. May 20. Sold to H. E. Wendell on account, 2 No. 625 mhgy. serving tables, at $12.75 $25.50 1 No. 1346 extension dining table, oak 27 . 25 $52 . 75 May 20. Bought from the Rockford Cabinet Co., on account, 12 No. 336 writing tables, mahogany, at $11.00, $132.00. Paid freight charges in cash, $5.25. May 21. Bought from the Imperial Furniture Co. on our 30-day note at 6%, 48 No. 590 mhgy. rocking chairs, at $9.00, $432.00. Paid the freight bill in cash, $14.40. May 23. Received cash from H. E. Wendell in full of account. To determine what H. E. Wendell's balance is it will be necessary to examine not only the ledger, but all books of original entry for transactions entered but not posted. May 24. Sold to the Blackstone Hotel, on account, 3 No. 6 Hoosier kitchen cab- inets, at $.37.50 each, $112.50. May 24. Paid The Mayhew Co. in cash $601.10, the amount of our note in their favor dated May 14 and interest. May 25. Received cash from L. B. Austin for his note of May 15, $107.25, and interest for 10 days at 6%, 18 ? > /A2±. '9^aW\C { ■JSt 3 {■/ C Jf oC general column on the credit side. If we secure a discount the discount item is written beside the payment, in the cash discount column, which is conveniently near the general column. Both the payment and the discount are posted to the debit of the creditor's account. To balance these two items posted to the debit side of the ledger, we have (1) The credit to cash, from the fact that the amount of the payment is entered in the general column of the cash book. (2) The credit to the cash discount account — for the cash discount column is footed and its total posted to the credit of the cash discount account. The cash book is ruled in closing as shown in the illustration. The balance is brought down on the debit side in the general column. THE PURCHASE BOOK ILLUSTRATION OF A SIX-COLUMN CASH BOOK ;~1^^ 129 /f 2-^ t- Xf 3c Jo 30 Jo Jo v^ '^drrul'U-i-t^^^ZyCi-^ -/df^d '-^^TTt^ TP^aU^y. a-^/ ^ '^i;'otv& , ? 7 Ca^Vivs .tv Q»<.x\wt^ p > ; J r/ 6 cTJyC ? ? M. THE PURCHASE BOOK Purchases of merchandise are entered in this book. Each purchase is posted to the credit of some ledger account (usually a personal account) and the total is posted to the debit of the merchandise account. It is not customary to itemize the goods bought ; the general practice is for the purchaser to retain the invoices, and this of course makes it unnecessary to itemize the goods bought. The form used in set four is very simple, and provides for the recording of only the bare essentials of each transaction. In practice, much more elaborate forms are often used, with special columns for such informational matter as may be deemed important. For instance, a special column may be kept for the seller's invoice number. Sometimes 130 SET FOUR incoming invoices are numbered by the bookkeeper as received and a special column is provided in which these numbers can be recorded. Again, the date of a bill is quite likely to be different from the date the invoice is received, and a separate column should then be kept in which the date of the bill would be shown, the discount date being figured from this date. Special columns may be provided for the discount date (or the different discount dates) and for the date of maturity, as in the notes payable book. All of these special columns are purely auxiliary, and are omitted from this form for the sake of simplicity. THE PURCHASE BOOK Uz^uy^^Ofi^ ^"/-' fl.. ^y f'Creditors J^amfl Q'i^'f'i'-ess) (-Terms) fyTmcunt) (Tatill ) i^*«-^2-S' '^ayi^t^e-'fZ'ii^t'^A^^ii^. f? Co Use the same notes receivable book and notes payable book you used for the furniture business, leaving a few blank lines below the May entries. Accounts Kept. You will keep the following accounts in your ledger, allowing for each account one line for the heading, one line for the year dates, and for the entries the number of lines given in the following list: Capital 10 lines Real Estate 8 lines Furniture & Fixtures 8 lines Merchandise 13 lines Cash Sales 4 lines In-Freight 12 lines Insurance 8 lines Interest & Discount 13 lines Expense 9 lines Cash Discount 8 lines Loss & Gain 18 lines Notes Receivable 9 lines Smith & Wellman, 1349 S. Clark St 11 lines Oscar E. Hewitt, 209 S. Dearborn Ave... . 8 lines Grant Butler & Co., Peoria, 111 9 lines E. W. Phillips, 2639 S. Halsted St 9 lines Notes Payable 8 lines Groves & Rood, 175 Fifth Ave 10 lines Walker & Co., Columbus, Ohio 10 lines Carpenter Bros., St. Louis, Mo 7 lines C. E. Masters Estate 7 lines C. N. Masters, legatee 7 lines Mary B. Groves, legatee 7 lines U. S. 4's 1921 7 lines Apartments, 1419 W. Madison St 7 lines Income from Apartments 1419 W. Mad- ison St 7 lines TRANSACTIONS FOR JUNE 131 The cash discount account is debited for cash discounts we allow, which are costs to us. It is creilited for cash discounts allowed to us by others, which are returns to us. The stu- dent will have no difficulty with this account if he will imagine that when such bills are settled the entire amount of cash is paid and then a part of -it is returned by the creditor. The insurance account exhibits the costs for insurance, and the returns on this account, if any. It is treated just like the expense account. The "U. S. 4's, 1921" account is an asset account like the notes receivable account. It exhibits the amounts of United States 4% bonds maturing in 1921 which have been received and disposed of. "Apartments 1419 W. Madison St." is the title of a property account that is no different in its nature from the Real Estate account. "Income from Apartments 1419 W. Madison St." is the name of an account in which we keep a record of costs and returns from that property. It is a loss or gain account. The cash sales account is a temporary account which is debited for the amount of cash sales as entered in the sales book at the end of the month or whenever the cash sales column in the cash book is footed, and credited for the same amount as posted from the cash book. When both entries to it are posted, it balances, and should be I'uled off. One of the features of set four is a little "set within a set." S. D. Masters, the senior partner, is made executor of the estate of C. E. Masters, deceased, a brother, and rather than open a complete new set of books for the estate, he carries the accounts of the estate on the books of the firm. When the estate is distributed among the heirs according to law, it will be seen that all of these estate accounts have disappeared from the books. Although there are several partners, only one capital account is kept. The invest- ment accounts of the partners are kept in a private ledger to which they only have access. Whenever you have an entry which would ordinarily go into one of the investment accounts, you debit or credit Capital, at the same time handing S. D. Masters a memorandum which will enable him to make the proper entry in the private ledger. (You need not actually prepare these memorandums.) The sum of the balances of the private ledger should equal the balance of the capital account. Transactions 191— June 1. Enter in your ledger and cash book the following balances, which represent the condition of the business of Masters & Co. on this date. 26625.99 Oscar E. Hewitt 325.00 Grant, Butler & Co. 69 . 70 E. W. Phillips 125.60 Notes Payable 500.00 1.50 Groves & Rood 325.75 14.75 Walker & Co. 410.10 Carpenter Bros. 259.26 Cash 2432.39 Explanation. The balance of the notes receivable account, $240.00, is for a 30-day note at 6% dated May 7; it was received from S. H. "Watson on account. Make a proper memorandum on the notes receiv- able book. The balance of the notes payable account is for our 60-day note for S500.00 at 6% given to Holmes & Ferguson on May 13 to cover their invoice of that date. - Make a proper memorandum in the notes payable book. Items of interest accrued on the note receivable and the note payable were included among the losses and gains at the time of the last closing and were brought down as inventories on June 1 as shown by the foregoing trial balance. Salaries earned but unpaid were also included among the losses for last month and the item was brought down on June 1 as an offset to the expenses for June as shown. Capital Real Estate 152.50.00 Furniture & Fixtures 823.60 Merchandise 8627.45 Interest & Discount .96 E.xpense Notes Receivable 240.00 Smith & Wellman 242.65 132 SET FOUR June 1. Insured our stock of merchandise for $6900.00, paying the premium for one year in advance in cash. The premium paid was at the rate of $1.2.5 per hundred. (Debit Insurance.) June 2. Bought from Groves & Rood, 175 Fifth Ave., City, terms 2/10 n/30, 24 prs. youths' patent leather bluchers, at $1.80 $43.20 36 prs. boys' kid bluchers, at 90<( 32.40 24 prs. boys' gura overshoes, at $1.00 24.00 $99.60 June 2. Paid Walker & Co., by check, the amount of their invoice of May 23, $142..50, less 2% discount which was allowed for cash in ten days. Included 100 exchange in the amount of the check. Deduct 2% from the amount of the invoice. Enter the amount of cash paid (exclusive of the exchange) in the general column on the credit side of the cash book, and the amount of the discount in the cash discount column beside it. When you post these two items to Walker & Co.'s account in the ledger, use only one line, following the form shown. The exchange is entered separately in the cash book; the amount is written in the expense column and a check mark is placed in the folio column. ?-^^ -A^ Z.fJ- -iS U'i^7-t4^ / fc?ZZ-ti«?2^C. Interest & Exch. / ^ Cash Discount \( Postage / Freight & Expr. ) Unclassified Exp. / Inventories Dec. 31, 191 — , are as follows: Mdse., $14189.38; items on hand charged to Unclassified Expense, $551.61; accrued salaries and wages (liability), $499.94; Real Estate & Equipment, $26651.33. APPENDIX TWO-PAGE STATEMENTS The six pages following are to be studied instead of Lessons XVIII and XIX, if the teacher so instructs. Two principal facts about his business which a man wishes to be in a position to asecr- tain are: (1) Its progress; (2) Its condition. By "progress" is meant the gam or loss, as the case may be, during a certain period, or from one date to another. By "condition" is meant the worth, or net capital of the business at a given time. Neither progress nor condition can be determined entirely from the ledger, as the <=/^^h±J ^''^^-^^Z-^^^Z^J^^^S^-^^^-^^^-Z-,^^^^^ = = .jy-^^fi^ o a a (^0 7,r 3 / t^ 7^ ZJO ? > > /f > ? > ? > ? > ? ? ? ? } p p 3 so > ? ; ? 7 ? 7 > > > > 144 TWO-PAGE STATEMENTS 145 inventories must be known before either can be determined, and the ledger does not show inventories. Most of the necessary facts, however, are shown in the ledger. The Loss and Gain Statement The progress of the business is shown by a specially prepared statement called the Loss and Gain Statement. The facts from which it is compiled are found in certain accounts of the ledger and the inventories. Before proceeding to analyze this statement or to study its form, solve the six problems on page 57. If you do this work thoughtfully, you will be led unconsciously into an understanding of the principles underlying, the Loss and Gain Statement, though its form will still be unfamiliar to you. Study carefully the illustration given herewith and the explanation accompanying it and prepare a loss and gain statement for F. R. Elliott's business as it stood on Jan. 3L It is assumed that all the accounts in your ledger are correct, and that your trial balance of Jan. 31 has been approved by your teacher. It is also assumed that you can determine which accounts show loss or gain and which do not. In order to prepare the loss and gain statement, you must know the inventories, which are as follows: Mdse., $314.56; furniture and fixtures, $350.00. (Accrued interest on notes receivable, being very little, is not taken into consideration here as an inventory.) .-J^cn^ ///,^^^--7^l^^t<^ 0-z^ /^/- p > ? > ? ? ? > / > ? ? ; ? ? ? > ) > ? > ? 146 APPENDIX In form, your statement will be like the model shown herewith. The amounts will have to be supplied by you from your ledger footings and the inventories given above. Explanation. To determine the progress of a business it is necessary to l 7 / ? 3S<^ ? ? > 7 > ? > ? > ? ? J-^ TWO-PAGE STATEMENTS 147 The first Hem on the debit page, second section, is the loss on furniture and fixtures. This is ascertained by subtracting the credit footing of tlie account from the debit footing and from the result so secured subtracting the inventory at the end of the month. All this is done in the inner column and the result, the net loss on the account, is entered in the principal column. Below this item is written the item of loss on expense. All losses and gains have now been considered and the difference between the two sides as they now stand is the net gain of the business for January. The Financial Statement One of the two principal statements that the booklceeper has to prepare relates to the condition of the business. This statement is called the Financial Statement. The facts from which it is compiled are found in certain ledger accounts and in the inventories. Before proceeding to analyze this statement or to study its form, solve the five problems on page 55. If you do this work thoughtfully you will be led unconsciously into an under- standing of the principles underlying the Financial Statement, though its form will still be unfamiliar to you. Study carefully the illustration given and the explanation accompanying it, and prepare a financial statement for F. R. Elliott's business as it stood on Jan. 31. In form, your statement will be like the model shown. The amounts will have to be supplied by you from your ledger footings and the inventories which have already been given. Explanation. To determine the condition of a business, two things must be known: (1) What things of value does the business own (assets)? (2) What does the business owe (liabilities)? The difference between the total of assets and the total of liabilities is the net capital or present worth of the business. The assets are written on the left-hand page ; the liabilities, on the right. It is the usual practice to hst cash first among the assets. Determine the balance of cash by deducting the credit footing from the debit footing, and write this item on the first line on the left- '^■L^^i-^^A^^ J*/, z^/- V^7^ 7 ? ? ? > 148 APPENDIX hand page. Next list the inventories as given on page 145. Next examine your ledger to determine what other assets and habilities the accounts show. The first account is F. R. Elliott's account, which is neither an asset nor a liability, but shows the proprietor's investment in the business. The next five accounts are loss or gain accounts and have already been used in the preparation of the loss and gain statement. Next is the cash account, which you have already entered as an asset. Next is the notes receivable account; enter its balance as an asset, as shown. The next two accounts are personal accounts with debit balances; these balances are assets, and should be entered as such. Finally, the notes payable account and Dale & Allen's account have credit balances; these balances are liabilities, and should be entered as such. The net capital is the difference between the total of the assets and the total of the liabilities. Net capital is also the sum of the invested capital and the net gain for the month, and is so shown on the statement. The fact that the net capital shown by the latter method added to the liability side of the financial statement makes the two sides of the statement equal, constitutes a proof of the accuracy of the two statements. Read the note at the end of Lesson XVIII. Take up the regular lessons of the text beginning with Lesson XX, using the two- page forms in preparing all statements. How to Read a Financial Statement Financial statements are often submitted to bankers and others from whom it is desired to borrow money or to buy on credit. The relation between borrower and lender is not vastly different from that existing between buyer and seller, although a lender of money, because of the fact that his profit is usually less and his field of opportunity wider, is usually more cautious than the seller of goods, who makes more profit and whose cus- tomers are limited to those selling the line of goods he handles. The banker or credit man should know how to read a statement, and this requires greater knowledge and keener insight than is required for the mere construction of the statement. How to read a statement is too broad a subject to be treated in full in a beginner's text, but even the beginner should be able to arrive at certain reasonable conclusions from the examination of some of the simpler forms of statement. Examine the following statements,* both of which are of mercantile concerns, and answer the questions. *No attempt is made at a complete or in any sense adequate treatment of the subject How to Read a Financial Statement, or of credits. The sole purpose of this short exercise is to arouse the student's interest and to provide material for a class discussion in which all students may profit through interchange of ideas in answering questions on matters which are in most instances matters of individual judgment. The estimation of a man's financial standing and how much credit he is entitled to receive is not an exact science and never can be, because credit is not determined alone from the showing of a set of books. Many things must be taken into consideration in the determination of credit. None the least of these in importance are the integrity and business ability of the person wishing credit. There are many large mercantile credit agencies, among whom are Bradstreet and Dun, which exist solely for the purpose of investigating the credit standing of business concerns, and there are many local concerns engaged in the same work. Every business house has at least one person upon whom it devolves to say whether a customer is entitled to the credit he desires, or not. Often there is a "credit man" who attends to this kind of work exclusively; and in many cases a large force of emjiloyees is kept busy in the credit department. The work of determining credits offers to the young man of ability, applica- tion, and intelligence a very attractive and remunerative field. TWO-PAGE STATEMENTS 149 F. H. Wilson's Financial Statement, June 1, 191— Geo. H. Rockwood's Financial Statement, June 1, 191 — Assets Cash Real Estate Furn. & Fix. Mdse. Invty. Notes Rec. Interest Rec. Accounts Rec. Notes Pay. Interest Pay. Accounts Pay. .00 1.5000.00 2000.00 12000.00 2500.00 26.75 7500.00 $49026.75 Cash $750 00 Real Estate 7800 00 Furn. & Fix. 3.500 00 Mdse. Invty. 35000 00 Notes Rec. 5000 00 Interest Rec. 567 20 Accounts Rec. 15000 00 Liabilit es $2200.00 10.25 7200.00 $ 9410.25 7617.20 First Nat'I Bank Loan $5000.00 Notes Pay. 8000.00 Interest Pay. 750.00 Accounts Pay. 9500 . 00 $23250 . 00 Net capital $39616.50 $44367.20 Notes: Real estate and furniture and fixtures are considered slow assets. Cash, notes receivable and accrued interest, and accounts receivable are considered quick assets. Merchandise in some lines of business is classed with quick assets, while in other lines it is classed with the slow assets. For the purpose of the present discussion consider Mdse. a quick asset. If the strength of the statement seems to depend too much upon one item in the statement, that item should be especially investigated. Notes payable and accrued interest, and accounts payable, are considered urgent liabilities. Long time loans and mortgages are not classed with urgent liabilities, and it is important to know when such items mature. QVESTIONS ON F. H. WILSON'S STATEMENT 1. What per cent of the total assets are quick assets? 2. What per cent of the total assets are covered by capital? 3. What per cent of the total assets are covered by what is in reality borrowed capital though not so called? 4. What is the relation of quick assets to urgent liabilities? 5. What would happen if the creditors should all demand payment at once? 6. Barring loss of his cash, could any series of misfortunes bankrupt F. H. Wilson? 7. Assuming an average rate of 6% on notes, are the notes receivable of long standing? The notes payable? TATiat inference can you draw from the conclusion reached in answer to the foregoing questions? 8. State how much credit you would extend to F. H. Wilson without special security. How much money would you loan him if he would assign all his assets to you as security? aXJESTIONS ON GEO. H. KOCKWOOD'S STATEMENT 1 to 5. Same as above. 6. Is there any item from which you might draw an inference as to whether the notes receivable are of long standing or not? The notes payable and loan? 7. Is the proportion of accounts receivable to total assets greater or less than in F. H. Wilson's business? What suspicion does this give rise to? How can you go about it to either verify or set at rest this suspicion? 8. In what one account is a very large proportion of the capital tied up? How should this account be investigated? 9. How much would you sell to Geo. H. Rockwood on credit? How much would you loan him if he would assign all his assets to you as security? WIio would you probably wish to consult before making him any loan? Note. — If personal property and homestead property are listed among the assets, the credit man should determine to what extent such property is legally exempt from execution. For this reason, credit rating agencies usually secure the names and addresses of the members of a firm, with information as to whether they are married or single. In case of corporations, the line of investigation is somewhat different. SINGLE ENTRY PRELIMINARY CONSIDERATIONS You have now mastered the elementary principles of double entry bookkeeping. This will make the work of single entry very easy, as there is nothing in single entry that you have not already learned in double entry. Before proceeding with the single entry set, however, work the following problems: Problem I. W. S. Ashby keeps a double entry ledger. On June 30, 1910, he attempted to take a trial balance but found that one page of the ledger, the page on which was his own account as proprietor, had been so defaced that the balance could not be read. Everything else was legible and correct. Make a copy of the partial trial balance shown below and complete it by inserting W. S. Ashby 's balance and the footings: W. S. Ashby's Partial Trial Balance, June 30, 1910 Cash Real Estate . . . Furniture & Fixtures Mdse Expense J. S. Dickey . . . J. L. Harmon . . Cherry Bros. . . . W. S. Ashby . . . 1526 5000 670 4000 500 500 363 Problem II. A. C. Minter keeps a single entry ledger. On July 31, 1910, he found that the page of his ledger on which his account as proprietor had been kept had been destroyed. Since a single entry ledger contains no accounts except with persons, the only information that can be secured from Mr. Minter's ledger is that personal accounts receivable and payable stand as follows: C. V. Burton, Dr., $49.60; Cr., $10.00. A. D. Taylor, Dr., $175.60; Cr., $62.50. H. P. Towers, Dr., $265.00; Or., $125.50. Libby & Son, Dr., $100.00; Cr., $243.64. Manning & Martin, Cr., $215.00 Your problem is to find Mr. Minter's present worth, or the net capital of the business. If there were no other assets or liabilities besides the personal accounts in the ledger, the problem would be simple. But you know that there are usually other assets, and you expect to find them in this case. You there- fore question Mr. Minter and he replies, as follows: You: "How much cash have you on hand?" Mr. Minter (indicating the cash drawer): "About $480.00." Opening the cash drawer, you find in it $457.63 in currency and coin, and R. D. Smith's check for $25.00 payable to Mr. Minter. In taking out the cash to count it, you come across a note signed by T. J. Green in Mr. Minter's favor for $500.00, and a list of goods on hand totaling $5647.20. You: " I find here a note for $500.00 signed by T. J. Green. Do you hold any other notes?" Mr. Minter: "No; but I owe $1000.00 to tlie First National Bank on a note. There are no other notes either receivable or pay- able." You- "Do you owe any interest on the note in favor of the bank or is any interest due you on Mr. Green's note?" Mr. Minter: "Some interest has accrued on each note but the two interest items exactly cancel each other." You: "Is this list of merchandise on hand correct?" Mr. Minter: "Yes, it was taken yesterday." You: "Is there any other property belonging to the business?" Mr. Minter: "The store fixtures are mine, and I value them at $500.00. There is no other property belonging to the business, and I do not owe a cent except for the accounts shown in the ledger and the note for $1000.00." Prepare a financial account, as you always have in previous sets. The only difference is that in this case less information can be secured from the ledger than from a double entry ledger. The net capital shown by the statement should appear in the ledger as the credit balance of the proprietor's account. 150 SINGLE ENTRY 151 INTRODUCTION TO SINGLE ENTRY Progressive business men prefer double entry because they find it desirable to know certain facts about their business affairs which a single entry system will not reveal. This "is especially true when their business interests are large or extensive, in which case a double entry set of books is almost imperative. While pure single entry is little used among the best houses, many retail concerns employ a combination of single and double entry, and for this reason, if for no other, it is well for the student to understand what the single entry method is. The work of this chapter will be of value to the student in teaching him the principles of single entry, not so much because he may be called upon to keep a set of single entry books, but because he is likely to come in contact with accounting in which some single entry features are incorporated in a double entry system, subordinate to the general double entry scheme. Single entry bookkeeping is a method of keeping unrelated memorandums and records of business transactions such as the proprietor of a business may deem necessary for his protection and information. The facts of which memorandums are usually kept in single entry are; (1) The receipts and payments of cash, (2) The charges against and credits to persons, on account. Some- times the inventories of property owned are kept as a matter of record. Single entry derives its name from the circumstance that each entry is a record of a single fact, either a debit or a credit, rather than a record of two or more facts affecting both sides of the ledger equally, as in double entry. Comparison Between Single and Double Entry. In Single Entry, accounts are kept only with persons, cash and sometimes property inventories, and since accounts with persons and cash, and inventories, must exhibit either assets or liabilities, and not losses or gains, it is apparent that separate losses and gains cannot be shown by the single entry method. This failure to show the separate losses and gains constitutes the chief disadvantage of single entry as a system, and is the principal reason for its inferiority to double entry. In double entry, equal debits and credits are recorded for every transaction. These are posted to the ledger. As the debits posted are exactly equal to the credits posted, the equality of the two sides of the ledger is constantly preserved. If the trial balance fails to exhibit this equality, the bookkeeper at once knows (provided no original entry is out of balance) that there has been an error or omission in posting. When the single entry method is used, the bookkeeper has no such systematic, almost automatic, device for the detection of errors of this kind (errors in posting), which occur more frequently, probably, than all others combined. Double entry is a scientific system of bookkeeping by which the chances of error are reduced to the mininum and under which it is possible to so classify and analyze the busi- ness transactions that almost any desired facts in regard to the progress or condition of the business can be ascertained. Single entry is an unscientific bookkeeping expedient by which only the barest facts as to the current assets and liabilities of the business are set forth with no further guarantee of their accuracy than the carefulness of the book- keeper who made and posted the entries. 152 APPENDIX A SINGLE ENTRT SET Since the facts which are to be recorded in single entry have to do with persons and cash only, as has been stated, it is only necessary that three books be kept, as follows: (a) The Cash Book, in which are kept the receipts and disbursements of cash. (b) The Day Book, in which debits and credits to personal accounts are recorded as they occur. (c) The Ledger, to which the items in the day book are posted. Auxiliary books or books of memorandum of almost any kind can be kept if desired; as, the bill book, invoices payable register, etc. TEE CASH BOOK The single entry cash book usually differs in form from the double entry cash book, though not necessarily so. The accompanying illustration shows the first few cash book entries and also shows the method of ruling for balancing the book. Note that the Debit and Credit columns are side by side on the same page. This arrangement affords a wide column for the explanatory matter and presents the debits and credits in the order in which they occurred. Note the placing of the dates, and do not forget the year dates.* 19— C.\SH BOOK Cr. Oct. 1 1 Cash invested as per Day Book entry Paid rent for October, 1910, by check *** *+ *** 6 Paid The American Cereal Co. in full of account . . * ** 6 Paid Students' salary for week ending Oct. 6 ... ** ** 6 Received from cash sales as per Cash Reg Balance ** ** *** ** Balance *** ** *** ** Oct. *** ** THE DAY BOOK This book corresponds to the double entry journal in that it is the book in which the original entries of debits and credits are made which are later posted to the ledger, and in the fact that the- entries are made as the transactions occur and in the order of their occurrence. It is also somewhat similar in form and ruling to the double entry journal. But here the resemblance ends. The single entry day book does not record equal debits and credits as does the double entry journal, but each entry records a single debit or a single credit, as the case may be. The separate items, if any, are written in the left- hand column and the total in the right-hand column. In this set the total only is posted, but the separate items could be posted instead, if preferred. The following form shows a few t^^pical day book entries for the single entry set. Note that opposite the name of each account debited or credited in the day book is placed the abbreviation Dr. or Cr. This is the means of indicating which side of the ledger the transaction is to be posted to, and you must not forget to write it as you make each entry. ♦These and other forms shown in this chapter are intended as illustrations merely, and are DOt to be relied upon by the student in writing entries in his books. SINGLE ENTRY 153 Note that the transaction on Oct. 6 appears in both the cash book and the day boolc. Whenever any money is paid out, an entry is made in the cash book to show the payment of cash; if the payment is on account, another entry is made in the day book to show the debit of the personal account. When money is received on account, an entry crediting the person is made in tlie day book, and the cash received is recorded in the cash register, the total being periodically entered in the cash book as a receipt, as will be shown later. DAY BOOK October 1, 19— F. P. Nissen, Proprietor Cr. F. P. Nissen is engaged in the retail grocery busi- ness at 105 Oak Park Ave., Oak Park, 111. His assets at this time are as follows: Cash in bank Cash in cash register Stock of groceries on hand valued at Horse and wagon valued at I'urniture and fixtures valued at Accounts receivable as follows. Mrs. Wm. Conant, 110 S. East Ave. Mrs. Chas. P. French, 157 S. East Ave. Mrs. Wm. Conant, 110 S. East Ave. To groceries as per order slip No. 1 Mrs. Chas. P. French, 157 S. East Ave., By cash on account .4 Cr. H. J. Heinz Co., 1814 S. Clark St., Chicago 3 doz. Med. Baked Beans and Sauce 1 doz. 10-oz. Royal Select Queen olives 2 doz. 8-oz. Octagon Ketchup Cr 1.40 The American Cereal Co., 9 Jackson Boul., Chicago Dr. To cash in full of account **+ THE I.EDGEB The single entry ledger differs from the double entry ledger in form only, though it does not necessarily differ even in that respect, because a center-ruled ledger could be used as well for single entry as for double entry. Following is an illustration of the form used in this set. MRS. WM. CONANT 19— 110 S. East Ave. Dr. Cr. Oct. 1 Balance due ** ** 1 To groceries as per order slip No. 1 * ** 5 To groceries as per order slip No. 7 * ** 6 By cash as per Day Book To groceries as per order slip No. 15 ** ** ** ** 8 * ** 12 To groceries as per order slip No. 22 * ** 154 Order Slips Your outfit contains a pad of blank order slips. These ordinarily come in dupli- cate and are filled out by the salesman, who sends one copy with the goods and one copy to the cashier's desk. Sometimes order slips come in triplicate, the third copy being put to some special use in connection with either the accounting of delivery system. In order that you may get a comprehensive idea of the procedure in the retail grocery business, you are to perform a part of the duties of the salesman in addition to your v/ork as bookkeeper and cashier. As salesman you are to fill out the order slips. As cashier, you have charge of the cash register. As book- keeper you make the proper entries in the books for all transactions. The duties of cashier and bookkeeper are so intimately connected that they are usually performed by the same person; and it is not unusual, especially in the smaller stores, for the bookkeeper and cashier to act as salesman as well, especially at times when there is no other salesman in the store, or when an order comes by telephone. The pad of order slips which accompanies your outfit consists of single slips. It will be assumed that, as salesman, you have filled them out in duplicate and send both copies to the cashier, who after stamping on the duplicate the date and number of the sale, the amount and kind of the sale, and the initial of the salesman (all done automatic- ally by the cash register in one operation), has sent it with the goods. The original, which is the slip you fill out, is filed. When you fill out an order, write at the bottom the expression "Charged," "Paid," or "CO. D.," as the case may be. Filled orders are either taken away by the cus- tomer or sent to the delivery clerk to be delivered, but you will have nothing to do with this part of the work. The duplicate order slip accompanies the goods whether the goods are taken by the customer or sent to the delivery clerk. The order slip must always contain the name and address of the customer, if it is a charge slip, whether the goods are taken by the customer or delivered. C. 0. D. goods are always delivered; therefore the name and address must always be written on a C. 0. D. slip. In the case of paid orders, the name and address of the customer must always be shown if the goods are to be delivered. F. P. NISSEN Groceries AND Meats Oak Park, 111., i'^lL 19.— „ , . Mrs. William. Conant Sold to A AHHr»«c ^^0 -S- East Ave. Salesmsn Address Quan. ARTICLES Trice Amount 1 Leg Spring Lamb S lb. £0 1 00 2 cans French Peas 15 SO S heads Lettuce IS u 1 bot. Olive Oil so 1 lb. Butter 2 S8 S3 Charge i ORDER SLIP Cash Slips If the customer pays for the goods and takes them with him, an order slip is not made out. A cash slip is filled out. This does not contain the name and address of the cus- tomer, but is a mere list of the items sold, with the total, if more than one item is sold. SINGLE ENTRY 155 At the top of the slip are printed the wortis "Pay the Cashier" — a direction to tlie cus- tomer. The cash slips are numbered consecutively and each is attached to a stub which bears the same number, on which the amount of the sale must be noted at the time the slip itself is made out. No. 1 $ -^"f Porfor»t«d IiB» F. P. NISSEN, Groceries and Meats Pay the Cashier Salesman .4 OAK PARK. ILL.,..f?/.^..19.— Quan. ARTICLE Price Araount 2 Bread 05 10 1 lb. Bacon 28 1 doz. Eggs 26 ~64 1 CASH SLIP Customers' Receipts When a customer makes a payment on account, a customers' receipt is issued for the amount recorded in the cash register as re- ceived. These are ordinarily issued in dupli- cate; one copy is given to the customer after being placed in the machine and stamped; the other copy is retained and filed. The pad of customers' receipts which accompanies your outfit consists of single slips. These are to be filed by the cashier, it being assumed in each case that a dupli- cate has been made, stamped, and given to the customer. The Cash Register In connection with the retail grocery business which is illustrated in the following single entry set, it is assumed that the student as cashier uses a cash register, now con- sidered to be an almost indispensable adjunct of an extensive retail business. The cash register is an automatically-locking device for holdmg money, which can be unlocked and opened only lay pressing buttons or keys in front. There are five rows of these buttons consisting of nine buttons each When the cashier presses the proper buttons, the money- drawer opens and at the same time the interior mechanism of the cash register automat- ically records upon a narrow roll of paper, called the "detail strip," the amount of the "sale or payment together with the initial of the salesman and the kind of sale or payment. Cash Sales, Cash Re- ceived on Account, C. 0. D. Sales, C. 0. D. Cash Returns, C. 0. D. Goods Returned, Goods Returned on Account, Charge Sales and Cash Sales, are all recorded on the detail strip in the order of their occurrence, and each kind indicated by a special abbreviation or sign. The machine con- stantly shows the number and the totals of each of the different kinds of transac- tions recorded. The cash register has one button marked "No sale" which can be cash register 156 APPENDIX pressed when the cashier wishes to open the register without recording a receipt or sale, as when it might be desired to accommodate some one by changing a bill. Whenever any sale or payment is recorded, the cashier inserts in the machine the duplicate of the order slip or other voucher used, and the machine automatically stamps upon it the record of the transaction. Some machines issue little cardboard tickets prop- erly stamped, instead of printing the record directly upon the voucher. These stamped records, whether they be printed upon the vouchers or upon separate tickets, constitute a check upon the accuracy and honesty of the cashier and show the customer that the proper records of transactions are being made. Cash Register Sheets As it is not practicable for each student to have a cash register, there are provided for each outfit several sheets of paper (Cash Register Sheets) ruled with columns to I'epre- sent the different kinds of transactions for which the cash register shows separate totals. Instead of actually pushing the buttons of a cash register and thus making the records on the detail strip, you will make pen and ink records in the columns of the specially ruled sheets provided. Cash Register Sheet Cash Sales Cash Rec'd on Aect. C. O. D. Sales C. 0. D. Cash Returns C. 0. D. Goods Return'd Goods Return'd on Aect. Charge Sales Cash Paid Out Change in register (Jet. 1, 19 — ** ** * ** * ** * ** * ** * ** ** ** ** * ** * ** * ** * ** ** * ** * ** * ** * ** ** ** * ** * ** * ** ** ** ** ** * ** * ** 0.00 0.00 ** ** ** ** File Accompanying your outfit you will find a file containing three sections. This file is for your convenience in disposing of papers that you make out. In the first section C. O. D. sales slips are placed temporarily while the orders are being delivered. In the second section are placed the cash slips, the paid order slips (which are in effect the same as cash slips), the C. O. D. paid slips, and the customers' receipts. In the third section are placed the charge sale slips and also the goods returned slips. It is assumed that whenever any slip of any kind is issued one copy goes in our files and one copy goes to the customer. Note that the papers in the Cash Sales and Cash Receipts section of the file will exactly check with the total cash receipts as shown by the Cash Register Sheet. SINGLE ENTRY 157 YOUK DUTIES SUMMAKIZED (1) Fill out the order slips, cash sUps, and custoiiier's receipts as these are required (2) Make pen and ink records on the Cash Register Sheets of amounts which would ordinarily be recorded in the cash register. (3) Make the bookkeeping entries. Following is a list of the different kinds of transactions and the procedure in each case, except as to the filing, directions for which will be given in connection with specific transactions. (a) Cash sale, taken. Fill out a cash slip and record the amount received on the Cash Register Sheet. (b) Cash Sale, delivered. Fill out an order slip and record the amount received on the Cash Register Sheet. (c) Cash received on account. Fill out a customers' receipt, make a record on the Cash Register Sheet, and make an entry in the day book. (d) C. 0. D. Sale Fill out an order slip and make a record on the Cash Register Sheet. (e) C. 0. D. Cash Returns. Make a record on the Cash Register Sheet. (f) C. 0. D. Goods Returned. Make a record on the Cash Register Sheet. (g) Charge Sale. Fill out an order slip, make a record of the transaction on the Cash Register Sheet, and make an entry in the day book. (h) Goods Returned on Account. Make an entry on the Cash Register Sheet, and give the customer credit in the day book. (i) Cash Paid Out. Make a record on the Cash Register Sheet and an entry in the cash book. If the payment be on account, an entry in the day book is also necessary. (j) Purchases on account are entered in the day book as they occur. At the end of the day, or whenever it seems desirable, the Cash Sales column, the Cash Received on Account column, and the C. 0. D. Cash Returns column of the Cash Register Sheet are footed and added together and the grand total is entered in the cash book as a receipt, as shall be explained in greater detail hereafter. In entering sales on account in the day book it is not necessary to itemize them, as we have itemized records on the order slips which are filed; nor is it necessary to itemize goods purchased, as these items would show on the invoices which would also be filed. Entries of purchases should show the date, the name and address of the person bought from, the terms of purchase and the amount. In working the following transactions, remember that there are only two things we must keep account of in Single Entry: (1) Receipts and disbursements of cash, (2) Debits and credits affecting personal accounts. Also remember that no entry records anything but a single debit or a single credit. Before beginning the work of the set, see to it that the charge slips are numbered consecutively from 1 to 30, that the cash slips and their corresponding stubs are numbered from 1 to 20, and that the custom- ers' receipts are numbered from 1 to 10. $500.00 67 60 5432 69 275.00 450 00 $13.56 23 47 5 89 27 56 16.27 4.23 12 50 6.78 $27 60 8 95 23 42 17 75 124 68 158 APPENDIX TRANSACTIONS October 1, 19 — . F. P. Nissen is engaged in the retail grocery business at 105 Oak Park Ave., Oak Park, 111. His assets at this time are as follows: Cash in bank* Cash in cash register Stock of groceries on hand valued at Horse and wagon valued at Furniture and fi.xtures valued at Customers owe him as follows: Mrs. Wm. Conant, 110 S. East Ave. Mrs. Chas. P. French, 157 S. East Ave. Mrs. Edwin C. Hedrick, Jr., 124 N. Kenilworth Ave. Mrs. Louis N. Mellick, 364 S. Euclid Ave. Mrs. Ward. N. Seabury, 175 Forest Ave. Mrs. N. N. Richards, 154 Circle Ave., Forest Park Mrs. Wm. Beye, 264 Wisconsin Ave. Mrs. Phillip Furbeck, 1110 South Boulevard His liabilities are as follows: National Biscuit Co., 110 N. Morgan St., Chicago The American Cereal Co., 9 Jackson Boul., Chicago H. J. Heinz Company, 1814 S. Clark St., Chicago Armour & Co., 239 S. Water St., Chicago Washburn-Crosby Co., 145 Van Buren St., Chicago Steps necessary to open the single entry books 1. Enter in the cash book the amount of cash on hand. 2. Open accounts in the ledger with the proprietor, all customers, and all creditors, in the order named, allowing one-third of a page for each account. Enter in the cus- tomers' and creditors' accounts the balances shown by the opening statement. 3. Make a day book entry crediting the proprietor with the total of the assets of the business, listing the items at the bottom of the entry. Make another entry debiting the proprietor with the total of the liabilities of the business, listing the items below. Post both of these entries to the proprietor's account on page 1 of the ledger. After opening the books as above, enter the amount of change on hand ($67 60) or, one of the Cash Register Sheets, at the top of the left-hand column, with the explanatioii "Change on hand Oct. 1, 19 — ." Give the sheet the number 1. You are now read> for business. OCTOBER 1. ID- Transaction No. 1. Paid rent for Octol>er [ly check, $100.00. Enter this in the cash book only. A« the payment was Ijy check, tlie transaction is not recorded o, the Cash Register Sheet. Transaction No. 2. Sold for cash 2 loaves bread, at 5(t; 1 lb. bacon, 28^; 1 do;, eggs, 26^,. Make out a cash sliii. Record the amount received on the Cash Register Sheet, in the left-hand column File the cash slip in the section of the file marked Cash Sales and Cash Receipts. * The student is not required to keep a bank pass book, but whenever necessary he will be told what the bank balance is. SINGLE ENTRY 159 Transaction No. 3. Sold to Mrs. Wm. Conant, 110 S. East Ave., on account, 1 leg of spring lamb, 5 lbs, at 20(^; 2 cans French peas, at 15^; 2 heads lettuce, at 120; 1 bottle olive oil, 300; 1 lb butter, 380. Make out an order slip, writing the word Charge or the abbreviation Chy. at the bottom of the slip Then record the amount of the sale in the Charge Sales column of the Cash Register Sheet, and make the day book entry charging Mrs. Wm. Conant. When this has been done file the order slip in the section of the file marked Charge Sales. Transaction No. 4. Sold for cash 1 can lobster, 250. Proceed exactly as described in the note of explanation under Transaction No. 2. Transaction No. 6. Sold to Mrs. Chas. P. French, 157 S East Ave-, on account, 2 boxes soda crackers, at 100; 1 can French peas, 150; 1 box Coleman's mustard, 150; 2 heads cabbage, at 100; 1 sack salt, 100; 1 can salmon, 150; 3 loaves bread, at 50, 1 lb. imported Swiss cheese, 400. Proceed exactly as described in the note of explanation under Transaction No 3 OCTOBEB 2 Transaction No. 6. Sold to Jas H. Greenman, 231 Woodward Terrace, for cash, to be delivered, 2J lbs. halibut steak, at 180; J doz. Florida oranges, at 500; 2 cans Tele- phone peas, at 12^0; 2 cans Cupid fancy tomatoes, at 12J0; 1 8-lb. box prunes, 850. Make out an order slip, writing the word Paid at the bottom. Record the amount of the sale in the left-hand column of the Cash Register Sheet. Place the order slip in the section of the file marked Cash Sales and Cash Receipts. Transaction No. 7. Sold for cash 1 jar Southwell's imported marmalade, 230; 1 lb. creamery butter, 360; 2 boxes soda crackers, at 100. Follow the instructions given in the note under Transaction No. 2, and in future always follow this procedure when a sale for cash is made which is not to be delivered. Transaction No. 8. Sold on account to Mrs. Edwin C. Hedrick, Jr., 124 N. Kenil- worth Ave., 3 lbs. Star ham, sliced, at 280; 1 box Coleman's mustard, 150; 3 loaves bread, at 50; 1 lb. creamery butter, 360; ^ lb. imported Swiss cheese, at 400; 2 pkgs. Uneeda biscuit, at 50; 2 cans Heinz baked beans and tomato sauce, at 150. Follow the instructions given under Transaction No. 3, and in future always follow this procedure when a sale on account is made. Transaction No. 9. Sold to Mrs. Paul Peters, 740 Chicago Ave., for cash, to be delivered, 2 pkgs. Saratoga flakes, at 150; 2 pkgs. Quaker oats, at 100; 3 cans Monarch canned corn, at 150; 3 cans Monarch canned peas, at 150; 1 broom, 400; 1 bottle bluing, 100; 3 bars Naphtha soap, at 50. Follow the instructions given in the note under Transaction No. 6, and in future always follow this procedure when a sale is made for cash to be delivered. Transaction No. 10. Received of Mrs. Chas. P. French $10.00 on account. Fill out a customer's receipt. Enter the amount received on the Cash Register Sheet, in the column headed Cash Received on Account. Make a day book entry crediting the customer. Place the customer's receipt in the section of the file marked Cash Sales and Cash Receipts. These slips are usually kept on a spindle until the cashier can find time to enter them, and the same thing is done with charge orders, receipts for or memorandums of cash paid out, etc., but the student will make all day book entries and cash credit entries as the transactions occur. 160 OCTOBER 3 Transaction No. 11. Sold to Mrs. C. V. Clark, 789 Lake St., C. O. D., the follow- ing groceries: 25 lbs. W. C. Superlative flour, at 5^; 2 pecks apples, at 600, 3 lbs. Star bacon, sliced, at 280. Fill out au order slip, writing C. 0. D. at the bottom of it. Enter the amount of the sale on the Cash Register Sheet, in the column headed C. O. D. Sales, and place the order slip temjiorarily in the section of the file marked C. 0. D. Sales. Transaction No. 12. Sold for cash 2 pecks Irish potatoes, at 200; two cans Monarch canned com, at 150; two cans Monarch canned peas, at 150. Transaction No. 13. The delivery boy returns with $3.29, as returns on the C. O. D. sale to Mrs. C. V. Clark. If this is the correct amount, enter it on the Cash Register Sheet in the coknnn }ieaded C. O. D. Cash Returns. Take the C. O. D. slip from the section of the file marked C. O. D. Sales, write on it the word Paid, and place it in the section marked Cash Sales and Cash Receipts. OCTOBER 4 Transaction No. 14. Bought of H. J. Heinz Company, 1814 S. Clark St., Chicago, III, on 30 days' time, the following bill of groceries: 3 doz. Med. Baked Beans and Sauce, at $1.40 $4.20 1 doz. 10-oz. Royal Select Queen Olives, for 2.75 2 doz. 8-oz. Octagon Ketchup, at 1.35 2.70 $9.65 Make an entry in the day book, crediting H. J. Heinz Company. This entry should contain the explanation "Terms, 30 days." No further instruction will be given as to the procedure in handlin;; an entry of this kind. Transaction No. 16. Sold for cash 2 cans Heinz medium baked beans and tomato sauce, at 150; 1 bottle Royal select queen olives, 250; 2 cans Monarch canned corn, at 150. Transaction No. 16. Sold to Mrs. Wm. Conant, 110 S. East Ave., on account, 1 doz. eggs, 360; 1 leg of spring lamb, 4^ lbs. at 200; 2 cans French peas, at 150, 1 peck Irish potatoes, 200. OCTOBER 6 Transaction No. 17. Sold to W. J. Frazer, 767 W. Madison St., for cash, to be delivered, 1 can lobster, 250; 1 bottle Queen Olives, 250; 2 loaves Quaker bread, at 50. Transaction No. 18. Received $5.00 from Mrs. Edwin C. Hedrick, Jr., on account. Follow the instructions in the note under Transaction No. 10. Transaction No. 19. Paid The American Cereal Co., 9 Jackson Boul., Chicago, $8.95, the amount of their account against us, from the Cash Register. Record this in the Cash Paid Out column of the Cash Register Sheet. Make a cash book entry at this time, and make an entry in the day book debiting The American Cereal Co. Transaction No. 20. Sold for cash 6 cans Heinz baked beans and tomato sauce, at 150; 2 bottles Heinz tomato catsup, at 150; 5* lbs. Star ham, sliced, at 280; 6 lbs. Star ham, butts, at 120; 6 lbs. Star bacon, sliced, at 280. Transaction No. 21. Sold to Mrs. Ward N. Seabury, 175 Forest Ave., on account, 3i lbs. shoulder lamb chops, at 140; 3 cans French peas, at 150; 3 heads lettuce, at 120; 50 lbs. W. G. Superlative flour, at 50. SINGLE ENTRY 161 Transaction No. 22. Sold to Mrs. Louis N. Mellick, 364 Euclid Ave., on account, one spring chicken, 4} lbs- at 200; 2 ll^s. creamery butter, at 360; 2 loaves bread, at 50; 3 cans salmon, at 150; 1 broom, 400; 1 bottle bluing, 100; 3 bars Naphtha soap, at 50. Transaction No. 23. Received of Mrs. Wm. Conant, 110 S. East Ave., .cash in full of account, $17.54. Transaction No. 24. Sold to Jas. W. Wilson, 317 Chnton Ave., for cash, to be delivered, 4 grape fruit, at 200; 3^ lbs. Malaga grapes, at 200; 3 pkgs. Cottage cheese, at 150; 6 cans assorted soups, at 300; 1 lb. Young Hyson tea, 800; 2 qts. Baltimore oysters, at 350; 6 pkgs. Saratoga flakes, at 150. Transaction No. 25. Sold for cash 3 lbs. Finnan haddie, at 150; 2 lbs. creamery butter, at 360; 3 loaves rye bread at 100; 1 sack salt, 100; 3 heads cabbage at 100; 1 box Coleman's mustard, 150. Transaction No. 26. Received from Mrs. Edwin C. Hedrick, Jr., 124 N. Kenil- worth Ave., cash to balance her account, $2.99. Transaction No. 27. Paid the salary of the bookkeeper and cashier (yourself) for the week, $12.50, from the Cash Register. Record the payment on the Cash Register Sheet, in the column headed Cash Paid Out. Make the proper entry and explanation in the cash book. Post to the ledger all day book entries that have not j^et been posted; rule and foot all accounts that are paid in full. Close the Cash Register Sheet as illustrated and described below. ILLUSTRATION OF CLOSING OF CASH REGISTER SHEET Footings ** ** ** ** ** ** * ** * ** 0.00 * ** 0.00 ** ** 0.00 ** ** Deduct change Entered in cash book, p ** ** ** ** ** * ** Spot cash sales ** ** ** ** * ** Net Chg. Sales C. 0. D. cash returns Cash Rec'd. on Acct. age — . Cash Sales C. O. U. Sales Total cash Rec'd. Cash Pd. out ** ** ** ** ** ** Total Sales Excess of receipts Change on hand ** ** ** ** Cash in register Deposit Oct. 6, 19— vv* ** ** Change in register Oct. 8, 19 — ** ** Rule a single line across the eight columns of the Cash Register Sheet, underneath the last item in the longest column, and add all columns. Then proceed as follows: (1) Deduct the amount of the change on hand Oct. 1 from the total of the first column. The result will be the total of cash sales. (2) Reconcile the three C. O. D. columns (i.e., deter- mine whether the C. 0. D. Cash Returns and the C. 0. D. Goods Returned added equal the C. 0. D. Sales Rule these columns as shown in the model form and write the amount of the C. 0. D. Cash Returns in the left-hand column of the Cash Register Sheet, beneath the total of spot cash sales. (3) Write in the left-hand column the amount of the cash received on account and rule a double line across the Cash Received on Account column. (4) Add the three totals now shown in the left-hand column. The result is the total of cash received. (5) Write beneath this the total of the cash paid out, and deduct it The result is the excess of receipts over disbursements for the week. (6) Add the amount 162 APPENDIX of the change on hand, 167.60, which will give you the total of cash in the cash register. (7) Deposit $50.00, keeping |**.** for change. Deduct the amount of the deposit, rule, and carry forward the amount of change on hand, all as shown in the model. (8) The only columns not yet ruled up are the Charge Sales and Goods Returned on Account columns. Deduct the total of the latter column from the total of the former. The result is the net charge sales. Add the total of cash sales and the total of C. 0. D. paid sales to the net charge sales, to show the total of all kinds of sales for the week. (9) The total of cash received during the week must be entered in the cash book and a notation to the effect that this has been done should be made on the Cash Register Sheet, as shown. The cash payments, it will be observed, have already been entered in the cash book, these entries having been made separately as the transactions occurred. In business, this closing of the cash register is usually done daily. The report on business done, as shown on your Cash Register Sheet between the two lines extending entirely across the form, is usually prepared on a special daily report blank, and summaries of these daily reports are prepared weekly or monthly. When your Cash Register Sheet has been approved by your teacher, write the amount of change on hand at the top of another Cash Register Sheet, giving it the number 2, and enter the transactions for the week beginning Oct. 8. OCTOBER 8 Transaction No. 28. Sold for cash 5 packages Saratoga Flakes, at 15^; 3 packages Quaker oats, at 10<(; 4 cans Heinz baked beans and tomato sauce, at 15^; 2 bottles Queen olives, at 25^; 5 loaves bread, at 50. Transaction No. 29. Bought for cash, from the Heissler & Junge Co., 301 W. 39th St., Chicago, 100 loaves Quaker bread, at 4(i, paying the money from the cash register. Transaction No. 30. Sold on account to Mrs. Wm. Beye, 264 Wisconsin Ave., 2 bottles Heinz tomato catsup, at 15^S; 1 whole Star ham, 15 lbs. at 26(i; 3 lbs. Star bacon, sliced, at 28^; 4 cans Monarch canned corn, at 150; 3 loaves bread, at 50; 3 bars Ivory soap, at 50. Transaction No. 31. Paid $3.00 from the cash register for one year's subscription to the Grocers' Guide and Holly Journal, the subscription to begin with the November issue. Transaction No. 32. Sold on account to Mrs. Ward N. Seabury, 175 Forest Ave., 3 cans Monarch canned peas, at 150; 2 pks. Northern Spy apples, at 600; 4 pks. Irish potatoes, at 200 a peck; 25 lbs. W. C. Superlative flour, at 50; 1 bottle bluing, 100; 2 lbs. Oswego starch, at 50; 2 doz clothespins, 50. Transaction No. 33. Bought on account of Reid, Murdock & Co., cor. Lake and Market Sts., Chicago, the following invoice (the explanations in parenthesis do not appear on the face of the bill): Doz. Price 30 Days 60 Days Total 5 cs. (cases) Monarch #2 corn (in tins, 2 dz. ea.) 2 " " #2 E. J. (early June) peas (in tins, 2 dz. ea.) 2 " " #1 Tall salmon (in tins, 4 dz. ea.) 6 " " #3 Tomatoes (in tins, 2 dz. ea.) 10 4 8 10 81.20 1 . 7.5 2.10 1.35 $16.80 $12.00 7.00 13.50 $16.80 $.32 . 50 149.30 SINGLE ENTRY 163 Transaction No. 34. Bought of The American Cereal Co., Chicago, 111., on account 30 days, 4 cases Quaker oats, at 3.00 $12.00 1 brl. Oatmeal 5 . 50 $ 1 " . 50 Transaction No. 35. Sold for cash 1 leg of spring lamb, 4J lbs. at 20^; 2 cans tall salmon, at 27i^; 3 cans E J Peas, at 20^; 2 heads lettuce, at 12fi; 3 loaves bread, at 5i; 2 boxes B & C matches, at 5^. Transaction No. 36. Sold to Mrs. Louis N. Mellick, 364 Euclid Ave., on account, 2 cans lobster, at 25^; 3 boxes soda crackers, at 10^; 1 bottle olive oil, 30^; 2 llis. creamery butter, at 36(', 1 loaf bread, 5^; 1 sack salt, 10^. Transaction No. 37. Received of Mrs. Chas. P. French, 157 S. East Ave., cash in full of account. Find the balance due as shown by the ledger. Note the date of the last purchase, and look ttrougli the day book, from that date on, to find whether there are any debits and credits to be posted to her account. Transaction No. 38. Sold on account to Mrs. Wm. Conant, 110 S. East Ave , 2 lbs. creamery butter, at 36(i; 2 doz. eggs, at 36^; 1 spring chicken, 5i lbs. at 200; 6 grape fruit, at 200; 2+ lbs. Malaga grapes, at 200; 3 lbs. cottage cheese, at 150; 2 bottles Queen olives, at 250; 3 loaves bread, at 50. OCTOBER 10 Transaction No. 39. Sold for cash, 5+ lbs. shoulder of lamb, at 120; 2 lbs. creamery butter, at 360; 3 cans E. J. peas, at 200; 1 sack salt, 100; 25 lbs. W. C. Superlative flour, at 50; 1 lb. India Ceylon tea, 600. Transaction No. 40. Sold C. 0. D. to Mrs. C. V. Clark, 789 Lake St., 4 lbs. smelts, at 140; 1 Ijottle Queen olives, 250; 1 lb. butter, 300; 3 loaves rye bread, at 50. Transaction No. 41. Mrs. Louis N. Mellick, 364 Euclid Ave., returned 2 cans of lobster purchased Oct. 8, claiming both cans were spoiled. Enter this amount in the Goods Returned on Account column of the Cash Register Sheet. Give Mrs. Mellick credit in the day book. Make out a credit memorandum as follows: "Oct. 10, 1910. Credit Memorandum. Mrs Louis N. Mellick, 364 Euclid Ave. We credit your account 500 for 2 cans lobster returned. F. P. Nissen by ." Assuming that you have given Mrs. Mellick one copy of this, place the credit memo in the file with the Charge Sales. Note: Many retail grocers keep the customers' charge tickets filed alphabetically under the customers' names. This makes reference easy in case of dispute. Some firms keep no ledger, but rely entirely upon the slips. This is not a very reliable plan, however, unless the balances are carried forward from one slip to the ne.xt, as in the system known as the McCaskey continuous account system. When this system is followed any payment made is deducted from the balance shown by the last order slip, so that the last slip made out always shows the balance due. The slips are filed alphabetically under the customers' names. One system that is sometimes used by grocers who have a comparatively small number of customers is as follows: One charge order book with numbered pages is kept for each customer who has an account. When a charge order is to be made out, the clerk secures the customer's individual book and writes the order in it direct, or else he hands the cashier a memorandum of the filled order and the cashier writes in the customer's book. One copy of the charge slip goes with the goods, while the other copy stays in the book. The balance is carried forward from slip to slip, as in the system described in the last paragraph. Transaction No. 42. Sold on account to Mrs. Chas. P. French, 157 S East Ave , 1 doz. eggs, 300; 2 lbs. Clover Leaf creamery butter, at 360; 1^ lbs. Wisconsin cream cheese, at 260; 2 cans Queen Maud sardines, at 250; 1 doz. oranges, 250; 8 qts. new Bermuda potatoes, at 90. 164 APPENDIX Transaction No. 43. Purchased on 30 days' credit from Armour & Co., 239 S. Water St., Chicago, 12 Star Hams, 180 lbs. at 15^ $27.00 16 pes. Star Bacon, 120 lbs. at 22^ 26.40 $53.40 Transaction No. 44. Sold to Mrs. Phillip Furbeck, 1110 S. Boulevard, C. O. D., one Star ham, 15 lbs. at 25^. Transaction No. 45. Sold for cash 3 lbs. chopped beef, at 16^; 1 doz. eggs, 30^; 2 lb.s. creamery butter, at 36(t; 25 lbs. W. C. Superlative flour, at 50. Transaction No. 46. Sold on account to Mrs. N. N. Richards, 154 Circle Ave., Forest Park, 65 lbs. Star ham butts, at 80; 1 can Monarch canned corn, 150; 3 loaves bread, at 50; ?r lb. butter,^at 300; 2 lbs. sausage meat, at 200; 3 bars Naphtha soap, at 50. Transaction No. 47. Mrs. N. N. Richards, 154 Circle Ave., Forest Park, paid $1.00 on account. Transaction No. 48. Sold for cash 3 lbs. smoked halibut, at 250; 2 lbs. imported Swiss cheese, at 400; 1 lb. creamery butter, 360; 3 loaves bread, at 50. Transaction No. 49. The delivery boy returned with the correct amount of cash in payment of the C. 0. D. order sold to Mrs. C. V. Clark, 789 Lake St. (See the note under Transaction No. 13.) Transaction No. 50. The delivery boy reported that no one was at home when he called at the residence of Mrs. Phillip Furbeck to deliver the C. O. D. order He there- fore brought the goods back. Enter the amount of the order on the Cash Register Sheet in the column headed C. O. D. Goods Returned. In business the delivery boy would bring back the duplicate order slip with the goods. This would be marked "Goods Returned" and filed. You may make a memorandum of the goods returned (virtually a copy of the order slip) mark it "Goods Returned," and place it in the section of the file marked C. O. D Goods Returned. OCTOBEB 12 Transaction No. 61. Sold to J. N. Ward, 679 Chicago Ave., for cash, to be delivered, 3 grape fruit, at 200; 1 doz. oranges, 400; 1 doz. eggs, 300; 2 lbs. creamery butter, at 360; 2\ lbs. Star bacon, sliced, at 280; 3 pkgs. Uneeda biscuit, at 50; 2 loaves bread, at 50. Transaction No. 62. Sold to Mrs. C. V. Clark, 789 Lake St., C. 0. D., 2 cans Pride of Chicago tall salmon, at 180; 3 loaves bread, at 50; 1 8-lb. box prunes, 850; 1 lb. India Ceylon tea, 600. Transaction No. 53. Sold for cash 2 pks. Northern Spy apples, at 600; 3 pks. Irish potatoes, at 200; 25 lbs. W. C. Superlative flour, at 50. Transaction No. 54. Sold to Mrs. Wm. Conant, 110 S. East Ave., on account, 1 leg of spring lamb, 4i lbs. at 200; 4 lbs. Star bacon, sliced, at 280; 3 heads lettuce, at 120; 3 cans E J. peas, at 200. OCTOBEE 13 Transaction No. 65. Sold for cash 1 lb. India Ceylon tea, 600; 10 lbs. sugar, at 50; 3 pkgs Nabisco, at 100; 3 pkgs. Uneeda biscuit, at 50. Transaction No. 66. Sold to Mrs. Chas. P. French, 157 S. East Ave., to be charged, 3 grape fruit, at 200; 20 lbs. sugar, at 50; 2^ lbs. Malaga grapes, at 200; 4 pkgs. Nabisco, at 100. SINGLE ENTRY . 1G5 Transaction No. 57. Mrs. Ward N. Sealniry, 175 Forest Ave., paid her account iia full. Kemi the note under Transaction No. 37 for directions for determining the amount of the balance due. Transaction No. 68. Sold to Mrs. Edwin C. Hedrick, Jr., 124 N. Kenilworth, on account, to be delivered, 3j lbs. smoked halibut, at 16^, 1 whole Star ham, 15 lbs. at 27J0; 1 bottle Heinz tomato catsup, 150; 1 bottle Queen olives, 250; 10 lbs. granulated sugar, at 50; 1 lb. butter, 300; 3 loaves bread, at 50. Transaction No. 69. Bought of Reid, Murdock & Co., on thirty days' credit: 3 half-chests Young Hyson tea, 194# at 350 $67.90 2 cases Monarch coffee, 2# cans, 96 lbs. at 270 25 . 92 2 cases " #2 E. J. peas, 4 doz. at $1.75 7.00 3 cases " #10 peaches, 6 doz. cans at $2.50 15.00 $115.83 Transaction No. 60. Sold for cash 3J lbs. porterhouse steak, at 220; 2 lbs. creamery butter, at 360; 20 lbs. sugar, at 50; 3 loaves bread, at 50. Transaction No. 61. Took from the cash register enough money to pay the National Biscuit Company's account in full. This payment is recorded on the Cash Register Sheet and entries are made in tlie casli book and in the day book, as explained in connection with previous similar transactions. Transaction No. 62. Sold on account to Mrs. Ward N. Seabury, 175 Forest Ave., 4J lbs. rib lamb chops, at 220; 1 bottle mint sauce, 250; 2 cans E. J. peas, at 200; 3 loaves bread, at 50; 10 lbs. granulated sugar, at 50; 25 lbs. W. C. Superlative flour, at 50. Transaction No. 63. Bought of H. J. Heinz Company, on account: 4 doz. cans apple butter, at $1.50 $6.00 3 " " peach " at 1.50 4.50 6 " small crocks strawberry preserves, at $1 .35 8.10 $18.60 Transaction No. 64. Sold for cash 3 qts. Baltimore oysters, at 350; 4 lbs. oyster crackers, at 90; 2 bottles Heinz tomato catsup, at 150; 10 lbs. granulated sugar, at 50; 25 lbs. W. C. Superlative flour, at 50. Transaction No. 65. Sold on account to Mrs. Phillip Furbeck, 1110 S. Boulevard, 1 doz. eggs, 300; 2 lbs. creamery butter, at 360; H- lbs. imported Swiss cheese, at 400; 2 loaves rye bread, at 50; 3i lbs. Star bacon, sliced, at 280. Transaction No. 66. Mrs. Wai'd N. Seabury, 175 Forest Ave., returned 1 bottle mint sauce purchased today. See Transaction No. 41 for instructions. Transaction No. 67. Paid the scrub-woman $1.50 for her work today. Transaction No. 68. P.aid the bookkeeper's salary, .$12.50. Post the entries in the day book, rule up any ledger accounts that balance, foot and close the Cash Register Sheet, and enter on the cash book the amount of cash received, as you did on Oct 6. Deposit $50.00. Close the cash book. Single Entry Statement As has been previously explained, it is impossible to show the separate losses and gains in single entr}^ A loss and gain statement can not be made out. .A. financial statement can be made. The single entry statement sets forth the assets and liabilities of the business. The assets are listed and added. Beneath these the liabilities are listed and added. The difference between the total assets and the total liabilities is the net capital or present worth of the business. If the net capital at some previous time be known, the gain or loss of the business since that time can be determined by comparing the net capital today with what it was at that time. 166 APPENDIX Mr. Nissen asks you to prepare a single entry statement as of October 15 He tells you that the cash in the bank is $500.00. You know how much money there is in the cash register. Mr. Nissen values his stock of groceries on hand at $5817.36, his horse and wagon at $270.00, and the furniture and fixtures in the store at $450.00. The balances of all accounts receivable and payable can be determined from the ledger. Prepare a statement in the following formr F. P. Nissen's Single Entry Statement, October 15, 19 — Assets Cash in bank $500.00 Cash in cash register ** . ** Stock of groceries on hand valued at 5817.36 Horse and wagon valued at 270.00 Furniture and fixtures valued at 450.00 Mrs. Wm. Conant, 110 S. East Ave. **.** Mrs. Chas. P. French, 157 S. East Ave. **.** Total Assets Liabilities National Biscuit Co., 110 N. Morgan St., Chicago The American Cereal Co., 9 Jackson Blvd., Chicago Total Liabilities Net capital or present worth Assets October 1 j**** ** Liabilities October 1 ***** $**** *♦ $+* ** ** ** *** ** J**** ** **** ** «** ** Net Capital October 1 Net gain In order that the proprietor's account in the ledger shall show what he is worth at all times it will be necessary to credit him with the amount of the net gain as shown by the foregoing statement. There- fore you will make a day book entry crediting the proprietor for the amount of his net gain. Post this immediately to the account of the proprietor in the ledger and close the account with a balance as of October 15. Changing from Single Entry to Double Entry The process is very simple. Open a douljle entry joiu-nal and let your first entry be a journal entry crediting the proprietor for his total assets and debiting each one of the items listed in the statement as assets. This will necessitate opening accounts with Merchandise, Horse and Wagon and Furniture and Fixtures. Make another journal entry debiting the proprietor for the total of his liabilities and crediting the accounts of the different creditor firms. Next open a double entry ledger and post the two journal entries. It will be observed that your double entry ledger balances will correspond in detail with the single entry ledger balances except that in the double entry ledger there will be added accounts with Mer- chandise, Horse and Wagon and Furniture and Fixtures. Take loose sheets of journal and ledger paper. Make the journal entries necessary to change F. P. Nissen's books from single to double entry on Oct. 15. Post. Take a trial balance. In order to see even more clearly how single and double entry compare, rewTite F. P. Nissen's business in double entry form, proceeding as follows: (1) Journalize all entries appearmg in the single entry day book except the last. It will not be necessary to perform the computations again, and explanatory matter may be omitted. (2) Journalize all entries appearing in the single entry cash book except the first, third, and eighth entries, which you have already journalized, as they appear in both day book and cash book. (3) Post all journal entries to regular double entry ledger sheets (center ruled). (4) Take a trial balance. (5) Make statements, using the inventories of Oct. 15 as given at the end of the single entry set. (6) Close the double entry ledger. (7) Now compare the double entry statement with the single entry statement. The single entry ledger should agree with the double entry ledger as far as it goes. Accounts of what class do not appear in the single entry ledger? Name them in detail. VARIABLE PRICE LISTS Students may all use the same price lists, or ilifTeient jirico lists may be assigned to each student. Fifty different sets of results can be secured. List No. 1 is given in the text. List No. 2 consists of buy- ing price list A and selling price list A. List No. 3 consists of buying [jrice list A and selling price list B, and so on, all as shown by the following table: LIST BUYING PRICE SELLING PRICE LIST BUYING PRICE SELLING PRICE LIST BUYING PRICE SELLING PRICE LIST BUYING PRICE SELLING PRICE No. 2 A A No. 15 B G No. 27 D E No. 39 F c No. 3 A B No. 16 c A No. 28 D F No. 40 F D No. 4 A C No. 17 C B No. 29 D G No. 41 F E No. 5 A D No. IS C C No. 30 E A No. 42 F F No. 6 A E No. 19 C D No. 31 E B No. 43 F G No. 7 A F No. 20 C E No. 32 E C No. 44 G A No. 8 A G No. 21 c F No. 33 E D No. 45 G B No. 9 B A No. 22 c G No. 34 E E No. 46 G C No. 10 B B No. 23 D A No. 35 E F No. 47 G D No. U B C No. 24 D B No. 36 E G No. 48 G E No. 12 B D No. 25 D C No. 37 F A No. 49 G F No. 13 B E No. 26 D D No. 38 F B No. 50 G G No. 14 B F Set Two ARTICLE BUYING PRICE LISTS SELLING PRICE LISTS A B C D E F G A B C 1 D E F G Orange Pekoe Ceylon tea, lb. .51 .52 .53 .54 .55 .56 .57 .81 .82 .83 .84 .85 .86 .87 India curry powder, bot. .11 .12 .13 .10 .11 .12 .13 .17 .16 .15 .18 .17 .16 .15 Penang cloves, lb. .37 .38 .39 .64 .40 .65 .37 .64 .38 .39 .62 .61 .60 .59 1.20 .58 1.05 .57 .56 Young Hyson tea, lb. .62 .63 .63 .62 1.05 1.10 1.15 1.06 1.07 Arabian Mocha coffee, lb. .17 .18 .19 .20 .19 .18 .17 .28 .29 .30 .28 .29 .30 .29 Cinnamon, lb. .41 .42 .40 .39 ..38 .37 .36 .67 .66 .65 .64 .63 .62 .61 Arm and Hammer soda, pkg. .05 .06 .05 .06 .05 .06 .05 .07 .08 .19 .07 .08 .18 .15 .75 .07 .08 .07 Finest Santos coffee, lb. .14 .16 .15 .14 .13 .16 .15 .18 .20 .19 .14 .18 .20 Royal Dutch mustard, can .06 .07 .08 .06 .07 .08 .07 .12 .13 .76 .14 .79 .13 .12 Van Houten's cocoa, tin ..50 .51 .52 .53 .54 .55 .54 .74 .78 .80 .77 Set Three No. 527 I'lamUrs arm chair 4.00 4.05 4.10 4.15 4.20 4.25 4.15 6.00 6.05 6.10 6.15 6.20 6.25 6.30 16. 24. 17. 25. 18. 16. 10. 24. 17. 25. 18. 17. ~16. No. 1625 library tables, mhgy 18. 16. 17. 18. 19. 26. 27. 26. No. 2787 Cir. wal. d room set 105. 106. 107. 108. 109. 110. 111. 160. 161. 162. 163. 164. 165. 166. No. 600 leather settees 15. 10. 16. 17. 12. 18. 9. 19. 10. 20. 11. 17. 12. 22. 23. 18. 24. 25. 20. 24. 16. 27. 26. No. 336 writing tables, mhgy 11. 17. 19. 15. 17. Set Four Youths' pat. leather bluchers 1.75 1.70 1.75 1.80] 1.85 1.75 1.70 2.45 2..50 2.55 2.60 2.65 2.70 2.75 Boys' kid bluchers .85 .90 .86 .92 .87 .88 .89 .98 1.06 .91 .92 1.40 1.45 1..55 1.45 1.50 1.45 1.45 1..5S 1.40 1.45 1.45 Boys' gum overshoes .94 .96 .97 1.04 .99 1.30 1.40 1.57 1.50 1.59 1.45 1.40 Men's oil grain No-Seam bals. 1.00 2.05 1.05 2.10 1.10 1.08 1.02 1.56 1.60 1.55 Men's gun metal bluchers 2.15 2.10 2.05 2.00 2.10 2.75 2.80 2.85 2.90 2.85 2.80 2.90 Wos. Maxine button shoes 2.06 2.07 2.08 2.09 2.10 2.11 2.12 3.05 3.10 3.15 3.20 3.25 3.30 3.35 Ladies' Dongola C S bals. .94 .95 .96 .97 .98 .99 1.00 1.61 1.62 1.63 1.64 1.65 1.66 1.67 Men's Kang. grain Ripless 1.10 1.15 1.20 1.10 1.15 1.20 1.15 1.90 1.88 1.87 1.86 1.85 1.80 1.75 Men's Am. rubbers Quaker .55 .50 .45 .50 .55 .60 .55 .95 .90 1.00 .95 1.00 .60 .95 .65 .90 Boys' Para rubbers .35 .36 .37 .38 .39 .40 .41 .60 .65 .70 .75 .70 Men's King George oxfords 2.50 2.55 2.60 2.65 2.50 2.55 2.60 3.20 3.15 3.05 3.00 3.10 3.15 3.20 Men's Boston Bluchers 1.00 1.05 1.10 1.15 1.05 1.10 1.05 1.50 1.40 1.60 1.45 1.50 1.55 1.60 167 INDEX Acceptance 112 Accounts 5-15 Accounts, deferred 42 Accounts with persons 33-35 .Analyzing an account 123 Appendix 144-167 Auxiliary books, defined 42 Balance of balances 68 Bank account 81 Bank draft 113 Bond account 131 Bookkeeping, defined 41 Books of original entry, defined 42 Canceling entries 109 Cash account 5-8 Cash book, debit side 93-94 Cash book, credit side 95-98 Cash book, complete form 100-101 Cash book, six column 127-129 Changing from single to double entry 166 Cash discount account 131 Cash discount, how posted 132 Check, form of 75 Checking the trial balance 52 Classification of accounts 61-69 Closing one account into another 62-64 Closing the ledger 65-69 Closing the ledger through journal entries 125 Closing out the business 121 Collection, draft for 113 Debit and credit, equality of 45^6 Debiting and crediting, rule for 14 Debiting and crediting, general rule for 44 Definitions and principles 41-44 Discount, three kinds 122 Double entry bookkeeping, defined 44 Drafts 111-115 Endorsement 22 Estate, accounts of an 131 Expense account 36-37 Explanations in the ledger 99 Financial statement 55-57 Financial statement, balanced form 146-147 Financial statement, how to read 148 Forwarding an account 77-78 Forwarding the cash book footings 119 Forwarding the sales book total 108 Income account 131 In-Freight account 103 Insurance account 131 Interest account 30-32 Interest and discount 85 Inventory 11, 79 Invoices 40 Journal, defined 44 Journal, models 17, 29, 37 Journalizing ^ 16^4 Ledger, defined 42 Ledger, loose leaf 122 Ledger, special ruled 122 Loss and gain account 67 Loss and gain statement 57-59, 110 Loss and gain statement, sectional form. . .144-145 Merchandise account 9-13 Merchandise account subdivided 140-143 Model set 47-69 Money, defined 41 Notes payable account 25-26 Notes, promissory 5-6 Notes receivable account 22-24, 111 Notes payable book 116-117 Notes receivable book 116-117 Original entry, books of, defined 42 Partnership 102 Personal accounts 33-35 Posting 47^8 Preface 3 Preliminary problems 4 Problems of bookkeeping, the 73, 59-62 Proof 62 Promissory notes 5-6 Proprietor's account 35 Purchases account 140 Purchase book 129 Real estate account 18 Returned goods, how treated 135 Returned goods accounts 142-143 Review and rules for journalizing 41-44 Sales account 140 Sales book 90-92 Set four 127-140 Set three 103-121 Set two 74-85 Single entry set 150-166 Statements 55-73 Statements, monthly 89 Statements, two page forms 144-148 Stock record 104 Subordinate expense accounts 63-142 Test in closing. No. 1 89 Test in closing. No. 2 121 Test in closing. No. 3 142 Trial balance 49, 52 Value, defined . 41 Variable price lists 167 168