UC-NRLF $c m 4bi LIBRARY OF ALLEN KNIGHT CERTIFIED PUBLIC ACCOUNTANT 502 California Street SAN FRANCISCO, CALIFORNIA GIFT OF \ Wvv-cyvv^ MARSHALL'S Corporation and Voucher Accounting BY CARL C. MARSHALL, Author of "Bookkeeping and Business Training," and joint author of the Ellis "Learning by Doing" Series. CEDAR RAPIDS, IOWA: GOODYEAR-MARSHALL PUBLISHING CO. 1907. Copyright 1901 GOODYEAR-MARSHALL PUBLISHING COMPANY 'V^ ailJ^U^ \ * ,, ..1 . ,CaRP0iATJ0N AND VOUCHER ACCOUNTING. ■ ' ■ " i-^^^— HM-*- fi — I 2 , /; ^ '' 4^, .: — — ■ Minutes of Meetings. When the perspns interested in the proposed corporation meet to discuss plans of organization, etc., a prehminary organization is usually effected, a temporary chairman and secretary being chosen. The secretary should prepare minutes of the meetings which are recorded in the "Minute Book." Any common blank book may be used for this purpose. If subsequent meetings are held, the minutes of the previous meeting should be read by the secretary, and, if no corrections are required, they are duly "Ap- proved" and are signed by the president and the secretary. An illustration of the minutes of a corporation meeting will be found on page 9. Stock Subscription Agreement. The first formal and legal step in the or- ganization of a commercial corporation, consists in the signing of the Stock Subscription Agreement by the proposed incorporators. This comprises a mutually binding contract on the part of the several signers to take and pay for the shares of stock which each subscribes for. If the company is to be composed of many stockholders, a special book called a Stock Sub- scription Book may be used for this purpose, but more often the agreement is in the form of an ordinary legal document, which, when signed and witnessed (usually by a Notary Pub- lic) is filed in the secretary's office. (See form of Stock Subscription Agreement on page 9.) It is not necessary for the entire amount of capital stock to be subscribed before the cor- poration is formally organized. This may be done whenever, in the judgment of the incor- porators, sufficient stock has been subscribed to insure the success of the company. Adoption of Articles of Incorporation. When a sufficient amount of stock has been subscribed, the incorporators hold a meeting, and proceed to perfect the or- ganization of the company. This consists in the adoption of Articles of Incorporation. These should set forth : — 1. The official name of the corporation. 2. The purpose for which it is formed. 3. The period of time for which it is organized. 4. Its location, or place where its principal business is to be transacted. 5. The amount of capital stock and the number of shares into which this is to be di- vided. 6. The names of the officers and directors elected for the first official term. 7. The names of the incorporators, whose signatures are duly attested by a notary pub- lic, or other competent officer. Other provisions may be added, as those relating to the duties and powers of the of- ficers, the amount of indebtedness the corporation may incur, or any other general regula- tions of the corporation affairs which may be deemed advisable and which are not in conflict with the laws of the state in which the corporation is organized. The form on page 10 affords a fair illustration of Articles of Incorporation as usually adopted, but it should be remembered that these forms are subject to much variation. When Articles of Incorporation have b'een duly adopted, and signed by the incorpor- ators, and the signatures duly certified to by a notary public or other competent official, the instrument is forwarded, with the required fee, to the office of the Secretary of State, where it is officially recorded, and the original copy, duly certified, is returned to the officers of the company, and becomes in the contemplation of the law, the charter, by the issue of which the corporation attains to a legal existence, and becomes competent to transact business under its corporate name. Powers and Liabilities. The powers, duties, rights, and limitations of corporations and of the individuals who compose them, are subject to considerable variation in the several states. Within the limits of the constitution, each state regulates corporations in its own way, and the student of these organizations should begin by studying the special laws of his own state, which pro- vide the conditions and limitations under which they may be organized. Still, there are a number of general principles governing incorporated concerns which are substantially the same in all the states. POWERS, LIABILITIES, ETC. Powers. Among the general powers and rights of corporations are the following : 1. The power of perpetual succession, or of corporate existence for the time named in its charter. 2. The right to enter into contracts and to sue and be sued under the corporate name. 3. The right to acquire and dispose of real estate, patents, copy rights, or other prop- erty, the same as a natural person. 4. The right to possess and use a common seal for the certification of corporate acts bv its officials. 5. The right to adopt such by-laws or other rules for its government, as are not in con- flict with its charter, or with the laws of the land. Voting and Elections.— The directors and other officers of a corporation are usually elected annually. The voting is generally by ballot, each stockholder having a num- ber of votes equal to the number of his paid-up shares. Must Keep Books. — Corporations are usually required to keep duly certified rec- ords of all official acts, also books of account showing all business transactions. These rec- ords are open to the inspection of all stockholders. Liabilities. — Corporations, like individuals, are liable for the lawful acts of their agents, also for trespass or other wrongful acts committed by such agents or officers, when acting within their official authority. Corpoiations are also liable to their own stockholders for any infringements of their rights, occasioned through the acts of Corporation officers, when acting within their authority. The general liabilities of corporations vary consider- ably in the different states, being modified by the local laws. Liabilities of Stockholders — The individual liability of stockholders for the debts of the corporation depends upon: (i) The form of incorporation; (2) the class of stock held; (3) the provisions of the charter; and (4) the local statutes. With reference to individual liability, corporations have been divided into : 1. Unlimited Liability Corporations, or those in which each stockholder is personally liable for all debts of the corporation. 2. Single or Limited Liability Corporations, in which the individual stockholders are liable only to the amount of their unpaid stock subscriptions. 3. Double Liability Corporations, in which the stockholders are liable to the full amount of the stock subscribed for. Note — In some states, Limited Liability Corporations are required to affix the word "Limited" to their corporate name, whenever the same is publicly used. Corporation Finances. The profits or losses of a corporation are apportioned among the stockholders according to the amount of capital stock respectively held by them. Dividends are distributions of profits, being designated as a certain percentage of the stock upon which the distribution is based. Thus, by a "six per cent dividend" is meant such a distribution of profits as will entitle each stockholder to an amount of profit equal to six per cent of the par value of the stock which he holds. Assessments are levies made upon stockholders, of a certain percentage of tlie stock held by them, the motley thus raised being used for any legitimate purpose that niay be decided upon by the management of the company. Assessments are usually made to cover deficiencies, or to meet expenses for which the available resources of the company are inadequate. An Installment is a part payment of a stock subscription. Sometimes stock sub- scriptions are required to be paid in full at a specified date after the subscription is signed, and sometimes the subscriptions are paid in installments of a certain per cent of the par value of the stock. Frequently, paid-up stock is issued to certain of the stockholders of property transferred, or services rendered to the corporation. • The time and manner of paying for stock subscription, is purely a matter of mutual contract among the stockholders. CORPORATION AND VOUCHER ACCOUNTING. Classes of Stock. Not all the stock issued by a corporation assures the same rights, privileges, and profits to the persons to whom it is issued, and this variation in the conditions and limitations under which stock is issued, gives rise to several classes of stock, the more important of which are here designated as follows : — 1. Common Stock. This is the ordinary stock that is subscribed for when a company is organized, and which is issued to the incorporators when paid for in accordance with the terms provided by the articles of incorporation. 2. Treasury Stock. This is unissued stock that is reserved and held in the name of the company, as an asset to be disposed of as the exigencies of the business may require. 3. Preferred Stock. In the organization of a company, it is often desirable to issue a portion of the stock under conditions that shall entitle it to a regular specified dividend which is to be paid out of any accruing profits — and which must be paid, before any divi- dends are apportioned to the common stock. The stock thus favored is known as "Preferred Stock" or "Preferential* Shares." If the stock is entitled to the dividend, whether or not any profits have been made, the amount bein.g' carried over from year to year, the total divi- dends for each year being finally paid when there are sufficient profits, the stock is known as "Cumulative Preferred" or "Guaranteed" stock. Preferred stock, however, is not entitled to any dividends in excess of the amount speci- fied, and for this reason, it comprises a more stable and less speculative investment than the ordinary stock, which, under some circumstances, may earn a very high rate of dividends and under others, none at all. 4. Donated Stock. This is stock which is contributed pro rata by the several stoclc- holders, and to be sold for the purpose of raising needed funds to carry on the business. It is transferred to the company and held in reserve as an asset the same as Treasury Stock. Franchise. A franchise is any special privilege granted to a corporation by a mu- nicipal council or other law-making body. Franchises include such privileges as the right to use the streets of a city for a street car line, for water or gas pipes, telephone or electric lighting appliances, etc. A franchise is usually granted for a term of years, and is in the nature of a contract between the companv receiving it and the municipality b);^ which it i« granted. Bonds. Bonds are the written or printed obligations of public or private corpor- ations, to pay specified sums of money, with interest on the same, in accordance with the terms named in the instrument. Bonds usually run for a term of years, the interest being payable quarterly or semi-annually, and represented on the instrument by detachable cob pons, which are presented for payment as they mature. The bonds of private corporations are usually secured by mortgage, or other lien on the stock or other property of the corpor- ation. The Earnings of a company are the receipts derived from carrying on its business. Gross Earnings are the total receipts ; Net Earnings are the profits that are left after pay- ing all expenses. Securities. This is a general term for Bonds, Notes, Stocks, etc. When such se- curities are deposited as a basis for loans, they are known as Collateral, and the operation of thus depositing them is known as Hypothecation. Fund. This term implies cash that is set apart as a reserve for any specific purpose, related to the business of a corporation. The cash belonging to a company or a municipality is often distributed, or classified into a number of fun'ds, proportioned to the probable re- quirements of each, as the Contingency Fund, Reserve Fund, Salary Fund, Advertising Fund, Sinking Fund, etc. This method of disposal is sometimes a great aid in the systematic management of the corporation finances. Bonus. This is an amount either given or received by a corporation, on account of some special privilege growing out of its business. Thus, the people of a community may grant a bonus of cash or other property to a company in consideration of the general and public benefits arising from its establishment in the community as an industrial enterprise. On the other hand a corporation may pay a bonus to a city or town for the privileges con- ferred under its franchise. ORGANIZATION— BOOKS REQUIRED. Corporation Accountancy. In their application to corporation affairs, the principles of bookkeeping are the same as those employed in other business undertakings. The laws of debit and credit are of course universal in their application, whether the business be conducted as an individual or a corpor- ate proprietorship. But the peculiar relations sustained by the members of a corporation to the business it- self, the representation of the proprietorship interest by means of stock, and the method of apportioning losses and gains, gives rise to a number of accountancy requirements and meth- ods, that are not employed in individual or partnership concerns. With respect to bookkeeping requirements, corporations may be grouped into two gen- eral classes : — First, the so-called "close corporations," or those in which the stock is permanently held by a few individuals, there being few changes in the personnel of the stockholders, and few or no transfers of stock. Second, the "open corporations," or those in which a considerable part of the stock is on the market, being commonly dealt in for speculative or investment purposes, there being a large number of stockholders, with frequent transfers of stock. Corporations of this class are, for the most part, heavily capitalized concerns, that do an extensive business, having their headquarters in some large city, with branch offices in other parts of the country. Of these two classes of corporations, the smaller, or close corporations, are much the more common. They often consist of ordinary business partnerships that, for greater con- venience and stability of operation, have been re-organized in the form of corporations. For obvious reasons, the accountancy methods adapted to the use of this class of com- panies, are of more importance to the average student than are those special books and de- vices that are used only by the great concerns, that have their offices in the larger cities. For this reason, the scheme of corporation accountancy given in the present course has been selected with a view to illustrate the needs of ordinary incorporated concerns such as are to be found in nearly every business community, and with the usual bookkeeping meth- ods of which every student of accountancy needs to be familiar. The books and accounts required to be kept in a corporation business may be divided into two distinct groups : — 1. The Corporation Books are those that relate to the stockholders as con- tributory proprietors and owners. These include the Installment Book, Stockholders' Ledger, Installment Ledger, Assessment and Dividend Book, etc. 2. The Operating Books are those that relate to the general mercantile or industrial operations of the company, as the Journal, General Ledger, Cash Book, Sales Journal, etc., and which are kept in the same manner as though the business were not in- corporated. We shall first offer a general description of the Corporation Books, and their purpose, and afterward illustrate the use of these in the case of a suppositional corporation. At the outset, it is well to emphasize the fact that there is much variation among corpor- ations as to the form and kinds of books used. These will be determined by the nature of the business and the conditions under which the corporation is formed and conducted. Note — The corporation books described in the following pages, correspond to those that are to be used in conducting the affairs of the Central Canning and Drying Co., hereafter to be introduced, and should be care- fully studied. They will serve also to illustrate the methods of accounting usually employed by the majority of incorporated business concerns. Books Required for the Organization of a Corporation. If the corporation represents the inauguration of a new business enterprise, several books and forms will be required, that may not be needed in the case of a company whose business has been previously conducted as an individual proprietorship or a partnership. In the latter case, paid-up stock is likely to be issued to the several stockholders as soon as the incorporation is formed, and there may be no necessity for either a Stock Subscription Book, or any provision for installments. Assuming, however, the formation of a corporation for the establishment of a business, CORPORATION AND VOUCHER ACCOUNTING. in which all or a part of the stock is to be subscribed and paid for in installments at such times as the capital may be needed in developing the business, it would be necessary at the time the first installment is payable, to open an Installinent Book. In this book the stock subscribers are listed each time an in- stallment is called in, the several amounts due being recorded opposite their names, with col- umns for amount and date of payment, etc. A form of this book is shown on page 13. Note — Unless there are a large number of stockholders, and several installments are to be paid, it would be unnecessary to keep accounts of the installments in a separate book. Loose sheets could be used for each installment, these being afterward attached in the front part of the Installment Ledger. Installment Certificate BooK. This book consists of Installment Certifi- cates, or receipts for installment payments, which are issued to the stockholders at the time the payments are made. These certificates are often referred to as "installment scrip." They are transferable, and when the final installment is paid, are surrendered and stock cer- tificates are issued in their stead. See form on page 12. The Installment Ledger is a book in which each stockholder is charged with the par value of the stock for which he has subscribed (as shown by the Stock Subscription Book) and credited for the several installments as they are paid, the latter being posted from the Installment Book. When the final installment is paid, the account is closed, the several installment certifi- cates are surrendered, and a stock certificate for the full amount of the subscription is issued to the stockholder, who is then credited in the Stockholders' Ledger for this amount. When an installment certificate is transferred, the person to whom it is transferred is debited for the number of shares covered by the certificate, and the person transferring them is credited. The Installment Ledger is merely an auxiliary and temporary book, its purpose being to give an exhibit of the various stockholders' accounts preceding the payment in full of their several stock subscriptions. When the subscribed stock is all paid for, the Installment Ledger ceases to be active. It would not be needed at all unless the stock subscriptions are to be paid in a series of installments. See form on page 14. Stock Certificates. When the stock subscribed for by any subscriber is paid in full, either by installments or otherwise, the secretary issues to him a Stock Certificate, as an evidence of such payment, and of his legal ownership of the stock represented by the cer- tificate. The Stock Certificate Book contains the stock certificate blanks and corresponding stubs. These certificates are issued to stockholders when the stock represented by them is fully paid up. They are issued in such denominations as the stockholder may wish, usually in "blocks" of five, ten, twenty, or one hundred shares. See form on page 15. The Stockholders' Ledger. This book contains a record of all shares issued to the several stockholders, also of the certificates surrendered, transferred, or re-issued. Its entries come from the Stock Certifi- cate Book, and it should always show the exact amount of stock that is controlled by the several stockholders. See page 16. Transferring Stock. At any time in the history of a corporation, it is likely that some of the prospective or actual stockholders may wish to transfer their interests, wholly or in part, to other parties. In fact, the right of a stockholder thus to transfer his interests, and without the consent of the other stockholders, is one of the principal distinctions between corporations and ordinary business partnerships. A stockholder may not, however, by the transfer of his stock, escape his liability for any corporation debts that exist at the time the transfer is made. Neither may a subscriber for stock that is partially paid up, escape liability for the remainder of the subscription, by trans- ferring his Installment certificates. If the person to whom these certificates are transferred defaults in the payment of the remaining installments, the company retains the right to col- lect them from the original subscriber. TRANSFERRING STOCK. The holder of either a stock or an installment certificate may transfer it by a proper and legally certified assignment, a form of which is usually printed on the back of the certifi- cate. Transferring Installment Certificates. When an installment certificate is transferred and the transferee presents it for record, the transferred certificate is cancelled (usually by writing across the face in red ink the word "transferred") and re-attached to its original stub. A new certificate for the same amount is then issued to the transferee. The person who made the transfer is then credited in the Installment Ledger for the amount of the stock transferred, and the account of the transferee is debited for the same amount. Should the holder of a certificate wish to transfer a portion of his holdings, and for an amount not represented by any certificate held by him, he first surrenders the certificate (or certificates) already issued, which is cancelled and re-attached to the original stub. Other cer- tificates are then issued equal in amount to the certificate surrendered, and of whatever de- nominations are desired. The subscriber is credited in the Installment Ledger for the cer- tificates surrendered, and debited for those re- issued. Either of the new certificates may then be transferred as previously explained. Transferring Stock Certificates. Stock Certificates are transferred in the same manner as installment certificates, but the entries made in the Stockholders' Ledger are just the opposite of those required in the Installment Ledger, that is, when a stock certifi- cate is surrendered the stockholder is debited, and when a certificate is issued the stockholder is credited. The reason for this difference is obvious, since, in the Installment Ledger, the holder is debited for stock subscribed, while inthe Stockholder's Ledger he is credited for all shares issued. There should be records in the Installment Ledger or the Stockholder's Ledger for every certificate issued, surrendered, transferred, or re-issued. For an illustration of the manner of recording transfers, see the account with R. C. Venable in the Installment Ledger on page 14, also in the Stockholder's Ledger page 16. The Corporation by-laws should always provide that transfers of stock shall be recorded in the corporation books. Otherwise, it would be impossible to know who the stockholders of a corporation are; neither would it be possible for the corporation bookkeepers to know what persons are entitled to dividends or liable for assessments, or for the officers to know the number of votes which the several stockholders are entitled to cast at elections, etc. When assessments are to be levied or dividends declared, it is customary to close the books against transfers for a short time before the assessment or dividend is to be paid. This is necessary in order that the bookkeepers may have time to make the proper apportionment among the stockholders. Levying and Collecting Assessments. Stock may be assessable or non-assessable, according to the agreement under which it is issued. W^hen assessments are permitted, they may be levied either by the directors of the corporation, or by a vote of the stockholders, as may be determined by the by-laws of the corporation or by the statutes of the state in which the incorporation was made. If assessments are not paid, the stock may, after due notice, be declared forfeited and may then be sold, the proceeds being used to pay the assessment, and the remainder, if any, being returned to the person whose stock was sold. There is much variation in the laws of the several states, as to the terms and conditions governing assessments and the forfeiture of stock for non-payment. Assessment BooR. When an assessment has been decided upon, a list of the stockholders is made in the Assessment Book, a form of which is shown on page 17. If there are but a few stockholders, and if assessments are seldom made, a special book is not re- quired, an assessment list being simply made out on a sheet of paper ruled for the purpose. The assessment list shows the num1)er of shares upon which each stockholder is assessed, the amount, date of payment, etc. The assessment lists are numbered in the order the assess- ments are made, the first list being "No. One," the second "No. Two," and so on. CORPORATION AND VOUCHER ACCOUNTING. Notice of Assessment. When an assessment has been levied, a proper notifica- tion, duly signed by the president and the secretary of the company, should be mailed to each stockholder. The following would be an appropriate form for such notification : Hampton, III., June 17, 1901. Mr. N. A. Walters, Vinton, Iowa. Dear Sir : — At a legally called meeting of the stockholders of the Hampton Milling Co., which was held at the company's office in this city on June 15, 1901, it was decided by a majority vote of the stock represented at said meeting, to levy an assessment of five (5) per cent of the par value of all the common stock of said company, the same to be paj'^able in cash to C. W. Moore, treasurer, at the company's office in this city, on or before July i, 1901. It was further voted that payments of said assessments, if not made on or before Aug. I, 1901, should be declared delinquent, and that all stock upon which said assessments had not been paid should, after published notice, be sold at public vendue on vSept. i, 1901, at two o'clock p. m. at the company's office in this city. The amount of said assessment standing against your name as holder of Certificate No. 12', Fifty Shares, is Two Hundred and Fifty Dollars ($250) and you are hereby notified to pay the same in accordance with the terms of this notification. Very respectfully, J. B. Wilson, President. Chas. S. Blake, Secretary. Note — In some states the law provides that notices of assessment may be legally made by publication for a specified period in any newspaper of general circulation in the community where the company is located. Declaring and Distributing Dividends. Dividends are usually declared by a majority vote of the Board of Directors, and they can be legally paid out of accumulated profits only. WHien sufficient gains have- been made to justify the declaring of a dividend, the books are closed in the usual manner, after which the Loss and Gain Account is closed into "Sur- plus" and "Dividend No. One," a journal entry being made in the following form : Loss and Gain $13767.25 Dividend No. i 12500.00 Surplus 1267.25 For net gains carried to Div. No. One and Surplus for a five per cent dividend on the issued stock, $250,000. Note — The dividend accounts are designated by number, and in the order in which the several dividends are declared. A list of the stockholders is then made out in the Dividend Book, the several columns being filled out, as shown in the form of this book on page 17. When the dividends are paid, an entry is made on the credit side of the Cash Book as follows : Dividend No. i 12500. For dividends paid as per Dividend Book, page 17. Illustrative Erxample. To afford the student an illustration of the practical use of the books described in the preceding pages, and of the general procedure required, we now assume the organization of a corporation, the Glendale Creamery Co., of Cedar Rapids, Iowa, and give in their order the assumed facts, and, in complete form, the various books and entries required. The student is recommended to study these books and entries carefully, and in connec- tion with the description of the books as previously given. GLENDALE CREAMERY CO. Memoranda of the Glendale Creamery Co. 1. A number of persons having interested themselves in the formation of this company, and promises having been secured for sufficient stock subscriptions to justify its incorpor- ation, the several incorporators held a meeting for the purpose of effecting a temporary or- ganization, and attaching their signatures to a Stock Subscription Agreement. The following minutes of this meeting appear on the Minute Book : Cedar Rapids, Iowa, March i, 1900. Upon the above date the proposed incorporators of the Glendale Creamery Co. held a meeting at the office of John S. Cooper, in the city of Cedar Rapids, for the purpose of at- taching their signatures to a Stock Subscription Agreement, and for the purpose of taking steps for the permanent and legal organization of the company. John S. Cooper was elected chairman and T. S. Maynard secretary. The chairman then announced that promises had been secured for subscription of the entire amount of stock of the proposed corporation, and he suggested that before proceed- ing further, the incorporators present attach their signatures to the Stock Subscription Agreement, and that the same be duly certified to, and made a part of the company records. The suggestion was complied with, and subscriptions of stock to the amount of Fifty Thou- sand Dollars were duly signed and certified. Moved by Mr. Stacy that a committee of three incorporators be appointed by the chair- man to prepare Articles of Incorporation, said committee to make its report at a meeting to be subsequently called by the chairman. The motion was carried and the following gentle- men were appointed by the chairman to serve on such committee : Chas. M. Stacy, Homer Allen, and M. F. Thompson. After some further informal discussion of the prospects and affairs of the proposed company, the meeting was adjourned subject to the call of the chairman. T. S. Maynard, Secretary. Approved March 5, 1900. John S. Cooper, President. The following is the Stock Subscription Agreement, as signed and certified at the meet- ing referred to: Stock Subscription Agreemen Cedar Rapids, Iowa, March i, 1900. We, the undersigned, hereby subscribe for shares of stock in the Glendale Creamery Co., a corporation to be organized under the laws of the State of Iowa, the same to have a capital- ization of Fifty Thousand Dollars ($50,000), to be divided into Five Hundred (500) Shares of One Hundred Dollars ($100) each. The said shares subscribed for are of the numbers and amounts hereunto set opposite our names, and are to be paid for in full under such rules as may hereafter be legally adopted by the incorporators of said company. NAME RESIDENCE NO. OF SHARES AMOUNT Chas. M. Stacy Cedar Rapids, la. One Hundred $10000 Homer Allen Marion, la. Fifty 5000 R. C. Venable Marion, la. One Hundred and Fifty 15000 John S. Cooper M. F. Thompson Cedar Rapids, la. One Hundred • 10000 Cedar Rapids, la. Seventy-Five 7500 T. S. Maynard Cedar Rapids, la. Twenty-Five 2500 10 CORPORATION AND VOUCHER ACCOUNTING. Personally appeared before me, a Notary Public in and for the County of Linn, State of Iowa, the persons whose names are hereunto recorded, and who in my presence voluntar- ily signed the same, as subscribers for stock in the Glendale Creamery Co., to the amounts set opposite their names in the foregoing Stock Subscription Agreement. In witness whereof, I have hereunto set my name and the official seal of my office, at the City of Cedar Rapids, County of Linn, State of Iowa, this first day of March, 1900. John S. Cooper, [seal] Notary Public. Note — The following Stock Subscription Agreement illustrates the form required for the incorporation of a partnership business in which the partners are to receive paid-up stock for their respective interests, other stock being subscribed by outside parties. Stock Subscription Agreement for the Formation of the Delavan Hardware Co. Arcade, Wis., Jan. i, 1901. We, the undersigned, hereby agree to subscribe for the number of shares and amounts of stock set op- posite our names, in the Delavan Hardware Co., an incorporation to be formed under the laws of the State of Wisconsin, and in accordance with the following conditions, to-wit : The members of the firm of Delavan,^ Randall & Co., in consideration of the legal transfer of all their interest in the property, business and good will, or other resources of said firm, also their liabilities which are to be assumed by the proposed incor- poration, and all of which resources and liabilities are as set forth in the duly certified financial statement, of this date already submitted and hereby accepted, are to receive and have issued to them paid-up stock in said proposed incorporation, as follows : — Henry F. Delavan ; Forty Shares, $4000. John S. Randall; Thirty Shares, .S3000. Amos Long; Thirty Shares, $3000. The shares subscribed for by the undersigned and which are to be paid for in cash at their par value, and at such time as may be determined by the directors of the corporation, are as follows : — A. T. Smith ; Ten Shares, $1000. S. H. Day ; Fifteen Shares, $1500. P. S. Johnson; Twenty Shares, $2000. R. W. Miller; Five Shares, $500. 2. At a subsequent meeting on March 5, 1900, called to hear the report of the committee appointed at the meeting of March i, a permanent organization was effected by the adoption of the following Articles of Incorporation and by the election of the officers named : Articles of Incorporation for the Glendale Creamery Co. of Cedar Rapids, lowra. We, the undersigned, desiring to form ourselves into a body corporate, under the laws of the State of Iowa, do, for this purpose adopt for our organization, and as a basis for said incorporation, the following Articles of Incorporation: ARTICLE I. The name of this corporation shall be The Glendale Creamery Co., and its principal place of business shall be Cedar Rapids, in the County of Linn, State of Iowa. ARTICLE II. . The purpose for which this corporation is formed is the carrying on of a general dairy- ing and milk supply business, both wholesale and retail, and the manufacture and sale of dairy products of all kinds, also the acquisition of lands, buildings, machinery and such other property as may be necessary for carrying on the said business, and to do such other acts as are usually done in connection with the management of said business. ARTICLE III. The amount of the Capital Stock of said corporation shall be Fifty Thousand Dollars ($50,000) to be divided into Five Hundred Shares of One Hundred Dollars ($100) each, the same to be issued only when paid for in cash or its equivalent. GLENDALE CREAMERY CO. 11 ARTICLE IV. This corporation shall be deemed to be in legal existence, and its officers, qualified to do business in its name from and after the filing of these Articles of Incorporation, in the Office of the Secretary of State for the State of Iowa, due notice of the same having been re- ceived by the corporation secretary, and shall continue in existence thereafter for the period of twenty-five years, unless sooner legally dissolved. ARTICLE V. The officers of this corporation shall comprise a President, Vice President, Secretary, Treasurer, and a board of five directors, two of whom shall be the President and the Secre- tary of the corporation, who shall respectively serve as the President and Secretary of the Board of Directors. These officers shall be chosen at the regular annual meeting of the cor- poration, and their terms of office shall continue until their successors have been chosen and have qualified. The duties of said officers shall be such as may be prescribed in the By-Laws of the cor- poration, to be hereafter adopted by said Board of Directors, as hereinafter provided for. ARTICLE VI. The affairs of this corporation, in so far as they are not regulated by these Articles of Incorporation or by the majority vote of the incorporators at any legal meeting, shall be un- der the control of the Board of Directors, who shall hold meetings, adopt By-Laws, and take such action as to the affairs of the company, as may seem to them advisable. ARTICLE VII. The regular annual meetings of this corporation shall occur on the first Tuesday in April, of each year, at such place and hour as may from time to time be designated by the Board of Directors. Until the occurrence of the first annual meeting, on the first Tuesday in April, 1901, the following persons are hereby elected to serve in the offices designated: President — John S. Cooper. Vice President — Homer Allen. Secretary — T. S. Maynard. Treasurer — Chas. M. Stacy. Directors — John S. Cooper, T. S. Maynard, M. F. Thompson, R. C. Venable, Chas. M. Stacy. ARTICLE VIII. At all stockholders' meetings, each stockholder shall have one vote for each share of stock owned by him, as shown by the books of the corporation. ARTICLE IX. The greatest amount of indebtedness for which this corporation shall make itself liable, shall not at any time exceed two-thirds of its capital stock. ARTICLE X. The money of this corporation shall be paid out only by the treasurer, and upon war- rants duly signed by the president and the secretary, and there shall be kept in the offices of the secretary and the treasurer, all needed books and accounts necessary to show plainly and completely the financial transactions of these officers, the same to be always accessible to any stockholder who may wish to inspect them during regular business hours. CORPORATION AND VOUCHER ACCOUNTING. ARTICLE XI. These Articles of Incorporation may be amended at any regular meeting, or at any meeting called for the purpose, by a two-thirds majority of all stock voted. Witness our hands this 5th day of March, 1901. John W. Cooper. T, S. Maynard, M. F. Thompson. R. S. Venable. Homer Allen. Chas. M. Stacy. Note — The Articles of Incorporation may contain any other general regulations that the stockholders may wish to embody in them, but any minor matters, such as relate to the duties of officers, the order of busi- ness meetings, etc., should be included in the by-laws, the formulation and adoption of which are usuaMy left to the Board of Directors. 3. Upon the adoption and signing of the Articles of Incorporation, the document was re- corded in the office of the County Recorder and a copy was sent for record to the office of the Secretary of State, accompanied by the legal fees. When the Articles of Incorporation were returned with the certificates of record duly attached, they constituted the "Charter" of the corporation, which now began its legal ex- istence. 4. Upon the receipt of the Charter, the President called a meeting of the Board of Directors, which was held on March 20, 1900, and at this meeting it was decided to call in an install- ment of twenty-five per cent of the stock subscribed, the same to be due and payable to the Treasurer on March 22, 1900. The Secretary also made out Installment Certificates for each stockholder, the accom- panying form illustrating the one made out for Chas. M. Stacy: Form of Installment Certificate. Installment Certificate. Amount. $2500 00 100 Shares. Installment Certificate No. ^ ■jkj I Issued by GLE^NDALE CREAMERY COMPANY. March J_L±_ 190A Cedar Rapids, Iowa. March 21, ic)n__g_ This Certifies That Chas. M. Stacy Per cent 25 lias to his credit in the treasury of this Company the sum of Two Thousand Five Hundred _Dollars, the same being No. Shares ^^^ the ^^^^^ installment of 25 percent of ^^^ shares due March 21, 190 Amount $2500 00 This certificate is transferable only on the books of this company, upon surrender of same by the holder or his lawful representative. Received the attached Certificate. > I» evidence whereof we have duly affixed our signatures and the corporate seal this 21st day of March, iqq Chas.M. Stacy T. S. Maynard, Secretary. John W. Cooper, President. [SEAL] At this meeting action v^as taken as to the salaries to be received by the officers, a cor- porate seal was adopted, a superintendent and manager was elected, a committee of direc- GLENDALE CREAMERY CO. 13; tors was appointed to report upon a site for the company's plant, and to advertise for plans for buildings, bids for machinery, etc. The secretary was also authorized to purchase any needed books or other office equipment that might be necessary for conducting the affairs of the corporation, the same to be paid for out of the first funds that should be paid into the treasury. The Second National Bank of Cedar Rapids was chosen as the bank of deposit for the corporation funds. 5. The installments called for March 21, having been duly paid and certificates issued there- for, the Installment Book stands as follows : Installment No. — Comprising payments of an installment o f ^^ per cent of the Capital Stock of Glen- dale Creamery Co., called for at a meeting of the Board of Directors on ^^f. 20, iqqo, and due Mar. 22, iqqq. STOCKHOLDERS NO. OF SHARES AMOUNT NO.OF CERT AMOUNT RECEIVED L. F. DATE Homer Allen John W. Cooper M. F. Thompson T. S. Maynard R. C. Venable Chas. M. Stacy 50 100 75 25 160 100 1250 2500 1875 625 3760 2500 1 2 3 4 6 6 1250 2500 1875 625 3750 2500 1 1 1 1 2 ■ 2 March 21 21 22 22 22 23 Totals 500 12600 12600 6. On June i, the directors issued a call for another installment of stock subscriptions to the amount of 50 per cent, payable June 10, which installment was duly paid by the stockhold- ers. On Oct. 15, a call was issued for the third and final installment of 25 per cent, payable Oct. 20, which was duly paid, except the installment due from M. F. Thompson, payment of which was deferred until Dec. i. During this period, and before the final installments were paid, several transfers of installment certificates had been made. The forms on page 14 illustrate the several Installment Ledger accounts as they ap- peared on Nov. I. The student is advised to study each entry on these accounts, in connec- tion with the memoranda of transfers. Notice that each account is debited for the shares originally subscribed and for each in- stallment certificate subsequently issued ; also, that each account is credited whenever an in- stallment is paid or when a certificate is surrendered and cancelled. When all installments are paid or when a subscriber transfers all his stock, the account is closed. (Why is the account with M. F. Thompson not closed?) The following are the transfers of installment certificates made prior to the closing of the several accounts : Apr. 10, T. S. Maynard transfers his 25 shares to John W. Cooper. Apr. 25, M. F. Thompson transfers twenty shares to Chas. M. Stacy. Mr. Thompson first surrenders his installment certificate No. 3 (for installment No. i, 75 shares) and has two other certificates issued to him (Nos. 8 and 9.) He is first credited for the unpaid por- tion of the shares surrendered (75 per cent of $7500, or $5625.) If he had transferred all his shares, his account would now be in balance, but as he wishes to transfer but twenty shares, he is charged for the unpaid part of the shares represented by two new certificates to be issued to him, one for twenty and the other for fifty-five shares. As he now transfers the twenty shares, he is credited for the unpaid amount of these ($2000 x 75 per cent or $1500) and Mr. Stacy to whom they are transferred is debited for them. In studying these trans- fers, remember that the Installment Ledger must show an entry for every certificate sur- rendered, transferred, or issued. 14 CORPORATION AND VOUCHER ACCOUNTING. Installment Ledger. CHAS. M. STACY, Cedar Rapids, Iowa. No. of Shares Subscribed, Re-Issued or Transferred by Per Cent Unpaid No. of Cer. Amts. Dr. 1 Certificates Sur. or Transferred. Installments Paid Date Date No. of Shares Transferred to or Sur. Oft u 6 4^ . 0) o o « 0^^\y shares of the Capital Stock of The Glendale Creamery Company fully paid, transferable only on the Books of the Corporation, by him or his attorney, upon surrender of this Certificate. In Witness Whereof the officers of this Corporation have hereunto sub- scribed their names and caused the Corporate Seal to be hereto affixed at Cedar Rapids, la., ^^.j^ 18th ^^^ ^f October ^g^ T. S. MAYNARD, Secretary. JOHN W.COOPER, President. 7. The 'forms on page i6 show the several accounts in the Stockholder's Ledger as they ap- peared on March i, 1901, and after the following transfers of stock had been made: — November 15, T. B. Spencer to J. M. Stokes of Marion, Iowa, 20 shares. December 28, M. F. Thompson to Homer Allen, 55 shares. January 25, 1901, R. C. Venable to J. W. Cooper, 50 shares. Mr. Venable surrenders his certificate No. 3 for 175 shares and has four other certificates issued, three for 50 shares, and one for 25, transferring one of the former to Mr. Cooper. 8. On March i, 1901, a special meeting of the Board of Directors was called to consider the finances of the company. It was found that the available capital had been largely ex- pended in the purchase of plant, machinery, stock, etc., and that the payment of obligations soon to mature would produce a deficit in the funds. As it would be several months before profits would begin to accrue from the business, it was voted to levy a cash assessment of ten per cent on the capital stock, the same to be due and payable on or before March 15, 1901, and to be declared delinquent if not paid by May i, 1901. An assessment list was accordingly made out, and the form on page 17 shows this list as it appeared on the day of delinquency, May i, 1901. 16 CORPORATION AND VOUCHER ACCOUNTING. Stockholders' Ledger. T. B. SPENCER, Vinton, Iowa. SHARES TRANSFERRED OR SURRENDERED SHARES ISSUED, RE-ISSUED OR TRANSFERRED Date No. of Sh'r's. Transferred to No. of Cert. Amount Dr. Date No. of Shr's. Transferred by No. of Cert. Amount Cr. 1900 Nov. 15 20 J. M. Stokes 1 2000 1900 Oct. 21 20 Issued 1 2000 JOHN W. COOPER, Cedar Rapids, Iowa. 1900 Oct. 16 125 Issued 2 12500 , 1901 Jan. 25 50 R. C. Venable IS 5000 R. C. VENABLE, Marion, Iowa. 1901 1900 Jan. 25 175 Surrendered S 17500 Oct. 1901 17 175 Issued 3 17500 25 50 J. W. Cooper 11 5000 Jan. 25 25 25 25 50 50 50 25 Re-issued 1 :: 9 10 11 12 5000 5000 5000 2500 CHAS. M. STACY, Cedar Rapids, Iowa. 1900 Oct. 19 100 Issued 10000 HOMER ALLEN, Marion, Iowa. 1900 Oct. 21 26 Dec. 28 55 Issued M. F. Thompson 2500 5500 M. F. THOMPSON, Cedar Rapids, Iowa. 1900 Dec. 55 Homer Allen 1900 5500 Dec. 1 55 Issued 5500 J. M. STOKES, Marion, loiva. 1900 Nov. 15 T.B.Spencer 2000 GLENDAI.K CREAMERY CO. 17 Assessment List No. One. For Ten (lo) per cent of the Capital Stock of the Glendale Creamery Company, levied March i, 1901, and due March 15, 1901. Delinquent May i, 1901. STOCKHOLDERS ADDRESSES NO OF sh'r's AMT. OF ASSESSMENT AMT. PAID DATE REMARKS John W. Cooper R. C. Venable Cedar Rapids, la. 175 1750 1760 Mar. 16 Cash Marion, la. 1S5 1250 1250 Mar. 18 Note at 60 days Chas. M. Stacy Cedar Rapids, la. 100 1000 1000 Mar. 14 Cash Homer Allen Marion, la. 80 800 800 Mar. 19 Cash J. M. Stokes Marion, la. Totals 20 200 20G Mar. 15 Note at SO days 500 5000 5000 Note — This list is made out from the Stockholders' Ledger, as it stood on the day the assessment is levied. Pending the preparation of an assessment list, the books are closed against stock transfers. At the time an assessment is paid, the stockholder is given a receipt for the amount paid. The plant having been in successful operation for a number of months, the books were closed on Nov. i, 1901, when it was found that the net profits of the season amounted to $3256.75, that there was salable merchandise on hand to the amount approximately of $4000, and cash in bank, $8600. As there were no obligations, the discharge of which could not safely be met at maturity by future receipts, it was decided that the conditions warranted the declaring of a dividend. Accordingly the directors ordered that a Cash Dividend of five per cent of the capital stock be declared, the same to be due and payable on Nov. 15, 1901. Thereupon the bookkeeper made entries in the Dividend Book as per the accompany- ing form, and checks for the amounts due were mailed to the several stockholders. Dividend Book. Dividend Nov. 1, jgoj^ Dividend No. L Payable Nov. 15, iqq 1 Per Cent S STOCKHOLDERS ADDRESSES NO. OF SHARES AMT. OF. DIVIDEND WHEN PAID REMARKS John W. Cooper K. C. Venable Chas. M. Stacy Homer Allen John M. Stokes Cedar Rapids, la. Marion, Iowa. Cedar Rapids, la. Marion, la. Marion, la. Totals 175 125 100 80 20 875 625 500 400 100 Nov. 15 Nov. 15 Nov. 15 Nov. 15 Nov. 15 Check No. 85 " " 87 88 " " 90 " " 92 500 2500 Note — Dividends may be paid at the company's office, the stockholders appearing personally, receiving their money, and receipting for the same, or, especially if there are a number of stockholders, not all of whom may live near where the company's business is conducted, it may be found more convenient simply to mail to each stockholder a check for the amount, which, when endorsed and returned, constitutes a sufficient receipt. The latter method is followed by most large concerns. 18 CORPORATION AND VOUCHER ACCOUNTING. Entries Required by Transactions in the Foregoing Memoranda. Entries Required by Transactions in the Foregoing Memoranda. 1. As the company at the time of its organization owns no tangible property, no entry is required until the first installment is paid. At this time entries are made on the debit side of the Cash Book for the several installments as they are paid, the following being the form of entry : Mar. 21 Subscription 3750 For installment No. i paid by Homer Allen and John S. Cooper per Install- ment Book this date. These several entries are then posted to the credit of the Subscription Account in the General Ledger. When all the Installments have been paid, this account will stand credited with the full amount of the capital stock. 2. When the final installment is paid by a stockholder, and a stock certificate is issued, an entry is made in the Journal, debiting Subscription and crediting Capital Stock. The fol- lowing is the form of entry required : Oct. i6 Subscription 2000 Capital Stock 2000 For 20 shares issued to T. B. Spencer per Certificate No. 2. When all the stock has been issued and the several entries posted, the Subscription Ac- count will be in balance and should be ruled up and the Capital Stock Account will stand cred- ited with the entire amount of paid-up stock. ,3. When the Assessments levied on Mar. 5 are paid, Cash is debited to Assessment No. I , as follows : Mar. 15. Assessment No. i for 10 per cent of 1750 175 shares owned by John W. Cooper. 3. When the assessments are all paid and the payments posted, the account with Assess- ment No. I will stand credited with the whole sum levied, or $5000. The student will note that this account, while representing a loss to the individual stockholders, stands for a gain to the corporation, since it represents an increase in the working capital of the corporation for which there is no corresponding outlay. Hence in closing the books, this account is prop- erly included with the gains, although it represents an outlay on the part of the individual stockholders, for which there is apparently no return. In reality, however, this account simply stands for an increase in the investment which is not represented by a corresponding enlargement of the Capital Stock. It is not really a loss to the stockholders, since it, pre- sumably, is devoted to making their business more valuable. Neither is it really a gain to the business, since it does not represent actual profits. Instead of levying an assessment when a corporation needs an increase in its working capital, it is now more usual to provide for a further increase of stock, or to issue bonds or other interest-bearing obligations upon which money may be borrowed. When an increase in the working capital is anticipated at the time the corporation is organized, a certain amount of the capital stock is withheld from subscription, and reserved as "Treasury" or "Surplus" stock, to be sold at any time when it may be required to increase the funds of the company. Should it not be found necessary to sell this stock, it may subse- quently be distributed among the stockholders in the form of a "Stock Dividend," certifi- cates for the stock being issued, instead of cash, as in the case of an ordinary dividend. OPENING ENTRIES, ETC. 19 4. At the time the books are closed preparatory to declaring the dividend as ordered on Nov. I, the Loss and Gain Account is closed into "Surplus" and "Dividend No. i," as per the following Journal Entry:— = Loss and Gain 3256.75 Dividend No. i 2500.00 Surplus . 7567s For net gains carried to Surplus and Dividend No. I, for 5 per cent of issued stock, $50,000. When the dividends are paid the following credit entry is made in the Cash Book : — Dividend No. i 2500 For dividends paid as per Div. Book, page i. When the above entries are posted, the accounts with Loss and Gain and Dividend No. i will be in balance and should be ruled up, while the Surplus Account will represent undistrib- uted profits to the amount of $756.75, that may either be subsequently distributed by means of another dividend, or kept in reserve to cover possible losses, etc. The balance of the Surplus Account is treated as a liability when the books are closed.' Entries for Other Conditions of Openings. To the Student. Study carefully the following conditions and the entries given, after which write up the required entries for the test exercises that follow. Condition Number One. A corporation is capitalized for $60,000 ; of this amount $50,000 is subscribed for, and the remaining $10,000, is reserved as Treasury Stock. Required Entries. At the time the reserve is made this entry is made in the Journal : Treasury Stock loooo" Capital Stock ■ loooo For amount of stock reserved to be disposed of as future exigencies may require. When Treasury Stock is sold, debit Cash (or whatever is received) and credit "Treas- ury Stock." When the Stock is issued, no entry is required in the Journal, since the Stock has al- ready been passed to the Capital Stock Account. This method of entry will, when all stock is issued, leave the "Treasury Stock" ac- count in balance, and the "Capital Stock" account credited with the entire amount of issue. The Treasury Stock of a company may be sold for less or more than its face or "par" value, according as its market price, may vary. In this case the margin of discount or prem- ium is carried to an account called "Stock Discounts and Premiums." The following entries illustrate those required when Treasury Stock is sold below or above par. ^ Cash 4750 Stock Discounts & Premiums 250 Treasury Stock 5000 For fifty shares of Treasury Stock sold this day at 5 per cent below par, and issued to F. M. Brown. Cash ; 2550 Stock Discounts & Premiums 50 Treasury Stock 2500 For twenty-five shares Treasury Stock sold this date at 2 per cent above par, to N. S. French. 20 CORPORATION AND VOUCHER ACCOUNTING. Condition No. T-wo. The printing house of S. T. Jones & Co., that has been conducted as a partnership by S. T. Jones, James Long and A. H. Piatt, is to be incorporated, under the name of The Jones Printing Co., under a capitaHzation of $45,000, to consist of 900 shares of $50 each. Of these, the three partners are to receive 300 shares each of paid-up stock for their respective interests. The assets of the business, as turned over to the corporation by the partnership are as follows : — Cash $ 5000.00. Plant (Presses, Machinery, type, etc.) 20000.00. Mdse. (Paper, blanks, and other salable products per Invt.) 3528.75. Bills. (Receivable notes rec'd. in settlement of outstanding accounts) . 2348.20. $30876.95. Required Entries. It is assumed that the partnership books have been closed, that a satisfactory adjustment of previous gains or losses has been effected, that the books prev- iously used in the business are to be continued, and that the respective partner's accounts stand credited with the total amount of net capital as follows : S. T. Jones ..Cr. $10756.50. James Long Cr. 9873.80. A. H. Piatt Cr. 10246.65. $30876.95. The following entry is now made in the Journal : — S. T. Jones 10756.50 James Long 9873.80 A. H. Piatt 10246.65 Franchise 14123.05 Capital Stock 45000 For capitalization of Jones Printing Co. as this day agreed upon, and as per closing statement of the books of S. T. Jones & Co., for Jan. 15, 1901. The above entry, when posted, will close the partner's accounts, and leave the books in balance as follows : — Dr. Cr. Cash 5000 Plant 20000 Mdse 3528.75 Bills Rec 2348.20 Franchise 14123.05 Capital Stock 45000 The Franchise Account, as here employed, shows the difference between the actual working capital of the business, and the Capital Stock. It may represent that part of the con- cern's resources which is implied by the term "good will," or it may stand for those "future prospects" which are assumed to render the total value of the business greater than the mere amount of its visible assets. The great majority of corporations are capitalized for amounts much beyond the inventories of their working capital, or assets, and the Franchise Account is a convenient title under which to include this seniorage of capital. Note — ^The Franchise Account is so called, because it frequently represents (especially in street car, gas, or other municipal corporations) the value covered by a franchise owned by the company. OPENING ENTRIES, ETC. 21 Condition Number Three. The hardware business hitherto conducted by the partnership firm of Wade & Miller is to be incorporated under the name of the Western Hardware Co., according to agreement as follows : — The capitalization is to be for $40000, and to consist of 400 shares of $100 each. J. H. Wade is to receive 150, and E, B. Miller 100 paid-up shares for their respective interests in the business to be incorporated. Other parties subscribe for stock as follows : — Arthur Nelson 50 shares. S. T. Boone 25 shares. S. Lindsay 15 shares. P. J. Norman 10 shares. Fifty shares are to be reserved as Treasury Stock, to be disposed of as the stockholders may determine. At the time of. the incorporation, the resources and liabilities of the firm of Wade & Miller are as listed in the following statement: — Resources : Cash on hand and in bank 2568.20 Mdse. per inventory 9256.90 Chattels per inventory 1562.10 Real Estate, Store Building and lot (estimated) 6000,00 Bills Receivable 642.50 Accounts Receivable 2429.40 Interest accrued on accounts and notes 75 -OO Liabilities : Bills payable 179. Accounts Payable 1 121.40 Interest accrued on notes 25. J. H. Wade, Partner • 12132.55 E. B. Miller, Partner 9076.15 22534.10 22534.10 It is decided that the stock subscribed shall be paid in in four equal installments one month apart, the first installment to be due and payable immediately. This installment is accordingly paid in Cash. Required Entries. When Wade and Miller receive their stock the following Journal entry is made : — J. H. Wade 12132.55 , E. B. Miller 9076.15 Franchise 379I-30 Capital Stock.' 25000 For incorporation of Wes tern Hardware Co. according to agreement this day entered into between J. H. Wade, E. B. Miller, Arthur Nelson, S. T. Boone, S. Lindsay, and P. J. Norman, and in accordance with an exhibit of the books of the firm of Wade & Miller as shown by closing statement of this date. This entry closes the partners' accounts, shows excess of capitalization over net assets, and credits capital stock with the whole amount of shares issued. 22 CORPORATION AND VOUCHER ACCOUNTING. When the first installment of this subscribed stock is paid, debit cash to subscription; and when this stock is issued, debit Subscription and credit Capital Stock in the Journal as in the case of the Glendale Creamery Co., page i8. The reserved Treasury Stock is shown by the following entry : — Treasury Stock 5000 Capital Stock . 5000 For Fifty Shares of Treasury Stock in Western Hardware Co., which is reserved for future disposal as may hereafter be decided upon. Suppose that, after a time, it is decided that the sale of Treasury Stock is unnecessary, and the directors should order it retired. This would be done by the following Journal entry : — Capital Stock 5000 Treasury Stock 5000 For fifty Shares reserved Treasury Stock retired this date. This entry would close the account with Treasury Stock, while the balance of the Cap- ital Stock Account would show the amount of Capital Stock issued. Condition Number Four. Henry Bell, C. W. McCloud, and S. T. Smith have been conducting a tanning busi- ness under the firm name of McCloud, Bell & Co. They have decided to reorganize and in- corporate their business under the following conditions : The concern is to be capitalized for $30000, 300 shares of $100 each. The partners are to receive paid-up stock for their respective interests as follows : Henry Bell, 100 shares. C. W. McCloud, 60 shares, S. T. Smith, 40 shares. Of the remaining capital stock, 75 shares are to be subscribed for by other parties and the remaining 25 shares to be held in reserve as Treasury Stock. The corporation is to be entitled "The McCloud Tanning Co." On Jan. 10, 1901, the subscription stock has been subscribed as follows: * N. S. Brown, 20 shares. Chas. Halloran, 25 shares. C. S. Atkins, 15 shares. A. L. McGuire, 15 shares, and the company was duly organized. The following statement of the transferred assets and liabilities is submitted and ac- cepted : Assets : Plant, machinery, tools, etc 6567.80 Mdse., leather and hides on hand 5250 Operating products, tan bark, fuel, etc 1275 Notes Receivable 426.50 Harmon Leather Co. on acct 397.20 Liabilities: Notes Payable i57-90 Union Market Co. on acct 129.50 SPECIAL CONDITIONS WITH ENTRIES. 23 On Jan. 15, a cash installment of 25 per cent of the subscribed stock is paid, and the certificates of stock agreed upon are issued to the original partners. At this time, a new set of corporation books are opened, the books of the former part- nership being dispensed with. On Jan. 20, the remainder of the stock subscriptions are paid in cash, with the excep- tion of the subscription of A. L. McGuire, who gives his note at 60 days with approved se- curity. The stock is issued in full to all subscribers. On Jan. 25, the 25 shares of Treasury Stock are sold to the Union Market Co., they receiving credit for the amount due on their account and paying cash for the balance. On Apr. 25, the concern being in need of further capital to develop the business, the stockholders by mutual agreement, donated 20 per cent of the stock held by them, the same to be sold and the proceeds devoted to the business. On May 2, 20 shares of the donated stock were sold at par to C. W. Johnson for cash. On May 16, 10 shares of the donated stock were sold at 5 per cent below par to Arthur Williams, on his note at 30 days. R.equired Entries. When the statement of assets and liabilities of the former partnership is rendered and accepted and the stock issued, the following entry is made in the Journal: Plant 6567.80 Mdse 5250. Operating Products 1275, Bills Receivable ; 426.50 Harmon Leather Co 347-20 Franchise 6420.90 Bills Payable I57-90 Union Market Co 129.50 Capital Stock 20000. For inventoried assets and liabilities this day transferred by the firm of McCloud, Beil & Co. to "The McCloud Tanning Co." in consideration of 200 paid-up shares of the stock of said corporation and which have this day been issued as per agreement to the members of said firm. In the foregoing entry no account is taken of the several partners' accounts, since these do not appear in the corporation books. Notice that the amount charged to Franchise is the difference between the sum of the assets, and the liabilities plus that portion of the Capital Stock issued to the former partners. When the first installment is paid, the following entry is made on the debit side of the Cash Book: — Subscription 1875 For cash installment (No. i) by N. S. Brown, Chas. Hallor- an, C. S. Atkins, and A. L. McGuire per entries in Installment Book, this date. The Treasury Stock is provided for by the following Journal entry : — Treasury Stock 2500 Capital Stock 2500 For 25 shares Treasury Stock reserved. When the final installment on the subscribed stock is paid in, make debit Cash Book entry for portion paid in cash as follows : — Subscription , 4500 For Cash installment No. 2, bal. due on stock subscriptions of N. S. Brown, Chas. Halloran, and C. S. Atkins, per Installment Ledger this date. 24 CORPORATION AND VOUCHER ACCOUNTING. For the payment of remainder of A. L. McGuire's subscription with note, the following Journal entry is made : — Bills Rec 1 125 Subscription 1125 For Installment No. 2, 75 per cent of A. L. McGuire's subscrip- tion of 15 shares paid with his note of this date. Certificates of stock are then issued to the several subscribers, their accounts are closed in the Installment Ledger and opened in the Stockholders' Ledger, and the following Journal entry is made : Subscription 7500 Capital Stock 7500 For 75 shares of paid-up subscription stock, issued this day as follows : — N. S. Brown, 20 shares. Chas. Halloran, 25 shares. C. S. Atkins, 15 shares. A. L. McGuire, 15 shares. When the twenty-five shares of Treasury Stock are sold to the Union Market Co., make the following Journal entry: — Cash 2370.50 Union Market Co 129.50 Treasury Stock 2500. For 25 Shares Treasury Stock issued this day to Union Market Co. and paid for with offset of amount due them on our account, and cash per balance. When the stock is donated by the several stockholders, the following Journal entry was made: Donated Stock 6000 Loss and Gain 6000 For 20 per cent of the capital stock contributed pro rata, by the several stockholders and this day assigned to the McCloud Tan- ning Co. to be sold for the benefit of the business. Note — This method of raising necessary funds is often employed instead of levying an ordinary assess- ment. Like an assessment, the stock donated constitutes a clear gain to the business, since it is an acquired resource for which there is no corresponding outlay, and it is therefore debited and Loss and Gain is cred- ited. It may be entered either at par or at its market value. The Donated Stock Account is credited when the stock is sold, and since it may be sold at variable prices, the account, when all the stock is sold, may show either a debit or a credit balance, according to whether it was sold for a greater or a less amount than that for which the account was originally debited. If a balance is shown when all the stock is sold, the account is closed into Loss and Gain. When the 20 shares are sold to C. W. Johnson, the following entry is made in the Cash Book :— Donated Stock 2000 For 20 shares sold at par to C. W. Johnson as per Cer. No. 9. When the 10 shares are sold to Arthur Williams, the following Journal entry is made: — Bills Rec 950 Donated Stock 950 For 10 shares sold at 5 per cent below par to Arthur Williams as per Cer. No. 10 on his note at 30 days. PRACTICE EXERCISES. 25 £,Xf:KCIS£S. Prepare entries (as specified) for each of the following schemes of Incorporation, re- ferring, if necessary, to previous instructions. Note — Use loose Journal paper for the following exercises and make no entries in your blank books. Corporation No. 1. The Lawndale Manufacturing Co. is incorporated on Jan, 15, 1901, for $75000 (shares of $100). Of this amount $60000 is subscribed as follows: C. R. Smith, 200 shares. M. Wilson, 125 shares. L. W. Neal, 1 50 shares. I. N. Thayer, 75 shares. A. C. Hill, 50 shares. The remaining 150 shares are reserved as Treasury Stock. The subscription agreement is signed Jan 15. On Feb. i, Mr. Smith pays cash for his stock in full, and the remainder of the stock- holders pay a cash installment of 75 per cent. Mar. I they pay cash for the remainder, and their stock is issued. Apr. 15, 50 per cent of the Treasury Stock is sold at par for cash to C. W. Jones. July 15, the remaining unissued Treasury Stock is retired. Jan. I, 1902, the books show net gains to the amount of $12569.50 from which a cash dividend of ten per cent is declared and paid. Write all Journal and Cash Book entries required, with dates and explanations com- plete, and close net gains into Dividend and Surplus Accounts, as previously instructed. Corporation No. 2. H. B. Scott has been conducting a wagon and buggy inanufactory which is to be incor- porated under the name of The Scott Wagon & Buggy Co., as follows : — Capital Stock, $40,000 (400 shares). Mar. i, 1901, C. F. Miller subscribes 100 shares, and A. B, Clark and T. M. Cook 50 shares each. H. B. Scott has issued to him the remain- ing 200 shares paid up, in consideration of his transferring to the corporation the plant and equipment which are put in at the full valuation of the shares, $20000, and to be repre- sented on the books by an account with "Plant and Equipment." Mar. 5, C. F. Miller pays cash for his shares, and on Apr. i, A. B. Clark and T. M. Cook, respectively, pay their subscriptions, one half in cash and their notes at 90 days for the balance. July I, the stockholders donate 10 per cent of their stock to be sold for the purpose of increasing the working capital. July 15, 40 per cent of the donated stock is sold at par to R. B. Bryan for cash. Aug. I, the remainder of the donated stock is sold to A, P. Lane, at 5 per cent above par. Mr. Lane pays $2000 in cash and his note at 30 days for balance. Dec. I, the business shows a net profit of $3241.50, from which a cash dividend of five per cent is declared and paid. Make complete Journal and Cash Book entries for all transactions and closings. 26 CORPORATION AND VOUCHER ACCOUNTING. Corporation No. 3. S. B. Marvin, L. Seymour and R. W. Evans have been conducting a grocery business under the firm name of S. B. Marvin & Co. They decide to incorporate the business under a capitalization of $30000, (600 shares of $50 each.) The corporation to be known as "The Western Grocery Co." For their present interest in the business, the partners are to receive stock as fol- lows : — S. B. Marvin, 150 shares. L. Seymour, 175 shares. R. W. Evans, 75 shares. One hundred shares are to be taken by A. B. Snow and to be paid for in Cash, and the remaining one hundred shares are to be reserved as Treasury Stock. The above arrangement was effected and the shares issued May i, 1901, and on this date the books of the partnership were closed, and then re-opened under the incorporation in accordance with the following statement: — RESOURCES. Cash 1565.20 Mdse. (Invt. stock on hand) 8592.40 Personal Accounts (per schedule) 4221.60 Bills Receivable (notes on hand) 2567.25 Chattels & Fixtures (Invt.) 759-20 LIABILITIES. Per. Accts 657.40 Bills Payable (notes and acceptances) 540-55 L. Seymour, Partner 6621.25 S. B. Marvin, Partner 6564.30 R. W. Evans, Partner 3322.15 17705.65 17705-65 July I, one half of the Treasury Stock is sold at par for cash to Henry Warner. Aug. I, 30 shares of Treasury Stock are sold for cash at 2 per cent below par to Chas. Morton. Sept. 15, the remainder of the Treasury Stock is sold at 5 per cent premium to T. S. Brown, on his note at 60 days. Jan. I, 1902, the books of the concern show a net gain of $3327.40 which is closed into Surplus, and a cash dividend of 5 per cent is declared and paid. Mar. I, 1902, a second dividend of 6 per cent is declared and paid in cash. Give all Cash Book and Journal entries required to open the corporation books, also those relating to the treasury stock and to the dividends. GENERAL REVIEW. 27 General Revie'w Quiz. To the Student: Prepare yourself to answer fully all the following questions. See how many you can answer without re-reading any of your previous instructions. If, how- ever, you are in doubt as to the correct answer to any question, refer to the text again and study the matter carefully. When you feel that you are prepared to answer all the questions, report to your teacher who, if he is satisfied that you are ready to proceed with the actual accounting course, will direct you to commence with the work of the Central Canning and Drying Co., page 29. 1. Define a corporation. 2. What is a charter? 3. What constitutes the charter of an ordinary commercial corporation? 4. Give an example of a public corporation. 5. Name the three classes of private corporations. 6. How are the powers and liabilities of corporations regulated ? 7. Define corporation stock. 8. What is a stock subscription agreement?. What should it set forth? 9. What is a promoter? 10. What is the purpose of a minute book, and by whom is it usually kept? 11. How is the correctness of minutes verified? 12. May a company be formally organized before all the stock is subscribed? 13. What general facts should be set forth by the articles of incorporation? 14. What procedure is usually necessary to give a corporation legal existence? 15. Name the general powers usual to corporations. 16. Explain the voting rights of incorporators. 17. Name the usual liabilities of corporations and their stockholders. 18. With respect to the liability of stockholders, corporations are divided into what three classes? Define each. 19. What are dividends, and how are they distributed? 20. What are assessments, and under what circumstances are they usually levied? 21. What is an installment? 22. Should a stockholder fail to pay an installment, what procedure may be taken? 23. What do you understand by common stock? Preferred stock? Guaranteed stock ? Donated stock ? 24. What class of stock usually has the most stable valuation ? Why ? 25. What is a franchise? Give an example. J 26. What is a bonus? 2^. What are bonds ? Securities? 28. Explain the meaning of the word "fund" as used in corporation affairs. 29. Distinguish between "close" and "open" corporations. 30. The books required to be kept in corporation business are divided into what two general groups? 31. What is the purpose of an installment book? 32. Under what circumstances in the formation of a corporation would stock subscrip- tion and installment books be required? When would special stock subscription and installment books be unnecessar)'- ? 33. What is meant by installment scrip? 34. What does the debit side of the Installment Ledger show? The credit side? 35. What procedure is taken when a stockholder makes a final payment of his stock subscription ? 2.6. Under what circumstances' would an account in the Installment Ledger be closed? 2.7. What is a stock certificate? 38. When should an account be opened in the Stockholders' Ledger ? When closed ? 39. What procedure is necessary when an installment certificate is transferred? When a stock certificate is transferred? 28 CORPORATION AND VOUCHER ACCOUNTING. 40. What should the balance of an account in the Stockholders' Ledger always show ? 41. If a stockholder transfers an installment certificate, does he escape liability for the remainder of his stock subscriptions? 42. May a stockholder escape liability for corporation debts by selling or transferring his stock certificates? 43. By whom are corjporation by-laws usually adopted? 44. Under what circumstances may the books be temporarily closed against stock transfers ? Why is this necessary ? 45. If a stockholder fails to pay an assessment, what procedure may be taken? 46. How are stockholders usually notified that an assessment has been levied? 47. Under what circumstances and by whom may dividends be declared? 48. Describe the procedure necessary when a dividend is to be declared ? 49. What disposition is usually made of treasury stock that is not to be sold for the benefit of the corporation? 50. How is a stock subscription agreement usually certified? 51. What officials usually have the management of the corporation affairs? How is their authority limited? 52. How can a stockholder transfer a portion of the shares represented by a stock cer- tificate ? 53. When does the installment ledger cease to be active? 54. How do corporations usually raise needed money, in case it is not desirable to levy an assessment? 55. What is the purpose of the "Surplus" or "Reserve" Fund? Does it represent a re- source or a liability on the books ? 56. How are dividends usually paid? 57. What entry is made when a cash payment is made on a stock subscription? 58. What does the Subscription Account represent? When is it finally closed? 59. Should an assessment account be treated as a loss or a gain, when the books are closed ? 60. For what purpose is treasury stock usually reserved when the corporation is or- ganized. 61. When a cash dividend has been declared, what entry should be made? 62. What entry is made when dividends are paid in cash? 63. When would a dividend account be in balance? 64. What entry should be made when $25000 in Treasury Stock is reserved? When it is sold for cash at 2 per cent below par ? At 5 per cent above par ? 65. What entry is made when Treasury Stock is retired? 66. What is the purpose of the Franchise Account ? 67. When a partnership is incorporated, partners' accounts are closed into what ac- count ? 68. When an installment is paid by note, what entry should be made? 69. When the incorporators contribute their own stock to be sold for the benefit of the business, what entry is required? 70. Suppose the second dividend declared by the company were made payable in treas- ury stock, what entry would be required? ORGANIZATION C. C. & D. CO. 29 Organization and Business Transactions of the Central Canning and Drying Company. To tile Student: In this course of practice in corporation bookkeeping, it is as- sumed that the firm of Douglas, Fenton & Co. have been conducting a canning and drying business at Hillsdale, O., and in order to enlarge their capital and further develop their busi- ness, have decided to incorporate under the name of The Central Canning and Drying Co., which concern is to be organized and conducted as set forth in the memoranda that follows. It is also assumed that you are to act as Secretary and bookkeeper for the company. The various books and accounting methods to be employed will be described and illus- trated as they are required. You are to be a subscriber for 125 shares of the corporation stock, and you are to use your own name in all entries, etc., where the word "student" is used. Memoranda {^Be ginning July i, igoi.) An informal preliminary meeting of the proposed incorporators is held at the office of Douglas, Fenton & Co. Present : Chas. T. Fenton, James Douglas, Geo. P. Morton, A. F. Hanlon, L. M. Barnes, and Student. Mr. Fenton is chosen temporary chairman, and Student, Secretary. General and informal discussion of plans for forming corporation. Motion by Mr. Douglas that a committee of three be appointed by the chairman to pre- pare plan of proposed organization, said committee to render its report to the proposed in- corporators at a meeting to be held July 6, at 7 130 p. m. Motion carried unanimously. Chair- man appoints the following persons to serve on said committee: James Douglas, Geo. P. Morton, and Student. Meeting adjourned to meet at same place, July 6, at 7 130 p. m. Write in your Minute Book, in due form, the minutes of this meeting. July 6. Meeting to hear report of committee on organization. This report, as submitted and adopted by vote, is as follows : "^ 1. That a corporation is to be formed under the laws of the State of Ohio, and to be known as "The Central Canning and Drying Company," the business of which is to be the canning, drying, or otherwise preserving of fruits, vegetables, meats, or other food products. 2. That the company is to be capitalized for $250,000 in shares of $100 each. 3. That $200,000 of the stock is to be subscribed for at once, and $50,000 to be re- served as Treasury stock and sold hereafter, or retired, as may be determined by the man- agement. 4. That $100,000 of paid-up shares are to be issued to the members of the firm of Douglas, Fenton & Co. of Hillsdale, Ohio, as follows: Chas. T. Fenton, 375 shares. James Douglas, 250 shares. A. F. Hanlon, 250 shares. L. M. Barnes, 125 shares. These shares are to be issued to said persons as a full equivalent for their respective in- terests in the common property and business belonging to said firm, located at Hillsdale, Ohio, and which, ?fter its organization, is to belong to the Central Canning and Drying Co. 5. That upon the subscription of the remaining $100,000 of the capital stock by re- sponsible persons, the incorporators here present, bind themselves to the formation of the proposed incorporation in accordance with the terms herein set forth. After some general discussion, the report of the committee, as above outlined, was ladopted by unanimous vote. The Secretary was then, on motion, instructed to draw up a stock subscription agree- ment in accordance with the for.egoing terms, and a committee consisting of Geo. P. Morton and L. M. Barnes was appointed by the chair to circulate this subscription agreement for the purpose of securing the required subscribers for the proposed capital stock. Meeting then adjourned subject to the call of the chairman. 30 CORPORATION AND VOUCHER ACCOUNTING. Write up the minutes foi this meeting, which should include a full and formal report of the committee. Sec page 9. Draw up the Stock Subscription Agreement, and subscribe your own name, after whic:i your teacher will have the remaining signatures attached, which represent the persons, whom it will be assumed have duly subscribed for the number of shares set opposite their names. For form of Agreement see Note, page 10. Student, 125 shares. Henry T. Bell, 7^ shares. Geo. P. Mortoi', 200 shares. Arthur Moore, 250 shares, J. S. Miller, 100 shares. E. P. Moody, 175 shares. John A. Martin, 75 shares. July 12. The canvassing committee having reported that the required stock subscriptions had been obtained, the Chairman called a meeting of the incorporators to take steps for the legal for- mation of the coiporation. After some general discussion, the Secretary was directed to draw up Articles of In- corporation in accordance with the terms already agreed upon, adding such other details as might be necessary and submit the same for adoption by the incorporators. The following officers were then elected for the first official term, beginning with the formation of the corporation and ending July i, 1902 : President^ — A. F. Hanlon. Vice President — Geo. P. Morton. Secretary — Student. Treasurer — James Douglas. Directors — A. F. Hanlon, Geo. P. Morton, Arthur Moore, James Douglas and Student. Meeting then adjourned to re-convene at the same place on July 15 at 7:30 p. m. Write the minutes for this meeting, after which, prepare Articles of Incorporation fol- lowing in a general way the form given on page 10, but observing the terms as agreed upon and set forth in the minutes. Fix the time of incorporation at twenty-five years, and the place of business, Hillsdale, Ohio. - After preparing the Articles of Incorporation, submit the document to your teacher for inspection, who will have affixed the signatures of the in- corporators. Note — In the case of an actual corporation, it would now be necessary to forward the Articles of Incor- poration to the Secretary of State for registry, and perhaps also to the Clerk, or Recorder, of the counjy in which the incorporation "is formed. In the case of your present work, it will be assumed that this has been done, and that the necessary fees have been paid personally by the Secretary. An itemized list of these pre- liminary expenses will be given later. July 20. The corporation having received its charter (the Articles of Incorporation as returned with the Certificate of Registry by the Secretary of State) and having therefore attained to a legal existence, a meeting of the Board of Directors was held at which the following busi- ness was transacted : 1. The Board was organized by the election of A. F. Hanlon as President and Student as Secretary. Note — The president and secretary of a corporation usually serve, respectively, as president and secre- tary of the Board of Directors. 2. A committee, consisting of James Douglas, Geo. P. Morton, and the student, was appointed to draft By-Laws for the government of the corporation. 3. It was voted to call for the immediate payment in cash of an installment of twenty- five per cent of the subscribed stock. 4. The Secretary was directed to issue certificates of stock to all persons entitled to the same, as required by the Stock Subscription Agreement, also to secure and open a set of cor- poration books. 5. The following employes were elected, with salaries as specified : Superintendent, L. M. Barnes, salary $2,500 per year. Secretary and Accountant, Student, salary $2,000 per year. Auditor and Treasurer, James Douglas, salary $2,000 per year. Time Keeper .and Clerk, J. M. Davis, salary $1,500 per year. VOUCHER SYSTEM. 31 Buyer, E. P. Moody, salary $2,000 per year. John A. Martin, Traveling Salesman, salary $1,500 per year. Charles Baker, Traveling Salesman, salary $1,500 per year. A. W. Long, Traveling Salesman, salary $1,200 per year. Meeting adjourned subject to call of chairman. Write up, in due form, the minutes of this meeting, after which make out the required stock certificates for each of the stockholders, who are entitled to receive paid up stock, and deliver the same, through the envelope marked "Stock Certificates Delivered." Open accounts in the Stockholders' Ledger with these stockholders, crediting each with the number and amount of shares issued. Index these accounts at the time you open them. For form of stock certificate and Stockholders' Ledger see pages 15 and 16. The Operating Books of the Central Canning and Drying Co. The operating books for this business include a Journal, Sales Journal, Cash Book, Voucher Payable Register, Petty Expense Book, General Ledger, and Sales Ledger. The first four of these are what are known as "special column books" and are adapted to the peculiar requirements of this business. The student should bear in mind that all large business concerns adopt methods of account-keeping and the forms and kinds of record books that are best adapted to the special requirements of their own'business. One of the purposes of the present course is to familiarize the student with the more usual methods by which this is accomplished. The following pages include forms and descriptions of the operating books to be used. You will study these books and their descriptions only as you are directed to do so in the memoranda of transactions, which are continued on page 40, and to which you will now re- fer for a continuation of your work. The Voucher System of Accountancy. This is a system that has come into use in recent years, and is particularly adapted to large industrial and manufacturing concerns, electric lighting and street car plants, etc. It derives its name from the fact that accounts with certain classes of creditors are kept by means of receipted records called Vouchers^ used in connection with a specially ruled book called a Voucher Payable Register. When pa)^ments are made on account of purchases ■or other expenditures, a voucher is issued and delivered to the person or firm to whom pay- ments are made, together with the cash, check, note, draft, acceptance, or other instrument through which the payment is made. The voucher is afterward signed and returned by the person or firm receiving the payment, and is placed on file as an evidence of such payment, as well as a memorandum of the expenditure. The form of voucher illustrated on page 32 shows that the Central Canning and Dry- ing Co. has purchased of the Cleveland Fruit Co. 185 bushels of peaches on Aug. 20, 1901, for which cash payment was made Aug. 24, 1901. The purpose of the stub is to preserve a record of the Voucher, should it be lost or not returned by the payee ; also, to show the distribution of the amount paid among the several department accounts, for entry in the Voucher Payable Register. By some concerns these •entries are made on the back of the voucher, and by others they are not made at all, the Voucher Register record being deemed sufficient. The use of the stub is more convenient, however, if the itemized records on the voucher are considered necessary. When goods are purchased on account, the voucher is duly made out, but is not de- tached from the stub and delivered for signature until payment is made. In case the invoice includes a large number of items, these are not entered on the voucher, but the amount only is recorded with an entry in the description column, "As per Invoice No. 17, rendered Jan. 10, 1901." Some concerns use vouchers for practically all expenditures required in the business, ■others use them only for certain classes of payments, as for material purchased for use in manufacturing processes, etc., and the cost of which it is desirable to keep in separate ac- counts. Vouchers are used either for cash or time purchases; if for the latter, the voucher is usually made out at the time the goods are received, and the bill verified, but is not for- warded to the creditor until the time of payment. In your present business, you will use -vouchers for all purchases of material, also for other classes of expenditure as indicated in :the memoranda. 32 CORPORATION AND VOUCHER ACCOUNTING. o ■4-1 C 3 O a < PC o p o > S o U ISO « 2 w 10 o •ns « ^ "J cd ^ (-1 'S •0 « 9 09 ^ o 00 CO 00 O o »«< 2 S CO 2 a, a M ""I H Q o 13 O ^ -a Q .^ o OJ o u ,g *^ Q a isa C3 a a CO Km "S CO < o Q «5 CO > o CO c s CO •D • • U -o > < na CO o ON CO Q •^ 1 o o\ *^ o O t-t a ■* ,»«. M u. •w ?y e a ct •^ « >. V U TD CO fU V C 0) . ^ <0 ^ v> «o t^ t^ Of) «o ■*! >-< «< 01 to a> C o u u < 1 n "0 » ■4-1 o o u 1 bo o U2 O (U a '33 u w 1 •4-1 o 2 Oh O (0 O JO 1 ■4-1 a cO "oJ 13 ft W ■4-> O a a CO CO CO § h CO CO CO es s e7-?-z — C{iy^J?<,^^^J>^ r^^^^ 7^ Q£.NE/?A L L£-DQ£/? ^-^-y iL J'.Vf? d^ -a//V LCL 3A Sales leoge/? CfjEO/TS. S^.

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R^Jl^y^Vrf^ C^->-Y-^ Z^ ^/^^ -^ ^^^^. /2kd ^ ^ rX;x9r^ J'W i^ /£;£ ilZi^ ^ /^g ^^^.J,^ ^.e^. ^M. .3^7 tt^ /?v^^/g. ^, y^yA^^A. a A£. ^ E^::;^ C^. /^.7.y< r^ ,^^ >-y/y^gt^p-g.<-<-^-xv //<>-^-. . s-J4^^:/^. ZA. >-,^.z^y^ /^ '^-^ ^i 7 7/ 7 2j1. ^,7^t^ rT'i-A^.^ .iliL Voucher Payable Register. This book contains a properly classified record of all payments 'evidenced by the vouch- ers. There are special columns for the various classes of materials purchased, also columns for Labor, Fuel, General Expense, or any other classes of expenditures of which it is desir- able to keep separate records. The accompanying form of Voucher Payable Register is especially adapted to the busi- ness that is carried on by the student in the present course, but it must be borne in mind that the form of the book, the number of .columns, etc., would vary with the nature and ac- countancy requirements of the business. The columns under "Canned Goods Accounts" present four accounts which are to be kept in the General Ledger, and which may be designated "C. G. Raw Products," "C. G. Labor," etc., to distinguish them from the corresponding accounts of the Dried Fruit Depart- ment. The totals of the several money columns are forwarded to the next page as soon as any page is full. Periodically (usually at the end of each month) the totals are posted to the Ledger. The purpose in keeping these several accounts is to enable the management to know at any time the total cost of each department of the business, which knowledge may enable them to reduce cost of production. In large concerns where there are many departments of cost and finished product, it is usual to keep separate ledgers for the different departments, but in your present business, it will be sufficient to keep separate cost accounts in the General Ledger,- and close these into the general department account. Instructions will be given hereafter as to the manner of making these closings and in- ventories. OPERATING BOOKS. 35 VOUCHER PAYABLE REGISTER. -RIGHT FOLIO. Canned Qoods Accounts I>/?-\ 0/?/ED f/?o/T Accou/vrs -^'^■\ (?£^B/?fjL Accounts S>/?. Paw P/rODUCT Casin<} tABOf? 1 MisreLLANEovi 1 PAw Proo- Cas/ajq 1 Labor \ Plant I Pa.^ 1 a en. Exp. /J>. flO / J.^7 J?.s / 33L sL fn.l SO Cf / ^rO / •2^^/ /o- Jl^JS- CO 7^.3 13 :i3o JIO 3 7^ L 7-^ ^7 30 /JL¥g / J.OS '^0 :l:i3 35 . /L3:i VJ- / /jlL so so CD ¥0 /C3J. ^3 ® /3^S qS 7^^ Cs :i3L3 33 (Z) so x7,Si Co J20) (^ 3-P, s(. Jl/^ 7 Lo / /JlL /s- ^/.3 J2S 37 ¥-i Jl/ so 3 /Jl /v J.O / -2 7S , -2-/ sa /J. 7 ^f^ /L3 ss" ^/ so Jl/^ f,0 JliL •37 /v 3L0 ^7S / /•2 7 8-0 J2j/ S(J / / As your course does not involve the use of business papers other than the vouchers and invoices, you will not make out the checks that should accompany the vouchers, but will merely assume that they have been duly made out and delivered with the voucher. In actual business, of course, the check would eventually be returned by the bank upon which it was drawn, while the voucher would be receipted and returned by the firm to whom it was issued. Disposal of Vouchers. When a voucher is received by a payee, if the check or other remittance accompanying it be correct, the check should at once be deposited for col- lection, and the voucher should be filled out properly and returned to the firm that issued it. When a receipted voucher is received, it is at once placed on file. Note — In some offices, when the check used to pay a voucher is returned by the bank, it is attached to the voucher and filed with it. We do not see, however, that this course is necessary, and so far as our in- vestigations extend, but few houses follow it. The voucher itself is a sufficient receipt, and it seems unneces- sary to interfere with the usual order of disposing of returned checks. In your present work, as you are not dealing directly with real persons, you may simply make out the voucher in proper form (using the book of vouchers included with your office stationery) and deliver it through the envelope marked "Vouchers Payable Delivered." Your teacher will instruct you as to the final disposal of these vouchers at the end of the week's business. In actual business they would be receipted and returned by the parties to whom they are issued, and then re-attached to their original stubs. 36 CORPORATION AND VOUCHER ACCOUNTING. The Journal. The form on page 33 illustrates the Journal that is to be used in this course, and the method of using it. The form differs from that of the ordinary Journal, only in the intro- duction of the column for Sales Ledger Credits. Sales Lredger Credits Column. In this business, a separate ledger called a "Sales Ledger" is to be kept for all our" accounts with customers. To enable us to know at any time the state of this Ledger as a whole, we carry special columns in the several books, for the debits or credits that go to this ledger, and keep a "Sales Ledger Account" in the General Ledger, to which the footings of the Sales Ledger Columns are posted at the close of each week. The "Sales Ledger Credits" column in the Journal is for any credits other than cash (such as notes, memoranda of credit, or the like) and which are not recorded in the other books. Recording Sales of Merchandise. Duplicate Bill Pad. In this business, the Sales Book is dispensed with, the item- ized records of sales being kept in duplicates of the bills sent to the customers. This is done by means of a specially prepared bill pad with carbon copying sheet. In preparing duplicate bills, follow the directions on the cover of your Duplicate Bill Pad. Sales Journal. This book contains columns for the names and addresses of all per- sons to whom goods are sold, and whose accounts are to be kept in the Sales Ledger, also columns for the date, terms, amounts, etc. Separate columns are used for "Canned Goods" and "Dried Fruit." The "Sales Ledger Debits" column is for the amounts of the several purchases, and at the end of each week its total is posted to the debit side of the Sales Ledger Account in the General Ledger. The totals of the "Canned Goods" and "Dried Fruits" columns are posted to the credit side of the respective accounts in the General Ledger. The separate amounts in the "Sales Ledger Debits" column are posted to the customers' accounts in the Sales Ledger. See page 37. The Quotation Lists. The output, or product, of manufacturing establishments is usually sold to large wholesalers or to jobbers, who in turn sell the goods to local dealers. The prices and terms will vary with the quantity purchased, the rise and fall of the market, etc. In the present business, the manufactured product consists of various brands of canned and dried fruits, jams, jellies, etc., which are designated in the Quotation Lists, and which are to be sold at the prices and terms given unless otherwise specified in the memoranda. Two cards — "Quotation List No. i" and "Quotation List No. 2" — will be found in your book- keeping equipment. The first of these is to be used until its use is discontinued and "Quo- tation List No. 2" is substituted for it, as directed in the memoranda. "Canned Goods" includes the several brands of canned fruits and vegetables, jams, jellies, etc., while the two grades of dried apples, pears, and peaches, are included under "Dried Fruits." In using the Quotation Lists, take extreme care to enter the proper prices and articles as required by the memoranda. Ternas of Sale. Most of the sales in this business are made at "list terms," that is, on 60 days credit at the prices given on the Quotation List, with a discount of 2 per cent off for Canned Goods and i per cent for Dried Fruit, provided the purchases are paid for in cash, or its equivalent, within 30 days. Other sales, however, are made at special terms and prices. The terms of sale should always be entered plainly in the blank spaces left for that purpose, at the top of the bill. To secure brevity in entering these accounts, use certain sym- bols and abbreviated expressions, to indicate different kinds of terms. Following is a list of them with their meanings as they are to be used in your present work : Net; amount of bill to be paid without further discount. n /30; net amount of bill to be paid within 30 days. 2/30; two per cent off if paid within 30 days. 1/30 n/60; one per cent off if paid for in 30 days; amount of bill to be due in 60 days. Cash, C. O. D,, or Net Cash; goods to be paid for in cash as soon as received, and without further discount. [Continued on page 38.] OPERATING BOOKS. 37 SALES JOURNAL. „<5U.z^ -^o^ / C'Ciu-yn'n...e.^ /fO- /£/ ( ,,>-r>^^ y^-rt^ C'-C.c^C-ac^7'-C.-d-- ?7^ ^ ^ . H^^, ^M/y u /J> / £d. % 12^ / J?J ££ J2J£ ^^.JYt^Z^A. ^M^:.^^ ?^y^^.. JZ2L — TT .^^ ^ 2^ 7^ .£^1 .2J: 222^Li,±d£a:AL!!^liL rr-yT^^iy 3JZ 7 6L -^-^^ /^^^ 2JL 7- ^2_ LL l^ ■^Or> ■A2^-^ ^Wi^ ^Yrr-rj-Tz/L^ .e^^,i..LeyCi6C>^^^y^..d.^f-/L^ Jl ::^L. J,LZ la. ^il J>Tf^y^^ fa?"^^^^ ^2^ La .^C^J^ -(^%.i^^. (Zf^^. // ® 7/?^^ £JS. .SLCL l^L 13 A2. /^TgrfV. rairf?-r«' ■ 'rrj^'-A i£R. CasK "i^ess 5; five per cent off if goods are paid for in cash. Note — It is now the general rule in business that cash terms are allowed, provided payment for a ship- ment of goods is made within 30 days of the billing date. Spot Cash; goods paid for at time of purchase, usually employed where goods are de- livered at seller's warehouse, at the time of purchase. Abbreviations. Convenience and economy require that, in billing, certain special abbreviations be used to indicate the articles sold. There are no definite rules as to what these abbreviations shall be; each bookkeeper exercises his own taste and judgment. The symbol chosen should be definite, however, and so characteristic of the word abbreviated that the buyer \^ill have no difficulty in knowing what article is meant. The abbreviations given in your Quotation List are such as would probably be used by a billing clerk, and you should use these or similar ones in your own billing. What to do When a Sale is Made. 1. Referring to the quotation list, enter the purchase with the date, and the terms and the proper prices, on the bill, being careful to follow the directions on the cover of your Dupli- cate Bill Pad. On a sheet of loose paper, compute the amounts, (and discounts, if any are allowed at the time the bill is rendered), after which enter the extensions and amounts on the bill. Be especially careful to take the correct prices, as given on the Quotation Lists, and prove all computations before entering the amounts on the bill. In columnar bookkeep- ing, errors in billing if allowed to occur, will cause much annoyance, and extra work. If a payment is made, either whole or in part, at the time a purchase is made, credit the payment at the bottom of the bill, as shown in the model form on page 37. 2. When the bill is prepared, remove it by tearing along the perforated line, and deliver to the customer through the envelopes marked "Bills Rendered." Place the carbon copying sheet under the next white bill, copying surface downward, in order that it may be in position when another bill is to be made out. 3. Enter the sale in the Sales Journal as shown in the model form on page 37, being careful, if the sale consists of both dried fruit and canned goods, to enter the proper amounts in these columns. If the goods are sold at regular list terms, it will be sufficient to write the word "list" in the terms column. Should a sale be paid for at the time the order is given, which sometimes occurs, it is nevertheless entered on the Sales Journal and carried to the customer's account, the same as a time sale. In a manufacturing or wholesaling business, it is important to keep records of all sales, whether for cash or on account. OPERATING BOOKS. 39 CASH BOOK.-RIGHT FOLIO. t,OtC&^ /t^O- .^^I^£e^ G?,-^^*<2-<&tSC--->T,.<=l--Z-tL.<7->-l, .{Mtt^ d7.->^jt/. irs^Wr^>-g;^<>-7;?^ /-^-^-^ ^ /.7-P. | ^ //Co 30. SL ^.^1^^^^ £^/-r^^ J^m^ C/J^^^y^^y^ J^ \^ ^¥Jj^ 70 ^^"ys ^ lA. yZA^^y. fe<^^> M.M.o£A^:^^^/^y^^. ' /,T(7 ML oC-i^^^.e.^ /Z-r^^-yf? y^^ /V.v7-r J -^^-T^ J2^0 y^ //o-,^^^y^ /Lc^. A^ /^^^ Ln. /o2.'? Ln- LL /C^rsJ^. 'Co^-T^^^^ 7 / ^ /fW^ i/n' -?>T^^ // //^^^ jTjr z^ LO^ ^ Care should be taken to enter in the Cash Book or Journal as the case may require, and at the time the Sales Journal entry is made, any payments that may have been made to apply on the purchase. The Cash Book. The accompanying form illustrates the Cash Book to be kept in this business. Notice that there are three debit and three credit money columns, which are to be used as designated by the printed headings. The totals of the several special columns are posted to the respec- tive accounts in the Ledger whenever it may be necessary. When a page of the Cash Book is filled, the several totals are forwarded to the next page. If desirable, the Cash columns may be balanced at any time, and without footing up and posting the special columns. When the totals of the special columns are posted, the Ledger folio is entered in small figures just above (or below) the amounts, as shown in the form. Petty Expense Book. In conducting a business office, there are frequently small expenditures, which it is in- convenient to keep account of in the General Cash Book, with a regular entry for each trifling expenditure. Instead of doing this, the minor office expenditures are provided for by a special fund known as a "Petty Expense Fund" which is set apart for the purpose, and which is in the personal charge of the bookkeeper or office clerk whose business it is to make the expenditures. These are recorded in a special book called a Petty Expense Book. When cash is set aside for petty expenses, the amount is entered on the debit side of this book, and credit entries are made for all expenditures as they occur. An account with "Petty Expense" is kept in the General Ledger, and at the time cash is reserved for petty expenses, an entry is made on the credit side of the Cash Book, charging this account with the amount reserved. When the books are closed, any unexpended balance belonging to the Petty Expense Ac- count would be listed as a resource. The accompanying form illustrates the method of recording the entries in the "Petty Expense Book" and entering and forwarding its balances. PETTY EXPENSE BOOK. July 5 10 12 15 Cash Rec'd per Treas, Ck. No. 1 Office Stationery as per Bill of Clarke & Sons Official Fees for Incorporation Messenger service delivering notices to incorporators Bal. Bal. down 25 5 12 6 25 50' 75 50 25 25 6 50 40 CORPORATION AND VOUCHER ACCOUNTING. The Time Book. In establishments where there, are a number of employees, accounts with these are kept in a book conveniently ruled for the purpose, and called a Time Book. In most business houses, employees are paid each week, and the Time Book here shown illustrates the time and wages as made out for the first week for a working day of eight hours. The first col- umn contains the numbers of the several employees, the next, the wages per day, and the succeeding columns, the hours worked each day according to the time-keeper's book, the total number of hours for the week, and the amount due. In some Time Books there is a column in which the employee writes his name as a means of receipting for the money paid him, but this practice is seldom followed. CUj»^-r-^J— 1 - - 1 Cbfo.^.^UU , Sr — - J y^......^ }lc. >ii. z. \m: 3l. J- s. 3.cii >K. 7. i*r ^. J* 5. jKi?. <2l*.»»*-c.»,w^ » <:t^A^. /J • '(oJLt^ 1M.aL'^^^vt«./v«^ :l a. - 6 t r r r i ^4, // »-(r>,y ^acJr 4- 2. ~ ir V 7 r r % ^7 f 1 7^ Clt-tu^' C?k^C4^ •Li. a. a>r r nT r r r r "^^r /3. 66 ci,-6. ^.*:^