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Bookkeeping for Accountant Students.
BY THE SAME AUTHOR.
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GEE (^ CO. {Publishers) Ltd., 34 Moorgate Street. London, E.C.
BOOKKEEPING
FOR
ACCOUNTANT STUDENTS
LAWRENCE R. DICKSEE. M.Com., FCA.
n
(o/ the firm of Sellars, Dicksee 6- Co.)
F'oRMERLY Professor ok Accounting at the University of Birmingham,
NOW Lectcrer at the London School of Economics and Political Science
(University of London).
SEVENTH EDITION.
London :
Gee & Co. (Publishers) Ltd., 34 Moorgate Street, EC.
1913
«f !f-
b-i^
\^
\^
CONTENTS.
Preface to First Edition
Preface to Seventh Edition
PAQK
ix
xi
PART I.
I. — General Introduction ...
II. — Simple Ledger Accounts
III. — Closing the Ledger
I^ . — Transactions of Henry Jackson
y. — The "Continental" System
yi. — Closing the Ledger on the "Continental
System
Exercises ...
12
24
35
45
54
60
QO/IOQQ
PART II.
PAGE
YII. — Commercial Terms, with their French and
German equivalents, defined 66
VIII. — Accounts of Traders (Cash Book, Bill
Books, Discounts, Partners' Capital, and
Drawing Accounts) ... 73
IX. — Accounts of Traders (continued) (Goods
Accounts, Purchases, Sales, Consignments) 91
X. — Transactions of Fox & Crane (Opening the
Ledger, the Subsidiary Accounts) ... 102
XI. — Transactions of Fox & Crane (continued)
(Trial Balance, Closing the Ledger) :
Consignees' Accounts 114
XII. — Adjustment Accounts and Self-Balancing
Ledgers 132
Examination Papers 144
PART III.
PAGE
XIII. — Accounts of Manufacturers (Wages
Accounts, Stores Accounts, Cost Accounts) 158
XIV. — Transactions of a Manufacturing
Company (Share Accounts, Allotments,
Transfers, Debentures, &c.) 168
XV. — Transactions of a Manufacturing
Company (continued) (General and Trade
Ledgers) 181
XVI. — Transactions of a Manufacturing
Company {continued) (Cost Accounts,
Closing the Books, Dividends) 198
XVII — Forms of Accounts and Account Books
(Double-Account System, Single-Account
System, Ledgers, Journals, Cash Books) 210
XVIII. — Miscellaneous Questions of Account... 228
Index
236
PREFACE TO FIRST EDITION
'THE extremely unsatisfactory results which, it will be
admitted, usually attend instruction in the principles of
elementary Bookkeeping afford good grounds for supposing
that there is some radical fault in the method of instruction
generally adopted. The principle of Bookkeeping may be
likened to the principle upon which an arch is constructed,
where each stone rests upon every other stone for support,
and of which the keystone — which is at the top of all — is
the most important and the most distinctive. No one wishing
to impart instruction upon the principles upon which an arch
is constructed would commence with a detailed exposition upon
the properties and characteristics of each separate stone ; rather
would he first exhibit to the student a model of the completed
arch, and then pull it to pieces for the student's edification.
In Bookkeeping, however, the mode of instruction usually
adopted is to weary the student with a minute description of
the various parts before he is even told that they will eventually
form one component and harmonious whole ; the immediate
consequence being that the minute portion of his attention that is
not alienated by the apparent aridity of his subject is exclusively
occupied in relatively unimportant matters of detail, and when
the course is linished it is found that, while perhaps more or less
conversant with the letter of the theory, he has not even so
much as learned whether there be a spirit.
The position of such an one may be likened to that of the
student of physiology who. while well acquainted with the
form of some of the principal bones in the human frame, has
not the remotest notion of the relative positions of such bones
X. PREFACE TO FIRST EDITION.
in the skeleton as a whole. Until the whole can be conceived
as a whole, the most minute study of its component parts will
be found singularly stale and unprofitable.
In view, therefore, of the necessarily unsatisfactory result
of all instruction in the science of Bookkeeping conducted
upon the old lines, it is felt that no apology is necessary for
the method adopted in the work now placed before the public.
It may be added, however, that the Author's system has been
found to work well in practice, and to secure for its disciples
a thorough knowledge of the theory of Double Entry in a
remarkably short space of time.
It is desirable that all the exercises upon each chapter should
be worked out before the next chapter is commenced, and that
each Part should be properly mastered before proceeding to the
subsequent Part.
Although the present work is primarily intended for the
use of Accountant Students, it will be found equally suitable
to those preparing for the Civil Service, Society of Arts, and
other similar examinations.
LAWRENCE R. DICKSEE.
142;// December 1892.
PREFACE TO SEVENTH EDITION.
CINCE the first edition of this work was published, some
twenty-one years ago, six editions (representing 10,000
copies) have been exhausted ; and the fact that each successive
edition has been sold out in a shorter space of time than the
previous one is, it is thought, sufficient indication that the hopes
expressed in the preface to the first edition have been justified.
It has not been thought desirable to make any material
alterations in the general scheme of the work, as originally
presented, but the opportunity has been taken to embody
certain improvements in matters of detail and to correct
misprints. Any attempt to make the present volume really
exhaustive would have necessitated a great increase in size,
and would have entirely altered the original arrangement.
The Author has, however, issued a more complete work upon
"Advanced Accounting," that has already reached a fourth
edition, to which the reader is referred for information upon
all points too advanced to be included in the scope of the
present volume.
It may be added that, in order to meet a wish which has
been expressed in several quarters, the Author has published,
in a separate form, a series of 100 questions under the title
of " Bookkeeping Exercises for Accountant Students," which
may be regarded as a supplement to the present work. A
skeleton key is appended to these exercises, so that students
may see for themselves whether their answers are correct.
LAWRENCE R. DICKSEE.
48 Cop/hall Avenue. E.G..
19/// Jitly 1913.
I.— INTRODUCTIOM
Bookkeeping may be defined as the science of correctly
recording in books transactions involving the transfer of
money or money's worth.
In recording these transactions there are two objects to be
aimed at : —
(i) It is necessary that the record be so explicit that, at
any subsequent time, the exact nature of the transacticM:i
may readily be perceived without the aid of the memory.
(2) It is necessary that the transactions should be so
classified that at any time the combined effect of such
transactions during any given period, or at any given time,
may readily be ascertained.
It is the necessity for combining these two fundamental
principles that makes the main difficulty of practical Book-
keeping ; the expression * ' practical ' ' Bookkeeping is used
advisedly, for if time and labour were no object the difficulty
might be got over with comparative ease. As it is, however,
it is extremely rare, except in businesses of the simplest kind,
to find a set of books perfect upon both points that do not
involve in their keeping an amount of labour out of all
proportion to the result achieved.
In England it is a very general custom for bookkeepers to
rely upon Copy Letter Books, Invoices, and other extraneous
sources to elucidate transactions which ought to have been made
plain to an outsider merely examining the books of account
^>-' <- 'V £
2 BOOKKEEPING.
themselves. In fact, many English bcM3ks on Bookkeeping
totally ignore the first of the requisites just named. On the
other hand, in France, Italy, and Spain (and also to a great
extent Germany), the system usually adopted involves almost
twice the labour on the part of the bookkeeper ; but, while
it minutely records the nature of each individual transaction,
it is inferior to the English method in point of classification
and in other matters of convenience. Foreign bookkeepers for
the most part appear to labour under the impression that busi-
nesses were made for books, and not books for businesses, but
surely the latter is the more correct supposition.
The two principles named (viz. the explicit record of each
transaction, and a ready classification of such transactions
when recorded) are in reality both vital, and both equally
important ; it is therefore very necessary that the reader should
bear them constantly in mind, if he wishes to follow the why
and the wherefore of a good system of Bookkeeping.
Having now ascertained to a certain extent the nature of
the records it is necessary to make, attention may be directed
to the things in which the records are made : viz. the Books.
It goes without saying that the same books are not always
equally suitable for the record of all kinds of transactions, or,
in other words, that different kinds of business each require a
different set of books ; in fact, it is frequently desirable that
businesses of the same kind should have their accounts kept
differently, in order to meet some slight variation involved by
a different class of trade. But in all cases (whether the books
be those of a bank, an insurance office, a chimney-sweep, or a
private gentleman) they are kept for the same purpose — the
record of transactions involving the transfer of money or
money's worth — and consequently vary in matters of detail
only, the ruling principle being the same in all.
INTRODUCTION. 3
Books, then, are divisible into two great classes : —
(i) Books of Account, or Financial Books.
(2) Memorandum, or Statistical Books.
The first book of account ever used was probably a mere
-record of transactions entered as they occurred, and conse-
quently in chronological order ; being, in fact, little more than
a Memorandum Book. A very few moments' consideration
will show that, as soon as these transactions became either
very numerous or very varied in their nature, a mere chrono-
logical record would be all but useless, and that some method
.of classification became absolutely necessary.
This being perceived, it became the custom to sort out the
various transactions into their several classes, and to re- write
them in another book (the Ledger) under separate headings,
keeping each class of transaction under its proper heading,
and referring to such heading whenever any information was
required upon that class of transaction.
It may be considered that Bookkeeping itself dates from
this time, for Books of Account, properly so called, hardly
existed before this period; while all that has been done since
has been to follow up and improve upon the lines thus
indicated, and the complexity of modern Bookkeeping is due
to the multiplicity of detail required by the growth of modern
-commerce, rather than to any radical alteration in the principle
of the original design.
The two books named are, in fact, the only Books of
Account in use even at the present time : the first, called the
Journal, or daily register (so called because it contains a
record of each day's transactions), in some form or other still
retains all its ancient functions, and although in the course of
.centuries it has been found convenient to divide the book into
4 BOOKKEEPING.
sections, and call the various parts Sales Book or Day Book,
Invoice Book or Purchase Book, &c., yet, in fact, they are'
merely so many " Journals " ; and to this day in all Con-
tinental houses of business, and in a few English ones,
all transactions are carried through some form of Journal,
although subsidiary books are often used to record the
fuller details.
The second book named is the Ledger, so called because in
that book the entries of all the transactions are laid or stored
■up, for future reference. Most businesses have also a Cash
Book ; but it will save the reader a great deal of confusion at a
subsequent period if, at this early stage, he learns to regard
the Cash Book as neither more nor less than an account in
the Ledger, bound up separately for the sake of convenience.
The Ledger, as already stated, contains a record in classified
form of transactions involving the transfer of money or money's
worth. Thus, if A. sold John Smith goods to the value of,
say, ;£2o, there would be a page in A.'s Ledger headed
'' John Smith,'' showing that he was A.'s debtor for ;£2o on
account of goods sold to him. When Smith paid A., say, JP^\o
on account, that ;£io used to be subtracted from the ;£2o, and
JOHN SMITH.
1500
Jan. I
20
Goods sold him . .
Cash paid by him
i s d
20 o ©■
10 o o
/lO o o
the difference showed the amount still owing by Smith to A.
It was very soon found, however, that there were two weighty
objections to this manner of proceeding : (i) The bookkeeper
w^as always liable to add instead of subtracting, and vice versa,
in which case the error would not be specially obvious; (2)
INTRODUCTION. 5
without reading the whole account, it would not appear
whether John Smith owed the money to A. or A. owed it
to him. To meet this difficulty each Ledger Account was
divided into two : — Upon one side were placed the items for
which he was A.'s debtor, and upon the other side (the contra
Account) those items for which he was A.'s creditor, the
balance being readily ascertainable at any time by adding up
the two sides and striking a balance.
Dr. JOHN SM
[TH.
CONTRA.
Cr.
1500 j
Jan. I To Goods . .
i s d
20
1500
Jan. 20
By Cash
i s d
10
At first sight the reader may possibly have some little
difficulty in seeing how, when Smith owes A. ;£20, he becomes
A.'s creditor upon payment of £,\o; but in Bookkeeping, as in
many other things, we must examine each transaction by
itself as it arises ; the time to set one off against another being
after they have been placed side by side in the Ledger.
Now that the Ledger had been separated into two sides, it
became necessary to distinguish in the Journal upon which
side of the Ledger each transaction should appear, and thus
two columns soon found their way into the Journal, one for
sums to be placed on the Dr. (debtor) side of the Ledger
Account, and one for the Cr. (creditor) side.
JOURNAL.
Dr.
Cr.
£ s d,, £
By this time it will be perceived that Bookkeeping had
already become a matter of some little complexity, and doubt-
O BOOKKEEPING.
less even at that remote period the errors made by the book-
keeper were a source of considerable annoyance and loss ; it
was therefore but natural that men should begin to see if they
could not devise some means by which such errors should
become self-evident. Then, doubtless, they asked themselves
what was the exact nature of the transactions they recorded
in their books, and arrived at the conclusion that the trans-
actions they recorded were — as stated at the outset — transfers.
Let us ask ourselves. What is a transfer? A transfer is a
*' conveyance of anything from one person or place to another. '^
A transfer thus (and consequently the class of transactions
with which we deal in Bookkeeping) involves a twofold act —
if A. pays John Smith £,20, he, receiving the cash, is A.'s
debtor; but A.'s Cash Account, being so much the poorer, is
(so far as that one transaction goes) his creditor. Thus A. is
enabled to record this one transaction on both sides of his
Ledger ; and by recording all his transactions on both sides
of his Ledger, it will readily be seen that at any time, by
adding up each side of his Ledger, and comparing the total
amount of the Dr. side with the total of the Cr. side, a check
is at once obtained ; for, if there be a mistake, it is unlikely
in the extreme that the two sides will agree.
At first sight, however, the advantage seems to be more
than compensated by the extra labour — for frimd facie it
amounts to keeping the books twice over. But notwithstand-
ing this, no subsequent discovery has caused us to abandon the
principle of Double Entry thus founded. More than four
hundred years have now elapsed since the first treatise on
Double Entry Bookkeeping was published, but although
many modifications and improvements have been made since
then, by means of which the amount of labour involved has
been enormously reduced, the fundamental principle of Double
Entry has remained unchanged. Indeed, it is only in English
INTRODUCTION. 7
speaking countries that any serious attempt has been made to
lessen the extra labour involved by Double Entry, and — bear-
ing in mind that ' ' the whole is equal to the sum of its parts ' ' —
to attempt a form of classification in the Journal by which a
vast number of small entries in the Ledger may be obviated.
These preliminary remarks upon books would not be com-
plete without some reference to the second class of books
named, viz., Memorandum, or Statistical Books. These books
vary with every class of trade, and are merely used to record
details that could not conveniently appear in the Books of
Account, or if they do so appear are not in a form suitable for
convenient reference.
The Policy Books of an Insurance Office, the Ground Rent
Register of a Mortgage Company, and (frequently) the Cost
Book of a Contractor are examples of such books. It should,
however, be carefully borne in mind that they are not Books
of Account, and (from a Bookkeeping point of view) have no
value except in so far as they serve to explain entries appear-
ing in the Books of Account that might otherwise be obscure.
It may be added that many frauds have remained undetected
through want of attention to this most important point.
The object of this chapter being merely to give a general
(although necessarily extremely superficial) idea of the whole
subject, rather than to consider any one point exhaustively,
we will now return to the Ledger — which the reader need
hardly be reminded is the book — and try and convey a
rough idea of the principle upon which a Balance Sheet
is prepared.
Up to the present time Accountants have not agreed upon
any precise form in which a Balance Sheet shall be drawn up,
consequently specimens are to be found in several different
forms. This is very confusing to the beginner, and it is not
8
BOOKKEEPING.
therefore intended at the present time further to distract the
reader with a discussion as to the merits of the various forms
in use. It will suffice to explain what a Balance Sheet
really is.
A Balance Sheet is a statement showing upon one side the
assets of the business in question, and on the other side the
liabilities. If the assets exceed the liabilities the surplus is the
capital of the business that has to be accounted for to its pro-
prietors, and it appears as such on the liabilities' side, so that
the totals of both sides agree. On the other hand, should the
liabilities exceed the assets, the difference is called a deficiency,
or capital overdrawn, and is entered on the assets' side. At
first sight this may appear somewhat strange. " If I have a
capital of ;£i,ooo," the reader says, " how can it appear on
the liabilities' side; surely it is an asset? " True, but he must
always remember to look upon the business as something quite
apart from the person or persons to whom it belongs. The busi-
ness has a surplus of ;£i,ooo, which belongs to its owner;
therefore that owner is a creditor of the business for ;£i,ooo.
It will thus appear that the business makes no distinction
between its owner and any other creditor. Scottish readers,
whose mercantile law recognises the existence of a firm as some-
thing distinct from its individual partners, will doubtless grasp
the situation more readily.
Inasmuch as the Ledger contains, in a classified form, a
record of all the transactions, it is obvious that, from the
Ledger, we can at any time readily ascertain both the assets
and the liabilities of the business. That is to say, the Ledger
keeps a continuous record of the amount owing to the business,
the amount owing by it, and of the property belonging to it.
The excess of the assets over the liabilities is (as already
stated) the capital, and if the capital at the end of any period
is greater than at the commencement of that period, the
INTRODUCTION. 9
difference will be the profit made during that pericxi —
assuming, of course, that no fresh capital has been brought in
or withdrawn during that period. Similarly, if the capital has
become reduced, there will have been a loss.
In taking out a Balance Sheet from the Ledger, however,
nimierous accounts will be found that represent neither assets
nor liabilities, but sources of expense or of income. In this
connection the following rules will be found most useful : —
(i) When an item is on the left-hand or Dr. side of the
Ledger :
(a) If the amount will eventually be received, it is
an asset.
(b) If the amount will not eventually be received, it
is a loss.
(2) When an item is on the right-hand or Cr. side of the
Ledger :
(a) If the amount will eventually have to be paid,
it is a liability.
(b) If the amount will not eventually have to be paid,
it is a gain.
This rule never fails; but, of course, the question as to
whether an amount will eventually be received or not
requires a knowledge of the facts of the particular case for
its correct disposal ; and, even then, may be a point of much
difficulty — in fact, this is one of the difficulties of correctly
reporting upon the affairs of any business — for because A.
owes B. ;£ioo it does not in the least follow that B. will ever
receive his j£ioo from A. If he does eventually receive it, of
course it was one of B.'s assets, but if not, B. must look
upon it as a loss.
lO BOOKKEEPING.
P'or theoretical purposes, however, one may readily suppose
the distinction made. That having been done, the losses and
gains are collected into one account, usually called the Profit
and Loss Account in trading concerns, and the Revenue Account
in non-trading concerns. In this account the losses will appear
on the Dr. side and the gains on the Cr, side, while the differ-
ence between the two sides will show the total gain or loss,
as the case may be.
As every source of gain or loss has been included in this
account, the total gain made during the period under review
(as shown by this account) added to the Capital at starting
(or the total loss deducted ffom the Capital at starting, as the
case may be) will give the Capital at the end of the period.
If there is no error in the books this will be the same thing
as the Capital shown on the Balance Sheet drawn up at the
end of the period, and here, again, the check of the Double
Entry comes in. It is here also that the especial value of
the Double Entry shows itself, for a very few moments' con-
sideration will show that the question " How have I made
my profit?" is in reality almost more important than the
question " What profit have I made? " As, however, the
point involved here belongs to Accountancy rather than to
Bookkeeping, it is unnecessary to pursue it further at the
present time.
INTRODUCTION. 1 1
Questions on Chapter I.
1. What is Bookkeeping?
2. What are the two objects to be aimed at in every
system of Bookkeeping?
3. What is a Journal?
4. Wiiat is a Ledger?
5. What is understood by the signs " Dr.," " Cr."?
6. In what respect is every transaction recorded by Book-
keeping of a twofold nature?
7. What is Double Entry?
8. What is a Balance Sheet?
9. What is understood by the term " Capital "?
10. How is the Net Profit or Loss arrived at from a set of
books
II.— SIMPLE LEDGER ACCOUNTS.
The Ledger has already been defined as a classified record
of transactions. It is now proposed to deal more in detail
with the various Ledger Accounts required in books of the
simplest kind ; and, for the purpose of giving a more definite
interest to this and the two following chapters, the accounts
required to be kept by a person owning a set of chambers, let
out to various tenants, will be described in detail as being,
perhaps, one of the simplest sets of accounts conceivable.
Ledger Accounts are usually divided into three classes : —
(a) Real Accounts, dealing with actual property.
(b) Personal Accounts, showing the record of transactions
between tl^e owner and the various persons with
whom he has business transactions.
(c) Nominal Accounts, dealing with various forms of Income
and Expenditure.
There is no essential difference between Real and Personal
Accounts.
(a) Taking Real Accounts first, the various accounts required
for the set of books now being considered are as
follows : —
SIMPLE LEDGER ACCOUNTS.
13
(i) Cash Account. — This account, as its name implies,
records all transactions in cash, whether received or paid by
the owner.
Dr.
CASH.
CONTRA.
Cr.
1913
£ s d
1913
£ s d
Jan. I
To John Smith
50 ;
Jan. 16
By Bank
150
16
„ Thos. Brown . .
125 ]
31
, Do
50
21
„ Wm. Robinson..
35
, Wages ..
3 6 8
Mar. 27
„ James Jones . .
75
Feb. 28
, Do .. ..
368
Mar. 31
, Do
3 6 8
-
„ Bank ..
50
In the above example the items on the Dr. side are those
which have been received by the owner from the various
persons named. In Bookkeeping it is the custom to consider
that the owner does nothing for himself, consequently it is
assumed that when a person pays him in a sum of money it is
not he who receives it, but his Cash Account, which — having
received it for him — is accordingly his debtor for the amount
so received. Perhaps the transaction will appear clearer to
the reader if he looks upon this account as an account between
the owner and his cashier, who, having received the money on
his employer's behalf, is liable to account for it subsequently,
and is meanwhile a debtor for the amount so received. The
word "To" in front of each name on the Dr. side signifies
that — so far as that one transaction is concerned — " Cash "
(or the cashier) is ' ' debtor to ' ' the person from whom the
amount was received.
In a similar manner Cash (or the cashier) is entitled to
take credit for (or " by ") the amount of the payments made
from time to time out of Cash. Thus, in the example, it
appears that £2^0 has been paid away to " Bank " and jQio
in " Wages." The actual amount for which Cash is
'' Debtor " {i.e. accountable) on the 31st March is thus, not
^285 (the total amount received), but £2^^ less £260 (the
amount of the payments), which leaves £2^ for which Cash
14
BOOKKEEPING.
is still Debtor. This is what is called a " Debtor Balance,"
which may be defined as the amount by which the Dr. side
of an account exceeds the Cr. side:
Hence the meaning of the word " Contra " at the head of
the account. The two sides of the account represent similar,
but opposite, transactions, which may be set off against
each other.
The method of balancing the Cash Account, as it is called,
will be dealt with later, under the heading of Closing of Ledger.
(2) Bank Account. — This account is, in reality, a '' Per-
sonal " Account, but on account of its likeness to the Cash
Account it may, perhaps, be more conveniently dealt with under
this head.
Dr.
BANK.
CONTRA.
Cr
1913
f.
s
d
1913
Feb. 7
£ s
d
Jan. 16
To Cash
150
By Portland Estate
31
« Do.
50
Ground Rent
12 10
Mar. 31
» Do.
..
50
Mar. 6
„ H. Jackson (pri-
vate expenses)
100
22
„ Repairs . .
17 10
In this account, as in the Cash Account (and as, also, in
every other Ledger Account), the amounts received are entered
on the Dr. side, and those paid on the Cr. side. It will be
noticed that the " debit entries " (as receipts on the Dr. side
are called) correspond with the payments into Bank recorded
in the Cash Account. The '' credit entries " are for payments
made by the bank upon orders signed by the owner, which
are commonly known as cheques. The item of ;£ioo paid on
March 6 is -for a sum withdrawn by H. Jackson (the owner)
for his own private expenses. How this is dealt with we shall
see at a later stage. The difference between the Dr. and Cr.
sides here represents the balance at the Bank.
SIMPLE LEDGER ACCOUNTS. 1 5
(3) Leasehold Premises Account. — This account will record
the value of the property owned by ^Ir. Jackson, together with
any transactions that may increase or decrease its value.
Dr. LEASEHOLD PREMISES. CONTRA. Cr.
I9I3
i s
d
1913
f
s
d
Jan. I
To Balance from last
account (value
at this date) . .
15,000
Mar. 31
By
Depreciation
Lease ..
of
100
The item on the Dr. side represents the value of the pro-
perty on the ist January, which is said to be due to the owner
from this account. If any structural alterations had been made
during the quarter whereby the value of the property was
increased, the amount of such increase would have been entered
on the Dr. side, and so have increased the ;£i 5,000 by that
amount. In the present case, however, the value of the pro-
perty is supposed to have decreased, by reason of the term upon
which a lease of the property is held being shortened. This
decrease (or depreciation, as it is called) has been estimated
at ;£ioo, and is accordingly entered to the credit of the
Property Account, the value of the property on 31st March
being accordingly reduced to ;£i4,9oo, the balance of the
account on that date.
ih) Under the heading of Personal Accounts the first to be
dealt with is the
(i) Capital Account. — This is the account between the
owner and his business. The set of books under considera-
tion do not comprise the whole of H. Jackson's affairs,
but only those relating to the particular set of Chambers
referred to. Whatever may be due to this business, either from
debtors or investments, are called assets, and any outstanding
l6 ' BOOKKEEPING.
debts due by this business are called liabilities. The amount
by which the assets exceed the liabilities is called the capital ;
but this capital belongs not to the business itself, but to H.
Jackson as owner. The business can make no profits and hold
no property for itself ; both belong entirely to the owner, and,
until they are drawn out of the business by the owner, he is the
creditor of the business for the amount of such property and
profits.
The Capital Account, then, is the account showing the extent
to which the business is indebted to the owner.
Dr. CAPITAL ACCOUNT. CONTRA. Cr.
1913
Mar. 6
To
Bank (private
expenses) . .
i s d
100
1913
Jan. I
Mar.3J
By Balance at this
date . .
„ Revenue Account
i 8 d
15,197 10
166 5
In the above account it will be seen that, on ist January,
;£i5,i97 los. was due to H. Jackson as representing the
capital of the business at that date. On the 6th March this
sum was reduced by ,£100, which he drew out of the bank for
his own private expenses. On the other hand, the Revenue
Account prepared to the 31st March (vide p. 26) shows that
a profit of ;£i66 5s. has been made during the quarter. This
profit, as already explained, belongs not to the business, but
to its owner, and (not having been received by him) is owing
to him. His Capital Account will accordingly be credited
with this amount, and the sum due to him on the 31st March
then becomes ;£i5.263 iss."*^
(2) Business Debtors. — The following are the Ledger
Accounts showing the indebtedness of the four tenants of
Mr. Jackson's Chambers :
*This latter transaction is recorded in italics in the example.
Dr.
SIMPLE LEDGER ACCOUNTS.
JOHN SMITH. CONTRA.
17
Cr.
, I9I3
f.
s
d
1913
f
s
d
Jan. I
To Balance at
date
this
50
'
Jan. I
By
Cash . .
50
Mar. 31
, Rent for
tjnarter
the
50
1
Dr.
THUMAS BROWX.
CONTRA.
Cr.
1913
Jan. I
Mar. 31
To Balance at this
date
, Rent for the
quarter
£ s d
125
i<5
Jan. 16
By Cash ..
£ s d
125
WILLIAM ROBIXSOX
CONTRA.
1913
Jan. I
To Balance at this
date
Mar. 31
, Rent for the
qiianer
£ s d
35
1913
Jan. 21
50
Dt
AMKS JOXE.^.
COXTRA.
Cr.
,,1913 !
Mar. 31 I To Rent for the quarter
Taking John Smith's account in tiie foregoing example, it
will he noticed that the account is debited with the rent due
from him, and that he receives credit for the amount paid by
him. At the comtnencement of the year Smith still owed for
the quarter's rent due on the 31st December, but paid cash
for the same on the ist January. On the 31st March another
quarter's rent became due, but remained unpaid on the closing
of the accounts on the 31st March. Smith, therefore, owed
jQ^o on this date, which is .shown on the account by the total
of the Dr. side exceeding the total of the Cr. side by that
amount.
]8
BOOKKEEPING.
The same remarks apply to the accounts of Thomas Brown
and William Robinson; but, in the case of the latter, it will
be noted that the amount of rent due for the March quarter
is ,-£50, while the sum due on the ist January was ;£35 only.
The explanation is that at the end of 1912 Robinson's rent
was raised from ;£i40 to ;£2oo a year. It is, however, to
be noted that the account, as shown, would have appeared
the same had the rent for the December quarter also been £$0,
provided ^£15 had been paid on account before the close of the
year ; as, in that case also, the amount due on ist January would
have been £35.
In the case of James Jones it will be noticed that he follows
the commendable practice of paying his rent a few days in
advance; consequently nothing was due from him on the ist
January, and nothing is due on the 31st March.
(3) Business Creditors. — In the set of books now under con-
sideration the only example of these accounts is the following :
Z>/.
PORTLAND ESTATE.
CONTRA.
I9I3
£ s d
1913
£ s d
Feb. 7
To Bank ..
12 10
Jan. I
Mar. 31
By Balance due
this date . .
„ Ground Rent
to date
12 10
650
It will be noticed that on ist January the Portland Estate were
creditors for ;£i2 los. for a half-year's ground rent, but that
they received a cheque for this amount on 7th February. On
the 31st March a further quarter's ground rent had accrued
{jQ6 5s.), and this amount was still owdng to them when the
accounts were closed. It will be noted that the* total of the
entries on the Cr. side exceeds the total of the entries on the
debit side by jQ6 5s.
SIMPLE LEDGER ACCOUNTS.
19
(c) Nominal Accounts (or, as they are .sometimes called,
Impersonal Accounts) naturally very in name according
to the nature of the business recorded. In this set of
hooks there is only one source of income or profit, and
this is recorded in the
(i) Rent Account, in which the rent is entered on the Cr.
side as it becomes due.
CONTRA. Cr.
Dr.
RENT.
\
I9I3
Mar. 31
•
•
•
By John Smith ..
„ Thos. Brown..
, Wm. Robinson
, Jas. Jones . .
£ s d
50
125
50
75
The entries in the above example will be found to corre-
spond with the amounts debited to the accounts of the various
tenants. They are placed to the credit of Rent Account because
they are tran^^actions in which a beneiit has been imparted by
the business to other persons who have received a correspond-
ing benefit. It will be remembered that, in just the same way.
Bank Account parted with jQii los. to the Portland Estate,
and was credited with that amount ; while the Portland Estate,
having received a corresponding benefit, was debited with the
amount.
Returning to the Rent Account, if any rent had been allowed
to a tenant, it would have been necessary to debit the Rent
Account and credit the Tenant's Account with the amount
.so allowed; but — fortunately for Mr. Jackson — no such
transaction has to be recorded.
There are four Expenses (or Loss) Accounts in this set of
books, viz. : —
(2) Wages Account.
(3) (iround Rent Account.
(4) Repairs Account.
^5) Depreciation Account.
c 2
20 BOOKKEEPING.
Dr. WAGES. CONTRA.
Cr.
£ s d
368
368
368
Dr.
GROUND RENT.
1913
Mar. 31 To Portland Estate ..
i s d
650
CONTRA.
Cr.
Dr.
REPAIRS.
1913
Ma-. 22 To Bank
i s d
17 ID O
CONTRA.
Dr.
DEPRECIATION.
CONTRA.
1913 £ s d
Mar. 31 To Property Account. . I 100 o o
The Wages Account record.s the cash payments to the
attendant for looking after and cleaning the chambers. It is
a benelit received by the department represented by this
account, which is accordingly debited ; but, inasmuch as no
future benefit will re.sult to the business from its payment, it
is a business expense for the quarter, and goes towards the
reduction of the profit. A similar remark applies to the
Ground Rent and Repairs Account; but, with regard to the
latter, it is to be noted in passing that, had there been any
repairs executed but not paid for, they would be debited to
SIMPLE LEDGER ACCOUNTS. 21
Repairs Account (increasing the balance of that account) and
credited to a Personal Account opened in the name of the
creditor, in precisely the same manner as the amount due for
ground rent has been dealt with.
The object of the Depreciation Account has already been
explained ; when the closing of the books is further dealt with,
the hnal effect of this transaction will be obvious.
Before leaving the Nominal Accounts it may be added
that — unlike the Personal and Real Accounts — the Nominal
Accounts are closed each quarter (or at whatever other period
the lx)oks are balanced) and the balance of each collected into
one account, called the Revenue (or Profit and Loss) Account,
the balance of which account shows at a glance the net result
of the period's transactions. This point will, however, be
fully explained later on.
TRIAL BALANCE.
Having now explained the meaning of each entry in the
Ledger of Mr. Jackson, it it time to consider what is known
as the balancing of the accounts.
The twofold nature of each transaction in Bookkeeping —
by which each benefit conferred involves a corresponding
benefit received — has already been dwelt upon; and it will be
noticed that this twofold aspect of the transactions (or transfers,
as they really are) has been strictly maintained in the set of
books with which we have been dealing. In order to test the
clerical accuracy of work — a most necessary precaution where
the number of entries is very numerous — it is usual to take out
■what is called a ■' Trial Balance," of which the following is a
specimen : —
22
BOOKKEEPING.
TRIAL BALAN'CE, 31st March 1913.
Totals. Balances.
Cash
Bank
Property..
♦Capital ..
John Smith
Thomas Brown
William Robinson
James Jones
Portland Estate
Rent
Wages . .
Ground Rent . .
Repairs ..
Depreciation . .
Dr.
£ s d
285 o o
250 o o
15,000 o o
100 o o
100 o o
250 O
85 o o
75 o o
12 10 o
10 o o
650
17 10 o
100 o o
£■16,291 5 o
Cr.
£ s
260 o
130 o
100 o
15,197 10
50 o
125 o
35 o
75 o
18 15
300 o
£
25
120
14,900
50
125
50
10 o o
£16,291 5 o
6
17 10
100 o
5 o
£15,403 15 o
Cr.
£ s d
15,097 10 o
650
300 o o
£15,403 15 o
The first column of figures in the above example represents
the total amount on the Dr. side of each account, the second
column the total amount on the Cr. side of each account, the
third column the amount by which the Dr. column exceeds
the Cr. column, and the fourth, the amount by which the Cr.
column exceeds the Dr. column.
If each transaction has been correctly recorded as a transfer,
affecting two accounts in equal and opposite ways, it follows
that the totals of the first two columns must be the same, and,
consequently, that the totals of the second two columns must
be the same. If, therefore, the totals do actually agree, there
is good ground for supposing that the transactions are correctly
recorded ; and it is the check thus afforded by the Trial Balance
which forms one of the great advantages of Double Entry.
Having now ascertained, by means of the Trial Balance, the
accuracy of the record of the transactions, the bookkeeper may
— as shown in the following chapter — proceed to '' close the
books " and prepare a Revenue Account and Balance Sheet.
♦ It is to be remembered that the figures in italics on the credit side of this account
do not find their way to that place until a later period than that now being considered.
The Revenue Account has not yet been compiled— still less its balance ascertained
and transferred to Capital.
SIMPLE LEDGER ACCOUNTS. 23
Questions on Chapter II.
1. How many different classes of accounts are there?
2. Xame them.
3. Civf examples of each class.
4. State the use of each of your examples.
5. What would a Dr. balance upon each of your examples
imply?
6. What would a Cr. balance imply ?
7. What is a Trial Balance?
8. What is its ol»ject, and how is it effected?
III.— CLOSING THE LEDGER.
The object of "closing" ihe Ledger is twofold, (i) to
ascertain the net result of {i.e., the profit or loss arising from)
the transactions recorded ; and (2) to place on record, in a form
convenient for subsequent reference, the state of each account
on the date at which the books are closed. It has already been
stated that, when the books are closed, the balance of each
Nominal Account (or, in other words, the total profit or loss
deiived from every source) is transferred to one account —
generally called, in trading concerns, the Profit and Loss
Account, and, in non-trading concerns, the Revenue Account.
It is now proposed to proceed to compile a Revenue Account
from the transactions recorded in the last chapter.
As the Revenue Account is merely a collection of the
balances standing on the various Nominal Accounts, it is obvious
that Dr. balances will be transferred to the Dr. side of the
Revenue Account, and Cr. balances to the Cr. side of the
Revenue Account. Further, it is obvious that a Dr. balance
on a Nominal Account cannot, after having been transferred
to the debit of Revenue Account, still remain standing to the
debit of the Nominal Account ; it is therefore necessary, when
a debit balance is transferred to the Revenue Account, that the
Nominal Account should at the same time be credited with the
same amount. In the same way, if it is desired to transfer the
Cr. balance of a Nominal Account to the Cr. of the Revenue
Account, it is necessary both to debit the Nominal Account and
to credit the Revenue Account with the amount of such balance.
CLOSING THE LEDGER.
25
The two sides of the Xominal Account will then total up to the
same amount — '■ balance," as it is called — and such total is
then entered on "both sides to bear witness to the fact that such
account does balance, and a double line is ruled under each total
to signify that the account is *' closed."
Referring back to tlie Rent Account given in the last chapter,
it will be perceived that there is a credit balance on this account
of ;£3oo. To transfer this balance to the credit of Revenue
it is necessary to debit Rent Account, and credit Revenue
Account with /^300. Then add up both sides of the Rent
Account, insert the total (;^3oo) on each side, rule a double
line under the total, and the Rent Account is closed; but there
remains, of course, a Cr. balance (of £s°o) on the Revenue
Account.
In the same way the four remaining Xominal Accounts are
closed by crediting Wages Account with ;£io, Ground Rent
Account with j£6 5s., Repairs Account with ^17 los., and
Depreciation Account with ;£ioo, at the same time debiting
Revenue Account with all four amounts. These four Nominal
Accounts can be then added up and closed; but there is left
standing to the debit of Revenue ^133 15s. — exactly the same
amount as was formerly standing to the debit of the four
Xominal Accounts collectively.
The following examples will show these transactions clearly,
the italics representing the closing entries described above : —
Dr.
RF.XT.
(T)XTRA.
Cr.
Mar. 31 To Revenue At
300
s d
£300
1913
Mar. 31
By John Smith
, Thos. Brown
, W. Robinson
• Jas. Jones
i
s
d
50
125
50
75
£300
26 BOOKKEEPING.
Dr. WAGES. CONTRA. Cr.
1913
Jan. 31
Feb. 28
Mar. 31
To Cash
£ s d
368
368
368
ilO
1913
Mar. 31
By Revenue A ccount. .
£ s d
10
£10 o
Dr. GROUND RENT
CONTRA.
Cr.
1913 ' £ s d ! 1913
Mar. 31 ! To Portland Estate 6501 Mar. 31
£ s d
By Revenue Account 6 5
Dr.
REPAIRS.
CONTRA.
Cr.
1913
Mar. 22 To Bank
£ s d
17 10 o
1913
Mar. 31
By Revenue Account
£ s d
17 10
Dr.
DEPRECIATION.
CONTRA.
Cr.
Dr. REVENUE ACCOUNT.
CONTRA.
I9I3
£ s d
I9I3
.
£ s d
Mar. 31
To Wages ..
10
Mar. 31
By Rent
300
„
n Ground Rent . .
6 5
„
„ Repairs ..
17 10
"
„ Depreciation . .
100
It will be noticed that where there is only one line on each
side of an account (as in the Ground Rent and the two follow-
ing accounts) the total is not repeated, a double line merely
being inserted under the figures on each side.
CLOSING THE LEDGER.
27
In order to make it quite clear to the reader that the above
transactions have in no way affected the agreement of the Trial
Balance, another Trial Balance is given below, as it would
appear if extracted at this time — ^namely, after the Nominal
Accounts have been closed : —
TRIAL BALANCE, 31st March 1913.
(After closing the Nominal Accounts.)
Totals. Balances.
Dy. Cr. Dr. Cr.
£
s
d
£ s
d
£
s
d
£
s
d
Cash
285
a6o
25
Bank
250
130
120
Property
15,000
100
14,900
Capital ' . .
1 00
15,197 10
15.097
10
John Smith
100
50
50
e
Thomas Brown
250
125
125
..
Wm. Robinson
85
35
50
James Jones
75
c
75
Portland Estate
12
10
18 15
6'
5
Revenue Account
133
15
300
166
5
£16,291
5
£16,291 5
£15,270
V:£
15.270
i
It will be remembered that the Revenue Account has been
credited with every source of income, and debited with every
source of expense or loss ; it therefore follows that the amount
by which the credit side exceeds the total of the debit side is
the net profit for the period over which the transactions extend.
This net profit is jQt.66 5s.
As already stated, this net profit does not belong to the
business, but is owed by the business to its proprietor, H.
Jackson. H. Jackson is thus a creditor of the business, not
only for ^15,097 los. (the balance of his Capital Account) but
also for this jQi66 5s. of profit. This fact is recorded by
crediting the Capital Account with ^166 5s. (as shown by the
italics in the Capital Account stated in Chapter II), at the
same time debiting Revenue with that amount, and closing
the latter account thus : —
28
Dr.
BOOKKEEPING.
REVENUE ACCOUNT.
Cr.
1913
£ s d
1913
£ s d
Mar. 31
To Wages..
10
Mar. 31
By Rent ^.
300
„ Ground Rent. .
650
„ Repairs
17 10
^
„ Depreciation..
100
'
„ Capital Ale (wt
profit for the
quarter)
166 5
£300
£30n
The Revenue Account, being merely a collection of the
balances of the Nominal Account.s, i.s itself merely a Nominal
Account, but now that all the Nominal Accounts are closed,
and only Real and Personal Accounts left open, the bookkeeper
is in a position to apply the second important check afforded
by Double Entry — the agreement of the Balance Sheet.
As will be remembered, Real Accounts represent Assets, and
Personal Accounts either Assets or Liabilities. The credit
balance of the Capital Account represents the sum by which
the assets exceed the liabilities due to outside creditors (that
is, creditors other than the proprietor), and such assets and
liabilities are the balances of the Real and Personal Accounts
(other than the Capital Account). If, therefore, the accounts
are correctly stated, a Balance Sheet comprising the balances of
all the accounts except the Capital will show the same l>alance
as that shown by the Capital Account.
The following is a Balance Sheet drawn up on these lines :
BALANCE SHEET, 31st March 1913.
Liabilities.
£ s d
Assets.
£ s d
Portland Estate . .
6
5
Cash
Bank
Property . .
John Smith
Thos. Brown
Wm. Robinson . .
25
120
14,900
50
125
50
CLOSING THE LEDGER.
29
It will l)e seen that the assets* side of this Balance Sheet
amou'.its to ;£i5,27o, while the liabilities' side is £j^ 5s. The
difference is therefore ^15.263 15s., representing the Capital,
and this is the amount shown as the balance of the Capital
Account.
To express this in another way. The business, as such, can
own no property, Imt owes everything to its proprietor. It
consequently follows that, if the accounts are correctly recorded,
all the assets will be equal to all the liabilities (that is, all
the lialiilities including the Capital Account) ; or, in other words,
the total of the debit balances will always equal the total of
the credit balances.
To show that this is so in the present case, the Balance Sheet
is here given in its complete form. Tlie items have been
re-arranged in the manner in which they would usually be
stated, but the reader will have no difficulty in following each
Ledger Balance to its place in the Balance Sheet.
BALANCE SHEET, 31st March 1913.
Liabilities.
Capital A aount :
Balance i Jan. £15.197100
Less withdrawn 100
15,263 15
650
I
Assets.
Property Account :
Balance i Jan. . .£15,000
Less Depreciation 100
£ s d
15,097 100
Net Proht for
the quarter.. 166 5
Debtors :
John Smith 50
Thos. Brown 125
Wni. Robinson . . 50
Creditors :
Portland Estate
Cash :
At Bank . . . . 120
In hand . . . . 25
145
I
£
15,270
15,270
It may here be repeated that the great advantage of Double
Entry is that it not only affords a most valuable check upon the
clerical accuracy of the books, but also — by means of the
30 BOOKKEEPING.
Revenue or Profit and Loss Account — it furnishes full details
of the manner in which the profit, or loss, has been arrived
at. It is thus possible to compare the various items of income
and expenditure of different periods, and to consider whether
or no certain sources of income are paying their way, and whether
(and, if so, where) further economies can be effected. It is
with this end in view that the various Nominal Accounts are
kept, and the balance of each finally transferred to the Revenue
Account. It will be obvious that the balance of the Revenue
Account would have been just the same had all items of income
or expenditure been posted to it direct, instead of being first
posted to the various Nominal Accounts and then transferred ;
but in the former case — especially if the items were numerous —
the record would be too confused to afford any data for the
comparison of the various details in different periods. It is,
indeed, possible to go even a step further, and to say that the
balance of the Capital Account would have been the same if
all items of income and expenses had been posted to that
account direct, without availing oneself of the analytical
advantages of Nominal Accounts.
The Real and Personal Accounts still remain to be dealt
with ; not because the balances have to be transferre(5 to any
other account, but because — as stated at the commencement of
this chapter — it is desirable to place on record, in a form con-
venient for subsequent reference, the state of each account on
the date at which the books are closed.
The following example will show, better than any mere
explanation, the way in which these accounts are dealt with.
The process is called '' bringing down the balances."
Dr.
CLOSING THE LEDGER.
CASH. CONTRA.
31
1913
£ s d
1913
£ s d
Jan^ 'i
To John Smith ..
50
Jan. 16
By
Bank ..
150
16
, Thos. Brown . .
125
31
Do
50
21
, W. Robinson . .
35
Wages ..
3 6 8
Mar. z^
, Jas. Jones
75
Feb. 28
Do
3 6 8
Mar. 31
Do
3 6 8
Bank ..
50
To Balance ..
•
Balance..
25
£285
£285 G
April 1
25
Dr.
BANK.
CONTRA.
Cr.
Jan. 16
31
Mar. 31
To Cash . .
.Do
. Do
To Balance ..
£ s
150
50
50
d
,
' 1913
Feb. 7
Mar. 6
22
31
By Portland Estate,
Ground Rent. .
, H. Jackson (pri-
vate expenses)
, Repairs . .
, Balance ..
£ s d
12 10
100
17 ID
120
£250
£250
April 1
120
'
Dr.
PROPERTY.
CONTRA.
Cr.
1913
Jan. I
To Balance from last
Account (value
at this date) ..
£
To Balance ..
£ s d
15,000
1913
Mar. 31
By Depreciation of
Lease ..
, Balance..
£
£ s d
100
14,900
15,000
15,000
April 1
!
UfiOO
32 BOOKKEEPING.
Dr. CAPITAL ACCOUNT. CONTRA.
Cr.
I9I3
Mar. 6
31
To Bank (private
expenses
„ Balance..
£
£ sd
100
}5,263 15
, 1913
Jan. I
Mar. 31
April 1
By Balance at this
date
, Revenue A/c . .
£
By Balance . .
£ sd
15,197 10
166 5
15,363 15
15,363 15
15,263 15
Dr.
JOHN SMITH.
CONTRA.
Cr.
^ I9I3
Jan. I
Mar. 31
To Balance at this
date . .
„ Rent for the
quarter
To Balance ..
£ s d
50
50
1913
Jan. I
Mar. 31
By Cash ..
„ Balance . .
£ s d
50
50
£100
£100
A prill
50
Dr.
THOMAS BROWN.
CONTRA.
Cr.
1913
Jan. I To Balance at this
I date
Mar. 31 „ Rent for the
quarter
April 1 j To Balance ..
£ s d
125
125 '
1913
Jan. 16
yar.31
£250
125
By Cash ..
„ Balance . .
£ s d
12=) o o
125
£-?50
Dr. JAMES JONES.
CONTRA.
Cr.
1913
Mar. 31
j £ s d ' 1913
To Rent for the quarter 75 o o I Mar. 27 By Cash
£ s d
75 o o
CLOSING THE LEDGER.
Dr. WIT.LTAM ROHIXSOX. CONTRA.
33
I9I3
Jan. I
Mar. 31
To Balance at this date
„ Rent for the quarter
To Balance
£ s
35
50
d
I9I3
Jan. 21
Mar 31
By Cash
, Balance . .
£
^00
MOO
85
85
April 1
50
1
Dr.
PORTLAND ESTATE.
CONTRA.
1913
Feb. 7 I To Bank
Mar. 31 I „ Balance
Cr.
£ s d I 1913 I £ s d
12 10 o |{ Jan. I By Balance due at this
6 5 \\ ' ' date .. . . 12 10 o
I Mar. 31 „ Ground Rent to
jj date . . . . 650
CIS 15
I
AptHl \ By Balance
£18 15
6 5
It will be observed that these balances, when brought down
as shown above, are in a very convenient form for future
reference (even after subsequent entries have been added) ; but
that in no case do they effect any alteration in the balance
standing on the account when the Balance Sheet was taken out.
It is hardly to be supposed that, at this early stage, the
student will have thoroughly grasped the whole of the process
set forth in this and the preceding chapter ; but it is hoped
he will have gathered a .sufficiently general idea of the purpose
of the various Ledger Accounts to enable him intelligently to
follow the progress of the transactions recorded in the next
chapter, where the transactions of Henry Jackson during the
succeeding quarter are fully dealt with.
34 BOOKKEEPING.
Questions on Chapter III.
1. What are the objects of " closing " a Ledger?
2. What does the process consist of?
3. What account shows the net profit, and why ?
4. What is done with the balance of the Revenue, or Profit
and Loss Account?
5. Why must the Revenue Account be completed before
the Balance Sheet can be prepared?
6. What is the object of keeping Nominal Accounts?
7 . Wherein lies the advantage of Double Entry ?
8. What is meant by ** transferring " a balance?
9. What is meant by " bringing down " a balance?
IV.— TRANSACTIONS OF HENRY
JACKSON.
The following are the transactions of Henry Jackson during
the quarter following that which was considered in the
previous chapters : —
TRANSACTIONS during Quarter ending 30th June 1913.
I.
April
6 ;
2.
„
6 ,
3-
„
10
4-
„
12
•)•
„
13
6.
„
30
7-
May
12
8.
»
30
9.
June
15
10.
"
30
II.
„
30
12
„
30
13-
„
30
14-
»
30
i")-
„
30
lb.
„
30
17-
„
30
18.
„
30
19-
»
30
Received from Thomas Brown, Rent due from him
Paid into Bank
Received from Wm. Robinson, Rent due from him
Received from John Smith, Rent due from him
Paid into Bank
Paid Wages
Drew Cheque for private expenses . .
Paid Wages
Paid for various Repairs (cheque)
Paid Wages
Sent out the following accounts for Rent due :
John Smith
William Robinson
Thomas Brown
James Jones
James Jones paid Rent due by him . .
Received Henry Williams' account for Repairs
Ground Rent due to Portland Estate for quarter.
Depreciation to be written off Lease of Property.
Drew Cheque for private expenses
£
s
d
125
140
50
50
100
3
6
8
100
3
6
8
12
16
3
6
8
50
50
12.-)
75
75
4
14
6
5
105
100
It will be remembered that, in Chapter I, it was stated that
the original method of bookkeeping was to record all transac-
tions daily, in the order of their occurrence, in a book called
the Journal, and at a subsequent date to record the same trans-
actions in the Ledger in a classified form. In Chapter II an
endeavour was made to show the form of classification that
would be adopted in a case like the present one ; and in Chapter
III the object and meaning of the particular form adopted was
further explained.
D 2
36 BOOKKEEPING.
'J'he reason for dealing with tiie Ledger Accounts before
explaining the form in which the Journal is kept has been
that the form of a Journal entry is entirely dependent upon
the form of the subsequent Ledger entries which have to be
made from the Journal ; and accordingly it was thought best
first to give the student a clear idea of the object and meaning
of each Ledger entry, before endeavouring to explain the form
of the Journal entry from which the Ledger entry is made.
It is important to remember that the Ledger contains, in
itself, a complete record of every transaction, and that, there-
fore, it would be possible theoretically to dispense altogether
with any other book ; but the risk of error, or omission, would
be so considerable that, in all probability, no time or trouble
would be saved by so doing.
In the case of cash transactions, however, it has become
very general to dispense with the Journal and keep the Ledger
Account for " Cash "in a separate book from the other Ledger
Accounts. The reason for this departure from the general rule
is as follows : When every transaction is journalised, it is, of
course, usual to keep the Journal written up daily, but — by
reason of press of business, or from various other reasons — it
frequently happens that the posting of the Journal into the
Ledger is a week or more behind. Now it is, of course, of the
greatest importance that the balance of the Cash Account be
always readily ascertainable, and from this necessity arose the
practice of keeping the cash transactions somewhat differently
from the rest. Other incidental advantages doubtless exist, but
this is probably the actual reason that led to the original
departure.
The Cash Book is ruled exactly the same as the Ledger, and
in it the cash received or paid is recorded in exactly the same
manner as it would J)e in a Ledger Account, except that each
TRANSACTIONS OF HENRY JACKSON.
37
transaction is recorded as it occurs, instead of being recorded in
the Journal first and afterwards posted.
By this means the balance of the account may at any time
be ascertained; but this in itself, of course, constitutes no
'' Double Entry." How this is obtained the reader will,
perhaps, best see by carefully following the process of writing
up the Cash Book from the above transactions. It must not be
forgotten, however, that Jackson commenced the quarter with
a cash balance of j£2^ in hand, as shown on the Balance Sheet
on page 29.
The transactions involving a transfer of cash are Nos. i, 2,
3, 4, 5, 6, 8. 10, and 15, which should be recorded in the
manner already explained — the receipts on the Dr. side and
the payments on the Cr. side, thus : —
Dr.
("ASH.
CONTRA.
Cr.
1913
April I
6
10
12
June 30
To Balance from
£ s d
1913
, April 6
last accou. t
25
1 13
„ Thos. Brown
«»
125
1 30
, W. Robinson
6
50
, May 31
„ Jno. Smith ..
4
50
June 30
» Jas. Jones . .
7
75
By Bank
« L»o.
» Wages
« Do.
» Do.
£
140
100
3
3
3
s d
o o
o o
6 8
6 S
6 K
Xow take the remaining transactions and proceed to show
the Journal entry required for each. The object of the Journal
entry is to indicate clearly what account in the Ledger has
to be debited, and what account credited, in order to record
each transaction. The form usually adopted is first to write
the name of the account to be debited, with the amount, in
the first (or Dr.) money column; and then the name of the
account to be credited, the amount being repeated in the second
.(or Cr.) money column; a full explanation of the transaction is
.then written underneath.
38
BOOKKEEPING.
The form of Journal entries for transactions Nos. 7, 9, 11,
12, 13, 14, 16, 17, 18, and 19 is as follows : —
JOURNAL, 1913.
Dr. Cr.
7. May 12
9, June 15
30
11. June
12. „
II
13- «
14 "
16, June 30
17. June 30
18, June 30
19. June 30
Capital Account
To Bank
(For cheque drawn this clay for private expenses)
Repairs
To Bank
(For cheque drawn this day in payment of various
repairs.)
John Smith
To Rent
William Robinson
To Rent
Thomas Brown . .
To Rent
James Jones
To Rent
(Being the amounts of accounts sent them this
day for rent for the quarter now due.)
Repairs
To Henry Williams
(Being the amount of his account for repairs )
Ground Rent
To Portland Estate
(Being one quarter's Ground Rent, making in
all £'12 ios,^ow due, as per their half-yearly
account,)
Depreciation
To Property Account
(Being the amount written off lease for the
quarter.)
Capital Account
To Bank
(For cheque drawn this day for private expenses)
3
I
100
13
I
12 16
1
4
10
6
10
5
10
7
10
1
50 o|
50
125
75
13
9
1
4 14 oj
12
8
6 5 oi
14
2
105
3
I
100
I s d
100 o o
50 o o
50 o o
125 o o
75 o
105 o o
100 o
A careful comparison of these entries with the records of
the transactions themselves will serve to show the reason for
the form of each entry — and it need hardly be added that,
until the student can assign a reason for every entry he
makes, he has made but little progress in the science of
bookkeeping.
TRANSACTIONS OF HENRY JACKSON. 39
It will be seen that, at this time, a record has been made
somewhere for every one of the transactions shown at the com-
mencement of this chapter. Those transactions involving the
transfer of cash have been recorded in the Cash Book, and
those transactions not recording the transfer of cash have been
recorded in the Journal. The next step is to write up (or post)
these records in the Ledger.
It must be remembered that each transaction requires to be
entered once upon each side of the Ledger. It has been further
explained that the Cash Book is, in reality, a Ledger Account,
but that the Journal is not. It therefore follows that those
transactions that are recorded in the Cash Book have already,
in point of fact, been recorded once in the Ledger ; to complete
the record of these transactions, therefore, it is necessary that
they should find their way once more into the Ledger upon the
opposite side to that on which they are entered in the Cash
Book. The Dr. side of the Cash Book must therefore be posted
to the Cr. of the various accounts of the persons who have paid
Jackson the money, and the Cr. side of the Cash Book to the Dr.
of the various accounts upon whose behalf he has incurred the
expenditure, and the record of the cash transactions is complete.
The transactions recorded in the Journal, on the other hand,
require to be passed into the Ledger twice, once to the Dr. and
once to the Cr., and for this reason the form of the Journal
entry has been adapted to facilitate this process. The amounts
in the Dr. column are posted to the Dr. side of the Ledger
Accounts named, and the amounts in the Cr. column of the
Journal are posted to the Cr. of the various Ledger Accounts.
The Ledger Accounts so posted are given below ; they should
be compared carefully with the Cash Book and Journal, already
given — a process that can easily be accomplished by the aid
of the folio references. It will be noticed that the balances
standing upon the various accounts at the date of our last
Balance Sheet have been brought forward into these accounts.
4P
BOOKKEEPING.
Dr.
1>AXK,
C(X\TRA.
Cr.
I9I3
1
£ s
April I
To Balance . . ,
120
6
„ Cash .. .. 1 I
140
n
„ Do I
100
d 1913
o May 12 I By Capital Account
o June 15 „ Repairs
o I 30 I „ Capital Account
I £ s d
J.I 100 o o
, 12 16 O
„ I 100 O O
PROPERTY ACCOUNT.
Cr.
„ s r 1913 I I £ s d
1490000 June30 I By Depreciation ,, IJ. I I 105 o o
I i
Dr.
1913
May 12 To Bank
June 30 „ Do.
CAPITAL ACCOUNT.
£ s d j 1913
J. I loo o o j April I By Balance
100 o o I
Cr.
£ sd
15,263 15 o
Dr.
JOHN SMITH.
Cr.
I9I3
f.
s
(1
1913
£
s
d
April I
To Balance
50
April 12 By Cash ..
I
50
June 30
„ Rent ..
J.I
50
Dr.
THOMAS IJROWN,
Cr.
1913
April I
June 30
To Balance
„ Rent ..
J.I
£ s d
125 o o
125 o o
I9I3
April 6
By Cash
£ s d
125 o o
Dr.
WILLIAM ROBINSON.
Cr.
I9I3
£
s
d
1913
c
s
d
April I
To Balance
•• 1
50
April 10
Bv C.
ish ..
I
50
June 30
„ Rent ..
.. IJ.i
1
i
50
Dr.
TRANSACTIONS OF HENRY JACKSON.
JAMES JONES.
1913
June 30 To Rent .
.. iJ.i
i s d
75 o o
1913
June 30
By Cash . .
41
Cr.
i s d
75 o o
Dt
PORTLAND ESTATE.
Cr.
I
i
April I By Balance
June30 , Ground Rent J. i
1
650
650
Dr.
HENRY WILLIAMS.
Cr.
1913
June 30 I By Repairs
J.I
r s d
4 14 o
RENT.
Cr.
I9I3
i s d
June 30
By J. Smith
J.I
50
1 "
„ Wni. Robinson
50
' »
, T. Brown . .
*
125
„ J.Jones
*
75
WAGES.
Cr.
1913 ,
April 30 To Cash
May 31 I „ Do.
June 30 I „ Do.
£ s d
368
368
368
42
BOOKKEEPING.
Dr.
GROUND RENT.
Cr.
1913
June 30
To Portland Estate
i £ s d
J.i 6 5 o
13
Dr.
REPAIRS.
Cr.
1913
June 15
30
To Bank . .
„ H. Williams.
J.I
12 16
»
4 14 1
1
■
14
Dr.
DEPRECIATION.
1913
June 30
To Property A/c.
£ s d
J. 1, 105 o o
It will now be seen that every transaction has been posted
twice into the Ledger — thus giving effect to the twofold nature
of each transfer. Those accounts that have received benefits
have been debited, and those that have imparted benefits have
been credited ; and, consequently, the total debits in the Ledger
will be equal to the total credits.
As already explained, it is very desirable that there should
be some means of ascertaining that the entries that have actually
been made do really come to the same thing as those which
should theoretically have been made. To test this, the book-
keeper would proceed to extract a Trial Balance, in the same
manner as shown in Chapter II.
TRANSACTIONS OF HENRY JACKSON.
43
The following is the Trial Balance of Henry Jackson's
Ledger on the 30th June :^
TRIAL BALANCE, 30th June 1913.
C. I. Cash
L. I. Bank
2. Property
3. Capital ..
4. John Smith
5. Thomas Brown
6. William Robinson
7. James Jones . .
8. Portland Estate
9. Henry Williams
10. Rent
11. Wages ..
12. Ground Rent
13. Repairs . .
14. Depreciation
325
360
14,900
200
100
250
100
75
s d
£ s
250 o
212 16
105 O
[5.263 15
50 O
125 o
50 o
75 o
12 10
414
300 o
£
75
147
14.795
50
125
50
s d
15.063 15 o
12 10
414
300 o
10 o
6 5
17 10
105 o
ID O
6 5
17 10
105 o
£16,448 15 o /■i6,448 15 o £15,380 19 o £15,380 19 o
Before proceeding to close the books for the quarter, it will
be well to say something concerning the Continental systems
of Bookkeeping ; and for the purpose of more clearly showing
the differences of detail between the two methods, it is pro-
posed to deal with the same set of transactions as those already
considered above.
44 BOOKKEEPING.
Questions on Chapter IV.
T. What is gained by not journalising cash transactions?
2. How are cash receipts and payments recorded?
3. What entries are necessary to record the fact that A.
has become my debtor?
4. What entries are necessary to record the fact that B. has
become my creditor?
5. If certain property that I hold has become less valuable,
how should I record the fact?
v.— THE '^CONTINENTAL" SYSTEM.
It will h)e remembered that, in the first chapter, attention
was drawn to the fact that the system generally adopted on
the Continent is somewhat different to that in use in this
country. The reason for going more deeply into the matter
now is that the Continental system is theoretically more com-
plete than our own, and will therefore help the student to
understand more clearly the abbreviated method in general use
in this country. It may, however, be mentioned that for some
businesses the Continental method is the best to adopt, and
that a general acquaintance with its details will, therefore, be
by no means a waste of time — even to the student who
thoroughly understands the Engli.sh system.
The essential feature of the method which the reader is now
called upon to consider is the supreme importance of the
Journal. Every transaction is passed through this book in the
fullest detail, while the Ledger entries are made as few and as
general as possible. The Journal thus becomes the book to
which the merchant constantly refers, while the use of the
Ledger becomes restricted almost to the position of a mere
collecting medium for the Revenue Account and Balance
Sheet items.
It may interest the reader to know that, in many coimtries,
every trader is compelled by law to record all his transactions
in a lournal.
46
BOOKKEEPING.
For the purpose of showing more clearly the exact differ-
ence between the two systems, it will be well to take the position
of Henry Jackson upon the ist April, and his transactions
for the subsequent three months, and show the method by
which they would be recorded upon the Continental system.
It will be noticed that the form of the Journal here given is
somewhat different from the ordinary English form; the out-
side column being used for both Dr. and Cr. items, and the
inside one for details of the ^' Sundries." The Ledger folio
of the Dr. posting is to the extreme left, while the date is
placed at the head of the entry.
JOURNAL, 1913.
April I.
Sundries to Opening Balance ,
For the following assets due to me at this
date, viz. : —
Property
John Smith
Thos. Brown
Wm. Robinson
Bank
Cash
Opening Balance to Sundries
For the following liabilities due from me at
this date, viz. : — ,
Capital
Portland Estate
April 6.
Cash to Thos. Brown
Being the amount received from him this day.
Bank to Cash
Being the amount of cash paid into bank this
day.
April 10.
Cash to Wm. Robinson
Being the amount received from him this day.
Cash to John Smith
Being the amount received from him this day.
April 13.
Bank to Cash
Being the amount of cash paid into bank this
day.
Forward
£ s d
14,900 o o
50 o o
125 o o
50 o o
120 o o
25 o o
15,263 15
6 5
£ s d
15,270 o o
15,270 o o
[40 o o
50 c o
31,005 o o
THE CONTINENTAL SYSTEM.
Forward ;
April 30.
Wages to Cash ~
Being the amount paid to attendant this day, I
fcr wages. '
May 12.
Capital to Bank
Being the anjount of a cheque drawn for
private expenses this day.
May 31.
Wages to Cash
Being the amount paid to attendant this day,
for wages.
June 15.
Repairs to Bank
Being the amount of a cheque drawn for
various repairs on this day.
June 30.
Wages to Cash
Being the amount paid to attendant this day,
for wages.
Sundries to Rent
Being the amount due from various persons
tor one quarter's rent due this date, viz. : —
John Smith
Wm. Robinson
Thos. Brown
James Jones .
June 30.
Cash to Jas. Jones
Being the amount received from him this day.
=3
15
Repairs to Henry Williams 14
Being the amount due to him for repairs, as
per his account of this date.
Ground Rent to Portland Estate g
Being the amount due to them for one quarter's
Ground Rent to this date.
Depreciation to Property 2
Being the amount written oflf property at this '
date tor depreciation of lease (at 5% interest), i
Capital to Bank 6
Being the amount of a cheque drawn for i
private expenses this day. |
50 o o
50 o o
125 o o
75 o o
47
£ s d
31,005 o o
368
368
[2 16 O
368
300 o o
4 14 o
650
105 o o
£31.718 15 o
48
BOOKKEEPING.
It will be noticed that the Continental system requires Journal
entries for the outstanding assets and liabilities at the commence-
ment. Upon the English system — after the books have once
been opened — this is not required, the balances on the books
being merely carried forward. With the Continental system,
on the contrary, the books are literally " closed " each time a
Balance Sheet is prepared — no balances whatever being left
upon the Ledger — and consequently it is necessary for them
formally to be " opened " again at the commencement of the
subsequent period. It will be necessary to recur to this ques-
tion when coming to the closing of the Ledger, and we may
therefore pass on now to the posting of the Journal.
The following shows the Ledger Accounts resulting from
th^ transactions already recorded : —
Dr.
OPENING
BALANCE.
Cr.
1913
April I
To Sundries. .
I
i s d
15,270
1913
April I By Sundries. .
1
i ^ ^
I I 15,270
d
2
Dr.
I'ROPERTV
ACCOUNT.
Cr.
April I
ToSundiies..
i £ s d
I 1 14,900
i
191J
June 30
By Sundries..
3 105
J
d
3
Dr.
JOHN
SxMITH.
Cr.
April I
J line 30
To Sundries..
Do ..
' i s d
1 50 1
2 50
i 1
1913
April 10! By Sundries .
1
I 50
d
'Dr.
THOMAS
BROWN.
Cr.
i9'3
Apiil I To Sundries.
June 30 „ Do.
£ s d 1913
125 o o April 6 By Sundries.
12j O O
£
125
s d
THE CONTINENTAL
Dr.
1913 \
April I ' To Sundries..
June 30 , Do. ..
Dr.
BANK ACCOUNT.
I9I3
I s d
I9I3
i s d
April I
To Sundries..
I
120
May 12
By Sundries. .
2
100 o
6
Do. . .
•
140
June 15
, Do. ..
,
12 16
^3
. Do. ..
2
lOO
30
, Do. ..
3
loo
Dr.
CASH ACCOUNT.
Cr.
1913
i s d
1913
£ B d
April I
To Sundries..
25
April 6
By Sundries..
I
140
6
. Do. ..
125
13
, Do. ..
2
100
10
Do. ..
50
30
, Do. ..
*
368
» Do. ..
50
May 30
. Do. ..
m
3 6 8
June 30
Do. ..
75 3
June 30
Do. . .
m
3 6 8
Dr.
CAPITAL ACCOUNT.
Cr.
Apnl3o
June 30
To Sundries..
„ Do. . .
2
3
£ s d
100
100
1913
Apfil I
1
By Sundries..
I
15,263 15
Dr.
PORTLAND ESTATE.
1913
April I
June 30
By Sundries. .
. Do. ..
Cr.
£ s d
650
650
Dr.
WAGES ACCOUNT.
Cr.
April 30
May 31
J une >o
To Sundries.. 2
Do. .. ,
, Do. .. ,
£ s d
3 6 8
3 6 8
368
50
BOOKKEEPING.
Dr.
REPAIRS ACCOUNT.
Cr.
1913
J una 15
30
To Sundries.
Do. .
£ s d
12 16 o
4 14 o
Dr. RENT ACCOUNT. Cr.
1913
June 30
By Sundries.. 2
£ s d
300
^^Dr. JAMES JONES. Cr.
1913
June 30
To Sundries..
2
£ s d
75
1 1913
jjune 30
By Sundries. .
3
£ s d
75
Dr. HENRY WILLIAMS. Cr.
-
1913
June 30
By Sundries., j 3
£ s d
4 14
^^Dr. GROUND RENT ACCOUNT. Cr.
1913
June 30
To Sundries..
3
650
16
Dr. DEPRECIATION ACCOUNT. Cr.
1913
June 30
To Sundries..
3
£ s d
105
It will be noticed that no explanation is added to any of
the Ledger entries ; it is not, however, intended that the word
'' Sundries " be used invariably; what is meant to be shown
is rather that it may be used at any time (it is always used
THE "continental SYSTEM. 5 1
where one credit corresponds to several debits, and vice versa),
and that consequently the Journal is the only sure means of
ascertaining any further particulars that may be required.
It will further be noticed that, had the Ledger Account
** Opening Balance " been posted in detail, it would have
corresponded exactly with the Balance Sheet on 31st March,
shown in Chapter III. It is very important that the student
should realise this fact quite clearly.
The 'I'rial Balance is the same, in principle, as those already
taken out ; but, in consequence of every entry having been
passed through the Journal, it follows that the totals of the
two first columns of the Trial Balance, in addition to agreeing
with each other, will agree with the total of the Journal. This
is a very valuable check, as it shows that every item in the
Journal has been posted. It will be obvious that the fact of
an entry being left entirely unposted would still leave the total
debits of the Ledger equal to the total credits ; but in that case
both these totals would be less than the total of the Journal
by the amount of the omitted item. Further, in the event of
the Dr. and Cr. columns of the Trial Balance not agreeing, it
is possible — by comparison with the Journal — to ascertain
which is wrong, and so localise the error, and, to a great extent,
facilitate its discovery. These checks are undoubtedly very
valuable, and form almost the sole advantages of the
" Continental " system.
B 2
52 BOOKKEEPING.
The Trial Balance of the Ledger is given below : —
TRIAL BALANCE, 30th June 1913.
Dr. Cr. Dr. Balajice Cr. Balance
£ s
d
£ s
d
£ s
d
£ s d
I. Opening Balance . .
15,270
15.270
2. Property Account
14,900
105
14,795
i
3. John Smith
100
50
50
1
4. Thomas Brown . .
250
125
125
° 1
5. William Robinson
. ! 100
50
50
!
6. Bank Account
360
212 16
147 4
.
7. Cash Account
325
250
75
i
Ik Capital Account . .
200
15.263 15
15.063 15 »
9. Portland Estate . .
12 10
!
12 10
ID. Wages Account . .
10
..
10
..
II. Repairs Account ..
17 10
17 10
12. Rent Account
300
300
13. James Jones
75
75
14. Henry Williams . .
4 14
4 14
15. Ground Rent Account .
6" 5
6' 5
16. Depreciation Account .
105
105
£31,718 15
£31.718 15
£15,380 19
£15.380 19
1
THE CONTINENTAL SYSTEM. 53
Questions on Chapter V.
1. What is the peculiar characteristic of the " Continental '*
system ?
2. Are there any local circumstances to account for it?
3. What is an Opening Balance Account?
4. What are the principal advantages of the " Continental "
system ?
5. What are its disadvantages? ^
VI.— CLOSING THE LEDGER ON
THE ^^CONTINENTAL" SYSTEM.
The method of closing the Ledger upon the *' Continental ""
system is very similar to that already considered ; the main
difference being that every entry, as before, passes through
the Journal.
The Nominal Accounts are first collected into one account
— the Revenue Account — and the balance of this account is-
then transferred to Capital. The only accounts then left upon-
the Ledger are those recording assets and liabilities — which
are, of course, always equal in amount. These accounts, under
the former system, formed the materials of the Balance Sheet ;.
but the actual balances were always brought down on each
account ready for the commencement of the next period — thus-
the books were not^ in fact, ever actually closed. Under the
" Continental " system the balance of every Real or Personal
Account is transferred to an account called " Closing Balance " ;.
the Assets, or Dr. balances, being transferred to the Dr. side
of this account, and the Liabilities, or Cr. balances, to the
Cr. side. The Dr. and Cr. sides of the Closing Balance will'
thus be equal in amount, and, consequently, every account in the
Ledger can be — and is — balanced and ruled off; the Ledger
being actually and literally '^ closed " every time a Balance-
Sheet is prepared. When the Ledger has thus been closed, it,-
of course, becomes necessary to '' re-open " it at the commence-
ment of the succeeding period.
CLOSING THE LEDGER ON THE " CONTINENTAL ' SYSTEM. 55
The Journal entries necessary to close the Ledger are as
follow : —
JOURNAL, 1913.
12
Forward . .
Rent Account to Revenue Account
For Income earned during the quarter, now
transferred to Revenue Account.
17
*
10
II
:i
8
*
2
3
4
1
7
18
£ s d
10
17 10
650
105
14,795
50
125
50
147 ♦
75
15,225
12 10
4 14
£ s d
31,718 15
300
17
Revenue Account to Sundries
For various expenses incurred during the
quarter, now transferred to Revenue
Account, viz. : —
Wages
Repairs
Ground Rent
Depreciation
138 15
17
Revenue Account to Capital Account . .
Being the amount by which the Income for
the quarter exceeded the Expenses for
the quarter— constituting the net profit
of the quarter.
161 5
18
Closing Balance to Sundries
As follows, viz. : —
Property Account
John Smith
Thos. Brown
William Robinson
Bank Account
Cash Account
15,242 4
*
8
9
14
Sundries to Closing Balance
As follows, viz. :—
Capital Account
Portland Estate "
Henry Williams
13.242 4
£62,803 3
A Trial Balance taken out after the posting of these entries would give the same
total as that shown above, viz., £62,803 3S-
56
BOOKKEEPING.
By this time the attentive student should experience no great
difficulty in posting the above entries to their respective Ledger
Accounts ; but in order to remove any possibility of misappre-
hension, the Ledger Account ''Closing Balance" is given
below : —
Dr.
CLOSING BALANCE.
1909
June 30
To Sundries.
£ s d
15,242 4 o
1909
June 30
By Sundries..
Cr.
£ s d
15,242 4 o
It will be seen that, before any transactions for July are
recorded, the books must again be " opened," so that the
various accounts may record the actual state of affairs. This
is accomplished by two Journal entries similar to the first two
in our pro forma Journal of Chapter V; being, in fact, the
closing entries reversed.
It will be convenient here to consider the difference between
the two methods. Under the " Continental " method, the
whole of the transactions pass through the Journal into each
side of the Ledger. The profit is arrived at by collecting the
various Income and Expenditure {i.e.. Nominal) Accounts into
one general (Revenue) Account. This profit is then carried to
Capital Account, and nothing but Real and Personal Accounts
remain open. In order to ascertain the actual state of affairs,
these Real and Personal Accounts are then collected into one
account — the Closing Balance Account — and every account in
the Ledger is then ruled off. The agreement of the Closing
Balance proves that the stated assets are equal to the stated
liabilities and capital taken together, while any information
required concerning the particulars of the various items form-
ing the Closing Balance can be obtained by reference to the
Journal entries. The system is very complete, but the labour
involved is enormous ; it is, however, desirable that the student
CLOSING THE LEDGER ON THE " CONTINENTAL SYSTEM. 57
should give some attention to the method in order that he may
the more clearly understand the English method, which is really
nothing but an abbreviation of the " Continental."
To revert to the English method. The method of recording
transactions previous to their entry in the Ledger effects a con-
siderable saving upon the '' Continental " method, because cash
items are not passed through the Journal : at a later period it
will be seen that still further economies may be effected in the
preliminary record of the transactions, but whatever the precise
method adopted here, the final record in the Ledger will always
be the same in essentials — each transaction being entered once
on each side of the Ledger. The transfer of the balances of
the Nominal Accounts to the Revenue Account must always be
the same, likewise the transfer of the balance of Revenue
Account to Capital Account ; it is, however, to be noted that
sometimes — with the English method — these transfers are not
passed through the Journal, but made direct from the one Ledger
Account to the other. The complete closing of the Ledger
^i.e., the transferring of all real and personal balances to a
Balance Account) and the subsequent reopening on the follow-
ing morning is regarded by English bookkeepers as a needless
•expenditure of time ; the system therefore adopted is to bring
•each balance forward on its own account, as shown in Chapter
in. A very little consideration will show that this process will
produce Real and Personal Accounts exactly similar in form
to those of the " Continental " system, but that, up to the
present, we have not provided any summary of assets and
liabilities, or Balance Sheet — a most important omission. It
is, however, quite possible to make a summary of these
accounts without actually transferring the balances to a Balance
Account (we have already done the same sort of thing when
taking out the Trial Balance), and such a summary as this is
what the English bookkeeper calls his " Balance Sheet."
58 BOOKKEEPING.
There are two forms of Balance Sheet in use : one follows
the form of the Closing Balance, placing the assets on the
Dr. side and the liabilities on the Cr. side; while the other
follows the form of the Opening Balance, in which case the
liabilities fall on the Dr. side, and the assets on the Cr. side.
It will be remembered that when the books were first opened
an Opening Balance was created, as under the '' Continental "
method : it therefore appears desirable that — as the jirst Balance
Sheet must take the form of the Opening Balance — all subse-
quent Balance Sheets should be prepared on the same lines.
This argument is now very generally conceded ; but, as some
old-fashioned accounts are still kept the other way, it is
necessary that both methods should be mentioned.
It .is, however, to be noticed that the English form of
Balance Sheet is not — after the first — a Ledger Account, and
that consequently the terms '' Dr. to" and '' Cr. by " do not
strictly apply, although their use in this connection is by no-
means infrequent.
What is considered to be the best form for a Balance Sheet
on the English system has already been shown at the conclusion.
of Chapter III.
The student who has intelligently followed thus far should
find little difficulty now in recording all ordinary transactions
connected with non-trading concerns. The accounts of traders
present many difficulties which have not yet been dealt with,
and these will claim attention in the succeeding Part.
CLOSING THE LEDGER ON THE " CONTINENTAL*' SYSTEM. 59
Questions on Chapter VI.
1. What is the difference between the " Continental " and
the English method of closing the Ledger?
2. Which is the more complete?
3. What is the essential difference between the Balance
Sheet prepared upon the two systems?
4. How is it that the assets are not always placed upon
the same side of a Balance Sheet ?
5. Which side appears to be the most natural?
EXERCISES.
EXERCISE I.
Write up the Cash Book for the following entries : —
January i 1913, balance in hand at this date, jQ^tl ^7^-
January 13, paid J. Cummings, ^£5 los. ; received from T.
Jones ;£i7 5s. 3d. January 15, paid for House Expenses,
/^2 14s. 6d. ; received from F. J. Smith, ;£i4 17s. 6d. ; paid
for Sundry Expenses, ;£i 5s. ; paid T. Manning, j£6 3s. 6d.
Balance the Cash Book and bring down the amount of
Cash in hand.
(Answer : Totals, ^6g 19s. 9d. ; balance, ^54 6s. 9d.,
Dr.)
EXERCISE [I.
Write up the following transactions in the Petty Cash Book
(a Petty Cash Book is a secondary Cash Book used for record-
ing payments of a small amount) : —
March i 19 13, received from cashier for Petty Cash, ^10.
March 2, paid for Cartage, i8s 6d. March 3, paid for
Postage, 3s. 6d. March 5, paid Housekeeper, 2s. 6d. March
6, paid for Repairs to Clock, los. 6d. ; paid Porter's Wages,
^1 5s. ; paid Cab-hire for Mr. H., 3s. 6d.
Find the balance in hand and carry down ready for next
week's entries.
(Answer: Totals, ;£io; balance, ^£6 i6s. 6d., Dr.)
EXERCISES. 6l
EXERCISE III.
A\'rite up a Bank Account, recording the following
transactions : —
January i 1913, balance at bank on this day, ;£4,,724 los.
January 3, drew cheque for Sims & Co., ;£8i. January 5,
paid in ;£362 7s. 6d. January 12, paid P. Bright, £,"]o.
January 15, William Wright paid into my account
;£i,347 i6s. 8d. January 16, drew cheque for J. Kerr,
;£868 IDS. January 20, paid in ;£420 17s. 5d. January 23,
drew cheque for Poor Rate, ^5 3s. 4d. January 26, drew
cheque for Jones &: Young, ;£6i4 15s. January 29, paid in
;£i7o. January 31, drew cheque for salaries, £,12 los.
Balance the account, and bring down the balance ready for
next month's entries.
(Answer : Totals, ^7,025 iis. 7d. ; balance, ;£5, 3 73 13s. 3d.^
Dr.)
EXERCISE IV.
Write up the following Property Account : —
February 10 191 2, purchased property in Cecil Street for
;£i,ooo. February 20, paid J. Milner, on account of altera-
tions and improvements, jQ^So. March 17, paid J. Milner
balance of his account, ^350. May 29, sold half this property
to Edward Bunting for ;£6oo.
On 30th June 191 2 the unsold property is valued at ^£550.
Complete the account and bring down the balance.
(Answer : Loss to date, ;£35o ; balance, ;£55o, Dr.)
62 BOOKKEEPING.
EXERCISE V.
Write up the following Bank Shares Account : —
July 2 19 1 2, bought this day 100 j£io shares in the North
Indian Banking Company, Lim., jQz los. per share called up,
for ;£240. August 20, paid this day call of ^£2 los. per
share, ,-£250.
On 30th September the value of the shares stood at
^4. I OS. per share. Complete the account and bring down
the balance.
(Answer : Loss to date, ;£4o; balance, ;£45o, Dr.)
EXERCISE VI.
Write up the following Capital Account of Thomas Brown : —
October i 19J2, balance of capital this day, ;£i,o67 8s. 4d.
October 31, withdrew ;£5o. December 16, withdrew jQs^-
December 31, net profit for the quarter, ;£i59 i6s. 2d.
(Complete the account and bring down the balance.
(Answer : Totals, ^£1,227 4s. 6d. ; balance, ^£1,127 4s. 6d.,
Cr.)
EXERCISE VII.
Write up the following Capital Account of James
Simpson : —
October i 191 2, balance of capital this day, ;£369 2s. lod.
October 16, paid in the further sum of ^£250. November 30,
withdrew ;£ioo. December 31, loss on business for thv.
quarter, ,£587 i6s. id.
Complete the account and bring down the balance.
(Answer: Totals, ^687 i6s. id.; balance, j£6S 13s. 3d.,
Dr.)
EXERCISES. 63
EXERCISE VIII.
Write up the following Dividends and Interest Account : —
July I 1 91 2, received the following dividends : Great
British Banking Co., j£ii 5s. ; South Australian Telephone
Co., ;£6 ; Central Gas Co., ;£i2 los. July 9, paid interest on
Mortgage, ;£26 7s. 6d. Received : August 16, Great Western
Water Co., ;£ii4 8s. August 31, Northern Water Co., ;£5o.
Close the Account as on 30th September 19*2, and transfer
the balance to Revenue Account.
(Answer : Totals. ;£i94 3s. ; profit to date, j£i6'j 15s. 6d.)
EXERCISE IX.
Write up the following Expenses Account, and transfer the
balance to Profit and Loss Account, as on the 31st December
1912 : —
October 16 191 2, paid for Interest, ^£41 3s. 2d. October 31,
paid Trade Expenses, ^£37 los. ; Salaries, ^69 14s. 2d.
November 20, incurred Bad Debt for ^146 is. 9d. November
30, paid Trade Expenses, ;^3i 2s. 6d. ; Salaries, jQ6g 14s. 2d.
December 12, allowed as Discount, £2 16s. 8d. December
31, wrote off Lease, for depreciation, ^£20 j paid Trade
Expenses, jQz-j 15s. ; Salaries, ;£^i i6s. 8d. On 31st December
a further sum of j£i2 los. was owing for Trade Expenses.
(Answer : Totals, j£s^^ 4^- ^^' J transfer to Profit and Loss
Account, ;£5io 4s. id.)
EXERCISE X.
Close the books of Henry Jackson on 30th June 19 13 (vide
Chapter IV), according to the English method.
64 BOOKKEEPING.
EXERCISE XL
Open the same hcx)ks, as on ist July 1913, according to the
" Continental " method.
EXERCISE XII.
Starting with the position of affairs set forth in the last
exercise, record the following further transactions of Henry-
Jackson, and finally close the books.
[This exercise should be separately worked out according
tc both the English and the " Continental " methods.]
1913-
July 2 — Received from William Robinson
,, 5 — Received from Thomas Brown ...
,, 12 — Received from John Smith
,, ,, — Paid into Bank
,, 15 — Paid Portland Estate by cheque
,, 24 — Drew Cash from Bank
,, 31 — Paid Wages
Aug. 10 — Let Ground- floor premises to
Johnson & Co., as from the
half-quarter day,, at ;£8oo per
annum.
,, 19 — Paid Henry Williams 4 14 o
,, 31 — Paid Wages ... ... ... 368
£
s
d
50
125
50
300
12
10
25
3
6
8
EXERCISES.
Sept. 30 — Paid Wages
,, Sent out the following accounts
for rent due this day : —
£
s
d
John Smith
50
William Robinson
50
Thomas Brown ...
125
James Jones
75
Johnson & Co ...
100
Sold Property this day to Henry
& Coleman for
Received their cheque for same
(less proportion of Ground Rent
due)
Henry & Coleman took over all
Rent now due, and gave their
cheque for same (less 5 per
cent, discount) ...
Paid into Bank ...
65
6 8
400
15,000 o c
14,993 15 o
380 o
15.384 I
(Answer : Balance at Bank, ;£i5,793 15s. od. ; net profit
to date, ;£568 15s. od. ; balance of Capital Account,
i;i5.793 15s. od., Cr.)
VII.— COMMERCIAL TERMS.
Note. — The following are a jew of the more common commercial
terms that appear to require more explanation than can conveniently
be accorded to them in the text of this work. The words in italics
after each term are its equivalent in French and in German — the former
being given first in each case.
Acceptance {Acceptation : Accept). See under Bill of
Exchange.
Accommodation Bill {Effet fictif : Kellerwechsel). A Bill
of Exchange for which no bond ilde consideration has been
rendered. The term applied to a Bill that has been either
drawn, accepted, or endorsed without value having been
received therefor, and for the purpose of lending the name of
the drawer, acceptor, or endorser to some other person.
Account Current {Compt^ cow ant: Laufende Rechnung).
A running account kept open and added to from day to day.
When the balance involved is of sufficient importance it is
usual to charge interest upon the daily balance, an additional
cash column being placed upon each side of the account for
that purpose.
Account Sales {Compte de Vente : Rechnung). An account
rendered by an agent, furnishing particulars of sales made
from consignments.
Accountants {Experts Conif tables : Biicherrevisoren).
Experts in the science of accounts.
COMMERCIAL TERMS.
67
Actuaries {Calctdatcurs : Registrator en). Expert calcu-
lators, employed in the preparation of insurance tables,
etc., etc.
Assets {Masse active: Activa). Property: in accounts the
total of the Dr. balances of the Real and Personal Accounts.
Auditors {Auditeurs des com-ptes : Auditoren). Persons
appointed to examine accounts and to verify their accuracy.
Balance {Solde : Saldo). The difference between the Dr.
and Cr. sides of an account.
Balance Sheet {Balance: Bilanz). A statement showing
the outstanding balances in the books of an undertaking on a
stated date.
Bill of Exchange {Lettrc de change: Wechsel). An uncon-
ditional undertaking to pay to a stated person, or his order,
or to the bearer, a definite sum, either on demand or at some
definite (or determinable) future date.
The following is the usual form of a Bill of Exchange (or
Acceptance) : —
No. 46. £780 0. c
Warrington, 2nd January 1913.
Four ^'S) ■ months af^ter date pay to the
Stamp I order of Mes cu S .5 srs. Sims'J &• Co.
T3 i.' - "^
seven hu^fdred -^3 a and eighty ^ pounds — Value received.
To Messrs. Fox &> Crane, < § SIMS &- Co.
London. "2
In the above example Sims & Co. were the creditors, and
Fox & Crane the debtors : Sims & Co. treated the Bill as a
68 BOOKKEEPING.
'' Bills Receivable," and Fox & Crane as a " Bills
Payable." The Bill was prepared by Sims & Co., who are
called the ''Drawers" {iireurs : aussiellern), and addressed
to Fox & Crane, who are called the "Drawees" {tires:
bezogenern). The party in whose name this Bill is made pay-
able is called the " Payee " {freneur : remittent); sometimes,
however, a Bill is made payable to "Bearer" {porteur :
inhaber). A Bill is a " negotiable instrument "; i.e., it may
pass, by Negotiation {negociation : begebung), from hand to
hand. It is necessary, however, that the payee should sign
his name upon the back of the Bill before parting with it :
this constitutes an Endorsement (endorsement : indossament) —
endorsement by the payee or by any other person will render
him liable for the amount of the Bill, if it be not met upon
maturity. A Bill taken up before it becomes due is said to
have been Retired {retire: eingelost). Bills payable thirty or
more days after date are not due for repayment until three
days after the expiration of their term : these days are called
Days of Grace {jours de faveur: respecttage). A bill pay-
able in this country requires an ad valorem stamp.
Bill of Lading {Connaisement : Konnossement). A docu-
ment of title by which the owner of a ship acknowledges the
receipt of goods to be conveyed by the ship.
Bullion {or [argent] en barres : Ungemiinztes Gold [Silberl,
fremde, ungangbare Miinze). Gold (or silver) uncoined ; also
sometimes applied to foreign coin.
Capital {capital: kapital). {a) Excess of Assets over
Liabilities, {b) The amount of shares a company is authorised
to issue — called " Nominal Capital." {c) The amount of
shares issued by a company — called " Subscribed Capital."
{d) The amount paid up on the shares issued by a company —
called " Paid-up Capital."
CO*IMERCIAL TERMS. 69
Capital Expenditure. The amount expended by a com-
pany in acquiring or equipping its undertaking. Expenditure
for which vaUie remains, as opposed to Revenue Expenditure,
which means the amount expended, or lost, in earning or seeking
to earn a Revenue.
Cash Book {livre de caisse : Kassenhuch). A book used for
recording the receipt or payment of money.
Cheque (cheque: check). A bill of exchange, drawn on a
banker and payable on demand for some specified sum. A
cheque requires a penny stamp.
C.I.F. An abbreviation of ** Cost, Insurance, and Freight.'*
Commandite, Societies en. A company in which only the
directors incur unlimited liability.
Consignment {consignation: Konsignation). Goods sent
by one person — the consignor — {expediteur : absender) — to
another who is his agent — the consignee {consignataire :
Konsignatdr) — for sale on commission.
Credit Note {accreditif : akkreditiv). A memorandum
correcting an overcharge in an invoice, arising from an error
in the quantity, price, or calculation.
Dr. — Cr. — {Doit — Avoir: Soil — Haben). Abbreviations of
the words "Debtor" and "Creditor" at the head of an
account.
Day Book {a) Sales Book (livre de ventes : verkaufsbuch).
A book recording particulars of goods sold, {b) Purchases
Book (livre d' achats: einkaufsbuch). A book recording
particulars of goods bought.
Depreciation {depreciation: abschreibung). A decrease in
value arising from internal causes ; the loss arising from such
decrease.
yo BOOKKEEPING.
Discount {escompte : rahatt). An allowance paid in con-
sideration of the immediate advance of a sum of money due
at a future date. To discomtt a Bill is to part with a Bill
(Receivable) before it becomes due, allowing discount upon the
cash received in its stead.
Firm {raison sociale, maison dc commerce: -firmd). The
collective name given to the proprietor or proprietors of a
business.
F.O.B. An abbreviation, '' Free on board (ship)."
Freight {frei: fracht). The cost of forwarding goods by
ship.
Goodwill {association: gutwille). The benefit accruing to-
a business by reason of the support accorded by its customers,
which induces the supposition that that support will be
continued.
Insurance {assurance : versicherung). A contract either to-
indemnify against a loss that may arise upon the happening of
some specified event, or to pay on the happening of some event
a certain sum to the person insured. The consideration paid
by the insured is called the premium {prime: f ramie).
Insurance may be against fire, death, accident, sickness, fraud,,
or almost any conceivable contingency.
Interest {interet au capital: zinsen). The premium paid
by a borrower for the use of money.
Invoice {facture: faktura). A memorandum containing par-
ticulars as to the description, quantity, and value of goods sold.
Journal {journal: journal). A book containing, in chrono-
logical order, a record of transactions, so arranged as readily
to admit of their being posted into the Ledger.
COMMERCIAL TERMS. 7I
Ledger {grand livre : hauftbuch). A book containing, in a
classified form, a complete record of transactions. In practice
the Ledger is frequently subdivided into several portions
{see fostea).
Liabilities (passif : fassivd). Engagements to pay moneys
or goods to others. In accounts the total of the Cr. balances
of the Real and Personal Accounts (usually) excluding the
Capital Account.
Limited Companies {Societes anonymes : Actien-Gesell-
schaft). Associations having a corporate character in which the
liability of the members is limited to a fixed amount prescribed
by the Memorandum of Association. An Unlimited Company
(societe en nom colleciif) is a corporation in which there is no
limit to the amount of each member's liability.
Partnership {association: gesellschafts-verhaltniss). "The
relation which subsists between persons carrying on a business
in cormnon with a view to profit." The liability of partners
is unlimited. A Limited Partnership {societe en commandite :
Gesellschaft mit beschrdnfter Haftung) is a registered associa-
tion, the active directors of which alone incur unlimited liability.
Promissory Note {seule de change: solawechsel). A plain
and direct engagement in writing to pay a sum specified at the
time therein named (or on demand) to a person therein named,
or to his order, or to bearer. The most usual promissory note is
one payable to bearer on demand, issued by a bank and called a
Bank Note {billet de banque : banknote).
Rebate. An allowance of any kind — often used to signify
the discount upon an unmatured Bill.
Reserve Fund {reserve: re serve fond). A sum set aside out
of profits, either to meet future losses, to equalise dividends, or
to increase working capital. The name of an account record-
ing the setting aside of such a sum.
72 BOOKKEEPING.
Shares {actions: aciien). Definite portions of the capital
of a company, the capital of which is " divided into shares."
Sinking Fund (caisse d'amortissement: das Tilgungsca-pital,
der Tilgungsfond). A fund created out of periodical instal-
ments set apart to accumulate, so that at the end of a certain
time it may amount to the sum required to meet the purpose of
its creation — e.g., the redemption of a loan, or the replenishing
of a wasting asset.
SPE(iiE {esfeces : gemiinztes). Coined money, as opposed to
Bullion.
Wages {salaire : arbeitslohn). Remuneration paid to workers.
English bookkeepers distinguish between Wages (the remunera-
tion of productive workers — charged against Trading Account)
and Salaries (the remuneration of unproductive workers —
charged against Profit and Loss Account).
VIII.— ACCOUNTS OF TRADERS.
It is now proposed to deal with the Accounts of Traders —
i.e., those persons whose occupation consists of buying and
selling goods.
It will be obvious that the system of accounts described in
Part 1 will require some modification to adapt it to the altered
conditions now introduced, but the student must remember that
the fundamental principles of bookkeeping are as unalterable as
the laws of the Medes and Persians ; the various additional
accounts that will now be described are therefore merely
developments of the system already discussed, and their intro-
duction is not a matter of vital necessity, but rather one of con-
venience. Theoretically, it would be quite possible to record
every class of transactions by the use of the Journal and Ledger
alone ; but, in practice, such a course would be found to be
extremely inconvenient, on account of the enormous amount of
unnecessary labour involved. The objects, then, of the various
modifications now about to be described are to economise labour,
and to add to the clearness of the record of the various
transactions.
Cash. These accounts, it will be remembered, have hitherto
been recorded in —
{a) The Cash Book, which records the receipt and payment
of cash by the proprietor or his cashier.
(b) The Bank Account in the Ledger, which records the
receipt and payment of cash by the proprietor's bankers.
74 BOOKKEEPING.
It will be remembered that the entries in the Cash Book are
made direct (as the transactions occur), and that the entries in
the Bank Account are posted up periodically, the debit side
being posted from the credit side of the Cash Book, and the
credit side being posted from the Journal. When the transac-
tions are numerous, there are two objections to this mode of
record, both of which are of considerable importance. They are
as follow : —
{a) The Bank Account — not being a book of first entry —
will not continuously show the balance at the bank.
{b) The labour of journalising every cheque drawn is
considerable.
It will be remembered {cf. page 36) that these are the
identical reasons that originally led to the introduction of a
separate Cash Book, and the present difficulty has led to the
same result : viz., the separation of the Bank Account from the
remainder of the Ledger Accounts and its formation into a
separate book, into which the various transactions concerning
it are entered direct as they occur. Payments by cheque are thus
posted direct from the credit side of the Bank Book to the debit
of the various accounts chargeable with the expenditure, and
the necessity for a Journal entry recording each transaction is
obviated : on the other hand, the payments from the credit of
Cash to the debit of Bank are referenced to and fro in exactly
the same way as before.
This system of keepmg separate books for Cash and Bank is
frequently to be met with in practice. The following example
shows the Cash Account and Bank Account of Henry Jackson
{vide pp. 37 and 40) re-cast upon this principle : —
ACCOUNTS OF TRADERS.
75
Dr.
CASH.
CONTRA.
Cr.
April I
6
ID
12
June 30
To Balance . .
, Thos. Brown
„ W.Robinson
„ J. Smith .,
« Jas. Jones..
To Balance . .
X
5
6
4
7
£ s
25
125
50
50
75
d
1
1913
April 6
13
30
1 May 31
June 30
By Bank
.Do.
. Wages ..
, Do.
, Do.
„ Balance down
I
II
11
II
X
£ s d
140
TOO
3 6 8
3 6 8
368
75
£325
£325
July I
75
Dr.
BANK.
191 3
April I To Balance
6 K Cash
13 • Do. . .
July
To Balance
X
I
I
£
X
£ s d 1913 {
120 May 12 1
140 June 15
ICO 00' 30
i
360 0||
147 4 0'
CONTRA.
By Capital Account
„ Repairs
» Capital Account
- Balance down
3
13
3 I
Cr.
£ s d
100 o o
12 16 O
100 O O
147 4 O
360 o o
A further modification is, however, frequently thought
desirable, it being found inconvenient to keep two separate
books for Cash and Bank. Double money colimins are there-
fore provided in one " Cash Book " for the record of both Cash
and Bank transactions. Under this system, the transactions
recorded in the preceding example would appear in the following
form : —
76
BOOKKEEPING.
•V o o o
o
o j
a
03
in o o o
^ 8 28
i
T3 O OOO 00 00
o
o
JS
<n o ovo \D vo
o
o
6
^^S"" '"^ ' '"
s
u vi ►« m '
O
."^
^ • tnZ^ • V
tn rt tn I- rt f u
C « rt *-*< (Ti »-*< *-*
^1 ii
T3 O
o
o
O
O
J<
(n o
o
o
o
•*
k
^§
o
8
^
<>♦?
t3 O O
o
o
o
o
o
•s
tn o O
o
o
o
°
o
o
^S"^
?.?.
CO
K
u
»2 X •"
V.VO
■*VJ *^
X
. .
Balance
Thos. Brown..
Cash ..
W. Robinson
p
6
c
:|
■Si
CD S
"(3
CQ
.2 =
-
t.
Cj
"2
3
"3
ACCOUNTS OF TRADERS. 77
The student should carefully compare the above example
with the separate accounts of which it is composed : he will
especially notice that the '* Cash " and '' Bank " columns are
in every way as distinct as they were when the two accounts
were kept in separate books. The letter " c " in the folio
columns (standing for ^' contra ") serves as a reference of the
various transfers from the Cash Account to the Bank Account ;
it is also sometimes used (or the sign ** x," as shown in the
example) where an account is ruled off, and the balance brought
down upon the same page.
Bills Receivable. The nature and object of a Bill will
have been rendered familiar by the study of the preceding
chapter : it now remains to consider the method of recording
transactions in bills. It is not proposed, at this stage, to
confuse the student with any lengthy comparison of rival
methods ; suffice it for the present that the mode now to be
described is one very generally in use, but that alternative
methods will be described in due course.
A Bill Receivable is a bill (either an acceptance or a.
promissory note) payable by another, or others, that has come
into our hands in the course of business. If an acceptance, it
may have been drawn by us upon a customer and accepted by
him. or it may be that the person from whom we receive it is
the drawer, and the acceptor a third party with whom we have
no immediate dealings ; or again it may be that both drawer and
acceptor are strangers to us. Unless we have ourselves drawn
the bill, or unless we are the payees named in the bill, it will
not usually have come into our hands until endorsed by every
person who has been a holder.
It is usual to keep a special '' Bills Receivable Book," in
which each bill is entered as received. The form of this book
is a matter of the greatest uncertainty, but the following is a
usual form, and one that illustrates every principle which it is
now desirable to demonstrate : —
78
BOOKKEEPING.
i: o -
w
y
a
JS
■OBQ 1
•AOM
•JOQ
•Idas
•Snv
Xinf
aunf
vCbj^
ludv
en N
•JBW
00
•q8d
•UEf
§ s s s
H = = e
1
Date of
Bill
1
^ •" 2 ?
w
w
u
w
o o
o o
0\ U-)
^ ^
ACCOUNTS OF TRADERS. 79
It will be seen frc»n the above example that, during the month
of January 1913, acceptances have been received from Forbes,
Ball, and Wright : it is necessary therefore to credit each of
these gentlemen with the amount of his bill, which is done by
posting that amount from the Bills Receivable Book to the
credit of his Personal Account in the Ledger. The bills received
are, however, assets, and therefore require to be placed to the
debit of a Real Account in the Ledger ; as there is nothing to
be gained by posting each to a separate account, it is usual to
post the monthly total to the debit of Bills Receivable Account
in the Ledger. The double record of each transaction is there-
fore now completed : each customer being credited with the
Bills Receivable which they have forwarded, and the Bills
Receivable (Ledger) Account being debited with the amount of
the bills so received.
The entry of j£,i,^^6 to the debit of our Bills Receivable
Account — standing alone — would imply that there was due to
us, upon bills in hand, the sum of ^1.436. A reference to the
'' Remarks " column will, however, show that Bill No. 79 is
no longer in hand — it having been " negotiated " {i.e., it was
endorsed and handed over to the Western Steel Co.) ; it becomes
necessary, therefore, to credit Bills Receivable Account with
jQ^^o, and to debit that amount to the account of the Western
Steel Co.^ who have received the bill.
This leaves a debit balance of ;£946 on the Bills Receivable
Account on 31st January 19 13, which agrees with the items
not marked off in the '' Remarks " column in the Bill Book.
On the 8th March 1913, Bill Xo. 78 becomes due, and is
collected by the bankers : jQg6 will then be entered in the Bank
column of the Cash Book on the debit side. This will be
posted to the credit of Bills Receivable Account, and marked
off in the '" Remarks " colunm of the Bill Book. The balance
8o
BOOKKEEPING.
of the Bills Receivable Account on the 31st March is thus £S^o ;
which, upon reference to the Bill Book, will be found to consist
of Bill No. 80 — the only bill in hand at that date.
The Ledger Account of Bills Receivable is given below, for
the purpose of adding clearness to the above explanation.
Dr.
BILLS RECEIVABLE.*
1913
Jan. 31
Feb. I
Apr. I
To Sundries . .
B.B.
26
£
c.
c.
£ sd
1,436
1913
Jan. II
'. 31
Mar. 8
• 31
1
1,436
To Balance down
946
£946
To Balance . .
850
ByW. Steel Co.
(No. 79) • •
„ Balance down
By Cash (No. 78)
„ Balance down
J. 72
C.
144
c.
£ sd
490 o o
946 o o
[,436 o o
96 o o
850 o o
£946 o o
It will be noticed that the entry on January nth has been
passed through the Journal : it will presently be shown that
such unusual transactions as the one there recorded are almost
the only entries that remain for the once ubiquitous Journal
to record.
Bills Payable are either acceptances drawn upon a trader,
or promissory notes signed by him : they are given by him in
satisfaction of creditors' claims, and have to be met by him
upon maturity. It will be obvious that, under ordinary
circumstances, he has no means of knowing who will present
his bills for payment when the time comes.
When a bill payable is signed, and before it is issued, it
should be entered in the Bills Payable Book of the following
(or a similar) form : —
* In comparing this account with that appearing on page 144, it should be noted that
the discrepancy observable arises from the fact that (for the sake of simplicity) no Bills
received prior to ist January 1913 are included above.
ACCOUNTS OF TRADERS.
8i
ffl
<
■<
,
»n
s
»
3)
pii
»
OS
V
s
1
oaa 1
•AON 1 :
•lOQ 1 :
•das 1
•3nv 1 :
-<inf 1 :
aimf 1
XbIM
lO
ludv
:
•JBW
•q94 1
UBl
g
c
H
'*•
tj
15 i5
D
•— >
II
^ 5*
sn
o as
V
'vJ
?
-a
i2
m
a
m
•o o
o
OT O
o
2 S
1 -s
-f
R
■-.i
6
tL.
y
' 6
o =
U
^ ~
<«
^ 3
ta
- o
O <
a
T3
1 i
^ s
5
<
1
1 " ^
1 ^
1 "T
i
kC
"^
1
1
82
BOOKKEEPING.
The general treatment of Bills Payable is the converse of
the method just described : the amount of Bill No. 46 will be
debited to the account of Sims & Co., to whom the Bill has
been delivered, and the monthly total of bills issued will be
posted to the credit of Bills Payable Account. The credit
balance of this latter account, at any time, should correspond
with the amount of Bills Payable outstanding, as shown in
the Bills Payable Book. As bills mature they are presented
ai the bank (if they have been made payable at our bankers,
as would be the usual practice), for payment ; and when paid
are entered like cheques on the credit side of the Cash Book
in the bank column : thence they are posted to the debit of
Bills Payable Account, reducing the balance of Bills Payable
outstanding.
There are various other considerations in connection with the
treatment of Bills that will require to be dealt with later on.
Discount. The commercial meaning of the word '* dis-
count " has already been defined; it now remains to consider
the most convenient manner of recording the allowance or
receipt thereof.
When a debtor deducts discount from the amount due, the
result, from the creditor's point of view, is a loss. Thus,
supposing A. Thompson stands as a debtor for ;£io and the
creditor accepts jQq los. in payment thereof, the remaining los.
being allowed him as discount (at 5 per cent.), then jQg los.
will be the amount debited in the Cash Book and posted to the
credit of Thompson's account. This leaves a debit balance of
JOS. still standing on Thompson's account — which is wrong, for
he owes nothing — and we shall have omitted to record the fact
that, in allowing Thompson to deduct jQs per cent, discount,
the creditor made a loss of los. To put this right it is neces-
sarv to open a nominal account called Discounts Account ; debit
that account with los., and credit Thompson's account with the
same amount.
ACCOUNTS OF TRADERS. 83
When discount is deducted from a creditor's account a profit
is made; the process, therefore, is to debit the creditor's Ledger
Account, and credit Discounts Account, with the amount so
deducted.
The precise means adopted to secure the entry of discounts
allowed and received against the proper Ledger Accounts is a
matter of detail merely : if the occasion arises but rarely, a
special Journal entry in each instance will meet the case
suiTiciently well ; but where, as is frequently the case, the great
majority of the payments and receipts are subject to some
deduction for discount, the method is obviously too cumbersome
to be practicable. A special column upon each side of the
Cash Book is therefore provided in which is inserfed the amount
of discount that has been deducted, the cash and bank colunans
containing (as before) the amount actually received or paid : at
the end of each month the discount columns are totalled — the
total on the debit side (which consists of discounts allowed to
debtors, which have been posted lo the credit of their respective
accounts) is inserted in the discount column on the credit side,
and thence posted to the debit of Discounts Account. Con-
versely, the total of the credit side (which consists of discounts
allowed by creditors, which have been debited to their respective
accounts) is inserted in the discount column on the debit side,
and thence posted to the credit of the Discounts Account.
The balance of the Discounts Account (like that of every other
Nominal Account) is eventually transferred to Profit and Loss
Account.
In order that this matter of discounts may be quite clear to
the student, the following example is appended to show what
the effect of giving and allowing 5 per cent, discount would
have been upon the transactions of Henry Jackson during the
quarter ended 30th June 19 13 : —
G 2
84
BOOKKEEPING.
•s
&
-a o N o
U) O ro o
v^ 8 2 8
o
o
I
-O O OOO CO 00 o
(fl o ovo _o _ o o
o
o
o
Discounts
(0 M
^^ °
2 °
o
i
Cj U"m '^ n « "^ M « (j
By Bank . .
„ Do
„ Wages ..
„ Capita 1 Ac-
count . .
„ Wages . .
„ Repairs..
„ Capital Ac-
count . .
„ Wages ..
„ Discounts
allowed
„ Balance down. .
rr^ « fO M «0 « CO
Bank
-OOO o
(« o o o
S.8 1 8,
°
o
o
CO
•OOO o o o
(« O >n _ O o _ >o
o
°
o
5
o
o
R
n
3
(5
73 O O O O
(fl ."^.22 . «
^ 'o •^.cl -co
o o
O W
JO o
2|
si
:
£
:^(J»OTrjtx JO ^
To Balance
,/ Thos. Brown . .
„ Cash ..
„ Wni. Robinson
„ .Tno. Smith
„ Cash ..
„ Jas. Jones
„ Discounts re-
ceived
To Balance down. .
^-^ ^2 2«'^
< 4
s
"5
ACCOUNTS OF TRADERS.
8s
It will be seen that the Cash and Bank balances together
amount to ;£207 i6s. lod., as against ^^222 4s. when no dis-
counts were allowed or taken; the difference (;£i4 7s. 2d.) is
expressed as a balance to be carried to the debit of Profit and
Loss from Discount Account, which the following example shows
to be the case : —
>5
Dr.
DISCOUNTS
ACCOUNT.
Ct.
1913
June 30
To Sundries . .
C I
i s d
15
, 1913
June 30
By Sundries . .
, Profit and
Loss Ac-
count
C I
16
£ s d
12 lO
14 7 2
£15
£15
In practice, however, it is usually considered preferable to
carry the total loss on Discounts to the debit of Profit and
Loss, and the total profit thereon to the credit, so that the
Profit and Loss Account may show the full particulars.
It is not anticipated that the student will experience any
difficulty with the treatment of discounts upon Bills, but, to
save misapprehension, the question will be noted as it arises.
Partnership Accounts. Hitherto, for the sake of sim-
plicity, only the accounts of persons carrying on business
alone — i.e., without partners — have been dealt with. It is now
desirable that the student should become acquainted with the
modifications required in the books when the business belongs
to a number of partners or a '' firm."
In the previous chapter a definition of a partnership has
been given. It may, therefore, be assumed that the student
is acquainted with the circumstances of the case, and his atten-
tion will therefore be confined to the explanation of the entries
required to give effect to these altered circumstances.
96
BOOKKEEPING.
First, take the case of a trader A., who takes into partner-
ship B., who pays ;£i,ooo for a half -share of profits, and
agrees to put another ;£i,ooo into the business. The first
;£i,ooo, of course, goes straight into A.'s pocket, and does not
require any entry in the firm's books ; if, however, it is paid
into the firm's banking account, it will be entered on the debit
side of the Cash Book in the bank column and posted to the
credit of A.^s Capital Account. The second ;£i,ooo is entered
in a similar manner in the Cash Book and posted to the credit
of B.'s Capital Account. It will thus be seen that a separate
Capital Account is required for each partner, and it may be
added that each partner's Capital Account is debited with his
drawings, and that the credit balance of the Revenue or Profit
and Loss Account {i.e., the Net Profit) will be posted to the
credit of the partners' respective Capital Accounts in the pro-
portions previously arranged, or — if no arrangement has been
made — in equal shares. A debit balance of Profit and Loss
Account (i.e., a Loss) must be debited to the partners' Capital
Accounts in the same proportions as profits would have been
divided, had any been made.
In order to make these transactions quite clear the follow-
ing example is given. Suppose that A.'s Balance Sheet on the
3Tst December 191 2 was as follows : —
BALANCE SHEET, 31st December 1912.
Liabilities.
A., Capital Account
Sundry Creditors
£
950
,250
s d
;r2,200 O O
Assets.
£
Stock-in-hand .. .. .. 1,500
Sundry Debtors 650
Cash at Bank 50
s d
o o
£2,200 o
and that B. joins him in partnership, as from the ist January
1 913, upon the terms named, and that A. pays into the firm's
banking account the ;£i,ooo received by him for goodwill.
Then the position of the firm will be as follows : —
ACCOUNTS OF TRADERS.
87
BALANCE SHEET, ist January 1913.
LiabilHus.
A., Capital Account
B., Capital Account
Sundry Creditors
r s d
1 ,950 o o
1,000 o o
1,250 o o
£4, 200 o o
Asstts.
Stock-in-hand 1,500
Sundry Debtors 650
Cash at Bank 2,050
s d
o o
o o
o o
£4,200 o o
There is another way of looking at this transaction : If A.
is willing to take ^i.ooo for a half-share in his business, this
is the same as saying that he considers the Goodwill of his
business worth ^2,000, and that, if B. will contribute half the
value of the Goodwill and ^£1,000 as working capital, he will
admit him into partnership upon equal terms. This is the
principle sometimes adopted in framing the accounts, and
where it is so done the entries would be as follow : Debit
Goodwill Account and credit A. Capital Account with the value
of the Goodwill ; and debit Bank Account and credit B. Capital
Account with th& whole amount paid by B.
Where this method is adopted our two Balance Sheets will
assume the following form : —
BALA^^CE SHEET, 31st December 1912.
Liabilities.
A., Capital Account
Sundry Creditors
£
2,950
£■4,200 o o
Assets.
£ s d
Stock-in-hand 1,500 o o
Goodwill Account . . . . 2,000 o o
Sundry Debtors 650 o o
Cash at Bank 50 o o
£4,200 o o
BALANCE SHEET, ist January 1913.
Liabilities.
A., Capital Account
B., Capital Account
Sundry Creditors
£ s
2,950 o
2,000 o
1.250 o
£6,200 o o
Assets.
£ s d
Stock-in-hand 1,500 o o
Goodwill Account . . . . 2,000 o o
Sundry Debtors 650 o o
Cash at Bank 2,050 o o
£6,200 o
88
BOOKKEEPING.
A comparison of these four Balance Sheets will he found a
most profitable occupation for the student.
Now, suppose it be decided to amalgamate the business of
A. and B. with that of C, whose Balance Sheet (including
value of Goodwill) is approved at the following figures : —
BALANCE SHEET, ist January 1913.
Liabilities.
C, Capital Account , .
Sundry Creditors
Overdraft at Bank
£ s d
.. 2,750
.. 750
.. 500
Assets.
Stock-io-hand . .
Goodwill Account
Sundry Debtors
£
.. 1,200
.. 1,500
.. 1,300
s d
O'
£4,000
£4.000
The Balance Sheet of the firm A., B., and C. will then be
as follows : —
BALANCE SHEET, ist January 1913.
Liabilities. . Assets.
£ s d £ * d
A., Capital Account . . . . 2,950 o o Stock-in-hand 2,700 o cy
B., Capital Account . . . . 2,000 o o Goodwill Account . , . . 3,500 o o
C, Capital Account .. .. 2,750 o Sundry Debtors 1,950 o o
Sundry Creditors .. .. 2,000 o o , Cash at Bank 1,550 o o
£9,700 o o £9.700 o o
Where new books are to be started by the firm, the opening
entries will be upon exactly the same lines as those indicated
upon pages 46 and 47 ; separate Journal entries being made for
the assets and liabilities of each partner, but only one Open-
ing Balance Account (identical with the last preceding Balance
Sheet) being employed.
The process to be adopted where the old books are continued,
and the detailed treatment of the various trade accounts, will
occupy our attention at a later stage.
ACCOUNTS OF TRADERS. 89
Partners' Drawings. In practice it is usually found con-
venient to open a distinct account for the drawings of each
partner. This account will at each periodical balancing be
transferred to a " Current Account " opened in the name of
the partner, which will also be credited with his share of profits,
and with any interest upon capital to which he may be entitled ;
whatever balance may be shown on the Current Account at the
closing of the books is brought forward in the ordinary way.
If. however, it is provided by the terms of the partnership that
all profits in excess of a certain amount are to be left in as
capital, the amount of any such surplus profit must be trans-
ferred from Current Account to the credit of Capital Account ;
or the Current Account may be suppressed altogether, and the
balance of each partner's Drawings Account, together with his
share of profits and interest on capital, may be transferred direct
to his Capital Account, {cf. page ii8).
90 BOOKKEEPING.
Questions on Chapter VIII.
1. What are the advantages of a double-column Cash Book?
2. Describe the mode of enteruig discounts in the Cash
Book, and trace the system to both sides of the Ledger.
3. How would you record the receipt of a Bill Receivable,
and its payment upon maturity?
4. How would you record the issuing of a Bill Payable,
and its payment upon maturity ?
5. What do the balances of the Bills Receivable and Bills
Payable Accounts in the Ledger show respectively?
6. Describe the opening entries in the books of a firm.
7 . What is the advantage of a separate Current Account ?
8. How is it kept, and what does the balance upon each
side signify?
IX— ACCOUNTS OF TRADERS (continued).
Next comes the consideration of these accounts that specially
characterise the affairs of traders — the accounts relating to the
sale and purchase of goods. These accounts are focussed into
one account, variously described as " Goods Account,"
'* Trading Account," and " Stock Account," and it will be in
keeping with the general scheme of the present work to consider
the nature of this account first, and then proceed to trace the
various items to their respective sources.
It will facilitate the student's comprehension of the Trading
Account if he considers it first as an account relating to
quatitities of goods only — disregarding for the moment the
money value of such goods. The general scheme of the account
is that it is debited with all goods received {i.e. with all pur-
chases), and credited with all goods sent out {i.e. with all sales),
the debit balance at any time representing the amount of goods
in hand, or " Stock." It will be seen that this is exactly the
same principle that governed the treatment of the Cash Account,
and the student will find it a help to look upon the Trading
Account as an account kept by the proprietor as a tally upon
a stock-keeper in whose charge the goods are supposed to be.
To take the case of an iron merchant : his stock on the
ist January 19 13 may be supposed to have been 1,584 tons
12 cwt., his purchases for the month 467 tons 3 cwt. i qr.,
and his sales 591 tons o cwt. 2 qrs., leaving a stock on hand
92
BOOKKEEPING.
of 1,460 tons 14 cwt. 3 qrs. on the 3i.st January. The Trading
Account will then assume the following form : —
Dr.
TRADING
ACCOUNT.
Cr.
^ 1913
Jan. I
31
•
To Stock on hand
^ Purchases for
the Month . .
To Stock on hand
T. Cwt. Qr.
1,584 12
467 3 I
1913
Jan. 31
6
By Sales for the
Month
„ Stock on hand
T. Cwt. Qr.
591 2
1,460 14 3
2,051 15 I
2,051 15 r
Feb. I
1,460 14 3
Had any of the goods purchased been returned, they would
have been placed to the credit of this account ; and, conversely,
had any of the sales been returned to the merchant, he would
have debited this account with the amount so received by him.
In practice, such an account as the above would never quite
balance, on account of waste and inaccuracies in weights ; but
this consideration need not now be considered.
Now, it will be obvious that this account cannot be incor-
porated into the financial books without putting a money
equivalent upon the various items ; for the sake of simplicity
let us suppose that the merchant purchases at a uniform price
of 95s. per ton, and sells at a uniform price of iocs, per ton,
then — putting these sterling equivalents against the various
items in our account — we arrive at the following result : —
Dr
TRADING
ACC(
3UNT.
Cr.
1913
T. Cwt.Qr.
i s d
1
1 1913
T. Cwt.Qr.
i s d
Jan I
To Stock on
iJan.31
By Sales
hand . .
1,584 11
7,526 17
for the
31
„ Purchases
for the
*
month 591 2
„ Stock on
2,955 a 6
month . .
467 3 I
2,219 5 1
1
hand. . 1,460 14 3
6,938 10
It will be seen that this account shows a credit balance of
;£i47 155. id., and a little reflection will suffice to show that
the reason for this discrepancy is that the sales have been
extended at ^5 per ton, and the other figures at 95s. per ton—
ACCOUNTS OF TRADERS.
93
the difference, viz., 591 ions o cwt. 2 qrs. at 5s. per ton
amounting to ^£147 15s. id., being the amount of the credit
balance. Now this amount represents the 5s. per ton profit
on the month's sales ; or, in other words, the profit on the
sales for the month. It being a profit, the proper course is to
carry it to the credit of Profit and Loss Account. Therefore
debit Trading Account and credit Profit and Loss Account
with jC^41 15s- id- The Trading Account can now be
balanced and the position is as follows : —
Dr.
TRADING ACCOUNT.
Cr.
I9I3
T. CwtQri £ s d
1913
T. CwtQr
£ s d
Jan. I
To Stock on
Jan.31
By Sales for
the m'th
hand ..
1,584 12 , 7,526 17
591 2
2,955 2 6
31
, Purchases
, Stock on
for the
hand ..
1,460 14 3
6,938 10
month
467 3 I 2.219 5
'
»
, Profit and
LossA/c.
(Profit on
Sales for
them'th)
To Stock on
147 15 I
I
1
1
2,051 15 I £9,893 12 6
2,051 15 I
£9.893 12 6
Feb.i
•
hand ..
1,460 14 3 6,938 10
Dr.
PROFIT AND LOSS ACCOUNT.
1913
Jan.31 By Trading Account
Cr
£ s d
147 13 I
The reader will now notice a distinguishing feature of the
Trading Account : At rest {i.e. when balanced off) the Trading
Account is a Real Account, the balance representing the value
of stock on hand ; but in motion {i.e. while the account is kept
open for the record of further transactions) the Trading
Account is a Composite Account — partly Real, and partly
Nominal — the balance representing nothing definite, but being
compounded of the value of the stock and the profit earned
on the sales.
94 BOOKKEEPING.
In such a case as the above, where the profit upon every
separate sale can be actually determined, it would have been
possible to credit Profit and Loss Account with the amount of
such profit at once, carrying only the cost price of the articles
sold to the credit of the Trading Account ; but such ideally
simple cases would not be found in actual practice, and in any
event the number of entries involved would be far greater than
by the above method.
To those who are familiar with the use of mathematical
formulae, the following equations will make the position even
clearer than the preceding concrete example : —
Suppose S = value of stock at commencement, S^ = value of
stock at close, P rvalue of purchases, C — cost price of sales,
Tr= profit on sales, and V = the amount of the sales.
Then
y-C + T, and
S + P = C+Si, therefore
Sf P + T-C + S^ + T^V+Si.
We therefore see that, even when C and T are unknown,
their value may be deduced from the known values of S, P,
V, and S^. Hence it becomes important for every trader to
ascertain periodically the value of S, S^ (his stock in hand).
In practice, it is frequently not feasible to arrive at this by
keeping an accurate account of the stock in quantities {vide the
example on page 119), on account of the number of different
articles, and qualities of articles, in which the trader deals,
and it therefore becomes necessary for the value of the stock
to be ascertained solely by actual inspection and inventory.
The total purchases and total sales will, however, always be
shown bv the books.
ACCOUNTS OF TRADERS.
95
Purchases. Goods purchased would ordinarily be accom-
panied by an invoice (or, if not actually accompanied by an
invoice, the latter would be received by post practically
simultaneously), of which the following may be cited as a
typical example : —
1
Excelsior Works, Warrington,
Messrs. Fox <~ Crane.
2nd January 1913.
To Sims & Co.
T. C. Q.
100 No. 492 Angles.
£S
£ s d
800
\ c / Acceptance p.nclosei
!
\/ [er L.&'N.W. Fy.
As the goods are received they are compared with the invoice
as to weight, description, and price ; and, if correct, passed
on to the counting-house for entry. If incorrect, a corrected
invoice is applied for and substituted for the original invoice,
or a supplementary invoice or credit note is forwarded and the
original invoice left to stand. A credit note is usually printed
in red ink to distinguish it from an invoice.
It is no part of the scheme of this work to discuss the relative
methods of dealing with invoices ; let it, therefore, suffice to
say that, after being entered in the Purchase Book (also called
Bought Book, Invoice Book, Bought Journal, Purchase
Journal), they are numbered and arranged so that they can
readilv he referred to, should occasion arise.
96
BOOKKEEPING.
The following is a typical form of Purchase Book. It may
be entered up from day to day or at the end of the month, as
is considered expedient : —
PURCHASES for the Month of January zgis.
Weight
No.
of
Inv.
Name
^
Total
Angles
Bars
Fish-
plates
Rivets Sleep'rs
T. c. y.
100
12
40
/
2
3
Stms & Co.
12
Percy Bright
22
Western Steel Co.
15
17
18
£ s d
800
13 4
300
800
£ sd
£sd
£sd
13 4
£sd
300
140 12
1,113 4
800
13 4
300
Fo.y
'r'
Fo.8
The student who has read thus far will hardly need to be
reminded that each purchase has to be debited to the Trading
Account (as having been received by the storekeeper) and
credited to the Personal Account of the person from whom it
was bought. In the above example, therefore, it is necessary
to post .£8oo to the credit of Sims & Co., ^i^ 4s. to the credit
of Percy Bright, and ;£3oo to the credit of the Western Steel
Company ; these several amounts will require to be debited to
the Trading Account, but it will answer every purpose equally
well to post the total of ;^i,ii3 4s. instead of the various
items, and by so doing a considerable amount of unnecessary
labour is saved.
In many businesses it is thought desirable to divide the
transactions into " Departments,"- so that it may be possible
to ascertain the profit resulting from the sale of each different
class of goods dealt in ; in the foregoing example the Purchase
Book is arranged so that the transactions in "Angles," " Bars,"
" Fish-Plates," " Rivets," and " Sleepers," may be recorded
separately. In such a case, instead of debiting one Trading
ACCOUNTS OF TRADERS.
97
Account with the month's total purchases, it is necessary to
open five separate Trading Accounts, one for each department,
and the total of each departmental column will require to be
debited to its proper Trading Account.
The full working out of this system will be shown in detail
in the following chapter.
Sales. As with purchases, so with sales, there are many
different methods of dealing with the initial record. In every
case, however, a detailed invoice will have to be supplied to
the debtor, of a similar nature to that which is received when
goods are purchased, as shown above. Sometimes the Day
Book, in which the sales are daily recorded, will contain a
facsimile of the invoice sent out ; but a more convenient method
seems to be to take a carbon copy of the invoice and to enter
the sale in the Day Book in a summarised form. Where this
is done the same book can be used for the purpose of analysing
the sales into departments as follows : —
SALES for the Month of January iqis-
Weight
No.
of
Inv.
Name
13
14
14
12
Tota
Angles
B- pll!es
1
Rivets
Sleep 'rs
T. C. Q.
20
12
/
2
3
Henry Dale
Hugh Forbes
£ sd
180
96
1215
£ sd
£ sd
180
£ sd
96 00
£ sd
12 15
£><i
10
Hugh Forbes
ID
100
4
William Wright
850
850 OC
132 10
1,13815 0\ ..
1,030 96
12 15
1
1
Fo. 6 \ Fo.7
Fo.8
The items in the Sales Day Book are posted to the debit of
the various customers to whom goods are supplied, and the
monthly departmental totals are posted to the credit of the
various departmental Trading Accounts.
H
•9.8 BOOKKEEPING.
Returns received back from customers, as also overcharges,
are acknowledged by " credit notes " of a form similar to the
priginal invoices, but jDrinted in red ink. They are usually
entered in a separate " Sales Return Book," ruled like the
Sales Day Book, which is posted like the Purchase Book ; but
occasionally they are entered in the Sales Book i?t red ink,
being subtracted in the additions of the various columns, which
practically produces the same effect. The latter plan is not
often adopted, however, except where the occurrence of a return
or an overcharge is a very uncommon one.
Before leaving the question of the treatment of Purchases
and Sales, it will be convenient to notice two important
modifications that are frequently to be found in the method
that has been described.
First, it is a common thing to find a separate Sales Day
Book in each " department " of a business; and in such cases
there is no longer any necessity for these books to be provided
with analytical columns. Again, it is not unusual to find Day
Books duplicated, so that they may be used on alternate days
— one being in use in the entering room, while the other is
being posted up in the counting-house ; in large businesses, this
duplication of subsidiary books becomes a matter of necessity,
as well as convenience.
Secondly, it not being usual to prepare a Balance Sheet at
the end of each month, it is found in practice to be incon-
venient to post the monthly totals of the Purchase Book and
Sales Day Book direct to Trading Account. These totals are,
therefore, respectively posted to '' Purchases Account " and
'' Sales Account," and thence transferred to Trading Account
when the books are closed.
Consignments will be best dealt with as they arise in the
course of the succeeding examples, but a few general points
will not be out of place in the present chapter.
ACCOUNTS OF TRADERS. 99
When a merchant sends out a consignment, ^^hat he really
does is to transfer a portion of his stock-in-trade to the tem-
porary custody of the consignee, who has instructions to sell it
upon such terms as may have been arranged, and to remit the
proceeds. He, therefore, credits his general Trading Account
with the value of the consignment, and dehits a par-
ticular Trading Account (distinguished as '' 'A' Consignment
Account ") with a corresponding sum; freight, insurance duty,
and other expenses incurred on the venture are likewise debited
to this special account — as increasing the total cost of the con-
signment — and the proceeds are credited, as and when advised
by, or received from, the consignee. When the consignment is
all sold, the remittances received, and the expenses charged up,
the Consignment Account becomes a Nominal Acc<junt — i.e. if
it shows a credit balance, there is a profit to be carried to the
credit of Profit and Loss Account ; while, if it shows a debit
balance, there is a loss to be carried to the debit of Profit and
Loss Account. A better (but perhaps less usual) plan is to
credit the Consignment Account and credit consignee with his
expenses ; and debit cash (or Bills Receivable) and credit con-
signee with his remittance. So framed, the Consignment
Account shows all the material facts, and is more useful for
future reference.
From the point of view of the consignee, the problem may
be conveniently dealt with as follows : —
Upon the receipt of the goods he opens two accounts — one
" Consignment from ^L Account," to which he debits the
value of the goods received, the other *' ' M ' (("onsignment)
Account," which he credits with a like sum. The former
account he keeps as a pure Goods Account, crediting sales
as contracted until the whole consignment is sold ; if the con-
signment has realised a profit, this account will show a credit
balance which must be transferred to the credit of the second
H 2
IOC BOOKKEEPING.
account ; and, conversely, if there has been a loss, it will be
shown as a debit balance on the first account, and must be trans-
ferred to the debit of the second account. The second account
will have been debited with any expenses incurred by the
consignee, his commission, and such remittances as may have
been made; interest will be provided for, and the balance of
this account will show the amount due to the consignor to close
the account.
Some bookkeepers prefer to keep the whole matter in one
account, instead of two; but it is thought that the method
explained above is clearer, and equally concise.
ACCOUNTS OF TRADERS. lOI
Qttestions on Chapter IX.
1. What is a Trading Account, what items appear upon
each side, and what does the balance represent?
2. How may the profit on sales be deduced from the
Trading Account?
3 Is the Trading Account a Real or a Nominal Account?
4. What is the object of Departmental Trading Accounts?
5. How is the Purchase Book posted?
6. How is the Sales Book posted?
7. How would you record a consignment sent out by a
merchant ?
8. How would you record the same in the books of the
consignee ?
X.-TRANSACTIONS OF FOX &
CRANE.
Opcnijig tJie Ledger — The Subsidiary Books.
Having now disposed of a few of the leading difficulties
connected with Traders' Accounts, it is well to proceed from
theory to practice, and show how an ordinary example of
transactions should be dealt with in the books of a trading
firm.
For the purpose of giving a more definite interest to this
and the following chapter, the example that has been selected
has been taken from an examination paper set some years ago
by the Society of Arts ; but it is only fair to add that this
paper has been somewhat modilied, to provide scope for the
introduction of Departmental Trading Account.
The example is as follows : —
Henr}' Fox, iron merchant, at January ist 1913, had a balance at his
bankers of ;^i,724 los., and cash in office 2^85 i6s. 4d.
His bills in hand amounted to £~o^ 7s. 6d., being acceptances No. 74,
;^'i86 17s. 6d. ; No. 76, ^300; and No. 'jj, /217 los.
Debts owing to him on open accounts were, b}- Joseph Ball, /"sS 19s. ;
Thomas King, £2je^ iSs. 4d. ; William Wright, ;^285 9s. 9d. ; and
Henry Dale, ^{^178 los.
He had also goods on consignment with Henry Poole, Smyrna, of the
cost value of ^680.
His freehold business premises were valued at that date at /,"i,740.
TRANSACTIONS OF FOX AND CRANE.
His Stock-in-Trade was as follows
.103
tons cwt. qr.
;^ s d
50
Angles @ ^8
400
200
Bars @ £■] 15s
I
,550
20
Fish-plates @ £■] ids.
150 00
I 4 I
Rivets @ ;^22
26 13 6
100
Sleepers @ £,-] los
750
371 4 I
;^2,876 13 6
He had given acceptances, which were then current, as follows : —
No. 43, ;^28i los. ; No. 44, ^^250; Xo. 45, ;^i40 i6s. 8d.
He owed on open accounts, to Sims & Co., ^^85 is. 6d. ; Jojies &
Young, £^\ 17s.; Percy Bright, £^0; and John Kerr, £\o2 5s. 6d.
Find and credit his capital.
For the purpose of recording these transactions, it is
desirable to make use of the following books : —
Cash Book.
Sales Book.
[Sales Return Book — not required in this case].
Purchase Book.
Purchase Returns Book.
Journal.
Bills Receivable Book.
Bills Payable Book.
Ledger.
It not being the purpose of the present work to show the
precise points in which convenience requires that the accounts
of iron merchants should dtifer from those of ordinary traders^
this example will be dealt with upon strictly general lines ; but
the student will hardly require to be told that the accounts of
each different class of traders present (in practice) more or less-
important modifications in detail {vide page 2).
I04
BOOKKEEPING.
As regards the opening of the Ledger, there are two methods
in general use : —
(a) To make the opening entries in the Journal (vide page
46), and post thence to the various Ledger Accounts.
(b) To make the opening entries in the Ledger direct, with-
out the intervention of the Journal.
Having already described the former mode, we will now
show how the latter may be effected ; but it may be added
that this latter method is not viewed with any particular favour.
First, then, proceed to construct a Balance Sheet as on the
ist January 19 13, thus : —
24
Dr
■
BALANCE
SHEET.
Cr.
1913
£ s d
1913
£ s d
Jan.i
To H. Fox (capital)
7,648 13 9
Jan. I
By Freehold
"
„ Sims & Co. . .
I15
85 I 6
Premises
I20
1,740
» Jones & Young
I16
41 17
„
„ Stock-in-Trade,
^
, Percy Bright . .
I17
60
viz. :— £ s d
, John Kerr
„ Bills payable . .
I19
102 5 6
Angles . . 400
h
I
672 6 8
Bars . . 1,550 00
16
Fish-plates 150
I7
Rivets . . 26 13 6
18
•
Sleepers 750
I9
2,876 13 6
,
By Consignment at
Smyrna
„ Joseph Ball . .
„ Thomas King . .
I21
680
lie
58 19
III
275 18 4
, William Wright
I12
285 9 9
„ Henry Dale . .
I13
178 10
„ Bills receivable
I3
704 7 6
„ Cash at Bank . .
Cl
1,724 10
£
, Cash in hand . .
Cl
85 16 4
8,610 4 5
£8,610 4 5
Then open Ledger Accounts for each item named therein
{except cash at bank and cash in hand), and credit all accounts
debited to Balance Sheet, and vice versa } the cash at bank and
in hand are debited in the Cash Book, no Ledger Accounts
being required for these two amounts. The folios shown in
the Balance Sheet are the folios of the various accounts — these
accounts will all show the folio of the Balance Sheet (folio 24).
TRANSACTIONS OF FOX AND CRANE. I05
It will be seen that the effect of these cross entries is to
debit the Ledger (which, of course, includes the Cash Book)
with ;£i 7.220 8s. lod., and to credit it with a like sum, so that
a Trial Balance taken out at this period would show the Dr.
and Cr. sides balancing. It is not, of course, necessary to
take out a Trial Balance at this period ; but, as there are not
any further entries to be made in the Balance Sheet, it is as
well to rule off that account as shown in the example.
It has not been thought necessary to show the opening of
each Ledger Account; but, if the student should feel any
doubt upon this subject, let him refer to the full Ledger in
the following chapter.
To proceed with the example, the transactions are as
follow : —
I. On the I St January Henry Fox admitted as partner Joseph Crane,
who paid into the Bank Account ;^3,ooo as his
capital, to receive, in accordance with the deed of
partnership, one-fourth of the profits, Henry Fox
guaranteeing the debts then owing to the concern,
and reserving a preferential claim to the extent of
;^5o on the first month's profit in respect of business
previously done.
£ s d
2&3. Jan. 2 Bought of Sims & Co. for 4 months' bill
100 tons angles at £% (subject to 25
per cent, discount)
4. 3 Paid them cheque ...
They allowed discount
5. Sold Henry Dale for prompt cash,* less
2^ per cent., 20 tons bars at ^^9
6. 5 Received payment of bill No. 74
7. Sold Hugh Forbes for 2 months' bill, 12
tons fish-plates at ;<"8 96 o o
* This is a technical term, signifying that 25% discount will be allowed if the account
is paid on or before a specified date in the near future.
boo
Si
4
I
6
180
186
17
6
106 BOOKKEEPING.
£ ^ d
8. Jan. 6 Shipped on consignment to Henry Poole,
Smyrna, 80 tons angles at _^8 640 o o
9. Paid freight, insurance, and charges
thereon ... 56 o 9
10. Debited Sims & Co, for short delivery
angles, i ton 15 cwt. at cost 13 13 o
11. 6 Paid wages 450
12. 8 Paid fire insurance on office and ware-
house 350
13. Received payment bill No. "jj, due this
day 217 10 o
[4&15. 10 Sold on commission at 2s. 6d. per ton
for the Western Steel Co. to Joseph
Ball, 70 tons steel rails at £■] per ton
on 3 months' acceptance 490 o o
16. II Endorsed and forwarded acceptance to
Western Steel Co.
17. Debited them with commission 8 15 o
18. 12 Bought of Percy Bright, 12 cwt. rivets
at 22s
19. Paid him
Discount allowed
20. 13 Sold Hugh Forbes 10 cwt. rivets at
25s. 6d. for net cash at i month
21. Paid wages
22. 15 Received of Hy. Poole, Smyrna, account
sales and sight draft
23. Received of William Wright, cheque ...
24. 16 Paid John Kerr
Discount allowed by him
25. 17 Paid water rate
26. Received Western Steel Company's
cheque for commission 8150
27. 18 Retired under discount acceptance given
to Sims & Co., 2nd inst, for 768 10 o
13
4
70
3
4
12
15
4
5
750
6
8
280
100
2
5
6
2
12
6
TRANSACTIONS OF FOX AND CRANE. lO'J
£ S d
28 & 29. Jan. 19 Sold ^^ illiam \\ right for 3 months' bill,
100 tons bars at ;^8 los. net 850 o o
30. 20 Paid wages 450
31. 22 Bought of Western Steel Compan}', 40
tons sleepers at £-j los 300 o o
52, Paid cheque, less 2^ per cent, allowed... 292 10 o
33. 23 Paid poor rates ... 5 3 4
34. 25 Paid acceptance due this day Xo. 43 ... 281 10 o
35. Received of Henry Dale, cheque on
account ... ... ... ... ... 150 o o
36. 26 Paid Jones & Young 40 15 o
Discount allowed 120
37. 27 Received of Trustee of Thomas King,
first and final dividend of 19s. in the ;^ 262 2 5
38. Debited loss hereon to Henry Fox's
separate account 13 15 11
39. Paid wages 450
40&41. 29 Received account sales, sight draft, and
Stock Account from Henry Poole,
Smyrna consignment 420 o o
42. 30 Paid plumber's account, warehouse roof 219
43. Paid acceptance No. 44, due this day ... 250 o o
44. 31 Paid clerk's salary 12 10 o
45. Debited depreciation of premises and
furniture 500
46.
The stock-in-trade, being taken this daj',
was found to be as follows : —
tons cwt. qrs.
68 5 o Angles at £^ ... £e^i^6 o o
80 o o Bars at £'j 15s. ... 620 o o
800 Fish-plates at £•] los. 60 o o
161 Rivets at ^^22 ... 28 17 6
140 o o Sleepers at £•] los. 1,050 o o
297 II 4
;^2,304 17 6
Io8 BOOKKEEPING.
£ s d
47. Value of stock on consignment, Smyrna . 338 4 6
48. Petty expenses paid for month 4 13 8
49. Credited Henry Fox for travelling
expenses ... 10 o o
All amounts for ;^5 or over were paid by cheque, all under that
amount in cash, unless otherwise stated. All moneys received were
paid into the bank the same day.
One or two of these transactions require a little explanation.
2 and 3. This item consists of two separate transactions —
the purchase of goods from Sims & Co., and the payment for
same (less discount) by acceptance of the bill forwarded by
that firm.
8. This item, which is dealt with through the Journal, would
in practice probably be entered in a '' Consignments
Outwards*" Book, of a like character to the Sales Book.
10. Is an instance of an overcharge. It will be entered in
the Purchase Returns Book and posted to the debit of Sims &
Co., and to the credit of Angles Account.
14. This should be dealt with through the Journal, as the
goods have not passed through Fox & Crane's hands.
17. The Journal may be used for this also, but in practice
such entries would probably be sufficiently numerous to render
a special Conmiission Book desirable.
12, 17, 33, 42, 44, 45, 48, and 49. In practice there would
be separate Nominal Accounts opened to each of these; but as
the example only gives one entry to each account, it has been
thought unnecessary to show all these accounts in the pro forma
example about to be given.
The subsidiary books required to give effect to the above
transactions are now shown.
TRANSACTIONS OF FOX AND CRANE.
109
1
81
56 2 9
70
100
768 10
292 10
5 3 4
281 10
40 15
250
12 10
5.042 6
1
:
15
c
i
Q
•«<o c; <o ^
i
S ^?l^^?5S!^ ^^ 2?. ^s::^ ^ ""?. ^ ":
j3
l|
ai ... . ...
6
::^2;5J^^^ ^J^' ^^ ^^^^ ? 5^
*
.:<
•01
^«o ... ....
^5
Q
a
i
^ ^, .^ . ^r^ 00^ j^ • ^ rv.
^
12
g
1
i '^
1 jsiffi :iiiii!i: ^
ittiis|iJiid|iH4i£|i
fi • > - ■
1
tt)
ai. . .. .... . .
.a
kl i
6
; 2:
- » 28 58 S5S; ;
no
bookkeeping.
Sales Book.
See page 97.
See page 96.
Purchase Book,
Purchase Returns Book.
There is only one entry to be made in this book, namely,
transaction No. 10; the form is as follows : —
PURCHASE RETURNS for the month of January igis.
Weight
Name
Total
Angles
Bars
Fish-
plates
Rivets
Sleep'rs
T. C. Q.
/ 15
/
6
Sims & Co.
15
13 13
£ sd
13 13
£sd
£sd
£sd
=Csd
1 15
£13 13
£13 13
Fo.
transactions of fox and crane.
Journal.
The Journal will be as follows : —
1 JOURNAL, 1913.
Dr. Cr.
2 Jan. 2\Sitns&Co
To Discount Account
Being 2^% off :heir invoice of this date
against Bills payable No. 46.
8 Jan. 6
Consignment at Smyrna
To Angles Account
For 80 tons Angles shipped to Hy. Poole,
this dav.
14 Jan. 10 I Joseph Ball
To Western Steel Co
For 70 tons steel rails (O: £7 per ton, sold
Ball OH Comtn.
i6Ja:i. 11
17 /j". 11
38 Jan. 27
45 Jan. 31
Jan. 31
Western Steel Company 18
To Bills receivable 3
For Bill No. 70, endorsed and handed j
over to them this day i
Western Steel Company 18
To Commission Account .. 26
For our comm. on the preceding (a 2(6 j
per ton.
£ s d
20
640
490
400
8 15
Hy. Fox, Capital Account
To Thotnas King
Being the loss experienced by his jailure,
charged against Mr. Fox, who
guaranteed all book debts.
Depreciation of Premises and Furniture . 26
To Freehold Premises A ccount . . 20
Beiiig the amount written off for
depreciation (a, (say) 3^ per cent.
per annum.
Travelling Expenses
To Hy. Fox, Capita! .4ccotint
5
10
£1,677 10 11
£ s d
20
640
490
8 15
13 15 11
5
£1,677 10 11
It will be observed that the " closing " entries are not journalised in this example, in
accordance with the usual (but perhaps not altogeihtr commendable) practice of business
houses.
112 bookkeeping.
Bills Receivable Book.
See page 78.
Bills Payable Book.
See page 81.
Before proceeding to the following chapter, the student is
recommended to carefully study the entries in the seven sub-
sidiary books (the number against each entry will be seen to
refer to the number set against the respective transaction),
and to master the reason for — and effect of — each entry : then
independently to prepare similar books, using the transactions
as his sole guide, and to post the Ledger.
TRANSACTIONS OF FOX AND CRANE.
113
Questions on Chapter X.
f. What are the two usual methods of opening a new
Ledger ?
2. How would you deal with an overcharge upon goods
purchased ?
3. How would you enter goods sold on commission?
4. What are the subsidiary books usually kept by a trader?
5. What class of transactions is usually recorded in each?
6. What is the advantage of employing any subsidiary book
beyond the Journal ?
XI. -TRANSACTIONS OF FOX &
CRANE (continued) .
Trial Balance — Closing the Ledger.
The student who has taken the trouble to post up the
Ledger of Fox & Crane will find that their Trial Balance on
the 31st January is as follows : —
TRIAL BALANCE, 31st January 1913.
Dr.
0.
Dr. 1
Cr.
£ s d
£ ^
d
£ s d
£ s d
1. Henry Fox, Capital-
2. Joseph Crane, do.
3. Bills Receivable . .
13 15 11
7.658 13
9 ;
7,644 17 10
3,000
i
3,000
2,140 7 6
894 7
6
1,246
4. Bills Payable
1,311 10
1,452 6
8
140 16 »•
5. Angles
1,200 9
653 13
,
546 7
6. Bars ..
1,550
1,030
520
7. Fish-plates
150
96
54
8. Rivets
39 17 6
12 15
27 2 6
9. Sleepers
1,050
1,050
10. Joseph Ball
548 19
490
58 19
II. Thos. King
275 18 4
275 IS
4
12 William Wright . .
1. 135 9 9
1,130
5 9 9
13. Henry Dale
358 10
150
208 10
14 Hugh Forbes
108 15
96
12 15
15. Sims &Co
898 14 6
885 I
6
13 13
16. Jones & Young . .
41 17
41 17
17. Percy Bright
73 4 9
73 4
18. Western Steel Co.
798 15
798 15
19. John Kerr
102 5 6
102 5
6
20. Freehold Premises
1,740
5
1,735
21. Consignment (Smyrna) ..
1,376 2 9
1,170 6
8
205 16 1
22. Discounts
49 13
49 13 o-
23. Wages
26. Profit and Loss . .
17
17
1 45 6 3
h"i5
36 II 3
ci. Cash at Bank
! 5.042 6
5,042 6
„ do. in hand
56 3 5
•■
56 3 5
£20,074 II II
£20,074 II
II
£10,835 7 6
^ £10,835 7 ^
1
In closing these books and preparing a Profit and Loss
Account and Balance Sheet, attention must be first directed
to the six Trading Accounts, Nos. 5, 6. 7, 8. 9, and 21. It
has been already explained (page 93) that, " iii motion the
Trading Account is a Composite Account — partly Real and
TRANSACTIONS OF FOX AND CRANE. II5
partly Nominal — the balance . . . being compounded of
the value of the stock and the profit earned on the sales."
This balance is the amount now appearing in the Trial Balance,
and the first step should be to separate this balance into —
(a) The debit balance of the Real Account (i.e. the value of
the stock), and
(b) The credit balance of the Nominal Account (i.e. the
profit on the sales).
The value of the stock might, in the present example, be
arrived at by pricing out the difference between the Dr. and
Cr. weight columns at cost price; but in practice the quantity
of stock in hand would always be verified by actual enumera-
tion, and the pro forma example gives the amount of stock in
each department.
I. If the value of the stock exceed the debit balance of the
Trading Account, the dift'erence is the profit on sales.
II. If the value of the stock be less than the debit balance
of the Trading Account, the dift'erence is the loss on sales.
III. If the Trading Account shows a credit balance, the
profit on sales will be the sum of such balance plus the value
of the stock.
Expressed in algebraical formula; these three possible con-
tingencies appear as follows : —
Let B represent the debit balance of Trading Account,
( — B) the credit balance thereof, V the value of the stock, P
the profit on sales, and ( — P) the loss on sales.
I.
Then B ..: V - P .'
. B + P = V .-. P = \' -
B.
II.
Then B = \' - P .•
. B - V = - P = (-P).
III.
Then ( - B) = V -
+ \' = P.
- P .-. (-B) - V- - P.-
, B
I 2
ii6
BOOKKEEPING.
In any case, therefore, the amount of the profit (or loss) on
sales may be readily computed ; the next step is to debit
Trading Account and credit Profit and Loss with all profits,
and credit Trading Account and debit Profit and Loss with all
losses. We have now eliminated the nominal element from
these Trading Accounts, and the balances to their respective
debits represent the value of stocks on hand.
The next step is to transfer the Nominal Accounts proper
to Profit and Loss, and in doing so we shall require to see
that they completely record the transactions under their
respective heads.
Discounts. — In this account we find that the debit has not yet
been taken for JP^\ los. to be allowed to Henry Dale, under
transaction No. 5. This discount will not be allowed unless
punctual payment be made, and it is, therefore, inexpedient
to credit Dale's account with the amount; still the ;£4 los. is
a charge against this month's profits, and, accordingly, we
must transfer to the credit of Profit and Loss Account ^£45 3s. —
not ;£49 13s. as shown in the Trial Balance.
This leaves a balance of ^4 los. to the credit of Discount
Account, which may be brought down on that account as a
liability ; but a more scientific method is to pass a Journal
entry as follows : —
i s d
i s d
Jan. 31
Discounts Account
22
4 10
To Suspense Account
25
4 10
For Outstanding Discounts on this date,
VIZ. : —
Henry Dale, £4 to
TRANSACTIONS OF FOX AND CRANE. 1 17
The Suspense Account, to which the reader is now introduced
for the first time, is a Personal Account — the full meaning of
the title being '' Sundry Debtors and Creditors for various
Assets and Liabilities carried forward."
Strictly speaking, almost all Nominal Accounts would, in
practice, require the co-operation of the Suspense Account :
thus : —
{a) Wages are only paid up to the 27th January, 4 days'
wages — say £2 5s. — are due, and should be debited to Wages
Account and credited to Suspense Account.
{b) Fire insurance, water-rate, and poor-rate have been paid
in advance; Suspense Account should be debited, and these
accounts respectively credited with the proportion still unexpired.
{c) Other items outstanding, e.g. taxes, gas, and general
rates, would also require to be brought into account by debiting
the various Nominal Accounts, and crediting Suspense Account,
with the proportion properly chargeable to this month.
As, however, these points would illustrate no new principle,
they are omitted from the pro forma accounts to avoid undue
complication.
All the Nominal Accounts have now been focussed into the
Profit and Loss Account, which, accordingly, shows a credit
balance of £2^1 8s. 2d., being a net profit on the month's
trading. This sum must be divided between the two partners
in the proportions mutually agreed upon, crediting each
partner's Capital Account with the amount of his share. It
still remains to bring down the balances of the Real and
Personal Account, and prepare the Balance Sheet.
The Ledger — thus completed — will then appear as follows : —
ii8
Dr.
bookkeeping.
Messrs. Fox and Crane's Ledger."*
HENRY FOX, C.'vpital Account,
1913
Jan. 27 I ToThos. King..
31 „ Balance down
i s d
13 15 II
7,830 19
1 I9I3
Jan. I
31
Feb. I
1
£7,844 14 "
By Balance
„ Travelling
Expenses
„ Profit and
Loss .\/c..
By Balance
I24
i I
126
Cr.
£ s d
7,648 13 9
ID O O
186 I 2
£7.844 14 11
7,830 19 O
Dr.
JOSEPH CRANE,
Caimt.\l ACCOINT.
Cr.
191 3
Jan. 31
To Balance down
2
£ s d
3,045 7
I9I3
Jan. I
i 31
Feb. I
By Cash..
„ Profit and
Loss A/c . .
By Balance
1 26
2
£ s d
3,eoo
45 7
£3,045 7
£3,045 7
3,045 7
Dr.
BILLS RECEIVABLE ACCOUNT.
Cr.
^ I9I3
Jan. 1
31
To Balance
„ Sundries . .
To Balance
I24
bb26
3
£ s d
704 7 6
1,436
1913
Jan. 5
8
10
31
i
1
By Cash, No. 74
„ do. No. 77
„ Western Steel
Co
„ Balance down
1
J 1
3
186 17 6
217 ro
490
1,246
£2,140 7 6
£2,140
. _. „
Feb. I
1,246
Dj^.
1913
Jan. 18
25
30
31
BILLS PAYABLE ACCOUNT.
To Cash and Dis-
count, No. 46
„ Cash and Dis-
count, No. 43
„ Cash and Dis-
count, No. 44
„ Balance down
£ s d
780 o o
281 10 o
250 o o
140 16 8
£1,452 6
1913
Jan. 1
31
Feb.i
By Balance
„ Sundries
By Balance
Cr.
I £ s d
1 24 672 6 8
i»1j 15 780 o o
£1,452 6 8
140 16
*The folio references here are to the book of first entry from which the items have
been posted. When (as here) certain items pass through no book of first entry the folio
reference is to the Ledger Account where the contra item appears.
TRANSACTIONS OF FOX AND CRANE.
119
Dr.
TRADING ACCOUNT— ANGLES.
Cr.
To Balance
„ Sundries
To Balance
L.24
p. I
5
1913
Jan. 6
31
J- J
P.R.l
L.26
5
1913
Jan. I
31
t. c. q.
50
100
400
800
By Consign-
ment
„ Sundries
„ Profit &
LossA/c
Balance
(Stock on
hand) ..
t.c. q.
80
I 15
68 5
£ s d
640
13 13
7
546
150 £1,200
150
£l,2O0
Feb. I
68 5 546 ;
Dr.
TRADING ACCOUNT— BARS.
Cr.
I9I3
Jan. I
31
To Balance
, Profit &
LossA/c
To Balance
L.24
L.26
6
t.c.q.l £ s d
200 i 1,550
100
1913
Jan. 31
By Sales . .
, Balance
(Stock on
hand) ..
S. I
6
t. c. q.
120
80
£ sd
1,030
620
200 0! £1,650
200
£1,650
Feb. I
80 620
Dr.
TRADING
ACCOUNT— FISH-PLATES.
Cr.
1913
Jan, I
31
To Balance
, Profit &
Loss A /c
To Balance
L.24
L.26
7
t. c. q. '
20
£ sd
150
600
1913
Jan. SI
By Sundries
• Balance
(Stock on
hand)
S. I
7
t.cq.
12
800
£ sd
96
60
20
£156
20
£156
Feb. I
800
60
Dr.
TRADING ACCOUNT— RIV'ETS.
Cr.
I9I3
Jan. I
31
To Balance
„ Sundries
„ Profit &
Loss A/c
To Balance
L.24
p. I
L.26
8
t.cq.
I 4 I
12
£ s d
26 13 6
13 4
I 15
! , ^913
: Jan. 31
By Sundries s. i
, Balance 1
(Stock on 1
hand) ' 8
1
t. C. q.
10
I 6 I
£ sd
12 15
28 17 6
I 16 I
£41 12 6
I 16 I
£41 12 6
Feb. I
I 6 I
28 17 6
I20
BOOKKEEPING.
Dr.
TRADING ACCOUNT— SLEEPERS.
Cr.
I9I3
Jan. 31
To Balance . .
„ Sundries .
To Balance . .
L.24
p. I
9
t. c.q.
100 c
40
£ sd
750
300
1913
Jan. 31
By Balance . .
(Stock on
hand) . .
9
t. c. q.| £ s d
140 1,050
140
£1,050
140 £1,050
Jan. 31
140
1,050
1
1
Dr.
JOSEPH BALL.
CONTRA.
Cr.
1913
Jan. I
10
To Balance
„ Western Steel
Co
To Balance
I24
ji
10
i s d
38 19
490
\ 1913
Jan. 10
' 31
I
By Bills received. .
, Balance down..
1>26
10
£ s d
490
58 19
£548 19
£548 19
Feb. I
58 19
Dr.
THOMAS KING.
CONTRA.
Cr.
, I9I3
Jan. I
To Balance
J 24
^ 1 ^
275 18 4
1913
Jan 27
1
1
1
1
By C a s h (per
Trustees ist
and final Divi
dend of 19/-
in the £) . .
„ H. Fox (for
balance)
I
£ s d
262 2 5
13 15 II
£275 18 4
£275 18 4
Dr.
WILLIAM WRIGHT.
CONTRA.
Cr.
1913 ]
Jan. I To Balance
19 „ Goods
Feb. I To Balance
24
£ sd
285 9 9 ;
850 o o 1
£1.135 9 9
5 9 9
1913
Jan. 15
; 19
31
By Cash . .
„ Bills received.
» Balance down . ,
b26
12
£ s d
280 9 o
850 o o
5 9 9
£1,135 9 9
TRANSACTIONS OF FOX AND CRANE.
«3
Dr.
HENRY DALE.
CONTRA.
Cr.
1913
Jan. I
Feb. I
To Balance
„ Goods . .
To Balance
124
I
£ s d
178 10 o
180 o o
1913 i £ s d
Jan. 25 By Cash .. ., j i ! 150 o o
31 »' Balance down I 13 | 208 10 o
£358 10 9
208 ro o
£35*! 10 o
Dr.
HUGH FORBES.
CONTRA.
Cr.
I9I3
Jan. 5
13
To Goods
, Do.
To Balance
81
14
96
12 15
1913
Jan. 5
31
By Bills received
» Balance down
b26
14
96 .0
12 15
£108 15
£108 15
Feb. I
12 15
i
15
Dr
SIMS & CO.
CONTRA.
Cr,
I9I3
Jan. 3
6
To Cash and Dis-
count
, Bills Payable..
„ Discount
, Goods . .
To Balance
I
"15
J I
P.r 2
15
£ s d
85 I 6
780
20
13 13
1
; I9I3
Jan. I
2
31
By Balance
. Goods..
, Balance down
I24
pi
15
85 I 6
800
13 13
£898 14 6
£898 14 6
Feb. I
13 13
Dr.
JONES & YOUNG.
CONTRA.
Cr.
^ 1913
Jan. 24
1
To Cash and Dis-
count . . 1 I
£ s d
41 17
1913
Jan. I
1
!
By Balance . . 1 24
£s d
41 17
BOOKKEEPING.
17
PERCY BRIGHT
CONTRA.
I9I3
[an. 12
To Cash and Dis-
count . . I
)
£ s d
73 4
1913
Jan. I
12
By Balance
„ Goods
I24
PI
£ s d
5o
13 4
^73 4
£73 4
Dr.
westp:rn steel co.
CONTRA.
Cr.
I9I3
Jan. 10
22
To Commission . .
„ Bills received.
„ Cash and Dis-
count
i I
£ s d
8 15
490
300
1913
Jan. 10
17
22
Bv Joseph Ball ..
,; Cash ..
„ Goods..
J I
I
P I
£ s d
490
8 15
300
£798 15
£798 15
19
/;;•.
JOHN
KERR.
CONTRA.
Cr.
191 3
Jan. 16
To Cheque and
Discount . .
£ s d
I 102 5 6
1913
Jan. I
1
i
By Balance
^4
£ s d
102 5 6
!
Dr.
FREEHOLD PREMISES.
CONTRA.
Cr.
191 3
Jan I
To Ba'ance
To Balance
'24
20
£ s d
1,740
1913
Jan. 31
By Depreciation. .
„ Balance down
J 1
20
£ s d
500
1,735
£1,740
£1,740
Feb. I
1,735
TRANSACTIONS OF FOX AND CRANE.
123
Dr.
CONSIGNMENT .
\CCOUNT (HV.
POOLE, SMYRNA)
* Cr.
1915
Jan. I
6
31
To Balance
, Angles
, Cash (freight,
&c.) . .
, Profit and Loss
Account
To Balance
I
li
I
I26
£
£ s d
680
640
56 2 9
132 8 5 !
1,508 II 2
1913
Jan. 15
29
31
By Cash ..
» Do
. Balance (Stock
unsold )
I
I
21
£
£ s d
750 6 8
420
338 4 6
1,508 II 2
Feb. I
21
338 4 6
Dr.
DISCOUNTS.
CONTRA.
Cr.
1913
Jan. 31
To Suspense Ac-
count
, Profit and Loss
Account
12
«26
£ s
4 10
45 3
d
1913
Jan. 2
31
£49 13
By Sims & Co.
» Sundries
£ s d
20 o o
29 13 o
£49 13 o
23
Dr.
WAGES.
CONTRA.
Cr.
1913
Jan. 6
13
20
27
To Cash .. ..I
, Do
.Do
.Do
£ s d
450
450
450
450
1913
Jan. 31
By Profit and Loss
I26
£ s d
17
£17
£17
24
D,
BALANCE SHEET.
Cr.
(The Opening Balance Sheet was shown on page 104.)
'Dr. SUSPENSE ACCOUNT. Cr.
1913
Jan. 31 By Discounts
i2
/ s d
4 10 o
* A better method of treating Consignment Accounts is explained on page 99, but it cannot
be followed here owing to want of detail in the pro forma problem.
124
BOOKKEEPING.
26
Dr.
PROFIT AND LOSS ACCOUNT.
Cr.
I9I3
i s d
1913
£ s d
Jan. 8
To Fire Insurance . .
C.I 350
Jan. ID
By Commission
jj.i
8 15
17
„ Water Rate
„ 2 12 6
31
, Bars
L.6
100
23
„ Poor Rate . .
5 3 4
»
, Fish-Plates
'l.7
600
30
„ Repairs
„ Salaries
2 I 9
•
, Rivets ..
L.8
I 15
31
„ 12 10
, Consignment
L.21
132 8 5
„ Petty Cash,.
4 13 8
„
„ Discounts
L.22
45 3
„
„ Depreciation
J.I 500
"
„ Travelling Ex-
penses . .
„ 10
„
n Angles Account . .
L.5 070
1
^
„ Wages
L.23 17
"
„ Net Profits, viz. :♦
i sd
Hy. Fox . . 186 I 2
\..\
J. Crane .. 45 7
L.2
, ■'J^ " ^
1
: )f 294 I 5
£294 I 5
27
Z)r
BALANCE SHEET.
Cr.
1913
1 £ s d
1913
£ sd
Jan.31
To Henry Fox(Capital)
L.I j 7,830 19
Jan 31.
By Freehold Premises
L.20
1,735
„ Joseph Crane (Do.)
L.2 3.045 7
„
Stock-in-Trade,viz.:
„ Bills Payable
L.4 [ 140 16 8
1
Angles . . £546
L.5
„ Suspense Account
L.25 4 10
Bars . . 620
L.6
Fish-Plates 60
L 7
-
Rivets . . 28 17 6
Sleepers 1,050 00
L.8
L.9
2,304 17 6
•
„Consignmentat
Smyrna . .
L.2 1
338 46
^
„ Joseph Ball
, William Wright ..
L.IO
58 19
w
L.I2
5 9 9
»
„ Henry Dale
L.I3
208 10
, Hugh Forbes
L.I4
12 15
, Sims & Co.
L.I5
13 13
H
» Bills Receivable . .
L.3
1,246
» Cash at Bank
C.I
5,042 6
I
, Cash in hand . . ;
36 3 5
£11,021 12 8
£ll,021 12 8
I
* Partners' shares of profits have been transferred to their respective Capital Accounts.
See, however, page 89,
It is usual for each partner to be supplied with a book con-
taining copies of the Balance Sheets and Profit and Loss
Accounts, signed by both partners and the auditor.
The following would represent such a book in the present
example, and it may be added that the forms here shown would
— in practice — be those adopted in the firm's Ledger.
TRANSACTIONS OF FOX AND CRANE.
125
u->0
m
t>.o
oooo >o
z
m
sH'*
00
in 10
5^
TJ O O O
(A O O <n
<u o
is
cS
o o
(U c
C O
■C O O O tx
;/) O O O O
T3
000 1
X
<n 11
'^fj
«
■♦N
w o
s ^
re's "
ssux:
126
BOOKKEEPING.
O O 0^ O
1^ -^vo O
M
cc
fO
w
in
O O OVO o
o o o t^ o
VO O O oo o
"1- N VO f» "O
invo O
O m
C
H
U
.2
rt
<
«^ :
C u
sS
; 0)
(n
III
p « i^
U
Angles
Bars
Fish-pk
Rivets
0)
c
<
1
rt
z
o '^
0-7
febG(^
"
«s
c/)^ u,
SI
lum
UMfflO
-O o o oc o
c o
3 O
O o ;
_3
« O
U 9
TRANSACTIONS OF FOX AND CRANE. 1 27
Accounts of Consignees. — The best way of showing the
method adopted by consignees for recording their transactions
with, and on behalf of, their principals will be to reproduce
here the accounts of Henry Poole, of Smyrna, relative to the
consignments of Fox i.K: Crane, already mentioned.
From Poole's point of view, the facts are as follows : —
(i) On I St January 19 13 he held 85 tons of angles on
consignment from Fox & Crane, valued at ^680.
(2) On 8th January 1913 he sold 80 tons to the Junction
Engineering Co.. Lim., for ;£8oo, earning thereby a commission
of ^£40.
(3) On the same date he spent on carriage, &c., ^£9 13s. 4d.
(4) On the same date he remitted Fox & Crane a bill at
sight for ^750 6s. 8d.
(5) On 14th January he received a further consignment of
80 tons, valued at ^640.
(6) On 20th January he sold 42 tons 14 cwt. 98 lb. for
£444 OS. 3d., earning thereby a commission of ^22 4s.
(7) On the same date he spent on various items j£i i6s. 3d.
(8) On 22nd January he remitted Fox & Crane a bill at
sight for ^420.
(9) On 31st January he had on hand 42 tons 5 cwt. 14 lb.,
valued at ;£338 4s. 6d.
He deals with these items thus : —
(i) He debits (by means of a Journal entry) '* Consignment
from Fox and Crane Account " with the value of the goods
received from them, and credits " Fox and Crane, for Consign-
ment Account," therewith. The same procedure holds good
for (5).
128
BOOKKEEPING.
(2) He debits the Junction Engineering Co., Lim., with
;£8oo, and credits '' Consignment, &c., Account " therewith —
probably also by means of the Journal, but perhaps by means
of a '' Consignment Sales Book." The same procedure holds
good for (6). In each case he makes a Journal entry for his
commission, debiting '* Fox & Crane, &c., Account," and
crediting a nominal account called " Commission Account."
(3) These expenses he posts from the credit side of his Cash
the debit of " Fox & Crane, &c.. Account." The same
same procedure holds good for (7).
(4) This bill is either a bills payable drawn on a London
agent or a bank draft. In the former case, it is entered in
the Bills Payable Book, and posted to the debit of " Fox &
Crane, &c., Account," and to the credit of Bills Payable
Account. In the latter case it has been purchased for cash,
and is treated as cash — the Cash Book entry being posted to
the debit of '' Fox & Crane, &c., Account." The same
procedure holds good for (8).
It is usual for the consignee to furnish an ''Account Sales,"
with each remittance. The following is the form of such an
account to accompany the remittance of the 8th January : —
ACCOUNT SALES of 85 tons of Steel Angles, received per
S.S. Sultan, consigned by Fox & Crane, of London.
Jan. 8
E. &0. E.
Sold 80 tons to the Junction Engineering Co.
Lim., at £io
CHARGES :
Carriage, &c
My Commission, at 5%
Sight Draft herewith
Memo: 5 tons unsold, on hand.
Smyrna, 8th January 1913
TRANSACTIONS OF FOX AND CRANE.
129
(9) Assuming that Henry Pool wishes to balance off these
accounts on the 31st January, he will proceed as follows : —
In the " Consignment, &c., Account " — which has already
been described as a Trading Account — he brings down, in the
quantities column, the stock on hand; he then inserts in the
cash columns the value of such stock; he then transfers the
balance of the cash columns (which represents profit or loss,
as the case may be — in this case profit), to the " Fox & Crane,
&c., Account," and rules off the latter, bringing down the
balance. The Dr. balance of the first account represents the
value of goods unsold, the Cr. balance of the second account
the amount for which Poole is accountable to the consignors.
If the two balances are equal in amount the account is square,
so far as it goes ; if the difference between the two shows a
Dr. balance, Poole has either remitted in excess of the sales,
or else he has not yet deducted commission or charges from
his remittances (in either case, the effect being that Fox &
Crane are his debtors) ; if the difference between the two shows
a Cr. balance, Poole has still a remittance to make to Fox &
Crane — who, at present, are his creditors.
The two accounts will appear in Poole's Ledger in the
following form : —
Dr. CONSIGNMENT FROM FOX & CRANE ACCOUNT. Cr.
I9I3
t.
c.
lb.
£sd
1913
t. c. lb.
i sd
Jan. I
To Balance
8«i
680
Jan. 8
By Junction
14
, Angles . .
80
640
Eng. Co.,
31
, Fox and
Lim. . .
80
800
Crane,
20
, Cash ..
42 1498
444 3
profit to
31
, Balance
date . .
To Balance
262 4 9
down
42 5 14
338 4 6
165
£1,58249
165
£1,58249
Feb. I
42
5
14 338 4 6
130 BOOKKEEPING.
Dr. FOX & CRANE, FOR CONSIGNMENT ACCOUNT. Cr.
1913
i s d
1913
i s d
Jan. 8
To Sundry Expenses
9 13 4
Jan. I
By Balance . .
680
„ Commission on
14
„ Angles
640
Sales . .
40
31
„ Consignment A/c
„
„ Bills to them . ,
750 6 8
profit to date . .
262 4 9
20
„ Sundry Expenses
I 16 3
»
„ Commission on
Sales . .
22 4
22
„ Bills to them
420
31
„ Balance down , .
338 4 6
Feb. I
By Balance . .
£1,582 4 9
£1.582 4 9
338 4 6
Joint Ventures are subject to a similar treatment except
that ail charges and expenses are debited to the first account,
which thus shows the net profit or loss on the venture; this
profit or loss is transferred part to the second account and
part to Profit and Loss Account in the shares previously agreed
upon. The above procedure holds in cases where the party
concerned is managing the venture ; if, on the other hand, he
is not the manager, his position — for present purposes — is
equivalent to that of the consignor.
TRANSACTIONS OF FOX AND CRANE. 131
Questions on Chapter XI.
1. How is a Trading Account closed?
2. When closing a Ledger, how would you deal with
discounts outstanding ?
3. What is a Suspense Account?
4. Enumerate some of the circumstances likely to involve
the use of a Suspense Account?
5. How does the process of closing a trader's Ledger differ
from that of a non-trader's Ledger?
6. In the case of a firm's accounts, how would you dispose
of the balance of the Profit and Loss Account?
7. Describe the method adopted by a consignee in recording
transactions with his principal.
8. How would you keep the accounts relating to a joint
venture?
K 2
XII.— ADJUSTMENT ACCOUNTS AND
SELF-BALANCING LEDGERS.
As soon as a business begins to assume even moderate
proportions it will be obvious that it is no longer possible for
one bookkeeper to keep pace with the number of transactions
occurring daily. As soon as it becomes necessary to employ
several bookkeepers, the question of their respective duties
becomes a matter for consideration. Where two bookkeepers
are employed it is not unusual to find one in charge of the
Ledger and Cash Book, and his assistant in charge of the
various subsidiary books; there is, however, a limit to the
number of Ledger Accounts that can be kept going by one
Ledger clerk, and as soon as this limit has been reached a
subdivision of the Ledger becomes imperative.
The first division of the Ledger is usually into three parts,
viz. : —
(i) Sold Ledger, comprising the accounts of trade debtors;
(2) Bought Ledger, comprising the account of trade
creditors ; and
(3) General Ledger, comprising the remaining Ledger
Accounts.
In important concerns a still further subdivision becomes
necessary. The Sold and Bought Ledgers are usually divided
into sections of the alphabet {e.g. Sold Ledger A to E, Sold
Ledger F to K, Sold Ledger L to R, and Sold Ledger S to Z) ;
or, less frequently, into localities {e.g. Bought Ledger, Town;
Bought Ledger, Country ; Bought Ledger, Foreign) ; and the
ADJUSTMENT ACCOUNTS AND SELF-BALANCING LEDGERS. 1 33
General Ledger into Nominal Ledger (comprising the Nominal
Accounts, except the Trading and Profit and Loss Accounts)
and Private Ledger (comprising Capital Account, Real
Accounts, Balance Sheet, Trading and Profit and Loss
Accounts, &c.). The exact subdivision is, of course, a matter
of convenience rather than principle, and thus it will be found
that considerable variation obtains — e.g. " Bills Receivable
Account " is sometimes placed in the Sold Ledger, sometimes
in the Nominal Ledger, and sometimes in the Private Ledger.
It may, at this point, be mentioned that the subdivision into
" Sold," ■' Bought," and " General " (or " Private," as it is,
perhaps, more usually called), is usually to be found even in
comparatively small concerns. There are two reasons to
be advanced in its favour : (i) The privacy of the General
Ledger — which alone shows the result of the trading — may
then be easily assured; and (2) the classification facilitates
reference to any account that it may be required to refer to.
T/ie attention of the student is -particularly directed to the
following paragraphs.
The mere fact that one Ledger is divided into two (or more)
books does not ipso facto alter its nature.
The Ledger, as a whole, still records the double (or com-
plete) effect of each transaction.
At any time the sum of its debits will always equal the sum
of its credits.
Consequently, a Trial Balance of a set of Ledgers can always
be taken by abstracting every balance; and the total of the
debit balances will always equal the total of the credit balances,
provided the postings are correct.
There is thus no difficulty in testing the accuracy of a set of
Ledgers by extracting all the Ledger balances.
134 BOOKKEEPING.
But if it be desired to test the accuracy of one Ledger only,
or to find out in which Ledger an error in the Trial Balance
exists, how can it be done ?
Many sets of Ledgers possess no means of facilitating either
of these inquiries ; but yet the problem is not difficult : it
consists in the employment of Adjijstment Accounts which
make each Ledger Self- Balancing.
The Adjustment Account is one of the most beautiful and
artistic devices in modern bookkeeping, and no bookkeeper who
understands its application would willingly dispense with the
enormous advantages its introduction affords. On the other
hand, in a large concern — where each Ledger clerk is responsible
for the accuracy of his own Ledger — its services are simply
invaluable.
For the sake of showing the precise application of the
Adjustment Account it is proposed to raise fro forma accounts
recording the following transactions^ : —
On the I St January 1884 Jones and Smith commenced business in
partnership as grocers, profits being shared equally : —
£ s d
Jan.
I.
Jones pays into Bank
... 200
j>
Smith do
... 200
8.
Paid for fixtures
50
ID.
Bought from Robinson goods value
... 287
18.
do. Brown do.
... 125
19.
Sold Clarke goods value
12 10
22.
do. Dodd do.
15 7
29.
do. Cowley do.
II 3
31-
Sundry ready-money sales
... 91 7 6
Feb.
6.
Sold Ward goods value
980
*This example was set at the Intermediate Examination of the
Institute of Chartered Accountants in June 1884.
ADJUSTMENT ACCOUNTS AND SELF-BALANCING LEDGERS. 1 35
£
s
d
Feb. 9.
Received from Clarke on account
10
))
Sold Dodd goods value
15
6
13-
Bought from Robinson goods value
95
21.
Received from Dodd
■ 30
13
28.
Sundry ready-money Sales
"3
9
March 6.
Paid Robinson
. 300
^3-
Sold Ward goods value
II
6
IS-
Sold Richardson goods value
13
7
3
20.
Received from Ward
20
31.
Sundry ready-money Sales
. n6
9
April 9.
Paid taxes
7
4
17.
Sold Richardson goods value
II
3
18.
Sundry ready-money Sales
43
16
3
On the i8th April 1884 Smith died. Make up the accounts of the
firm to that date, the stock being taken at ;({^i67, there being ;,^i8 due
for rent, and jQ^z 8s. jd. due to Jones for petty expenses paid by him.
Assume that all receipts are paid into bank and all payments made
by cheque.
For these transactions the following books are suitable : —
General Ledger, Journal,
Bought Ledger, Bought Book,
Sold Ledger, Day Book,
and Cash Book.
The Cash Book should be ruled as follows : —
136
BOOKKEEPING.
£ s d
50
300 o
740
357 4
468 10 9
!
12
rr
(fl 'J-
o\
•*■ 00
ft m
0\
•*
Bought
Ledger
£ sd
300
o»
;*
£
«0>- Th "^<^ X
Particulars
III 6 ', '. '.
<
ii: s^'<"s
.Sort <u . rt
«
1
rQ OVO CO
^ Q ti foovo 2
11
|1
-a 1 o^
(/) 1 ;*
^88 1 8 ^
53
TS VOOOOOOmIcti
tn t^ CO o^ <7i<0 ^
£
WOIl-iWfOMTj-MM Cim ^
1
O.I
<
■ ■ i2
n
"1 1 1 1
S £
OS
<
2 S
2 !!
J? 2
o «
6 ^
o O
•5 "o
2^
ADJUSTMENT ACCOUNTS AND SELF-BALANCING LEDGERS. 1 37
In practice it is not unusual to find separate subsidiary Cash
Books (or Journals) employed for the entry of Bought Ledger
and Sold Ledger Cash; when this is the case, the left-hand
column upon each side of the foregoing example becomes
unnecessary.
The Journal entries will be as follows :-
JOURNAL, 1884.
Jan. 31
Purchases
To Bought Ledger Account
8
12
13
9
8
12
13
9
13
9
13
9
5
7
6
I
10
8
II
9
10
II
5
t
II
I
2
£ s
412
130 7
95
138 3
141 2
54 19
18
32 8
631 12
464 12
57 12
66 19
d
6
3
3
7
7
5
£ s d
412
Jan. 31
Sold Ledger Account
To Sales
130 7 6
Feb. 28
Purchases
To Bought Ledger Account
95
Feb. 28
Sold Ledger Account
To Sales
138 3
March 31
Sold Ledger Account
To Sales..
141 2 3
April 18
Sold Ledger Account
To Sales
54 19 3
April 18
Rent
To Landlord
18
April iS
Petty Expenses
To Jones
32 8 7
April 18
Trading Account
To Purchases
, Profit and Loss Account
507
124 12
April 18
Sales
To Trading Account
464 12
April 18
Profit and Loss Account
To Rent
, Taxes
, Petty Expenses
18
740
32 8 7
April 18
Profit and Loss Account
To Jones
„ Smith
33 9 9
33 9 8
X58
BOOKKEEPING.
Let the student post the " General Ledger " column of the
Cash Book and the Journal into a General Ledger, and then
close the Ledger. He will find his Balance Sheet to be as
follows : —
BALANCE SHEET, i8th April 1884.
Liabilities.
£ s
Jones — Capital Account . . 265 18
Smith (the late) — Do. . . 233 g
Trade Creditors, as per Bought
Ledger 207 o
Landlord — for Rent . . . . 180
£724 8 o
Assets.
£ s d
Stock-in-Trade 167 o o
Fixtures 50 o o
Book Debts, as per Sold
Ledger 38 17 3
Cash at Bank 468 10 9
£724 8
Turning now to the Bought Ledger. The Bought Book will
be of the usual type, the various items being posted to the
credit of the merchants in the ordinary way : the double-entry
of the Bought" Book is completed by posting the total of each
month's purchases to the debit of " General Ledger Account "
in the Bought Ledger. The Bought Ledger payments (first
column on Cr. side of Cash Book) are posted to the debit of
the various merchants : the double-entry being completed by
posting the monthly total of the Bought Ledger payments
(which is to be found entered on the Dr. side of the Cash Book
in the " Sold Ledger " column) to the credit of '' General
Ledger Account " in the Bought Ledger. It will thus be seen
that the Bought Ledger possesses a complete system of double-
entry of its own; and, consequently, that it is '' Self-
balancing " — i.e., a list of its balances constitutes a complete
Trial Balance.
The " General Ledger Account " of the Bought Ledger is
given below : —
Dr. GENERAL LEDGER ACCOUNT. Cr.
1884
an. 31
eb. 28
Apr, 18
To Sundries
do.
To Balance down
I
2
£
X
£ s d
412
95
1884
Apr. 1 8
507
207
By Cash . .
„ Balance down
£ s d
300 o o
207 o o
507 o
ADJUSTMENT ACCOUNTS AND SELF-BALANCING LEDGERS. 1 39
The student is recommended to prepare the Bought Book,
post the Bought Ledger, and extract the Trial Balance as on
the 1 8th April 1884.
With the Sold Ledger the same principle holds good. The
items of the Day Book are posted to the debit of the various
Customers' Accounts, while the total of each month's sales is
posted to the credit of the '' General Ledger Account." The
Sold Ledger cash is posted as usual to the credit of the persons
from whom it is received (a special account being raised for
" Sundry Ready Money Sales "), and the total cash received
is posted from the Cr. side of the Cash Book to the debit of
** General Ledger Account."
It will be noticed en passant that the total of the " Sold
Ledger " column on the Dr. side of the Cash Book balances
the total of the " Bought Ledger " column on the Cr. side.
The cash balance is to be considered as the balance of a General
Ledger Account.
If the student goes the length of constructing the Sold Ledger
he will find the Adjustment Account as follows : —
Dr.
GENERAL LEDGER ACCOUNT.
Cr.
1884 !
April 18 To Cash . .
. a Balance down
£ s d
425 14 9
38 17 3
£464 12 o
1884 i
I Jan. 31 ' By Sundries
j Feb. 28 , do.
Mar. 31 a do.
Apr. 18 • do.
Apr. 18
By Balance
£ s d
1 130 7 6
2 138 3 o
3 141 2 3
4 54 19 3
£ 464 12 o
38 17 3
Turning back to the General Ledger. The principle of the
General Ledger is that all trade creditors' accounts are con-
densed into one account (the Bought Ledger Account) and all
customers' accounts are condensed into another account (the
140 BOOKKEEPING.
Sold Ledger Account). Journal entries for purchases and sales
are therefore made void of detail, and Cash Book entries relating
to Bought and Sold Ledgers are likewise posted to total : in
all other respects the method delineated heretofore obtains in
its entirety.
When the principle of the Adjustment Account has once
been grasped — and the foregoing description should suffice for
this purpose — no difficulty will arise in the extension of its
application to more complicated matters.
In Part III of this work it will be shown what an important
part the Adjustment Account plays in scientific bookkeeping of
the highest order.
It may be mentioned that an auditor can always construct
an Adjustment Account, for the purpose of checking the Ledger
postings — even when the system in use does not include such
accounts in its scheme.
ADJUSTMENT ACCOUNTS AND SELF-BALANCING LEDGERS. I4I
Questions on Chapter XI 1.
1. What is the object of employing several different I
Ledgers ?
2. Name some of the most usual subdivisions of the Ledger. ^
3. What is an Adjustment Account?
4. Describe its uses, and the principles governing its i
application.
EXAMINATION PAPERS.
(Technical Schools of the County Borough of Cardiff
Elementary Class.— April 1892.)
1. What are Real, Personal, and Nominal accounts? Give
an example of each.
2. What is a Debit Balance, and what does it represent in
the case of each of the three classes of accounts mentioned in
the preceding question ?
3. Write out a Cash Book, recording the following entries : —
Jan. I. Balance on hand this day
,, Paid into Bank
4. Received from William Jones
,j Allowed discount, 12s. 6d.
5. Paid Taxes in cash
,, Received from J. Smith cheque
6. Paid into Bank
,, Paid H. Robinson by cheque
Discount allowed thereon, ;^3 17s. 3d.
4. Prepare a Revenue Account and Balance Sheet from the
following Trial Balance : —
TRIAL BALANCE.
31 ST December 1890.
I
s
d
114
7
9
100
63
7
6
3
9
.S
47
8
100
118
2
9
Dr.
Cr.
£
s
d
I
s
d
Capital Account ...
2,179
8
6
Cash
24
I
6
Bank
964
4
s
Sundry Investments
I5419
2
6
Expenses Account
39
14
5
Hopkinson & Co
116
I
9
Dividends and Interest .
151
12
10
.
;^2,447
3
I
;^2,447
3
I
EXAMINATION PAPERS.
H3
5. On ist January 1892 the assets of John Brown were as
follows: — Stock on hand, £406; fixtures, ;£i5o; cash at
bank, £560; cash in hand, ;^i9 5s. 2d.; owing by J. Bell,
;£2 2 i6s. 9d. ; and by E. Owen, ^£41 7s. 4d. His liabilities
were : — Due to Black & Co., j£i6g 8s. 2d. ; bills payable,
His transactions during the month of January were as
follows : —
Jan. 4th — Sold J. Bell, goods value ...
,, 6th — Received of E. Owen, and paid into
bank
„ „ — Allowed him discount
„ 9th — Bought of James Young & Son
goods value
„ 12th — Bills payable, due this day, paid
by bank
„ 15th — Sold E. Owen, goods value
Paid Black & Co., by cheque
They allowed discount thereon ..
„ 1 8th — Received from J. Bell his accept
ance for
„ 2oth — Sold to R. Walters, goods value ..
„ 24th — Accepted Black and Co.'s bill for..
„ 31st — Paid sundry trade expenses
One month's rent now due
40
I
72 14
150
46
ID
67
10
I
18
2
39
5
II
58
3
6
100
12
I
8
5
Prepare the necessary accounts, take out a Trial Balance,
and, assuming the stock unsold on the 31st January to be £3^9,
close the books and prepare Balance Sheet and Profit and
Loss Account.
144 BOOKKEEPING.
II.
(Technical Schools of the County Borough of Cardiff-
Intermediate Class. — April 1892.)
1. A farmer starts with ;£2,ooo in the tenancy of a farm at
a rent of ;£6oo per annum, and pays during the first year one
half-year's rent, ;£25o for rates, ;£8oo for wages and expenses,
and ;£2oo for the maintenance of his family. He has laid out
in seed ;£2oo ; in the purchase of horses, carts, and implements,
^£400 ; and cattle, ^£200. He has received for produce sold,
;£6oo, and for cattle sold, ;£24o ; and has, at the end of the
year, produce value ^£820 ; cattle, ;£48o ; horses, carts, and
implements ;^'36o ; debts owing to him, ;£32o ; and cash as will
appear by the Cash Account to be prepared. He owes one
half-year's rent, and other debts, ^iio. You are asked to
prepare his Profit and Loss Account and Balance Sheet, but
no other accounts need be shown.
2. Explain (shortly) the terms " Bills Payable " and " Bills
Receivable." Draw upon Richard Wills & Co., of Bridgwater,
for ;£ioo, at three months. Write across a Bill a form of
^.cceptance, making it payable at Lloyds Bank, Lim., London.
3. In closing a set of books on 31st December 1891 the
following items have to be taken into account : —
(a) Fire Insurance, ;£40, was paid on 29th September.
(h) Rent for the Xmas Quarter, ;£5o, is still unpaid.
(c) j£ioo provision must be made for bad debts.
(d) Smith was allowed to renew his acceptance for ;£75o,
due on ist December, charging him ;£i2 interest for a three
months' bill.
Show, by means of Journal entries, how this may be done.
EXAMINATION PAPERS. 1 45
4. On 31st March 1892 Richard Evans had ;£i49 at the
bank; ;£i6 cash in hand; ^£1,624 stock-in-trade; ;£i5o
fixtures; sundry debtors, ^£1,214; and trade creditors, ;£i,i97.
Edward Roberts agrees to join him in business, with a capital
of ;^2,ooo, ^500 of which is to be paid as goodwill for the
half -share; but he insists that 12 J per cent, be written off the
stock, and 15 per cent, off the sundry debtors.
Show the firm's Balance Sheet on the ist April, assuming
these adjustments to have been made, and the whole of
Roberts's ;£2,ooo to have been paid into the bank.
5. Messrs. Turner & S pence commenced business in an
hotel on ist January 1891, with a cash capital ;£i 0,000 each.
During the year the following items were received : — Board
and attendance, ;£4,ooo ; apartments, ;£5oo ; wines and spirits,
£560; billiards, ;£i8o; sundries, ;£2i6. ;£i8,ooo had been
paid for freehold premises, ^10,000 of which was allowed to
remain on mortgage; the furniture had been taken over at
^£2,500, and ;£875 had been paid for the stock of wines and
spirits. During the year ;£i,5oo had been spent on provisions,
Szc. ; j£6^o on other trade expenses, and ;£25o for a half-year's
interest on mortgage to 30th June had also been paid. ^£870
was due to trade creditors, and the stock on hand amounted
to ;£520.
Raise the necessary Ledger x\ccounts by Cash Book and
Journal entries ; take out a Trial Balance ; write 2 per cent,
off cost of premises, and 12 J per cent, off furniture; close
the Ledger; and take out a Profit and Loss Account and
Balance Sheet.
146
BOOKKEEPING.
III.
(Union of Lancashire and Cheshire Institutes.— April 1893.)
Journalise, and post in proper technical language and form
(giving a short description), the following imaginary transac-
tions, and make the necessary closing entries, and prepare a
" Trial Balance," and compile a Profit and Loss Account and
a Balance Sheet.
Up to the 31st December 1892 James Midwood carried on
business as a wholesale wine and spirit merchant on his own
account. In recognition of the faithful services of his traveller,
David Brice, he decided to take him into partnership as and
from ist January 1893. Brice to bring in ;£i,ooo capital, and
to be entitled to one-third of the profits each year, the part-
nership to be carried on in the name or style of Midwood &
Brice.
On the I St January 1893 the books of James Midwood
showed the position of his affairs to be as stated below : —
Assets
Cash at Bankers
Cash in hand
Port Wine, 5 Pipes at ;^6o
Sherry, 6 Butts at ^^50
Dowley & Son, debt on open account
Bills Receivable — No. 114,
January 15th 1893, Wm. Bell & Co. ... 900 o o
£
s
d
1,000
50
300
300
450
;^3>ooo
Liabilities.
Hans Johnson
Thomas Buckley
Bills Payable— No. 60,
Due January 12th 1893, J. Nooks ...
£
300
300
500
S d
;^I,IOO
EXAMINATION PAPERS. 1 47
Each partner's capital is to be credited with interest at
the rate of 5 per cent, per annum before arriving at the balance
of profit or loss.
During the month of January the transactions of the firm
were as follows : —
£ s d
Jan. I. Brice paid into Bank Account of firm his
portion of capital 1,000 o o
„ 2. Sold to Dowley & Son, 3 Pipes Port Wine for... 210 o o
„ 3. Paid Cash for Dock Charges on 3 Pipes Port
sold yesterday 8 15 o
„ 5. Bought 40 Hhds. Brandy, at £/^o, from E.
Lintott, and gave him a Bill at 2 months, he
allowing 2^% 1,600 o o
„ 8. Shipped per "Annie" on Joint Account with
ourselves and Harrison & Co., Liverpool,
each one-half concerned, 40 Hhds. Brandy,
invoiced at ^^50 2,000 o o
Received Debit Notes as below : —
Insurance on Brandy 31 o o
Dock Charges 25 o o
Commission to Chas. Kells & Co 41 2 5
„ 12. Paid Dock Co. Charges by Cheque 25 o o
Bank advise having paid Bill Xo. 60 this day... 500 o o
Jan. 12. Received Cheque crossed " not negotiable," for
;i^i,ooo from Harrison & Co., being their half-
share per " Annie " 1,000 o o
Paid Anglo- Assurance Co., by Cheque, ;^3i
Insurance on ^2,400, @ 25% on Brandy, per
" Annie," for Sydney 31 o o
„ 15. William Bell & Co.'s Bill, Xo. 114, for ;<'9oo,
returned dishonoured 900 o o
Paid Cash for noting charges 036
„ 15. Sold W. Scott, 4 Butts Sherry for 270 o o
Received Cash, ;^27o, for Sherry sold to W.
Scott and paid to Bank 270 o o
Paid Cash, _^ii 12s., Dock Charges, on Sherry
sold to W. Scott II 12 o
,, 31. Paid Trade Charges, £1^, for expenses this
month ... ... ... ... ... ... 15 00
Stock on hand — Port 125 o o
„ ,, Sherry ... no o o
L 2
148 BOOKKEEPING.
QUESTIONS TO BE ANSWERED BY STUDENTS.
1. Midwood & Brice are desired to draw a bill on John
Howie dated January 7th, 2m/d, for ;£iio 4s. Required the
form of the bill of acknowledgment when accepted by them ;
also how is the bill to be recorded ?
2. Sheldon & Sons have given Midwood & Brice their
promissory note dated February 9th, at 3m/ d, payable to
Midwood & Brice's order for jQii'] 15s. Required the form^
and how it is to be recorded in Midwood & Brice's books.
3. Required the proper Journal entry for the following : —
Midwood & Brice settled their account with Ben Brown, which
is ;£i5o, and gave him their note at 2 months, payable to his
order.
4. Draw out a promissory note at 3/md, dated at the time of
writing, Aaron Black's payable to Charles Dickson for ^£320.
5. Having discounted at the banker's Gould Davis's bill for
;^2i2 6s., we paid discount ;£2 3s. 8d. ; how are we to enter
this transaction in the Cash Book?
6. We paid Messrs. John Felt & Co., by cheque, their
account ,£280 los., from which they allowed us a discount
of ;£i4 OS. 6d. How should this transaction be entered in
our books?
EXAMINATION PAPERS.
149
IV.
(The London School of Economics and Political Science,
December 1902.)
1. Explain fully the exact difference between single-entry
and double-entry bookkeeping. State what are the advantages
of each. (10 marks.)
2. What is the object of preparing a Balance Sheet of an
undertaking at regular intervals throughout its course? What
will such a Balance Sheet show, and what are its limitations?
(12 marks.)
3. A Limited Company has a branch establishment at
Brighton. On 31st December 1901 the following Trial Balance
of the Branch Book is forwarded to the Head Office : —
TRIAL BALANCE.
3 1 ST December 1901.
£
s
d
£ s
d
Head Office
2,40c
Remittances
1,200
Sold Ledger
1,500
Bought Ledger
500
Stock, ist January 1901
2,000
Purchases
6,500
Sales
..
10,200
Rent
400
Salaries
..
600
Trade Expenses
500
Bank
400
;^i3>ioo
;^I3,IOO
150 BOOKKEEPING.
The Stock in hand on 31st December 1901 was jQi,^oo.
You are required to incorporate those transactions in the Head
Office Books, showing Branch Account and Branch Trading
and Profit and Loss Accounts in the Head Office Ledger ; also
Branch Balance Sheet. (18 marks.)
4. Explain fully any otie system by means of which a single
Ledger may be balanced separately. (12 marks.)
5. On the ist July 1902 A. took B. into partnership. A
had the following assets : —
Leasehold Premises
Stock-in-Trade ...
Book Debts
Cash at Bank
800
700
100
;^2,ioo
His liabilities (including ;£2oo on bills payable) amounted in
all tO;£8oo; B. brings in ^£1,500 in cash, and it is agreed that
;£5oo of this shall be credited to A. as representing the price
to be paid by B. for a half -share of the profits.
Open the books of the new firm by means of Journal entries,
and show the Balance Sheet at the commencement of the
partnership. (12 marks.)
6. Define {a) Capital Expenditure, {b) Revenue Expenditure,
(c) Fixed Assets, {d) Floating Assets. Give one typical example
of each in connection with any business with which you are
acquainted. (16 marks.)
7. From the following Trial Balance, prepare Departmental
Trading Accounts, general Profit and Loss Account, and
Balance Sheet.
EXAMINATION PAPERS.
151
TRIAL BALANCE.
30TH Septem
BER 1902.
L
s
d
I
s
a
Wm. Blackley — Capital Account...
...
15,000
Do. Drawings Account
... 3,000
Sundry Debtors
1,200
Sundry Creditors
3,000
Business Premises
5,000
Furniture and Fittings
4,000
Bank
1,700
Cash
300
Stock-in-Trade 31st March 1902 —
Department A
2,000
Do. B
... 4,000
Do. C
... 3,000
Purchases —
Department A
... 5,800
Do. B
... 4,000
Do. C
5 ,000
Wages-
Department A
1 ,000
Sales-
Department A
8,000
Do. B
5,000
Do. C
...
7,000
Salaries
700
Trade Expenses
300
Rent, Rates, &c
500
Bad Debts
200
Discounts
300
;|^40,0C)0
;^40,000
The stock on 30th September 1902 was, Department A,
;£2,ooo; Department B, ;£6,ooo; Department C, ^£2,000.
Provide for Depreciation of Furniture, ;£ioo ; Doubtful Debts,.
^100; outstanding Rent, ;£i5o. (20 marks.)
152 BOOKKEEPING.
V.
(University of Birmingham —First Examination for Degree
of B. Com.— June 1903.)
1. Describe shortly what you understand by double-entry
bookkeeping, and state in what respects it differs from book-
keeping by single entry.
2. Give an example of a Cash Book having separate
columns on each side for Cash and Bank transactions, and
also a discount column. Insert ten typical entries and balance
the account.
3. The following balances appear inter alia in a Ledger on
the 31st December 1902. State what you understand to be
the exact meaning of each : —
{a) Cash, Dr., £^0.
{h) Machinery, Dr., jQi,ooo.
(c) Wages, Dr., ;£5,ooo.
(d) Drawings, Dr., ;£35o.
(e) Capital, Cr., ;^5,ooo.
(/) Discounts, Cr., ;£ioo.
(g) Bills payable, Cr., ;£i,2oo.
4. Record the following transactions of H. Smith in a
Journal, and post the same to the proper Ledger Accounts : —
On ist Jan. 1903 sold to W. Jones goods value £100.
On the 12th Jan. received from Jones his acceptance at
3 months for ;£ioo.
On January 13th discounted Jones's bill with my Bankers,
they charging £1 4s. for the accommodation.
EXAMINATION PAPERS. 1 53
5. Record the same transactions in Jones's books, in so far
as they affect him, and show the entries necessary to record
the payment of the bill on maturity.
6. Describe shortly what you understand by the difference
between expenditure on Capital Account and expenditure on
Revenue Account.
7. If a trader at the end of each year makes out a Balance
Sheet showing his Liabilities and Assets and Capital, but does
not make out Trading Accounts or Profit and Loss Accounts,
how can he ascertain what profits he has made in a year?
8. Explain the difference between Gross Profit and Net
Profit.
9. On the 15th February 1903 W. Jones forwarded to
Messrs. Bright & Co. on consignment goods to the nominal
value of ;£i, 000, the cost of freight, insurance, &c., being ;£5o.
On the 15th of May he received an Account Sales showing
that the goods realised ;^i,25o, subject to the Consignees'
commission of 2 per cent, thereon, and expenses properly
incurred by them amounting to ;£20.
Show the proper entries in the books of both Consignor and
Consignee.
10. Prepare a Balance Sheet, Trading Account, and Profit
and Loss Account for the year 1902 from the following Trial
Balance taken out at 31st December 1902 : —
Dr
Cr.
Capital
;^48,ooo
Freehold and Leasehold Land
and Buildings ;^i8,975
Fixed Plant and Machinery ... 20,000
Purchases 15,000
Coal, Gas, and Water 1,000
Wages 14,000
Bad Debts 85
154
[ BOOKKEEPING.
Dr.
Cr.
Packing
450
Rent, Rates, and Taxes
300
Insurance
50
Advertising
500
Travelling Expenses
75
Commission
60
Repairs and Renewals of Plani
and Machinery
510
Salaries
400
Sales, Finished Goods
34,200
Do. Repairs
3>5oo
Sales Returns
"5
Stock at ist January 1902
8,000
Cash at Bank
4,000
Cash in hand
30
Debtors
5>i5o
Creditors
3,000
/88,7oo
;^88,700
In preparing the accounts the following points must be taken
into consideration : —
The Stock at 31st December 1902 is ;£6,ooo — i.e., ;£2,ooo
less than at the beginning of the year.
A Depreciation at the rate of 5 per cent, per annum is to be
charged on the plant and machinery.
A Reserve of ;£i5o for Bad and Doubtful Debts is to be
provided.
In addition to the ;£i4,ooo a further sum of ;£2oo is to be
charged for Wages due at the 31st December 1902, but not
actually paid until after that date.
EXAMINATION PAPERS. 1 55
VI.
(Institute of Chartered Accountants — Intermediate Paper,
June 1903.)
1. How should the following be entered in the books of a
firm, who, together with a friend A., joined half each in this
speculation, viz. : — Coals bought in Newcastle for ;£io,ooo
including freight and all expenses per ss. " Edward " and
ss. "Albert" to Norway. The coals realised ;£i5.ooo net;
this sum was invested in timber, which, in London, realised
on 31st January 1903 ;£i 7,000, after paying all expenses. A.
managed the whole transaction and financed it by drawing six
months' bills on the firm for ;£io,ooo, viz. : on ist August 1902
;^5,ooo a/c coals per ss. " Edward," and on 12th August 1902
;£5,ooo a/c coals per ss. ''Albert."
2. S. Coulson lent his brother William ;£i,ooo, at 5 per
cent., to enable him to take a share in Silver & Co.'s business.
He paid ;£5oo for goodwill and ,£500 capital. His share of
the profits and interest amounted in the first year to ^£1,200.
He drew ;£i5 0oo, out of which he spent ;£6oo on living, and at
the end of the year paid interest on the loan and repaid jQ2^o
of the principal. Write up William Coulson 's Private Ledger,
and produce the " Trial Balance."
3. A. and B. bought office property for ;£5o,ooo. Each
paid ;£i 0,000, and the vendor lent ;£3o,ooo on mortgage. A.
and B. then each paid into their joint bank account jQi,ooo as
working capital, and out of that paid ;£6oo expenses of the
mortgage, &c. The arrangement was that A. should collect
the rents and transact all the business, he receiving two- thirds
of the ultimate profit, and B. one-third. At the end of two
years the property, subject to the said mortgage, was sold for
;£32.ooo, viz., as to ;^20,6oo in cash and ;£ii,40o in fully-
paid shares of the purchasing company. During the two years
I5<^ BOOKKEEPING.
the rents and profits were exactly sufficient to meet the
mortgage interest and all expenses except the above ;£6oo. A.
and B. had not drawn anything.
State how the proceeds of the sale and the bank balance
should be apportioned between A. and B.
4. Draft the Journal entries for the following : —
Smith and Jones converted their business into Smith, Jones
& Co., Lim., with nominal capital ;£ioo,ooo, viz., 100,000
ordinary shares of £1 each : 99,000 were credited with i8s.
per share paid up (2s. per share to be paid in three months),
and 1,000 fully-paid, allotted to S. (who was to be secretary),
to be paid to Smith and Jones out of his salary.
The assets were put at ;£ioo,ooo, viz., property and good-
will, ;£9o,ooo; stock and book debts, £6,000; and cash,
;£4,ooo. The liabilities were ;£9,900. Smith and Jones were
to have an equal number of shares each. Smith's three sons,
D., T., and H., were to get an equal number of shares each,
the total thereof being equal to one-half of their father's shares.
Jones's two sons, John and James, were also to have shares
equal to one-half their father's, but John was to have twice as
many as James.
5. For purposes of preparing a statement of affairs as on
25th March 1903, how would you deal with the following
account in the bankrupt's Ledger?
Dr. T. Dick. Cr.
1902
April I
4
Cash
Income Tax, one year
£ s
19 3
5 16
d
t
March 25 Quarter's Rent
June 24 Quarter's Rent
£
■ • 25
.. 25
s d
June 30
Oct. I
Cash
25
25
1903
Jan. I
25
6. - J you, as a bookkeeper, were posting the following
account, or taking out the Ledger balances at 31st March 1903,
EXAMINATION PAPERS.
157
what inquiries would you make, or what books would you
refer to?
H. Smith.
Cr.
1902
Jan. I
Balance
Feb. 28
Goods
Mar. 21
April 30
May 31
June 30
July 31
Aug. 31
Sept. 30
Nov. 30
Dec. 31
1903
Jan. 31
Feb. 28
I 1902
i Mar. 20 Cash
I Discount
Mar. 10 Cash
April 10 „
, May 10 „
j June 10 w
I July 10
I Sept. 10 „
Oct. 10
! Nov. 10 H
' Dec. li ,
Jan. 10 „
Feb. 10
£ s d
£iog o o
700
600
£95 o o
7. On I St July 1902, Graham, the manager of three Tea
Estates, X, Y, Z, in Ceylon, drew^ a bill at three months for
;£i,ooo on the London Tea Company, Lim., and Graham sold
the bill, with the shipping documents attached to it, to a bank
in Ceylon. The tea realised net ;£i,2oo in London on 30th
September 1902.
What entries should the London Tea Company have made
in its books on accepting the bill, and what further entries
should have been made on 30th September 1902?
8. In a Shipping Company the stock of stores left over from
voyage 12 of ss. "Alexandra," was valued at ;£i25. Describe
the entries you would make in the books of the company.
9. If you, being bookkeeper, suspect that the cashier is dis-
honest, what steps would you take to protect yourself against
blame for negligence?
10. Frequently so-called Balance Sheets are exhibited, par-
ticularly by charitable societies, whereas really they are only
Cash Accounts. What further is necessary to make them
complete Balance Sheets, showing the true financial position?
XIII.
ACCOUNTS OF MANUFACTURERS.
The distinguishing feature of manufacturers' accounts is that
the goods sold are of a different kind to those purchased ; that
is to say, labour is put into the goods purchased before they
are again sold. It is, therefore, no longer possible to trace the
purchases into the stock, and thence outwards through the
Sales Book; and consequently the check upon the sales and
purchases described in a previous chapter {vide pages 91-93)
is not applicable. If, therefore, the utmost possible benefit is
to be derived from the science of bookkeeping, it becomes
necessary to adapt the system of accounts to the altered
condition of affairs.
As a matter of fact many manufacturers are also traders —
i.e.. they manufacture for stock, and make their sales from
stock. The accounts of such persons will therefore combine
the distinctive features of both manufacturers' and traders'
accounts. As manufacturers, they purchase raw materials,
which they make up and sell to themselves ; as traders, they
buy from themselves and sell to their various customers.
It is proposed, in this and the following chapters, to direct
the reader's attention to the accounts of a '"pure" manu-
facturer, i.e., one whose work consists solely of the execution
of contracts ; and, with this end in view, the accounts of a
builder have been selected for detailed consideration.
ACCOUNTS OF MANUFACTURERS. 1 59
Two reasons have suggested this selection : —
(i) The author knows of no published work that has con-
sidered these accounts in detail upon a scientific basis.
(2) The accounts of " mixed " manufacturers have already
received very able treatment at the hands of other writers —
notably ^fr. G. P. Xorton, F.C.A., in his very excellent work
upon " Textile Manufacturers' Bookkeeping."
Moreover, it is not anticipated that the student who has
intelligently followed the earlier portion of the present work
will experience any practical difficulty in combining the accounts
of manufacturers and traders, where necessary.
The three most important accounts that are distinctive of
manufacturers' books are : —
(i) Wages Account.
(2) Stores Accounts.
(3) Cost Accounts.
The two former are really subdivisions of the last.
Wages Accounts. — These comprise the record of time
spent by the various workers upon each contract, together with
the time occupied in the immediate supervision of such
workers. Each contract is under the immediate charge of a
foreman, who keeps a record of the time spent by each work-
man thereon. In many cases a small jobbing trade will also
be carried on, in addition to the contract work; and it is not
unusual to group all such work together, under the head of
" jobbing," in charge of a yard foreman.
Two ends have to be served by the Wages Accounts : they
serve as a voucher for the amount of wages paid, and as a
record of the amount of labour expended upon each contract.
l6o BOOKKEEPING.
The latter may more suitably be discussed under the heading
" Cost Accounts," and attention will therefore be confined
for the present to the question of the payment of wages.
Each foreman will be provided with a sufficient sum of
money from which to make disbursements from day to day —
as, for instance, when a workman is paid off before the end
of the week, or when an advance (commonly known as a
'' sub.") is made to the workman on account of the wages due
to him. Each week the foreman sends into the office a pay-
sheet, in form somewhat similar to the following : —
ACCOUNTS OF MANUFACTURERS.
i6i
Contract No
PAY-SHEET for the Week ending.
Contract at
.xgi.
Wages :
(Masons)
(Bricklayers) . .
(Plasterers) . .
(Joiners)
(Labourers) ..
(Foreman)
Total Total
Total Total 1 Less
£ sd £ sd £ sd
To pay
£ sd
Attached to this sheet is a Siinimary as follows :-
Contract No
SUMMARY OF PAY-SHEET
for the Week ending 191..
Contract at
Masons
Bricklayers
Plasterers
Joiners
Labourers
Foreman
£ s d
£ s d
Expenses, viz. :
Materials
Carriage
Sundries
These summaries, when received at the office, are collected
into the '' Wages Book," which is in the following form : —
l62
BOOKKEEPING.
be
G
-a
J^
;»&.2
a^g
iisi
r^ist
<«♦*
1
"«
-o
■t^
o
tf)
H
«SJ
en
"O
CO
S
M
CL.
(U
T)
X
&c
»
s
M
O
<-rt
(/)
TS
.ij
j
i!
(fl
]
13
j
S
«hJ
<u
•o
M)
ol
Ul
5
■-rt
5
__i
Q
g
TJ
B
^
! u.
1 O
^
cfl TS
u
<u <«
V-
1 •-
rt
1 -> Q
1
"C
^
1/)
<u
c
^
"^
Q
(/I 1 TO
j^ 1 ^
1 V 1
i "5 ,v^
^ \Q
!2
T3
OJ
>.
(/)
0!
^
£
d
T3
i/i
Ul
G
i
^
1
G
■ON 1
JOFJIU
3D I
ACCOUNTS OF MANUFACTURERS. 1 63
For the total of the right-hand colunm in this book a cheque
is drawn and cashed, and the amount of each foreman's sum-
mary forwarded to him; this amount will, of course, enable
him to pay his week's wages and restore his petty cash balance
to its former amount. If the contract is in another town it is
usually convenient to remit a separate cheque, but this is merely
a matter of detail. The amount of the weekly cheque, or
cheques, is posted to the debit of " Wages Account " in the
General Ledger — the detailed analysis being required only for
the purposes of the Cost Accounts.
Stores Accounts. — Certain kinds of goods are usually
kept in stock, instead of being purchased specially for each
contract, and for this reason it is necessary that Stores Accounts
should be kept, recording the goods issued from store for
each contract.
Stores Accounts vary very much in general design. Some
aim at keeping a complete record of the stores received and
issued under each separate head, so that the books actually
show from time to time the quantity in stock of each different
article. In the case of a large and really important under-
taking, this system is imperative, but with relatively small
concerns it is both unnecessary and impracticable.
In such cases it will suffice if stores be issued only in
exchange for properly authenticated requisitions ; these requisi-
tions being afterwards priced at the cost price of the goods
(without deducting cash discounts), and analysed under the
heads of the various contracts, upon weekly, fortnightly, or
monthly sheets, similar in form to the following : —
M 2
164
BOOKKEEPING.
2 !
T3
^
nl .
i-
^
u
z
tJ
^
So
"stf
"
1
•0
CZ
<-»<
CJ
6
Z
TJ
^
M
cZ
^
6
Z
cZ
is o
cZ
o
O
2 6
o
ACCOUNTS OF MANUFACTURERS. 165
The column to the left of the money column is for the
reference to the numbers of the requisitions, which latter are
filed away in numerical order, and can always readily be
referred to.
A Stores Ledger is unnecessary under this system. Each
-contract is debited in the Cost Ledger with the monthly total of
stores issued, while the grand total of the monthly analysis is
passed through the General Journal to the debit of '' Stores
Issued Account " and the credit of *' Stores Account " ; as the
latter account is debited with all stores purchased, through the
Purchases Book, it follows that the debit balance of the
'' Stores Account " in the General Ledger should represent the
actual amount of stores in stock. If at any time there is a
serious deficiency it may be desirable to compare the mer-
chant's invoices with the requisition notes, and ascertain where
the discrepancy occurs ; but, with proper management, such
cases would be rare. For all ordinary purposes the above
system will, therefore, be found both convenient and sufficient.
Cost Accounts. — It is not desirable to give more than a
general description of these accounts at the present time.
The principle of the Cost Ledger is as follows : all the
items of income and expenditure {i.e., the Nominal Accounts)
are analysed under the headings of the various contracts from
which they result ; the account of each contract thus shows
the profit or loss in which it has resulted, and a tabular sum-
mary of these accounts shows (horizontally) the profit or loss
upon each contract, and also (vertically) the total income and
expenditure under each head, agreeing with the Profit and
Loss Account in the General Ledger {vide pp. 200-1).
The following is a specimen page in the Cost Ledger, show-
ing a convenient ruling for that book : — •
i66
Contract No. 462.
Dr.
BOOKKEEPING.
WAREHOUSE AT WEST BUCKNELL
Quarter ending
Wages
Days
9,000
9,000
9,000
9,000
9, POO
9,000
9,000
9,000
9,000
9,000
i s d
250 o o
250 o o
250 o o
250 o o
250 o o
250 . o o
250 o o
250 o o
250 o o
250 o o
90,000 1 £^2,500 o o
Materials
Fo. £ s d
87 7,500 o o
92 2,500 o o
Plant
£ s d
500 o
£■10,000 o o
Stores
i s d
500 o o
450 o o
500 o o
£500 o o
;fi,45o o o
ACCOUNTS OF MANUFACTURERS.
167
STREET. Tender No. 926.
Archway, Architect,
j/j/ December igi2.
Cr.
Petty Cash
Fo
50
59
i s d
30 o o
10
10 o o
£50 o o
Establishment
Expenses
£ s d
500 o o
£500 o o
Contract Price 1 Stores Returned
Fo. £ s d Fo. £ s d
Plant Returned
Fo.
Dr.
Summary
From Folio , .
Wages. .
Materials
Plant ..
Stores . .
Petty Cash . .
Establishment
To Folio
Profit ..
Total . .
2,500
10,000
500
1,450
50
500
£15,000 o o
From Folio
Contract Price . .
Stores Returned
Plant Returned
To Folio 168 . .
Loss
Total
£ s d
15,000 o o
£i5,oo« o o
XIV.— TRANSACTIONS OF A MANU
FACTURING COMPANY.
SHARE AND DEBENTURE LEDGERS, ETC.
This is not the proper place to enter into any lengthy
explanation concerning the constitution of joint-stock com-
panies ; but it is perhaps desirable to review briefly some of
their distinguishing features, so far as may be necessary for
the purpose of explaining the accounts of these undertakings.
It wUl be remembered that, in the case of a single individual,
the amount of his capital embarked upon the venture is credited
to his Capital Account, and the profits made by him are also
credited to his Capital Account (as increasing the value of his
interest in the undertaking, while they remain undrawn) ; and
that losses and withdrawals of capital are debited to that
account — thereby reducing the amount of capital remaining in
the undertaking.
In the case of private firms a similar course is often
adopted — a separate account being kept for each partner, so that
the amount of each partner's capital may at any time readily be
perceived.
In the case of a joint-stock company, the following
conditions obtain : —
(i) When the company is registered the amount of its capital,
called "Nominal Capital," is fixed; and (except under special
circumstances) remains unalterable.
TRANSACTIONS OF A MANUFACTURING COMPAN\\ 1 69
(2) The amount of the nomiDal capital is divided into a
certain number of " shares " of definite value. These shares
may be of different classes {e.g., preference shares, ordinary
shares, deferred shares), and it is not necessary that the shares
belcMiging to different classes should be of the same face value.
(3) Shares are " allotted " by the directors to such persons
as may desire to become shareholders, in response to applica-
tions received from such persons. The shares so allotted con-
stitute the *' Capital Issued," or " Capital Subscribed."
(4) Subject to the regulations of the company, the directors
may call up upon the shares issued, or upc«i any class of shares
issued, any sum not exceeding the nominal value of such
shares. The total amount so collected constitutes the ** Paid-up
Capital."
(5) Shareholders whose " calls " are not paid up are liable
(subject to the regulations of the ccMnpany) to have their shares
forfeited by the directors. Forfeited shares may be re- issued
to other persons upon such terms as the directors may impose.
(6) No return of capital can be made upon shares, except
under special circumstances (see " Reduction of Capital.")
(7) It is competent for directors — upon the execution of a
contract in the required form, which (or particulars of which)
must be filed with the Registrar of Joint Stock Companies — to
accept payment for certain specified shares in kind, instead of
in cash ; but shares may not be issued at a discoimt.
(8) Out of the profits made from time to time, the company
in general meeting may declare dividends among the share-
holders : shares of a like class being entitled to participate
equally, different classes of shares being entitled to participate
in accordance with the terms upon which such classes of shares
were created. Directors may, in their discretion, declare
"interim" dividends on account of current profits.
lyo BOOKKEEPING.
(9) Shareholders cannot be called upon to pay up their share
of any loss that may be made ; except indirectly, by calling up
any unpaid amount upon their shares, or by withholding divi-
dends out of subsequent profits until such loss shall have been
worked off.
(10) A company may not purchase its own shares.
(11) Subject to the regulations of the company, shareholders
may sell their shares — or any portion thereof — to any person,
whether a shareholder or not, upon such terms as they may
think proper. Some restriction upon transfers is invariably
provided in the case of " private " companies.
These few brief notes will, it is thought, suffice to enable
the reader to formulate the necessary accounts for the books
of a joint-stock company.
In the first place, it is usual to keep the shareholders' accounts
in a separate Ledger (this, indeed, is required by statute),
and to keep merely the corresponding Adjustment Accounts in
the General Ledger. It is convenient to open a separate
Adjustment Account for each class of shares.
By way of exemplifying the best method of dealing with
Share Accounts, we will suppose that " Bricks & Company,
Lim.," has been registered for the purpose of acquiring the
business of Messrs. Bricks & Mortar, builders and contractors,
for the sum of ;£ioo,ooo payable half in cash and half in
fully-paid shares [vide paragraph (7), page 169, ante]; that
the nominal capital of the company is ;£ioo,ooo in 500 6 per
cent, cumulative preference shares of ;£ioo each, and a like
number of ordinary shares of *equal value ; 200 perf erence
shares and 300 ordinary shares are to be allotted to the vendors,
as fully paid-up : the directors invite applications for the
remaining 300 preference shares and 200 ordinary shares.
TRANSACTIONS OF A MANUFACTURING COMPANY. I7I
accompanied by a depciit of jQio per share; jQi^ per share
to be payable on allotment, ^£25 per share on the first of the
following month, and the remaining ^£50 per share a month
later.
These applications come in in due course, and are entered
in the "Applications and Allotments Book " — the ordinary
and preference shares being kept separate. It is convenient
to reproduce this book, -pro forma, at the present stage ; but
the student will understand that — by the time the subscription
list closes — only the fir-«%t seven columns will be filled in.
172
BOOKKEEPING.
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TRANSACTIONS OF A MANUFACTURING COMPANY. 1 73
A separate Cash Book, called the '' Capital Subscribed Book,"
is employed to record the sums received from, and returned
to, applicants for shares, and shareholders ; and from this book
the " Deposit of jQio per share " has been posted. Only the
daily totals of the Capital Subscribed Book are entered in the
" General Cash Book." If, however, the number of applica-
tions be small, the deposits, &c., may be entered in the General
Cash Book in an inner column and the daily totals extended.
The directors then proceed to allot shares. There being
more shares applied for than were offered for subscription,
they make a selection of the applications, allotting some in
full, some in part, and declining others altogether. Upon
reference to the " Shares allotted " column it will be seen that
the applications of John Able, James Cloud, and Jacob Keen
are declined and the deposits returned, while a reduced number
of shares is allotted to Thomas Bowen, William Deeds, Robert
Eccles, and Arthur Frank ; the shares applied for by Henry
Green, John Hughes, and Frederick Jones being allotted in
full.
The allotment being settled, distinctive numbers are assigned
to the shares held by each shareholder, as shown in the column
provided for that purpose.
The next thing to be done is to forward " Letters of Allot-
ment '' to each shareholder, intimating that so many shares
have been allotted to him and that so much is due thereon.
These letters make the allotment binding and bear a sixpenny
stamp if they represent shares of a face value of £5 or
upwards, and a penny stamp if below that amount. " Letters
of Regret " are sent to those whose applications have been
declined, enclosing cheques for the amounts of their respective
deposits. In practice it is usual to provide a column in the
Applications and Allotments Book for the serial numbers of
both Allotment Letters and Letters of Regret.
174 BOOKKEEPING.
It will be noted that, where a lesser number of shares have
been allotted than were applied for, the excess paid upon appli-
cation is not repaid to the applicant, but applied in reduction
of the amount due upon allotment.
As the amounts due upon allotment and in payment of calls
are received, they are entered in the Capital Subscribed Book,
and thence posted to the. Applications and Allotments Book,
as shown in the foregoing example.
In these fto forma accounts, the whole amount of shares is
called up within two months of the date of allotment ; and, in
such a case, it is convenient to deal with the calls through
the Applications and Allotments Book, as here shown, trans-
ferring the various accounts to the Share Ledger, after the
shares have been fully paid up. The folio upon the extreme
right in the above example records this transfer, the " Total
amount paid up " in the previous column being the cross-total
of the sixth, thirteenth, eighteenth, and twenty-first columns.
If it ha(J been decided not to call up the whole amount of
the capital subscribed for, the amounts transferred from the
Applications and Allotments Book to the Share Ledger would,
of course, have been the actual amounts called up, whatever
they were ; the amounts received in payment of any subse-
quent call being posted to the Share Ledger, instead of to the
Applications and Allotments Book.
It may be remarked, at this stage of the proceedings, that
the allotment of fully paid shares to the vendors would also
be recorded in the Applications and Allotments Book, but it is
convenient to record the allotments of fully paid up shares to
vendors and their nominees upon a separate page from the
general applications.
TRANSACTIONS OF A MANUFACTURING COMPANY. 1 75
The totals of the " Total paid up " columns are posted to
an Adjustment Account (or to two Adjustment Accounts — one
for ordinary and one for preference shares) in the Share Ledger,
completing the double-entry of that Ledger and forming a
connecting link with the General Ledger.
The following example shows the account of Robert Bricks
upon folio 8 of the Share Ledger. It will be seen that he is
credited with 150 fully paid-up ordinary shares (posted from
folio 2 in the Applications and Allotments Book), and with
100 fully paid preference shares (posted from folio 3 in the
same book;. He is likewise debited with 20 and 50 ordinary
shares which he has disposed of, the entry being posted from
folio I in the " Register of Transfers," also shown below : —
176
BOOKKEEPING.
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TRANSACTIONS OF A MANUFACTURING COMPANY.
i77
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178 BOOKKEEPING.
New accounts have therefore to be opened in the Share
Ledger for John Able and for James Cloud ; and, upon refer-
ence to the pro forma Register of Transfers, it will be seen
that 20 shares have been posted to Abie's credit on folio 10 in
the Ledger, and 50 shares to Cloud's credit upon folio 11.
Transfers of preference shares are best recorded in a separate
register, but sometimes the same register is used and an addi-
tional column inserted before the " No. of shares transferred,"
in which the class of shares is noted.
Debentures. — Suppose that Messrs. Bricks & Co., Lim.,
have invited applications for 100 debentures of ;£5oo each.
For an exact definition of the word " debenture " the student
is referred to a legal text-book, but it will suffice for our
present purpose if he regards debenture-holders as a sort of
preferential creditor, to whom bonds are issued in much the
same way as shares are issued to shareholders.
For the sake of variety, it is assumed that no deposit is
asked upon applications for debentures, but that the whole
amount is payable upon allotment. The Applications and
Allotments Book then assumes the following more simple
form : —
TRANSACTIONS OF A MANUFACTURING COMPANY.
179
OHOj
O'lOJ
US
11
« W M r- N
^SSqSS I
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l8o BOOKKEEPING.
The forms of the Debenture Ledger and the Register of
Transfers of Debentures do not materially differ from the
forms shown above for the use of shares.
Sometimes redeemable debentures are issued — i.e., deben-
tures due for repayment at the end of a certain specified time,
or upon a specified notice. A convenient way to deal with
these redemptions is through a Register of Redemptions, some-
what similar to the Register of Transfers, through which the
debenture-holder's account is debited, and the Adjustment
Account credited.
Debentures may be issued at a discount, or at a premium.
In either case the nominal amount of such debentures is the
amount recorded in the Debenture Ledger ; the General Ledger
entries are made as shown on pages 183, 189, and 230.
XV.— TRANSACTIONS OF A
MANUFACTURING COMPANY
(continued).
GENERAL AND TRADE LEDGERS.
To turn to the trade bcx)ks. Let it be supposed that the
company takes over the land, buildings, plant, machinery,
stock, book debts, and contracts in progress, of the vendors ;
paying therefor the sum of ;£i 00,000 : viz., ;^50,ooo in cash,
;£2o,ooo in preference shares, and ;£30,ooo in ordinary shares.
The assets taken over are valued as follows : —
Freehold and Leasehold Lands and Buildings
Plant and Machinery
Stores on hand
Book Debts
Contracts in progress
The amount paid for Goodwill is thus
;i^20,000
15,000
10,000
5,000
25,000
25,000
;^ 1 00,000
The whole of the share capital (;£ioo,ooo, in 500 six per
cent, preference shares of ;£ioo each, and 500 ordinary shares
l82
BOOKKEEPING.
of ;£ioo each) has been allotted, and the whole amount called
up in accordance with the terms of the prospectus. The
student is invited to compare these 'transactions with the follow-
ing Journal entries, which are designed to complete the opening
of the General Ledger : —
(>)
JOURNAL 1913
Dr.
Cr.
I January.
Shareholders' Account
To Preference Shares Capital Account . ,
„ Ordinary „ „ „
Being the amount due upon the allotment of
300 Preference Shares and 200 Ordinary
Shares @ £25 per share, allotted at Board
Meeting held this day.
Bricks & Mortar
To Preference Shares Capital Account
„ Ordinary „ „ „
Being an allotment of 200 fully-paid Preference
Shares and 300 fully-paid Ordinary Shares,
allotted to vendors in part payment of pur-
chase-money in accordance with agreement
dated ist December last, and allotted at
Board Meeting held this day.
Freehold and Leasehold Lands and Buildings
Plants and Machinery
Stores
Contract Ledger (book debts)
Sundry Debtors for contracts in progress
Goodwill
To Bricks & Mortar
For sundry assets purchased by company in
accordance with agreement dated ist
December last, 3 adopted by the Board at
their meeting this day.
Carried forward
£ s d
12,500 o o
50,000 o o
20,000
15,000
10,000
5,000
25,000
25,000
7.500
5,000
20,000 o
30,000 o
100,000 o o
162,500
162,500
TRANSACTIONS OF A MANUFACTURING COMPANY. 1 83
(2)
JOURNAL.
Dr.
Cr.
Brought forward
Debenture-holders' Account
To Debentures Account
Being 100 four per cent, debentures of £500
each issued at Board Meeting held this day,
and payable in full on i6th January next . .
I
i
3
2
3
2
3
162,500
50,000
12,500
25,000
162,500
50,000
I February.
Shareholders' Account
To Preference Shares Capital Account
, Ordinary , , ,
Being a first call of £25 per share made on
ist January last, and due this day
7,500
5,000
I March.
Shareholders' Account
To Preference Shares Capital Account
, Ordinary , , ,
Being a second and final call of £50 per share
made on ist February last, and due this
day.
15,000
10,000
Carried forward
250,000
250,000
There is nothing in these various entries that calls for any
detailed comment j the "Shareholders' Account" is debited
with the amount from time to time called up upon shares {i.e.,
the amount due from shareholders), and the same account is
credited with the cash received from shareholders. The daily
totals only of the " Capital Subscribed Book " being entered
in the General Cash Book, this does not involve a very large
amount of detailed posting in the General Ledger. The Prefer-
ence and Ordinary Share Capital Accounts and the Debentures
184
BOOKKEEPING.
Account are the Adjustment Accounts in connection with the
Share and Debenture Ledgers.
The following may be taken as a copy of the General Cash
Book for the quarter ending the 31st March 1913 : —
(1)
Dr.
CASH.
CONTRA.
Cr.
1913
Jan. I
7
9
16
17
31
Feb.
Mar.
April I
To Shareholders' A/c
„ Ditto
Ditto
„ Debenture-holders'
Account
„ Ditto
„ Contract Ledger
Account
„ Shareholders' A/c.
To Balance down
„ Shareholders' A/c.
„ Contract Ledger
Account
„ Shareholders' A/c.
To Balance down
„ Shareholders' A/c.
a Contract Ledger
Account
To Balance down
i sd
I9I3
5,600
Jan. 2
3,000
„
4,300
7
14
40,000
18
10,000
21
28
15,000
31
8,000
»
Feb. I
^85,900
18,700
4,500
4
12,500
18
20,000
25
28
„
"
£55,700
Mar. I
24,200
5,000
4
15,800
18
25
31
„
"
£45,000
8,500
By Shareholders' A/c.
„ Office Cash
„ Wages
„ Ditto
„ Bricks & Mortar. .
„ Wages
, Ditto
„ Bought Ledger
Account . .
„ General Expenses
, Balance down
By Deposit at Bank . .
„ Wages
, Ditto
„ Ditto
„ Ditto
„ Bought Ledger
Account
„ General Expenses
„ Balance down
By Deposit at Bank
Wages
Ditto
Ditto
Ditto
Bought Ledger
Account
General Expenses
Balance down
i sd
400 o o
150 o o
3,000 o o
2,700 o o
50,000 o o
2,500 o o
3,200 O
4,800 o o
450 o o
18,700 o o
£85,900 o o
12,500 o
3,000 o o
2,500 o o
2,400 o o
2,100 o o
8,500 o o
500 o o
24,200 o o
£55,700 o o
20,000 o o
2,000 o o
1,800 o o
2,100 o o
2,300 o o
7,750 o o
550 o o
8,500 o o
£45,000 o o
TRANSACTIONS OF A MANUFACTURING COMPANY.
185
The General Journal may be written up either monthly or
quarterly; it is compiled from the various subsidiary books,
viz. : —
Contract Journal.
Analysis of Purchases.
Analysis of Plant Issued.
Analysis of Plant Returned.
Analysis of Stores Issued.
Analysis of Stores Returned.
Petty Cash Book.
Bought Ledger Cash Book.
Let it be supposed that the following Journal entries correctly
recapitulate the transactions recorded in these books during the
quarter ended the 31st March 1913 : —
JOURNAL 1913.
Dr.
(3)
Brought forward . .
31 March
Contract Ledger Account
To Contracts Account
Being the agreed price of contracts completed
during the current quarter, as per Contract
Journal.
Contracts Account
To Sundry Debtors for Contracts Out-
standing
Writing back the amount held in suspense on
I January last.
Sundry Debtors for Contracts Outstanding
To Contracts Account
Being the amount now estimated to be earned
upon works in progress.
Carried forward
i s d
250,000 o o
60,000 o o
25,000 O
36,000 o o
i s d
250,000 o o
60,000 o o
25,000 o o
36,000 o o
371,000 o o i 371,000 O
1 86
BOOKKEEPING.
JOURNAL 1913.
Dr.
(4)
Cr.
Brought forward
Wages Account
To Sundry Creditors . . . .
For current week's wages not yet paid.
Stores
Plant
Rent, Rates, &c
General Expenses
Materials
To Bought Ledger Account
As per analysis of purchases for the quarter.
Plant Issued Account
To Plant Account
As per analysis of plant issued for the quarter.
Plant Issued Account
To Plant Account
Being the value of plant standing at various
contracts on i January last.
Stores Issued Account
To Stores Account
Being the value of stores standing at various
contracts on i January last.
Plant Account
To Plant Issued Account
As per analysis of plant returned for the quarter.
Stores Issued Account
Ditto
Ditto
To Stores Account.
As per analysis of stores issued for the three
months.
Carried forward
£ s d
371,000 o o
1,750 o o
9,000 O
250 o o
500 o o
750 o o
23,500 o o
5,000 o o
5,000 O
5,000 o o
4,000 o o
3,000 o o
2,000 o o
3,000 o o
433,750 o o
i s d
371,000 o o
1,750 o o
34,000 o o
5,000 o o
5,000 o o
5,000 o o
4,000 o o
433.750 o o
TRANSACTIONS OF A MANUFACTURING COMPANY. 1 87
(5)
JOURNAL 1913.
Dr.
Cr.
Brought forward
Stores Account
To Stores Issued Account
As per analysis of stores returned for the
quarter.
Petty Cash Account 24
To OfiBce Cash Account 13
For sundry expenses, as per analysis of Petty
Cash Book.
Bought Ledger Account
To Discount Account. .
As per Bought Ledger Payments Book.
Debenture Interest . .
To Sundry Creditors.
Being Interest due to date.
Total
i s d I
433.750 o o I
500 o o
500 o o
£ s d
433.750 o o
100 o o
500 o o
500
£435,350 o o £435,350 o
It now remains to post the General Ledger frcxn the above-
shown General Journal and General Cash Book, and to extract
the Trial Balance. This will be found fully dealt with in the
following pages ; the closing of the Ledger is, however, post-
poned for further consideration at a later period.
1 88 BOOKKEEPING.
The GENERAL LEDGER of Messrs. Bricks & Co., Lim.
I I
Dr. PREFERENCE SHARES CAPITAL ACCOUNT. Cr.
1913
Jan. I
Feb. I
Mar. I
By Shareholders
» Bricks and
Mortar
„ Shareholders
„ Shareholders
J.I
i s d
7,500 o o
20,000 o o
7,500 o o
15,000 o o
Dr.
ORDINARY
SHARES
CAPITAL ACCOUNT.
Cr.
1913
I Jan. 1
By Shareholders
J.I
£ s d
5,000
t
» Bricks and
Mortar
^
30,000
Feb. I
» Shareholders
2
5,000
Mar. I
!
1
„ Shareholders
*
10,000
Dr.
SHAREHOLDERS' ACCOUNT.
Cr.
1913
£ sd
1913
£ s d
Jan. I
To Sundries . .
J.I
12,500
Jan. I
By Cash..
5,600
2
„ Cash
^
400
7
• Do
3,000
Feb. I
„ Sundries . .
2
12,500
9
, Do
4,300
Mar. I
„ Do.
„
25,000
31
, Do
8,000 a
Feb. I
„ Do
4,500
28
« Do
20,000
•
Mar. I
„ Do
5,000 o-
Dr.
BRICKS
&
MORTAR
(Vendors' Account).
Cr.
1913
£ s d
1913
£ s d
Jan. I
To Shares
Jan. I
By Sundries
allotted
J.I
50,000
(being pur-
18
„ Cash
50,000
chase price
of under-
taking) . .
J.I
100,000
TRANSACTIONS OF A MANUFACTURING COMPANY. 1 89
Dr.
DEBENTURE-HOLDERS' ACCOUNT.
I9I3
£
s d
1913
1
I sd
Jan. I
To Sundries . .
J. 2
50,000
Jan. 16
By
Cash
.. I
40,000
17
Do.
•
10,000
Dr.
DEBENTURES ACCOUNT.
Cr.
1913
Jan. I
By Debenture-
holders . .
J.2
i Sd
50,000 o o
Dr.
[.AND AND BUILDINGS ACCOUNT.
Cr.
1913
Jan. I
To Bricks and
Mortar J. i
i sd
20,000
Dt
PLANT AND MACHINERY ACCOUNT.
Cr.
I9I3
i sd
I913
£
s d
Jan. I
To Bricks and
15,000
1 Mar. 31
By Plant issued
J
4
5,000
Mortar
J
. I
250
^
Do.
m
5,000
Mar. 31
„ Sundries
, Plant issued
4
4,000
Dr.
STORES ACCOUNT.
Cr.
1913
Jan. I
Mar. 31
i I £ s d
To Bricks and |
Mortar J.i 10,000 o o
Sundries . . 4 9,000 o o
, Stores . . 5 500 o o
Mar. 31
By Stores Issued
Do.
J.4
£ sd
8,000 o o
5,000 o o
Dr.
CONTRACT LEDGER ACCOUNT.
Cr.
1913
Jan. I
Mar. 31
To Bricks and
Mortar
, Contracts . .
J.I
3
£ sd
5,000
60,000
1 1913
IJan. 31
Feb. 28
Mar. 31
By Cash
, Do.
. Do.
I
£ sd
15,000
12,500
15,800
ipo
BOOKKEEPING.
II II
Dr. SUNDRY DEBTORS for CONTRACTS in PROGRESS. Cr.
1913
Jan. I
Mar. 31
To Bricks and
Mortar
„ Contracts . .
i s d
25,000 o o
36,000 o o
1913
Mar.31 By Contract
J-S
i s d
25,000 o o
GOODWILL ACCOUNT.
Cr.
1913
Jan. I
To Bricks and
Mortar
J.I
i sd
25,000 o
13
Dr.
OFFICE CASH ACCOUNT.
Cr.
I9I3
i sd
1913
Jan. 2
To Cash
I
150
1 Mar.31
1
By Petty Cash. .
J-5
i sd
100 o o
14
Dr.
BOUGHT LEDGER ACCOUNT.
14
Cr.
I9I3
i s d
1913
£ s d
Jan, 31
To Cash
I
4,800
Mar.31
By Sundries . .
1-4
34,000
Feb. 28
.Do.
„
8,500
Mar. 31
„ Do.
„
7,750
"
„ Discount ..
J.5
500
15
Dr.
GENERAL EXPENSES ACCOUNT.
Cr.
I9I3
i s d
Jan. 31
To Cash
I
450
Feb. 28
, Do.
^
500
Mar. 31
, Do.
„
550
, Bought
Ledger A/c
J.5
750
TRANSACTIONS OF A MANUFACTURING COMPANY.
191
16
Dr.
WAGES ACCOUNT.
Cr.
1913
Jan. 7
To Cash
i s d
3,000 i
14
- Do.
2,700
21
28
Feb. 4
Is
, Do.
• Do.
, Do.
, Do.
. Do.
2,500
3,200
3,000
2,500
2,400 i
25
Mar. 4
II
. Do.
. Do.
, Do.
2,100
2,000
1,800
18
, Do.
2,100
25
31
.Do.
, Sundry
Creditors
J.4
2,300
1,750
17
Dr.
17
DEPOSIT AT BANK.
Cr.
I9I3
Feb. I
Mar. I
To Cash
. Do.
I
•
i s d
12,500
20,000
18
Dr.
18
CONTRACTS ACCOUNT.
Cr.
I9I3
I s
d
1913
I
s
d
Mar. 31
To Sundries . .
J-^
2')
,000
Mar. 31
By
Sundries ..
J-^
60,000
O)
:o
-
Do.
36,000
19
Dr.
SUNDRY CREDITORS.
Cr.
1913 I £ s d
Mar. 31 By Wages . , J.4 | 1,750 o o
, Deb. Interest J. 5 1 500 o o
Dr.
RENT, RATES, &c., ACCOUNT.
Cr.
1913 '
Mar. 31 1 To Sundries
J.4 I 500 o o I
192
BOOKKEEPING.
Dr.
MATERIALS ACCOUNT.
Cr.
Mar. 31
£ s d
To Sundries .. J. 4 23,000 o o
Dr.
PLANT ISSUED ACCOUNT.
I9I3
l
s d
1913
f
s
d
Mar. 31
To Sundries . .
J. 4
5,000
Mar. 31
By Sundries . .
J -4
4,000
"
Do.
"
5,000
23
Dr.
STORES ISSUED ACCOUNT.
23
Cr.
I9I3
i sd
1913
i s d
Jan. 31
To Sundries . .
J -4
3,000
Mar. 31
By Sundries . .
J.5
500
Feb. 28
Do.
2,000
Mar. 31
Do.
„
3,000
•
Do.
•
5,000
1
24
Dr.
PETTY CASH ACCOUNT.
24
Cr.
Mar. 31
To Office Cash
J. 5
I s d
100 o o
25
Dr.
DISCOUNT ACCOUNT.
25
Cr.
1913
Mar. 31
i s d
By Sundries .. J. 5 500 o o
26
Di
DEBENTURE INTEREST.
26
Cr.
Mar. 31
To Sundry
Creditors
J. 5
i s d
500
TRANSACTIONS OF A MANUFACTURING COMPANY.
193
TRIAL BALANCE, 31ST March 1913.
1 Preference Shares
2 Ordinary Shares . .
3 Shareholders
4 Bricks and Mortar
5 Debenture-holders
6 Debentures
7 Land and Buildings
8 Plant and Machinery
9 Stores
10 Contract Ledger . .
1 1 Sundry Debtors . .
12 Goodwill
13 Office Cash . .
14 Bought Ledger
15 General Expenses
16 Wages
17 Deposit at Bank
18 Contracts
19 Sundry Creditors . .
20 Rent, Rates, &c. ..
21 Materials
22 Plant Issued
23 Stores Issued
24 Petty Cash . .
25 Discount
26 Debenture Interest
4 Cash at Bank
Dr.
£ s d
50,400 o o
100,000 o o
50,000 O
20,000 o o
19,250 o o
19,500 o o
65,000 o o
61,000 o o
25,000 o o
150 o o
21,550 o o
2,250 o o
31,350 o o
32,500 o o
25,000 o o
I 500 o o
I 23,500 o o
I 10,000 o o
[ 13,000 o o
100 o o
500 o o
8,500 o o
Cr.
£ s d
50,000 o o
50,000 o o
50,400 o o
100,000 o o
50,000 o o
50,000 o o
10,000 o o
13,000 o o
43,300 o o
25,000 o o
100 o o
34,000 o o
96,000 o o
2 250 O O
4,000 o o
500 o o
Dr.
£
20,000 o o
9,250 o o
6,500 o o
21,700 o o •
36,000 o o {
25,000 o o
50 o o
2,250 o o I
31,350 o o I
32,500 o o ,
500 o o
23,500 o o
6,000 o o
12,500 o o
100 o o
500 o o
8,500 o o
Cr.
£ s d
50,000 o o
50,000 o o
50,000 o o
12,450 o o
71,000 o o
2,250 o o
500 o o
£5791050 o o £579.050 o o \ £236,200 o o £236,200 o o
TRADE LEDGERS, etc.
It is now time to consider the Contract and Bought Ledgers,
and the various books subsidiary thereto.
Taking first the Contract Ledger (which is equivalent to
the Sold Ledger of an ordinary trading concern), the Ledger
itself is of the usual type, embracing the Personal Accounts of
the customers, (perhaps) the Bills Receivable Account, and the
General Ledger Adjustment Account. The postings are made —
(i) From the Contract Journal — a simple form of Day
Book, in which the amount chargeable for each contract is
entered upon tlie completion thereof — to the debit of the various
customers' accounts, the quarterly total being credited to the
Adjustment Account.
194 BOOKKEEPING.
(2) From the Contract Book {vide top of page 137, ante) —
a simple form of one-sided Cash Book (or, more properly,
" Journal ") in which is entered every amount received from
customers, either directly or as the proceeds of Bills Receivable.
The details of this book (which, if necessary, is provided with
a column for disccunts) are credited to the various accounts in
the Contract Ledger, and the monthly totals debited to the
Adjustment Account. The total of the cash column is included
upon the debit side of the General Cash Book {vide page 184,
ante), and the total of the discount column (if any) forms the
subject of an entry in the General Journal.
(3) From the Bills Receivable Book, with the manipulation
of which the reader has already been made familiar.
It is very usual for payments to be made by the customer
during the progress of a contract. Inasmuch as the customer
is not debited with the amount of his contract until its com-
pletion, it necessarily follows that credit balances in the
Contract Ledger will be frequent ; these credit balances act as
a set-off against the debit balances, and reduce the balance
shown upon the Contract Ledger Account in the General Ledger.
The amount accruing due upon contracts in progress is com-
puted from the Cost Ledger, and will occupy attention in the
following chapter.
Where there is a jobbing trade done, it is convenient to have
a " Jobbing Ledger " subsidiary to the Contract Ledger — the
latter containing the aggregate of the jobbing transactions in
an Adjustment Account. It will usually be found that the
tabular form of Ledger makes the most convenient Jobbing
I>edger : the. following ruling will be found very suitable : —
TRANSACTIONS OF A MANUFACTURING COMPANY.
195
JOBBING LEDGER for the Quarter ended 31st March 1913.
Name
Address
1^
c c
CO tfl
1-
d
1
Account for
Quarter
d
•a
V
cd
8
1
<
rt ^
So
6
1 f sd
1
t
!
1
1
i
£sd
£sd
£sd
£sd
If accounts are rendered monthly, it may be found desirable
to extend the number of columns so as to allow the three months'
accounts to be dealt with upon the same folio.
The Bought Ledger now claims attention, and the oppor-
tunity is here afforded of describing a fresh mode of dealing
with purchases that may sometimes be found convenient.
All invoices received from creditors are filed, or placed in a
" Guard Book," in order of date. They are then entered in a
*' Bought Journal," which is ruled as follows: —
BOUGHT JOURNAL.
6
6
Date
Is i s
Description of Goods - 5 1 g
= = 1 c/5
c
C4
-SI
a.'S
73^
£sd
£sd
£sd
£sd
£sd
£sd
O 2
196
BOOKKEEPING.
A separate page is devoted to each creditor ; and, as the
book is provided with an index, every facility is afforded for
ready reference.
Once a month, or once a quarter, the book is added and the
totals transferred to the ''Analysis of Purchases, &c.. Book,"
of which the following is a specimen : —
ANALYSIS OF PURCHASES, &c.,
FOR THE Quarter ended 31 st March 1913.
If a me
CQ
PQ
Total
Stores
Plant
Rent
Rates, &c.
Other
Expenses
Special
Materials
Contract
No.
C. L. Fo.
Abel & Sons
Thomas Bowen . .
Henry Green
&c.
&c.
I
2
10
27
500
2,160
1,500
340
£ sd
2,000
250
£ sd
250
£ sd
£ sd
160
1,000
340
470 , 170
„ 1 „
471 171
i
1
£34,000
£9,000
£250
£500
£750
£23,500
'
The last column in the analysis is for goods that are ordered
for special contracts, and which therefore do not come into
the Stores Account : these are posted to the various contracts
in the Cost Ledger, as will be shown later on. So far as the
Bought Ledger is concerned, the items in the '' Total " column
are credited to the various personal accounts, and the total of
that column (the ^34,000) is posted to the debit of the Adjust-
ment Account upon folio 500 of the Bought Ledger. It will
be noticed that the totals of the various columns correspond
with the entry in the General Journal shown upon page 186.
TRANSACTIONS OF A MANUFACTURING COMPANY. I97
The remaining subsidiary books in connection with the Bought
Ledger are the *' Bought Ledger Cash Book " and* the '' Bills
Payable Book "; these books correspond to the Contract Cash
Book and Bills Receivable Book of the Contract Ledger series,
and thus call for no further description.
XVI.— TRANSACTIONS OF
A MANUFACTURING COMPANY
{contimied}.
COST ACCOUNTS— CLOSING THE BOOKS.
Next come the Cost Ledger and its various subsidiary books.
^These subsidiary books are : —
(i) Abstract of Wages, a specimen of which was given upon
p. 162.
(2) Analysis of Purchases, a specimen of wiiich was given
upon page 196, and of which the column headed '* Special
materials " is posted to the debit of the various contracts in
the Cost Ledger.
(3) Analysis of Stores Issued, a specimen of which was
given upon page 164.
(3A) Analysis of Stores Returned — a similar book recording
the return of all surplus stores and materials into stock.
(4) Analysis of Plant Issued — a similar book recording the
issue of plant {e.g., scaffolding, &c.) for the general stock.
(4A) Analysis of Plant Returned — a similar book recording
the return of plant into stock. The returns are priced at a
lesser amount than when issued, thus making depreciation fall
upon the various contracts.
TRANSACTIONS OF A MANUFACTURING COMPANY. 1 99
Sales of stores or plant will rarely occur ; but, when they
do, they may be posted fropi the General Cash Book to the
credit of Stores (or Plant) Issued Account, and also to the
credit of the Contract in the Cost Ledger.
(5) Analysis of Petty Cash — a Tabular Petty Cash Book,
by means of which each contract is debited with all special
expenses incurred at the office and works. (It will be remem-
bered that all petty expenses incurred at the site of the contracts
are included in the wages.)
(6) Contract Journal, which, in addition to being posted to
the Contract Ledger, is posted in detail to the credit of the
various contracts in the Cost Ledger.
The double-entry check of the Cost Ledger is obtained by
opening a '* Contracts Account," to which all totals are posted.
On account of the special ruling of the Cost Ledger, it is con-
venient to depart from the usual practice in connection with
Adjustment Accounts and to post these totals upon the same
side of the Ledger as the items have been posted. The aggregate
of the balances upon the various contracts thus agrees with the
balance of the Contracts Account, and falls upon the same
side of the Ledger. The totals of the various columns of the
Contracts Account also agree with the corresponding totals of
the periodical *' Summary of Cast Ledger," thus localising any
error that may occur.
The following example is supposed to represent the ** Sum-
mary of Cost Ledger," in Messrs. Bricks & Co.'s, Lim., books
for the quarter ended 31st March 19 13 : —
200
BOOKKEEPING.
Dr.
SUMMARY OF COST LEDGER FOR THE
L
Fo.
Total to
Debit
from last
A/c
Wages
1
Petty
Cash
Establish-
ment
Expenses
Total to
Credit
r
loo's
of
days
Amount
carried
forward
462
469
470
471
472
168
169
170
171
172
i
15,000
20,000
150
200
225
300
250
i
4,000
5,000
8,500
6,850
7,500
£
500
2,000
10,000
2,000
9,000
£ ^ £
i 1,000
350 750
3,000 2,750
750 500
900 1 3,000
£
25
50
25
£
300
400
450
600
500
£
£35,000
••
£31,850
£23,500
£5,000
£8,000
£100
£2,250
Sundries
• • £25,000
Stores . .
5,000
Plant . .
5,000
£35,000
TRANSACTIONS OF A MANUFACTURING COMPANY. 20I
QUARTER ENDING 31ST MARCH 1913.
Cr.
Net
Profit
Total
Total to
Credit.
from last
A/c
Contract
Price
II
si
Total to
Debit
carried
forward
i
Loss
Total
io
i
21,600
i
20,000
i
100
1,500
i
i
21,600
••
28,500
24,725
■•
25,000
400
1,800
24.725
1,300
!
28,500
24,725
4.950
15.700
20,925
15,000
••
700
20,925
!
•• 1
15,700
20,925
£5,750
£i".450
£60,000
£500
£4,000
£45.650
£1,300
4,450
£111,450
N
et profit
for the q
uarter ..
£5,750
Sundries . . £36,000
Stores . . 5,750
Plant . . 3,900
£45,650
202 BOOKKEEPING.
It will thus be seen that the quarter's working has resulted
in a net profit of ;£4,45o, allocated as follows : —
Profit on Contract No. 462 ;i^8oo
» » No. 471 4,950
Less Loss on Contract No. 469 Ij3oo
£\A^^
It will also be noted that Contracts Nos. 470 and 472 are
carried forward at cost only, no profit being reckoned upon
them while in progress. This is the safest course to pursue,
but it is not always acted upon in practice. On the other hand,
if a loss is anticipated upon any uncompleted contract, it should
always be provided for.
It remains to be added that folios 170 and 172 in the Cost
Ledger (relating to the two uncompleted contracts) are now
closed, the " Total to debit " being carried forward to the
fresh accounts about to be opened for the following quarter.
The two columns " Total to credit " will be found useful
when some of the stores or plant upon a contract are sold or
returned, the contract remaining uncompleted at the end of the
quarter. The totals to debit and credit will then both be
carried forward to the next quarter's account, instead of a
balance being struck.
Before leaving this question, it would be well to explain the
manner of arriving at the constitution of the item '' Total to
Debit, ;/^45,65o." The amount in question represents the
expenditure to date upon the two uncompleted contracts Nos.
470 and 472 : a portion of this relates to stores and plant
issued, and as this portion has to be shown as a balance upon
TRANSACTIONS OF A MANUFACTURING COMPANY. 203
the '' Stores Issued " and " Plant Issued " Accounts in the
General Ledger, the total expenditure is analysed as shown.
The item " Sundries, ;£36,ooo," will be found in the General
Ledger debited to " Sundry Debtors " and credited to
" Contracts " (vide pages 190 and 191, ante).
The apportionment of the establishment expenses is a ques-
tion upon which some variety obtains in practice. The following
methods are in use : —
(i) A proportion varying according to the cost incurred on
account of the contract.
(2) A proportion varying according to the amount of wages
paid on the contract.
(3) A proportion varying according to the amount of time
spent on the contract.
If the object be to apportion to each contract its fair share
of the cost of rents, supervision, office expenses, &c., it is
obvious that the first method is untenable, for a contract neces-
sitating expensive materials does not, therefore, involve a
larger degree of supervision.
For a like reason the second method is also inaccurate —
although less so than the former — as it cannot seriously be
argued that a contract employing masons necessarily involves
heavier establishment expenses than one employing bricklayers.
The third method, taking the time occupied as the basis of
the calculation, appears to be the fairest, and to involve but
little extra trouble, and it has accordingly been adopted here ;
but it is only fair to add that the second method is in more
general use.
:o4
BOOKKEEPING.
CLOSING THE LEDGERS.
The Closing of the Cost Ledger has already been described,-
and the closing of the Contract and Bought Ledgers presents
no new features ; it is, therefore, proposed to pass on at once
to the closing of the General Ledger. The following are the
Journal entries required for this purpose : —
JOURNAL 1913.
(6)
Dr.
Brought forward
31 March —
Trading Account
To Wages
, Materials
„ Stores Issued
„ Plant Issued
, Petty Cash
Contracts
To Trading Account
Trading Account
Discount..
To Profit and Loss Account
Profit and Loss Account
To General Expenses
„ Rent, Rates, &c
„ Debenture Interest
Profit and Loss Account
To Profit and Loss Apportionment Ac-
count
23
i
435.350
7,200
500
s d
o o
63,800 o o
71,000 o o
o o
o o
3,250 o o
4,450 o o
£585,550 o o
435-350
31,350
23,500
6,750
2,100
100
s d
7,700 o o
2,250 o o
500 o o
500 o o
4,450 o o
£585,550 o o
There are but few features in these closing entries that call
for comment : the balance of net profit for the quarter
(;£4,45o), is, it will be seen, transferred to the credit of a
" Profit and Loss Apportionment Account " instead of being
added to the capital, as would have been done in the case of
a private undertaking.
It may be added here that, for the sake of reducing the
number of Ledger Accounts as far as possible (and so simplify-
ing the example), the amount due for interest on debentures
TRANSACTIONS OF A MANUFACTURING COMPANY. 205
and directors' fees has been included under the heading ot
General Expenses. For a like reason the interest earned upon
the deposit at the bank has been disregarded.
From the above Journal entries the student will be able to
close the General Ledger of Messrs. Bricks & Co., Lim.,
without difficulty ; but the following accounts are appended as
specimens of, form, and should be carefully studied. The
figures in italics refer to the folios of the different Ledger
Accounts, and are added only for the convenience of the reader.
2o6
BOOKKEEPING.
Dr.
Dr.
BRICKS & COMPANY,
Statement of
TRADING ACCOUNT,
16
21 &23
22
24
To Wages . .
„ Materials and Stores
„ Depreciation of Plant
„ Sundry Expenses
„ Balance carried to Profit and Loss Ac-
count
£ s d
31,350
30,250
2,100
100
£ s d
63,800
7,200
27
£71,000
PROFIT AND LOSS ACCOUNT,
20
26
To Rent, Rates, &c
„ General Expenses, Salaries, &c
„ Directors' Fees t
„ Interest on Debentures
„ Balance (being net Profit for the Quarter)
carried to Profit and Loss Apportion-
ment Account
Proposed Apportionment of Profit :—
Preference Shares, Dividend at 6%
Ordinary Shares Do. 10% (free
of income-tax)
Reserve Fund
Carried forward to next Account . .
£ s d
500
2,000
250
500
£ s d
3,250
4,450
29
750
1,250
1,500
950
£7,700
£4,450
BALANCE SHEET,
Liabilities.
Nominal Capital
Capital Subscribed : —
500 6% Preference Shares of £100 each,
fully paid
500 Ordinary Shares of £100 each
paid
Debentures (100 of £500 each at 4%)
Interest on ditto
Tride Creditors . .
Sundry Creditors . .
Profit and Loss Account-
as above
, fully
-Balance to credit,
£
100,000
s
d
50,000
50,000
50,000
500
s d
100,000 o o
50,500 o o
12,450 o o
1,750 o o
4,450 o o
£169,150 o o
♦ It need perhaps hardly be stated that the payment of quarterly dividends, and the
t This item has been treated as passed through the Bought Ledger, in order to
this would not be done.
TRANSACTIONS OF A MANUFACTURING COMPANY.
207
LIMITED,
Accounts.
for the Quarter ended 31st March 1913.
for the Quarter ended 31st March 1913.
Cr.
18
By Contracts
£ s d
71,000
£71,000
Cr.
By Gross Profit as per Trading Account
, Discounts
£ s d
7,200 o o
500 o o
£7,700 o
31st March 1913.
8&22
9&23
12
10&11
17
c4
13
Assets.
Freehold and Leasehold Land and Build
ings at cost
Plant and Machinery (less Depreciation)
Stores
Goodwill at cost
Trade Debtors
Cash :'-viz., Deposit at Bank . .
Current Account at Bank
Cash in hand
preparation of quarterly accounts are both quite unusual in practice.
reduce the number ot accounts in the General Ledger, In actual practice, however.
208 BOOKKEEPING.
The above is in the form in which the company's accounts
would be submitted to the shareholders, but it may be added
that it is not usual to publish the Trading Account.
DIVIDENDS.
Should the proposed apportionment of profit be approved
by the shareholders, necessary entries in the books have next
to be considered.
The dividend is dealt with by passing a Journal entry,
debiting Profit and Loss Apportionment Account, and credit-
ing a new account called " Dividend Account," with ;£2,ooo.
The ordinary dividend (being '' free of income-tax ") is pay-
able in full, but income-tax at the current rate must be
deducted from all dividends paid to preference shareholders.
A Journal entry will be passed, debiting Dividend Account,
and crediting " Income Tax Account " with ^£4;^ 15s., being
IS. 2d. in the ;^ upon ^£750. A cheque will now be drawn for
;£i,956 5s., and posted to the debit of the Dividend Account,
which will now balance; this cheque is paid into a separate
banking account (Bricks & Co., Tim., Dividends Account), a
list is made of the balances of the Share Ledger on 31st March,
the dividend computed, and a cheque drawn upon the Divi-
dends Account for the amount due to each shareholder. When
all the dividends are paid there will remain no balance in the
bank upon this account ; meanwhile the balance shown by the
Pass Book represents the amount of unpaid dividends. A
similar plan is adopted with regard to the payment of deben-
ture interest, but in this case the cheque for £4^0 i6s. 8d. (viz.,
£soo less income-tax) is debited to folio 19 in the General
Ledger, and a Journal entry is passed, debiting folio 19, and
crediting Income Tax Account, with ;^29 3s. 46., being the
amount of tax upon the debenture interest.
TRANSACTIONS OF A MANUFACTURING COMPANY. 2O9
The Reserve Fund is dealt with by means of a Journal entry,
debiting Profit and Loss Apportionment Account, and crediting
a new Ledger Account called " Reserve Fund."
The above entries having been posted, the balance remaining
to the credit of Profit and Loss Apportionment Account will
be j£95o, as shown above; this balance is carried forward to
the next account, when it is increased by the net profit made
during the subsequent period.
It is hardly necessary to add that it is most unusual for com-
panies to divide their profits quarterly, but this consideration
does not affect any of the principles or methods just described.
Where the number of shareholders is very small it is
undesirable to open a separate banking account for dividend
purposes ; in such a case it will be found more convenient to
draw the cheques for dividends upon the General Banking
Account, and to post these separate cheques to the debit of
Profit and Loss Apportionment Account, or to the debit of a
" Dividend Account " — having first debited Profit and Loss
Apportionment Account and credited Dividend Account, with
the total amount of the dividend by means of a Journal entry.
XVII.— FORMS OF ACCOUNTS AND
ACCOUNT BOOKS.
thp: double-accou^^t system.
Up to the present only what is known as the " Single-
Account System " has been described, under which system
all the assets and liabilities are focussed in a single account,
or Balance Sheet. There yet remains to be considered the
** Double Account System."
This latter system is of comparatively modern origin — its
first statutory recognition, apparently, being in i868, when
the " Regulation of Railways Act " was passed, prescribing
a form of accounts designed upon the principle of the
** Double- Account."
The principle of the Double-Account System is that the
capital of a company is contributed by the shareholders for
the definite purpose of constructing or acquiring certain works,
which when constructed, or acquired, as the case may be — are
to be employed for the purpose of earning an income for such
shareholders. The form of account employed is calculated to
show exactly (i) what capital has been raised; (2) how much
of such capital has been spent in constructing (or acquiring)
the undertaking ; and (3) what amount of capital remains over
for the purpose of carrying on the undertaking, and so earn-
ing income. In accounts kept upon this system, the amount of
FORMS OF ACCOUNTS AND ACCOUNT BOOKS. 211
Expenditure (i.e. the cost price of assets) is the amount always
stated ; the undertaking has to be kept in a state of working
efficiency out of revenue, but all fluctuations of value are
■disregarded.
As a matter of practice, it is not unusual to find, in accounts
kept upon the Single- Account System, that assets are stated in
the Balance Sheet at cost price, irrespective of their actual
market value. This is, however, technically incorrect (where
not actually misleading) ; for it is the distinctive features of the
Single- Account Balance Sheet that all assets and liabilities
should be so stated that the actual financial position may be
made apparent.
The most convenient method of disclosing the actual differ-
•ence between the two systems is to show the same financial
position, first in the form of a Single-Account, and then as a
Double- Account. For this purpose the accounts of a mining
company are selected, this especial class of accounts being
chosen because they are, as a matter of fact, sometimes drawn
•upon the Single-Account System, and sometimes upon the
Double.
P 2
212
BOOKKEEPING.
SINGLE-ACCOUNT
THE A. B. COLLIERY
Balance Sheet,
LlABILITIF.S.
Nominal Capital . . ^ £200,000 o o
Capital Subscribed :
A shares (£10 each, £5 per share called up) . . £50,000 o o
B shares (£10 each, fully paid) 100,000 o
Debentures (at 5 per cent.)
Reserve Fund
Trade Creditors :
Bills Payable £5.000 o
Open Accounts 5,000 o o
Profit and Loss Account ,, ,,
£
s d
150,000 o
50,000 o
20,000 o o
10,000 o o
20,000 o o
£250,000 o o
FORMS OF ACCOUNTS AND ACCOUNT BOOKS.
213
SYSTEM.
COMPANY, LIMITED.
30th June 1912.
Assets.
Lease of Mines, Plant, Machinery, &c. (as per last
Account) £150,000 o
Extension to date 20,000 o o
170,000 o o
Less Depreciation 12,000 o o
Stock on hand
Consols (at cost)
Trade Debtors
Cash at Bank and in hand
s d
158,000 o o
10,000 o o
20,000 o o
30,000 o o
32,000 o o
£250,000
214 • BOOKKEEPING.
Recast, upon the Double- Account System, this Balance Sheet
DOUBLE-
THE A. B. COLLIERY
Dr. Capital Account for the year
'
Expenditure
to 30th June
1911
Expended
this year
Total to
30th June
1912
To Lands acquired '^'
„ Sinking Shafts and opening up
Pits
„ Plant and Machinery above sur-
face
, Wagons
» Office Buildings
„ Workmen's Cottages i.
i s d
5,000
100,000
25,000
10,000
■ 2,500
7,500
i s d
12,500
4,500
2,500
500
i s d
5,000
112,500
29,500
12,500
2,500
8,000
„ Balance of Capital Account
150,000
20,000
170,000
30,000
£200,000
General Balance Sheet,
Liabilities.
Capital Account — Balance to Credit . . . . . . . .
i
30,000
20,000
12,000
10,000
20,000
s d
Depreciation Fund .. .. ..
Trade Creditors: —
Bills Payable
Open Accounts
£5,000
5,000
Profit and Loss Account • • .
£92,000
00
FORMS OF ACCOUNTS AND ACCOUNT BOOKS.
appears as follows : —
215
ACCOUNT SYSTEM.
COMPANY, LIMITED.
ended 3otb June 1912.
By A. Shares
, B. Shares
» Debentures
Certified
Receipts to
June 30 ign
Received o„][?^l »«
dunngyear f-^P^^^to
£ s d
50,000
50,000
50,000
£ s d £ s d
50,000
50,000 100,000
i 50,000
150,000
50,000 200,000
£200,000
30th June 1912.
Stock on Hand
Assets.
£ 8 d
10,000
Consols
Trade Debtors
30,000
32,000
Cash at Bank and in Hand
£92,000
2l6 BOOKKEEPING.
The above example has been purposely kept as simple as
possible ; but it will suffice to explain the essential difference
between the two systems. The essential features of the Double-
Account System are : —
(i) Receipts are divided into two classes — Capital and
Revenue; all amounts received from shareholders and debenture-
holders are regarded as " capital receipts," and are credited
to Capital Account.
(2) Expenditure is divided Into two classes — Capital and
Revenue ; all amounts expended in constructing, extending, or
acquiring the undertaking from which the revenue is earned are
regarded as " capital expenditure," and are debited to Capital
Account. Expenditure upon repairs, renewals, &c., and all
other current expenses are regarded as " revenue expenditure,"
and debited to Revenue Account.
(3) No deduction is ever made from the amount to debit of
Capital Account; but, if necessary, a "Depreciation Fund"
is raised by debiting Revenue and crediting " Depreciation
Fund Account " — the latter appearing as a liability in the
General Balance Sheet. It is a very usual thing to hold special
investments for the amount of the Depreciation Fund.
It is, perhaps, desirable to add that, in the foregoing
example, it is supposed that the ;£i 2,000 written off for depre-
ciation on the 30th June 191 2 is the first amount so written
off. In all cases under the Double-Account System the total
to the debit of Capital Account will be the total amount of
capital expenditure since the commencement, and the amount
to the credit of Depreciation Fund Account will similarly be the
total amount of depreciation written off since the start.
FORMS OF ACCOUNTS AND ACCOUNT BOOKS. 21 7
The Double-Account System is compulsory in the case of
such Railway Companies and Tramway Companies as are
governed by the Regulation of Railways Act, 1868; and also
in the case of all Gas Companies incorporated by special Act
of Parliament adopting the Gas Works Clauses Act, 187 1.
It is especially applicable to all such companies as invest the
greater part of their capital in what may be styled " permanent
assets " — i.e., land, buildings, machinery, &c., which are held
as a means of earning income, and not for purposes of resale.
The Double-Account System thus appears to be the best
system to adopt for
Railway Companies,
Tramway Companies,
Canal Companies,
Shipping Companies,
Gas Companies,
Water Companies,
Electric Light and Power Companies,
Telegraph Companies,
Telephone Companies,
Property Companies (i.e. companies holding lands or
buildings for letting purposes, but not for sale),
Mining Companies, and
Quarrying Companies;
it is, however, less suitable for Investment Trust Companies,
as these companies do not, as a rule, hold their investments
permanently.
It is now proposed to give a few forms of ruling for special
books that will be found convenient under certain conditions.
2l8
BOOKKEEPING.
LEDGERS.
Form of ruling for the Depositors' Ledger of a Building
Society, or in any similar case where it is desirable to readily
perceive the balance from day to day.
Dr.
Deposits
withdrawn
Interest
withdrawn
Date
Fo.
Deposits
paid in
Interest
credited
i s d
50
i s d
^ 1913
January i
March 3
June 30
J. 72
i s d
100
£ s d
100
It will be seen that, in this form of Ledger, each transaction
occupies an entire line — the transactions, whether to credit or
to debit, being in strictly chronological order.
FORMS OF ACCOUNTS AND ACCOUNT BOOKS.
219
>a e<
000
* 2*2 2
N ■*«
^^-S5»
n-«
c
3
<
^
«
r;
H
(1)
Z
JC
CJ
C
<L>
-c
^
,
3
<4-4
<b
in
,
3
1
OS
<3J
(iJ
-^
W
^
•^
nj
Q
t:
»4
a>
m
OS
.^
d
H
u
pq
o«
c
^
^
3
'i£^
V
»
(U
w
^
u
5
s
-o
<l
"RSio
o
O
> * » K
« « k a »
NO
o o\
O u-1
•o o o w
(O o
o o
§1-2
n
' VO »
2^ = ^
^s
S2
220
BOOKKEEPING.
s
o
O
Q
0!:
PQ
<
s>tJBai9H
1
sjEaaay
13
sjajjBnC) aaquiaoaa P"e 'jaquiajdas
'aunf aqj joj sucunioo jbiiuiis
1
■55
1
u
H
<
a
ill-
i -
5 Q
li
<<
-u vo
in N
^ OS
.1
OS
6
8^8
II
^ ;:?2
l-i in
II
•o o o
" 2 2
■-*? GO
Amount
due at
— per
I.OOO
^3 rn^
<r. IT) rj
«■; 500
1 1^
U X
1^
^22
s
^
T3 VO
<hJ
Name of
Ratepayer
Hig h Street
1 Jones, J. ..
2 Smith, T...
1
asnoH Jo -o^
•ON a
\ISS9jS0J(J
w «
FORMS OF ACCOUNTS AND ACCOUNT BOOKS. 221
Where the number of accounts is considerable, and the
number of transactions upon each account few, but regular,
the Tabulated Ledger is very convenient on account of the
ease with which it may be balanced. Water rates, municipal
rates, telephone subscriptions, rent accounts, hotel accounts,
&c.. may be advantageously kept upon this system.
The following forms of " Bill Ledgers " will be found
very convenient where the transactions in bills are very
numerous : —
222
BOOKKEEPING.
junoosiQ
puB qsE3
}o junouiy
•oj -g-o 1
p3Aia08H
ina
JO junoray
paMoiiv
junoosiQ
13
oiM TS
paAiaoay
3
g
•oaa
■ACM
•PO
•?das
•3nv
Xinf
aunf
Xbi^
ipdv
qoaBj^
•qaj
•uef
i
Date
of
Bill
Where
Payable
jojdaooy
J9MBJa
paAiaoan
!
6
.
1
•oaa 1
1
•AOM 1
•JOO 1
i
•Idas
1
•Snv
!
Xinf
aunf
Xbiv
IPdv
i
•JEIM
•q^d
•UBf
g
0) «
1
!
is
1^
■J]
Discount
Received
7)
•OJ g-a
h
O M
6
ll
<
T3
tn
'-Hi
!
•OJ -g-o
rt S rt
1
i
FORMS OF ACCOUNTS AND ACCOUNT BOOKS.
223
Where the Bill Ledger is employed, the Ledger Accounts
for '' Bills Receivable " and '* Bills Payable " become unneces-
sary. It may be added that the total of the ''Discount'*
columns in the Bill Ledgers is posted to the Discount Account
each month ; dishonoured bills are dealt with through the Cash
Book or Journal.
JOURNALS.
The following is a favourite form of Journal among
American bookkeepers :
Dr.
JOURNAL.
Cr.
Goods
Sundries Fo.
Particulars
Fo.
Goods
Sundries
£ s d
£ s d
£ s d
£ s d
Where the transactions are not very numerous this seems
a very convenient form to adopt, as, of course, it saves the
double posting of all sales and purchases; but one might as
well go a step further while about it, and add a *' Cash "
column upon each side — making the Journal (as in days of
yore) the sole book of first entry. Even this is sometimes
done, however, especially in the case of solicitors' accounts.
The following form of Accounts Rendered Book for an
Accountant has proved most convenient : —
224
BOOKKEEPING.
<y
(A
^3
-2
+
Jtf
tJ
0)
c
^&
+
'O
.**
a
a?
2^
+
i
1 "
1
O
:?
+
-5
a.
'u
n
:8
+
c
'u
cu
<
2 **
+
•oj aaSpaT
\0 M
SP
^rajx
..
tx
«)
T30 O
°
vo
0)
o
>o
(fl O O J
1
J
U
•OJ jagpaq
00 vo
o
sjuamasjnqsiQ
"
00
,
-0*0 O
o
gc«
o
</- -t o ,;
o
►!?
"' « ►-. o
11
H. ?■'
%
J
°
^-f?
6
'o «
•C o o
o
*- C
(fl >no .
o
Amou
Acco
^^^'^
!
•OJ jaSpaq
ro 0\
.sjuano
« N
S
S
tn
M
11
"6 .
&S)
o^^
pa 5
Jioog Moj
-«■ -<1-
ssaJd ui •OJ
2
G
FOSMS OF ACCOUNTS AND ACCOUNT BOOKS. 225
A word of explanation is advisable here : each client is
debited in the Clients' Ledger with the amount of his account ;
the total '' Disbursements " is credited to " Disbursements
Ledger Adjustment Account," and the total '' Charges " is
credited to '' Private Ledger Adjustment Account " — this
completes the double entry of the Clients' Ledger. In the
Disbursements Ledger the details of the " Disbursements "
column are posted to the credit of the various clients' accounts,
and the total of that column is debited to *' Clients' Ledger
Adjustment Account." The detailed amounts in the ** Time
Occupied " columns are credited to the various clients' accounts
in the Time Ledger (closing these accounts), and the total
time occupied is debited to the '' Outstanding Charges "
Account in the Time Ledger. The balance of this latter account
thus always shows the amount of time spent upon matters for
which no account has vet been rendered.
CASH BOOKS.
The following form of Cash Book does away with the
necessity for either Bill Books or Bill Ledgers ; it is, how^ever,
deficient in detail, which doubtless accounts for its not being
more ijenerallv used : —
226
BOOKKEEPING.
JluBg
J99p9T
9;EAUd
Si
J93p9T
jq3noa
13
Si
sina
;unoosia
73
oipd
a^BQ
HUEa
en
J93p9T
9;EAUd
a9§paT
PIOS
73
C/)
9iqBAl939H
siiia
13
;unoos!Q
T3
OROJ
M
3
U
1
ajBQ
FORMS OF ACCOUNTS AND ACCOUNT BOOKS.
227
A good form of Petty Cash Book will always be found of
the greatest value ; the following specimen of ruling may prove
useful in this connection — the analytical headings being, of
course, varied to meet the circumstances of the particular
case : —
i<2
"
«n
u C
(u a,
-^s
V>
<
tic en
-c
= S
= C
Ul
<U u
> 0.
CS X
'-^J
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Ul
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og-
S4
w
6
t:
ac
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;/]
Cfl
.
->J
CU
i
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u
Ul
:«
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•5
en
x: !tf
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_
c
3*2
tr.
o'c3
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<
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u
lU
.c .
5^
>
(A
u
iS
3
.0
Ul
ca
cu
«
rt
Q
-"O
TS
= (U
3 >
u;
■■^
•oj ao
V
-<-•
08
Q
XVIIL— MISCELLANEOUS
QUESTIONS OF ACCOUNT.
In order to keep the various examples shown in this work
sufficiently simple to be readily comprehended, it has been
necessary to postpone the consideration of several questions
relating to accounts that are too important to be neglected
altogether. It is proposed to deal with these various matters
in the present chapter.
Bad Debts and Doubtful Debts. — Theoretically, the
treatment of bad and doubtful debts presents no especial
difficulty ; the situation is that the whole (or a portion) of the
debit balance shown upon a Personal Account is irrecoverable ;
to the extent that it is irrecoverable the balance represents a
loss instead of an asset. To this extent, therefore, the balance
should be the balance of a Nominal Account, not of a Personal
Account. All that has to be done is to alter the books in
accordance with the ascertained facts. This is done by credit-
ing the debtor's (Personal) Account, and debiting the " Bad
Debts " (Nominal) Account, with the amount of the ascertained
loss.
A practical difficulty arises from the fact that it is always
desirable to make provision for probable and possible losses,
as well as those that are actually known. This involves the
raising of a Suspense Account called '' Reserve for Bad Debts
Account," which is credited with the estimated contingent
loss, the Bad Debts Account being debited as before; in the
MISCELLANEOUS QUESTIONS OF ACCOUNT. 229
Balance Sheet, the credit balance of the Suspense Account is
deducted from the amount of the book debts, instead bf being
stated separately on the liabilities' side. Debts subsequently
written off as bad are then debited to the Reserve for Bad Debts
Account, instead of to the Bad Debts Account direct.
It is unnecessary to consider here the best mode of ascertain-
ing the proper provision to be made against loss by bad and
doubtful debts, as that is a question of auditing rather than
bookkeeping, and has been fully dealt with in the present
author's work upon Auditing.
Bills Discounted. — The best method of dealing with bills
receivable discounted varies with the practice of the bankers or
brokers with whom they are negotiated. The usual practice
of bankers is to give credit for the face value of the bill, and
to debit the customer's account with the amount of the discount ;
on the other hand, some bankers deduct the discount from the
face value of the bill and give credit for the net proceeds.
Brokers likewise, when purchasing bills, deduct discount and
pay net.
In the first case, the full value of the bill will be entered on
the debit side of the Cash Book in the Bank column, and
posted to the credit of Bills Receivable Account, while the
amount of the discount will appear on the credit side of the
Cash Book (also in the Bank column) and be posted thence to
the Discount Account in the Ledger.
In the last two cases the amount of cash actually received
will appear in the Bank column of the Cash Book on the debit
side, and the amoimt of the discount allowed should be inserted
in the Dr. Discount column ; the figures in both columns are
posted to the credit of Bills Receivable Account.
230 BOOKKEEPING.
When it is the practice to negotiate bills with creditors
(i.e. to endorse them over to creditors in payments of amounts
due), it will be found convenient to use the form of Cash Book
set forth on page 226 — the credit entries being written in red
ink in the '' Bills Payable" column. When this plan is not
followed, the only possible way is to pass Journal entries,
debiting the Personal Account of the endorsee and Discount
Account, and crediting Bills Receivable Account.
Bills Dishonoured. — When the dishonoured bill has been
discounted this problem presents no difficulty ; a cheque is
drawn for the amount of the bill and charges and paid over to
the holder (the bill being received in exchange), and the whole
amount is debited to the account of the person from whom the
bill was originally received. Any further commission or interest
that may be charged is debited to the customer through the
Journal.
If the bill has not been discounted, the amount thereof {plus
noting charges) is debited to the acceptor — or other party
from whom it was originally received — and credited to Bills
Receivable Account through the Journal.
Debentures Issued at a Discount. — As already stated on
page 180, the Debenture Ledger deals only with the nominal
value of debentures ; it therefore follows that the credit balance
on the Debentures Account in the General Ledger is for the
nominal, or face, value of the debentures likewise. Whatever
is credited to Debentures Account is also debited to Debenture-
holders' Account ; if, therefore, the debenture-holders have
paid less than the face value for their bonds, it naturally
follows that this latter account shows a debit balance equal
to the amount of discount allowed up to the issue. To correct
this, raise a '' Cost of Issue of Debentures Account," and debit
it with the amount of the discount allowed, crediting Debenture-
holders' Account with a like amount — so balancing the latter
MISCELLANEOUS QUESTIONS OF ACCOUNT. 23I
account. CcMnmission paid to underwriters, &c. (if not ultra
vires), may also be debited to this account. The total amount
debited to this account must be written off out of Revenue
during the currency of the debentures, and in the meantime the
(diminishing) balance must be treated as an assets in successive
Balance Sheet.
Debentures Issued at a Premium. — In a like manner, if
the debenture-holders have paid more than the nominal value
for their bonds, the Debenture-holders' Account in the General
Ledger will show a credit balance. Probably the best mode of
dealing with this credit balance (which represents the premium
received upon the issue) is to transfer it to the credit of Reserve
Fund.
Debentures Redeemed. — In the Debenture Ledger open a
*' Debentures Redeemed Account," and transfer all redempticwis
from the holders' accounts to this account. It is convenient to
set aside a few pages of the Transfer Journal for this purpose,
or, if the redemptions are very numerous, a special " Redemp-
tions Journal " may be preferred. In the financial books post
the cash paid upon redemption to the debit of a " Debentures
Redeemed Account," and transfer the balance of this account
periodically to the debit of Debentures Account, thereby
gradually reducing the credit balance of the latter.
If the debentures- have been originally issued at a discount,
it is necessary every time a portion of the issue is redeemed to
write off a proportionate part of the Cost of Issue of Deben-
tures Account. This is done by crediting the latter account and
i debiting Profit and Loss Account.
Depreciation. — Depreciation may be provided for in various
ways, of which the more usual are : —
•32
BOOKKEEPING.
(i) As a fixed proportion of the original value of the
property. {" Fixed Instalment " method.)
(2) As a fixed percentage upon the diminishing value of the
property. (" Reducing Instalment " method.)
(3) As a fixed proportion upon the original value, less interest
at a fixed rate upon the diminishing value of the property
(''Annuity " method.)
(4) By setting aside, and specially investing, a fixed propor-
tion of the original value of the property. (" Sinking Fund "
method.)
If it be desired to reduce ^£200 to ;£ioo in ten years, the
annual instalments would be as follows : —
Time
ist Method
2nd Method
3rd Method
4th Method
£
s
d
£ s
d
£ s d
£ s d
ind of I St year
10
. 13 8
6
7 19
7 19
„ 2nd „
10
12 10
4
870
7 19
„ 3rd „
10
II 13
5
8 15 4
7 19
H 4th „
10
10 17
8
9 3"
7 19
" 5th „
10
10 2
II
9 13 4
7 19
» 6th „
10
9 9
3
10 2 II
7 19
. 7th „
10
8 16
6
10 13 I
7 19
« 8th „
10
8 4
8
II 3 9
7 19
H 9th ,
10
7 13
6
II 14 II
7 19
» loth „
10
7 3
3
12 6 9
7 19
£100
£ico
£■100
£79 10
It will perhaps be as well to pause a moment, and consider
the practical effect of the various methods ; but, before doing
so, it seems desirable to call attention to the fact that the differ-
ences would have appeared greater, had instalments for a longer
period been compared, or had interest been reckoned at a
higher rate (5 per cent, is the rate employed in the above tables).
The first three methods, it will be seen, all require the same
amount to be debited to Profit and Loss Account in the course
of the ten years; but while the fixed instalment principle
spreads the loss equally over that period, the diminishing instal-
MISCELLANEOUS QUESTIONS OF ACCOUNT. 233
merits principle throws the bulk of the loss upon the first few
years, and the annuity principle upon the last few years. On
the other hand, the Sinking Fund principle possesses the advan-
tage of economy — although it must be added that this advantage
is more apparent than real, inasmuch as the instalments — being
specially invested — are not helping to earn profits, as is the case
under the other systems. 'Still, there is much to be said in
favour of a system that provides a tangible fund for
renewals, &c.
Reverting to the first three methods, the annuity sy.stem is
undoubtedly the scientifically correct one, and should always
be employed for long leases, &c. ; hut, inasmuch as it tends to
swell the profits for the first years at the expense of later years,
it is preferable to use one of the instalment principles for plant,
machinery,- &c. The relative advantages of the first two
methods are fully considered by the author in his work entitled
Comparative Depreciation Tables.
Sometimes Depreciation is credited to the account of the
asset concerned and sometimes to a " Reserve for Depreciation
Account " (the amount to credit of the latter being deducted
from the debit of the account of the asset in the Balance
Sheet). Under the first and fourth methods, this latter course
is clearly the most convenient.
Forfeited Shares. — In the Share Ledger, by means of the
Transfer Journal, transfer these shares to the credit of " For-
feited Shares Account " : when resold, transfer to the purchaser
in the usual way. In the General Ledger debit " Share Capital
Account " with amount called up, credit '* Forfeited Shares
Account " with the amount paid up upon forfeited shares, and
credit " Shareholders' Account " with the amount in arrear.
234 BOOKKEEPING.
Until the shares are re-issued the balance of Forfeited Shares
Account should be stated separately upon the liabilities' side
of the Balance Sheet, but when the shares have again been dis-
posed of the balance of the Forfeited Shares Account may — if
thought fit — be credited to Reserve Fund, or to Profit and
Loss Account. Directors may, however, re-issue such shares
at a discount not exceeding the amount originally paid up
thereon ; and when advantage is taken of this power, the amount
of such discount must be made good to Share Capital Account
out of Forfeited Shares Account.
Partnership Losses. — It would be well to show, by means
of an example, how losses are to be apportioned among partners.
Suppose A., B., and C. are partners : A., with a capital of
;£5,ooo, is entitled to three-fifths of the profits; B., with
;£s,500 capital, is entitled to one-fifth of the profits; and C,
with a capital of ;£i,5oo, is entitled to one-fifth likewise. Each
partner is to be credited with 5 per cent, interest on his capital.
The trading for the year ended 30th September 191 2 resulted
in a loss of ;£i 0,000 — to which the interest on capital must be
added, making the total loss of ;£i 0,500.
The situation is as follows : —
Capital, ist Oct. igii
Interest thereon . .
Loss for the year. .
Capital, 30th Sept. 1912.
If, therefore, the firm wound up (and assuming the result
of such liquidation was that the assets exactly discharged the
liabilities) A. would owe B. ;^i,o5o, and C. would owe B.
A.
£5.000
250
B.
£'3,500
175
C.
£1,500
75
1,575
2,100
Total
£10,000
500
5,250
6,300
3,675
2,100
10,500
10,500
£1,050
£■1,575
£325
Nil
Miscellaneous QUEstiot^s ot Accoijhit. 235
In the absence of express agreement to the contrary, part-
nership losses are borne in the same proportions as partnership
profits are shared, but no partner can be called upon to pay
another partner's share of such losses if all outside creditors
have been paid.
Reduction of Company's Capital. — :In the Share Ledger
the simplest and most convenient way is to procure a rubber
stamp, briefly stating the effect of the reduction, and impress
it upon every page. The share certificates should also be called
in and similarly stamped. In the General Ledger note the
reduction at the head of Share Capital Account, and if the
reduction does not affect the paid-up capital, no further entry
is required.
If, however, the reduction has been made for the purpose of
wiping-off a balance to the debit of Apportionment of Profit
Account, or of writing off' balances on accounts representing
unproductive assets, pass a Journal entry debiting Share Capital
Account and crediting Apportionment of Profit Account, or
the account (or accounts) of the assets concerned, with the total
amount of such reduction of paid-up capital.
Shares Issued at a Premium. — [See under '' Debentures
Issued at a Premium," on page 231, reading " Shareholders'
Account" for ''Debenture-holders' Account."]
finis.
INDEX.
Abstract of Wages, Form of
Account Sales, Definition of
,, ,, Pro forma
Accounts of Consignees, how dealt with ...
,, ,, Pro forma
„ Consignors, how dealt with ...
„ ,, Pro forma
,, Manufacturers
,, Partners, Pro forma
„ Traders
„ Rendered Book, Form of
Adjustment Accounts, Description of
,, ,, Pro forma
Advantage of Double-Entry
,, Self -Balancing Ledgers
Allotment of Shares 169, 1
Amalgamation of Firms, how dealt with ...
Analysis of Purchases
,, Sales ...
,, Stores Issued, Form of
Application of Double- Account System ...
Applications and Allotments Book, Pro forma
Apportionment of Partnership Losses
Bad Debts, how dealt with
Balance de Sortir ... .1
„ d'entrer
Balance Sheet, Definition of
„ „ Preparation of
„ „ upon Double-Account System, Pro
forma 214
,, ,, Various forms of 7, 57, 212, 214
Bank Account, Description of 13, 74
Bill Ledger, Forms of 222
...
162
...
67
...
128
...
127
...
130
...
III
...
123
...
158
86, 125,
234
...
73
...
224
...
134
... 138,
139
...
29
...
^33
73» 182,
235
... 86
•,87
96,98,
196
... 96, 98
...
164
217
... 172,
179
...
234
...
228
54,55
,57
45.48
,57
...
8
... 29
,51
23^ INDEJi.
Bills discounted, how dealt with 229
dishonoured, how dealt with 230
Payable Book, form of Si, 222
,, Description of 67, 80
,, how dealt with 80, 82
Receivable Book, Form of 78, 222
,, Description of 67, 77
„ how dealt with 67, 78, 229, 230
Bookkeepers, Continental, Practice of 2
„ English, Practice of 2
Bookkeeping, Definition of ... i
,, Object of I
„ Practical, Main ditliculty of
I
Books, Two main classes of
3
Capital Account, Description of
... 15,86
,, Expenditure
... 211, 216
„ of Companies
169
,, ,, Company, Reduction of
... 169,235
Cash Account, Description of
••• i3> 74
,, Book for Self-balancing Ledgers, Pro jonnd 137
,, „ Traders, Form of 77, 84, 109
Classes of Books, Two main ... 3
Closing the Ledger, Method of 24, 54, 113
,, Trading Account, Method of 1:3
Colliery Company, Pro formd Balance Sheet ... 212, 214
Commercial Terms, Explanation of 66
Company (Joint Stock), Constitution of 1O8
Company's Shares, Allotmei.t of ... 169, 174, 182, 234
,, ,, Forfeit;. re of 170, 233
,, Balance bheet. Pro joriiid ... 206, 212, 214
,, Capital, Reduction of 169, 235
,, Debentures, Issue of 178, 230, 231
,, Ledger, Opening entries in 182
,, Register of Transfers, Pro forma ... 177
„ Share Ledger, Pro formd 176
Consignees' Accounts ... 127, 130
Consignment, Definition of 69
Consignments, how dealt with 98, 111, is;
239
Consignors' Accounts f)8, iii, 123
Constitution of Joint Stock Company ... ... 169
Continental and English Systems, Relative
advantages of 55
„ Bookkeepers, Practice of 2
,, System, Closing Ledger upon the... 53
,, ,, Description of 45
Contractors' Balance Sheet, Pro forma 206
Cost Accounts ... 164, 200
,, Ledger, Specimen page of 166, 200
Debenture
s. Issue of
178, 264, 265
Definition
of Account Sales
67
Balance Sheet
8
Bookkeeping
I
Commercial Terms
66
Consignment
69
Discount
... 70, 82
Double- Account System
210
Double-Entry
6, 29
Nominal Accounts
... 12, 19
Partnership
71
Personal Accounts
15
Real Accounts
12
Depreciation, how provided for
... 15,231
Description of Adjustment Accounts
135
Bank Account
... 14, 74
Bills Payable
. ... 67,80
))
„ Receivable
... 67, 77
»>
Capital Account
15, 85, 169
)j
Cash Account
... 13, 74
j»
Continental System
54
jj
Manufacturers' Accounts .
. ... 158
j>
Nominal Accounts ...
IQ
j>
Personal Accounts ...
15
>»
Profit and Loss Account .
10
»>
Revenue Account
10
»9
Self-balancing Ledgers
- 132, 135
240
Description of Suspense Accounts
„ the Journal
„ „ Ledger
„ Traders' Accounts
„ Trial Balance
Difference between Revenue and Profit and Loss
Accounts ...
Different classes of Ledger Accounts
Discount, Definition of
„ how dealt with
„ upon debentures, how dealt with
Discounted bills, how dealt with
Dishonoured bills, how dealt with
Distinction between assets and losses
„ ,, capital and revenue
,, „ liabilities and gains
Dividends, Payment of
Double- Account System explained
jj J, 'pro forma Balance Sheet
it „ when applicable
Double-Entry, Advantages of
„ Nature of
„ Origin of
Doubtful Debts, how dealt with
Drawings of Partners
"5
4
4, 12
73
21,51
ID
12
71,82
82, 115
230
2i-8
229
9
211, 216
9
208
210
214
217
29
6, 29
6
228
89
English Bookkeepers, Practice of 2
Expenditure, Capital and Revenue, distinguished 211, 216
Explanation of Commercial Terms ... 66
„ Double- Account System 210
„ Single- Account System 211
Firms, Amalgamation of
„ {See under " Partnership.")
Foreign Commercial Terms, Explanation of
Forfeiture of Shares ,
86
66
7o> 233
INDEX. 24r
Form of Abstract of Wages
Account Sales
Accounts Rendered Book ...
Adjustment Accounts
Analysis of Stores Issued ...
Balance Sheet 31, 86, 87, 88, 207
„ ,, upon Double-Account System
Bill Book
„ Ledger
Bought Journal
Cash Book for Traders
Closing Balance
Company's Balance Sheet
,, Profit and Loss Account
„ Trading Account
Consignees' Accounts
Consignors' Accounts
Cost Ledger
Invoice
Jobbing Ledger for Contractor ...
Opening Balance
Partnership Accounts
Pay Sheet
Primitive Ledger
Purchases Book
Returns Book
Sales Book
Share Ledger
Summary of Cost Ledger
Tabular Cash Book 77j 84
„ Journal
Ledger
Petty Cash Book
Trader's Balance Sheet 104, 117.
,, Profit and Loss Account
Trading Account 93,
Transfer Register
Trial Balance 21, 27
French Commercial Terms explained
162
128
224
.:.
138
139
164
,207
212
214-
ystem
214.
7>57.
212
214
...
7
7,81
222
...
95
195
77,84
200
...
54,55
206,
212
214
206
20&
130
123
166,
20a
95
195
...
4f
,4S
86,
131
161
...
4
...
95,
104
109
97
176
200
108,
137,
226
223
...
205,
220
227
124,
126,
139
...
124,
125
118,
119,
206
177
7>43
52,
112
...
66
242
INDEX.
German Commerial Terms explained
Goods Account {vide " Trading Account.")
Goodwill
Jobbing Ledger, Form of
Joint Stock Company, Constitution of
Journal, Description of
„ for Self -balancing Ledger
„ Tabular, Form of
Ledger Accounts, Different classes of
,, Description of
„ Method of closing
Self -balancing, Advantages of ...
,, Description of
,, Pro forma Cash Book ioi i37
„ ,, Journal for 138, 183, 185
Tabular, Form of i95> 220
„ Trade i93. ^95
Losses of Partners, how dealt with 234
66
... 87,206
i
195
169
4
138, 183, 185
223
12
... 4, 12
24, 54» "3
133
... 132, 135
Manufacturers' Accounts
Method of closing the Ledger
J J „ on the Continental
System
„ „ Trading Account
„ dealing with accounts of consignees ...
consignors ...
,, allotments of shares 169,
„ amalgamation of firms ...
^^ ,, bad and doubtful debts ...
,, „ bills accepted
» discounted
„ ,, dishonoured
„ received
,, debentures issued at a
discount
jj „ debentures issued at a
premium
158
24. "3
54
"3
127
99, no
74, 182,
235
86
228
80, 82
229
230
78, 79
230
230
243
Method of dealing with discounts
,, ,, forfeitures of shares
. 82, 115
-- • 168, 233
,> ,, issues of debentures 178, 230, 232
5, ,, partners' drawings ... 89
,, „ partnership accounts ... 86, 234
,j ,, „ losses ... 234
,j „ purchases 94, 195
„ „ reduction of capital of
company 235
„ ,, returns 98
jj „ sales 97
,, ,, shares issued at a premium 235
„ stating goodwill in Balance Sheet ... 87, 206
Modes of providing for depreciation 231
Nature of Double-Entry
Necessity for Cost Accounts ...
„ Stores Accounts
Nominal Accounts, Description of
6, 29
163
162
12, 20
Object of Bookkeeping...
,, Trial Balance
Opening entries for company...
Origin of Double-Entry
I
21
182
6
Partners, Drawings of
J J Pro forma Accounts of 863
Partnership Accounts, Form of
„ „ how dealt with
„ Definition of
,, losses, how dealt with ...
Payment of dividends
,, wages
Personal Accounts defined
5, Description of ...
Petty Cash Book, Form of
Practice of English and Continental Bookkeeper
Premium upon debentures, how dealt with
„ shares, how dealt with
89
125, 234
86, 125
85 > 234
71
234
208
161
12
175 19
227
2
231
235
244
Preparation of Balance Sheet 29,55
„ Revenue Account 24, 55,
Primitive Ledger, Form of 4
Profit and Loss Account explained 10
Pro formd Account Sales 129.
,, Accounts of Partners 86, 125, 234
,, ,, Rendered Book 224
,, Adjustment Accounts 140, 141
,, Analysis of Stores Issued 164
Wages 162
,, Applications and Allotments Book ... 173, 179
Balance Sheet ... 29, 86, 87, 88, 206, 211, 213,
„ ,, of a company 206, 211, 213
„ „ „ trader 104, 117, 124, 126, 13^
„ „ upon Double - Account
System
214
Bill Book
85
;,8^
„ Ledger
222
Cash Book for traders ...
... 76, 84,
108
Closing Balance Account
SA
r>55
Company's Cash Book ...
17
,, General Ledger
18
Consignees' Accounts
130
Consignors' Accounts
123
Contractor's Balance Sheet
...
206
,, Profit and Loss
Account
206
,, Trading Account.
...
206
Cost Ledger
166,
200-
Invoice
94
Journal 37, 45, 54, 109, 138, 182, 185, 204, 223.
,, for opening Ledger of a company 182
,, ,, Self-balancing Ledger 138, 184, 186
Ledger 31, 39, 117, 188, 218, 220
,, of a trader 117
Opening Balance Account 46, 48.
Partnership Accounts 86, 125
Pay Sheet 161
Petty Cash Book 227
Profit and Loss Account of a company 206
,, - „ trader... 124, 125
245
Pro formd Purchases Book 95, 195
Returns Book 109
Revenue Account 28
Sales Book 97
Share Ledger 176
Summary of Cost Ledger 200
Tabular Cash Book ... 76, 92, 108, 137, 226
,, Journal ... 223
,, Ledger 195, 220
Trading Account ... ... 93, 118, 119, 206
„ ,, of a company 206
Transfer Register 177
Trial Balance 21, 27, 43, 50, 112
Property Account, Description of 14
Provision for bad and doubtful debts 228
,, ,, depreciation 231
Purchases, Analysis of 96, 98, 196
,, Book, Form of ... 95, 195
,, how dealt with 94, 195
Real Accounts defined
Reduction of company's capital
Register of Transfers, Pro formd
Relative advantages of English and Continental
methods
Reserve Fund, how created
Returns Book, Form of
,, how dealt with
Revenue Account explained
,, ,, Form of
„ „ Preparation of
„ expenditure
Sales, Analysis of
,, Book, Form of
,, how dealt with ,
Self -balancing Ledgers, Advantages of
,j „ Description of
... 170, 235
176
al
55
209
109
98
10
28
... 24, 54
216
... 96, 98
97
97
133
." 133, 136
Form of Cash Book for... 138
,, Journal for 139, 183, 185
246
INDEX.
Share Ledger, Pro forma
Shares in company. Allotment of
,, ,, Forfeiture of
Single- Account System explained
„ „ /'r<?/(?r»zi Balance Sheet
Stock Account {vide " Trading Account.")
Stores Accounts
,, Ledger, Necessity for...
Suspense Account, Description of
Tabular Cash Book, Pro forma
„ Journal „
„ Ledger „
„ Petty Cash Book, Pro formd
Trade Ledgers
Traders' Accounts 73,
Traders, Form of Cash Book for ..
Trading Account, Description of ..
,, „ Form of
„ ,, Method of closing
Transfer Register, Pro formd
Trial Balance, Description of
,, Form of
,, Object of
170
69, 174, 182, 235
170, 233
211
212
163
165
"5
76, 84, 109, 137, 226
223
i95» 220
227
193' 195
104, 117, 124, 126, 139
76, 84, 109
91. "3
92, 118, 119, 206
"3
^17
21, 51
21, 27, 44, 52, 112
21
Wages Account ...
[60
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^i4 GEE & CO/S CATALOGUE OF
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DRAPERS,' DRESSMAKERS/ AND MILLINERS'
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22 GEE & CO.'S CATALOGUE OF
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metical Accuracy of the Books — Questions of Principle involved in the
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34 MOORGATE STREET, LONDON, E.G.
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32 GEE & CO.'S CATALOGUE OF
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(Vol. XVIII of "The Accountants' Library" Series, q.v.) (85
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MULTIPLE COST ACCOUNTS.
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34 MOORGAT!^. STREET, LONDON, E.G.
36 GEE 86 CO.'S CATALOGUE OF
PROMOTION AND ACCOUNTS OF A PRIVATE
'h:. LIMITED COMPANY, THE.
l^' (88 pp . 8vo.) By M. Webster Jenklnson, F.C.A. A Paper
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QUARRY AND STONE MERCHANTS' ACCOUNTS.
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RECEIVER AND MANAGER IN POSSESSION, THE.
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RECEIVERS, LAW OF.
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34 MOORGATE STREET, LONDON, B.C.
ja GEE & CQ.'S CATALOGUE OF
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RUBBER -COMPANIES* ACCOUNTS.
(72 pp., 8vo.) By R. S. Stewart, Chartered Accountant, and F. C.
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SOLICITORS' ACCOUNTS.
(Vol. XII of ''The Accountants' Library" Series ?.z;.). (2nd Ed.,
^ 92 pp., 8vo.) By L. R. Dicksee, M.Com., F.C.A. Designed
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STOCKBROKERS' ACCOUNTS.
(Vol. IX of "The Accountants' Library " Series, ^.u.) (2nd Ed.,
no pp., 8vo.) By W. D. Callaway, Chartered Accountant. The
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STUDENTS' GUIDE TO ACCOUNTANCY.
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SUPERTAX, THE, AND HOW TO AVOID OVER-
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TABLE A. [Revised-]
(22 pp., Svo.) Regulations for Management of a Company Limited
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TERMINAL COST ACCOUNTS.
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40 GEE & CO/S CATALOGUE OF
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46 GEE & CO.'S CATALOGUE OF
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34 MOORGATE STREET, LONDON, E.C.
48 GEE & CO.'S CATALOGUE OF
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