: ' ; =^i^'^S^^SS ^-'27^\S# , , ^^^^^Sm^-^^/ ■ ^ Miiia&i, ? irt»*ii"^fe#- Metropolitan System of Bookkeeping Metropolitan System of Bookkeeping, embracing Theory and Practice of Bookkeeping and Accounting for High Schools, Parochial Schools, Academies and all other schools teaching the subject By W. A. SHEAFFER, Ph. B. Head of Commercial Department "West Division Hifck School, Milwaukee, Wi*. Instructor of Accounting Marquette University Complete METROPOLITAN SERIES Metropolitan Text Book Company CHICAGO, ILLINOIS 1916 • ' 51 1 '7 (?Af Copyright, 1914 Copyright, 1916 BY Metropolitan Text Book Company PREFACE In preparing this text on bookkeeping, the author has had the gradual, progressive development of the subject in mind. A reaction is taking place in the teaching of bookkeeping in the best schools. There is no good reason why the teaching of bookkeeping, especially in the beginning course, should differ so much from the teaching of other subjects. In other subjects, we do not attempt to teach the pupil at once all the operations necessary to give him a com- plete understanding of the subject. We teach him an operation or step at a time. The author believes that teachers and pupils alike will welcome a text in bookkeeping that takes up one operation at a time, or a new subject, and explains it before undertaking another. Each subject is well illustrated and sufficient exercises are given to enable the pupil to learn one step before studying the next. The development and il- lustration of a new subject in practically every chapter is a feature that should appeal to every teacher of the subject. The expression, "learn by doing," has come to mean little more than routine, mechanical work without much thought. Skill in the mechanical work must be developed by a sufficient number of exercises and sets, but that is simply one side of the study of bookkeeping. The author believes that if bookkeeping is to maintain its place as a study in the secondary school curriculum on a par with other subjects, the thought side must be emphasized. It must not be simply an in- cidental matter. Bookkeeping, as a study, should not depend on its practical value alone for its standing. To develop the thought side of bookkeeping, frequent class recitations are necessary. The arrange- ment of the text is especially adapted for this purpose. In beginning with the study of cash, the author believes he is be- ginning with a subject in which the pupil is naturally interested. The average pupil studying bookkeeping knows little about business, but he does know the difference between cash received and cash paid out. v. 364750 vi. PREFACE Whatever difficulty the average pupil has had in the use of the cash book has been because he has been taught entries that he must un- learn when he begins the use of the cash book. The author makes no apology for minimizing the journal as a book of entry. To spend weeks and months learning how to make entries in the journal that are rarely entered in it in modern systems of ac- counts, is wasted time. Sufficient exercises and transactions are given in the use of the journal to give an understanding of the principle3 of debit and credit. In developing' the subject, the author has constantly kept in mind the principles of accounting. But in doing this he has also recognized the fact that, while the principles of bookkeeping must conform with those of accounting, they must be gradually unfolded. To plunge the pupil into the details of the most advanced accounting methods and practice in his beginning work, is to give him something entirely beyond his mental grasp. The author has also recognized the fact that the very best account- ants differ in practice in reference to certain subjects and in the use of certain forms. The author has taken advantage of this fact in the ad- vanced work by illustrating different methods of treating some of these points. No catch problems nor transactions have been given. If a subject is too difficult to be explained according to the principles of accounting, it is omitted until the pupil can grasp it, rather than to present it in an incorrect way. In the preparation of the text and of the business papers, business men, accountants, and teachers have rendered valuable assistance. To all of these, the author is greatly indebted. The Author. TABLE OF CONTENTS Chapter I. II. III. IV. V. VI. VII. VIII. IX. X. XI. XII. XIII. XIV. XV. XVI. XVII. XVIII. XIX. XX. XXI. XXII. XXIII. XXIV. XXV. XXVI. XXVII. XXVIII. XXIX. XXX. XXXI. XXXII. PART I Page Introduction 1 The Cash Book 3 The Merchandise and Expense Accounts 11 Accounts with Persons .'. 18 Principles of Double Entry. Set 1 23 The Trial Balance. Set II 37 Accounts Classified 43 Statements 48 / Closing the Ledger. Set III 52 ^ Notes Receivable and Notes Payable 65 Interest and Discount on Notes 72 The Sales Book and the Purchase Book 78 Set IV. April and May 84 Discount on Purchases and on Sales 90 The Bank Account 94 Set V. June and July 102 PART II Trading Accounts 120 Bank and Sight Drafts 128 Set VI. Aug. 1-15 135 How to Ship Goods 153 Set VI. Aug. 17-31 161 Time Drafts 178 Set VI. September 1-15 184 Shipments and Consignments 190 Set VI. September 16-30 196 PART III Introduction 209 Controlling Accounts and Columnar Books 211 Methods of Recording Sales and Various Ledger Forms 220 Set VII. Wholesale Hardware, October 15-31 227 Adjustment Entries 243 Set VII. Wholesale Hardware, November 1-7 256 J Closing by Journal Entry 264 ^ Books and Accounts of a Commission Business 270 Set VIII. Commission Business, December 278 vii. Vlll. TABLE OP CONTENTS PART IV Chapter Page XXXIII. Corporations 294 XXXIV. Corporation Entries and Accounts 304 XXXV. Manufacturing Costs 314 XXXVI. The Voucher System of Accounts 320 XXXVII. Set IX. Manufacturing, January 329 XXXVIII. Depreciation 345 XXXIX. Manufacturing, Selling, and Profit and Loss Statements .... 350 XL. Set IX. Manufacturing, February 359 XLI. Distribution of Profits 373 XLII. Bonds and Funds 377 Appendix i, xvi Index xvii LIST OF EXERCISES Exercise 1. Personal Cash Book 5 2. Cash Book of Athletic Association 7 3. Cash Book of Retail Store 10 4. Cash Book of Retail Store, with Accounts Named 15 5. Creditors' Ledger Accounts 19 6. Customers' Ledger Accounts 20 7. Creditors' and Customers' Ledger Accounts 21 8. Analysis of Trial Balance, Set 1 46 9. Analysis of Trial Balance, Set II 46 10. To Find the Profit or Loss on Merchandise 46 11. Review Exercise in Journalizing, Posting and Taking a Trial Balance 46 12. Six-column Statement 49 13. Closing the Ledger 58 14. Six-column Statement 63 15. Statements of Profit and Loss and of Assets and Liabilities .. . 63 16. Exercise in Journalizing Notes Receivable 68 17. Exercise in Journalizing Notes Payable " 70 18. Exercise in Journalizing Notes Receivable and Notes Payable 70 19. Exercise in Paying Notes Receivable and Notes Payable 71 20. Exercise in Paying Notes Receivable and Notes Payable 74 21. Find the Discount and Proceeds 76 22. Exercise in Paying Notes and Discounting Them 76 23. Purchase Book and Sales Book of Set III 82 24. Closing the Ledger • ■ 82 25. Entries for Merchandise Discount 91 26. Entries for Interest, Discount, and Merchandise Discount ... 92 27. Exercise in Writing Checks 100 28. Exercise in Writing Invoices and Notes s 100 29. Statements of Profit and Loss and of Assets and Liabilities ... 115 LIST OF EXERCISES fe. Exercise 30. Statements of Profit and Loss and of Assets and Liabilities 116 31. Entries for Opening Books 126 32. Entries for Opening Books 126 33. Bank and Sight Drafts 134 34. Journalizing Trading Entries 160 35. Closing Trading Accounts 160 36. Per Cent of Profit or Loss 174 37. Entries for Opening Books 174 38. Journalizing Trading Accounts 175 39. Closing Trading Accounts 175 40. Trading, Profit and Loss and Asset and Liability Statements . 176 41. Time Drafts 183 42. Shipments and Consignments 194 43. Entries for Drafts 201 44. Trading Accounts 202 45. Real Estate and Its Nominal Account 203 46. Delivery Equipment and Its Nominal Account 204 47. Shipments and Consignments 204 48. Insurance Account 205 49. Opening Entries 205 50. Statements 205 51. Entries in a Columnar Cash Book 218 52. Entries in a Columnar Journal 218 53. Entries for Cash Shortage 250 54. Entries for Cash Over 250 55. Entries for the Receipt of Cash From a Bankrupt Customer . . 250 56. Entry for a Dishonored Draft 250 57. Entries to Correct Mistakes in Closing the Books 250 58. Entries for a Fire Loss \ . 250 59-60. The Adjustment of Interest on Partners' Accounts 250 61. Trading and Profit and Loss Statements and Statements of Assets and Liabilities 254 62. Problems in Finding the Per Cent of Profit and the Per Cent of the Cost of Doing Business on the Sales 263 63. Journal Entries to Close the Books of Set VII, October 268 64. Journal Entries to Close the Books of Set VII, November . . 268 65. Entries for Consignments to be Sold on Commission 277 66. Posting Exercise 65 to the Consignment Ledger 277 67. Entries for Consignments to be Sold on Commission 290 68. Posting Exercise 67 to the Consignment Ledger 291 69. Entries for the Receipt of Cash From a Bankrupt Customer . . 291 70. Entries for the Purchase and Sale of Shares of Stock 291 71. The Division of a Mixed Merchandise Account 291 72. Adjustment of Interest on Partners' Accounts 291 X. LIST OF EXERCISES Exercise 73. 74-77. 78-80. 81. 82-87. 88. 89. 90-93. 94-96. 97. A-B. C. Exercise in the Use of the Stockholders' Ledger 303 Opening Entries for a Corporation 311 Entries to Close the Books of a Partnership and Open the Books of a Corporation 311 Entries for the Purchase of a Corporation by a Corporation . . . 313 Exercises in Computing and Entering Depreciation 348 Manufacturing, Selling, and Profit and Loss Statements 371 Journal Entries to Close the Ledger 372. Entries to Distribute Profits 376 Entries for Bonds 380 Exercise in Making a Trial Balance from a List of Accounts That Are Out of Balance 880 Statement for Single Entry and Entries to Change From Single to Double Entry , App. xv Review Exercise App. xvi PARTI INTRODUCTION Every business man should keep some record of his transactions. Even if the transactions are few in number, it is not safe to trust to memory. These records may have to be examined by others. They may have to be taken into court in case of a dispute between the parties. For these reasons, the records must be kept in such a way that they will be understood by others. Bookkeepers and accountants have adopted certain forms of records and have made the use of certain books so general that they must be studied by every one that wishes to become familiar with bookkeeping methods and business practice. Other forms, record books, and busi- ness methods differ in different lines of business. These may be studied in the more advanced work or in actual business. The fundamental principles of bookkeeping and accounting are the same no matter how complicated the books and records may be. Bookkeeping is the art of making a systematic record of business transactions and of properly classifying these records so as to show the true condition of the business. The pupil will find that in order to be successful in his work in bookkeeping he must be a student of business methods. He must learn many things about business practice in addition to the making of the proper records. A systematic record of a transaction is an entry. Double entry bookkeeping is the system most commonly used in business. Double entry keeps records with persons, with property, and with all items of income and expense. In the pupil's study of double entry bookkeeping, he must give careful attention to certain features of the bookkeeping work. He must learn to master details. Bookkeeping records must be in accord- ance with the forms in general use. Many things must be done in a particular way even to the smallest details. The pupil must be accurate. Mathematical accuracy is of the 2 INTRODUCTION greatest importance. But accuracy in bookkeeping includes much more than that. It includes the ability to see a record or form exactly as it is illustrated and to correctly use it in his practice work. It includes the ability to follow instructions exactly. The formation of these habits will be of immense value to every one whether he contemplates a business career or not. The work must be carefully and neatly done. The penmanship must be the best the pupil is capable of doing. To cultivate habits of neatness and carefulness, every page of the written work should be free from blots, erasures, marked-over words or figures, and anything else that would mar the appearance of the work. These mechanical features of the bookkeeping work must be learned and learned thoroughly. They must become almost automatic. Fre- quent exercises and reviews will give the pupil skill in entering the transactions, according to the proper form, accurately and neatly. But that is only one side of the pupil's study of bookkeeping. He must learn to think. He must learn to classify and to analyze. He must be more than an imitator of forms. He must not only know how to do a thing but also why it is done. The work is elastic in character. In part of the work the business papers may be used or not. -Some of the transactions called exercises may be omitted at the discretion of the teacher. The sets represent a progressive development of the subject. None should be omitted. The exercises should be worked out on loose sheets of paper. The beginning sets should be worked out on loose sheets and afterwards entered in the blank books. The rest of the sets should be entered in the blank books without first entering them on loose sheets of paper. All exercises and sets should be submitted to the teacher for correction before proceeding with the next. CHAPTER I THE CASH BOOK Every individual should keep some record of his receipts and ex- penditures of cash. Whether that record is a simple one or one that gives much detailed information depends upon the individual. A person that keeps an exact account of- his receipts and expend- itures cultivates systematic habits. He is more likely to spend his money wisely and to save than the one who keeps no such record. It enables him to select between the necessary expenditures and the unnecessary. v^^^-^', 'ic&sriy. /f — RECEIVED PA II 3 Qa^iS. 7- 3 t — ■ 3 iZ^iy^f^zyL^. — ' / £ „ ^-v^c^lJ- zs- 7 9 / J-o 3 so // 3 3o /s ' V J- * / / 3- '7 J~o '7 J~o /£ j? &s 4 METROPOLITAN SYSTEM OF BOOKKEEPING These records, in order to be of value, should be kept in such a way as to give the necessary information in systematic form. The book used for this purpose is the cash book. It may be kept on one page or on two opposite pages. The one-page cash book is well adapted to the keeping of simple personal accounts in a small pocket cash book. By universal custom, receipts are placed in the left-hand column and pay- ments in the right-hand column. A form suitable to the individual that does not have a large number of transactions is given on page three. It is a good plan to balance the cash book often. It may be done weekly or semi-monthly but should always be balanced at the foot of each page. To Balance a One-Page Cash Book: 1. Add in pencil the "Received" column and the "Paid" column. Make small, neat, pencil figures just below the line on which the last item is written. The pencil figures should not be written on the line. 2. Subtract the amount paid out from the amount received. 3. Enter this difference in the "Paid" column, preferably in red ink, as "Balance on hand." 4. Rule a single red line across the "Received" and "Paid" columns to show that the columns are to be added. 5. Put the equal totals on the next line below in black ink. 6. Rule double red lines on the line on which the totals are entered. These double lines should extend across the "Received" and "Paid" columns and also across the date column. 7. The "Balance on hand" should be brought down below the ruling in black ink and entered in the "Received" column unless that page of the cash book is full, then, it should be taken to the top of the next page. This balance shows the amount on hand to use for the next period. Ruling. Before writing out any exercises it will be necessary to practice ruling. Directions : 1. Use red ink for ruling. 2. The ruling edge of the ruler should not touch the paper, but the bevel should run down under. 3. The hand should be turned on its side and the penholder held at an angle of about thirty-five to forty degrees. 4. Double lines should be ruled by turning the hand out, but without moving the ruler. 5. A medium fine pen should be used so as to make a narrow, smooth line. THE CASH BOOK 5 Exercise in Ruling: 1. Take a sheet of ruled paper and rule a line across the page on each line of the page. 2. On the other side of the paper, rule a line across the page on the line. Without moving the ruler, rule a line under the first just far enough away so that it does not touch the first line. In the same way, rule double lines on each line on the page. 3. Take a sheet of paper ruled with horizontal lines and rule a cash book like the model given. This practice should be continued until the pupil can rule exactly and neatly. Exercise 1. Enter the following transactions on a sheet of paper ruled like the model cash book or on journal paper used as a cash book. January 1. Balance on hand, $7.15. (Enter this in the "Re- ceived" column because it represents the amount left at the end of December to be used for January.) 2. Paid for laundry, 45f£. 3. Received wages, $7.50. 3. Paid board to date, $3.50. 5. Paid for car fare, 50^. 6. Paid dentist, $1.50. 7. Received for addressing envelopes, $1. 8. Paid for hat, $3.50. 9. Paid for basket ball game, 25j£. 10. Received wages, $7.50. 10. Paid board to date, $3.50. 11. Paid for church, 10c\ 12. Deposited in Savings Bank, $3. Money put into a savings bank is entered as paid out because it has gone out of your pos- session. The Savings Book will show at any time how much you have in the bank. 15. Paid for subscription to the System Magazine for one year, $2. 15. Paid for stamps, 20j£. Balance the cash book and bring the balance down January 16. Then make the following entries on the same sheet, below the balance brought down. 16. Paid for book, 50j£. 17. Received wages, $7.50. 19. Paid board to January 17, $3.50. 23. Paid for photo supplies, 75^. 24. Received wages, $7.50. 24. Paid board to date, $3.50. 25. Paid for shoe polish, 10j£. 27. Paid for gloves, $1.25. 6 METROPOLITAN SYSTEM OF BOOKKEEPING 28. Paid for coat, $9.50. 31. Received wages, $7.50. 31. Paid board to date, $3.50. Balance the cash book and bring the balance down February 1. It is even more necessary in handling the funds of others to keep a systematic record of receipts and payments. The transactions of the treasurer of a school paper, of a school society, or of an athletic asso- ciation may be kept in the same way, but it is better to use a two- page cash book, with the receipts on the left page and the payments on the right page opposite. The following form shows the transactions of the treasurer of a school paper. "^^^^^^C^/K^^^^^ / ^J^t^- /z-<^- 2-S- ts-y 7 // 32- fo 42-Z 2-o £/ , TO Terms t^^L^y r ^g^gg ^ '^/A^y >^JCx^>^A DR. UL -£azs. ^J^y^^i^y 3 ££» &U £ -£££. *p£t*^^jrjZ£™^ u- /s 33 Z-o Jl -J^lj ^^f^2^£s^JLLf£. z/y u^- i^L K-J£%^ 7 ^7 zsL ^ ?^y ~*y nS> L. F ACCOUNT TO BE CREDITED r yy/a^y; / 3 /o 3/ 3/ // * // » // v /o 3t £>7 7^ X-o 7 s /.r C/y 2/5 IjT to f.?y <7,r £%fat/. / ¥of 2o 6. Cash sales for the week, $49.20. 8. Bought 3 tons of coal at $4.95 a ton. 10. Paid the H. C. Miller Co. for office books, $12.15. 13. Cash sales for the week, $87.55. 15. Bought an invoice of merchandise of C. D. Paul for cash, $217.65. 18. Paid the Herald Co. $13.80 for advertising. 20. Cash sales for the week, $163.90. 23. Paid for telephone, $4.50. 26. Bought an invoice of merchandise of G. E. Thomas for cash, $206.45. 27. Cash sales for the week, $138.95. 29. Paid J. C. Foster for repairs to store, $9.35. 30. Paid clerk's salary, $24. 30. Cash sales for two days, $36.55. Balance the cash book. THE MERCHANDISE AND EXPENSE ACCOUNTS 17 L. F. ACCOUNT BE DEBITED 'aAS. / 3 /z /■f 3/ 3/ 3/ 'xcrzct-eJ' ^^^fw^ // 7 7A 7^ 37^ — 4°. f3 / 2-c OJ- Before studying the next chapter, make a careful study of the cash book here illustrated, as it is the form that will be used in the first practice work. The explanations are very important, as they give information that is often very valuable to the business. They should be clear and definite and yet brief. Only one line should be used for the explanation of each transaction because it is a poor practice to leave a line in the amount column blank. CHAPTER III ACCOUNTS WITH PERSONS Business is no longer carried on chiefly for cash. In wholesale, jobbing, and manufacturing businesses, purchases and sales for cash are few in number. In the retail trade, cash purchases and sales are much more frequent, but there are many purchases and sales on account. A purchase "on account" means that the buyer agrees to pay for the invoice after some time has elapsed, depending on the terms of the sale or the practice of the particular business. In order to record these purchases and sales on account, accounts with persons must be kept. Accounts are kept with three different classes of persons: 1. Those from whom the business buys, called creditors. 2. Those to whom the business sells, called customers. 3. Those that invest in the business, called proprietors or owners. Accounts with creditors and with customers are called personal accounts. Accounts with proprietors or owners are called capital or ownership accounts. An account with a creditor or with a customer is a personal account whether it records dealings with an individual, a partnership, or a cor- poration. Accounts With Creditors. When goods are bought on account it is necessary for the business to keep a record of the persons to whom the money is owed, how much is owed, and when it should be paid. If goods are purchased on account, Merchandise is received and is debited, but the business does not pay out cash for it. Some other ac- count must be credited, that of the person from whom the business buys. When the business pays this account in full or in part, the creditor's account must be debited to show how much of the indebtedness is can- celed. Rule. Credit a creditor's account when the business becomes in- debted to him. Debit a creditor's account when the business pays the creditor on account, or is allowed something for returned or damaged goods. 18 ACCOUNTS WITH PERSONS 19 An explanatory creditor's account would show merchandise bought from him on the credit side and payments in the form of cash, notes or drafts, or goods returned on the debit side. In the following creditor's account, the credit side shows that the business bought goods from S. N. Dutton at different times on account. The debit side shows that the business paid him cash, gave him a note, and returned goods to him. The business still owes S. N. Dutton the difference between the two sides, $330.90. -*3C /(. <=>£tlcj^r?^ / t?- (M \3o '2- "to^zz^^C^ 2.2- /fcc&s^Ose&BL. 2 J fce^USi^i^-c( 1 a*rzrp£a ~W/ZLS^cJ^t>yty i9- % cry /Z 77 3o » r '7 3o 3y/\J~o AjT/ 2-S- This account shows that C. S. Griffin owes the business the balance of the account, $97.30. Exercise 6. On ledger paper open accounts for F. A. Timm and M. E. Willis. Enter the following transactions in the ledger accounts with an explanation of each item. November 3. Sold F. A. Timm an invoice of goods, on account, 10 days, for $295. 5. Sold M. E. Willis an invoice of goods, on account, . 15 days, for $235. 7. F. A. Timm returned damaged goods valued at 9. Sold F.- A. Timm an invoice of goods, on account, for $412. ACCOUNTS WITH PERSONS 21 12. Sold M. E. Willis an invoice of goods, on account, for $157.50. 13. Received of F. A. Timm for invoice of the 3rd, less $20 for damaged goods returned, cash, $275. 16. M. E. Willis returned damaged goods valued at $15. 20. Received cash of M. E. Willis for invoice of the 5th, $235. 23. F. A. Timm paid $200, on account. 26. Sold an invoice of goods to F. A. Timm on ac- count, for $97. 28. M. E. Willis paid $100, on account. How much does F. A. Timm owe the business? How much does M. E. Willis owe the business? The Capital Account. The account kept with the proprietor to show his relation to the business is called the proprietor' s account or the cap- ital account. This account is credited for all sums invested by the proprietor. It is debited for all sums withdrawn from the business fop personal use. A sum withdrawn may be money withdrawn, merchandise taken for personal use, or the personal debt of the proprietor paid by the business. Exercise 7. Open ledger accounts with S. E. Curtis, B. N. Carr, C. S. Ross, and F. I. Bowman. Enter the following transactions in the proper accounts, with an explanation of each item. April 2. Bought an invoice of goods of B. N. Carr, on account, 15 days, for $385.25. 3. Sold an invoice of goods to S. E. Curtis, on account, for $137.50. 5. Sold C. S. Ross an invoice of goods, on account, 15 days, for $43.20. 6. Sold S. E. Curtis an invoice of goods, on account, 30 days, for $58.95. 8. Bought an invoice of goods of F. I. Bowman, on account, for $476.35. 10. Paid B. N. Carr cash, on account, $150. 12. S. E. Curtis paid $75, on account. 14. Paid F. I. Bowman cash, on account, $250. 16. Sold C. S. Ross an invoice of goods, on account, for $123.45. 17. Paid B. N. Carr cash on account, $100. 19. Bought of F. I. Bowman an invoice of goods, on ac- count, for $236.45. 20. C. S. Ross paid his invoice of the' 5th in cash, $43.20. 22 METROPOLITAN SYSTEM OF BOOKKEEPING 22. Paid B. N. Carr the balance due him on the invoice of the 2d, S135.25. 25. Sold S. E. Curtis an invoice of goods, on account, 10 days, for $257.25. 30. Paid F. I. Bowman cash on account, $275. Which of these accounts are customer's accounts? Which are creditor's accounts? How much does each customer owe? How much does the business owe each creditor? CHAPTER IV PRINCIPLES OF DOUBLE ENTRY BOOKKEEPING A Book of Entry is a book in which the transactions are entered in systematic form as they occur. The cash book is the only book of entry so far used. In it are entered all receipts and payments of cash, together with the accounts affected. Every cash book entry has a double effect. An entry on the Cash Receipts is a debit of Cash and a credit of the account named there. An entry on the Cash Payments is a credit to Cash and a debit to the account named there. These entries are classified under their appropriate headings in the ledger. This is called posting. In the study of purchases and sales of merchandise on account it was found necessary to open accounts in the ledger to show our dealings with creditors and with customers. The nature of these accounts has been explained and a study made of the items that make up the ac- count. It is not desirable to enter the transactions of a business in the ledger as they occur. The transactions should first be entered in* a book of entry and then classified under appropriate headings in the ledger. A new book of entry is necessary as the cash book can contain nothing but cash transactions. The Journal. The journal is a book of entry in which transactions are entered as they occur with a debit for every credit, or one or more debits that are equal to one or more credits. From this principle of equality, we' obtain the following rule. Rule of Double Entry. Equal debits and credits must result from each transaction. By this is meant that every entry has a double effect, a debit and a credit effect. This double effect may be named and each effect trans- ferred to the ledger as it is from the journal, or one effect may be un- derstood and transferred to the ledger in total, as it is in the cash book. General Rule of Debits and Credits. Debit what the business receives or the account that receives the benefit. 23 24 METROPOLITAN SYSTEM OF BOOKKEEPING Credit what the business parts with or the account that yields the benefit. Model entries for purchases and sales, together with a memorandum for beginning the business will now be shown in the journal. < A /?■' PAGE 1 / 3 / -©C "^^^^«i^S^^^^^ < ^^^^-^ < ^/^^W^ / <£^7?, 7 ^Ld^y, 7 Z^Ld^y, pJLH.6fyifiJ^ #H t^W-2/"Z>-Z^^<£^ t^^c?<^/^/ / 7^T^^^^-«>2>^: / 3o^s^€Z^.- 2-j 3* >/ o 3~o 2-J- /a / — /7 — • /Xy J~o 34 >/ o r^r zf~ 1 ^~r / . / / 7 *~7 f6 The second part is a credit to J. C. Braden's account, as follows: /?- %v? / / PAGE 3 /2-y J~o 26 METROPOLITAN SYSTEM OF BOOKKEEPING Second Enthy. The first part is a debit to C. D. Hawks' account, as follows: f&d/ PAGE 4 '9- %~ ■■j- t / J*4 The second part is a credit to Merchandise. The Merchandise ac- count would then appear as follows: PAGE 1 '1- /f- \ #* / fi ' i /2-y So • S~ / / 3* PAGE 2 t. F. account To Be Credited Cr T 7 S- S~o A^tz^Zy^i^c^c^ y-2^t*s*<*2szzsri^/ 7 \S* >/f & ys 2~/yC ys /¥zy IS PRINCIPLES OP DOUBLE ENTRY BOOKKEEPING 27 The other journal entries should be posted in the same way. The page in the folio column to the left of the names of the accounts in the journal shows how much of the journal has been posted. A cash book containing receipts and payments on account, pro- prietor's investment and withdrawals, as well as purchases and sales of merchandise for cash, and payments for carrying on the business will now be shown. (See illustrations below.) ANALYSIS OP CASH BOOK ENTRIES Cash Receipts. First Entry. Cash is understood to be debited because it is received. C. E. Brooks' account is credited because he yields the benefit to the business by investing cash. Second Entry. Cash is understood to be debited because it is re- ceived. Merchandise is credited because it is parted with. Third Entry. Cash is understood to be debited because it is re- ceived. Every entry on the Receipts side is a debit to Cash because it is received. C. D. Braun's account is credited because he yields a benefit to the business by paying on account. Fourth Entry. Same as second. Fifth Entry. S. G. Garner's account is credited because he yields a benefit to the business by paying all of his account. PAGE 3 /oo — Z3~ 3/ Jjr 3/ / ^s^dJLs-&^4y, \ S i6tr£**>£' yS-/ \/^^t^c^z^?^c^^- (Jk?^^ZsZZs7Z*zC~ y£<7, (o, "%2^^-^L PAGE I Credit each other account for the amount specified, and put the page of the ledger in the folio column of the cash book to the left of the name of the account. Since each entry is understood to be a debit of cash, our double PRINCIPLES OP DOUBLE ENTRY BOOKKEEPING 29 entry principle will be satisfied if we post but one debit to the Cash ac- count instead of five separate debits. Debit Cash for the total $2,196.75 as follows: » . i . PAGE 1 'f- M#>*7. 3/ tf 2- 2-/f& 7*~ Cash Payments. First Entry. PAGE 2 ^^Z-^^Z^^d^ 4 3o Second Entry. The posting to the Merchandise account, together with the entry already posted from the Cash Receipts would appear as follows: PAGE 2 *f- J9~ jfa 4- i*tf ^t^oc^Tr, / o^cCcu* 3o-U£. ^z^Aj * |r AT Zj "v-*ts, fer£aj£e>-£j yj- f 2-o. ZZ 2J~ z£ z/r fty / ZiZ 3~a zCr C3 // S'A 2/f jo / 2-V 3~o JS zC f f. 7- 7 r /Jr C 'A So ■4 /yX^^c^C^^^ i -6 3 ~& 3 -/ 3 4 3 ^ 7 3 ¥9 - 37 J- / 2-J- 3/ t~e^?X^d-c/ J!**,. -€ 2- < 7 A ■g 3 /J~o /;• 2-J- /2-4 So 6 J ys f; ys- ■r 7 £ s-» $3 h 3 J^rJbr?.3o $ 4 fi 4 fa>t £ I /J~o J3& to /oo — 33& Jsf /yrs~o /2.^J~o > 7 S- 0S~3fJ~/r vo r '9- $*«• 7 7 / / S 2-/ttfo SET I (Continued) Foot each side of each account in the ledger, if the side contains more than one item. Place the footings in small pencil figures under- neath the line on which the last item on that side is entered. Make a trial balance of totals of the ledger. Submit it for ap- proval. Copy the journal, cash book, ledger, and trial balance in the blank books. Keep the manuscript ledger for further use. SET II , TRANSACTIONS FOR FEBRUARY 1. Enter each of the following transactions in the cash book or in the journal. 2. Balance the cash book. 3. Post the journal and the cash book to the ledger. 4. Take a trial balance of totals. 5. Present all papers to the teacher for approval. 6. Copy the journal, cash book, ledger, and trial balance in the blank books. Keep the manuscript ledger for further use. 42 METROPOLITAN SYSTEM OF BOOKKEEPING February 1. B. D. Tower began a coal and wood business by investing cash, $2,500. 2. Paid S. N. White for rent of store to March 1, $30. 3. Bought of H. A. Baxter, for cash: 50 tons hard coal at $7.35 4. Paid for an advertisement in a local paper, $3.50. 5. Bought of D. Jenkins, on account: 75 tons soft coal at $2.85 6. Sold C. S. Oliver, for cash: 20 tons hard coal at $8.15 8. Sold D. E. Martin, on account, 15 days: 30 tons soft coal at $3.50 9. Bought of G. H. Franke, on account, 15 days: 125 tons coke at $5.35 10. Paid bill for printing bills and letter heads, $3.75. 11. Paid D. Jenkins cash on account, $125. 12. Sold N. Maas, for cash: 15 tons soft coal at $3.45 13. Sold D. Fox, on account: 40 tons coke at $5.75 15. Bought of D. Jenkins, on account, 20 days: 50 tons soft coal at $2.80 16. Sold J. O. Bauer, on account: 65 tons coke at $5.80 17. Paid D. Jenkins cash, on account, $50. 18. Received cash of D. Fox, on account, $150. 19. Sold D. E. Martin, on account, 30 days: 15 tons hard coal at $7.50 20. Paid G. H. Franke cash, on account, $200. 22. Bought of H. A. Baxter, for cash: 25 tons hard coal at $7.40 23. Received cash of D. E. Martin, for invoice of the 8th, $105. 24. Paid G. H. Franke cash, on account, for balance of invoice of the 9th, $468.75. 25. Received cash of J. O. Bauer, on account, $200. 26. Sold D. Fox, on account, 10 days: 40 tons hard coal at $8.10 20 tons soft coal at $3.45 (Have you shown the extension of each item sold in the explana- tion in the journal?) 27. Paid clerk's salary for two weeks in cash, $15. 27. Paid the City Teaming Co. $25 for making deliv- eries for the business. CHAPTER VI ACCOUNTS CLASSIFIED Accounts may be divided into real, nominal and mixed. Real Accounts are accounts that represent actual values. Real Accounts are either personal or property. Personal Accounts are accounts with individuals, partnerships and corporations. Property Accounts are accounts kept to show the value of property belonging to the business; as, cash, accounts with notes, land, buildings, horses, wagons, office fixtures, machinery, etc. Nominal Accounts are accounts that name some profit or loss of the business. They are frequently called profit and loss accounts. The only one studied so far has been the expense account. In more ad- vanced bookkeeping, the expense account may be divided into several accounts, and many ot^ier accounts may be kept, such as, freight, commission, interest, discount, etc. Mixed Accounts are accounts that contain both real and nominal elements. The Merchandise account is the best example of a mixed account. All real accounts show an asset or a liability. An Asset is property belonging to the business or an amount owed to the business. A Liability is an amount owed by the business, whether due or not. Rule for Real Accounts. Real accounts with the debit side the larger are assets; with the credit side the larger are liabilities. A personal account must first be examined to see whether the ac- count is that of a customer — one to whom the business has sold, or that of a creditor — one from whom the business has bought. The debit side of a customer's account is usually the larger because the debit side represents sales to him and the credit side represents pay- ments or allowances on goods. It should show an asset. The credit side of a creditor's account is usually the larger because the credit side represents purchases from him and the debit side repre- sents payments made to him or allowances given the business on goods. It should show a liability. 43 44 METROPOLITAN SYSTEM OF BOOKKEEPING Property accounts are usually named in such a way as to indicate the nature of the asset or liability. Rule for Nominal Accounts. A nominal account shows a loss if the debit side is the larger and a profit if the credit side is the larger. The expense account is a nominal account that always shows a loss, as it represents money paid out for carrying on the business. If there is anything of value unused, it is a mixed account and also shows an asset. The Merchandise Account, A Nominal Account. The merchandise account is debited for the goods bought and credited for the goods sold. If all the goods have been sold, the Merchandise account shows a profit if the credit side is the larger and a loss if the debit side is the larger. The Merchandise Account, A Mixed Account. In any continuous business, some goods are left on hand at the end of the period for which the profit or loss on merchandise is to be found. These goods on hand are called the inventory of merchandise. That makes the merchandise account a mixed account. Inventory of Merchandise. The Inventory of Merchandise may be found by taking inventory or taking stock. The merchandise on hand is listed on cards, or loose-leaf sheets, or in a book. It is then computed at the cost price, if it is in a good salable condition. If the goods are shopworn, out of season, out of style or for some other reason will sell for less than cost, they should be computed at the present value. The inventory may be found, in most businesses by keeping a per- petual inventory book, which shows the merchandise of each kind pur- chased, sold, and the balance on hand. The inventory is the real element in the merchandise account. It is property. It is an asset. The nominal or profit and loss element must be found. How to Find the Profit or Loss on Merchandise. There are two methods of finding the nominal element, the profit or loss on mer- chandise. By one method, the inventory is subtracted from the debit side, which is the cost of all the goods. The difference is the cost of the goods sold. This result is subtracted from the credit side, which is the value of the goods sold. The difference is the profit on Merchandise. If the cost of the goods sold is greater than the selling price, the result is the loss on merchandise. Expressed in brief form, it would be: Credit— (Debit— Inventory)=Profit, or, (Debit — Inventory) — Credit=Loss. The account method is another method very commonly used, be- cause it is easier to show addition in the ledger accounts than sub- traction. By this method, the inventory is added to the value of the goods sold. From this result, the debit is subtracted. The differ- ence is a profit. Or, if the debit is the larger, the difference is a loss. ACCOUNTS CLASSIFIED 45 Expressed as a formula, it would be: Credit+ Inventory— Debit= Profit, or, Debit— (Credit+ Inventory) = Loss. The trial balance of the Model Ledger will now be analyzed and the accounts classified. Analysis of Model Ledger. S. N. Boden's account is debited for the money withdrawn from the business and credited for his invest- ment. It is a real account and shows a liability of the business to the proprietor. Merchandise account is debited for the goods bought and credited for the goods sold. Before ascertaining what the account shows, an inventory must be taken. The inventory value is taken to be $809.25. The account is a mixed account and the nominal or profit and loss element must be found. First Method: Merchandise Debit, cost of all the goods $1255.00 Merchandise Inventory 809 . 25 Cost of goods sold $ 445.75 Merchandise Credit, selling price $ 576 . 50 Cost of goods sold •. . 445.75 Merchandise Profit $ 130.75 Second Method: Merchandise Credit, selling price $ 576 . 50 Merchandise Inventory 809 . 25 Merchandise Value $1385.75 Merchandise Debit, cost of all the goods $1255.00 Merchandise Profit $ 130.75 The account, then, shows a profit of $130.75 and a real element, the inventory, of $809.25. Expense is debited for anything paid out to carry on the business. It is a nominal account and shows a loss. Cash is debited for the cash received and credited for the cash paid out. It is a real account and shows an asset. B. D. Foley's account is credited for the value of the goods bought of him on account and debited for the amount paid by the business on account. It is a real account and shows a liability. C. S. Baxter's account is debited for the value of the goods sold him on account and credited for the amount received from him on ac- count. It is a real account and shows an asset. T. A. Carr's account is analyzed the same as B. D. Foley's. C. D. Sand's account is credited for the value of the goods bought of him on account. Nothing has been paid on it. It is a real account and shows a liability. 46 METROPOLITAN SYSTEM OF BOOKKEEPING Exercise 8. First, as an oral exercise analyze the trial balance of Set I. Use $142.50 as the inventory of goods on hand. Then, write out your analysis of each account in the trial balance. The analysis should state the reason for the debit and for the credit, classify the account, and state what the account shows. Exercise 9. Analyze in writing the trial balance of Set II. Use $275 as the inventory of goods on hand. Exercise 10. Find the profit or loss on merchandise. Your teacher will direct you as to which method to use. a) The debit side of Merchandise is $896.40; the credit side is $975.50. All the goods have been sold. b) Merchandise Debit, $1275.15; Merchandise Credit, $926.35; In- ventory, $389.25. c) Merchandise Debit, $726.45; Merchandise Credit, $801.50; In- ventory, $45.60. d) Merchandise Debit, $647.55; Merchandise Credit, $501.95; In- ventory, $110.40. Exercise 11. Review. Enter the following transactions in the proper books. Use one page as a journal and two opposite pages as a cash book. December 1. C. S. Hunter invests $1500 cash in the business. 3. Paid $20 for rent of store. 5. Bought an invoice of merchandise of S. G. Porth, for cash, $217.25. 7. Bought an invoice of merchandise of G. E. Leeds, on account, $167.45. 9. Sold an invoice of merchandise to D. C. Hart, on account, $93.75. 12. Paid $5.75 for one ton of coal. 13. Sold an invoice of merchandise to B. E. Brand, on account, $82.15. 15. Paid G. E. Leeds, on account, $125. 16. Received $60 of B. E. Brand, on account. 17. Bought an invoice of goods of D. A. Carson, on ac- count, $212.35. 20. Received of D. C. Hart, on account, $75. 22. Paid G. E. Leeds, the balance of the invoice of the 7th, $42.45. 24. Sold an invoice of merchandise to C. G. Gorman, for cash, $'65.50. ACCOUNTS CLASSIFIED 47 26. Paid D. A. Carson, on account, $80. 27. Sold an invoice of merchandise to D. C. Hart, on account, $115.75. 28. Received of B. E. Brand the balance of his account, $22.15. 31. Paid clerk's salary, Inventory of Merchandise, $263.25. Balance the cash book. Post the journal. Post the cash book. Take a trial balance of the ledger. CHAPTER VII STATEMENTS At the end of certain regular periods, statements are made out to exhibit the profits and the losses, the assets and the liabilities, and the present condition of the business. In most businesses these statements are made out annually at the end of the business year. In many they ACCOUNT Ocbit Credit Losses Profits Asscts 44? /S~o o — /2SS~ S~y£So Z-oT-ZSb f3Cto /oo — 33&ys~ ^^^7$U^^^-Z5^<^^^^<^--<^7^-/ '~4s>%^C4sri*'-0 Il&sVI^S. J? /, /0 Sy6.so &stt4^r--'&~£' a^r-z>-z£ 2- St s 7 I ,?/ <^l^7sl/-esrtPC& / ls7f-- % OCf IS IzJ^TsTS-^^lXZyisTf / 3 $3 7S /3?S 7S £l&> / toy 2-S 54 PAGE 2 METROPOLITAN SYSTEM OF BOOKKEEPING 7W- Qasrv.3/ 2??60U^ / /So 7S To Close the Expense Account: 1. Enter January SI, Profit and Loss, $88.95, on the credit side in red ink. 2. Rule the account with the single and double lines on the same lines of the debit and credit sides. Is the ledger in balance? 3. Transfer the loss to the debit side of the Profit and Loss ac- count in black ink, writing January 31, Expense $88.95. PAGE 1 ^y*r»3/ ~& 3 *£o — JUrr. / ~& Z /Soo — 3/ ~1^U^i^~f^^Uf 2- <*/. fo To Close the Proprietor's Account: 1. Add the credit side and the net profit in pencil. 2. Subtract the debit side from it. The difference is the Net Worth. 3. Enter on the debit side in red ink, January 31, Net Worth, $1501.80. ' 4. Rule the account. 5. Restore the ledger to balance by bringing the Net Worth below the lines on the credit side, February 1, Net Worth, $1501.80. 56 METROPOLITAN SYSTEM OF BOOKKEEPING PAGE1 J, -4 3 9U+%crlMs ¥0 -JU. /SVJ to In 3/ oSX if 2 2 /Soo — V/V <2 /.S¥/ 0>7- r °l 2a^7. 3/ 3 / 2o22 ro /opj- 7° 4 J3(2 to / O t^-yn 7-OZ2- So To Close the Personal Accounts that Do Not Balance: 1. Find the difference between the two sides of the account. 2. Enter the difference as Balance on the smaller side in red ink. 3. Add and rule the account. 4. Transfer the Balance to the opposite side of the account in black ink, dating it February 1. B. D. Foley's account would be closed as follows: CLOSING THE LEDGER 57 *9 (/asKS >/l 3/ A^Z^C^i^>Z^C^^ / o o 7- 3 ( a 33 — Jkzsns £ %£■ z: , 7 f3~ 33 <' y?s>c*e^s ^f^Ar /^ / / / / 2- 2- ^9/. /3wL&<^s ~&.&f, A^i^>te^L /So/ to When listed in a balanced table and properly explained the Proof Trial Balance becomes the Balance Sheet of the accountant. This will be explained in the advanced work. Exercise 13. On a sheet of ledger paper open the following ac- counts and a Profit and Loss account. Open three accounts on the first page of the ledger and four on the second. The Merchandise inventory is $455. Close the ledger, March 31. Make a Proof Trial Balance. '. C. D . Bowen, Proprietor 19- Mar. 15 C 3 75 - 19- Mar. C 2 2000 Merchandise 19- 19- Mar. 6 C 3 315 Mar. 8 C 2 117 — 12 J 1 412 — 15 C 2 252 — 21 J 1 316 — I- 22 J 1 318 — Expense 19- k Mar. 1 20 — 15 C 3 12 — 30 C 3 16 — CLOSING THE LEDGER 59 Cash • 19- Mar. 31 C 2 2519 L- 19- Mar. |31 C 3 738 C. S. Barton 19- Mar. 18 C 3 300 19- Mar. 12 21 J J 1 1 412 316 & B. E. French 19- Mar. 22 J 1 318 19- Mar. 25 C 2 150 — SET I (Completed) 1. Make a Statement of Profit and Loss from the trial balance and the inventory of $142.50, given in Chapter VII. 2. Make a Statement of Assets and Liabilities. 3. Close the manuscript ledger, using these statements as guides. 4. Make a Proof Trial Balance, February 1. After the work has been approved by the teacher: 1. Copy the Statements of Profit and Loss and of Assets and Liabilities in the blank books. 2. Close the ledger in the blank books. 3. Examine your ledger to see whether it agrees with the Proof Trial Balance of your manuscript ledger. SET II (Completed) Make statements of Profit and Loss and of Assets and Liabilities, using the inventory, $275, given in Chapter VII. Close the ledger and make a proof trial balance. Copy everything in the blank books in the same way as in Set I. Oral Exercise. 1. Analyze the journal and cash book entries of Set II. Apply the rule of Debits and Credits, and give a reason for the debit and the credit of each entry. 2. Analyze the ledger of Set II by giving the reason for the debits and credits of each account and by explaining what the difference of each account means. Special Instructions to the Student. You have now completed the necessary steps in entering the transactions, proving the work, finding out the condition of the business, and proving up the ledger after closing. This has been done with Sets I and II. You should now understand the routine work of each of these months, how each step is taken, and why. 60 METROPOLITAN SYSTEM OF BOOKKEEPING You should be able to rule paper for any of the books you have used. You should be able to balance a cash book and to close any ledger account properly without having a model before you. Can you analyze any entry and any account that you have had? Your ability to do this and to think out new transactions will to a large extent determine your progress. Accuracy. You have learned by this time that to hurry the work usually means a lack of accuracy. You must take time to do the work accurately. Inaccurate, careless figures, poor form, and hurried com- putations mean a lack of accuracy. Careful work when making the entries and posting will save much of the time that otherwise would have to be devoted to finding mistakes. Neatness. All papers that you make out should be the very best you can do. Your penmanship should be written in a good business style that is free from flourishes. Your writing must not be too large, as many books and forms have narrow rulings. You should be ex- tremely particular about your figures. Never join them together. No word or figure written in ink should ever be marked over or erased. A red line should be drawn through the incorrect word or figure and the correct word or figure written above in black ink. Books of entry often become valueless as a means of proving an account, in case of a dispute between the parties, because they are poorly kept. Careless corrections and lack of neatness may result in the refusal of a court to allow the books to be used as evidence. The cultivation of habits of accuracy and neatness will be of great value to you in business life. SET III. RETAIL FLOUR AND FEED a) Enter the following transactions in the books of entry, or if the teacher desires, they may be entered on loose sheets of paper and afterwards copied in the books. March 1. C. S. Morton began the Flour and Feed business by investing cash, $2500. 2. Paid rent of store for one month, $40. 3. Bought of the City Flour Co., for cash: 50 bbl. Lily Flour at $4.35 4. Bought of the Valley Mills, on account: 4000 lb. Bran at $2.60 per hundred 1000 lb. Corn Meal at $1.50 per hundred 5. Sold G. C. Grace, on account: 15 bbl. Lily Flour at $4.90 300 lb.' Corn Meal at $1.85 per hundred Have you extended the amount of each item? CLOSING THE LEDGER 61 6. Cash sales for the week, $37.35. 8. Paid an advertising bill in cash, $18.75. 9. Bought of the Wright Grain Co., on account: 500 bu. Yellow Corn at 62j£ 1000 bu. White Oats at 37j£ 10. Sold B. C. Yoder, on account: 500 lb. Bran at $3.25 per hundred 100 bu. Yellow Corn at 78f£ 11. Sold F. C. Winter, on account, 10 days: 25 bbl. Lily Flour at $4.95 12. Paid Lowe Print Co. $13.75 for printing bills and letter heads. 13. Cash sales for the week, $62.60. 13. Paid the Valley Mills Co. $75, on account. 15. Received of G. C. Grace cash on account, $50. 15. Bought of the Western Coal Co. for cash: 4 tons coal at $5.40 16. Bought of the Badger Flour Co., on account: 200 sacks Whole Wheat Flour at 35j£ 125 bu. Wheat at 89j£ 17. Sold G. C. Grace, on account: 50 bu. Wheat at 97^ 200 bu. Yellow Corn at 76^ 25 sacks Whole Wheat Flour at 48j£ 18. Paid the Valley Mills Co. the balance due them, $44. 19. Bought of the Moore Flour Co., on account: 75 bbl. Lily Flour at $4.25 500 lb. Corn Meal at $1.55 20. Cash sales for the week, $76.15. 20. B. C. Yoder paid $75, on account. 22. F. C. Winter paid for his invoice of the 11th, $123.75. 22. Paid the Badger Flour Co, $125, on account. 23. Sold F. C. Winter, on account, 30 days: 30 bbl. Lily Flour at $5.05 300 lb. Corn Meal at $1.90 24. Bought of the Valley Mills Co., on account: 750 bu. Yellow Corn at 61^ 25. G. C. Grace paid $125, on account. 26. Sold B. C. Yoder, on account: 500 bu. White Oats at 47^ 27. Cash sales for the week, $87.45. 29. Sold G. C. Grace, on account: 1000 lb. Bran at $3.35 100 sacks Whole Wheat Flour at 45^ 30. The proprietor withdrew $60 from the business. 62 METROPOLITAN SYSTEM OF BOOKKEEPING 31. Cash sales for two days, $31.95. r 31. Paid clerk's salary in cash, $32. 31. Paid Badger Fuel Co. $32.75 for making deliveries. b) Post to the ledger. c) Take a Trial Balance of differences. d) Make Statements of Profit and Loss and of Assets and Liabili- ties, using the following inventories: Merchandise, per schedule on file, $998.25 Expense, 2 tons coal at $5.40, $10.80 What effect will the inventory of $10.80 have on the loss in Ex- pense? Why? What effect will it have on the assets of the business? Does the Expense inventory make the net worth of the business greater or less? Why? e) Close the accounts in the ledger in the following order: 1. Merchandise 2. Expense, like the following: PAGE 5 '9- 2- P- 2-o 3o 3 3 3 3 r / o 3o 2-s /s 3/ 3 / 7 2-J- - ff t/o r Notes Payable account must show a liability if the account does not balance. It should be closed as on page 70. 70 METROPOLITAN SYSTEM OF BOOKKEEPING yf^t^^ /^zz^^zz^lU^ "f- 6fylA<2j u- Jo 4 // // 2 / 2 // S — /fs o22-2J~ 2~S~C4fzst, fa Z^t^y /C / A^i^ti^yi^a^y 7 r / 6000 127.25 X — X — 360 100 10.81625 _ 12 = .901+ or 90^. In the last chapter, the principle was established that Notes Receivable and Notes Payable must be debited and credited at their face value. This principle is not changed when a note bears interest. Whatever allowance is made for interest must be entered in a separate account, the Interest account. If C. D. Cook gave his note to the business on January 8, for $375, payable 60 days after date, with interest at 6%, the entry in the journal would be Notes Receivable, $375 To C. D. Cook, $375 When the note is paid on March 9, the result would be . Cash, $378.75 To Notes Receivable, $375.00 Interest 3.75 As an entry on the Cash Receipts it would be made as follows: y^Z^/f^c<«^z^^ *dfo^£dsL^dst~ L^T^^a^-cnz-e^Coe^. 3yJ- 3 7^ 74 METROPOLITAN SYSTEM OF BOOKKEEPING Our note in favor of C. D. Gordon, dated February 3, for three months, for $460, with interest at 6%, would be entered in the journal, on February 3, as follows: C. D. Gordon, $460 To Notes Payable, $460 When the business pays this note on May 3,. the effect would be as follows: Notes Payable, $460 . 00 Interest ' 6.90 To Cash $466 . 90 As an entry on the Cash Payments, it would be made as follows: % O^Z^r- 3 3 //.£ & f 6 Debit the Interest account when the business allows Rule for Interest, it to others. Credit the Interest account when others. allow it to the business. Exercise 20. Enter the following transactions on journal paper. The transactions may be used as an oral exercise before writing them. 1. May 1. Received C. E. Bowen's note for $720, payable in 10 days, with interest at 6%. Gave C. I. Bell my note for $240, payable in 15 days, with interest at 6 %. Gave W. A. Worth my note for $900, payable in 15 days, with interest at 6%. C. E. Bowen paid his note in transaction 1, with interest, $1.20. Received F. A. Hunt's note for $75, payable in 10 days, with interest at 6%. . B. D, Dale gave the business his note for $480, payable in 15 days, with interest at 8%. Paid my note in transaction 2 and interest, 60j£. Paid my note in transaction 3 and interest. 22. F. A. Hunt paid his note in transaction 5, with interest. 30. Received payment of S. D. Dale's note and interest in transaction 6. Others' Notes Discounted. To discount a note at a bank or with a broker is to sell the note and pay in advance for the use of the money. It is, in effect, borrowing the face value of the note for the unexpired time of the note. The business receives the use of the money for the time from the date of discount to the date of maturity. This is called the term of discount. It is counted in exact days. 2. 3. 4. 5. 6. 7. 8. 9. 10. 3. 5. 11. 12. 15. 18. 20. INTEREST AND DISCOUNT ON NOTES 75 Problem: S. N. Gray's note for. $625, dated May 8, payable in 60 days, is discounted at the bank on June 16 at 6%. The value of the note would be found as follows: Date of Maturity, July 7. Term of discount, from June 16 to July 7, is 21 days. The discount (interest in advance) of $625, for 21 days at 6% is $2.19. $625 minus $2.19 is $622.81, the proceeds of the note. The bank will deduct the $2.19 as interest on the $625 for 21 days and give the difference, $622.81, to the person discounting the note. The effect on the accounts would be as follows: Cash $622.81 Interest 2.19 To Notes Receivable $625.00 Since discount on a note is interest on the note paid in advance, but one account called Interest will be kept for both interest and discount. In entering it in the cash book, the entry must be made on the theory that $625 was received for the face of the note and $2.19 paid for the use of the money. The entry would be as follows: Cash Receipts /£ y^^/££^^ ^>jt Cash Payments U-a^n^e^ rC \^nn^L€^L^L^d^~ Jyi<4/da. . /t /^-iw^ r >/ t Our Notes Discounted. The business may borrow money from a bank or a broker on its own note. A note is issued and the interest paid in advance by subtracting the discount for the time of the note from the face of the note. Our note, payable in 60 days, for $225, discounted at the bank at 6% would be entered on the Cash Receipts as a credit to Notes Payable for $225 and on the Cash Payments as a debit to Interest for $2.25. Rule for Discount on Notes. Debit Interest for all discount allowed by the business on our notes and on others' notes. Credit Interest for all discount allowed to the business on our notes and on others' notes. Interest account is a nominal account and shows a profit if the credit 76 METROPOLITAN SYSTEM OF BOOKKEEPING side is the larger and a loss if the debit side is the larger. It should be closed as follows: Vfu. T /2- ? // /3 4/ 3 /o 7^ 2-6 /S so /S 3/ / /o Exercise 21. Find the disco FACE DATE 1. $650.00 Sept. 4 2. 315.25 May 3 3. 205.00 July 6 4. 130.20 Dec. 31 5. 930.00 June 7 6. 815.40 Aug. 1 7. 70.00 Nov. 15 8. 1225.00 June 17 9. 450.00 March 8 10. 115.00 April 30 S OF DISCOUNT RATE October 9 6% May 17 6% July 20 5% Jan. 24 4% July 1 7% Aug. 1 8% Nov. 25 6% July 8 6% Mar. 28 7% May 3 6% Find the discount and the proceeds of the following notes: TIME 60 da. 3 mo. 30 da. 2 mo. 30 da. 60 da. 15 da. 6 mo. 3 mo. 30 da. Exercise 22. On journal paper enter the following transactions in a cash book. Received payment of S. N. Gordon's note for $325, and interest for 30 days at 6%. Paid note favor C. E. Betts for $415, and interest for 90 days at 6%. Discounted at the bank at 6%, B. E. Bond's note for $350, dated May 31, payable 30 days after date. Paid note favor C. N. Briggs, for $265, and interest for 45 days at 6%. Discounted at the bank at 6%, our note for $1500, payable 60 days after June 15. Discounted at the bank at 6%, C. N. Good's note for $97.50, dated May 27, payable 60 days after date. Received payment of B. E. Reed's note for $450.90, and interest for three months at 5 %. June 2. 5. 9. 12. 15. 20. 24. INTEREST AND DISCOUNT ON NOTES 77 27. Discounted at the bank at 7%, our note for $1750, payable 30 days after June 27. 28. By agreement with the payee of our note, C. S. Boden, we prepay our note for $250, dated June 15, for 30 days, less discount for the unexpired time at 6%. What account should be debited for the face value of the note? What account should be credited for the discount? June 30. Paid C. D. Griffin the quarterly interest on a note for $1825 in his favor, dated March 30, payable one year after date, with interest at 6 % per annum, payable quarterly. CHAPTER XI THE SALES BOOK AND THE PURCHASE BOOK Sales Book i^t^z^- / 7a 4/ V^ Jo -J^zy.^yy? Z- ^Cs^^^^^^^z^ r#& %z£ZjjJ£ 3 2-.7S- ¥.fo /3 2-U 7^ ^^z^u^C^-^3^^k-d/ J- 3 c*LaQ> , /^t^d^d^^L4^y, 4-/2- - /2-yt^J^: 78 7^ fj-zA^y^dy j 2*4 /Co — fjr /Cys~ Co soj sCy 2JT/ 3S- /O.Si ft/ 3^y- — Zff7 f J" THE SALES BOOK AND THE PURCHASE BOOK 81 The Purchase Book is another book that takes a number of entries out of the journal and by so doing saves work and classifies entries. All purchases of merchandise made by the business should be entered in the purchase book, so that the total purchases will be shown in one book at the end of the month. Purchases on account are entered in the purchase book only. Every entry is a credit to the account of the person from whom the goods are bought and Merchandise is understood to be debited. The Merchandise is posted in total only. Cash purchases should be entered in the purchase book and on the Payments side of the cash book and checked in both places. The principle is exactly the same as applied to sales, for both retail and wholesale businesses. The items are not entered in the purchase book because when the business buys goods it receives an invoice, which is filed. To this, one can refer for the items purchased. The purchase book of a wholesale business is illustrated here. Purchase Book OATE NAMES AND ADDRESSES JZ U- 3o 2- /foz^uy. ~Z2^< TERMS AMOUNT Cy>c4r,/Osc£t^. 2^/2.y*J~ '/t>,srues/~3oe&z.. 3 Q> >£~ / O /fo£ey,/J~d^. /3y s~o "(p^z^As • £<^^^ / /& On the books of the buyer, F. A. Kagy, the entry would be made as follows: Cash Payments ill- Cash Receipts tzst^f /fLf^> /C Rule, Debit Merchandise Discount for all discount allowed to others on invoices of merchandise. Credit Merchandise Discount for all discount allowed to the business on invoices of merchandise. Merchandise Discount is a nominal account. The debit side shows what the business has lost by allowing discount; the credit side shows what the business has gained by paying invoices less discount. The dif- ference must be a loss if the debit side is the larger and a profit if the credit side is the larger. Merchandise Discount is closed in the same manner as Interest by entering the difference between the two sides on the smaller side. If the debit is the larger, Profit and Loss in red ink is entered on the credit side and transferred to the opposite, debit side, of the Profit and Loss ac- count in black ink. If the credit is the larger, Profit and Loss in red ink is entered on the debit side and transferred to the opposite, credit side, of the Profit and Loss account in black ink. Exercise 25. On journal paper make entries for the following trans- actions in journal form. Make the entries for the payment of invoices less discount as compound journal entries in the following form: Cash $343 Mdse. Discount 7 To W. L. Mann $350 Then enter the cash transactions in the cash book in the way they should be made in your books. May 1. Bought an invoice of goods of J. A. Jordan on the terms, 2/10, n/30, for $525. 92 METROPOLITAN SYSTEM OF BOOKKEEPING 8. Sold an invoice of goods to B. C. Case on the terms, 3/5, 2/10, n/30, for $280. 11. Paid J. A. Jordan for invoice of the 1st, less $10.50 dis- count. 12. Bought an invoice of goods of H. A. Dalton on the terms, 1/10, n/30, for $625. 13. Received of B. C. Case cash for invoice of the 8th, less discount. 18. Bought an invoice of goods of L. M. Myers on the terms, 2/10, n/30, for $815. 22. Paid H. A. Dalton for invoice of the 12th, less discount. 24. Sold an invoice of goods to C. S. Schwartz on the terms, 2/5, 1/10, n/30, for $235. 26. Paid L. M. Myers for invoice of the 18th, less discount. 28. Received of C. S. Schwartz cash for invoice of the 24th, less discount. Exercise 26. On journal paper enter the following transactions, using a cash book, journal, sales book, and purchase book. October 1. S. B. Post invested cash, $1800, in the business. 3. Bought an invoice of goods of H. E. Steen, on account, 20 days, for $278.25. 4. Paid rent of store for one month, $40. 6. Sold an invoice of goods to B. C. Gradin on the terms 2/10, n/30, for $167.50. 7. Paid for office books and stationery, $12.85. 8. Bought an invoice of goods of S. N. Jones amounting to $380.75, and gave my note at 15 days, with inter- est at 6%, in payment. 10. Sold an invoice of goods to D. E. Darst on the terms, 3/10, n/30, for $112.80. 12. Bought an invoice of goods of D. E. Closs for cash, $397.85. 13. Gave H. E. Steen my note at 15 days, for $278.25, with interest at 6 %, for invoice of the 3d. 14. Sold an invoice of goods to C. E. Wells for $132.50, on account. 15. Received cash, $164.15, for an invoice of goods sold to B. C. Gradin on the 6th, less $3.35 discount. 18. Bought an invoice of goods of C. N. Mills on the terms, 2/10, n/30, for $136.75. 20. Received cash of D. E. Darst for the invoice sold him on the 10th, less discount, $3.38. 21. Sold B. C. Gradin an invoice of goods, on account, for $171.25, and received his note at 30 days, for $100 in part payment. DISCOUNT ON PURCHASES AND ON SALES 93 24. Paid my note of the 8th, favor S. N. Jones, and interest. This note was due on the 23d, which was Sunday. Notes due on Sunday may be paid on the next business day in most states. 25. Sold an invoice of goods to S. N. Bond, on account, 30 days, for $178.95. 26. Bought an invoice of goods of D. E. Closs, on the terms, 3/5, 2/10, n/30, for $127.25. 27. Paid C. N. Mills cash for invoice of the 18th, less discount. 28. Paid my note of the 13th, favor H. E. Steen, with interest. 29. B. C. Gradin gave his note at 30 days for $50, on account. 31. Paid D. E. Closs cash for invoice of the 26th, less discount. 1. Open ledger accounts on ledger paper, putting four accounts on a page. 2. Post the entries. 3. Take a trial balance. 4. Make a statement of Profit and Loss. Inventory of merchandise, $632.50. 5. Make a statement of Assets and Liabilities. 6. Close the ledger. 7. Make a proof trial balance. CHAPTER XIV THE BANK ACCOUNT Modern business is carried on largely without the use of actual money. Not only has business become a credit business but payments are made by means of instruments of credit. A bank is a credit institution. A large part of the payments made in the wholesale and jobbing trade are by means of orders on banks. A smaller per cent of payments in the retail trade are made in the same way. An order on a bank is nothing more. than a transfer of part of one person's credit at the bank to some one else. It is called a check. Chas. Graham has an account at the bank. He owes James Paxton. He orders the bank in writing to pay the amount to James Paxton. By doing this the bank credit is transferred from Chas. Graham to James Paxton. Advantages of a Bank Account. There are many advantages derived from having a commercial deposit in a bank, but the chief ones are as follows: 1. A bank account makes it possible for a business to keep its funds in a safe place and to draw them out at any time. 2. It enables a business to pay its bills by means of checks. Checks are desirable for the following reasons: a) Payment by check is a much safer method thanpaymentin money. b) Canceled checks are returned to the depositor at the end of each month. They thus serve as receipts, as the name of the party to whom payment has been made must be indorsed on it before the check can be cashed. c) Checks furnish the best data from which to make the entries and prove up the cash. 3. A bank is the best medium through which checks, notes, and drafts may be collected for a depositor. 4. A good bank account gives standing to a business that will assist very much in obtaining credit and in borrowing money. How to Open a Bank Account. Many of the smaller banks will open commercial or checking accounts with any one that makes a reasonable deposit. But the larger banks insist on an introduction from some one 94 THE BANK ACCOUNT 95 known to the bank. They also insist on an opening deposit of a certain sum and that the depositor maintain at all times that sum, or more, in his account. The details of opening an account are usually attended to by an assistant cashier of the bank. Signature Card. After these formalities have been completed a signature card must be filled in. The depositor should sign his name on this card just as he expects to sign it on checks. The following is a common form of a signature card: Signature Card National Exchange Bank AUTHORIZED SIGNATURE OF Name. ggg^gS^k2, '^rzsr?v^d>- Home Address _Z^ZZ<=£I ^LzZZzL&t Business Business Address UZ& K=Xt^^A£/J^^J/r Dale Remarks. This signature card is a valuable card and is usually kept on file by the paying teller so that he may con- sult it in cases of forgery or of doubt- ful signature. How to Make aDeposit. On mak- ing a deposit, each depositor should make out a depos- it ticket furnished by the bank. This ticket contains de- tails of the depos- it and a place for any charges onout- of-town checks deposited. A simple form to be used in the practice work is as shown on page 96. Deposit Ticket. The papers deposited may be checks on the bank in which the deposit is made, checks on other banks of the same city or on banks of other cities, express money orders, postal money orders, or bank exchange. (Bank exchange, or a bank draft, is an order of one bank on a bank of New York, Chicago or some other large city. It is every- where accepted as cash.) For the convenience of banks the deposit ticket is frequently printed so as best to give this information. These are in many different forms. A form used by many banks is as shown on page 97. The Pass Book. The deposit ticket, with the money and checks, is handed to the receiving teller. He counts the money and checks the correctness of the checks and of the total. He then enters the amount of the deposit in the pass book as shown on page 96. 96 METROPOLITAN SYSTEM OF BOOKKEEPING Deposit Ticket National Exchange Bank OF MILWAUKEE POSITED FDR ACCOUNT OF if/ASA ^£2^222^L^L ^cjic^y ,j~ ifl — pleAse list checks SEPARATELY and see THAT THEY ARE PROPERLY INDORSED Cold. Silver. Jl-ZZ This entry is a receipt for the money and checks deposited and should be examined by the de- positor before leaving the bank. Should the depositor forget his pass book, he should make out two deposit tickets, one of which the receiving teller will stamp Duplicate, sign his name or initials, and return to the de- positor. This duplicate should be taken to the bank when the next deposit is made and the de- posit entered in the pass book. The Check Book. A bank will pay out money from a deposi- tor's account only on a written order. A check is a written or- der on a bank to pay a certain sum of money to the order of a third person or to bearer. Each bank furnishes its de- positors with a book contain- ing stubs, with checks attached by a perforation, so that they can easily be torn out. This is called a check book. p ASS Book Entry Currency. Checks . 3? T/.^^^j- l££ ^z &f / ZS3o m 7^ 7° Each depositor a\ /u , . should keep his ac- c/JZ4>\ J~ cZ^W^ \3 (p 6 count with the bank in such a way that he may know at any time just how much he has on deposit. The pur- pose of the stub from which the check is detached is to show a detailed memorandum of the payment, and to keep the account with the bank. For a small business or for the private individual, the best method is to add the amount of each deposit made and to subtract the amount of each check drawn. This method is illustrated' in the page of a two-on check book shown on pages 98 and 99. Another method of keeping the bank' account, preferred by many accountants, is illustrated on page i of the appendix. The back of preceding check stubs opposite should be used for details of deposits, collections, and charges, if the items are not great in number. The back of the check stub opposite to where the deposit is added should show the details of the deposit. (See illustration on page 100 ) THE BANK ACCOUNT 97 Things to be Observed in Writing Checks : 1. Always fill in the check stub first. 2. Do not leave blank spaces, but fill them in with a wavy line. 3. The amount should always be written close to the dollar sign. 4. If there are no cents in the amount, it should be shown by filling in two ciphers. 5. The amount in words should begin to the extreme left of the line. 6. The signature should always be the same. METROPOLITAN SYSTEM OF BOOKKEEPING J~0 O O oL '^22' To. Discount Amount ^^<^^^ /a, /^^^;z^;^— * ^ tz^n^zf '~ 7 * : » ^ ~^~^ " ' 1 Dollars No._JL National Exchange Bank PAY TO THE ORDER OF. _Dollars balance shown by the bank's statement does not agree with the balance shown by the depositor's check book. This is usually due to the fact that some checks written near the close of the month have not yet been paid by the bank, hence, they are not included in the statement. To explain this difference is to reconcile the bank account. The checks should first be arranged in numerical order and compared with the check stubs. A red ink check mark or 0. K. should be placed on the check and on the stub. The missing checks should be listed by number and totaled. This total should then be subtracted from the bank's balance as shown by the bank's statement. The difference should equal the balance as shown by the check book. A record of this reconciliation may be kept on the left 100 METROPOLITAN SYSTEM OF BOOKKEEPING check stub, or, if the number of checks unpaid is large, it may be kept in Details of Deposit a special Reconciliation A\ Book. J.J-o So — /2-S — December 15. 16. 18. Exercise 27. Rule two sheets of paper lengthwise with two checks and two stubs on each. Write the checks and make the necessary re- cords like the model forms given in the text. The check book is that of C. H. Oliver and the checks should be signed by him. n/30 3¥J~.7dT Deposited $3000, in bills. Drew check No. 1, in favor of C. N. Cable, for printing letter and bill heads, $6.75. Drew check No. 2, in favor of the Bender Coal Co., for 10 tons of coal at $5.25. Forward the balance to the top of the second sheet. 20. Deposited bills, $20, silver, $25, J. B. Grant's check for $35.75, and L. C. Dow's check for $42.80. Drew check No. 3, in favor of Ladd & Son for invoice of the 11th, amounting to $537.25, less 2 % discount. Drew check No. 4, in favor of F. A. Wright for two week's salary, $25. Exercise 28. On sheets of paper make out the papers called for. 1. Make the invoice for the following: On January 10, sold G. C. Burns, Appleton, Wis., on the terms, 2/10, 22. 24. 8 bx. Wool Soap at $3.75 10 bbl. White Star Flour at $4.35 15 bbl. Syracuse Salt at $1.65 2. Make a receipted invoice for the following: On May 8, sold C. S. Silber, Columbus, Ohio, for cash, less 3%: 12 Oak Dining Tables at $15.75 15 Turkish Rockers at $28.75 5 Mahogany Library Tables at $13.75 24 Oak Desk Chairs at $3.15 3. From the following data, write a promissory note: THE BANK ACCOUNT ,101 Your place; current date; time, 60 days; face of note, $315; payable at First National Bank; interest, 6%; maker, Student; payee, L. C. Stern. Show the due date of the note. 4. From the following, write a promissory note: Chicago, 111.; Jan. 31; time, 3 months; face of note, $1175.85; payable at Merchants Bank; interest at 7%; maker, Brown & Co., by its president, C. G. Brown; payee, B. C. Goodwin. Show the due date. Bank Statement of Account -/^-*2^ // VOUCHERS RETURNED \ l ' IN ACCOUNT WITH National Exchange Bank OF MILWAUKEE ^_- STATEMENT OF ACCOM NT . FOR ( S?>f~ n 19 Day CHECKS Day CHECKS Day MEMO DEPOSITS 3 V Z^> Balance 3/y 7* f» / / P , /o 2-/S / Zo /o /J c Sq ZZ_ TrtffZ£&<>C/ 46 / / zs / Z ZJ 2-7 tf So r Zf 2/ In 2a / £ 07 G. I. Winton M. A. Mixer Expense 197 Interest 8 Merchandise Discount 6^ $7646 .80 .25 .15 .45 .30 .10 .25 .85 15 05 55 90 $2071.30 1116.15 2063.20 1436.65 712.35 247.25 $7646.90 WHOLESALE GROCERY 117 Inventories: Merchandise $1031 . 65 Expense : 12 . 50 Furniture and Fixtures 40 . 65 Delivery Equipment 511.10 REVIEW QUESTIONS 1. Analyze each of the following accounts by telling for what each is debited, for what credited, what the difference shows, and why: (a) Notes Receivable; (b) Notes Payable; (c) Interest; (d) Merchandise Discount; (e) a partner's account. » 2. Why should all sales be entered in the sales book? 3. How should cash sales in a retail business be entered? 4. How should cash sales to regular customers be entered? 5. How should cash sales to those that are not regular customers be entered? 6. What entries should be made when merchandise is bought and a note given? 7. What entries should be made when merchandise is sold and a note received in payment? 8. Explain the meaning of 3/5, 2/10, n/30. 9. Give the rule for debiting and crediting Merchandise Discount. 10. What may the Merchandise Discount account show when closing the ledger? 11. What entry should be made when the business pays an invoice, less discount? 12. What entry should be made when a customer pays an invoice less discount? 13. What are the advantages of a commercial account at the bank? 14. Of what advantage are payments by check? 15. Explain the necessary steps in opening a bank account. 16. What is the pass book? Who makes the entries in it? 17. What important things should be observed in writing checks? 18. How should checks be indorsed if they are to be sent through the mail? How may they be indorsed for deposit? 19. What is the bank's statement of account? 20. What is meant by reconciling a bank's statement? How is it done. 21. What kind of an account is Furniture and Fixtures? How should it be closed if there is a depreciation? 22. To what account would you charge repairs made to fixtures? Why? 23. To what account would you charge gasoline for the motor truck? A new tire? Give reasons. 24. To what account would you charge freight or drayage on goods bought? 25. To what account would you charge drayage for delivering goods to customers? 26. How do you prove cash? 118 METROPOLITAN SYSTEM OF BOOKKEEPING Model Letter Ordering Goods J~yZ WHOLESALE GROCERY 119 MODEL LETTER OF REMITTANCE 572 Twelfth St., Madison, Wis., May 11, 19 — . John Hoffman & Sons Co., East Water and Buffalo Sts., Milwaukee, Wis. Gentlemen: Inclosed you will find my check for $350.84, in full for in- voice of May 3, less 2%. Your prompt shipment of the goods is greatly appreciated. The goods arrived in good condition and are proving satisfactory. Yours very truly, Inclosure. James M. Bradley. LETTER ACKNOWLEDGING REMITTANCE East Water and Buffalo Sts., Milwaukee, Wis., May 13, 19—. Mr. James M. Bradley, 572 Twelfth St., Madison, Wis. Dear Sir: We are in receipt of your check for $350.84, in full payment of invoice of May 3, less 2%, and have placed the remittance to your credit. We are pleased that the goods are giving satisfaction, and hope for further orders from you. Yours very truly, John Hoffman & Sons Co. by C. E. H. PART II CHAPTER XVI TRADING ACCOUNTS The Merchandise account, as we have learned, is a mixed account. To this account have been posted the purchases and sales. At the end of the business period the inventory has been entered in the Merchandise account and the profit or loss found. The Merchandise account, as a mixed account, may be used in a small business but is not adapted to a large business. There are other elements that must be considered in a larger business. Returns and allowances are made on both purchases and sales. Freight must be paid on goods bought by the business. Materials and supplies for packing must be purchased. One mixed Merchandise account containing all of these different items would not give much definite information to the business man. In its place several accounts will be kept. The size of the business and the necessity of providing detailed information will, to a large extent, determine how many accounts will be kept. For the present, accounts will be kept with Purchases, Sales, Merchandise Trading, and Freight In. Purchases Account. An account is kept with Purchases to show the amount of all merchandise bought by the business, for all added costs, and for all returns and allowances on purchases. The cost of merchandise is more than simply the cost of the goods bought. To that must be added the cost of freight and drayage on goods bought. The cost of boxes, barrels, packing materials, and any charges for buying, such as agent's commission, add to the cost of the goods, as well as the wages paid the shipping clerk and his helpers. A separate account may be kept with each kind of added cost if the details are great in number. For the present, an account will be kept with Freight In for the cost of freight and drayage on goods bought. All other charges will be debited direct to Purchases. All charges to Purchases should be explained in the ledger by writing the charge in the explanatory column, as Cooperage, Packing boxes, Agent's commission. Monthly the total of the purchase book should be posted to the debit of the Purchases account. When a Freight In account is kept, the total of that account should be closed into Purchases before Purchases is closed. 120 TRADING ACCOUNTS 121 Returned Goods, Rebates, and Allowances. When the business returns goods that have been charged to Purchases or is given a rebate or allowance for a shortage, overcharge, or for damaged goods, Purchases must be credited. These items are not usually very numerous, so they may be entered in the journal. A separate book may be used for them in a larger business. The Journal entry would be as follows: f 3 2-S ^c&i^^~-*£^fL 3 XC^?^^7^-^^^ ' ' ~ — % 2-4^2-^\ 4d^2jZ^S^L£ta^^lt^J^L zJZL£d£3Zl £££. ' " ' - Dollars To First National Bank New York r^L^-k^-S f^^^^Z^T^^?^?^. Cashier In this draft, National Exchange Bank is the drawer, First National Bank, New York City is the drawee, and K. L. Laabs, the payee. The payee, K. L. Laabs would transfer this draft to Arnold & Co. by a special indorsement. (See illustration of special indorsement on page 130.) The entries for a bank draft are the same as for a check, with an additional entry in the books of the remitter for the exchange. This may be charged to Expense if" the entries are few in number, or it may be charged to Collection and Exchange. You will charge it to the latter account. 130 METROPOLITAN SYSTEM OF BOOKKEEPING Ou GU. d~ K. L. Laabs' entries, Cash Payments I Arnold & Co.'s Entries, Cash Receipts 2s* Zt/2- 7^ Personal Sight Drafts. Personal sight drafts resemble bank drafts in that they are payable at once. They differ from bank drafts in these respects: 1. The drawer and the drawee of a sight draft are always persons. The payee may be a person or a bank. 2. The drawee of a sight draft legally may refuse payment even if he owes the drawer. The drawee of a bank draft cannot refuse payment if it has funds be- longing to the drawer bank. 3. A sight draft is not usually accepted as cash until the drawee con- sents to pay it. Sight Drafts are of two kinds, the three-party and the two-party. Three-party Sight Drafts. The three-party sight draft is used to save theinconvenience and risk of sending money. If A in Chicago owes B in St. Louis and C in St. Louis Special Indorsement owes A, these debts may be can- celed in whole or in part by means of a sight draft. A draws • a draft on C in favor of B and re- mits it to B. B presents it to C who pays it. In doing this A has can- celed his debt to B and C has canceled his debt to A. A draft of this kind should not be used to Bank Dollars Cashier BANK AND SIGHT DRAFTS 131 pay a debt unless the drawer is reasonably sure that the drawee will pay the draft on presentation. He may assure himself of this by asking the drawee's permission, by notifying him that unless he objects, a draft will be drawn on him, or by quoting him prices and selling him goods subject to a sight draft. Three-Party Sight Draft %jLa. Milwankee, Wis.,. % <■? ' 1«» sG^g utJ~^u'^J!^- JAY TO THE ORDER OF £>£^2&eazLjbU 22 ^/^~s-^y .Dollars Value received and charge to account of To No.^£. Due / yCrr-r^^/^^ (s? In this draft, G. Davis & Co. owe N. Wilier $600 or more. N. Wilier owes E. C. Frey at least $600. Both of these debts are canceled by this sight draft. N. Wilier is the drawer, E. C. Frey, the payee, and G. Davis & Co., the drawee. N. Wilier sends the draft to E. C. Frey, who presents it to G. Davis & Co. When G. Davis & Co. pay it, the draft is receipted by E. C. Frey and given to them. Should G. Davis & Co. refuse payment, a legal step called 'protesting the draft may be taken and the draft sent back to the drawer, N. Wilier. Drawer's Entry. If N. Wilier had paid E. C. Frey $600, he would have debited Frey's account for that amount. If G. Davis & Co. had paid N. Wilier $600, then their account would have been credited. This result is accomplished by a journal entry. N. Willer's Journal Entry 3 ^ Co GT^^y^-^y, cms asi>t>£ L do 132 METROPOLITAN SYSTEM OP BOOKKEEPING Payee's Entry. If the payee, E. C. Frey, had received cash of N. Wilier, he would have debited Cash and credited N. Wilier. Instead, the cash is received from G. Davis & Co. for N. Willer's account. The payee's entry is made in the cash book as follows: E. C. Frey's Cash Receipts fc ^r 7?.~£00&^ ^dMrcr~A \> *» .PAX XO THE ORDER OF r^zzrzrm. Dollars Value received and charge to account of To No.i_£jZL Due^ XJQtfkxtJ&J&frZl&B . *£*aau W. E. Erwin owes M. A. Arden. M. A. Arden draws a sight draft on W. E. Erwin in favor of the National Exchange Bank and gives it to the bank for collection. The National Exchange Bank sends it to some bank in Kansas City for collection. When the Kansas City bank makes collection, it credits the Milwaukee bank. The Milwaukee bank then gives M. A. Arden credit. Banks rarely take sight drafts for deposit. In many cities they are prohibited from doing so by the rules of the Clearing House. In your business practice work, sight drafts will always be left for collection. They will never be taken for deposit. 134 METROPOLITAN SYSTEM OP BOOKKEEPING Should the Kansas City bank fail to make collection, it would return the draft to the Milwaukee bank with the reason why collection could not be made marked on a printed blank used by banks for that purpose. The draft is then worthless, but .the drawer must pay a small charge to the bank for the expenses incurred in trying to make collection. When the draft is drawn in favor of the drawer or in favor of a bank, no entry is made by the drawer until the bank reports the draft collected. He then makes an entry as follows: Drawee's Cash Receipts V?cn«/4- at£& T^t^-ts-z^ny CTT^ CZ^Oo/-, /J"0 8. The Drawee's Entry is the same as that for a three-party draft, Drawer to Cash. Rule for the Drawer of a Two-party Draft. The Drawer's Entry in the cash book after the draft has been collected is, Cash to Drawee. Exercise 33. Draw the necessary papers and make the entries that would be made by each party to the transaction. It is to be understood in each case that the draft is honored. January 2. Draw a sight draft on D. Ware, Detroit, Mich., in favor of G. Laws, Grand Rapids, Mich., for $235, on account. P. M. Mann orders an invoice of goods of M. Field & & Co., Chicago, amounting to $437.25. He buys a New York draft of the National Exchange Bank on Second National Bank, New York, by check. Exchange 50^. Write both the check and the bank draft. G. Smart sells an invoice of goods to B. E. Church, Chicago, amounting to $345.75. By the terms of the sale, a sight draft is drawn for $200 and collected through a bank. D. Porter, Chicago, owes C. Murray, Columbus, Ohio, $750 on account. L. E. Gaines, Cleveland, Ohio, owes D. Porter $1200, on account. D. Porter cancels his indebtedness to C. Murray by a sight draft on L. E. Gaines. H. Land, St. Paul, Minn., owes the student $225, which is long past due. Draw a draft to collect the account. 20. J. C. Shore wishes to make a remittance of $412.60 to Corson & Co., Chicago, by a Chicago draft. He draws a check on his bank for the amount of the payment and pays the exchange, t\r%> m money. Write both the check and the bank draft. 10. 12. 18. CHAPTER XVIII JOBBING FURNITURE SET VI The Objects of this set are as follows: 1. To teach the use of special columns in the cash book. 2. To provide a large number of transactions and of accounts so as to make the work like actual business. 3. To teach the use of new accounts that give more detailed in- formation. 4. To give practice in the handling of the papers coming into the business and additional practice in making out the necessary papers that go out of the business. 5. To give extended practical work in dealing with the bank. The Books of Entry to be used in this set are the journal, the cash book, the sales book, and the purchase book. In addition, an auxiliary book, the bill book, will be kept in which to record detailed information con- cerning notes, and later, time drafts. The Journal. The Journal will be used in the same way as in previous sets. The explanation for notes need not be as complete as before, because the detailed information will be recorded in the bill book. For a note received from D. E. Roddy, the following explanation is sufficient: "His note No. 2, per bill book." The Cash Book. In most wholesale businesses, discounts on invoices of merchandise for prompt payment are frequent. To enter each one of these discounts on the opposite side of the cash book makes a great many entries and a great deal of posting. It has the disadvantage, too, of not showing on the cash book the actual cash received and paid out. To avoid that, a Merchandise Discount column will be kept on each side of the cash book. In a study of the Cash Payments side of the cash book, it will be found that there are many entries for Expense. To avoid the necessity of posting each separate item, a special column will be kept for all amounts to be charged to Expense. These entries will be checked in the folio column 135 136 METROPOLITAN SYSTEM OP BOOKKEEPING as they are entered, and not posted daily, posted monthly to the debit of Expense. The total of the column will be Cash Receipts, Sept. 19— DATE F ACCOUNT TO BE CREDITED EXPLANATION AMOUNT TO BE CREDITED MDSE. DISCOUNT DR. CASH RECEIVED Sept. 1 8 12 15 18 22 22 29 30 30 V V J. A. Myers, Capital C. D. Felton F. G. Bishop F. E. Zahn W. H. Oliver Notes Receivable Interest Notes Payable Amount to be credited Mdse. Disc. Total Balance Investment On account Inv. of 3d, less 2% Inv. of 5th Inv. of 13th, less 3% B. I. Graham's note No. 5 30 days on above Favor Nat'l Ex. Bank No. 9 In bank 2000 375 436 175 218 450 2 1000 60 25 25 8 6 72 55 2000 375 427 175 211 450 2 1000 28 60 70 25 4657 10 15 27 4641 83 Oct. 1828 48 1828 48 The first entry on the Receipts side is checked because the cash invest- ment is entered in the journal with the other assets invested. It is posted to the credit of the proprietor as a part of the total in the journal. For that reason, it is not posted from the cash book. The entry on the Receipts side on the 12th, for F. G. Bishop, is equiva- lent to the following: Cash $427.28 Mdse. Discount 8.72 To F. G. Bishop $436 Each similar entry on the Receipts side means a debit of Cash, a debit of Merchandise Discount, and a credit for the sum to the account of the person making the payment. This is accomplished by posting the total of the Merchandise Discount column to the debit of Merchandise Discount. The "Cash Received" column takes the place of the debit side of the cash account in the ledger. No account need be kept in the ledger for Cash, but the balance of the Cash book will be taken for the Cash in the trial balance. F. G. Bishop is credited for $436 with the notation in the explanatory column Cash and Discount, as follows : F. G. Bishop 19- Sept. 436 19- Sept. 12 Cash & Disc. 436 JOBBING FURNITURE 137 On the Payments side, the entries for cash and discount may be ex- plained on the same principle. Cash Payments, Sept. 19 — AMOUNT MDSE. CASH DATE F ACCOUNT TO BE DEBITED EXPLANATION TO BE EXPENSE DISCOUNT DEBITED CR. Sept. 2 V Expense Rent to 10/1, 19— 40 — 40 — 5 Advertising Herald Co.'s bill 27 80 27 80 8 Delivery Expense Auto Supply Co.'s bill 17 25 17 25 9 V Expense Bill for printing 11 25 11 25 12 E. Henry & Co. Inv. of 7th, less 2% 875 60 17 51 858 09 15 Freight In C. M. & St. P. bill 56 20 56 20 20 Notes Payable Favor C. Irwin, No. 2 1000 — 1000 — 20 interest 60 days on above 10 — 10 — 25 V Expense Stamps 5 — 5 — 27 J. A. Biller Inv. of 17th, less 3% 724 50 21 74 702 76 29 Interest 30 days disc, on note No. 9 5 — 5 — 30 30 30 30 SO V V Expense Amount to be debited Expense Total Mdse. Disc. Total Balance Salaries In bank 80 80 ' 1828 — 2716 35 = 136 25 39 25 48 4641 83 The total of the Merchandise Discount column is posted to the credit of the Merchandise Discount account in the ledger. Each entry for Expense is checked in t*he folio column as it is entered and is not posted till the end of the month. The Check Book. The left check stub should give detailed information about every deposit, collection, or charge. The total deposit or the proceeds of the collection should be entered on the right check stub and added to the previous balance. Each check drawn will be subtracted on the right check stub from the balance in the bank. The check book will thus at any time show the bank balance. No record is necessary on the left check stub for a check drawn, as the details on the right check stub are sufficient. The record on the left check stub should always be as nearly opposite the addition or subtraction on the right check stub of that particular record, as possible. (See appendix, page i, for a different method) Left Check Stub Right Check Stub Aug. G. L. Morrison's note collected Less 1 / 10% col. Proceeds 1500 — 150 149850 Aug. 8 Collection 149850 How to Prove Cash. Cash is proved daily in actual business. To prove cash, the "Cash Received" column is added in pencil. The "Cash Paid" column is added in the same way. The difference is the cash balance. 138 METROPOLITAN SYSTEM OF BOOKKEEPING If all cash received has been deposited, the balance of the check book should equal the cash balance. This rarely happens, however. To this must be added the cash on hand in the cash drawer whether in the form of money or cash paper, such as checks, bank drafts, or express or U. S. money orders. The Sales Book. All sales of merchandise should be entered in the sales book. If the sale is for cash to a regular customer, the entry is made in the usual way in the sales book and posted to the customer's account. His account is then credited in the cash book in the usual way. If a sale is made for cash, less discount, the entry is made in the sales book in the usual way without deducting the discount. The entry for the cash received and the discount allowed is made in the cash book the same as if the cash had been received some time after the sale was made. If a sale is made for cash to a person who is not a regular customer, the entry is made in the sales book the same as one to a regular customer without deducting the discount, but the entry is checked in the folio column. His account is credited in the cash book for the discount allowed and for the cash received, and checked. No ledger account is opened up. The effect of these two entries is to debit Cash and Merchandise Discount and to credit Sales. Sales is credited monthly for the total. The Purchase Book. The two-page purchase book will be used in this sec. The left page will be used as a book of entry in which to enter all purchases of merchandise whether for cash or on account. Cash purchases from persons with whom the business has regular dealings are entered and posted. Cash purchases from others may be checked and no account opened up in the ledger. . Purchases is debited monthly. The right page of the purchase book will be used as a memorandum page to give information concerning when the invoice should be paid in order to take advantage of the discount, when it should be paid, net, and when and how payment is made. The right page is not posted, as all payments must be entered in the cash book or journal and posted from these books. Left Page Model Purchase Book INV. NO. DATE F NAME ADDRESS TERMS AMOUNT 1 2 3 4 5 6 Aug. 1 7 10 15 20 25 V S. Price & Co. Grover Fur. Co. C. L. White & Co. D. G. Jackson & Co. M. Scott & Co. F. A. Vance Co. Toledo, Ohio Des Moines, Iowa Grand Rapids, Mich. New York Chicago Milwaukee Net 30 days 2/10, n/30 Cash, less 2% Note, 30 days Sight dft. 3/5, 2/10, n/30 Purchases Dr. 1725 926 1736 1172 842 1372 80 75 40 35 15 80 7776 25 Right Page WHEN DUE PAYMENTS REMARKS BEST DISCOUNT NET WHEN PAID DISCOUNT I AMOUNT PAID Aug. 31 Aug. 31 1725 80 Ck. No. 86 Aug. 17 Sept. 6 17 18 54 908 21 Ck. No. 62 10 10 34 73 1701 67 Ck. No. 47 Aug. 15 20 15 20 1172 842 35 15 Note at 30 days Sight draft 30 Sept. 24 30 41 18 1331 62 Ck. No. 81 JOBBING FURNITURE 139 The Invoice Book. Another method of entering purchases is by using Invoice Book /44 /£ /3 ^/'o-^c^-n^i^ct!^ M S ^sts ? ^ /. Chicago, III., ofsJ?J~ 2-< 1 ft - Morrison & Davis, Dr. Term. ^///7 / s^l ^>^/~3 -Tl sTl^ S. Milwaukee, Wis., ri >- _£19 M s^L-J^?^ . ^rt^^frLSl^ r V^^V. ^ c-/,^; BOUGHT OF L. N. Porter 8c Co. i. -&Cf^^7^f-^r^y>^^ New York, -^^/?^r 2-a \& — Fischer Furniture Company Sold To C^?^?^ Cf^/^^rr-/^- y//^^r. Terms A f, / /a, s 7i « e^f~ Q > a sK / ^&y. I j ^3 -jr: — r S.lt '^^tH^AsTV — _^_ M. oC^^Y, / 11 '/?1^ r-&r6sr7^jXf/f> 2-~. && — < * '^T7Z^7^? ^ //U/Ayf^Cy ■^*J?^s±4*7Arf^ f/ - Y-Z£+f7.5 to iJ / ^^>/r3o /^^^^^^r^^<£^^ / ^Obiy. S3 / 6 t/o *£/y zjr 3/2- £/o ZtAPjJ' Ctp fkro 140 METROPOLITAN SYSTEM OF BOOKKEEPING an invoice book. The invoice book is a book containing sheets of manila paper on which the invoices of merchandise bought are pasted. These invoices are pasted down on the lower corners only so that the items on the preceding invoice may be examined if necessary. The posting from the invoice book is exactly the same as from the purchase book. In the invoice book illustrated on page 139 the closing entry is a debit to Purchases. Daily the amount of each invoice is posted to the credit of the account named and the page of the ledger put to the left of the name of the account. Advantages of the Invoice Book. The principal advantages of the invoice book are the saving of time in entering and the advantage of having the complete invoice in one place for reference. The Disadvantages are many. 1. The invoices are of different sizes and must be cut down or folded under. This gives the invoice book a ragged appearance. 2. If many invoices are received, the invoice book becomes heavy and bulky. 3. Tne invoice book does not show when an invoice should be paid to take advantage of the discount, and when and how it was paid. 4. The invoices are oftentimes difficult to find when they are wanted for reference. When a purchase book is used, the invoices are filed in drawer files alphabetically or in monthly files in the order of their dates, so that they can easily be found. The invoice book can be used to advantage only in a small business when few invoices are received. This explanation is given here so that the pupil may understand how it is used in business. The Bill Book. The bill book is an auxiliary book in which records Notes MODEl NO. WHEN RECEIVED MAKER OR DRAWEE INDORSER OR DRAWER IN WHOSE FAVOR FOR WHAT RECEIVED WHERE PAYABLE DATE TIME 1 2 3 19— Aug. 1 8 10 L Hasson C. N. Evans N. Reber D. E. Martin C. Farwell D. E. Martin Martin & Kline C. Farwell Investment On acct. Inv. of 3d Natl. Ex. Bk. Natl. Ex. Bk Natl. Ex. Bk. 19— July Aug. 22 6 9 60 da. 30 da. 15 da. Notes NO. WHEN GIVEN MAKER OR DRAWEE INDORSER OR DRAWER IN WHOSE FAVOR FOR WHAT GIVEN WHERE PAYABLE DATE TIME 3 19— Aug. 5 15 15 Martin & Kline Martin & Kline Martin & Kline D. E. Martin C. Stone Natl. Ex. Bk. F. Hanton Inv. of 2d Loan On acct. Natl. Ex. Bk. Natl. Ex. Bk. Natl. Ex. Bk. 1 19— Aug. 5 15 15 60 da. 30 da. 60 da. JOBBING FURNITURE 141 are kept of notes and time drafts received and issued, and of their payment or disposal to some one. It is divided into two parts, Notes Receivable and Notes Payable. Notes Receivable Book. In the Notes Receivable book is entered the details of all notes and other written promises of others received by the business. When these notes receivable are paid or otherwise disposed of, a record is made on the same line with the record made when the note receivable was received. To Prove the Notes Receivable Book, list the notes receivable unpaid and find the total. This total should agree with the balance of the Notes Receivable account in the ledger. When a note is discounted it is paid so far as the business is concerned, as the business has sold it and no longer has any claim against the maker. Notes Payable Book. In this book are recorded the details of all notes and other written promises issued by the business. Payments are recorded in the same way as for Notes Receivable. Prove the Notes Payable book by listing the unpaid notes payable. The total should agree with the balance of the Notes Payable account in the ledger. SET VI. (Transactions for August 1-15) August 1 D. E. Martin and H. L. Kline have today formed a copartnership agreement under the firm name of Martin & Kline, to engage in the Jobbing Furniture business at 435 State St. Receivable Bill BOOK WHEN DDE AMOUNT INT. BATE WHEN AND HOW DISPOSED OP LEFT FOR COLLECTION DATE PAID 1 2 3 4 | 5 | 6 7| 8 9 10 11 12 REMARKS 19- 19- 19- 24 20 5 2000 375 218 80 15 6% 6% Sept. 15 Sept. Aug. 20 5 14 At bank. Ink $20 By check Disc, at bank 36c. Payable INT. RATE WHEN AND HOW DISPOSED OF AMOUNT DATE PAID 1 2 | 3 4 | 5 6 7 | 8 9 10 | 11 | 12 19- 19- 19- 14 4 14 1178 1500 750 25 6% Oct Sept. Aug. 4 14 27 Chgd. at bank. Int. $11.78 8/15 Disc, at bank. Disc. $7.50 Prepaid by check. Disc.$6.00 142 METROPOLITAN SYSTEM OF BOOKKEEPING Selling Price Lists for Set VI, August and September Brass Bedstead B. E. Maple Dresser. Felt Mattress Hair Mattress Kitchen Cabinet. . . . Mahogany Chiffonier. Mahogany Dresser Mahogany Dressing Table. Mahogany Lady's Desk.. . . 1 17.25 15.85 7.75 9.50 20.85 29.00 18.10 12.75 17.90 16.35 5.95 8.40 9.50 21.35 29.00 18.90 13.05 17.00 16.40 5.95 8.45 9.50 21.50 29.00 18.50 12.55 7 | 8 10 17.85 15.90 5.95 7.80 9.50 19.70 29.00 18.95 12.70 17.35 16.25 5.95 7.70 9.50 20.75 29.00 18.30 13.10 17.15 15.75 5.95 7.60 9.50 19.75 29.00 18.80 13.35 21 17.40 16.05 5.95 7.90 9.50 21.20 29.00 18.85 12.50 11 17.10 15.70 5.95 8.30 9.50 19.85 29.00 18.05 13.20 12 17.70 16.30 5.95 7.95 9.50 21.25 29.00 18.40 13.30 Mahogany Music Cabinet- Mahogany Parlor Suite Mahogany Parlor Table . . . 5.60 5.50 112.50112.95 11.15 11.15 5.25 112.30 11.15 6.00 113.05 11.15 5.65 112.90 11.15 5.45 113.10 11.15 5 112 11. 30 5.35 40112.80 15 11.15 5.95 112.35 11.15 5.40 112.75 11.15 Mahogany Rocker. Oak Chamber Set.. Oak Davenport.. . . 8.95 45.00 23.40 8.95 45.70 23.80 8.95 42.50 21.90 8.95 45.75 23.50 8.95 45.45 21.80 8.95 45.10 23.45 8.95 45.05 23.55 8.95 45.60 23.90 8.95 45.15 21.75 Oak Desk Chair. . Oak Dining Chair. Oak Dining Table. 2.85 2.15 21.25 3.30 2.15 21.25 3.40 2.15 21.25 2.90 2.15 21.25 3.10 2.15 21.25 3.15 2.15 21.25 2.70 2.15 21.25 3.00 2.15 21.25 2.80 2.15 21.25 Oak Library Table. Oak Sideboard Morris Chair 13.50 25.30 22 60 13.50 25.45 22.80 13.50 24.70 22.75 13.50 24.95 23.00 13.50 25.25 22.50 13.50 24.80 22.65 13.50 25.55 22.70 13.50 25.15 22.45 13.50 24.85 22.90 Turkish Rocker C. Walnut Bedstead C. Walnut Chamber Set. 27.50 25.85 125.00 27.90 26.45 126.00 27.20 26.80 135.00 27.10 25.90 140.00 27.45 26.50 127 00 27. 26 136 27.35 26.00 128.00 27 26 139 27.15 25.95 129.00 27.95 26.60 130.00 27.30 26.65 138.00 Selling Price Lists, for Set VI, August and September (Continued) 13 14 15 16 17 | 18 j 19 20 21 22 23 24 25 Brass Bedstead B. E. Maple Dresser. Felt Mattress 17.45 16.10 5.95 17.20 15.60 5.95 16.85 16.55 5.95 17.50 16.15 5.95 16.95 15.55 5 95 17.55 16.20 5.95 16.80 16.45 5.95 17.75 16.25 5.95 17.60 15.65 5.95 17.80 16.50 5.95 16.90 16.30 5.95 17.65 15.60 5.95 18.00 14.95 5.95 Hair Mattress Kitchen Cabinet Mahogany Chiffonier. 8.00 9.50 20.95 7.25 9.50 19.80 7.30 9.50 20.90 8.05 9.50 19.85 7.40 9.50 19.95 7.55 9.50 21.05 8.10 9.50 18.85 7.45 9.50 19.90 8.25 9.50 21.10 8.15 9.50 21.45 7.50 9.50 21.55 8.20 9.50 21.15 8.45 • 9.50 18.90 Mahogany Dresser Mahogany Dressing Table. Mahogany Lady's Desk.. . . 29.00 18.05 13.25 29.00 19.10 13.40 29.00 18.75 13.60 29.00 19.15 12.95 29.00 18.60 13.55 Mahogany Music Cabinet. Mahogany Parlor Suite Mahogany Parlor Table . . . 5.70 113.30 11.15 6.15 113.50 11.15 6.20 112.70 11.15 5.80 113.15 11.15 5.55 113.35 11.15 29.00 18.10 12.90 5.75 113.45 11.15 29.00 18.25 13.65 6.20 112.65 11.15 29.00 18.70 13.45 "5.75 112.55 11.15 29.00 18.15 12.80 29.00 18.65 13.70 29.00 18.20 13.50 29.00 18.50 12.85 29.00 19.15 13.75 5.95 113.20 11.15 6.10 113.40 11.15 5.60 112.60 11.15 5.65 113.25 11 15 6.25 113.85 11.15 Mahogany Rocker. Oak Chamber Set- Oak Davenport 8.95 46.05 21.50 8.95 44.80 21.30 8.95 45.20 23.60 8.95 45.40 21.40 8.95 44.95 21.65 8.95 45.25 21.55 8.95 45.85 23.65 8.95 44.90 23.95 8.95 45.30 21.50 Oak Desk Chair. . . Oak Dining Chair.. Oak Dining Table. 3.20 2.15 21.25 2.95 2.15 21.25 3.05 2.15 21.25 2.95 2.15 21.25 3.10 2.15 21.25 3.05 2.15 21.25 3.35 2.15 21.25 Oak Library Table. Oak Sideboard Morris Chair 13.50 25.75 21.90 13.50 24.60 21.70 13.50 25.10 22.35 13.50 25.70 21.95 13.50 24.65 21.80 13.50 25.05 22.55 13.50 24.90 21.85 3.15 2.15 21.2 5 13.50 25.00 23.10 2.90 2.15 21.25 13.50 25.35 21.50 8.95 44.75 23.70 3.20 2.15 21.25 8.95 45.90 21.45 3.00 2.15 21.25 8.95 45.35 23.75 8.95 46.10 21.60 13.50 25.60 22 30 13.50 24.95 21.65 3.25 2.15 21.25 3.35 2.15 21.25 13.50 25.40 23.15 13.50 25.60 22.25 Turkish Rocker C. Walnut Bedstead C. Walnut Chamber Set. 27.55 26.40 120.00 28.25 26.95 134.00 26.75 28.10 116.00 26.80 26.05 119.00 27.70 26.25 121.00 28.10 27.05 131.00 27.65 26.90 124.00 27.25 26.10 132.00 26.90 26.20 118.00 28.05 26.35 123.00 27.60 26.85 117.00 27.05 26.15 133.00 27.75 26.30 122.00 JOBBING FURNITURE 143 August 1. D. E. Martin invests the following from the business which he has been conducting at 435 State St. : Stock of furniture inventoried at $3725.25 Office and store fixtures inventoried at $374.75 1 Chase delivery truck, $1375 Cash, $2525 H. L. Kline invests the following: D. L. Ellery's note for $2000, dated July 17, payable 60 days after date, with interest at 6% Cash, $5995 The firm has employed the student as bookkeeper and stenographer at a salary of $50 per month, payable monthly. Take the Articles of Copartnership from the Incoming Papers and study them. They have been made out in triplicate and each copy signed by each partner. The original is received by the business, and a duplicate is given to each of the partners. How much does D. E. Martin invest? How much does H. L. Kline invest? ^ What provisions are made in reference to withdrawals from investments? What provisions are made in reference to monthly withdrawals and in reference to withdrawals of profits? What is to be done with any part of the net profits not withdrawn? What is said about the right of a partner to become a surety or guarantor? After you have studied the articles of copartnership so that you are able to answer the above questions without referring to the agreement, file the articles of copartnership in the Miscellaneous file. Entries. Make a memorandum in the journal to record the forma- tion of the copartnership and each partner's investment. Make a journal entry for D. E. Martin's investments. Include the cash in this entry, and check it in the folio column. You must name an account for each item invested. Explain each item on the line with the name of the account. Take D. E. Martin's check from the Incoming Papers and enter it in the cash book or on a manuscript cash book as the teacher may direct. Place the check in the Cash envelope. The Cash envelope will be used for all money and for all commercial papers that will be taken by the bank for deposit. Take the note and check for H. L. Kline's investment from the Incom- ing Papers. Notice that the note bears interest and is worth more than its face value. Compute the interest. Make the entry for his investment. Your entry should have three debits. The cash must be entered in both the journal and cash book and checked. If your entries are correct, the credits to D. E. Martin, Capital and to H. L. Kline, Capital should be the same. 144 METROPOLITAN SYSTEM OF BOOKKEEPING Make a memorandum in the journal recording the employment of the student as bookkeeper and stenographer at $50 per month. Opening the Bank Account. Mr. Martin has, by agreement, been placed in charge of the finances of the partnership. He has arranged to open an account with the National Exchange Bank in the name of Martin & Kline. All deposits are to be made in the firm name and all checks are to be drawn by the student and signed Martin & Kline by Student's name. Take the signature card from your envelope and sign it just as you will sign checks. Practice the signature before writing it on the signature card. Fill in the other information called for. Hand it to your teacher. You must sign checks in this way each time. Your teacher will refuse checks that are not properly signed. Deposit the checks on hand. Make out the usual deposit ticket? listing each check and finding the total. Indorse each check on the back about an inch from the left hand end. All indorsements should be the same as the signature on the signature card. Record this deposit in detail on the cover of the check book opposite to check stub No. 1. Make the record as follows: Aug. 1 Deposit: Checks: D. E. Martin $2525 H. L. Kline 5995 $8520. On the right check stub, write, Aug. 1, Deposit $8520. The firm has leased the ground floor and basement of the store building at 435 State St., from J. A. Winton. Take the lease from the Incoming Papers and study it. The one who owns the building is called the lessor and the one to whom the lease is given is called the lessee. Who is the lessor? Who is the lessee? For how long a time is the property leased? How much rent is to be paid? How often? What would the firm have to do if it wished to move before the expiration of the lease? If a window should be broken, who would have to pay for a new one? If the roof should leak, would the lessee have to repair it? Pay the rent by check. Place this check and all others issued in the Bank envelope unless otherwise instructed. In business, the check would be cashed or deposited by the payee. It would be held by the bank till the end of the month, and then returned to the depositor with a statement of his account. The checks are placed in the Bank envelope so as to be in one place and ready for the making out of the bank statement at the end of the month. JOBBING FURNITURE 145 File the lease in the Miscellaneous file after you understand its pro- visions. August 3. This bill for blank books is received from the Baum Sta- tionery Co. Pay it by check. J. C. Reed, City, orders: 12 Brass Bedsteads 4 Mahogany Parlor Suites 6 Mahogany Parlor Tables 8 Oak Library Tables Terms: On account. Make out the invoice and make the entry. Whenever an order is received, an invoice must be made out and the entry made in the sales book. The invoice should be folded lengthwise with the amounts outside, and placed in the Outgoing Papers envelope. Special Instructions: The making out of the business papers is a very important part of your work in this set. The penmanship should be the best; every figure should be plain and distinct. The extensions on invoices should be carefully figured before entering the sale in the sales book. You should learn to do the extending mentally, as far as possible. No words or figures should be marked over. Your teacher will refuse all papers that have erasures or words or figures marked over on them. If an error is made, rule it out in red ink and correct it above. C. P. Baker & Co., City, order: 10 Kitchen Cabinets 8 Mahogany Dressers 5 Oak Library Tables Terms: 3/5, 2/10, net 30 days This invoice is received from the Northwestern Furniture Co. Take the invoice from the Incoming Papers and check the extensions in pencil. Enter it in the purchase book. In the column for "Best Discount", write Aug. 13, and in the column for "Net," write Sept. 2. File the invoice in the Unpaid Bills file, after folding it lengthwise with the amounts outside. Engage Chas. Lannon as deliveryman at $45 per month, payable monthly. Make a journal memorandum. August 4. The firm has taken out an insurance policy on its stock of furniture and on the office and store fixtures. Take the insurance policy from the Incoming Papers and study it. This is a standard insurance policy prescribed by the laws of Wisconsin. The standard policy of other states is similar. The company that issues the policy is called the insurer; the one to whom it is issued is called the insured. In what company has the firm insured? What is the extent of the company's liability in case of loss by fire? This is called the risk. How much must you pay the company for carrying this risk? This is called the premium. 146 METROPOLITAN SYSTEM OF BOOKKEEPING How is the amount of the premium found? Can the firm cancel this policy at any time? Would it get back any part of the premium? Can the insurance company cancel this policy at any time? Would the firm get back any part of the premium? What must the firm do in case of loss by fire in order to obtain the insurance? How is the fire loss adjusted? After you are able to answer these questions, file the insurance policy in the Miscellaneous file. Make a brief memorandum in the journal. Take the bill for the insurance premium from the Incoming Papers. You will notice that it includes the insurance on the motor truck, which would be recorded in a separate policy. Pay the bill by check. Charge the Insurance account. The Insurance Account is debited for the premiums paid for insuring. The inventory, the value of the unexpired insurance, is found by taking 11/12 of the premium paid at the end of the first month, 10/12 at the end of the second, etc. The difference between the insurance premium paid and the inventory is the amount used, which is a loss. The unex- pired insurance is, thus, an asset, and the expired premium is a nominal element, a loss. Chas. Osgood, City, orders: 8 Mahogany Chiffoniers 5 Mahogany Music Cabinets 6 Mahogany Rockers Terms: on account. August 5. This invoice is received from Simmons, Gardner & Co. Take the invoice from the Incoming Papers, check it, enter, and file. When should it be paid? In what file should the invoice be placed? Are you thinking out each transaction? Do not be satisfied to make out the necessary papers or to file the papers properly. You must under- stand each entry. You must think out each transaction to see how it is similar to other transactions that you have had, how different, and what the debit and credit effect is. D. C. Lanning, City, orders: 12 Oak Dining Chairs 5 Mahogany Lady's Desks 6 C. Walnut Chamber Sets Terms: account, 30 days. B. L. Duncer, City, orders: 8 Kitchen Cabinets 12 Oak Dining Chairs Terms: cash. Make out the invoice and make the usual entry in the sales book. Take the check from the Incoming Papers and make the entry for it. Why is this sale entered in the sales book? What account is debited in the sales book? What ac- count should be credited in the cash book? In what envelope should the check be placed? JOBBING FURNITURE 147 August 6. Take the coal bill from the Western Coal Co. from the Incoming Papers and check the extension. Pay it by check and make the entry. File the bill in the Paid Bills file. Have you checked the entry in the cash book so that you will not post it until the end of the month in total? Receive this check from J. C. Reed, to apply on account. Make the usual entry for this transaction. This invoice is received from the Atlas Parlor Furniture Co. Notice the terms. They have drawn on us at sight. The draft will be presented through the bank later. Simply make the entry in the purchase book now. Do not mark it paid until you pay the sight draft. Write a check in favor of cash for $2 to purchase stamps. In what column of the cash book should this amount be entered? C. L. Larson, City, orders: 6 Mahogany Dressers 12 Mahogany Parlor Tables 6 Oak Library Tables Terms: 2/10, net 30 days. Should the discount be deducted in the sales book? Why? August 7. This bill for filing cabinets is received from the H. H. West Co. Take the bill from the Incoming Papers and pay it by check. This adds to the value of your office equipment. Do not enter it in the Expense column. Hereafter, when you are told that an invoice, a bill, a check or other paper is received, you will find it in the Incoming Papers without specific reference to it. You must make the proper entry for each transaction. All payments are made by check. Pay Simmons, Gardner & Co., on account, $500. H. E. King, City, orders: 12 Brass Bedsteads 8 B. E. Maple Dressers 10 Mahogany Chiffoniers 4 Mahogany Parlor Suites Terms: on account. Make the entry on a new page of your sales book. Always leave two lines at the bottom of the page for forwarding. On the first line below the heavy lines at the top of the next page write Forward and the sum of the previous page. This may be put in pencil until you know that your amounts are correct. The date of this sale, August 7, should be written on the first or heading line of the page. Deposit all checks on hand. Do not forget to indorse all checks. You must enter the details of this deposit* on the left check stub opposite the addition on the right check stub. August 8. Receive this check of C. P. Baker & Co., for invoice of 148 METROPOLITAN SYSTEM OF BOOKKEEPING the 3d, less 3%. Turn to your sales book. Compute the discount on the sale. If the discount is an amount with a fraction one-half a cent or more, another cent must be added to the discount. If you compute it correctly, the check should equal the amount of the invoice less the discount. Make the entry on the Cash Receipts like the following: August 8. D. E. Hines | Inv. of the 3d, less 3% | 425. | 12.75 | 412.25 This is equivalent to the following: Cash $412.25 Mdse. Discount 12.75 To D. E. Hines $425 The bank presents a sight draft drawn by the Atlas Parlor Furniture Co. for the amount of the invoice received on the 7th. Compare the amount of the draft with the amount of your entry for the invoice. If it is correct, pay it by a check in favor of the bank. Take the draft to the bank with the check and have the draft canceled. Place the check in the Bank envelope. Receive this check from Chas. Osgood, to apply on account. Prove cash. Submit your proof, your cash book, and your check book to your teacher for correction. August 10. D. G. Paxton, City, orders: 5 Kitchen Cabinets 10 Mahogany Rockers 5 Mahogany Dressers Terms: cash, less 3%. You receive the check in payment of the invoice, less discount. Fill the order. Deduct the discount on the invoice so as to show how much was paid. Receipt the invoice. Enter the invoice in the sales book without deducting the discount. Enter the cash received and the discount allowed in the cash book. This is just as much an allowance of merchandise discount as if the sale had been made on one day and the cash received on another. The entry is made like the transaction illustrated on the 8th. J. G. Hull, City, orders: 10 Brass Bedsteads 4 C. Walnut Bedsteads 5 Mahogany Parlor Suites Terms: account, 30 days. August 11. Receive this invoice of Bishop & Co. Do not forget to check the extensions and total before making the entry. J. A. Reiss & Co., City, order: 12 Felt Mattresses 10 Mahogany Parlof Tables Terms: 2/10, net 30 days. Deposit all the checks on hand. JOBBING FURNITURE 149 Have you entered the details of the deposit on the left check stub and added the amount deposited to the previous balance? August 12. Pay this advertising bill of the Sentinel Co. Charge it to Advertising. Advertising Account. A separate account will be kept with advertising to show the amount expended for this purpose. To this account will be charged advertising in a newspaper, magazine, or trade journal, and adver- tising in the form of circulars, bill board signs, painting signs on fences, etc. When circulars are sent out to the trade to advertise the business, the advertising cost includes not only the cost of the circulars, but also the cost of the envelopes, of the postage, and the cost of the time of the stenog- rapher or clerk for filling in and addressing. Give Simmons, Gardner & Co. a note for $250, payable 15 days after date, with interest at 6%, on account. Make the entry in the journal and the record in the bill book. Do not write anything in any of the columns to the right of the "Interest Rate" column of the bill book, Place the note in the Outgoing Papers envelope. Receive this invoice of the Klingman Furniture Co. Notice that the terms of the invoice require payment to be made at once by N. Y. draft. Enter the invoice in the purchase book in the usual way, without deducting the 3%. Buy a N. Y. draft from your bank for the net amount of the invoice. Exchange 50^. Pay for the draft and exchange by check. Take the N. Y. draft from the Incoming Papers, indorse it properly, and place it in the Outgoing Papers envelope. Place the check in the Bank envelope. Make an entry for the remittance and one for the exchange. Charge the exchange to Collection and Exchange. Have you debited the Klingman Furniture Co.'s account for the same amount with which you credit- ed their account in the purchase book? Does the amount of cash paid agree with the amount of the check? Pay this bill of the Phoenix Printing Co. August 13. Pay the Northwestern Furniture Co. for invoice of the 4th, less discount. Refer to the purchase book, and compute the discount. Write a check in payment. You will find an entry similar to this one in the Model Cash Book for this set. Do not forget to record the payment of the invoice in the purchase book. The invoice has been filed in the Unpaid Bills file. What should be done with it now? A. Dorris, City, orders: 8 Brass Bedsteads 10 Hair Mattresses 6 Oak Chamber Sets Terms: note for $250, payable in 10 days, with interest at 6%; balance on account. Enter the invoice in the sales book for the full amount. Make the proper entry and record for the note. 150 METROPOLITAN SYSTEM OF BOOKKEEPING August 14. Pay this freight bill for freight on incoming goods. Make the check payable to the railroad company. This is not a charge to expense. It is an added cost of the goods. Charge Freight In. Give each partner a check for $25 for personal use. These with- drawals must not be charged to the capital accounts of the partners. Nothing should be entered in the capital accounts except permanent investments and withdrawals of part of the capital. These withdrawals are in anticipation of profits and are not withdrawals of capital. Partners' Personal Accounts. Personal accounts of partners keep the temporary transactions of the partners separate and distinct from the permanent transactions. Debit a partner's personal account for all withdrawals of money, merchandise, or other assets and for any bills paid by the business for the partner. Debit a partner's personal account for his share of the net loss when closing the books. Credit a partner's personal account for all salaries earned and not paid, for temporary loans to the business, and for all bills of the firm paid out of a partner's private funds. Credit a partner's personal account for his share of the net profits when closing the books. A partner's personal account may temporarily show an asset or a liability, but does not appear in that way in the statement of Assets and Liabilities. It is added to the capital account, if a credit balance, and subtracted from it if a debit balance. Charge these checks to D. E. Martin, Personal and H. L. Kline, Personal, respectively. August 15. Receive this check of C. L. Larson for the invoice of the 6th, less discount. Have you made the entry so as to balance the debit to C. L. Larson's account from the sales book? First Report. Take a report blank from your envelope. First, prove cash and record it on the report blank. Sort the papers in the Outgoing Papers envelope, list them on the report under the proper headings in the order of the dates, and find the sum of each kind. List the checks in the Bank envelope in the order of the numbers and find the total. Hand in your report, the Outgoing Papers envelope, and the Bank envelope. Inspect all your papers before handing them in to see that there are no incomplete or carelessly written papers. There should be no erasures. The outgoing papers that are correct will be kept by your teacher. Those that are incorrect will be returned for correction. All the checks in the Bank envelope will be returned to you and kept till the end of the month unless the teacher has a special file in which to place them. Present all your books, including the check book, to your teacher for inspection. When the books of entry are correct, you are ready to post. JOBBING FURNITURE 151 Opening Ledger Accounts. Accounts should be opened up in a systematic order. First, the accounts that show assets or liabilities, chiefly, will be opened up, then, the accounts that show a nominal or profit and loss element, principally. Open the accounts, two on a page, as follows. Leave a place after each personal account for the address: ACCOUNT PAGE D. E. Martin, Capital 1 H. L. Kline, Capital 1 Real Estate 2 Furniture and Fixtures 2 Delivery Equipment 3 Notes Receivable 3 J. C. Reed 4 C. P. Baker & Co : 4 Chas. Osgood 5 D. C. Lanning 5 B. L. Duncer 6 C. L. Larson 6 H: E. King 7 D. G. Paxton 7 J. G. Hull 8 J. A. Reiss & Co 8 A. Dorris 9 J. C. Jenkins 9 K. L. Mears 10 G. L. Bennett 10 F. I. Barber 11 C. O. D. Account 11 Leave page 12 blank. D. E. Martin, Personal 13 H. L. Kline, Personal 13 Notes Payable , . . 14 Northwestern Furniture Co 14 Simmons, Gardner & Co 15 Atlas Parlor Furniture Co 15 F. Bishop & Co... 16 Klingman Furniture Co 16 E. J. Ranney Co 17 Price Furniture Co 17 Leave page 18 blank. Purchases 19 Sales 19 Merchandise Trading 20 Expense 20 Freight In 21 152 METROPOLITAN SYSTEM OF BOOKKEEPING ACCOUNT PA6E Delivery Expense 21 Advertising 22 Insurance 22 Collection and Exchange 23 Interest . 23 Merchandise Discount 24 Profit and Loss 25 New accounts will be opened up in September. As you post, put the address of each customer and of each creditor after the name in the ledger. Indexing. The first two pages of the ledger are ruled for indexing. Write or print each letter of the alphabet, as a heading, giving equal space to each letter with the exception of X, Y and Z, which are put together in one space. Personal accounts should be indexed, under the proper letters, as follows: Ray, C. J 8 Brown & Co., J. 1 9 National Furniture Co 10 City Furniture Co., The 12 Impersonal accounts containing two or more words should be indexed under the first, as: Notes Receivable • 5 Collection and Exchange 18 Posting. Post the entries for each day but do not post any totals from the books. No trial balance will be taken till the end of the month. Post in the following order: 1. Sales Book 2. Purchase Book 3. Cash Book 4. Journal The work of August will be continued in Chapter XX. CHAPTER XIX HOW TO SHIP GOODS In the wholesale and jobbing trade, most goods are shipped to out of town customers by freight. Whenever goods are shipped by freight, bills of lading are made out. Bills of Lading. A bill of lading is a receipt given by the carrier to the shipper acknowledging the receipt of the goods and contracting to carry them. Each firm that makes a business of making shipments by freight uses its own bills of lading with the name of the firm printed in. These are made out by the firm's shipping clerk and sent to the freight office of the railroad company or other carrier. Straight Bills of Lading. A straight bill of lading is the one used for ordinary shipments to customers. It consists of three forms: 1. The Original Bill of Lading 2. The Shipping Order 3. The Memorandum These are made out in triplicate by the use of carbon paper. The Interstate Commerce Commission has prescribed uniform bills of lading to be used in all interstate shipments. By order of the Commission, the following things must be observed in reference to straight bills of lading: 1. They must be 8 J inches wide, but may be of any length. 2. The three forms must be printed on white paper. 3. The conditions of shipment prescribed by the Interstate Commerce Commission must be printed on the back of each of these forms. 4. The three forms must be as illustrated here. The original is given in full, while the heading only of the shipping order and of the memorandum is given. The original is made out as it would be filled in by the shipper's shipping clerk before sending it to the freight office. All other necessary items are filled in before being signed by the agent of the railroad company. Original Straight Bill of Lading. The original straight bill of lading, together with the duplicates, is made and signed by the shipper per the 153 154 METROPOLITAN SYSTEM OF BOOKKEEPING Original Straight Bill of Lading Uniform Bill of Lading— Standard Form ol Straight Bill of Lading approred by the Interstate Commerce Co mm Isslon by Order No. 787 of luno 27, 1 908 Chicago & North Western Railway Company STRAIGHT BILL OF LADING- ORIGINAL- NOT Shipper's No NEGOTIABLE A ., - T Agent s No RECEIVED, subject to the classifications and tariffs in effect on the date of issue of this Original Bill of Lading, jz*dkj>Ait!L Fv?fh '^Y^^iy J91J=L the property described below, in apparent good order, except as noted, (contents and condi- tion of contents of packages unknown), marked, consigned, destined as indicated below, which said Company agrees to carry to its usual place of delivery at said destination, if on its road, otherwise to deliver to another carrier on the route to said destination. It is mutually agreed, as to each carrier of all or any of said property over all or any portion of said route to destination, and as to each party at any time interested in ail or any of said property, that every service to be performed hereunder shall be subject to all the conditions, whether printed or written, herein contained (including conditions on back hereof) and which are agreed to by the shipper and accepted for himself and his assigns. The Bate of Freight from. to s in Cents per 1 00 Lbs. IF Special Per ~ IF Special IF... Timet 1st IF 1st Class IF 2d Clatt IF Rule 25 IF 3d Class IF Rale 26 IF Rale 28 IF 4th Class IF 6th Class IF 6th Class Per Consigned to Destination Route (Mail Address— Not for purposes of Delivery.) S 2S2, State of ^flfJ^L .County of. Car Initial .Car No.. No. Packages DESCRIPTION OF ARTICLES AND SPECIAL MARKS Weight (Subject to Correction) Class or Rate Check Column If charges are to be pre- paid, write or stamp here, "To be Prepaid." ?-tt oC_J^/^>7^/^7^!-^r7 ^feh^? ^-rz ^< ^4 ^>— 3-o ^Z^t^S^^r^ st^7s / a^fr-r^s^Ls ^UyAlr^^^^ /sf~ to apply in prepayment of the charges on the property described hereon. Agent or Cashier. fer (The signature, here acknowl- edges only the amount prepaid.) Charges advanced: % . . Per. M2z£>£ -Shipper. .Agent. Per. {This Bill of lading is to be aigned by the Stripper and Agent of the Carrier issuing same.) HOW TO SHIP GOODS 155 Shipping Order rcrase In connection with the Standard form of Straight Bill tl lading approved by the Interstate Commerce Commission by Order No. 787. of Jane 27, 1908 Chicago 8c North Western Railway Company THIS SHIPPING ORDER must be legibly filled In, in Ink, Shipper's No in Indelible Pencil, or in Carbon, and retained by the Agent. Acent's No RECEIVE, subject to the classifications and tariffs in effect on the date of issue oi this Shipping Order, 'T /(? , 191. from J, ^ j /<^—Jf 7^f? > S^^ / V ~~CjO (7^ the property described below, in apparent good order, except as noted (contents and condi- tion of contents of packages unknown), markeOT consigned, destined as indicated below, which said Company agrees to carry to its usual place of delivery at said destination, if on its road, otherwise to deliver to another carrier on the route to said destination. It is mutually agreed, as to each carrier of all or any of said property over all or any portion of said route to destination, and as to each party at any time interested in all or any of said property, that every service to be performed hereunder shall be subject to all the conditions, whether printed or written, herein contained (including conditions on back hereof) and which are agreed to by the shipper and accepted for himself and his assigns. The Rate, of Freight from , . to s in Cents per 100 Lbs. IF Special Per IF Special IF Time* lot IF 1st Class IF Cd CIms IF Rolo 26 IF 3d Class IF Rule 26 IF Role 28 IF 4th Claso IF 6th CUM IF Gih CltK Per Memorandum For use In connection with the Standard form of Straight Bill of Lading approved by the Interstate Commerce Commission by Order No. 787, of June 27, 1908 CHICAGO 8c NORTH WESTERN RAILWAY COMPANY THIS MEMORANDUM is an acknowledgment that a bill of lading has been issued and is not the Original Bill of Lading, nor a copy or duplicate, covering the property named herein, and is intended solely for filing or record. Shipper's No.. Agent's No RECEIVED, subject to the classifications and tariffs in effect on the date of the receipt by the carrier of the property described in the at. -C{^C2 _ZZ2L .191: from I ^S. / y~i*^%*<&7tS ^ SffS Y i.£)(7~' Hba property described below, in apparent good order, except as noted (contents and condi- tion of contents of packages unknown), marked, consigned, destined as indicated below, which said Company agrees to carry to its usual place of delivery at said destination, if on its road, otherwise to deliver to another carrier on the route to said destination. It is mutually agreed, as to each carrier of all or any of said property over all or any portion of said route to destination, and as to each party at any time interested in all or any of said property, that every service to be performed hereunder shall be subject to all the conditions, whether printed or written, herein contained (including conditions on back hereof) and which are agreed to by the shipper and accepted for himself and his assigns. The Rate of Freight from to s in Cents per 100 Lbs. IF Special IF Special IF. .. Timet Ut IF 1st Clan IF 2d Class IF Rule 26 IF 3d Class IF Rule 26 IF Rale 28 IF 4th Class IF 6th Class IF 6th Class Per shipping clerk. It is taken with the duplicates to the freight office. The rate, the classification, and the weight are filled in by the freight agent and the bill of lading is signed by the freight agent. Oftentimes these items are filled in by the shipping clerk, or traffic manager of the shipper and simply checked by the freight agent, or some of them may be left blank. The original straight bill of lading is given to the shipper and by him sent to the consignee. If the consignee is not known, he must pre- sent the bill of lading before he can get the goods. It is not negotiable. 156 METROPOLITAN SYSTEM OF BOOKKEEPING The Shipping Order is signed by the shipper and retained by the railroad company. The Memorandum is signed by both the shipper and by the agent of the transportation company. It is retained by the shipper for reference should any claim arise in reference to the shipment. Sometimes the shipper retains the original bill of lading and sends the memorandum to the consignee. This is not usually done except when the shipper guarantees the proper delivery of the shipment at its destination. Ordinarily when the goods are delivered to the railroad company and a straight bill of lading is obtained, the shipper's responsibility ceases. The transportation company becomes the agent of the buyer in the transpor- tation of the goods. Freight C. O. D. Shipments. When an order for goods is received from a person whose financial standing is not known, or when the finan- cial responsibility of the customer is questioned, goods are usually sent C O. D., or, when a new customer whose credit standing has not yet been ascertained wants the goods at once, they may be sent C. O. D. The object of any C. O. D. shipment is to retain the title to the goods, and to prevent the consignee from obtaining the goods until they are paid for. Order Bill of Lading. When goods are sent by freight, C. O. D., an Order Bill of Lading must be made out. It is similar to the straight bill of lading in size, conditions on the back, description of the articles, places for the signatures, etc., but differs in the heading. It differs from the straight bill of lading, in several respects. 1. It is "Consigned to order of" the shipper or a bank as agent for him. 2. The name of the person to whom the goods are to be shipped is written after "Notify." 3. The order bill of lading is negotiable. 4. The original must be printed on yellow paper and the duplicates on blue paper. The original order bill is illustrated on the next page. How to Ship by Freight, C. O. D. The necessary steps are as follows: 1. The invoice is made out in the usual way, with the exception of the terms, which are "Order of Bank". This invoice is sent direct to the customer by mail. 2. An Order Bill of Lading is made out to the order of the shipper's bank or of the shipper himself. 3. A sight draft is drawn on the customer in favor of the shipper's bank or in favor of himself and indorsed to the bank. 4. The sight draft attached to the bill of lading is given to the ship- per's bank for collection. HOW TO SHIP GOODS 157 Original Okder Bill of Lading: Ijniiorm Bill of lidlng— Standard Form ol Order Bill ol Lading approved by Hie Interstate Commerce Co mmlsslon by Order No 787 of June 27. 1 908 Chicago 8c North Western Railway Company Shipper's No order bill OF LADING-ORIGINAL Agent's No RECEIVED, subject to the classifications and tariffs in effect on the date of issue of this Original Bill of Lading ^£id^=a t ddl^zJL^Z^^- <4*4- ; *£zl+ i9i^z- y * lan -J* l trf(' l firlTj7«tf7 ~< f^ ^P^f~^^L. (£?(?T. '^ property described below, in apparent good order, except as noted (contents and condi- tion of contents of packages unknown), marked, consigned, destined as indicated below, which said Company agrees to carry to its usual place of delivery at said destination, if on its road, otherwise to deliver to another carrier on the route to said destination. It is mutually agreed, as to each carrier of all or any of said property over all or any portion of said route to destination, and as to each party at any time interested in all or any of said property, that every service to be performed hereunder shall' be subject to all the conditions, whether printed or written, herein contained (including conditions on back hereof) and which are agreed to by the shipper and accepted for himself and his assigns. The surrender of this Original ORDER Bill of Lading properly endorsed shall be required before the delivery of the property. Inspection of property covered by this bill of lading will not be permitted unless provided by law or unless permission is indorsed on this original bill of lading or given in writing by the shipper. The Rate of Freight from to is in Cp.nt.s ppr lOO T.hs. IF Special Per IF Special F... Time* 1st IF IttClatt IF 2d Clatt IF Rule 25 IF 3d Class IF Rule 26 IF Rule 28 IF 4th Clatt IF 5th Clatt IF 6th Clatt Per : for purposes of Delivery.) State of /y/y->f-r7^^7 j>y State of k~V^7^^/^. County of Route Tar Initial . Car No.. No. Packages DESCRIPTION OF ARTICLES AND SPECIAL MARKS Weight (Subject to Correction) Clatt or Rate Check Column If charges are to be pre- paid, write or stamp here, "To be Prepaid." /^r ^Chf^^f^f^^yf.^ r VC^??-^i^fr^> ^4 — ^f^ Received $ to apply in prepayment of the charges on the property described hereon. Agent or Cashier. PfT (The signature here acknowl- edges only the amount prepaid.) Charges advanced: $ -JK^U^ ■ ^-X^r^T^y^y ~^k Per_ -Shipper. -Agent. Per_ I of Lading i to be signed by the Shipper and Agent of the Carrier issuing same.) 158 METROPOLITAN SYSTEM OF BOOKKEEPING This method of making shipment is also known as "shipper's order" and as "draft, with bill of lading attached." How Collection is Made. The bank sends the draft with bill of lading attached to a bank in the city where the consignee resides. It in- dorses both the order bill of lading and the draft to that bank. When the draft, with bill of lading attached, reaches the correspondent bank, the bank sends a notice to the consignee giving details of the draft and bill of lading, and asking him to pay it. He pays the draft and receives the receipted draft and the order bill of lading indorsed to him. He then takes the order bill of lading to the freight office and receives the goods. The correspondent bank usually credits the home bank and the home bank then gives the shipper, the drawer of the draft, credit for the amount of the draft, less collection charges. Sometimes a bank draft is issued by the correspondent bank instead of sending the credit. Entries for Freight, C. O. D. One account is kept for all shipments by freight, C. O. D. In the sales book, C. O. D. Account is charged, followed by the name of the buyer. 7 r 7 J~ /(pJ^j^ This is posted to the C. 0. D. Account in the ledger as follows '9- M j~ feO^Cnj^jsAz*/ /S . Milwaukee, Wis., 67^/.^, ^/ ifl : N ACCOUNT WITH C. N. Bell 8c Company f- <^L U^ez £l A£ 12, Balance per statement Yfi W^s, /W^/ ~~ff?^~A^?^ &aLd.^s*d*e2L2dAaa*&^ ^). /Zr?^^ rt^/- / (O^rfC^?^ 3/7 / / 2 A ^ 2.-TV? JUL 2^1 ^z 2^, & ££ SA 2-2-n £J J±£ JOBBING FURNITURE 169 last day of the month. The object of the statement is to enable the cus- tomer to compare his account with the statement and to make any cor- rections necessary. It is not necessarily a dun for the money, but where the terms of payment show that the purchase is due it acts as a reminder to the customer. In the wholesale and jobbing trade, itemized invoices are rendered for each sale made. The statement of account does not show the items sold but is simply a statement of the invoices rendered and of the credits on account. In the retail trade, it is customary to send an itemized statement of account, showing all the items of merchandise sold and the credits on account. In the statement of account illustrated there is a balance from the previous month, which is the first item of the debit. In rendering state- ments to customers for August, you will have no balance August 1. Render statements of account to all customers that owe you. Use your ledger accounts and refer back to the book of original entry whenever necessary. To Prove the Bill Book. To prove the Notes Receivable book, list the unpaid notes by number and amount. The sum of these unpaid notes should equal the balance of the Notes Receivable account in the ledger. If it does not prove, check the notes entered with the debit side of the ledger and those paid with the credit side. Prove the Notes Payable book on the same principle. Trial Balance. Take a Trial Balance. Do not forget that the cash book is the cash account. Inventories, August 31, 19 — Merchandise: 15 Brass Bedsteads 21 B. E. Maple Dressers 48 Felt Mattresses 31 Hair Mattresses 22 Kitchen Cabinets 26 Mahogany Chiffoniers 19 Mahogany Dressers 20 Mahogany Dressing Tables 5 Mahogany Lady's Desks 5 Mahogany Music Cabinets 7 Mahogany Parlor Suites . 29 Mahogany Parlor Tables 170 METROPOLITAN SYSTEM OF BOOKKEEPING 12 Mahogany Rockers 19 Oak Chamber Sets 20 Oak Davenports 24 Oak Desk Chairs 36 Oak Dining Chairs 27 Oak Library Tables 4 Oak Sideboards 6 Morris Chairs 3 Turkish Rockers at $21.80. None bought in August. 3 C. Walnut Bedsteads 2 C. Walnut Chamber Sets Freight In on goods unsold, $113.50 Real Estate, at cost Expense, 8 tons coal at $5.15 Delivery Equipment: Cost $1375.00 Depreciation 2 % 27 . 50 Inventory $1347.50 Furniture and Fixtures: Cost • $411.25 Depreciation: 2% on $374.75 $7.50 l%on 36.50 .37 $7.87 Inventory $403 . 38 Insurance, unexpired 63 . 20 Copy these inventories in your blank books after the merchandise inventory has been corrected. Trading and Profit and Loss Statements. The statements to be made out in this set are more detailed and contain a much greater number of accounts than those of previous sets. Since the object of these state- ments is to give information to the proprietors of the business, they should be in a systematic form that can readily be understood. The statements will be made out in two sections: the Trading and the Profit and Loss sections. The Trading section includes that part of the statement that has to do with the cost of the goods sold and the returns from sales. The Profit and Loss section includes all other profits and losses of the business. The selling expenses are separately shown in this section. The statements here illustrated show the statements of a business that has continued from a previous month. Study this form carefully. In making out statements for August, you will enter the value of the goods invested by Mr. Martin in place of the inventory of Novenlber 1, 19 — , shown in the statement. JOBBING FURNITURE 171 Trading and Profit and Loss Statements for the' month ending Nov. 30, 19 — 8725 136 5317 7232 $107.80 75.40 $340.70 26.30 $167.45 58.20 12549 5032 7516 93 978 32 46 35 314 7 8 109 35 21 13 7 206 206 50 75 15 25 40 95 45 60 70 40 Returns : Gross Sales Less Returns and Allowances Net Sales Costs : Inventory, November 1, 19 — Purchases $7328.45 Less Returns and Allowances 96.20 Net Purchases Less Inventory, Nov. 30, 19 — Prime cost of goods sold Freight In Total cost of goods sold Gross trading profit down Profits : Gross trading profit brought down Mdse. Discount Allowed: To us By us Profit Total profit Losses : Selling Expenses: Delivery Expense Advertising General Expense Dr. Less Inventory Collection and Exchange Interest Insurance Dr. Insurance unexpired Insurance used Real Estate Expense and Income Depreciation: Of Real Estate Of Delivery Equipment Of Furniture and Fixtures Total losses Firm's Net Profit C. Hass' Net Profit B. E. Hall's Net Profit Firm's Net Profit Make Trading and Profit and Loss statements for August. 80 40 75 50 25 15 50 25 10 20 20 8588 7610 978 1011 75 05 70 10 598 412 412 70 40 40 172 METROPOLITAN SYSTEM OF BOOKKEEPING Statement of Assets and Liabilities, Nov. 30, 19- % Assets : Real Estate Cost $10500.00 Less depreciation 21.50 10478 305 963 5032 58 26 1075 5732 3458 50 40 95 20 30 60 25 20 27130 6878 Furniture & Fixtures cost $312.50 Less depreciation 7.10 • Delivery Equipment cost $976.25 Less depreciation 13.25 Mdse. Inventory Insurance, unexpired Expense Inventory Notes Receivable Accounts Receivable: J. Carter $1378.90 C. Stafford 1589.25 D. Winton & Co. 846.50 J. Campbell 1917.60 Cash Total assets Liabilities : Notes Payable Accounts Payable: Clemens & Co. $1768.00 D. Prentice 2146.00 J. Hardy 464.00 2500 4378 — 40 Total liabilities Firm's net worth Proof: • C. Hass' investment C. Hass' net profit Less C. Haas, personal C. Hass' net worth B. E. Hall's investment B. E. Hall's net profit Less B. E. fiall, personal B. E. Hall's net worth Firm's net worth — 20252 40 10000 206 20 10121 10131 10206 85 20 10000 206 20 20 10206 75 20 20 20252 40 JOBBING FURNITURE 173 Statements of Assets and Liabilities. The form of the statement of Assets and Liabilities for this set differs little from the statement in previous sets. The principal difference is that in those assets that show a depreciation, the cost, the depreciation, and the present value must be shown. The arrangement of the assets should be according to a definite order. The arrangement given on page 172 begins with the most permanent assets and ends with cash. Make a statement of Assets and Liabilities for August 31. Test the correctness of the statements by finding the Net Worth of each partner. The sum of the net worths of D. E. Martin and H. L. Kline should equal the firm's net worth on the statement of Assets and Liabilities. Closing the Ledger. Close all accounts that have a nominal or Profit and Loss element in them. All of these accounts are found in the Trading and Profit and Loss statements. Use your statements as guides in closing the ledger. Study Chapter XVI again before beginning to close. 1. Close the trading accounts as follows: •a) Freight In b) Purchases c) Sales d) Merchandise Trading 2. Close all the accounts in the Profit and Loss statement in the order that they occur in the statement. To close accounts that show a depreciation: a) Enter the inventory in red ink on the credit side. b) The difference between the debit and credit sides is the depre- ciation or loss. c) Enter Profit and Loss in red ink on the credit side and the amount of the difference. d) Rule the account. e) Bring the inventory down on the debit side in black ink, dating it the first day of the next month. f) Carry the Profit and Loss item to the debit side of the Profit and Loss account, writing in the name of the account from which it was transferred. 3. Close the Profit and Loss account by entering the amount of each partner's profit in red ink on the debit side. Transfer each partner's profit to the credit side of his personal account. 4. Close each partner's personal account into his capital account as follows: a) Enter the balance in red ink on the debit side under the name of the capital account, as, D. E. Martin, Capital. b) Rule the account. c) Transfer the balance in black ink to the credit side of the capital account, writing the name of the partner, personal. 174 METROPOLITAN SYSTEM OF BOOKKEEPING 5. Close the capital accounts as you have before by net worth. Take a proof trial balance of the ledger after closing. Write up the bank statement from your pass book and your checks. Submit all of your books to your teacher for inspection. ANALYSIS OF RESULTS Every progressive business man desires more information about his business than simply the results of the Trading and Profit and Loss state- ments. He wishes to make comparisons month by month and year by year. The best way to do this is by computing percentages. Some of the most important per cents are found as follows: Gross Trading Profit Per cent of Gross Trading Profit = Per cent of Net Profit on Investment = Cost of Goods Sold Partner's Net Profit Partner's Investment Per cent of Net Profit on Total Cost = Net Profit Cost of goods sold -f- all expenses of selling and administration Exercise 36. The following per cents are to be found by using the results of your August work. • 1. Find the per cent of gross trading profit. 2. Find the per cent of net profit on the total cost. 3. Find the per cent of net profit on D. E. Martin's investment. 4. Find the per cent of delivery expense on the sales. 5. Find the per cent of returns and allowances on sales. 6. Find the per cent of total expenses on the total cost. Exercise 37. On journal paper, make the memorandum and the journal entries for the following: G. C. Varden and L. N. Worth formed a copartnership, August 1 to engage in the wholesale hardware business. G. C. Varden invested the following assets and liabilities: Cash, $1725 Store building and lot, $8720 Rent due from tenants, $45 Motor truck, $1285 Gasoline and other motor truck supplies, $15 Merchandise, per inventory, $4785.25 C. Evans' note for $875, dated July 11, payable 60 days after date, with interest at 6 % JOBBING FURNITURE 175 John Cary owes on account, $987.50 G. C. Varden owed B. Edgar on account, $715 He owed a note in favor of Farrar & Co., for $6000, dated June 25, payable 3 months after date. L. N. Worth invested the following assets and liabilities: Cash, $2125 Office Furniture, $62.75 C. & N. W. R. R. Stock, 20 shares at 108J Merchandise, per inventory, $6316.20 H. I. Haines' note for $3756.25, dated July 8, payable 60 days after date D. E. Barber's note for $2115.75, dated June 16, payable 3 months after date, with interest at 6% L. N. Worth owed a note in favor National Exchange Bank for $2500, dated July 21, payable 30 days after date. He owed a note favor of F. A. Hills for $575, dated July 22, payable 30 days after date, with interest at 6%. Wherever discount is to be computed, 6 % is to be used. Exercise 38. Make the entries on journal paper for the following transactions. Use the same trading accounts that you have been using in Set VI. May 2. Paid for freight on purchases, $107.50. 5. Paid for packing material, $11.25. 8. Allowed M. Spreng's claim for damaged goods, $15.20. 15. Returned goods to C. Brennan valued at $31.85. 17. Goods were taken from stock for use in the store, $7.50. 20. Allowed N. Rice's claim for overcharge, $6.75. 25. Paid freight on purchases, $112.45. 28. Benton & Co. allowed our claim for shortage, $12.75. 30. The railroad company refunded $8.20 as an overcharge on the freight bill of the 25th. 31. The purchases amounted to $10,175.40. 31. The sales amounted to $8432.65. 31. Transfer to Purchases from Delivery Expense, $37.85 r the value of the services rendered in hauling purchaser to the warehouse. 31. Paid shipping clerk's wages, $40. Exercise 39. Open the trading accounts on ledger paper. 1. Enter the inventory of merchandise on hand, May 1, $2138.25. 2. Post the entries to the trading accounts. 3. Use $6078.75 as the inventory of merchandise on hand May 31. Make a trading statement. 4. Close all trading accounts. 176 METROPOLITAN SYSTEM OF BOOKKEEPING Exercise 40. a) From the following trial balance and inventories, make Trading and Profit and Loss statements, December 31, 19 — Chas. Smith $12500.00 James Carson 12500.00 Real Estate $15500. 00 Horse and Wagon 375.50 Office Fixtures 62.15 Notes Receivable 5172.75 Accounts Receivable 7318.45 Cash 1856.20 Notes Payable 4378 . 45 Accounts Payable 3124.80 Purchases 11975 . 50 Freight In 386.25 Sales 10657.45 Expense 315.85 Merchandise Discount 42.75 Interest 8.10 Stable Expense 51 . 20 Insurance ■ 96 . 00 $43160.70 $43160.70 Accounts Receivable includes all the accounts of customers; Accounts Payable, all the accounts of creditors. Inventories: Merchandise $ 4578 . 25 Expense 12 . 75 Real Estate 15345 . 00 Horse and Wagon 371 .75 Office Fixtures 60 . 90 Insurance 88 . 00 b) Make a statement of Assets and Liabilities and a proof of the statements. c) Open the following ledger accounts and close them: 1. Freight In 2. Purchases 3. Sales 4. Merchandise Trading 5. Real Estate 6. Horse and Wagon 7. Insurance 8. Office Fixtures 9. Expense 10. Merchandise Discount JOBBING FUKNITURE 177 REVIEW QUESTIONS 1. What is a bank draft? 2. How does a bank draft differ from a check? 3. For what purpose are bank drafts used? 4. In whose favor should a bank draft be drawn? Why? 5. How should a check to buy a bank draft be written? 6. What entries does the remitter of a bank draft make? 7. What is a personal draft? 8. Describe the parties to a personal draft. 9. For what purpose are three-party sight drafts drawn? 10. Give the entry for each of the parties to a three-party sight draft. 11. What is the purpose of a two-party sight draft? 12. Explain how a two-party sight draft is collected. 13. Explain the straight bill of lading drawn in triplicate. 14. What is the object of an order bill of lading? How does it differ from a straight bill of lading? 15. Explain the necessary steps in making shipments by freight C. O. D. 16. Are bills of lading negotiable? 17. Explain the entry and the posting of C. O. D. sales. 18. How are shipments made by express C. O. D. ? 19. How is the money usually returned? 20. Why is it best in a large business to keep several trading accounts instead of one merchandise account? 21. For what should the Purchases account be debited and credited? 22. For what should Freight In be debited and credited? 23. How should Freight In be closed? 24. How should Purchases be closed? 25. For what should the Sales account be debited and credited? 26. How should Sales be closed? 27. How should Merchandise Trading be closed? 28. For what should Delivery Expense be debited and credited? 29. For what should Real Estate be debited and credited? 30. For what should Real Estate Expense and Income be debited and credited? 31. Why should personal accounts with proprietors be kept? 32. For what should the partners' personal accounts be debited and credited? 33. How should a cash sale less a discount be entered? 34. What is the object of the bill book? 35. How do you prove the Notes Receivable Book? The Notes Payable Book? 36. What is a statement of account? How does it differ from an invoice? 37. To whom are statements of account sent? How often? 38. Why is a Merchandise Discount column kept on each side of the cash book? 39. How is each Merchandise Discount column posted? 40. What is the object of keeping an Expense column on the cash book? How is it posted? CHAPTER XXI TIME DRAFTS Personal Drafts may be made payable at some future date. They are then called time drafts. Time drafts may be payable: 1. A certain time after date, or 2. A certain time after sight. Time drafts may be used for many of the same purposes as sight drafts. They may be three-party or two-party drafts. The time draft payable after date is the more common of the two but is used much less than sight drafts. The theory of time drafts is the same as that of sight drafts. The drawer owes the payee. The drawee owes the drawer. The drawer asks the drawee to pay the money at some future time instead of at once. Threb-*party Time Draft --^t^^^iCy ^uC-, . t (/Uist^'J?/ 2~ PAY TO THE ORDBR OF .19 Dollars No. /TjT l)ni. J4^;yy/./y D. E. Bailey draws this draft and sends it to the payee, N. C. Stout. Mr. Stout sends it to the drawee, M. I. Mason, to get his written consent to the draft. M. I. Mason gives his consent by accenting the draft. To Accept a Draft. The drawee accepts the draft by writing across the face of the draft, Accepted, with the date, and his signature. He may also make it payable at some bank if he desires. The draft is now called 178 TIME DRAFTS 179 an acceptance. The act of accepting the draft has the same effect as the giving of a promissory note. The payee receives the acceptance the same as he would receive a promissory note. The entries for a three-party time draft are all made in the journal. The drawer, D. E. Bailey, makes the following entry when he draws the draft : Drawer's Entry 6 ~^&£tzS, s^A^z^r-, 7yJ~C yj~c The drawer then sends the draft to the payee, N. C. Stout. He makes no entry when he receives the draft, but sends it to the drawee, M. I. Mason for acceptance. The drawee accepts the draft and sends it to the payee, N. C. Stout. Drawee's Entry '■ u^u.-^ / /(^Lk^j /^^^z^-cUy '^z^a^v-^y/^S^truy/-^ y^Tc Payable at a Bank. To make a note or acceptance payable at the bank is equivalent to a written order on the bank to pay the amount of the draft and take it out of the acceptor's account. No check is necessary, as making the note or the acceptance Payable at National Exchange Bank may take the place of a check. A few days before the draft is due, the payee sends it to the drawee's bank, either through his bank or direct. At maturity most banks charge the draft at once to the drawee's account and send him the canceled draft and a Charge or Debit Slip. The Charge Slip is made out in duplicate, the original being turned over to the bookkeeper of depositors' accounts and the duplicate sent to the depositor. (See illustration of Charge Slip on page 182) Many banks prefer to notify their depositors by telephone or by mail before paying an acceptance or note payable at the bank. The de- positor may instruct the bank to charge it to his account, or he may agree to send a check in payment. In your practice work both methods of paying will be illustrated. 182 METROPOLITAN SYSTEM OF BOOKKEEPING Charge Slip THE NATIONAL EXCHANGE BANK OF MILWAUKEE Milwaukee, Wis. , August 10, 19— DEBIT E. B. Morris & Co _ $225.00 City. For 3C -day note Due August 10, 19— Favor C. E. Magee. * A. G. Schultz, Cashier. Left Check Stub As soon as the drawee is notified that the draft has been charged, he must make an entry in his cash book for the note or acceptance. He must also make the records in the bill book and on the right and left check stubs. The amount must be subtracted from the bank balance. The form of the record on the left check stub is here illustrated. Uu*Lt> yj~c Two-party Time Drafts. Time drafts may be used for the purpose of collecting accounts and of collecting all or a part of an invoice sold on special terms, such as, 80-day draft, draft at 10 days 7 sight, etc. These drafts may be drawn a certain number of days after date or at a certain number of days' sight. They may be made payable to the drawer by writing in the words Myself or Ourselves or they may be made payable to a bank for collection. The draft is sent to the drawee for acceptance. When he accepts the draft, he makes the same entry in the journal as for a three-party draft. He debits the drawer and credits Notes Payable. When the drawer-payee receives this acceptance, he makes an entry in the journal debiting Notes Receivable and crediting the drawee. Two-party drafts after date may be held by the drawer until they are due and then given to a bank for collection, if goods were sold on those terms. Time drafts cannot be transferred to others nor discounted without first having them accepted. Any acceptance may be discounted in the same way as a note since an acceptance is just as much a promise to pay as a note. TIME DRAFTS 183 Rules for Two-Party Time Drafts. The Drawer-Payee's Entry when he receives the accepted draft is Notes Receivable to Drawee The Drawee's Entry when he accepts the draft is Drawer to Notes Payable Exercise 41. Time Drafts. 1. March 3. Student draws a draft on C. L. Lee, Dubuque, la., in favor of G. E. Capper, St. Louis, payable 30 days after date, for $280. It is accepted, March 5, payable at Second National Bank. Draw the draft, show the acceptance, and make the entry for each party. 2. March 5. C. L. Voss, Chicago, sells an invoice of goods to D. E. Layton, for $375.75 on the terms, draft at 10 days' sight. The draft is accepted March 7. Draw the draft, show the acceptance, and make the entry for each party. 3. March 8. Student draws a draft at 30 days' sight on G. A. Lake to collect a past due account amounting to $245.10. The draft is accepted March 10, payable at Union National Bank. Draw the draft, show the acceptance, and make the entry for each party. 4. March 13. Student discounts the acceptance in transaction 3 at the Marine National Bank. The bank charges 6% discount. Show the indorsement and make the Student's entries. 5. March 14. J. E. Brock, New York City, draws a draft, payable 30 days after date, for $250, in favor of M. N. Gerber, Albany, N. Y., on C. L. Andrews & Co., Trenton, N. J. The draft is accepted March 16. Make the entry for each party. 6. March 18. M. N. Gerber transfers the draft in transaction 5 to G. I. Turner, less discount at 6 % for the unexpired time. Show the indorsement and make the entry for each party. 7. March 20. B. E. Yoder draws a draft on Student, payable 10 days after date, for $1167.25, which is accepted March 22, payable at First National Bank. Make the entry for each party. 8. March 30. The First National Bank charges the acceptance in transaction 7, to the Student's account. Make the Student's entry. 9. March 31. B. E. Yoder's bank reports the collection of this draft, collection charge T V%. Make B. E. Yoder's entry. CHAPTER XXII JOBBING FURNITURE SET VI Transactions for September 1-15 September 1. The proprietors have decided to increase their capital by each investing $3000 additional. D. E. Martin invests the following: C. D. Forester's note, dated August 10, payable 60 days after date, with interest at 6%, for $1500. Cash for the balance. Compute the interest for the expired time. Make a journal entry for the entire investment and enter the cash in the cash book as you did August 1. Have you taken your cash balance for August over to the top of a new page, dating it Sept. 1? H. L. Kline invests the following: A note of E. B. Brewster & Co., dated August 16, payable 3 months after date, for $1750. Cash for the balance. Compute the discount on the note for the unexpired time at 6%. Make the entries the same as for D. E. Martin's investment. Do not forget the necessary records for the notes. This invoice is received from Klingman Furniture Co. In accordance with our instructions they have prepaid the freight and charged it to us. Enter the amount of the goods purchased, without the freight, in the purchase book. Make a journal entry for the freight, debiting Freight In and crediting Klingman Furniture Co. The bank has charged your acceptance due today, favor the E. J. Ranney Co., to your account. No check is necessary. The bank has the right to do this since in your acceptance you made it payable at the bank. You must make the proper records on the right and left check stubs as well as in the bill book. What should you receive from the bank? What account should be debited for the amount charged by the bank? Deposit the checks received today. 184 JOBBING FURNITURE 185 September 2. Chas. Osgood, City, orders: 12 Oak Dining Tables 5 Oak Library Tables 6 Mahogany Parlor Tables Terms: note, 30 days after date. The note will be received later.. J. C. Jenkins, Dayton, Ohio, orders: 15 Felt Mattresses 6 Mahogany Dressers 5 Mahogany Parlor Tables Terms: 3/5, 2/10, net 30 days. Receive of D. C. Lanning this check on account. Pay Simmons, Gardner & Co. the balance due them on their August account. September 3. Receive this check in payment of the rent of the rooms in the store building. What account should be credited for income on Real Estate? D. E. Beale, St. Paul, Minn., orders: 5 Mahogany Parlor Tables He is desirous of receiving the goods as soon as possible, and instructs you to ship the goods by express C. O. D. Make out the invoice and receipt it. Take an express envelope and fill it out as follows: On the reverse side, fill in after Goods Shipped to, the name and ad- dress of the buyer. Fill in the Amount of Bill. After Shipper's Instructions, write Collect all charges. On the face of the envelope fill in the name and address of your firm. Do not open an account with D. E. Beale but enter it the same as the freight C. O. D. sale which you have had. Receive this check from J. C. Reed for the invoice of August 24, less discount. September 4. B. L. Duncer, City, orders: 5 Brass Bedsteads 12 Hair Mattresses 5 Oak Chamber Sets Terms: account, 30 days. K. L. Mears, Syracuse, N. Y., orders: 8 B. E. Maple Dressers 12 Felt Mattresses 6 Mahogany Parlor Suites Terms: note at 30 days for $375; balance on account. He sends the note with the order. This invoice is received from F. Bishop & Co. A 30-day draft ac- 186 METROPOLITAN SYSTEM OF BOOKKEEPING companies it. Accept the draft if it agrees with the invoice. What is the meaning of accepting a draft? What account should be credited? Why? Do not forget to record this acceptance in the bill book. Receive this note from Chas. Osgood in payment of the invoice of September 2. Does the face of the note agree with the amount of your sale to him? Record it in the bill book. September 5. Receive this check from F. I. Barber, on account. J. C. Jenkins returns 5 Felt Mattresses, as he finds that he has too many for his trade. Give him a credit memorandum. Your entry must be the reverse of the entry that you made when you sold him the goods. D. C. Scott, Louisville, Ky., orders: 7 Oak Davenports 5 Morris Chairs 3 C. Walnut Chamber Sets Terms: account, 30 days. C. E. Randall, Albany, N. Y., orders: 9 Mahogany Dressers Terms: draft favor National Exchange Bank, with B/L attached. As Mr. Randall's credit is not known, he instructs you to bill the goods in this way. What kind of a bill of lading must be used? Why? What is done with the draft and bill of lading? Do not open an account with C. E. Randall. What account should be debited? September 7. Receive this express check in payment of the goods shipped to D. E. Beale on the 3d. Credit the same account that you debited when you made the sale to him. This invoice is received from Chas. Strang & Co. The goods are billed f. o. b. Milwaukee. This means that the seller should pay the freight. By some mistake, they failed to pay the freight. They instruct us to pay the freight bill and charge it to their account. Enter the invoice in the usual way. You will receive the freight bill later. Receive this check from G. L. Bennett, on account. Receive this check from J. C. Jenkins for his invoice of the 2d, less discount. Turn to your journal, you will find a credit there to J. C. Jenkins 7 account. Deduct it before computing the discount. Pay this bill for painting a sign to be placed on the building. Charge it to Expense. Pay F. Bishop & Co. the balance of their August account. Deposit all the checks on hand; Mo collection on out-of-town checks, except express checks. JOBBING FURNITURE 187 September 8. J. G. Hull, City, orders: 8 Kitchen Cabinets 5 Mahogany Music Cabinets 5 Oak Davenports Terms: account, 30 days. B. L. Duncer, City, orders: 15 Oak Dining Tables Terms: cash, less 2%. This check is received in payment. This bill of Voss & Co. is for repairs to the building. Pay it by check. Is this a real or a nominal element? Does it increase the cost of the building or simply help to keep it worth its cost? Mr. Kline has returned to Chas. Strang & Co., 5 Oak Dining Tables as they do not seem to be suitable to our trade. They send us this credit memorandum. Prove cash and submit your cash book and check book to your teacher for approval. September 9. This bill is for repairs to the delivery truck. Pay it. Is this a nominal or a real element? Is it an asset or is it a charge against income? Receive this check from H. E. King, on account. D. G. Paxton, City, orders: 10 Felt Mattresses 6 Kitchen Cabinets 18 Oak Dining Chairs Terms: 2/10, net 30 days. C. G. Yates, Denver, Colo., orders: 8 Mahogany Dressers 12 Mahogany Parlor Tables 6 Oak Library Tables Terms: on account. Mr. Kline has arranged with C. G. Prang, Receiver in bankruptcy, to purchase some of the bankrupt stock at 90^ on the dollar. The de- duction is made on the invoice. This is not a discount but simply a method of lowering the price. Pay it by check. Enter the net amount in the purchase book and in the cash book. Check both entries. It is not necessary to open an account with the receiver of the bankrupt stock as the transaction is closed and you will have no more dealings with him. September 10. C. P. Baker & Co., City, order: 15 Felt Mattresses 5 Kitchen Cabinets Terms: 3/5, 2/10, net 30 days. 188 METROPOLITAN SYSTEM OF BOOKKEEPING A. Dorris, City, orders: 5 Mahogany Parlor Tables 10 Mahogany Rockers 6 Oak Dining Tables Terms: account, 30 days. K. L. Mears, Syracuse, N. Y., orders: 4 C. Walnut Bedsteads 3 C. Walnut Chamber Sets Terms: 1/10, net 30 days. He instructs you to ship the goods to D. G. Foss, Utica, N. Y. He also asks you to prepay the freight and charge it to his account. Make out the invoice to K. L. Mears, but on it write, Shipped to D. C. Foss, Utica, N. Y. The bill of lading should be made out to D. G. Foss. Pay this freight bill and charge it to K. L. Mears' account, as it is simply an accommodation to him. The bank reports the sight draft on C. E. Randall collected. Collect- ion charge, 50^. September 11. M. E. Newton, Wheeling, W. Va., orders: 12 Oak Dining Chairs 8 Oak Library Tables Terms: draft favor National Exchange Bank, with B/L attached. Mr. Newton has not yet given us sufficient information in reference to his credit standing to enable us to sell him on account. He instructs us to send these goods by freight C. O. D. Study a similar transaction that you have had. What kind of a bill of lading is required for all C.O.D. sales by freight? What should be done with the invoice? With the draft with B/L attached? J. A. Reiss & Co., City, order: 15 Brass Bedsteads 6 B. E. Maple Dressers 15 Hair Mattresses Terms: on account. This invoice is received from the E. J. Ranney Co. The goods have been shipped direct to C. L. Larson, City, oh his order to us. We in- structed the E. J. Ranney Co. to pay the freight on this shipment and to charge it to our account. Enter the amount of the merchandise bought in the purchase book in the usual way. Enter the amount of the freight in the journal. What account should be debited just the same as if we had paid the freight on the arrival of the goods? To whom do we owe the amount of the freight? Credit their account. Make out an invoice for the goods bought of the E. J. Ranney Co., and send it to C. L. Larson, City. Terms: account 30 days. Pay this freight bill on goods bought of Chas. Strang & Co., and charge it to their account. JOBBING FURNITURE 189 September 12. This bill for advertising is a cash bill and should be paid at once. The discount is already deducted. Do not enter the discount in the cash book. G. L. Bennett, Lansing, Mich., orders: 3 Kitchen Cabinets 12 Mahogany Chiffoniers 6 Oak Chamber Sets Terms: note at 30 days with interest at 6%, for $425; balance on account. This note accompanies the order. D. G. Paxton, City, reports 1 Kitchen Cabinet in an unsalable condi- tion. As this cabinet was reported in good condition when it left the hands of our delivery-man, we have refused to allow him full credit for it. We have' compromised and allowed him half the value. Make out a credit memorandum for one-half the selling price of 1 Kitchen Cabinet. Pay Chas. Strang & Co. the balance due them on the invoice of the 7th. This invoice is received from the Atlas Parlor Furniture Co. The goods were shipped by our order, direct to J. G. Hull, City. Make the entries as in a previous transaction of the same kind. Make out an invoice to J. G. Hull, City, for these goods. Bill them on account. September 15. This check is received from D. L. Ellery for his note due today. Cancel the note and return to the maker. This bill is for printing circulars to be sent to the trade. Pay by check. Receive this check from C. P. Baker & Co., for the invoice of the 10th, less discount. Third Report. Prove cash, make a report, and hand in your Outgoing Papers. Post from all the books. Do not close any of the books of entry nor post any totals. Open the two new customers' accounts on page 12, the new creditor's account on page 18, and the other new account on page 24. CHAPTER XXIII SHIPMENTS AND CONSIGNMENTS In certain lines of business goods are frequently shipped by one firm to another to be sold on commission. The person that makes a business of selling on commission is usually called a commission merchant or factor. Produce, grain, fruit, poultry, and meats are frequently shipped in this way; pianos, automobiles and sewing machines are quite often shipped in this way, while many other articles are occasionally shipped to be sold on commission. The person who makes the shipment is called the consignor or principal. the person to whom the goods are consigned, the consignee or agent. The legal effect of a shipment is to retain the title and control of the goods while in the hands of the consignee or agent. The agent must use reasonable skill and diligence in handling the goods, and must account to the principal for the goods at certain times. •» There are several reasons for making shipments of goods to be sold on commission instead of selling the goods. 1. The consignor may not be willing to trust the consignee on account. He may be willing to trust the consignee to properly handle the goods and account for the proceeds. 2. The consignee may not be willing to buy the goods because they are a new brand or because a demand must be created for them. He may be willing to assume the responsibility of properly handling them and selling them on commission. 3. In the case of fruits, grains, produce, poultry, etc., the shipper may not know the market price in the consignee's city. For that reason, he cannot invoice them on account, but makes an invoice of shipment to be sold on commission. Invoice of Shipment. When the consignor makes a shipment to be sold for his account and risk, he makes out an invoice of shipment instead of the ordinary invoice. On this invoice of shipment the goods are usually listed at their cost price or with no prices given. Sometimes, however, the consignor wishes to keep the cost price from the consignee. In that case he may list them at the selling price or at a fictitious price. The first plan, that of listing them at the cost price, is the one most commonly used. 190 SHIPMENTS AND CONSIGNMENTS 191 Invoice op Shipment Chicago, III., August 3, 19 — Invoice of merchandise shipped to HESS FURNITURE CO., Peoria, III. To be sold for the account and risk of BRADFORD PIANO CO., Consignors. 10 5 1 Bradford Pianos No. 725 $265 Chase Pianos No. 405 $310 Bradford B. Grand Piano No. 935 2650 ._ 1550 - 485 - 4685 Shipment Account. This account, with the name of the consignee added, is opened up to record the consignor's dealings with the consignee. It is not a sale, so the entry should not be made in the sales book. Part of the goods have been taken from purchases and shipped to be sold on commission. The Purchases account must be credited for the shipment when it is made at cost. The journal entry should be made as follows: Shipt. Hess Furniture Co. Shipped to be sold on $4685 To Purchases 10% commission $4685 Report to be made monthly 10 Bradford Pianos No. 725 $265.-$2650 5 Chase Pianos , No. 405 $310.-$1550 1 Bradford Baby Grand Piano No. 935 The Shipment account should be opened up in the last section of the ledger and not in the section with the personal accounts. The Shipment account should be debited for everything paid out by the consignor for the shipment, such as, freight, drayage, insurance, etc. It is also debited for any cash advanced to the consignee on account of the shipment. The Shipment account should be credited for all returns from the shipment, such as, cash, goods returned, drafts honored, and when, instead of receiving cash, the consignee's account is debited for the net returns of the shipment. Account Sales. When the consignee has sold the goods, or at certain regular intervals, if agreed upon, he renders a statement of his dealings for the consignor. This is called an account sales. It is a formal statement in detail of the sales made, the charges for freight, drayage, commission, 192 METROPOLITAN SYSTEM OF BOOKKEEPING insurance, storage, etc., and the net returns from the shipment, called the net proceeds. Account Sales Milwaukee, Wis., November 10, 19 — Sold by E. B. HARRISON & CO. For the account and risk of D. L. WHITE, Grand Rapids, Mich., Consignor. Nov. 1 4 10 50 bbl. Baldwin Apples 20 bbl. Greening Apples 30 bbl. Greening Apples Charges Freight $27.50 Drayage Advance 2% Commission Net Proceeds $3.05 2.95 2.90 $5.00 152 59 87 32 100 5 50 50 97 298 138 160 50 47 03 The Commission is always computed on the net sales, that is, if any goods were returned, their value would be deducted from the total sales before finding the commission. The Advance of $100 means that the consignor, D. L. White, either received cash from the consignee, E. B. Harrison & Co., or D. L. White drew a sight draft on E. B. Harrison & Co. on account of the shipment and collected it through a bank. The drawing of a sight draft on account of a shipment is a frequent occurrence. The drawer, D. L. White, debits Cash and credits the Shipment when the draft is paid. The consignee usually remits the net proceeds by check. When it is received, the consignor enters it in his cash book, as. a debit to Cash and a credit to the Shipment account. No entry is made for the sales or for the charges, but simply for the net proceeds. Sometimes the consignee does not remit the net proceeds but asks the consignor to charge the net proceeds to his personal account. The entry on the consignor's books would be Consignee To Shipt. Consignee To Close Shipment Account. The Shipment account is a nominal account that represents a loss if the debit side is the larger and a profit if the credit side is the larger. If there are any goods in the hands of the consignee unsold at the time of closing, the amount of the inventory must be entered in the account before closing, and brought down on the opposite side after closing. SHIPMENTS AND CONSIGNMENTS 193 , X2^^t/#/ *f- , f - 3/ v/ f /3*/S -% z*r£> >s t/^£ zs Ll ("r /J~ /?u.S-)££trc£6€6j'£\tf: I q*t& ZS"

^r^V "?- v(ay ^ f /J /J oS7^ct^€t^a-ey ~& // 7 /3 , So o /S3 O So IS 7 f r r 7 3ZS yss /Si a Large businesses making a great many shipments of goods to be sold on commission use a separate Shipment Ledger in which the details of shipments are kept. In the same way, the agent or consignee, if the consignments are large in number, keeps a separate Consignment Ledger in which to enter the details of consignments. Exercise 42. J. C. Graf makes a shipment of produce to D. L. Harter & Co., to be sold on commission. a) Make the entries that J. C. Graf would make. b) Make the entries that D. L. Harter & Co. would make. c) Show the Shipment account closed. d) Show the Consignment account closed. March 8. J. C. Graf made a shipment to D. L. Harter & Co., to be sold on commission, as follows: 150 bbl. Baldwin Apples at $4.10 100 bbl. Greening Apples at $3.95 J. C. Graf agrees to pay a commission of 5 %. March 12. D. L. Harter & Co. received the shipment of goods from J. C. Graf. Paid freight, $21.25 and drayage, $7.50. SHIPMENTS AND CONSIGNMENTS 195 March 15. D. L. Harter & Co. sold 50 bbl. Greenings at $4.75 to C. I. Mass for cash. March 18. J. C. Graf drew a draft at sight for $200 on D. L. Harter & Co., on account of the shipment, which Harter & Co. paid. March 25. D. L. Harter & Co. sold 75 bbl. Baldwins at $4.95 and 50 bbl. Greenings at $4.70 to J. I. Coats, on account, 10 days. March 30. D. L. Harter & Co. sold 75 bbl. Baldwins at $4.90 to F. E. Ebert, for cash. March 30. D. L. Harter & Co. rendered account sales. They deducted their commission of 5% and the other charges, and remitted the net proceeds to J. C. Graf. CHAPTER XXIV JOBBING FURNITURE SET VI Transactions for September 16-30 September 16. Your note favor Price Furniture Co. due today has been charged to your account by the bank. Take your pass book to the bank and have it charged. You will receive the receipted note. What gives the bank the right to charge this note to your account? What effect does it have on your cash balance? On your bank balance? Write a check in favor of Cash for $5. It is for postage stamps for mailing the circular letters to the trade. Charge it to Advertising. You have also used, from the office supplies, envelopes* worth $1.50. Your time spent in filling in and in addressing the envelopes is worth $2.25. Make a journal entry to transfer $3.75 from Expense to Advertising. Explain the entry fully. The object of this is to make the Advertising account show the total expenditure for advertising in any form. The envelopes were charged to Expense when they were bought and your salary as bookkeeper and stenographer will be charged to Expense at the end of the month when it is paid. Discount at the National Exchange Bank, E. B. Brewster & Co.'s note for $1750. The bank charges 6% discount. Discounting a note is a matter of agreement with the bank. The bank must be satisfied with the responsibility of the maker of the note and will require your firm to indorse it as security for its payment. Take the note from your file, calculate the discount, make out the deposit ticket, and take to the bank with your pass book. Make two entries in the cash book and the necessary records in the bill book and in the check book. The bank reports the collection of the draft with bill of lading attached, on M. S. Newton. Collection charge, 25j£. September 17. Write a cash check for $2.50 for postage stamps. The firm has had a number of Circassian Walnut Bedsteads that have not been selling well. Mr. Kline has offered them to the D. G. Luther Co. to be sold on a commission of 10%. They have asked us to ship all that we have, as they have a customer for them. 196 JOBBING FURNITURE 197 Make an invoice of shipment to the D. G. Luther Co., Dubuque, Iowa, at cost, for 11 C. Walnut Bedsteads. Bill them at $20.25. Make the entry in the journal. Do not forget to enter the details of the shipment in the journal entry. Make out the bill of lading as usual. September 18. C. M. Morris, Muskegon, Mich., orders: 5 Mahogany Rockers He has instructed us to ship the goods by express C. O. D., as he wishes them at once. We have allowed him 2% discount. Enter the sale without deducting the discount, but deduct it on the invoice. Fill out the envelope as you did before except that after Shipper's Instructions write Do not collect charges. September 19. Receive this check from D. G. Paxton for invoice of the 9th, less discount. Examine his ledger account. Does he owe you the entire amount of the invoice? What does the credit represent? Compute the discount on the amount that he owes. Receive this N. Y. Draft from K. L. Mears for the invoice of the 10th, less discount. Examine his ledger account carefully. This check should pay both charges to his account on September 10, after the discount is deducted on the invoice. Pay the E. J. Ranney Co. for invoice of the 11th, less discount. September 21. The business has received several calls from customers for a piano which they could sell for about $275. The F. G. Smith Piano Co. has offered to ship us pianos to be sold on a commission of 12j%. Mr. Martin made the agreement several days ago. He also agreed that the firm would honor their 15-day draft for $1500. From this invoice of shipment, make a record in the journal of the goods received. Pay the freight bill by check and charge it to the consign- ment. The use of the truck and the services of the driver and assistant are worth $12. Make a journal entry charging this to the consignment and crediting Delivery Expense. Accept this draft of the F. G. Smith Piano Co. for the account of the consignment. September 22. C. G. Yates, Denver, Colo., orders: 14 Mahogany Dressers 12 Mahogany'Rockers 8 Oak Davenports . Terms: account, 30 days. Pay this bill of the Western Supply Co. for motor truck supplies. Deposit all checks and N. Y. drafts on hand. Prove cash, and submit your cash book and check book to your teacher for approval. September 23. Receive this check from the express company for the C. O. D. shipment made by them on the 18th. The charges .for collecting 198 METROPOLITAN SYSTEM OF BOOKKEEPING the money, 50c, have been deducted in accordance with your instructions to the express company. Make your entries so that they will show the amount paid by the customer and the amount allowed by you to the express company for col- lection. B. L. Duncer, City, orders: 6 Smith Pianos Terms: account, 30 days. This is not a sale of merchandise but of consigned goods. Bill them at $235. • Where should the entry be made? Why? September 24. Receive the account sales and returns from the D. G. Luther Co. of the shipment made to them on the 17th. Check the correctness of the account sales and compare the check received with the net proceeds. Make an entry for the net proceeds only. File the account sales in the Miscellaneous file. J. A. Reiss & Co., City, send this check to apply on account, and order: 7 B. E. Maple Dressers 10 Mahogany Chiffoniers 6 Smith Pianos Terms: account, 10 days. The pianos are from the F. G. Smith & Co. consignment. Bill them at $235. Make out one invoice but make two entries for the sale. What account should be credited for the pianos sold? Why? Where should the entry be made? September 25. L. E. Conroy, Muncie, Ind., orders: 4 Mahogany Chiffoniers 12 Mahogany Parlor Suites Terms: draft favor National Exchange Bank, with B/L attached, less 2%. Treat this the same as previous transactions of this kind. Do not deduct the discount. Receive this check from D. C. Scott, on account. Give Klingman Furniture Co. your note, payable 30 days after date, with interest at 6%, for $1000, to apply on account. Render account sales to the F. G. Smith Piano Co. -for the pianos sold on commission. Deduct the commission in addition to the items already charged. Make a journal entry for the commission. Send a check for the net proceeds and make the entry for it. When you have posted these entries together with those already made, the charges should all be on the debit side and the sales on the credit side. JOBBING FURNITURE 199 Will the entries you have made balance the Consignment account? They should if you have made no mistakes. September 26. By agreement with F. G. Smith Piano Co., you prepay your acceptance of September 21, for $1500, less discount at 6%. Whether the acceptor of a draft or the maker of a note is allowed a discount for prepayment is a matter of agreement as the note is usually written. But the payee is usually willing to allow the acceptor or maker the per cent of interest that represents the loan value of money at that time. You must make the entry as if you had paid your acceptance in full and had received back the discount from the payee. September 28. The account of J. C. Jenkins is long past due, and there are rumors concerning his solvency. Mr. Martin has written several letters asking for payment but has received no satisfactory reply. Draw a sight draft on him for the amount he owes and leave it at the bank for collection. Make no entry, but make a memorandum in the journal. A. Dorris, City, orders: 5 Oak Chamber Sets 6 Oak Dining Tables 8 Oak Library Tables Terms: account, 30 days. Mr. Martin informs you that he has taken 1 Mahogany Parlor Suite from the stock for his personal use. Make a journal entry for this as it is not really a sale, but a deduction of the amount of the purchases left on hand. Charge it to him at cost. September 29. Discount at National Exchange Bank, C. D. Forester's note for $1500. The bank charges 6% discount. To discount an interest-bearing note: 1. Find the interest on the note for the full time expressed in the note. 2. Find the amount of the note by adding the interest to the face value. 3. Discount the amount for the unexpired time. Make three entries for this transaction. September 30. Pay this freight bill. Give each proprietor a check for $75 for personal use. Pay salaries by check. Make a journal entry to transfer part of the Delivery Expense to Purchases because of the use of the delivery equipment for hauling incom- ing goods to the store room.* The amount to be transferred is $18.25. Deposit all checks on hand; iV% collection on all out-of-town checks except express checks. Fourth Report. Prove cash, make a report, and hand in your Outgoing Papers. 200 METROPOLITAN SYSTEM OF BOOKKEEPING CLOSING WORK Open the Consignment account on page 18 and the two new nominal accounts on page 26. 1. Close the sales book and post it. Do not forget to rule each page and forward it in ink to the top of the next page. 2. Close the purchase book and post it. 3. Close the cash book and post it. 4. Post the journal. 5. Render statements of accounts to all customers that owe you except C. O. D. customers. Follow the model statement of account in Chapter XX. 6. Prove the bill book. 7. Inventories, September 30, 19 — Merchandise: 20 Brass Bedsteads 29 Felt Mattresses 46 Hair Mattresses 20 Mahogany Dressing Tables 20 Mahogany Lady's Desks 13 Mahogany Parlor Suites 1 Mahogany Parlor Table 15 Oak Chamber Sets 24 Oak Desk Chairs 6 Oak Dining Chairs 1 Oak Dining Tables 4 Oak Sideboards 13 Morris Chairs 13 Turkish Rockers 4 C. Walnut Chamber Sets Freight on goods unsold, $97.15 Expense, 7 tons coal at $5.15 Delivery Equipment: Inventory value, September 1, less depreciation of 2% on the original cost Furniture and Fixtures: Inventory value, September 1, less depreciation of 2% on the total original cost Real Estate, Cost, less depreciation of \% Insurance, Unexpired insurance for 10 months 8. Take a trial balance. You will have to forward it. 9. Make Trading and Profit and Loss statements. You will have some new accounts in this statement. 10. Make a statement of Assets and Liabilities, and a proof. JOBBING FURNITURE 201 11. Close the ledger as follows: a) All accounts that are included in the Trading and Profit and Loss statements b) Profit and Loss c) The proprietors' personal accounts d) The proprietors' capital accounts 12. Take a proof trial balance. 13. Write up the bank statement. 14. Submit all of your books to your teacher for approval. REVIEW QUESTIONS 1. What are the purposes of time drafts? 2. What is meant by accepting a draft? How is it done? 3. Give the rules for three-party time -drafts. 4. What is the effect of making a draft payable at a bank? 5. What is meant by charging a draft at the bank? How is it done? 6. Give the rules for two-party time drafts. 7. Explain the method of shipping goods by freight C. O. D. and of collecting the money. 8. Explain the method of shipping goods by express C. O. D. and of collecting, the money. 9. What is a credit memorandum? How is it used? 10- Why are goods shipped to be sold on commission? 11. What is meant by an "advance" on a shipment? 12. Describe an account sales. » 13. Give the rules for debiting and crediting the Shipment account. 1 4. Give the rules for debiting and crediting the Consignment account. 15. What does the Shipment account show in the statements and how isit closed? 16. How do you discount an interest-bearing note? 17. Name the accounts that you have used that have nothing but a nominal element in them. 18. Name the accounts that are chiefly nominal in character but that have a real element in them. 19. Name the accounts that are chiefly real in character but that have a nominal element in them. 20. Name the accounts that have a real element only. 21. Name the assets that are fixed or permanent in character. 22. Name the assets that are temporary, or that can be turned into cash without closing up the business. 23. Analyze the following accounts: (a) Real Estate; (b) Insurance; (c) Interest, with the debit side the larger; (d) Freight In; (e) Delivery Expense; (f) Commission. 202 METROPOLITAN SYSTEM OF BOOKKEEPING Exercise 43. Make the entries for each of the parties to the following transactions. September 8. L. C. Gorley drew a sight draft on D. E. Herz, in favor of B. I. Havens, for $850, to apply on account. The draft was paid when presented. 10. E. James & Co. drew a draft at 30 days' sight, on C. \. Webster, for an invoice of goods sold today, amounting to $289.25. The draft was accepted September 13. 12. J. E. Weaver bought an invoice of goods of Friend & Co., amounting to $437.45. He sent a Chicago draft in payment. Exchange, 50^. 14. C. N. Norris drew a 30-day draft on Evarts & Co., in his favor, for $625, to apply on account. The draft was accepted September 16. 18. C. N. Norris discounted the acceptance of Evarts & Co., in the previous transaction, at the bank at 6%. 20. D. E. Hilton drew a sight draft on M. E. Morris, in favor of G. R. Rhodes, for $250. When it was presented to the drawee, he refused payment. 22. D. E. Long's account, amounting to $315.75 is long past due. You offered him a discount of 3% for payment at once, and drew a sight draft on him in your favor, for the net amount. Your bank reports the draft paid today. Collection charge, 3(#. 23. L. D. Kohn sold an invoice of goods to L. Vogel, amounting to $242.25, on the terms: draft with bill of lading attached. The draft with bill of Jading attached was left at the bank for collection. 29. The bank reports this draft collected. Collection charge, £%. Make all the entries necessary for L. D. Kohn for both dates. 29.. M. E. Doyle drew a sight draft on Stover & Co., for $750, on account of a shipment of goods sent to them to be sold on commission. The bank reports the draft paid. Collection charge, -fa %• 29. W. A. Warner accepted Page & Co.'s draft at 15 days' sight, for invoice of the 23d, less 2% discount. Amount of invoice, $536.40. JOBBING FURNITURE 203 Exercise 44. a) Make the entries for the following transactions, in journal form. May 2. Paid freight on goods bought, $37.25. 5. Paid for packing material, $28.95. 8. Gave J. Cole a credit memorandum for goods returned, $18.45. 10. Paid merchandise broker's commission on goods pur- chased, $47.50. 12. Received a credit memorandum from Turner & Co. for overcharge, $16.80. 14. The proprietor took goods from stock for his private use, $7.50. 18. Shipped goods at cost, to C. L. Roberts, to be sold on commission, $728.45. 20. Gave T. M. Masters a credit memorandum for damaged goods, $19.50. 22. Paid freight on goods bought, $56.45. 24. Took goods from stock for repairs to a building owned by the business, $3.15. 26. Received a credit memorandum from D. Vinton & Co. for goods returned, $15.45. 28. Received a cash rebate of $12.30 for an overcharge on freight paid. 30. Paid salary of receiving clerk, $45. 31. The purchases for the month amounted to $6725.80. 31. The sales for the month amounted to $5025.75. b) Open the trading accounts, enter the inventory, May 1, $2123.40, and post. c) Make a trading statement. Inventory, May 31, $1985.65. d) Close the trading accounts. Exercise 45. Make entries for the following transactions in journal form, and show the property and nominal accounts closed. October 1. Bought the building and lot at 210 Second St. of Caspar & Co. for $12,500. Paid them cash, $5000 and gave a note, payable one year after date, with interest at 6%, for the balance. 5. Paid for alterations to make the building suitable for the owner's business, $97.85. 6. Leased two rooms in the building to G. D. Easton for a monthly rental of $45. Received payment of the October rent. 8. Paid for repairs to the building, $13.75. 10. Paid for a covered loading platform attached to the rear of the building, $240. 12. Paid the taxes on the building and lot, $72.85. 204 METROPOLITAN SYSTEM OF BOOKKEEPING 18. Paid the city assessment on the building and lot, $27.35. 22. Tore up a board sidewalk around the building valued at $65, and put in a cement walk costing $212. Paid cash for the new walk. 26. Sold the building and lot to D. E. Jansen for $13500. He paid cash $7500, and gave his note for the balance, payable 30 days after date, with interest at 6%. Before making this entry, post the previous entries. 28. Paid our note with interest, favor Caspar & Co., for $7500, less discount at 6%. Exercise 46. a) Make the entries in journal form, for the following transactions. June 1. Paid for a delivery wagon, $85. 3. Paid for two horses, at $135 each, $270. 4. Paid stable rent for June, $8. 5. Paid for hay and straw, $27.50. 7. Paid for a set of double harness, $25. 9. Paid for horse shoeing, $2.50. 12. Paid for corn and oats, $9.80. 15. Received from C. D. Brake, $6.50 for doing hauling for him. 18. Sold one horse for cash, $120. Make the entry so that the asset account will show the correct value of the assets remaining. 20. Paid for another horse, $150. 24. Paid for a top for the delivery wagon, $20. 26. Paid for repairs to the wagon, $3.75. b) Close Delivery Equipment and Delivery Expense. Inventories: Horses, wagons, and harness at cost, less 1 % depreciation Feed on hand valued at $14.25 Exercise 47. a) Make the entries for the consignor and for the con- signee. January 8. E. B. Hamilton & Co., Toledo, Ohio, shipped to C. L. Patton, at cost, to be sold on commission, the following: 15 tubs Butter, 60 lb. each, at 24^ per lb. 35 cases Eggs, 36 doz. each, at 19^ per doz. 12. C. L. Patton received these goods from E. B. Hamilton & Co., and paid freight $9.25 and drayage, $2.75. 15. Sold for cash to D. Bender: 8 tubs Butter at 30^ per lb. 15 cases Eggs at 25^ per doz. 17. Sold C. Elliot & Co., on account: 7 tubs Butter at 30j^ per lb. 12 cases Eggs at 26^ per doz. JOBBING FURNITURE 205 18. E. B. Hamilton & Co. drew at sight on C. L. Patton for $200, on account of the shipment, which C. L. Patton paid today. 20. C. Elliot & Co. returned 1 tub Butter to C. L. Patton as unsatisfactory. Gave them a credit memorandum. 22. Sold J. Colby on account: 8 cases Eggs at 25i^ per doz. 23. Sold the 1 tub of Butter returned at 15^ per lb. to D. Kemp, for cash. b) Open ledger accounts for the shipment and for the consignment, and post the entries to these accounts. c) January 24. Render account sales for C. L. Patton. The additional charges are: storage, $12.50; commission, 5%. Remit the net proceeds in cash. d) Make the additional entries, and show the Shipment and Con- signment accounts closed. Exercise 48. Enter the following in an Insurance account, find the inventory, and close the account, September 30. July 1. Insured a stock of goods for $5000 for one year. Paid the premium at the rate of 80^ per $100. August 1. Took out additional insurance, amounting to $1500. Paid the premium for one year at lj %. August 15. Took out additional insurance, amounting to $2500. Paid the premium for one year at $1.15 per $100. In finding the unexpired insurance value, count the time in months. For a fractional part of a month consider 30 days to the month. Exercise 49. J. C. Sullivan began business March 1, with the follow- ing investment of assets and liabilities. Make the opening entry. Cash, $2500 Stock of goods, $2600 Chas. Orton's 60-day note, dated February 3, for $650 James Aldrich's 30-day note, dated February 8, with interest at 6%, for $425 Real estate, valued at $6000 Rent, due from subrentals, $45 Furniture and fixtures, valued at $460 J. C. Steele owes him on account, $986.40. He owes D. J. Perry on account, $1250. He owes E. J. Black a note for $2000, dated January 10, payable six months after date, with interest at 6%, as part payment on the real estate bought. 206 METROPOLITAN SYSTEM OF BOOKKEEPING Exercise 50. From the following trial balance and inventories, prepare Trading and Profit and Loss statements and a Statement of Assets and Liabilities. The statements cover a period of six months, ending December 31, 1910. This problem is taken from the New York state examination in elementary bookkeeping. Trial Balance, December 31, 1910. J. A. Finch, Partner L. A. Lewis, Partner Furniture and Fixtures Real Estate Horse and Wagon Office Supplies Mdse. Discount Shipment, Davis & Co. Purchases Sales Freight In Gray & Co. Notes Receivable Expense Holmes & Co. Commission Notes Payable Cash 37735 37735 100 9000 200 9000 350 14000 500 90 110 1800 950 11375 215 310 7520 75 1125 600 2000 1100 150 600 3100 250 2000 6000 2950 Inventories: Merchandise, $6625 Office Supplies, $40 Insurance, unexpired, $20 Shipment, unsold, $1115 Depreciation: Real Estate, 2\ % Horse and Wagon, 12£% Furniture and Fixtures, 5 % SUMMARY OF PRINCIPLES AND RULES An Entry is a systematic record of a transaction. The Journal is a book of entry in which transactions are entered as they occur with a debit for every credit or one or more debits that are equal to one or more credits. The Ledger is a book in which the items from the original books of entry are classified under appropriate headings called accounts. Posting is transferring the debits and credits from the books of entry under the proper headings in the ledger. A Trial Balance is a list of the open accounts in a ledger with the debit and credit footings, or the balances set opposite the names of the accounts, and with the total debits and credits equal. Real Accounts are accounts that represent actual values. Nominal Accounts are accounts that name some profit or loss of the business. Mixed Accounts are accounts that contain both real and nominal ele- ments. An Asset is property belonging to the business or an amount owed to the business. A Liability is an amount owed by the business, whether due or not. A Note Receivable is another's note given to the business. A Note Payable is a note given by the business. A Statement of Profit and Loss shows in detail the profits and losses of the business and the net profit or loss of each proprietor. A Statement of Assets and Liabilities exhibits in detail the assets and liabilities of the business and the net worth of each proprietor. Rule of Double Entry. Equal debits and credits must result from each transaction. General Rule of Debits and Credits. Debit what the business receives or the account that receives the benefit. Credit what the business parts with or the account that yields the benefit. Rule for Creditors' Accounts. Credit a creditor's account when the business becomes indebted to him. Debit a creditor's account when the 207 208 METROPOLITAN SYSTEM OF BOOKKEEPING business pays the creditor on account, or is allowed something for returned or damaged goods. Rule for Customers' Accounts. Debit a customer's account when he becomes indebted to the business. Credit a customer's account when he makes a payment on account or is gi\ en an allowance for returned or damaged goods. Rule for Real Accounts. Real accounts with the debit side the larger are Assets; with the credit side the larger, are Liabilities. Rule for Nominal Accounts. A nominal account shows a loss if the debit side is the larger and a profit if the credit side is the larger. To Find the Profit or Loss on Merchandise. 1. Subtract the inven- tory from the debit side. Take the difference between the credit side and this result. If it is a debit difference, it is a loss. If a credit difference, it is a profit. 2. Add the inventory to the credit side. Take the difference between this result and the debit side. If it is a debit difference, it is a loss. If a credit difference, it is a profit. To Find the Net Worth. 1. Add the net profit to the net credit or subtract the net loss from the net credit. 2. Subtract the liabilities from the assets. Rule for Transferring Red Ink Entries. 1. Everything in red ink to close must be brought down in black ink on the opposite side of the ledger. 2. Inventories, balances, and net worth are transferred to the oppo- site side of the same account. 3. Profit and Loss items, including net profit or net loss, must be transferred to the opposite side of some other account. Rule For Notes Receivable. Debit Notes Receivable at the face value for all notes of others received by the business. Credit Notes Receiv- able at the face value for all notes of others paid by them and for all notes of others parted with in any other way. Rule For Notes Payable. Debit Notes Payable when our notes are paid by the business. Credit Notes Payable when our notes are issued. Rule For Interest. Debit Interest when the business allows it to others. Credit Interest when others allow it to the business. Rule For Discount on Notes. Debit Interest for all discount allowed by the business on our notes or on others' notes. Credit Interest for all discount allowed to the business on our notes or on others' notes. Rule For Merchandise Discount. Debit Merchandise Discount for all discount allowed to others on invoices of merchandise. Credit Merchandise Discount for all discount allowed to the business on invoices of merchan- dise. PART III INTRODUCTION The work of Part III presupposes the completion of the elementary work in bookkeeping such as that presented in Parts I and II of this system or in the work of any other system that has developed the use of the journal, the cash book, the sales book, and the purchase book or invoice book as books of entry, and the ledger. It presupposes a knowledge of the ordinary business papers and their use. The mechanical features of the work must not be neglected. The habits of neatness, carefulness, and accuracy that were learned in the beginning work must be continued. Pupils must not be allowed to neglect these things. They should become a part of each pupil. The proper study of bookkeeping should develop system and a pride in doing the work of the bookkeeper as it should be done in an office. But of even more importance is the training the pupil should receive in the work of reasoning and analyzing. The plan of this text is to develop this power so that the pupil may acquire the power to become more than a routine bookkeeper. For this reason, new features of the work are fully presented and exercises given to develop his understanding of the subject. When these new features are presented in the sets, little explanation is given, so as to require the pupil to analyze the transaction and to relate it to the knowledge that he al- ready has. He is taught to keep his records and entries in such a way that they will give him the necessary information when wanted. He is taught different labor-saving devices and modern methods of handling sales, vouchers, etc. He is given a larger number of transactions for each financial period than in the elementary work so that the work of proving cash, of taking a trial balance, and of making statements may be more like actual business. To help the pupil to analyze and to think many exercises are given. Most of these help in the gradual development of the subject but some may be omitted without destroying the plan of the work. In addition to these a number of questions and problems that are not 209 210 METROPOLITAN SYSTEM OF BOOKKEEPING answered in the text are given to stimulate thought and to develop originality. The pupil should understand that in the study of advanced book- keeping he is studying modern office methods and systems and the elementary principles of accounting. He should be encouraged to bring to class other forms and methods suitable for different kinds of busi- ness. The pupil should understand that although the principles of bookkeeping and accounting are well established, he must learn to apply them to different systems and to different businesses. The practice of reasoning out every transaction that is different and of analyzing the results of his work will help to give him the power to understand other systems and to adapt his knowledge to them. CHAPTER XXV CONTROLLING ACCOUNTS AND COLUMNAR BOOKS In any business of considerable size with numerous customers and creditors, the taking of a trial balance is a difficult task if the accounts are all kept in one ledger. To make the work of the bookkeeper easier and to give more classified information, three ledgers are used instead of one and columnar cash books and journals are used. The use of columnar books is largely a result of the use of three separate ledgers but is also the result of a desire to post fewer items and to post more in total. The three ledgers used are the general ledger, the sales ledger, and the purchase ledger. The General Ledger. The general ledger contains accounts with the proprietors, both capital and personal, all other real accounts except customers' and creditors' accounts, all mixed accounts, and all nominal accounts. The customers' accounts are represented in total by the Accounts Receivable account and the creditors' accounts are represented in total by the Accounts Payable account. The Sales Ledger. The sales ledger contains all the accounts with customers whether the account is opened with the customer or included under the C. O. D. account. The Purchase Ledger. The purchase ledger contains all accounts with creditors for goods bought. Advantages of Three Ledgers. The principal advantages of the use of three ledgers are as follows: 1. It makes it possible to prove up each ledger and ascertain its correctness separately. 2. The work of posting, checking, and proving the posting may be divided up. 3. The proprietor can quickly find out from the Accounts Receiva- ble account at the end of each month how much customers owe him in total. He can find out from the Accounts Payable account how much the business owes creditors in total. 4. ' Loose-leaf ledgers may be used for both customers' and credi- tors' accounts. This is a decided advantage because as soon as an account becomes inactive and is closed, the sheet on which the account 211 212 METROPOLITAN SYSTEM OF BOOKKEEPING is kept may be removed from the sales ledger or the purchase ledger and put into a transfer binder. Accounts Receivable Account. In order to prove the sales ledger it is necessary to keep, in the general ledger, an account to which the totals of the different items that have been posted to the customers' ac- counts must be posted. This account is called Accounts Receivable. It is called a controlling account because it controls or proves the sales ledger. Accounts Payable Account. In order to prove the purchase ledger, it is necessary to keep, in the general ledger, an account to which the totals of the different items that have been posted to the creditors' accounts must be posted. This account to which totals are posted is the Accounts Payable account. It controls or proves the purchase ledger. In order to post totals to these controlling accounts in the general ledger, it is necessary to keep special columns in the journal and in the cash book for sales ledger and purchase ledger accounts. It is also nec- essary to post the other books of entry in a different way. Books of Entry. The books of entry most commonly used with the three ledgers are the purchase book or the invoice book, the sales book, the four-column journal, and the columnar cash book. The purchase book will be used instead of the invoice book. The Purchase Book. The purchase book will be used in the same way that it has been for all purchases of merchandise and for all memo- randums of payments on these purchases. All accounts of creditors will be opened up in the purchase ledger. The entries must be posted daily to the credit of the respective personal accounts in the purchase ledger. At the end of the month, the total purchases must be posted to the debit of Purchases, as heretofore, and to the credit of Accounts Payable. The posting of the total to Accounts Payable credit is neces- sary in order to prove up- the purchase ledger with its controlling account, Accounts Payable. This total credit in the general ledger takes the place of the items that have been posted to the credit of the respective creditors' accounts in the purchase ledger. Close the purchase book as follows: 31 12 8 Total Purchases Purchases To Account s Payable $8375.80 8375 8375 80 80 The Sales Book. The sales book for the first set in Part III will not be a bound book, but will be made up of the order blanks placed in a binder and totaled on a special sheet. The method of doing this will be explained in the next chapter. CONTROLLING ACCOUNTS AND COLUMNAR BOOKS 213 The Cash Book. On the Cash Receipts side, columns are kept for the amounts of accounts that are to be posted to the general ledger, for those that are to be posted to the sales ledger, and columns for Sales Discount and for Cash Dr. In the General column is placed any amount that is to be posted to the general ledger. In the Accounts Receivable column is placed any amount that is to be posted to a customer's account in the sales ledger. If cash is received for a cus- tomer's account less discount, the amount of the account before the discount is deducted is placed in the Accounts Receivable column, the discount is placed in the Sales Discount column, and the cash received, in the Cash Dr. column. Monthly, the total of the Accounts Receivable column is posted to the credit of the Accounts Receivable account in the general ledger to represent the various items that have been posted to customers' accounts in the sales ledger. Sales Discount must be debited monthly for the total of the Sales Discount column. The principle is the same as in previous sets but it is considered advisable at this point to open up separate discount accounts for sales and for purchases. On the Cash Payments side, columns are kept for the amounts of accounts that are to be posted to the general ledger, for those that are to be posted to the purchase ledger, for Purchases Discount, and for Cash Cr. Two columns are kept for general ledger accounts, the General and the Expense. All amounts that are to be posted to accounts in the general ledger, except Expense, are placed in the General column. All Expense items are placed in the Expense column and posted monthly only. Check, in the folio column, all items entered in the Expense column. In the Accounts Payable column is placed any amount that is to be posted to the debit of an account in the purchase ledger. The payment of an account less discount is entered on the same principle as the entry for the receipt of cash for an account less discount. Monthly, the total of the Accounts Payable column is posted to the debit of the Accounts Payable account in the general ledger to represent the various items that have been posted to the debit of creditors' accounts in the purchase ledger. Purchases Discount must be credited monthly for the total of the Purchases Discount column. In closing the cash book, the sum of the first two columns on the Cash Receipts side must be proved with the sum of the last two col- umns, and the accounts affected shown. On the Cash Payments, the sum of the first three columns must be proved with the sum of the last two columns, and the accounts affected must be shown. The cash book must then be balanced by using the amount of the Cash Dr. and 214 METROPOLITAN SYSTEM OF BOOKKEEPING Cash Cr. columns only. To prove cash, at any time, take the difference between these two columns. The cash book illustrated is shown without the pages in the folio column. These should be inserted as each item is posted. The Journal. Separate columns must be kept in the journal for each ledger to which items will be debited or credited. On the debit side, there must be columns for the general ledger and for the purchase ledger. No debit column for the sales ledger is necessary as the business does not give notes or drafts to customers on account, hence there will ordinarily be no debits to the sales ledger from the journal. On the credit side, there must be columns for the general ledger and for the sales ledger. No credit column for the purchase ledger is necessary. (See illustration on page 216) It is necessary to post the totals of the Accounts Payable and Accounts Receivable columns only as the items in the General columns, both debit and credit, have been posted to the general ledger daily. Cash Receipts, October 19— ACCOUNT EXPLANATION ACCTS. RECEIV. SALES DISC. CASH DR. Oct. Nov Balance C. L. Darst D. E. Hillis Notes Receivable J. C. Ellis C. L. Greene & Co. Notes Receivable Interest D. E. Jobse & Co. Notes Receivable N. O. Merrin L. E. Lindsay- Notes Payable D. J. Short & Co. C. D. Curtiss General Accts. Receivable Cr. Sales Disc. Dr. Cash Dr. On hand Inv. of 9/28, less 2% Sgt. dft. on acct. J. A. Trent's note On acct. Inv. of 10/2, less 2% C. L. Fenn's note 30 da. on above Inv. of 10/11, less 3% C. L. Speich's note Sgt. dft. for inv. 9/20 Inv. of 10/16, less 1% Our 60-da. note Inv. of 10/22, less 2% Inv. of 9/31 Total 15 8756 750 1200— 6 1037 1000 1274965 1274965 630295 19052 60 31 Total Receipts Balance In bank 2130 50 787 235 500 56025 89780 171525 41640 575 615 630295 75 15 11 2693 50 6956 70 20 875615 77199 235— 750— 500— 54905 1200— 6— 87087 1037 171525 41224 1000- 56399 615 18983 Q4 69 1898304 19052 1898304 18983 21301— 50 56 80 01 CONTROLLING ACCOUNTS AND COLUMNAR BOOKS 215 Returns and Allowances on Sales. A separate book of entry will be kept for returns and allowances on sales. In it should be entered all returned goods, rebates, and allowances that are to be credited to customers' accounts. Daily it will be posted to the credit of the cus- tomers' accounts affected. It is best to write an explanation in the customer's account in the ledger so as to show the nature of the credit. Monthly, the total should be posted to the debit of Returns and Allow- ances on Sales and to the credit of Accounts Receivable, the closing entry would be as follows: Returns and Allowances on Sales $57.50 To Accounts Receivable $57.50 Returns and Allowances on Purchases. In the same way, a separate book will be kept for returns and allowances on purchases. Daily it will be posted to the debit of the creditors' accounts affected. An explanation should also be written in the explanatory column of the ledger account. Monthly, the total should be posted to the debit of Cash Payments, October 19— ACCTS. PUR. CASH DATE r ACCOUNT EXPLANATION GENERAL EXP. PAYABLE DISC. CR. Oct. 3 5 5 7 8 9 10 V V Furniture & Fixtures Expense Collection & Ex. C. D. Bender Interest J. A. Bauer & Co. Expense Bill of West Co. Stationery On dft. on D. E. Hillis Inv. of 10/8 36 da. disc, Trent's note Inv. of 9/30, less 2% Stamps 125 4 80 25 50 7 6 45 983 1728 40 65 34 57 125 7 983 4 1694 6 80 45 25 40 50 08 10 D. C. Gibson & Co. Inv. of 9/30, less 2% 1436 20 28 72 1407 48 12 Delivery Expense Repairs to truck 18 25 18 25 13 Freight In C. & N. W. R. R. Co. 78 90 78 90 15 Salaries For one-half month 275 — 275 — 16 Interest 30 da. disc, Fenn's note 6 03 6 03 17 Notes Payable Favor N. E. Bank 1500 — 1500 — 17 Interest 30 da. on above 7 50 7 60 19 V Expense Office supplies 2 45 2 45 20 G. L. Harris Inv. of 10/10, less 2% 786 40 15 73 770 67 21 Freight Out C. M. & St. P. R. R. 35 85 35 85 23 Collection & Ex. On C. L. S.'s note 1 — 1 — 24 V Expense 5 T Coal at $4.90 24 50 24 60 26 D. L. Ban- Inv. of 10/16, less 3% 1037 25 31 12 1006 13 27 Interest 60 da. disc, our note 10 — 10 — 28 Real Estate 975 12th St. 8500 — 8500 — 30 Freight In C. & N. W. R. R. Co. 112 80 112 SO 30 31 V Salaries General One-half month Total 275 — 275 — 10950 88 40 40 5971 90 110 14 16853 04 10950 88 31 Expense Dr. « 40 40 . 31 Accts. Payable Dr. a 5971 90 31 Purchases Disc. Cr. a 11014 31 31 V Cash Cr. Total Payments a 1685304 16963 18 16963|18 1685304 81 Balance In bank 2 ISO — 18983 04 == 216 METROPOLITAN SYSTEM OF BOOKKEEPING Four-Column Journal, October 26, 19 — ACCOUNTS PAYABLE GENERAL F F GENERAL accounts rec'ble 1375 250 20 2867 476 45 80 5 15 Forward Notes Receivable To H. G. Eckhardt His note at 30 da. on acct. 27 C. L. Stone & Co. To H. L. Gardner Drew a sight draft and remitted it on 12 13 2341 20 1901 476 250 45 80 450 — 16 V 7 acct. 28 B. C. Harmon To Notes Payable Gave note at 30 da. with int. at 6% on acct. General Accounts Pay. Dr. Accounts Rec. Cr. 8 V 6 450 — 2075 20 3344 25 2791 20 2628 25 3344 2075 25 20 2791 2628 20 25 5419 45 5419 45 Accounts Payable and to the credit of Returns and Allowances on Purchases. Accounts Payable Account. After posting the totals from the books of entry to the controlling account of Accounts Payable, the account should contain the items shown in the following account, with a balance from the previous month. 19— Accounts Payable 19— Oct. C J R.& Al. Balance 15 8926 95 Oct. 1 7 3217 45 31 1 78 5267 90 20 17490 50 Nov. 1 Balance Balance 7315 10175 17490 5267 20 30 50 20 Accounts Receivable Account. After posting the totals from the books of entry to the controlling account of Accounts Receivable, the account should contain the items shown in the account, with a balance from the previous month. (See illustration on page 217) Purchase Ledger Proof. To prove the purchase ledger, list the balance of the creditors' accounts by names and amounts. The sum of these balances should equal the balance of the Accounts Payable account in the general ledger. CONTROLLING ACCOUNTS AND COLUMNAR BOOKS 217 19— Accounts Receivable 19— Oct. 1 31 Nov. 1 Balance Balance 3171 40 Oct. 31 12 8976 80 31 31 =T 31 12148 20 4488 65 R. Balance C J &A1. 5316 2275 67 U88 12148 80 50 25 65 20 Purchase Ledger Proof, October 31, 19- 3 Karger & Co. 386 90 4 F. Paul 1247 80 5 H. Owen & Co. 3896 55 6 E. B. Buckland 976 45 6 C. Offman & Co. 1652 80 8 D. E. Rosen 736 45 9 C. A. Reidy 2117 25 10 J. A. Ross & Co. 546 20 6 Accounts Payable Balance 11560 40 11560 40 11560 40 Sales Ledger Proof. To prove the sales ledger, list the balances of the customers' accounts by names and amounts. The sum of these balances should equal the balance of the Accounts Receivable account in the general ledger. Sales Ledger Proof, October 31, 19 — 3 H. Wilier & Co. 478 90 5 C. J. Hess 1217 80 7 D. E. Bunce & Co. 3693 25 7 F. J. Genz 987 55 9 C. L. Kern & Co. 125 80 9 D. E. Heston & Co. 1578 65 10 D. J. Drake 1036 45 11 J. A. Hofer 572 05 12 C. E. Hayes 236 40 5 Accounts Receivable Balance 9926 86 9926 85 9926 85 General Ledger Proof. To prove the general ledger, take a trial balance of differences in the usual way. The Accounts Payable and 218 METROPOLITAN SYSTEM OF BOOKKEEPING Accounts Receivable accounts take the place of the creditors' and cus- tomers' accounts respectively. Exercise 51. Draw a cash book form like the model in this chapter, and make the following entries in it: September 1. Balance of cash on hand, $5673.80. Enter this in both the General and Cash Dr. columns. 1. Received of C. J. Joy cash for invoice of August 22, amounting to $438.55, less 2%. 3. Paid $25 for office books' and stationery. 5. Discounted at National Exchange Bank, B. L. Pond's note for 30 days, dated August 21, for $850. The bank charges 6%. 8. The bank has charged your note of July 8, payable two months after date, with interest at 6%, for $750. 10. The bank has collected your sight draft, attached to bill of lading, on F. D. Fellers, for $857.50. The bank charged tV% collection. 12. Received $175 of D. G. Minn, on account. 14. Paid Jackson Motor Co. $1200 for a motor truck. 15. The bank reports the sight draft for $500, on F. E. Enders & Co., on account of the shipment to them, collected, less yV%- 17. Paid cash for repairs to the building owned and used by the business, $72.85. 18. Paid C. James & Co. for invoice of the 8th, amount- ing to $563.50, less 2%. 20. Paid cash for sacks and barrels for use in the busi- ness, $7.25. 21. Discounted at the National Exchange Bank, C. L. Winters' note for $950, dated August 18, payable 60 days after date, with interest at 6%. The bank charges 6% discount. 25. Paid freight on a consignment of goods received from L. N. Norris, to be sold on commission, $18.50. 27. Received of B. A. Durbin cash for invoice of Septem- ber 17, amounting to $1012.75, less 2%. 29. Paid salaries for the month as follows: Bookkeeper $100; stenographer and clerk, $60; deliveryman, $50. 30. The proprietor withdrew $75 for personal use. Close the cash book like the model in this chapter. Exercise 52. Draw a four-column journal like the model in this chapter and make the following entries in it: October 3. Accepted C. D. Ray's draft at 30 days, for $387.15, for invoice of September 30. CONTROLLING ACCOUNTS AND COLUMNAR BOOKS 219 8. Drew a sight draft for $500, on J. A. Baer, in favor of G. L. Lien, and remitted it to him on account. 10. Received H. E. Nacey's note at 30 days, with interest at 6%, for $375, on account. 15. Accepted D. L. Jasper's draft at 30 days, for $300, on account of the consignment of goods received from him to be sold on commission. 25. Transferred H. E. Nacey's note for $375, dated October 10, with interest at 6%, to M. E. Irving, on account. He agrees to take it at the face value plus the interest to date. 30. Shipped to B. E. Burton & Co. a shipment of merchan- dise amounting to $436.50, to be sold on commission. Close the journal like the model journal in this chapter. CHAPTER XXVI METHODS OF RECORDING SALES AND VARIOUS LEDGER FORMS The use of a bound sales book is no longer common in business. It necessitates too much copying and makes it difficult for more than one to work on the sales book at the same time. Various methods have come into use to take its place. The student should be familiar with the most important of these. The Duplicate Charge System. In this system, an invoice is made out and at the same time a duplicate is made out. These may be made out as carbon copies in pencil, on the typewriter, or by the use of a duplicating pen. The original is sent to the customer and the dupli- cate filed in a binder. This binder of duplicate invoices is the sales book. The invoices may be in any form suitable to the particular business and the duplicate invoice may contain certain printed matter for record purposes that is not contained on the original invoice. From the duplicate invoices, the accounts of customers are debited and the pages of the ledger accounts put on the duplicate invoices. This is all that is necessary until the end of the month. Then the total sales for the month must be found. The usual method of doing this is by the use of the Sales Recapitulation Sheet. Sales Recapitulation She"et. On this sheet are listed the invoices by number and amount. The total is found and Sales is credited from this sheet and Accounts Receivable debited. If freight is frequently prepaid for customers and charged to them, a separate column should be kept for Freight Out so that it will not be included in the total posted to Sales. A modification of this system is used by many businesses. When an order comes in, it is entered on a special order blank containing the information necessary for making out the invoice and also various details for the records of the business. The order form contains all the infor- mation necessary for posting. It is bound in a binder and the orders numbered consecutively. This constitutes the sales book. The invoices are made out in the usual way and sent to the customers. 220 METHODS OF RECORDING SALES— VARIOUS LEDGER FORMS 221 In this method the sales recapitulation sheet is made out the same as in the duplicate charge system. In both methods, it is best to file the sales recapitulation sheet in the binder on top of the last invoice or order included in it. Order Blajsk O O ORDER NO SOLD TO HIBBARD, SPENCER, BARTLETT & CO. State Street Bridge, Chicago, Illinois ? 2-7< .5~ rkcfived ZfeatZ /fl, I9_=r mu.itn /fn-7^ / / / i9_z= L. F._ TERMS. %K •&L. ~rf2^^J^^y^yj- SALESMAN- SHIP TO SHIP BY. ^22^Z ?- T^TZ^T*^? S^ DATE SHIPPED /ff TT/ ^/Zy 19JZZ / J~ r/^T^.c^Z^J^^yA/^^^^d^^^/?^, J7S 2/ 7, Z-. / O-d^sJ^J^ *sJ^y>y^™^?7^/^ 3 /As' 3*/-^ro z. 12, ^ Sp ^B ^d^ttJi Z d^^dcCds i^eJ. 2& 'f-Jh ? jM jz ;. /w La. / / /X d^^JL^^j^v Us^ssfssVr, + <2J_. gd *P. 3 7 £ Another modification of the Duplicate Charge system uses a blank sales sheet for the duplicate on which the invoices are made out in carbon, one below the other. These duplicate sales sheets are of the size of the ordinary sales book and are bound in a binder. These constitute the sales book. No sales recapitulation sheet is necessary as each sheet is forwarded to the next the same as in the bound sales book. This method cannot be used to advantage except when the billing is done on the typewriter. The Sales Journal. Many firms do not like to post from the duplicate invoice or from the order blank, nor to use loose-leaf sheets for the total of sales. They prefer a more permanent record from which to post. 222 METROPOLITAN SYSTEM OF BOOKKEEPING For this purpose, the sales journal is used. Either the orders are kept and filed or the duplicate invoices are filed as a record of the articles sold but no posting is done from them. From the order blank or from the duplicate invoice, an entry is made in the sales journal. The entry should contain the following: date, folio, name of customer, address of customer, order or invoice number, terms of sale and amount. It may contain distributive columns for various kinds of sales. Sales Journal DATE 19— F NAME ADDRESS ORDER NO. TERMS AMT. Nov. 28 29 30 30 30 15 12 11 9 16 Forward C. J. Sprague D. L. Hyde J. D. Beardslee Total Sales Accounts Receivab To Sales City Aurora, 111. Beloit, Wis. le 576 577 578 2/10,n/30 n/30 Sgt. Dft. $7750.30 6897 417 318 116 20 25 90 95 7750 30 7750 30 Retail Bill and Charge System. Many large retail stores use the Bill and Charge system. From the duplicate sales sheet made out by a clerk in pencil, the items are entered on the typewriter on a state- ment of account form and a duplicate made at the same time. These are attached to each other by a perforation and are kept in files ar- ranged alphabetically until the end of the month. Then they are torn apart and the original sent to the customer. The duplicate is kept in the files of the store. With this duplicate statement, a card ledger is usually kept in which the sales are entered each day in total and the payments posted to it from the cash book, as well as to the Statement of account. Various Ledger Forms. The ledgers that have been used in the practice work have been bound ledgers ruled in the ordinary way. In many businesses it is desirable to use loose-leaf or card ledgers. It is also of advantage in many businesses to use some other ruling than the ordinary ledger ruling. These ledgers will now be explained. Loose-Leaf Ledgers. There are many advantages in favor of loose- leaf ledgers especially for sales and purchase, ledgers. The first advantage is the ability to keep none but active accounts in the ledger. As soon as an account is paid in full or closed, the ledger sheet is removed from the ledger and placed in a transfer binder. If the account becomes active again, the sheet is removed from the transfer binder and put back into the ledger binder. In this way, when a trial balance is taken, none but active accounts are to be METHODS OF RECORDING SALES— VARIOUS LEDGER FORMS 223 found in the ledger. Every account in the ledger then shows a balance. Another advantage of loose-leaf ledgers is that they are self-index- ing, as the ledger sheets are placed in the ledger after the proper index tabs, and no time need be spent in looking up the pages of the accounts to which the entries are to be posted. In posting from the books of entry a check mark should be used instead of the ledger page as when a bound ledger is used. This check mark should be placed in the folio column of the book of entry after the item has been posted to the ledger. Another advantage is that it is more suitable to a growing, expand- ing business than a bound ledger. One invariable rule should be followed in opening up accounts in a loose-leaf ledger and that is that but one account should be opened up on a sheet. The size of the sheet may be changed to suit the indi- vidual business. About the only disadvantage of loose-leaf ledgers lies in the use of a poor binder and poor paper. In that case the sheets may not hold and there is danger of losing the sheets and of losing some accounts. A loose-leaf ledger with a Balance column is illustrated here. ] jOOSb Leaf Ledger with Balance Columi I »cco DDRESS tyj y^trt^^^t^C^fl INT NO -* ) RATING 1 BUSINESS A st^y ■ , » ,ouo ~~ COT. 1 .^ _ ^L *f JoC t/jl Co. Uji S-Q ?s '/»„ -V^ jzf 7-/n liy J~o &3n Ao 7ft*+ ,T hZ /IT / Uao 2.3A 3o i<*y f t f *?*£- saf 2-f-%%>-rs^S SALES CR. A. L£M£> Crr-rs^>^ i ^13 <2 -1 o £3 Y0UW 33 3S «?^2=. Jllflgfflffllt \t (rk^n^^LJa-f, Member- ship in a Cor- poration. An individual may become a member of a corporation by subscrib- ing for stock or by buying the interest of a stockholder. When an individual sub- \ CORPORATIONS 299 scribes for stock and pays his subscription in full, he receives a certifi- cate of stock as evidence of ownership. Certificate of Stock. A certificate of stock is an acknowledgment by the corporation that the person to whom it is issued is a stock- holder and entitled to all the rights of a stockholder as to the number of shares named. (See illustration on pages 296 and 297.) Sale of Stock. If a stockholder wishes to sell his interest in a corporation or a part of it, he must sign a form of assignment on the back of the certificate. The certificate must then be taken to the secretary of the corporation, who will transfer the ownership on the books of the corporation. If John Doe wished to transfer the certif- icate on page 297 to Richard Doe, he would fill out and sign the form of assignment on the back of the certificate of stock. (See illustration on page 298.) Kinds of Stock. Capital stock may be Common or Preferred. Common Stock is the ordinary stock of a corporation. If all of the stock is of one kind and has the same provisions and restrictions, it is common stock. Preferred Stock is stock that entitles the holder to a division of the profits called dividends before any profits are distributed to the holders of common stock. In some states, it may also entitle the stockholder to a preference in the distribution of the assets of the corporation upon dissolution. The certificate of stock must state on its face the privileges and preferences to be given to preferred stock. It specifies a rate of dividend which the holder of it shall receive before the holders of common stock receive anything. The holders of preferred stock rarely have the right to vote in the management of the corporation. Preferred stock may be of two kinds, Cumulative or N on -cumulative. Cumulative Preferred Stock entitles the holder to a specified per cent of dividend each year before the common stock receives anything. If there are not sufficient profits one year to pay the dividend on cumulative preferred stock, the dividends accumulate and must be paid for each year that was unpaid before the common stockholders can receive anything. Non-cumulative Preferred Stock entitles the holder to a specified per cent of 'dividend for the current year only. If there are not suffi- cient profits to pay the dividend for the current year, it lapses and is never paid. The fact that the preferred stock specifies a rate of dividend does not make it interest-bearing, as stock very rarely bears interest. Dividends. When a corporation has made profits, the board of directors has power to distribute part or all of the profits as dividends. In a partnership, each partner has a right to his share of the net profits 300 METROPOLITAN SYSTEM OF BOOKKEEPING as soon as they are determined, but in a corporation, the stockholders have no such right. The declaring of a dividend is left to the discre- tion of the board of directors. Dividends are usually payable in cash and are declared on the basis of a certain per cent of the par value of the stock or as a certain amount per share. For example, if a divi- dend of five per cent is declared, the holder of each share of a par value of $100 would receive $5. Or, the dividend may be declared as $5 per share. Sometimes, when the payment of a cash dividend would impair the working capital of the corporation, a stock dividend may be declared unless the state law prohibits it. Corporation Books. The books of account kept by a corporation need not differ much from those of a partnership, but certain addi- tional books of record are necessary to record the acts of the corpora- tion as such. The principal ones are the subscription book, the minute book, the stock certificate book, the stock transfer book, the stockholders' led- ger, and the dividend book. The Subscription Book contains a record of all subscribers, their residences, the number of shares of stock subscribed by each, and the par value of the stock. In order to bind the subscribers, they must sign the subscription paper or sign in the book. Subscription Book Common Capital Stock, $50,000 DATE F. NAME OF STOCKHOLDER ADDRESS NO. OF SHRS. AMOUNT 19— Jan. 2 2 2 2 2 2 1 1 2 2 3 3 D. E. Vinton C. L. Brewer M. N. Evans F. A. Sanborn G. L. Gray J. E. Barnes Chicago, 111. a ' it it it it a it a Milwaukee, Wis. 200 100 75 50 50 25 500 20000 10000 7500 5000 5000 2500 — 50000 — The Minute Book is a book in which the minutes of the meetings of the stockholders and of the board of directors are kept. The secre- tary of the corporation makes the records in this book. All business transacted should be carefully and accurately recorded in it. The minutes furnish the evidence of what was done at each meeting, and for that reason, must be frequently consulted by the bookkeeper and CORPORATIONS 301 accountant. The minutes should be signed by the president and secretary. The Stock Certificate Book is a book consisting of a number of blank stock certificates numbered consecutively and attached to stubs. When a stockholder pays for his stock in full, he receives a certificate of stock filled in with the name of the stockholder, the number of shares, and the date. The corporation seal is attached to it and the signatures of the president and the treasurer. The stub contains details of the certificate and the signature of the stockholder. When stock is sold, the certificate is surrendered to the corporation and a new one issued. The canceled certificate is usually attached to the stub to which it belongs. A certificate of stock and the stub from which it is detached is illustrated on pages 296 and 297. The Stockholders' Transfer Book is a book of entry and record to record the sale or transfer of stock from one party to another. It may contain a blank form to be filled in and signed by the party transferring the stock. The account of the person selling is debited and that of the person buying is credited. It is posted to the stock ledger. Stockholders' Transfer Book /O yp. Of 7/t?u^zsri^s / /S TRASSFEHPBD BT OcrA^-^^/^L' ^s- 2^T ar /or Transfer No. ',() 20 21 18 17 14 80 20 50 70 10 40 16 SO 14 40 U 5 ho 20 73 77 74 76 70 62 432 133 20 V 72 V 10 ho V 16 80 V u ',o V 19 60 1 1 The elements of material and productive labor constitute the first or prime cost of manufacturing. Manufacturing Expenses. All other costs of manufacturing are called manufacturing or factory expenses. They include unproductive labor, already explained, factory supplies, as, oil, grease, waste, etc., fuel, light, and power, including the wages of engineers and firemen, re- pairs to machinery, tools, and equipment, rent of factory, etc. All of these are regularly charged from month to month or from week to week as the expenditure is made. It includes also such a part of the charges for taxes, insurance, expenses of delivery equipment, etc., as pertain to the manufacturing part of the business. It also includes proper depre- ciation on machinery, tools, equipment, and on the building used for factory purposes, if owned. These depreciation charges are usually made at the time statements are made but by some factories are made monthly whether statements are made or not. It also includes the pro rata share of the cost of patents as well as a proper charge for patterns that have depreciated, are worn out, or are obsolete. These manufacturing expenses are also called factory expenses or factory overhead. The prime cost plus the manufacturing expenses equals the manu- facturing cost, also called the factory cost or the cost of production. The Sales Department. The goods when manufactured are turned over to the Sales Department. They are stored in warehouses and are in charge of a stock clerk. These warehouses are usually known by letters or., numbers and a separate stock record kept for each one. In this stock record of finished goods, the proper stock record is debited for all stock received from the factory. When goods are to be shipped, an order is received to ship stock. This is entered under the proper stock number as a credit to that stock account. The balance is then found and extended into a balance column. This constitutes a perpetual MANUFACTURING COSTS 319 inventory book for finished goods. If a separate book or sheet is kept for each warehouse, there must also be columns for Transfers from Other Warehouses and Transfers to Other Warehouses. The balance on hand should be checked up with an actual count whenever the quantities become low, or may be checked at periodical intervals, such as, monthly. Selling Expenses. In order to run the Sales Department, certain expenses are necessary. The selling expenses of a manufacturing busi- ness differ little from the trading expenses of a mercantile business. They include such expenses as advertising, salesmen's salaries, traveling expenses, branch office expenses, agency expenses, freight on goods sold, incidental selling expenses, and the proper share of delivery expense, and of insurance and taxes on finished goods. The manufacturing cost plus the selling expenses make the selling cost of the goods manufactured. General or Administrative Expenses. These expenses include all ex- penses that are necessary expenses of running the office, such as, sal- aries of officers and of the office force, office supplies, telephone and telegrams, stationery and printing, etc. It also includes auditors' and law- yers' fees, corporation taxes, interest, depreciation on furniture and fixtures, and any other expense that is not a manufacturing or a selling expense. The selling cost plus the general expenses make the total cost. Discounts. There remain two elements, one of cost, the other of in- come, that have not been explained. They are discount on sales and dis- count'on purchases. Bookkeepers and accountants have never agreed on the proper treatment of these two elements. Some class both as general elements; others, consider discount on purchases a deduction from the cost of the raw material, making it a part of the manufacturing di- vision, and discount on sales a deduction from the sales, making it a part of the selling division. In this Manufacturing Set, discount on purchases will be considered as a general income and discount on sales a selling element. Discount on Sales. This discount is necessary because of com- petition and because of trade customs. Most businesses must give the discounts whether they wish to or not if other businesses with which they are in competition give them. For these reasons, discount on sales will be considered a deduction from sales, a part of the selling division. Discount on Purchases. This will be considered a part of the general division. Discount on purchases is a result of the business hav- ing sufficient working capital on hand to take advantage of the best offers. Good discounts may be secured and yet the business may not be able to take advantage of them because there is not sufficient cash to do so. Or, the business may borrow money in order to take ad- vantage of its discounts. The interest charge for the use of the money is a loss in the general division that would offset a part of the profit from the discount on purchases. CHAPTER XXXVI THE VOUCHER SYSTEM OF ACCOUNTS A Voucher, in the ordinary business sense, is a truthful exhibit of a business transaction. As the word is used in this connection, it has a more restricted meaning. It refers to a printed form that shows an indebtedness incurred and the authority for paying the indebtedness. It usually includes a number of other things that will be explained later. The first characteristic of the voucher system is the printed voucher. This voucher contains a record of the purchase taken from the invoice or bill or a statement of the services for which the voucher is issued, if no bill or invoice is received. It contains in addition several ruled places for the signatures of different persons who are authorized to approve the voucher. There are usually places for the approval of the buyer, the superintendent or manager, the auditor, and that of some ex- ecutive officer, such as, the president, vice-president, or secretary. This form is, for this reason, a very good one for corporations, as it provides the corporation with a sufficient check on the acts of its agents. It is used also by partnerships but not so commonly except in large businesses. The payment of the voucher must be considered with the voucher itself. The old form of the voucher contained besides a record of the indebtedness, a receipt, and a check attached by a perforation. But this was a bulky paper and is not used to any extent. The voucher with the receipt attached is still used to a considerable extent. It is illustrated on page 321. The check is an ordinary check numbered consecutively and also containing the same number as the voucher for which it is given in payment. Many other forms have come into use. The best one as an exhibit of an indebtedness and the payment of it is the combined voucher and check in one paper. In this form, the invoice, the bill, or the record of the services is recorded on the face of the voucher with the signatures of those approving the voucher. The voucher is folded lengthwise, a check form is printed on one side of the back and a place for indorse- ments on the other side. When the check is filled out in payment of 320 THE VOUCHER SYSTEM OF ACCOUNTS Voucher with Receipt Attached 321 Voucher , no. 2-igr Milwaukee, Wis., V~ a^^?^ Z^ 19-=L The Stein Lumber Co. To /fU, &£ Terms . uLdZ£*£d!LtL^LaL/ /^rz^^^ ytp ' ( ?-; Dr. Ld^J2^22. La. Ifr^^A^A^ 7JT*. yjFXf . Correct //^ Pres. — — tt -Tre|is>><= ^ Auditor £&££* U^^^^^^^£/^L/< Z>^ / 2-1 fl — Received of THE STEIN LUMBER CO. JP£&^-e^y^^^^^y>^^y^^^3^ ~^T' 'S ?/-f S* Dollars in full of above account. ^7/ 322 METROPOLITAN SYSTEM OF BOOKKEEPING Voucher Stub t^^r^A y & / / 2-S~. o o Amount Discount Amount Paid $ / / O 2~~. t TO Date PaM //faz^f^flsA S / 2-, 19_=L. Charge Amount the voucher and indorsed by the payee it becomes a receipt in full for the voucher on its face. This furnishes the best possible voucher of an indebtedness and its payment. The only objection to it is that the check to be deposited is a double sheet and is, for that reason, a little harder to handle than the or- dinary check. Because this form is rather bulky to handle, many firms prefer to use a check that is not written on the back of the voucher. The voucher itself is sometimes not returned when the form without the check is used. To avoid both of these objections, some firms prefer to make out the voucher in the usual way but to keep it on file. With the check, attached by a perforation, a memorandum of the indebtedness is sent. Be- fore depositing the check, this memorandum is torn off. If the check is not for the correct amount, the memorandum and the check are returned to the sender. If it is correct, it is deposited in the usual way. On the back of the check on the left hand end a statement simi- lar to the following is printed: " No receipt is necessary. The in- dorsement of this check consti- tutes a receipt in full. If it is not correct, return it unchanged." A voucher check of a dif- ferent kind is used with or with- out the other features that ac- company the voucher system. It is a check that contains a short statement of the indebt- edness for which the check pays. This statement may be in the lower left hand corner of the face of the check or on the left Sundry Accounts Manufacturing Costs Material Purchases . Freight In Productive Labor . . Fuel, Light and Power Unproductive Labor . Supplies ..... Selling Expenses Salesmen's Salaries Salesmen's Trav. Ex Advertising . . . Shipping .... Delivery Expense. General Office Salaries . . Misc. Office Ex. . //IS'— / / ZS'— hand end just above the place for indorsements. In either form there THE VOUCHER SYSTEM OF ACCOUNTS 323 is a statement on the back above the place for indorsements similar to the one on page 324. The Voucher Stub. The voucher is usually attached to a stub which contains details of the voucher as well as a list of the principal accounts Face of Combined Voucher and Check Voucher No. *£yf- C* L* Lowe Company i^Z^33^^2^^SLdd£^ //f^^n Terms: //<7 , -A&& '-T ^=Cl9— r^r? y* President of the business to which the different items of the voucher are dis- 324 METROPOLITAN SYSTEM OP BOOKKEEPING Back of Combined Voucher and Check First National Bank Voucher Nc^ZZl Pay to the order of Jl Chicago, in., s/Zi a A^zS/h 19.ZZ. TZXzsrftrmS ■YHTn g^L s; // a 2- Z y^^^sw^yt^^f^fssrr' a^n^y /<™ ' Dollars In full payment of the account as shown on the reverse side of this Voucher Check. By- Treasurer Back op Voucher Check when no Voucher Statement is Used V 1 .1 s? THE VOUCHER SYSTEM OP ACCOUNTS 825 tributed. This facilitates the making of the entry for the voucher. The voucher stub is illustrated on page 322 in connection with the com- bined voucher statement and check. The Voucher Record. Another important feature of the voucher system is the use of a voucher record as a book of original entry. It is more than a purchase book, because it contains in addition to a record of purchases, a record of all other indebtedness incurred. It also contains distributive columns corresponding to the principal ac- counts listed on the voucher stub. This makes it possible to classify the principal accounts into manufacturing, selling, and general. It also eliminates a great deal of posting as much of the posting from this book can be done in total. (See illustration on pages 326 and 327.) The voucher record is used for all indebtedness incurred, except petty cash items, which are entered in total at certain regular intervals. The effect of an entry in the voucher record is in each case a credit to Vouchers Payable and a debit to the account or accounts represented by the column or columns in which the amounts are distributed. If an account is to be debited for which a special column is not kept, the name of the account is written in the Sundry Accounts column, and posted daily. This is true of such accounts as Notes Payable, Ileal Estate, Delivery Equipment, Furniture & Fixtures, etc. Nothing is posted from the voucher record daily except the accounts in the Sundry Accounts column. These accounts are posted to the debit daily. The total of the Vouchers Payable column is posted monthly to. the credit of the Vouchers Payable account and the totals of the other amount columns, except the Sundry Accounts column, are posted to the debit of the respective accounts named at the head of the column. The method of closing the voucher record is shown in the illustration on pages 326 and 327. How to Enter Vouchers. A voucher is made out for every indebt- edness incurred. It is entered in the voucher record as soon as it is made out, the distribution being made from the voucher stub. If it is a cash voucher, a check is made out at once. The voucher and check are torn from the stub and sent to the party to whom payment is to be made. If the voucher is not yet due, it is made out in the. usual way and entered in the voucher record, but is not torn from the stub. When payment is made, the voucher and check are torn from the stub and sent to the party to whom payment is to be made. Whenever payment is made, the Date Paid column of the voucher record is filled in with the date of payment. Most vouchers are paid in cash, but some are paid wholly or partly by giving a note or mortgage. In that case a J is placed before the date in the Date Paid column. Purchase Ledger Eliminated. The voucher record eliminates the 326 METROPOLITAN SYSTEM OF BOOKKEEPING Voucher NAME ADDRESS TERMS SUNDRY ACCTS MANU- VCH. NO. DATE DATE DUE DATE PAID VCHRS. PAYABLE F ACCT. AMT. MAT- ERIAL PUR. 585 586 587 588 589 19— June 28 29 29 ■30 30 Forward J. C. Connell C. Frey &Co. Hall Adv. Co. C. Harris D. Jones Grand Rapids City City Petty Cash Pay Roll 2/10,n/30 Cash n/30 Cash Cash 19— July June July June June 8 29 29 30 30 19— June 29 June 30 June 30 12848 1718 125 375 21 3813 to 50 50 9 Ins. U6 125 3d 50 738650 171820 (12) 18901 20 V 5hl 7-5 (18) 910k 70 purchase ledger as accounts are not opened up for creditors. The entry to record the purchase corresponds to a credit to the account and the record in the Date Paid column corresponds to the debit to the ac- count. Where it is desired to keep accounts with certain creditors, the business may do so. In that case, they are memorandum accounts to give additional information and are not a necessary part of the ac- counting system. The Cash Book. The cash book of a voucher system need not differ much from the cash book of an ordinary mercantile business, Cash Receipts date 19— ACCOUNT EXPLANATION GEN. ACCTS. RECEIV- ABLE DISC ON SALES IN- TEREST DR. national exch'ge BANK DR. May 25 26 16 27 20 29 18 29 22 30 15 31 17 31 31 V 31 16 31 28 31 29 31 u 31 V .June 1 Forward J.C. Dreher C. L. Loring Notes Rec.Disc Interest Newton & Co. Notes Payable Balance, May Inv. of 4/26 Inv.of 5/18, 3% M.E. Irwin' 's note 60 da. on above Inv.of 5/20, 2% Our note disc. General Cr. Accounts Receivable Cr. Disc, on Sales Dr. Interest Dr. National Exchange Bank Dr. Bank Dr. Balance In Bank 472635 575 575 1000 6307 215725 414985 414985 659390 1074375 384332 521620 31625 43645 625— W 659390 659390 7985 1309 1250 10544 105 44 2050 94 2744 27 U 984220 31625 42336 57881 61250 995— 1276812 215725 1061087 10544 2744 10610 87 10743 75 12768U 12768 384332 hi THE VOUCHER SYSTEM OP ACCOUNTS 327 Record, June 28-30, 19— FACTORING COST BELLING EXPENSES II GEN. EXPENSES PRO- 1 DUCTIVE LABOR MANUFACTURING EXPENSES sales- men's SALS. sales- men's T. EXP. ADVER- TISING SHIP- PING DE- | LIVERY EXP. OFFICE SAL- ARTKS MISC. FRT. IN Fuel, Light and Power Unproductive Labor Supplies OFFICE EXP. 35 4340 sou 80 25 31 2 120 m 95 173 75 U 60 150 75 375 — 60 70 15251 785 80 — 175 47 IS 50 65 (18) 85 — (19) 7385 05\ (20) 432 20 (21) 268 75 (22) 60 (24) 150 J (24) 75 — (25) 375 — (25) 130 (26) 103 10 (26) 175 — (27) 61 15 such as that illustrated in Set VII, except that the entries on the Cash Payments are recorded in a different way. In the entry on the Cash Payments, the number of the voucher paid is more important than the name of the person to whom payment is made or the purpose for which payment is made. These have been fully shown in the entry in the voucher record. For these reasons, the voucher number is written first, followed by the name of the person to whom payment is made. Noth- ing is posted daily from the Cash Payments, but the columns are posted in total. Cash Payments DATE 19— F VOUCHER NUMBER TO WHOM PAID VOUCHERS PAYABLE DISCOUNT ON PURCHASES NATIONAL EXCHANGE BANK CR. May 25 26 27 28 29 30 31 31 31 31 31 31 V V V V V V 17 28 U V Forward V. No. 385 437 438 372 439 440 Vouchers Pay. Disc, on Pure National Exch Bank Cr. Balance D. Janis & Co. Auto Supply Co. D. May, Cashier BellAdv Co. D. Wendt D. May, Cashier Dr. hases Cr. ange Bank Cr. In Bank (red ink) 6127 412 21 24 172 125 2172 15 30 25 35 50 25 121 8 75 25 6005 404 21 24 172 125 2172 40 05 25 35 50 25 9054 80 130 — 8924 80 9054 80 130 8924 80 9054 80 9054 80 May 8924 3843 80 32 12768 12 , 328 METROPOLITAN SYSTEM OF BOOKKEEPING Many firms prefer to keep an account with the bank in the cash book. This is posted monthly. All cash is received and deposited daily, with the sum of the amounts received carried to the Bank column of the Cash Receipts daily. For each check written, the amount is carried to the Bank column of the Cash Payments. The daily posting of the Cash Receipts is the same as in Part III. The proper method of closing the cash book is illustrated in the cash book shown on pages 326 and 327. The Journal. The four-column journal, consisting of the following amount columns, will again be used: Vouchers Payable, General Dr., General Cr., and Accounts Receivable. The Petty Cash Book. A petty cash book will be used for petty cash payments. A fund of a definite sum, $50, for example, is given to some one who is to make small payments for which checks are not issued. When he makes a payment, he records it in a Petty Cash Book under the proper heading. At periodical intervals, for example, weekly, he makes a report to the general bookkeeper of his expenditures, prop- erly classified. Suppose the sum is $26. A voucher is then made out for this amount to bring his fund up to the original amount again. It is entered on the Cash Payments as Voucher No. — , Cashier, $26. On -the voucher record it is properly distributed to the accounts af- fected. This is called the Imprest System. Voucher Record Proof. At the end of the month before the totals of the voucher record are posted, the sum of the Vouchers Payable column should equal the sum of the distributive columns. After the totals have been posted from all the books, a schedule of the vouchers unpaid should be made and the total found. This total should agree with the balance of the Vouchers Payable account. The Vouchers Payable account should show a credit from the voucher record and debits from the cash book and journal. If the balance of the Vouchers Payable account does not agree with the sum of the unpaid vouchers, the paid vouchers must be checked with the payments in the cash book and journal. The vouchers unpaid should also agree with the vouchers attached to the stubs in the book of vouchers. CHAPTER XXXVII MANUFACTURING SET IX Transactions for January Selling Price List NO. KIND PRICE 205 Galvanized Refrigerator $4.35 210 u u 5.25 215 a u 7.45 220 u u 8.85 225 a u 9.50 250 u a 10.85 255 a u 11.65 260 a u 12.85 315 Enameled a 9.05 320 u a 10.35 325 u a 11.15 350 a a 12.75 355 a u 13.95 360 u a 15.25 450 Porcelain u 19.85 455 u a 23.35 460 u a 26.25 150 Kitchen Cabinet 11.35 The Objects of this set are to illustrate the voucher system of ac- counting for a corporation doing a manufacturing business, and to make the student familiar with the accounts of a manufacturing busi- ness. The Books of Entry will be the sales journal, the cash book, the special-column journal, the voucher record, and the petty cash book. Two ledgers will be used, the general and the sales ledgers. The use of each of these books has been fully illustrated and explained in the previous chapters. Outgoing Papers. The student has been given sufficient drill in 329 330 METROPOLITAN SYSTEM OF BOOKKEEPING the making out of the ordinary business papers. He has also had suffi- cient drill in the use of the incoming papers. In this set, nothing but vouchers need be made out. When a sale is made, an invoice is sup- posed to be made out in duplicate. If the teacher desires, the out- going invoices may be made out. t For posting purposes, the entry is made in the sales journal. All vouchers are made out as illustrated in Chapter XXXVI and handled as there illustrated. Sign all voucher checks for the treasurer by your name underneath. TRANSACTIONS January 2. B. C. Ecker, D. E. Rowland, C. B. Roberts, and H. A. Maxwell have decided to organize a corporation under the name of the Ecker Manufacturing Co. The capital stock is to be $50000 divided into 500 shares of the par value of $100 a share. The purpose of the corporation shall be the manufacture and sale of refrigerators, kitchen cabinets, and other furniture. The incorporators have subscribed for stock as follows: B. C. Ecker, 150 shares D. E. Rowland, 100 shares C. B. Roberts. 75 shares H. A. Maxwell, 50 shares The rest of the stock is unsubscribed. The necessary steps have been taken to incorporate under the laws of the state of Wisconsin, and a certificate of incorporation has been received from the Secretary of Stater The incorporators have elected themselves members of the board of directors. The directors have elected the following officers: B. C. Ecker, President; C. B. Roberts, Secretary; H. A. Maxwell, Treasurer. The student is employed to act as bookkeeper and cashier at a monthly salary of $80. The secretary has instructed you to make memorandums in the journal to record the organization of the corporation, the subscription of the stock, the election of the board of directors, and of the officers. Make an entry in the journal to record the organization of the corporation, with a list of the subscribers and the details of the num- ber of shares subscribed by each. Remember that Capital Stock must be credited for the authorized capital stock and that Subscriptions cannot be debited for any more than the total amount subscribed. In most states, only a part of the capital stock must be subscribed for and paid in before the corporation may do business. The subscribers have paid their subscriptions as follows: B. C. Ecker, 150 shares, $15000; D. E. Rowland, 100 shares, $10000; C- B. Roberts, 75 shares, $7500; H. A. Maxwell, 50 shares, $5000. MANUFACTURING 331 Make an entry in the cash book showing the details of the cash received. Deposit all cash received in the National Exchange Bank. Show this by carrying the amount received over to the Bank column of the cash book. Daily all the cash received is supposed to be deposited in the bank and the amount of the deposits for that day are carried to the Bank Deposits column of the cash book. By action of the board of directors recorded on page 5 of the Minute Book, the corporation has purchased land and a factory build- ing located at 1232-8 North Avenue, Milwaukee, from the Peters Manufacturing Company, for $20000 cash. The land is appraised at $6000 and the building at $14000. Take your book of vouchers and fill in the stub and the voucher. Under Sundry Accounts in the distribution wri^te, Real Estate: Land, $6000; Buildings, $14000. Tear the voucher from, the stub, fold it lengthwise, and write out the check on the back in payment. Number both the voucher and the check, No. 1. Enter the voucher in the voucher record. Under Sundry Accounts write the distribution given on the voucher stub. Use but one line for this voucher. Study the form of the entry as illustrated on pages 326 and 327. Enter the payment of this voucher in the Date Paid column of the voucher record and make the entry in the cash book. Post all the entries that should be posted. Open accounts in the general ledger, as follows: ACCOUNT ' PAGE Capital Stock 1 Subscriptions 1 Unsubscribed Stock 1 Surplus 2 Real Estate 2 Machinery 2 Tools and Equipment 3 Delivery Equipment 3 Furniture and Fixtures 3 Patents 4 Notes Receivable 4 Accounts Receivable 4 C. D. Masters, Salesman 5 Inventory, Raw Material and Finished Goods 5 Petty Cash 5 National Exchange Bank 6 Mortgages Payable 6 Notes Payable 6 332 METROPOLITAN SYSTEM OF BOOKKEEPING ACCOUNT PAGE Vouchers Payable 7 Notes Receivable Discounted 7 Reserve for Depreciation, Buildings 7 Reserve for Depreciation, Machinery 8 Reserve for Depreciation, Tools and Equipment 8 Reserve for Bad Debts 8 Material Purchases 9 Freight In. 9 Productive Labor 9 Fuel, Light and Power 10 Factory Supplies 10 Unproductive Labor > 10 Repairs to Machinery, Tools and Equipment 11 Repairs to Building 11 Refrigerator Sales 11 Kitchen Cabinet Sales 12 Salesmen's Salaries 12 Salesmen's Traveling Expenses 12 Advertising 13 Shipping Expense 13 Delivery Expense 13 Discount on Sales 14 Office Salaries 14 Miscellaneous Office Expense 14 Insurance 15 Collection and Exchange 15 Interest 15 Discount on Purchases 16 Accrued Asset Inventories 16 Accrued Liability Inventories 16 Manufacturing 17 Selling 18 Profit and Loss, one-half page 19 Dividend 19 Reserve for Accidents 19 Open accounts in the sales ledger, as follows: ACCOUNT PA6E C. N. Noble 20 C. L. Yoder 20 L. C. Prey & Co. 20 J. A. Dreher & Co. 20 B. E. Derby 20 C. O. D. Account 20 MANUFACTURING 333 ACCOUNT PAGE D. E. Bolting 21 C. F. Gorrel 21 J. E. Brock 21 C. L. Voss 21 D. C. Harvey 21 B. N. Rarden 21 C. N. Yahr 22 D. G. Loucks 22 C. D. Caldwell & Co. 22 F. A. Somers 22 N. D. Garvey 22 C. A. McKinney 22 G. A. Bower 22 January 8. Bought an invoice of machinery for the wood work- ing shop and a forge and anvils for the blacksmith shop, from the Hilton Mfg. Co., Milwaukee, for $5750. Terms: n/30. Fill out voucher stub No. 2 and the voucher. Distribute it un- der the head of Machinery. Do not tear the voucher from the stub as the voucher is not to be paid at once. Enter the voucher in the voucher record, writing Machinery under Sundry Accounts. Do not mark it paid nor make an entry in the cash book. Bought an invoice of tools and hardware from the Ball Hardware Co., Milwaukee, Wis., as follows: Tools, $457.50; hardware, $212.75. Terms: n/10. Make out the voucher stub and the voucher but do not detach the voucher. Make an entry in the voucher record. In the Materials column write, $212.75. In the Sundry Accounts column on the same line, write, Tools, $Jf.57.50. Put the total amount of the invoice in Vouchers Payable column. Bought an invoice of lumber* from the Mann Lumber Co., Osh- kosh, Wis., as follows: 15 M ft. Oak Lumber at $75 8 M ft. Ash Lumber at $41.50 5 M ft. White Pine Lumber at $35 Terms: 2/10, n/30.' Each time an indebtedness is incurred, except for small items of petty cash, you must fill out a voucher stub, a voucher, and make the entry in the voucher record, without special instructions. If the voucher is a cash voucher, you must also write out the check, fill in the date paid on the voucher record, and make an entry in the cash book. The lumber purchased is- to be used in the manufacture of refriger- ators. Charge it to Material Purchases. Pay the freight on this invoice of lumber by voucher check in favor of the C. & N. W. R. R. Co., $147.50. 334 METROPOLITAN SYSTEM OP BOOKKEEPING This requires a voucher and an entry in the voucher record just as much as if goods had been purchased, as it is an indebtedness incurred. Post all items that should be posted daily without further instruc- tions. January 5. C. D. Perkins has been engaged as manager of the factory at a salary of $150 per month. Workmen have been employed for the different operations in the factory. The details of each work- man's work and his wages would be kept on a time sheet or on time cards. No memorandum is necessary. Make a memorandum of the employment of C. D. Perkins as manager. The corporation finds it necessary to have on hand a sum of money from which small cash payments may be made. The Student is to be given a petty Gash fund of $50 for this purpose. Entries for receipts and payments from this fund will be made in a petty cash book. Weekly the Student will report the expenditures to the treasurer and be given a check for the total amount expended so as to bring the fund up to $50 again. Make out a voucher in favor of yourself for $50 and charge it to the Petty Cash fund in the Sundry Accounts column. Enter it to the debit of cash in the petty cash book. Bought of the Western Coal Co., 50 tons Steam Coal at $4.45. Terms: n/30. Make the proper entry for this transaction as directed in previous transactions. January 6. It was found necessary to make some alterations in the building to make it suitable for the machinery and equipment. The roof was thought to be in good condition when the building was pur- chased but it was found that it needed repairs. The Logan Construc- tion Co. has done the work and presented a bill for work as follows: Alterations to factory building, $120.75; repairs to roof of factory building, $17.50. Pay this bill by voucher check. Are both of these items charges to the same account? The alterations are made necessary to fit the building for the company's use. The other item is made necessary because the building is not in as good condition as it was thought to be. Use but one line but use two distribution columns. Bought a bill of office books and stationery from H. H. Miller & Co., City, as follows: 1 Cash Book, 300 pages, $3.50; 1 Journal, 150 pages, $2; 1 Voucher Record, 300 pages, $8; 1 Ledger Binder, $9; 1 Sales Binder, $3; 500 ledger sheets, $1.50; 500 sales sheets, $2. Pay this bill by voucher check. Bought incidental office supplies for cash, $8.50. This should be entered in the petty cash book only. January 7. Bought an invoice of galvanized iron and mineral wool from the National Iron Co., City, amounting to $718.25, on the terms, 2/10, n/30. The Andree Electric Co. presents a bill for wiring and connecting MANUFACTURING 335 the machinery, etc., as follows: Wiring, $25.75; Lamps, $15.05. Pay this bill by voucher check. Charge it to Tools and Equip- ment. Bought an invoice from the Patton Paint Co., Chicago, as follows: 25 gal. Stain at $1.75; 25 gal. Varnish at $2.35; 10 gal. White Enamel at $2.05. Terms, n/30. Pay a freight bill of the C. M. & St. P. R. R. Co. by voucher check, $12.75. This bill is for the invoice of paints just received. Took out an insurance policy in the Phoenix Insurance Company, for one year, on the building, machinery, tools, and equipment, and on any raw material and finished goods on hand, as follows: Building, $9500; Machinery, $4000; Tools and Equipment, $400; Raw material, $1500; and Finished goods, $2000. Pay the premium by voucher check in favor of H. M. Russell & Co., at the rate of 75ff for each $100 of the risk. January 8. Pay cash for telegrams, 75^; sundry office supplies, $4.75. Bought a motor truck from the Davidson Motor Co. for $1750. Pay for it by voucher check. Entered into a contract with the Hall Advertising Co. to. advertise our line of Economy refrigerators, for $1500, with the privilege of plac- ing as much each month as is found necessary. Terms: 3% for cash, n/60. Pay the bill by voucher check. Deduct the discount on the voucher and write the check for the net amount. Do not enter the discount in the cash book. Insured the motor truck in the Mutual Insurance Co., for $1400, for one year, at the rate of 65j£ for each $100. Pay for it by voucher check in favor of D. Evans Insurance Co. Bought an invoice of zinc from the A. R. Hansen Co., Chicago, per itemized bill amounting to $736.45. Terms: 2/10, n/30. January 9. The Broadway Printing Co. has just delivered 1000 catalogs to advertise the line of refrigerators the corporation is manu- facturing. This is a cash bill for $175. Pay it by voucher check. C. D. Masters has been hired as traveling salesman at a salary of $150 per month and expenses, to begin January 10. Give him a voucher check for $100 for traveling expenses. Charge it to C. D. Masters, Salesman. This is to be treated as an advance fund to him. When he reports his expenditures for traveling expenses, he will be given a check for the amount expended. The $100 is, there- fore, a permanent fund which is like petty cash, and remains the same on the books. 336 METROPOLITAN SYSTEM OF BOOKKEEPING Bought supplies for the factory of the Sanders Supply Co., City, as follows: Machine oil, $8; waste, $2. Pay this bill by voucher check. January 10. Bought of C. Shaw & Co.: 1 Combination Desk, $36; 3 Office Chairs, $15; 1 Underwood Typewriter, $100; 1 Filing Cabinet, $27.50. Pay the bill by voucher check. The A. N. Miller Co. has manufactured to our order 300 porcelain linings for refrigerators: 150 at $5.25; 100 at $7.50; 50 at $9.25. Terms: 1/10, n/30. Bought of the Parker Auto Co., 100 gal. gasoline at 12jzL Pay for it by voucher check. Find the sum of your petty cash payments to date according to the accounts affected. Balance the petty cash book. Make out a voucher check in your favor for the expenditures from the Petty Cash fund. Enter it in the voucher record as paid and on the payments side of the cash book. The voucher check is cashed and the amount is entered as cash received in the petty cash book. January 12. The management has decided to manufacture three kinds of refrigerators, graded as to the interior finish, the kind of wood used in the box, and the size. The refrigerators with galvanized iron lining will be numbered in the 200 's; the enameled refrigerators, in the 300 's; and the porcelain-lined, in the 400 's. The second and third numbers indicate the size and kind of box, as, 225, a galvanized iron refrigerator, with an oak box, size, 48 in. by 28 in. by 12 in. The selling prices of the different kinds of refrigerators are given at the beginning of this set, on page 329. Copy this selling price on a sheet of heavy paper or cardboard and place it in your envelope of supplies. The directors, a few days ago, decided to take subscriptions for the remainder of the stock. Subscriptions have been received as follows: L. N. Norris, 50 shares; C. A. Willis, 50 shares; L. E. Falch, 25 shares. Make the entry in the journal. Make your entry include details of the subscription. C. N. Noble, St. Paul, Minn., orders: 12 Galvanized Refrigerators No. 215 15 " " No. 225 10 " " No. 250 Terms: 2/10, n/30. Fill the order. In this set the invoice may be made out in the usual way and sent to the customer. It is supposed that a duplicate is made out at the same time and kept on file for reference. The sales journal will contain sufficient information for posting purposes, without details of the sales. Few modern business systems copy the sales in a sales book. In most systems, the posting is done either from the duplicate MANUFACTURING 337 invoice, or from the order sheet, a^ in Set VII, or from a sales journal, as in this set. For each sale, make out the invoice or not, as the teacher directs, and make the entry in the sales journal, omitting the items sold. Use the first amount column only. Posting the Sales Journal. In posting the sales journal, it is of great advantage to the bookkeeper to have the customer's account show the terms of each sale. When you post to the sales ledger in this set put the terms of sale in the explanatory column of the customer's account. January 13. Pay the invoice of the Ball Hardware Co. by check. When an invoice that was purchased at some previous date is to be paid, the following steps should be taken: 1. From the voucher record, find the number and amount of the voucher. 2. Refer to your book of vouchers to the proper number. Com- pare the amount with the amount in the voucher record. If a dis- count is allowed, subtract it on the voucher. Do not change the amount in the voucher record. 3. Tear the voucher from the stub, and write out the check. 4. Write the date of payment in the voucher record. 5. Enter the payment on the cash payments. If there is a dis- count, the amount of the invoice before the deduction is made is placed in the Vouchers Payable column, the discount is put in the Discount on Purchases column, and, the net amount, the amount of the check, is put in the Bank Cr. column. Pay the invoice of the Mann Lumber Co. by check. Treat this the same as the previous transaction. In this set, the pupil will not be told whether there is a discount to be deducted or not. His records of both purchases and sales must be so kept that he can tell from his books whether a discount should be deducted or not. C. L. Yoder, Peoria, 111., orders: 8 Galvanized Refrigerators No. 210 12 " " No. 255 15 Enameled " No. 320 Terms: 2/10, n/30. Fill the order and make the entry like the transaction on the 12th. Are you posting daily? Do not forget to post this last transaction so that your ledger account will show the terms of sale. January 14- Bought an invoice of lumber from the Moore Lum- ber Co., Minneapolis, as follows: 12 M ft. Oak Lumber at $73.75 6 M ft. Ash Lumber at $40.85 3 M ft. Pine Lumber at $34.60 Terms: 1/10, n/30. 338 METROPOLITAN SYSTEM OF BOOKKEEPING Pay freight on this shipment of lumber by voucher check in favor of C. & N. W. R. R. Co., $147.60. L. C. Prey & Co., Keokuk, Iowa, order: 20 Enameled Refrigerators No. 315 15 " " No. 320 12 " " No. 355 6 Porcelain " No. 450 Terms: 2/10, n/30. J. A. Dreher & Co., Ft. Wayne, Ind., order: 8 Galvanized Refrigerators No. 260 12 Enameled " No. 320 15 " " No. 355 Terms: n/30. Pay cash for pencils, pens, and miscellaneous office supplies, $2.25. January 15. B. E. Derby, Columbus, Ohio, orders: 6 Galvanized Refrigerators No. 215 10 " " No. 225 24 " " No. 250 18 Enameled " No. 320 12 " " No. 355 Terms: One half cash; balance in 30 days. Cash is received for one-half of the invoice. D. C. Harvey, Appleton, Wis., orders: 12 Galvanized Refrigerators No. 220 15 " " No. 250 Terms: draft with B/L attached. Make no entry for the draft till it is reported collected. The subscribers to the stock of the corporation, as recorded on the 12th, have paid in the amount of their subscriptions, and have been given certificates of stock. Show the details in the entry. January 16. Bought of the Janes Lumber Co., Manistee, Mich.: j6 M ft. Hemlock Lumber at $27.50. Terms: n/30. Pay cash for a want advertisement for skilled workmen for the factory, $1.55. D. E. Bolting, Muskegon, Mich., orders: 15 Enameled Refrigerators No. 320 8 " " No. 355 5 Porcelain " No. 450 Terms: 2/10, n/30. Bought machinery from the Case Machinery Co., Racine, Wis., for $896.50. Terms: n/15. Pay the freight on this bill of machinery by voucher check in favor of C. M. & St. P. R. R. Co., $18.75. MANUFACTURING 339 Since a machine is of no value to the business until it is set up in the factory, it is correct to charge the freight on machinery and any other necessary cost before the machine is ready to operate, to the asset account. January 17. C. F. Gorrel, Pittsburg, Pa., orders: 9 Enameled Refrigerators No. 325 12 " " No. 360 Terms: draft, 30 days after date. Make no entry for the draft till it is reported accepted. Pay the National Iron Co. for the invoice of the 7th. Refer to the instructions for a similar transaction on January 13. Pay the A. R. Hansen Co. for invoice of the 8th. Are you extending the amount of each check into the Bank column? Have you marked the voucher paid in the voucher record? The manager hands you the pay roll for the last two weeks, with totals to be charged as follows: Skilled workmen and helpers $ 996 . 50 Engineer and fireman 80.00 Foremen 130.00 Unskilled workmen 40.00 Shipping clerk and helpers 95.00 $1341.50 Make a voucher check for the pay roll in favor of yourself as cashier. In entering it in the voucher record, distribution must be made in accordance with the elements of cost explained in Chapter XXXV. Use but one line in the voucher record and distribute the pay roll amounts. You should use the distributive columns for Productive Labor, Unproductive Labor, Fuel, Light and Power, and Shipping. The salaries of the office force and of the deliveryman will be paid monthly. Issue a voucher check to yourself for the petty cash expenditures for the week. Refer to a similar transaction on January 10. Balance the petty, cash book. Enter the amount received in the petty cash book. Januanj 19. J. E. Brock, Cleveland, Ohio, orders: 10 Galvanized Refrigerators No. 215 15 " " No. 255 6 " " No. 260 12 Enameled " No. 350 Terms: n/30. He has asked us to ship this order to D. Petry, Canton, Ohio, and to pay the freight for him. Pay the freight by voucher check to the C. & N. W. R. R. Co., $20.75. Charge it to the buyer. You must post this item from the voucher record twice, to the debit of the customer's account in the sales ledger and also to the debit of Accounts Receivable 340 METROPOLITAN SYSTEM OF BOOKKEEPING in the general ledger. In the Sundry Accounts column of the voucher record write the name of the customer and put Accounts Receivable in parenthesis. Add the freight on the invoice. C. L. Voss, Detroit, Mich., orders: 22 Enameled Refrigerators No. 350 16 " " No. 355 5 Porcelain " No. 455 3 " " No. 460 Terms: n/30. D. E. Bolting reports one porcelain refrigerator No. 450 broken and damaged in transit. Allow him credit for it at the selling price. January 20. C. N. Noble, St. Paul, Minn., orders: 8 Galvanized RefrigeratorsNo. 215 12 " " No. 220 18 " " No. 255 Terms: 2/10, n/30. C. L. Yoder, Peoria, 111., orders: 15 Enameled Refrigerators No. 325 10 " '' No. 355 12 " " No. 360 6 Porcelain " No. 460 Terms: 2/10, n/30. Pay the A. N. Miller Co. for invoice of the 10th. The bank reports the sight draft on D. C. Harvey collected. Pay the collection charges in cash, 30^. January 21. Received the acceptance of our 30-day draft, on C. F. Gorrel, for $283.35, for invoice of January 17. Bought an invoice of galvanized iron from the Eiring Iron Co., City, amounting to $897.25. Terms: 1/30, n/60. D. C. Harvey, Appleton, Wis., orders: 16 Enameled Refrigerators No. 350 12 " " No. 355 6 Porcelain " No. 455 Terms: 30-da. draft. January 22. Received a check from C. N. Noble for invoice of the 12th. Are you referring to the ledger each time that a check is received to see whether there is a discount or not? One of the machines has not been working properly. A skilled workman in the factory has repaired it. He has used 12 hours of his time at 50^ an hour. Make an adjustment entry debiting Repairs to Machinery and crediting Productive Labor. When the pay roll is made out his entire wages will be charged to Productive Labor. This entry reduces the charge to that account. MANUFACTURING 341 Instead of using this method, the pay roll might be divided up and the part that was used for repairs might be charged direct to the Re- pairs to Machinery account. There is always danger that it will be overlooked or forgotten at that time. Pay cash for telegrams, 75^. B. N. Rarden, Detroit, Mich., orders: 4 Galvanized Refrigerators No. 225 8 " " No. 255 12 Enameled " No. 320 10 " " No. 360 Terms : sight draft, less 1 %. Do not deduct the discount in the sales journal. Pay cash for stamps, $3. January 23. Received a check from C. L. Yoder for invoice of the 13th. C. N. Yahr, Dubuque, Iowa, orders: 24 Enameled Refrigerators No. 350 12 " " . No. 360 8 Porcelain * No. 450 5 " " No. 460 Terms: note at 30 days, with interest at 6%. The note is received with the order. J. E. Brock, Cleveland, Ohio, orders: 18 Galvanized Refrigerators No. 250 16 " " No. 260 10 Enameled " No. 325 8 " • u No. 355 Terms: draft, 30 days after date, for $250; balance, on account. Make no entry for the draft till it is received accepted. Bought of Pritzlaff Hardware Co., City, an invoice of locks and hinges amounting to $273.85. Terms: 2/10, n/30. January 24- Pay the Moore Lumber Co. for invoice of the 14th. Received the acceptance of our 30-da. draft on D. C. Harvey for invoice of the 21st. The acceptance is dated the date of the invoice. D. G. Loucks, South Bend, Ind., orders: 6 Galvanized Refrigerators No. 210 8 " " No. 220 15 " " No. 225 12 " " No. 250 Terms: on account. Draw a voucher check for the expenditures from the petty cash fund for the past week. Treat this like similar transactions. Received a check from L. C. Prey & Co. for invoice of the 14th. 342 METROPOLITAN SYSTEM OF BOOKKEEPING January 26. Received the acceptance of our 30-da. draft on J. E. Brock, for $250. The acceptance is dated January 23. The bank reports the sight draft on B. C. Rarden collected. Do not forget that the discount must be computed and entered now. Received a check from D. E. Bolting for invoice of the 16th. C. L. Voss, Detroit, Mich., orders: 5 Enameled Refrigerators No. 320 8 " " No. 325 15 " " No. 350 24 " " No. 355 Terms: n/30. Pay cash for subscriptions to the following magazines for the use of the office force: The System, $2; The Bookkeeper, $1.50; Journal of Accountancy, $3. January 27. Inserted a want ad. in the Free Press and paid cash for it, $1.35. C. N. Yahr reported that one enameled refrigerator No. 360 was badly cracked in shipment. He has been instructed to send it back. Give him credit. Since he has given his note in full payment of this invoice, the credit must be to the account of Notes Receivable, instead of to his personal account. Pay telephone bill to Feb. 1 by voucher check in favor of the Independ- ent Telephone Co., $9. Pay cash for a city directory, $5. January 28. C. D. Caldwell & Co., Atlanta, Ga., order: 15 Galvanized Refrigerators No. 250 20 " " No. 255 12 Enameled " No. 325 18 " " No. 350 Terms: 2/10, n/30. F. A. Somers, Louisville, Ky., orders: 6 Enameled Refrigerators No. 355 8 " " No. 360 15 Porcelain " No. 450 6 " " No. 460 Terms: n/30. Pay cash for Bradstreet's quarterly commercial report, $6. January 29. Discounted the 30-da. acceptance of J. C. Brock for $250 and the 30-da. acceptance of D. C. Harvey for $511.50. 6% is charged in both cases. You must make the entries so as to show that the face of the ac- MANUFACTURING 343 ceptance is credited, that Interest is debited for the discount, and that the bank is debited for the proceeds. A note or acceptance discounted should be credited to Notes Receivable Discounted to show a contingent liability. N. D. Garvey, Albany, N. Y., orders: 12 Enameled Refrigerators No. 325 6 " " No. 350 15 " " No. 355 20 " " No. 360 Terms: 2/10, n/30. January 80. C. A. McKinney, Harrisburg, Pa., orders: 12 Enameled Refrigerators No. 315 24 " " No. 325 32 " " No. 355 6 Porcelain " No. 450 Terms: 2/10, n/30. Received a check from C. N. Noble for invoice of the 20th. Received a check from C. L. Yoder for invoice of the 20th. C. D. Masters reports his traveling expenses for the three weeks as $65.75. Issue a voucher check to him for his expenses and for his salary for two-thirds of a month at $150 per month. Pay the Case Machine Co. for the invoice of machinery bought on the 16th. January 81. C. L. Yoder, Peoria, 111., orders: 15 Enameled Refrigerators No. 320 12 " " No. 350 8 " " No. 355 4 Porcelain " No. 455 Terms: 2/10, n/30. Issue a voucher check for the petty cash expenditures for the week. Issue a voucher check for the pay roll including the following: Skilled workmen and helpers $1937.25 Unskilled workmen and helpers 45.00 Engineer and fireman 80.00 Foremen 130.00 Shipping clerk and helpers 115.00 Deliveryman and helper 125.00 Manager 125.00 Secretary 150.00 Office force 135.00 $2842.25 344 METROPOLITAN SYSTEM OF BOOKKEEPING CLOSING WORK 1. Close the sales journal and post it. 2. Close the cash book on journal paper and submit it to your teacher for correction. Study carefully the model cash book on pages 326 and 327 before closing the cash book. Notice that there are three steps in the closing of the cash book in this set. First, the sum of the first two columns of the Cash Receipts must equal the sum of the last three columns, and the accounts affected must be shown. Second, the sum of the first column of the Cash Payments must equal the sum of the last two columns, and the accounts affected must be shown. Third, the cash book must be balanced by taking the difference between the two Bank columns and entering it as Balance. The balance must be carried to the debit side of the cash book and placed in the General and Bank Dr. columns after the cash book has been ruled up. In the cash book illustrated on pages 326 and 327 the Balance, May 1, was deducted first. In this set there was no balance, January 1, and this step is unnecessary. For February, the closing will be the same as the model. 3. Close the journal and post it. 4. Find the total of each amount column of the voucher record in pencil. The total of the Vouchers Payable column of the voucher record should equal the sum of all the other amount columns. Rule a single red line and on the second line below rule double red lines. Place the totals on the double lines. Post the voucher record totals and place the pages of the various accounts on the line above the total amounts. The total of the Sundry Accounts column is not posted, as each entry in it was posted daily. 5. Make a proof of the sales ledger. 6. Make a proof of the voucher record. To do this, list the unpaid vouchers by numbers and amounts, and find the sum. This sum should equal the balance of the Vouchers Payable account in the general ledger. It should also correspond with the vouchers still attached to the stub in the book of vouchers. If these three do not agree, check the vouchers paid in the voucher record with the Cash Payments, and with the vouchers paid in the book of vouchers. 7. Take a trial balance of the general ledger. Submit all of your books and the Vouchers Paid envelope to your teacher for inspection. Set IX, January, will be completed in Chapter XXXIX. CHAPTER XXXVIII DEPRECIATION All Tangible Fixed Assets depreciate in value. This is true of these assets no matter whether repairs and replacements are made or not. The use of the asset, lapse of time, and, in the case of ma- chinery, patterns, etc., the possibility that the machine or pattern will be replaced by something better cause depreciation. Depreciation of Buildings used for manufacturing, of machinery, tools, and equipment is a part of the cost of manufacturing. These fixed assets depreciate because they are used in manufacturing. The depreciation is just as much a manufacturing cost as repairs to ma- chinery, labor, or any other cost element. A machine, for example, will last a certain number of years and then be of no value for manu- facturing. It has been used up year by year in the process of manu- facturing. Basis of Estimating Depreciation. Depreciation on a machine will be taken as an example of the method of estimating depreciation. The basis of depreciation charges to be made at periodical intervals it the cost of the machine, the probable life of the machine, and the residual or scrap value, if any. The cost of the machine is a definite element that can readily be ascertained, but the other two elements are largely matters of opinion and can be nothing but estimates. The cost of the machine includes the cost of the machine itself, the cost of the freight and drayage necessary to put the machine in the factory, and the cost of installing and connecting the machine. Even if the estimating of depreciation is something that cannot be determined with exactness, there are few business houses that do not make these estimates periodically. The poorest possible method of handling depreciation is that of allowing the asset to wear out without making any provision for depreciation. When a machine is bought to take the place of a machine that is worn out, it must be charged to the cost of production and not to the asset account. This makes some years bear a very heavy burden while others will bear only a small burden. Even if repairs and replacements are made each year, provision 345 346 METROPOLITAN SYSTEM OF BOOKKEEPING must be made for the complete wearing out of the machine or other asset. The only correct way of treating depreciation is to set aside periodically out of earnings a definite sum, so that no particular period will bear a heavy burden. Methods of Estimating Depreciation. There are several methods of estimating depreciation in common use. One is to simply appraise or estimate the value of each asset each year. The difference between the former estimate and the present one is the depreciation. This is a dif- ficult task if there are a large number of assets, such as tools and machines. It is not very satisfactory either because it does not con- sider the fact that a machine or other asset wears out faster as it be- comes older and that later years will bear a heavier burden. Another method is to take the difference between the cost of the machine and the residual or scrap value. This difference is divided by the number of years the machine is estimated to last. It is usually ex- pressed as a certain per cent of the cost taken off each year. If the cost of a machine was $1000 and it is worth $100 at the end of 10 years, $900 should be divided by 10 to give the deduction for each year. Expressed as a per cent of the cost to be taken off each year, 9% would be the deduction. This method is a simple one and a good one for short-lived assets. But there is one objection to it. The same amount is taken off each year but the repairs are more costly during the latter part of the period than during the first part. That makes the charge to manufacturing larger during the latter part of the period. Another method that equalizes the burden for a period of years is to take off a fixed per cent of the decreasing net value each year. In this way, using the same illustration, 20.6% should be taken off of the decreasing net value yearly. Taking off 20.6%, or $206, the first year, would leave $794. 20.6% of this subtracted would leave $630.44. By continuing this for ten years, the approximate value left would be $100. Methods of Entering Depreciation. Depreciation may be entered on the books by writing down the asset or by setting up a reserve. The method of writing down the asset has been illustrated in the sets al- ready used. In the case of office equipment, delivery equipment, and other similar assets, the asset is usually written down by a charge to Profit and Loss, or to Selling and a credit to the asset account. By this method, the bookkeeper must refer back to the year in which the asset was purchased in order to find its cost. This is objectionable from an insurance point of view. For this reason, if the amount is large, it is better to use the method of setting up a reserve. In the case of buildings, machinery, tools, and factory equipment, it is better to set up a reserve account for depreciation rather than to write down the asset. A separate reserve account should be kept for each asset account on which depreciation is taken, as, for Real Estate, DEPRECIATION 347 Reserve for Depreciation on Buildings; for Machinery, Reserve for Depreciation on Machinery; for Tools and Equipment, Reserve for Depreciation on Tools and Equipment. The Entry in each case would be a debit to the Profit and Loss account affected, as, Manufacturing To Reserve for Depreciation, Machinery In the Balance Sheet, depreciation must be shown as a deduction from the asset against which it was set up, as, Machinery $ 5000 Less 5% Reserve for Depreciation 250 $ 4750 Sale of Assets. When a machine is sold before it is completely worn out, the reserve for depreciation that has been set up must be taken into consideration in making the entry. When a machine or other asset is sold its full value must be taken out of the asset account. Whether the transaction will show a profit or a loss on the books at the time of making the entry will depend on whether the amount of the reserve for depreciation set up has been great enough to offset the loss in the sale of the asset. To illustrate, a machine that cost $500 three years ago is carried on the books at $500 with a reserve for depreciation of $150 set up. It is sold for $325, thus making a loss of $25. The entries would be as follows: Cash $325 To Machinery $325 for the selling price of the machine. To transfer the reserve for depreciation already on the books to Machinery, the entry would be: Reserve for Depreciation, Machinery $150 To Machinery $150 To account for the loss of $25 an entry must be made charging that amount to Surplus because it represents too small a charge to profits in previous years. If the sale is made at some other time than at the end of a fiscal period, the loss on the sale must be apportioned between former financial periods and the present one. If the books were closed December 31, and at that time a depreciation of $150 had been set up for a total of three years on an asset that cost $500, the carrying value of the asset was $350. If, on April 1, the machine was sold for $300, the first thing necessary would be to find the depreciation on the asset for three months and enter it as follows: Manufacturing $12 . 50 To Reserve for Depreciation, Machinery $12.50 The loss on the sale that has not been charged is $37.50. 348 METROPOLITAN SYSTEM OF BOOKKEEPING The depreciation would be charged to the Machinery account, as before, as follows: Reserve for Depreciation, Machinery $162.50 To Machinery . $162.50 The loss of $37.50 would be divided between Surplus and Manu- facturing in the proportion of three years to three months, ff , or ^f , should be charged to Surplus and ^, or ^-, to Manufacturing. The entry would be: Surplus $34.62 Manufacturing 2.88 To Machinery $37.50 If a machine that was carried on the books at $350 was sold at the end of the fiscal period for $375, the entry to Surplus would be a credit instead of a debit. In all these cases, the new machine would be charged to the Ma- chinery account and credited to Cash or to the account of the company from which the purchase was made. Exercise 82. On January 1, machinery was purchased for $2500. On December 31 of the same year, it is decided to compute deprecia- tion for the year at 8%. Make the necessary entry on December 31 and show how the depreciation would be shown in the balance sheet. Exercise 83. On May 1, a corporation purchased machinery for $4500; on June 1, it purchased additional machinery for $1200, and on August 1, machinery for $500. Statements are made December 31 of the same year and depreciation taken at the rate of 8% per annum. Find the depreciation charge on all the machinery and make the neces- sary entry. Exercise 84. A corporation purchased a motor truck for $1500 on March 1. When the books were closed on December 31 of the same year, depreciation was taken at the rate of 15% per year. In closing the books December 31 of the next year 15% of the diminished value was taken. Find the present value of the delivery equipment and make the entry for the depreciation. Exercise 85. January 1, a corporation purchased land and build- ings as follows: Land, $12500; Buildings, $22500. For three suc- cessive years the books were closed December 31 and a depreciation of 10% taken on the decreasing net value. On December 31 of the fourth year 10% is again computed on the decreasing net value. Make the necessary entry December 31 of the fourth year. Exercise 86. On January 1, a corporation bought a machine for $1750. On December 31 of the same year 15% depreciation was taken. December 31 of the next year the same per cent was taken off of the cost. On April 1, of the next year, the machine was sold for $1085. DEPRECIATION 349 Make the entries necessary to record the depreciation, the sale of the machine, and the profit or loss on the transaction. Before the profit or loss can be found, the depreciation charge for the time from the date of the last closing, December 31, to April 1 must be found and entered. Exercise 87. A corporation bought three machines, as follows: February 1, $1800; May 1, $2400; July 1, $800. December 31 of the same year a depreciation charge of 12% per year was made on the original cost. On March 1, of the next year, the machine which cost $1800 was sold for $1325. On September 1, the machine which cost $800 was sold for $650. Make all the entries necessary to record the depreciation on December 31 and the sales on March 1 and September 1. CHAPTER XXXIX MANUFACTURING, SELLING, AND PROFIT AND LOSS STATEMENTS Before making statements and closing the ledger for the month of January, a study must be made of the method of making the statements in a manufacturing business and of the new entries necessary to close the ledger. This will be done by taking a trial balance and inventories and from them making statements, a balance sheet, and giving the closing entries and the closing ledger accounts. Trial Balance, Decemb er 31, 19— Capital Stock $ 75000. 00 Surplus 6175. 25 Land & Buildings $ 25000.00 Machinery 7500.00 Tools & Equipment 1025.00 Delivery Equipment 1425.00 Furniture & Fixtures 375.00 Patents 2150.00 Notes Receivable 3896.00 Accounts Receivable 18277.55 Advances to Salesmen 250.00 Petty Cash 50.00 First National Bank 26175.50 Vouchers Payable 7192. 40 Notes Payable 5385. 75 Notes Receivable Discounted 1576. 00 Material Purchases 24834.75 Freight In 387.50 • Direct Labor 12173.80 Fuel, Light & Power 616.75 Factory Supplies 92.80 Indirect Labor 505.00 Repairs to Machinery 75.20 Repairs to Buildings 187.50 350 MANUFACTURING, SELLING, PROFIT AND LOSS STATEMENTS 351 Sales. $34217.90 Salesmen's Salaries $ 675.00 Salesmen's Traveling Expenses 615.00 Discount on Sales 215.25 Freight Out 92.80 Advertising 1435.00 Shipping 335.00 Delivery Expense 345.00 Office Salaries 750.00 Miscellaneous Office Expense 104.30 Stationery & Printing 35.20 Insurance 185.00 Discount on Purchases • 347.25 Collection & Exchange 16.80 Interest 92.85 $129894.55 $129894.55 Inventories, December 31, 19- Raw Material $8172.50 Finished Goods 5417.20 Unpaid Labor 452.25 Direct. $417.25 Indirect 35.00 Fuel on Hand 84.30 Factory Supplies 16.40 Unexpired Advertising 625.00 Unexpired Insurance 115.00 On Raw Material 85.00 On Finished Goods 20.00 On Delivery Equipment 10.00 Accrued Interest on Notes Payable 16.70 " " " " Receivable 21.40 The following depreciations and reserves are i allowed: On Buildings 1% On Machinery 3% On Tools & Equipment 4% On Delivery Equipment 2% On Furniture & Fixtures 2% Reserve for Bad Debts y% The student should make a careful review of Chapter XXXV on Manufacturing Costs before studying the following statements. 352 METROPOLITAN SYSTEM OF BOOKKEEPING Manufacturing, Selling, and Profit & Loss Statements for the month ending December 31, 19 — MANUFACTURING SECTION 616.75 84.30 Prime Cost: Material Purchases Less Inventory Freight In Direct Labor, Paid Unpaid Manufacturing Expense: Fuel, Light & Power Less Coal on Hand Factory Supplies Less Supplies on Hand.. Indirect Labor, Paid ■ Unpaid Insurance, Less Unexpired Repairs to Machinery " ". Buildings Patents Used Depreciation on Buildings, 1% * ■ Machinery, 3% u * Tools & Equip., 4% $24834.75 8172.50 $16662.25 387.50 12173.80 417.25 12591.05 92.80 16.40 505.00 35.00 120.00 85.00 532.45 76.40 540.00 35.00 75.20 187.50 143.33 250.00 225.00 41.00 $31746.68 Manufacturing Cost down $31 746 . 68 $31746.68 SELLING SECTION Sales Manufacturing Cost down $31746.68 Less Inventory, Fin. Goods 5417 . 20 $26329 . 48 Salesmen 's Salaries 675 . 00 " Traveling Exp. 615.00 Delivery Expense 345 . 00 Shipping 335 . 00 Freight Out 92 . 80 Advertising 1435.00 Less Unexpired 625 . 00 Insurance Less Unexpired Depreciation on Delivery Equip. Gross Selling Profit down 65.00 30.00 810.00 35.00 28.50 4736.87 $34002.65 $34736.45 Returns and Allow. 518.55 Net Sales 34217.90 Less Discount 215.25 Net Ret. from Sales $34002.65 $34002.65 MANUFACTURING, SELLING, PROFIT AND LOSS STATEMENTS 353 PROFIT AND LOSS SECTION Office Salaries Miscellaneous Office Expense Stationery & Printing Collection & Exchange Interest Paid Accrued, Notes Pay. Accrued, Notes Rec. Depreciation, Furniture & Fixtures Reserve for Bad Debts Net Profit $750.00 Gross Selling Profit down $4736.87 104.30 Discount on Purchases 347.25 35.20 16.80 $ 92.85 16.70 $109.55 21.40 88.15 7.50 ures 91.39 3990.78 $5084.12 $5084.12 The following journal entries would then be made, under date of December 31, 19 — , and posted to the ledger accounts affected: Inventory, Raw Material $ 8172. 50 To Material Purchases $ 8172.50 Direct Labor 417. 25 Indirect Labor 35. 00 ToAccruedLiabilitylnventories 452.25 Manufacturing 31746. 68 To Material Purchases 16662.25 Freight In 387.50 Direct Labor 12591.05 Fuel, Light & Power 532.45 Factory Supplies 76.40 Indirect Labor 540.00 Insurance 35.00 Repairs to Machinery 75.20 " Buildings 187.50 Patents 143.33 Reserve for Dep., Buildings 250.00 Reserve for Dep., Machinery 225.00 Reserve for Dep., Tools and Equip i. 41.00 354 METROPOLITAN SYSTEM OP BOOKKEEPING Selling $31746.68 To Manufacturing $31746.68 Sales 34217.90 To Selling 34217.90 Inventory, Finished Goods 5417.20 To Selling 5417.20 Selling 3151.55 To Salesmen's Salaries 675.00 " Traveling Exp. 615.00 Discount on Sales 215.25 Delivery Expense 345.00 Shipping 335.00 Freight Out 92.80 Advertising 810.00 Insurance 35.00 Delivery Equipment 28.50 Selling 4736. ,87 To Profit & Loss 4736.87 Interest 16. 70 To Accrued Liability Inventories 16.70 Accrued Asset Inventories 21, 40 To Interest 21.40 Discount on Purchases 347. 25 To Profit & Loss 347.25 Profit & Loss 1093. 34 To Office Salaries 750.00 Miscellaneous Office Exp. 104.30 Stationery & Printing 35.20 Collection & Exchange 16.80 Interest 88.15 Furniture & Fixtures 7.50 Reserve for Bad Debts 91.39 Profit & Loss 3990. 78 To Surplus 3990.78 MANUFACTURING, SELLING, PROFIT AND LOSS STATEMENTS 355 In posting to the Manufacturing, Selling, and Profit & Loss accounts the details of each entry must be given, as follows: Dec. 31 Dec. 31 Dec. 31 Manufacturing Material Pur. J Freight In Direct Labor Fuel, Light & Power Factory Supplies Indirect Labor Insurance Repairs to Mach. " " Building Patents Dep. on Buildings " " Machinery " * Tools & Equip. Manufacturing J Salesmen's Salaries " Trav. Exp. Delivery Expense Shipping Freight Out Advertising Insurance Dep. on Delivery Equip. Profit & Loss Office Salaries Misc. Office Expense Stationery & Printing Collection & Exchange Interest Dep. on Furn. & Fix. Reserve for Bad Debts Surplus 8 16662 387 12591 532 76 540 35 75 * 187 143 250 225 25 50 05 45 40 20 50 33 Dec. 31 41 — 31746 68 Selling 31746 31746 68 68 Selling 9 31746 68 Dec. 31 675 — # 615 — 345 — 335 — 92 80 810 — 35 — 28 50 4736 87 39419 85 Sales J Inv. Fin. Goods Profit & Loss 34002 5417 39419 65 20 85 9 750 104 35 16 88 7 91 30 20 80 15 50 39 Dec. 31 — 3990 78 5084 12 Selling Disc, on Pur. 9 4736 347 87 25 5084 12 356 METROPOLITAN SYSTEM OF BOOKKEEPING After closing the ledger and balancing all asset accounts remaining on the books and all asset elements in nominal accounts, a balance sheet should be taken, as follows: Balance Sheet, December 31, 19 — . ASSETS •LIABILITIES Real Estate $25000.00 Capital Stock 75000 00 Less Reserve for Dep. 250.00 24750 00 Surplus ( Notes Payable 10166 5385 03 75 Machinery- 7500.00 Vouchers Payable 7192 40 Less Reserve for Dep. 225.00 7275 00 Notes Receivable Disc. Labor Unpaid 1576 452 00 25 Tools & Equipment 1025.00 Interest Accrued 16 70 Less Reserve for Dep. 41.00 984 00 Reserve for Bad Debts 91 39 Delivery Equipment 1425.00 Less Depreciation 28.50 1396 50 Furniture & Fixtures 375.00 Less Depreciation 7.50 367 50 Patents 2150.00 Less i 3 ^ used 143.33 2006 8172 67 50 Inventory, Materials 8 Finished Goods 5417 20 Notes Receivable 3896 00 On hand 2320.00 Discounted 1576.00 18277 55 Accounts Receivable Advances to Salesmen 250 00 Fuel, Light & Power 84 30 Factory Supplies 16 40 Advertising 625 00 Insurance 115 00 Interest 21 40 Petty Cash 50 00 First National Bank 26175 50 99880 52 99880 52 ~ MANUFACTURING, SELLING, PROFIT AND LOSS STATEMENTS 357 SET IX, JANUARY closing work (Concluded) 8. Make Manufacturing, Selling, and Profit and Loss statements, using the following inventories: Raw Material ' $ 993 . 50 Finished Goods 1480 . 50 Coal on Hand 102.25 Insurance Unexpired : Manufacturing, $108.12; Selling, $22.58 130 .70 Advertising Unexpired 970.00 Interest Accrued on Notes Receivable 3.67 Compute depreciations and reserves as follows: Buildings 1 % Machinery 1 % Tools and Equipment 2% Furniture & Fixtures 1 % Delivery Equipment 2% Reserve for Bad Debts 1 % of Accounts Receivable Before using the inventories as a result of the taking off of these depreciations, submit them to your teacher for correction. 9. Make the necessary entries to close the books, and post them. a) To enter the inventories, and to transfer the accounts in the Manufacturing section to the Manufacturing account. b) To transfer the balance of the Manufacturing account to the Selling account. c) To transfer the accounts in the Selling section to the Sell- ing account. d) To transfer the balance of the Selling account to the Profit and Loss account. e) To enter the inventories, and to transfer the accounts in the Profit and Loss section to the Profit and Loss account. f) To transfer the balance of the Profit and Loss account to Surplus. 10. Rule all nominal and mixed accounts. Bring down all asset or liability elements. 11. Balance all accounts that show an asset or a liability unless there is simply one item in the account. Rule all accounts that balance. 12. Make a balance sheet of the ledger after closing. 13. Copy your Manufacturing, Selling, and Profit and Loss statements, and your Balance Sheet in your blank books. 14. Submit all of your books to your teacher for correction. 358 METROPOLITAN SYSTEM OF BOOKKEEPING REVIEW QUESTIONS 1. What is a corporation? 2. Give the steps necessary to organize a corporation. 3. Distinguish between preferred stock and common stock. 4. a) What is treasury stock? b) How does it differ from unsubscribed stock? 5. What auxiliary books are necessary to record the acts of a corporation as such? 6. Describe the stock ledger and explain the entries in it. 7. Explain each of the following accounts by telling for what each is used and what each shows in the statements: Subscriptions, Capital Stock, and Unsubscribed Stock. 8. Explain the meaning of prime cost, manufacturing cost, factory burden, and overhead expense. 9. In which statement should each of the following accounts and inventories be placed, and why: Discount on Sales, Discount on Purchases, Patents, Deprecia- tion on Machinery, Depreciation on Furniture & Fixtures, Interest, Inventory of Finished Goods, Inventory of Factory Supplies? 10. a) What is Good Will? b) Under what conditions should the account be opened up? How is it treated in the statements? 11. What entries should be made on partnership books to show the sale of a business to a corporation and the receipt of stock for it? 12. What entries should be made on corporation books to show the purchase of a partnership business and the issue of stock in payment? 13. a) What is a voucher? b) What is the meaning of the word as used in con- nection with a voucher system of accounts? 14. a) What are the advantages of the voucher system of accounts? b) Are there any disadvantages? 15. Describe three kinds of vouchers or voucher checks. 16. What is meant by the expression "distribution of voucher?" 17. Describe the voucher record, and tell how the entries are made in it. 18. a) How is the voucher record posted? b) How is it proved? 19. What entries are made when a voucher is paid? 20. Give two ways of computing depreciation. 21. Give two methods of entering depreciation on the books. 22. Give the closing entry to transfer the manufacturing costs to the proper accounts. 23. Give the closing entry to transfer the sales and the selling expenses to the proper accounts. 24. Give the closing entry to transfer the general items to the proper account. 25. Give the entry to close the Profit & Loss account. CHAPTER XL MANUFACTURING SET IX Transactions for February 1-28 The Same Books of entry will be used for this month as for Jan- uary. Vouchers will be made out in the same way and the entries will be made like those of January with the exception of a few new features which will be explained as they are taken up. Before making any entries for February, it will be necessary to transfer to the respective accounts the inventories that were opened up in special accounts for the purpose of closing the accounts. This is done by a reversing entry for each account effected, as follows: Material Purchases $993.50 To Inventory Raw Material $993.50 Interest $3.67 To Accrued Asset Inventories $3.67 In making entries in the sales journal for this month, use the first column for the amount of the invoice, the second, for the amount of the refrigerator sales for any invoice, and the third, for the amount of kitchen cabinet sales for any invoice. At the end of the month, the total of the Amount column should be debited to Accounts Receivable, the total of the Refrigerator Sales column should be credited to Re- frigerator Sales, and the total of the Kitchen Cabinet Sales column should be credited to Kitchen Cabinet Sales. February 2. The company has decided to manufacture a kitchen cabinet for the trade, in addition to the line of refrigerators already listed. To do this, the company has bought the Patent right for the manufacture of kitchen cabinets from C. D. Janis for $1500. The patent has five years to run. Pay him for it by voucher check. Charge it to Patents. The Patent Account. This account is kept for the cost of all patents. It is also charged for any money paid out for defending the patent right or for the cost of prosecuting for infringement of the patent. A patent gives the patentee the right to manufacture the 359 360 METROPOLITAN SYSTEM OF BOOKKEEPING article upon which the patent is granted, exclusively for a period of seven- teen years. Each time that a statement is made a proportionate part of the cost of the patent has been used in manufacturing. In this case, the patent has five years to run. Each year one-fifth of the cost must be charged off to Manufacturing, or one-sixtieth for one month. In the same way, any cost of defending the patent or of prosecuting for infringement must be apportioned over the time that the patent has to run. Bought an invoice of aluminum from the Everwear Aluminum Co., New York, amounting to $475. Terms: 2/10, n/30. J. A. Dreher & Co., Ft. Wayne, Ind. order: 16 Galvanized Refrigerators No. 255 8 Enameled " No. 325 Terms: 2/10, n/30. Bought an invoice of lumber from the Schroeder Lumber Co., Oshkosh, Wis., as follows: 10 M ft. Maple Lumber at $52.75 8 M ft. Oak Lumber at 71.40 5 M ft. Ash Lumber at 40.25 Terms: 2/10, n/30. Pay the Hilton Mfg. Co. for the invoice of machinery due today. The C. M. & St. P. R. R. Co. presents a freight bill for $185.75 for the two invoices of material purchased today. Pay it. D. E. Bolting, Muskegon, Mich., orders: 15 Enameled Refrigerators No. 320 18 " " No. 350 24 " " No. 360 Terms: draft 30 days after date. Make no entry for the draft till it is reported accepted. J. E. Brock, Cleveland, Ohio, orders: 8 Enameled Refrigerators No. 325 12 " " No. 350 20 Porcelain " No. 450 Terms: 2/10, n/30. Pay the Pritzlaff Hardware Co. for the invoice of hardware due today. % February 3. Bought an invoice of porcelain of the Lawrence Pottery Co., E. Liverpool, Ohio, amounting to $575.80. Terms: account 15 days. Pay freight on this purchase of porcelain by check in favor of the C. & N. W. R. R. Co., $57.25. Bought an invoice of glass from the Zimmers Glass Co., Wheeling, MANUFACTURING 361 W. Va., $346.80. Terms: cash, less 3%. Enter the full amount in the voucher record. C. N. Noble, St. Paul, orders: 16 Enameled Refrigerators No. 320 18 " * No. 350 5 Porcelain " No. 455 Terms: 2/10, n/30. J. C. Ochs, Ft. Wayne, Ind., orders: 6 Galvanized Refrigerators No. 215 12 " " No. 250 Terms: draft with B/L attached. Bought an invoice of machinery from the J. I. Case Machine Co., Racine, Wis., amounting to $1575. Terms: cash. Pay freight on this invoice of machinery by check in favor of the C. M. & St. P. R. R. Co., $8.95. February 4- Pay the voucher of January 5 in favor of the Western Coal Co. Bought an invoice of zinc and galvanized iron from the National Iron Co., Chicago, 111., as follows: zinc, $297.85; galvanized iron, $437.50. Terms: n/30; f. o. b. Milwaukee. Pay cash for stamps, $5; for telegrams, 75^; and for office sup- plies, $3.75. Bought of the Underwood Typewriter Co., City, one Underwood typewriter for $100. Terms: cash. J. A. Dreher & Co. report one enameled refrigerator, No. 325, damaged in transit. Give them credit for it. B. N. Rarden, Detroit, Mich., orders: 9 Galvanized Refrigerators No. 250 12 " " No. 260 5 Enameled " No. 320 Terms: sight draft for $200; balance, on account. F. A. Somers, Louisville, Ky., orders: 8 Enameled Refrigerators No. 350 12 Porcelain " No. 450 5 " " No. 460 Terms: 2/10, n/30. February 5. Bought an invoice of hardware from the Pritzlaff Hardware Co., City, amounting to $347.80. Of this, $16.50 is for re- pairs to the building, and the balance is for raw material. Terms: 2/10, n/30. Advertised in the Daily News for finishers for the factory. Pay for three insertions in cash, $2.25. Bought a safe for the office from the Hibbard Safe Co., Cincinnati, Ohio, for $475. Terms: n/30. 362 METROPOLITAN SYSTEM OF BOOKKEEPING Received D. E. Bolting's acceptance of our 30-day draft for the sale to him on the 2d. Pay Voigt & Co. for taking photographs and making cuts to be used in advertising matter, by check, $27.50. February 6. Pay the voucher of January 7 in favor of the Patton Paint Co. Received a check of C. D. Caldwell & Co. for invoice of January 28. One of the workmen, J. C. Belding, has bought a galvanized re- frigerator No. 250. Give him a discount of 10%. Enter it in the sales journal for the net amount. The cash is received. Enter it in the cash book. Check in both places. G. A. Bower, La Crosse, Wis., orders: 15 Enameled Refrigerators No. 320 24 " « No. 325 12 " " No. 350 Terms: cash, less 3%. The cash is received with the order. B. E. Derby, Columbus, Ohio, orders: 8 Galvanized Refrigerators No. 260 12 Enameled " No. 320 Terms: note at 30 days, with interest at 6%. The note is not received with the order. February 7. Bought of the City Supply Co., City, factory sup- plies amounting to $68.75. Terms: n/30. The bank reports the sight draft on B. N. Rarden left for col- lection on the 4th collected. Pay the charges of -ru% in cash. Issue a voucher check to yourself for the petty expenses for the week. Balance the petty cash book. N. D. Garvey paid the invoice of January 29. February 9. C. A. McKinney paid the invoice of January 30. Bought an invoice of varnish, stains, and shellac of the Patton Paint Co., City, amounting to $237.80. Terms: 1/10, n/30. The bank reports the sight draft with B/L attached, on J. C. Ochs, left at the bank on February 3, collected. Pay the collection charges, 25j£, in cash. Pay cash for envelopes and bill heads, $5.75. D. C. Harvey, Appleton, Wis., orders: 18 Enameled Refrigerators No. 350 12 " " No. 360 6 Porcelain " No. 450 Terms: 2/10, n/30. February 10. Received a check from C. L. Yoder, for invoice of January 31. MANUFACTURING 363 C. D. Masters, traveling salesman, reports expenses amounting to $47.85. Give him a voucher check for that amount. Received a bill from the Kort Printing Co. for printing circulars to be sent to the trade, $7.50. Pay it by voucher check. Pay Chas. Pollock cash, $2.50, for addressing envelopes for advertis- ing circulars. Pay cash, $6, for mailing these circulars. Received B. E. Derby's note for 30 days, dated February 6, with interest at 6%, for invoice of February 6. As the stock of finished goods is increasing and the warehouse is overcrowded, the board of directors has voted to buy the four lots adjoining the factory site and the building on it of the Ticonic Realty Co., for $15750. The lots are valued at $4400 and the building at $11350. The terms agreed upon are cash, $7000, and a mortgage payable one year after date with interest at 6% for the balance. Make a voucher for the purchase price. Write the check for $7000 and enter it in the cash book. After the voucher number, write, In part payment. In the journal make an entry debiting Vouchers Payable and crediting Mortgage Payable for the amount of the mortgage. The explanation should show to whom the mortgage is payable and the time and rate of interest. In the "When Paid" column of the voucher record, Cash and Mortgage should be written, with a J before " Mort- gage." February 12. D. C. Harvey reports one porcelain refrigerator No. 450 damaged in transit. Credit him for it. The time of one workman has been employed in repairing ma- chinery. Make a journal entry charging 12 hours time at 45^ an hour. C. N. Yahr, Dubuque, Iowa, orders: 14 Galvanized Refrigerators No. 220 9 " " No. 255 4 Enameled " No. 320 Terms: n/30. C. F. Gorrell, Pittsburg, Pa., orders: 6 Galvanized Refrigerators No. 260 15 Enameled " No. 315 6 " " No. 360 Terms: 1/10, n/30. J. A. Dreher & Co. paid the invoice of February 2 and the invoice of January 14. Make an entry for each invoice paid. Pay the Schroeder Lumber Co. for invoice of the 2d. Pay the Everwear Aluminum Co. for invoice of the 2d. February 13. G. A. Bower reports that two enameled refrigerators No. 320 were unsatisfactorv. He has been allowed a rebate of one-half 364 METROPOLITAN SYSTEM OF BOOKKEEPING the value of them. Since he has paid cash for his purchase, issue a voucher to him for the amount. What account was credited when the sale was made? This transaction must be charged to the same account. Discount at the National Exchange Bank, C. N. Yahr's note, dated January 23, payable 30 days after date, with interest at 6%. The bank charges 6 %. Do not forget that there is a credit on this note be- cause of an allowance. Also discount at the bank D. E. Bolting's acceptance of our 30-day draft, dated February 2. The bank charges 6%. Received a check of C. N. Noble for invoice of the 3d. Received a check of F. A. Somers for invoice of the 4th. February 14> Received of J. E. Brock a check for invoice of February 2, less discount. As the check was not received within the 10 days, we have refused to allow him the discount, and have notified him to that effect. Give him credit for the amount he has sent. Pay Pritzlaff Hardware Co. for the invoice of February 5. Issue a voucher check in your favor for the petty cash expenditures for the week. The manager hands you the pay roll for the factory for two weeks as follows: Skilled workmen and helpers $1236.40 Engineer and fireman 85 . 00 Unskilled workmen 35.00 Foremen 150.00 Shipping clerk and helpers 105.00 Issue a voucher check in your favor as cashier for the pay roll. February 16. Pay invoice of January 16 favor the Janes Lumber Co. Received a check from B. E. Derby to balance his account for January. The manager reports the first lot of kitchen cabinets ready for shipment. They will be known as No. 150 and will sell for $11.35. Add this item to your price list. C. L. Yoder, Peoria, 111., orders: 8 Galvanized Refrigerators No. 260 15 Enameled " No. 325 8 Porcelain " No. 450 6 " " No. 460 Terms: 2/10, n/30. D. G. Loucks, South Bend, Ind., orders: 5 Galvanized Refrigerators No. 210 12 " " No. 215 8 " " No. 225 15 " " No. 250 Terms: note at 30 days. MANUFACTURING 365 Make no entry for the note until it is reported received. C. F. Gorrel's acceptance, which was left at the bank for collection, is reported collected. Pay the collection charges in cash, 30^. February 17. As the company is in need of money for maturing bills, the board of directors has arranged with the National Exchange Bank to discount our note for $3000, payable 60 days after date, at 6% discount. Also discount at the bank B. E. Derby's note of February 6, with interest at 6%. The bank charges 6%. C. L. Voss, Detroit, Mich., sends a check for invoice of January 19 and orders: 8 Galvanized Refrigerators No. 255 12 Enameled " No. 315 20 " " No. 325 5 Porcelain " No. 460 15 Kitchen Cabinets No. 150 Terms: 2/10, n/30. In all sales of refrigerators and kitchen cabinets, the amount of the invoice must be entered in the first column, the sum of the re- frigerator sales in the second column, and the sum of the kitchen cabinet sales in the third column. L. C. Prey & Co., Keokuk, Iowa, order: 6 Galvanized Refrigerators No. 220 15 " " No. 255 8 Enameled " No. 315 12 Kitchen Cabinets No. 150 Terms: note at 30 days for $250: balance, on account. February 18. Bought of the Steiner Lumber Co., Oshkosh, Wis.: 15 M ft. Oak Lumber at $71.50 8 M ft. Ash Lumber at 40.15 5 M ft. Pine Lumber at 35.45 6 M ft. Maple Lumber at 51.25 Terms: draft at 30 days. The draft accompanied the invoice and has been accepted. Enter the purchase in the voucher record in the usual way. Mark the date of payment in the "When Paid" column and put a J before it to show that it was not a cash payment. Make a journal entry for the accepted draft. Do not forget that although no purchase ledger is kept, the name of' the company must be given in the explanation column of the journal. Since this voucher is paid so far as our records are con- cerned, it should be torn from the stub and Paid by 30-day acceptance should be written on the face of the voucher. It should not be sent to the Steiner Lumber Co. as companies do not receipt for vouchers except for cash payments. 366 METROPOLITAN SYSTEM OF BOOKKEEPING Received of J. E. Brock a check for the invoice and charge of Jan- uary 19 and the balance of the invoice of February 2. Pay the Lawrence Pottery Co. for invoice of February 3. February 19. D. C. Harvey, Appleton, Wis., sends a check for invoice of February 9, and orders: 8 Enameled Refrigerators No. 350 12 * " No. 360 15 Kitchen Cabinets No. 150- Terms: 2/10, n/30. Pay the Patton Paint Co. for invoice of February 9. Pay cash for cleaning offices $5, and for telegrams, $1.25. F. A. Somers, Louisville, Ky., orders: 10 Enameled Refrigerators No. 315 15 " No. 355 6 Porcelain " No. 450 20 Kitchen Cabinets No. 150 Terms: 2/10, n/30. February 20. C. L. Yoder reports one porcelain refrigerator No. 450 in a damaged condition. Give him credit for it. Pay Eiring Iron Co. for invoice of January 21. Received of D. G. Loucks his note at 30 days, for invoice of February 16. Pay cash for repairs to motor truck, $6.50. C. N. Yahr, Dubuque, Iowa, orders: 5 Galvanized Refrigerators No. 205 10 " " No. 220 5 Enameled " No. 315 12 " " No. 320 Terms: 2/10, n/30. J. A. Dreher & Co., Ft. Wayne, Ind., order: 18 Enameled Refrigerators No. 350 15 " " No. 360 5 Porcelain " No. 455 6 " " No. 460 15 Kitchen Cabinets No. 150 Terms: 2/10, n/30. B. N. Rarden, Detroit, Mich., orders: 6 Enameled Refrigerators No. 325 15 " " No. 355 12 " " No. 360 12 Kitchen Cabinets No. 150 Terms: 2/10, n/30. February 21. Received a check of C. F. Gorrel for 70 cents on the dollar of his account. As he is bankrupt it is accepted in full payment of his account. MANUFACTURING 367 The bank reports the note of C. N. Yahr and the acceptance of D. C. Harvey paid. When the note and acceptance were discounted, the company in- dorsed them to the bank. By so doing the company incurred a second- ary liability which was shown by crediting Notes Receivable Discounted. When they were paid, the secondary liability ceased. It is then neces- sary to take the amount out of Notes Receivable Discounted and put it to the credit of Notes Receivable. Make journal entries debiting Notes Receivable Discounted and crediting Notes Receivable. Do not forget to explain the entries. Received of L. C. Prey & Co. their note for $250, dated February 17, payable 30 days after date. B. E. Derby, Columbus, Ohio, orders: 15 Galvanized Refrigerators No. 260 8 Enameled " No. 315 12 " " No. 350 24 Kitchen Cabinets No. 150 Terms: 30-day draft. N. D. Garvey, Albany, N. Y., orders: 6 Enameled Refrigerators No. 320 8 " " No. 325 12 « " No. 355 18 Kitchen Cabinets No. 150 Terms: 2/10, n/30. Issue a voucher check in favor of yourself for the petty cash ex- penditures for the week. Balance the petty cash book. February 28. Discount at National Exchange Bank D. G. Loucks' note, dated February 16. The bank charges 6%. Bought of Western Supply Co. for the motor truck: 1 No. 36 Motor Top $175.00 2 No. 85 Solid Tires 66.50 3 gal. Lubricating Oil 1 . 35 50 gal. Gasoline 6.00 Terms: cash. Bought an invoice of galvanized iron and zinc from the National Iron Co., Chicago, 111., amounting to $318.95. Terms: n/30. Pay the freight on this invoice by voucher check to the C. M. & St. P. R. R. Co., $25.60. C. L. Yoder pays his invoice of February 16 and orders: 25 Kitchen Cabinets No. 150 Terms: 2/10, n/30. February 2J+. The. factory manager reports that two wood-working machines, bought on January 2, for $1500, are not doing satisfactory work. The board of directors has authorized their sale for $1200, cash, 368 METROPOLITAN SYSTEM OF BOOKKEEPING and two new ones have been purchased from the Matthews Machine Co. for $1850. The cash is received for the old machines and the new ones are bought on the terms, net 10 days. The cash received must first be entered and credited to the Ma- chinery account. The question of depreciation must then be con- sidered. 1 % of the cost was set up as a reserve at the end of January. This has been credited to Reserve for Depreciation on Machinery. In addition, the depreciation on the machines for 24 days of this month must be computed. Find the depreciation for one month at 1 % on the cost and take four-fifths of it. Make a journal entry crediting Reserve for Depreciation on Ma- chinery and debiting the Manufacturing account for the depreciation for this part of February. Then make an entry debiting Reserve for Depreciation on Machinery for the one and four-fifths months and credit- ing Machinery. The loss on these machines, $273, will be charged to the January and February business in the proportion of 5 to 4. Charge five-ninths of the loss to the January business and four-ninths to the February business. Make a journal entry debiting Surplus for the loss on the January business and debiting Manufacturing for the loss on the February busi- ness and crediting Machinery for the sum. Then make the usual entry for the new machines purchased. The bank reports J. E. Brock's acceptance of January 23 paid. Make the proper entry to show that you no longer have any liability for its payment. Received the 30-day acceptance of B. E. Derby for the sale on the 21st. C. L. Voss, Detroit, Mich., pays his invoices of January 26 and February 17, and orders: 8 Enameled Refrigerators No. 350 12 Porcelain " No. 450 6 " " No. 460 16 Kitchen Cabinets No. 150 Terms: 2/10, n/30. C. A. McKinney, Harrisburg, Pa., orders: 25 Galvanized Refrigerators No. 250 20 Enameled " No. 320 10 " " No. 350 15 Kitchen Cabinets No. 150 Terms: 2/10, n/30. Bought of the Minneapolis Lumber Co.: 7 M ft. White Pine Lumber at $52.75 4 M ft. Maple Lumber at 58.95 6 M ft. Oak Lumber at 73.85 Terms: n/30. MANUFACTURING 369 February 26. Received a check from F. A. Somers, Louisville, Ky., for invoice of January 28. He also orders the following: 14 Galvanized Refrigerators No. 250 12 Enameled " No. 315 18 Kitchen Cabinets No. 150 Terms: 2/10, n/30. Pay cash for cleaning the offices, $3.60, and for telegrams, $1.45. N. D. Garvey returned six enameled refrigerators No. 320 as unsuited to his trade. Allow him credit for them. Pay cash to D. G. Crane for repairs to the buildings, $15.75. The Kewanee Co. presents a bill for $375 for installing smoke con- sumers in our plant. Pay it by voucher check and charge it to Ma- chinery. February 27. L. C. Prey & Co., Keokuk, Iowa, pay the balance of the invoice of February 17, and order: 6 Galvanized Refrigerators No. 225 8 " " No. 250 12 Enameled " No. 325 16 Kitchen Cabinets No. 150 Terms: 2/10, n/30. D. G. Loucks, South Bend, Ind., orders: 6 Enameled Refrigerators No. 315 8 " " No. 350 12 " " No. 360 10 Kitchen Cabinets No.' 150 Terms: 2/10, n/30. C. D. Masters reports his traveling expenses to date, $52.40. Is- sue a voucher check to him for his expenses and for his salary for one month. February 28. Issue a voucher check for the petty cash expenditures for the week. Balance the petty cash book. Issue a voucher check in favor of yourself for the following pay roll: Skilled workmen and helpers $2046 . 50 Unskilled workmen and helpers 55 . 00 Engineer and fireman 85.00 Foreman 145.00 Shipping clerk and helpers 115.00 Deliveryman and helper 125.00 Manager 125.00 Secretary 150.00 Office force 135.00 CLOSING WORK 1. Close the sales journal and post it. You must show the post- ing to both Refrigerator Sales and Kitchen Cabinet Sales. 370 METROPOLITAN SYSTEM OF BOOKKEEPING 2. Close the cash book. You must first deduct the balance of cash, February 1, from the total of the General and Bank columns before closing the cash book as in January. This is necessary in order to find the cash received during February and deposited in the bank. It is this difference between the total of the Bank column and the balance, February 1, that is posted to the debit of the Bank account. Post all the totals that should be posted. 3. Close the journal and post it. 4. Prove the sum of the distribution columns with the sum of the Vouchers Payable column of the voucher record. Close the voucher record and post it. 5. Make a proof of the sales ledger. 6. Make a proof of the voucher record. 7. Take a trial balance of the general ledger. Submit all of your books and the Vouchers Paid envelope to your teacher for correction. 8. Make Manufacturing, Selling, and Profit and Loss statements, using the following inventories: Raw Material $1035.80 Finished Goods 2817.20 Factory Supplies 23.25 Insurance Unexpired 119.06 Advertising Unexpired 217.50 Interest Accrued on Notes Receivable 11.48 Interest Accrued on Mortgages Payable 24.79 Gas Bill Owed 37.45 Unpaid Wages (Productive Labor) 47 . 50 Patents written off for ^ of a year Depreciation charges as follows: Buildings, 1% on $14120.75, \% on $11350 Machinery, 1% on $6749.20, none on the last purchase Tools and Equipment 2% Furniture and Fixtures 1 % Delivery Equipment 2% Reserve for Bad Debts 2% of Accounts Receivable 9. Make the necessary entries to close the books. Refer to the outline of the closing entries at the close of January before making the entries. 10. Balance all accounts that show an asset or a liability unless there is simply one item in an account. Rule all nominal accounts. 11. Make a balance sheet from the ledger after closing. 12. Copy your Manufacturing, Selling, and Profit and Loss statements, and your Balance Sheet in your blank books. MANUFACTURING 371 13. Submit all of your books to your teacher for inspection. Set IX will be completed in Chapter XLI. Exercise 88. From the following trial balance and inventories make Manufacturing, Selling, and Profit and Loss statements for the month ending January 31, 19 — . Trial Balance, January 31, 19- Capital Stock Unsubscribed Stock Goodwill Land & Buildings Machinery, Tools & Equipment Horse & Wagon Furniture & Fixtures Patents Notes Receivable Accounts Receivable Petty Cash Second National Bank Material Freight In Direct Labor Repairs to Plant Fuel, Light & Power Factory Supplies Indirect Labor Advertising Salesmen's Salaries " Traveling Expenses Delivery Expense Freight Out Sales Returns and Allowances on Sales Miscellaneous Office Expense Office Salaries Interest Taxes Insurance Notes Payable Accounts Payable Notes Receivable Discounted $50000 .00 $10000.00 5000.00 17500.00 6250.00 575.00 285.00 1755.00 3896.75 15451.60 75.00 8736.45 9642.80 212.40 6300.20 93.75 375.00 112.50 312.75 327.50 450.00 385.00 125.50 28.50 18816. 85 236.75 56.75 375.00 18.90 318.50 295.75 7500. 00 10375 50 2500 00 $89192.35 $89192.35 $1575 60 18 95 2315 25 215 75 10 .50 52 .50 9 .75 12 50 45 25 1% of 14000 .00 372 METROPOLITAN SYSTEM OF BOOKKEEPING Inventories, January 31, 19 — Raw Material • Factory Supplies Finished Goods Patents, -g 1 ^ used; ff unused Direct Labor Accrued Indirect Labor Accrued Advertising Unexpired Interest on Notes Receivable " " " Payable Insurance Unexpired Depreciation on Buildings " " Machinery, Tools, & Equipment 2% " Horse & Wagon 2 % " " Furniture & Fixtures 1 % Reserve for Bad Debts — on Accounts Receivable 2% Charge three-fourths of the delivery expense to Selling and one-fourth to Manufacturing. Charge three-fifths of the insurance and of the taxes to Manufacturing and two -fifths to Selling. Exercise 89. Make the necessary entries to close the books in Exercise 88. Keep your entries until you have worked Exercise 90 in the next chapter. REVIEW QUESTIONS 1. a) What is the object of the petty cash book? b) How are the entries made from it weekly? 2. To what account should freight on machinery bought be charged? Why? 3. How should real estate bought and paid for in cash and by a mortgage be entered? 4. What entry should be made for another's note, with interest, discounted? 5. What entry should be made for the corporation's note discounted? 6. a) What is the object of the Notes Receivable Discounted account? b) What entry should be made when a note that has been discounted is paid by the maker at the bank? 7. What entries should be made when a machine that has depreciated in value is sold and a new one purchased? 8. In what statement should each of the following accounts and inventories be placed, and why: Patents, Reserve for Bad Debts, Interest accrued on Mortgages Pay- able, an unpaid gas bill? 9. What entry is made when the business buys a patent to be used in manufacturing its product? 10. What entry is made at the end of the fiscal period for the proportionate part of the patent used? CHAPTER XLI DISTRIBUTION OF PROFITS When the books of individual proprietors or of partnerships are closed, the balance of the Profit and Loss account is closed into the personal accounts of the proprietors and the balance of each personal account is closed into the capital accounts unless the balance is with- drawn. Each partner has a right to draw out his profits as soon as they are determined, or, if there is a loss, must suffer a diminution of his capital. In a corporation, it is necessary to keep the profits or losses sep- arate from the original capital stock. The chief reason for this is the fact that the stockholders have no right to the profits of the corpora- tion until the board of directors vote a part or all of the profits as dividends. Then, each stockholder has a right which he can enforce against the corporation. When the books are closed, the balance of the Profit and Loss ac- count is transferred to the Surplus account, if a profit, by the following entry: Profit & Loss To Surplus If a loss, the transfer is to the Deficiency account, as follows: Deficiency To Profit & Loss By some, an Undivided Profits account is opened up to which the net profits are transferred. The balance of this account is transferred to Surplus. Powers of the Board of Directors. The board of directors is given wide discretionary powers in the declaration of dividends. It may set aside a part or all of the profits for extensions, for unusual losses that may arise, to make up deficiencies, or for any other legitimate purpose. But so long as the directors do not misuse or misappropriate the profits of the business, the stockholders have no remedy. Dividends. After statements have been made to show the net profits of the corporation, the board of directors meets and examines the statements, and determines whether a dividend is to be declared or not. 373 374 METROPOLITAN SYSTEM OF BOOKKEEPING If the board of directors declares a dividend, it will be recorded in the Minute Book. The record will show the dividend declared, the date on which it is payable, and the date on which the transfer books are to be closed. The dividend is usually declared as a certain per cent of the par value of the stock outstanding, as, a 2% dividend or a dividend of $2 per share on a par value of $100 a share. Dividends may be de- clared at any time that the net profits have been determined, but are usually declared annually, semi-annually, or quarterly. Entries for Declaration of Dividends. When the board of directors declares a dividend, the bookkeeper makes an entry like the following: Surplus To Dividend No. 10 5% dividend, per minutes of the board of di- rectors, payable to stockholders of record, January 20, per minute book, page 25. Each dividend is given a certain number by which it is known in the entries. Closing the Transfer Books. When the board of directors declares a dividend, it sets a certain date for closing the transfer books. That means that during that time no transfers of stock can be made on the books but that the dividends will be paid to the stockholders as shown on the books at that time. The transfer books refer to the Stock Transfer Book and the Stock Ledger. Payment of Dividends. When the dividends are payable, a dividend check is issued to each stockholder for the amount to which he is en- titled. One entry is usually made on the Cash Payments for all the dividend checks as follows: Voucher No. 405 per dividend book $2000 But one voucher is usually issued for all the dividend checks and charged to Dividend No. 10 in the Sundry Accounts column. The amount each stockholder is to receive is shown in the dividend book like the illustration on page 302. Stock Dividend. The dividends already explained have been cash dividends. Sometimes there have been profits sufficient to declare a dividend but to pay a cash dividend would impair the working capital of the business. Or, the cash may be needed for other purposes. Then, a stock dividend may be declared. To do this, the corporation must have treasury stock or unsubscribed stock on hand, or must increase its capital stock by an amendment to the charter. The entry for the declaration of the dividend would be Surplus To Stock Dividend No. 2 DISTRIBUTION OF PROFITS 375 The entry for the issue of the stock in payment of the dividend would be the following if unsubscribed stock was used: Stock Dividend No. 2 To Unsubscribed Stock If treasury stock was used, it would be: Stock Dividend No. 2 To Treasury Stock Responsibility of Directors. The directors are held to a strong legal responsibility in the declaration of dividends. A dividend cannot be declared and paid out of capital, but only out of net profits either of the current year or of accumulated profits of other years that have not been distributed as dividends or appropriated for other purposes. If the directors impair the capital by declaring dividends, they are per- sonally responsible for the amount. Many corporations prefer to pay a certain rate of dividend each year instead of paying a high rate one year and a low one the next. They can do this by accumulating a surplus in the most prosperous years. Reserves. Whenever any part of the surplus is set aside and re- served so that it cannot be declared as dividends, it is called a reserve. This is done by a vote of the board of directors usually before a dividend is declared, but it may be done at any time that there is a surplus. The reserve account is given a name that indicates the nature of the appropriation. The reserve may be for something new, as, new build- ings, new land, new machinery, etc. The entry would be: Surplus To Reserve for New Buildings or, Surplus To Reserve for New Machinery If the reserve is for the purpose of providing for unusual losses, for accidents, or for emergencies, the account would be Reserve for Fire Loss, Reserve for Renewals, Reserve for Accidents, etc. The reserve may be for the purpose of setting aside from time to time out of profits amounts sufficient to meet an obligation maturing at some particular time. Of such a nature are Sinking Fund Reserves to take care of bonds at maturity. These will be explained in Chapter XLII. Reserves Belonging to Profit and Loss. The reserves here considered are reserves that are a part of the distribution of profits. They must not be confused with reserves that must be set aside before net profits are found. Reserves of this nature may be a part of the manufacturing, selling, or general sections. They may be reserves for depreciation on buildings, machinery, etc., reserve for bad debts, etc. They are losses and must be deducted before net profits are found. 376 METROPOLITAN SYSTEM OF BOOKKEEPING Exercise 90. The board of directors voted to set aside 10% of the net profits, as shown by the statements of Exercise 88, as a reserve for accidents, and declared a stock dividend of 2%. Make the necessary entries for the reserve, for the declaration of the dividend, and for the payment of the dividend in stock. Exercise 91. The A Mfg. Co. is incorporated for $50000, with all the stock outstanding. For the six months ending December 31, the net profits were $9375.45. The board of directors met and voted the following: 1. To set aside out of profits $2000 for improvements 2. To reserve $1000 for accidents 3. To declare a dividend of 6% Make the necessary entries to do this and to pay the dividend. Exercise 92. The Home Grocery Co. is incorporated for $100000. $75000 is fully paid up stock, the rest is held for future development. The net profits for the six months ending June 30 were $8850.75. The board of directors voted to set aside $5000 for new buildings. They also voted a stock dividend of 3%. Make the necessary entries to do this and to pay the stock dividend. Exercise 93. The Fish Mfg. Co. is incorporated for $100000. $50000 is fully paid up 7% preferred stock. The balance is common stock, $40000 of which is fully paid up, the other $10000 being held for future development. For the year ending December 31, the net profits were $9125. The board of directors voted to set aside $3000 for new machinery, to pay the dividend on the preferred stock, and to pay as large a whole per cent of dividend as can be paid on the common stock. Find the per cent to be paid on the common stock and make the necessary entries to record the action of the board of directors and the payment of the dividends. SET IX, FEBRUARY (Concluded) The board of directors at its meeting, March 4, voted to set aside out of surplus $500 for a reserve for accidents. It also declared a dividend of 1% on the capital stock outstanding. These acts are re- corded in the minute book on page 10. The dividend is payable March 15. Make the necessary entries to record the acts of the board of directors. The entry should be dated March 4. On March 15, .dividend checks would be written and sent to the stockholders. Make out a dividend list showing the amount each stockholder should receive. Make but one entry in the voucher record and in the cash book for all the dividend checks issued. CHAPTER XLII BONDS AND FUNDS A Bond is, in effect, a promissory note issued under seal by a corpora- tion or by a governmental unit like a nation, state, county, or city. A bond is usually issued for a much longer time than a note and con- tains a formal statement concerning the issue of the bonds and the security, and usually names a trustee to hold the security for the bondholders. As to form and method of paying interest, bonds are coupon and registered. Coupon Bonds are payable to the order of a person or to bearer, and are transferred by indorsement or delivery. They have attached to them coupons for each interest installment as it falls due. These coupons must be presented and surrendered when the interest is paid. Registered Bonds are payable to a specified person whose name is registered in the books of the corporation or governmental unit. They must be transferred on the books to the name of the indorsee in order to make the transfer valid. Interest is paid in the same manner as interest on a note, to the holder whose name is registered on the books. As to Security, bonds are usually named to indicate the kind of security back of the bonds, as, first mortgage bonds, collateral trust bonds, income bonds, etc. The Object of issuing bonds is to secure money for some corporate purpose without giving to the lender a voting interest in the business and without paying as high a rate of interest as the rate of dividend on preferred stock. Since bonds are a direct obligation of the corpora- tion, it is easier to secure additional capital in this way if the corpora- tion has a good standing. Bonds May Be Authorized by the stockholders or by the board of directors. After they are authorized, they are usually advertised for sale and subscriptions taken for them. When the bonds are ready for delivery the following entry is made for the authorized issue: Bonds in Treasury To Bonds 377 378 METROPOLITAN SYSTEM OF BOOKKEEPING When any of the bonds are sold at par, the entry is: Cash To Bonds in Treasury If the bonds are issued for property bought, such as, real estate, an entry would first be made debiting the property and crediting the seller. Then, the seller would be debited and Bonds in Treasury credited. Discount or Premium on Bonds. If bonds are sold at a discount, the entry becomes Cash Discount on Bonds To Bonds in Treasury If sold at a premium, it becomes Cash To Premium on Bonds Bonds in Treasury Bonds in Treasury represents bonds authorized but not issued. It represents the right of the corporation to sell bonds and receive cash or other assets for them. It is best shown on the balance sheet as a deduction from the liability of bonds, so as to show the actual out- standing bonds. Discount on Bonds in Closing. The reason bonds are sold at a discount is because the rate of interest is not large enough to give the investor sufficient return for his money if they are sold at par. The discount is really interest paid in advance because if the bonds are not sold at a discount, the interest rate would be higher. Discount On Bonds should be carried on the books as a deferred asset and a pro- portionate amount deducted each year depending on the life of the bond. If $100000 worth of bonds, authorized to run 20 years and bear interest at 5%, were sold at 90 the following entry would be made: Cash $90000 Discount on Bonds 10000 To Bonds in Treasury $100000 Each year $5000 would be paid as interest on the bonds. The entry would be: Bond Interest $5000 To Cash $5000 But the $10000 discount represents interest paid in advance, one- twentieth of which should be borne by each year. The entry would be Bond Interest $500 To Discount on Bonds $500 The real charge to Profit and Loss would thus be $5500 yearly. If bonds are sold at a premium, it is because the rate of interest is high considering the financial standing of the corporation. The BONDS AND FUNDS 379 premium received should be considered as h reduction of the interest charge from year to year by the following entry: Premium on Bonds To Bond Interest Very often if the discount or the premium is small, it is all charged to Profit and Loss in one year. When the bonds are due and canceled the entry is: Bonds To Cash In order to provide for the payment of bonds as they mature, some provision should be made f<5r the setting aside of such a sum each year so that at maturity sufficient cash or other assets will be on hand to take up the bonds. This is usually called a Sinking Fund. A Fund is a sum of money or other assets set aside for some definite purpose. The reserving of profits for any purpose, such as, for new buildings, for extensions, etc., is not a fund. But taking profits in the form of money or other assets out of the ordinary assets of the business and putting them in a particular place constitutes a fund. This fund may be in the form of a savings account or in the form of a fund deposited with a trust company or other trustee. A Fund Account is always an. asset, as it represents assets that have been set aside. The fund, when set aside for the purpose of se- curing the payment of money to creditors, is usually given into the hands of a trustee of the fund.. Such a fund for the purpose of secur- ing the holders of the bonds of a corporation is called a Sinking Fund. Sinking Fund. The trustee of a sinking fund periodically receives cash from the corporation according to the terms of the issue of the bonds and the conditions of the trusteeship. The trustee usually in- vests the money in approved securities and adds the interest received from them to the fund itself. The entry that is made when the money is turned over to the trustee is: Sinking Fund To Cash The interest received on the securities will be entered as follows: Sinking Fund To Sinking Fund Interest In this way, much less need be set aside than the proportionate amount found by dividing the amount of the bond issue by the number of years that they have to run. For example, suppose that a company has issued $250000 worth of 20-year bonds, bearing interest at 5%. If the proportionate amount were set aside, $12500 would be necessary yearly. But if the money set aside each year can be invested so as to yield 4%, only $8395 would be necessary yearly. 380 METROPOLITAN SYSTEM OF BOOKKEEPING Other Funds. A corporation may set aside a fund for some purpose that concerns the business itself. In that case the fund is usually in the form of a savings account, a special account in the bank, or stocks or bonds kept for a specific purpose, and usually remains in control of the corpora- tion itself. Such a fund would be an Accidents Fund, a Building Fund, an Insurance Fund, an Employers' Liability Fund. When money is needed for the purpose for which the fund was created, Cash is debited and the fund account is credited. Exercise 94. May 1. The C. Jackson Motor Co. has voted to issue $500000 First Mortgage 4% bonds to run for 20 years, interest payable semi-annually. May 10. $30000 of these bonds have been subscribed for and sold at par for cash. June 15. The balance of the bond issue has been sold for cash at 90. Make the necessary entries. Exercise 95. The C. Jackson Motor Co. pays the semi-annual interest on Novem- ber 1, according to the conditions given in Exercise 95. Make the necessary entry. Exercise 96. In making statements for the C. Jackson Motor Co., on December 31, according to the conditions given in Exercises 94 and 95,, what will be the loss on these bonds that should be charged to this year's business? What entries should be made to show the loss sustained? The accrued interest from November 1 must be considered as an inventory and an entry must be made for the proportionate part of the discount used. Exercise 97. The books of E. B. Foster & Co. are out of balance. You are employed to find the amount of the difference, to make whatever corrections can be made, and to make an adjusting entry to make the books balance. The books of entry have been destroyed but the following information is obtained from other sources: Cash -on hand and in the bank amounts to $13285.90; from the invoices on file, the total purchases are found to be $13386.40; from the duplicate sales, the total sales are found to be $11218.20. The posting of the cash book and of the journal has been completed, both the daily and monthly posting. The purchase book and sales book have been posted daily but not in total. The accounts on the general Ledger show the following balances: Capital Stock, $50000; Surplus, $1478.60; Treasury Stock, $5000; Raw Material, $8550; Factory Expense, $212.40; Accidents Savings Fund, $575; Heat, Light, and Power, $378.90; Insurance, $136.80; Freight In, $272.40; Freight' Out, $56.30; Land and Buildings, $20000; Machinery, $5784.20; Reserve for Depreciation on Machinery, $115.68; Reserve for Depreciation on Buildings, $200; Reserve for Accidents, $575; Reserve for Bad Debts, $102.50; Sales, Dr., $210.40; Mortgages Payable, $8000; Delivery Equipment, $1275; Notes Receivable, $3265.75; Notes Payable, $412.60; Notes Receivable Discounted, $1236.50; Accounts Receivable, $5375.80; Accounts Payable, $3213.25; Stable Expense, $112.80; Selling Expense, $238.25; Salaries, $275; Interest, Dr., $38.90; Office Expense, $137.80; Discount on Sales, $124.30; Discount on Purchases, $311.75. a) Make the necessary entries for the posting of the totals that have not been posted, and include them in the proper accounts. b) Arrange the accounts in a trial balance in the proper order. You are instructed to place the difference between the two sides in the Adjustment account. Your knowl- edge of accounts should tell you on which side of the trial balance to place the amount of each account. BONDS AND FUNDS 381 REVIEW QUESTIONS 1 . a) What is meant by a dividend? b) Who has the power to declare a dividend? 2. Must a dividend be declared if there are sufficient profits? Explain. 3. If a corporation has a surplus from previous years and a loss for the current year, may a dividend be declared? 4. What entry should be made when a cash dividend is declared? 5. What entry should be made when a cash dividend is paid? 6. a) What is a stock dividend? b) How do the entries for a stock dividend differ from those of the ordinary cash dividend? 7. What entries should be made if the board of directors votes to reserve a part of the profits for accidents, a part for new buildings, and a part for loss by fire? 8. a) What is the effect of a liability inventory in Productive Labor? b) How is it entered on the books? 9. a) What is the effect of an inventory of interest accrued on Notes Payable? b) Of discount paid in advance on Notes Receivable? 10. a) What is the effect of an inventory of motor truck supplies on hand? b) How is it entered on the books? 11. a) What is a bond? b) How does it differ from a note? 12. Distinguish between coupon and registered bonds. 13. a) What entry is made when bonds are authorized? b) What entry is made when bonds are issued ? 14. What entry is made when bonds are sold at a discount? 15. What entry is made when bonds are sold at premium? 16. How should Discount on Bonds be treated when closing the books? 17. What entries should be made when bonds are issued for property bought? 18. a) What is a fund? b) Describe funds for at least three different purposes. 19. What entry is made when a fund is created? 20. What entry is made when money is taken from the fund for the purpose for which it was created? MISCELLANEOUS QUESTIONS AND PROBLEMS 1. a) What entry should be made when money is stolen from the business? b) What entry should be made when money is embezzled by an employee? 2. What entry should be made when a delivery horse dies? 3. What entry should be made when merchandise is destroyed by fire? 4. What entry should be made when insurance is received for loss on merchandise? 5. A company has at the end of a fiscal period set up a reserve for bad debts. Dur- ing the next year, it loses an account of the Dobbs Machinery Co. amounting to $680. What entry should be made? 6. What entry should be made when a debtor becomes bankrupt and pays 75c on the dollar? 7. A company finds after its books have been closed that the inventory of finished goods has been incorrectly computed. The inventory should have been $1000 less. How would you adjust it? 8. A corporation borrows $10000 from a bank on its note, at three months, at the discount rate of 5%. It gives as security for this loan 150 shares of stock of the C. & N. W. R. R. Co., of a par value of $100 per share and a market value of 121 £. What entries would be made? 382 METROPOLITAN SYSTEM OF BOOKKEEPING 9. Suppose that in problem 8, the corporation cannot pay the $10000 at maturity and that the bank sells the stock at 118^. It deducts the amount of the debt and $25 expenses and returns the balance to the corporation. What entries should be made? 10. A corporation has discounted C. Berg's note for $1000, payable 60 days after May 9, and bearing interest at 6%, at the First National Bank. At maturity, the maker cannot pay it, and the corporation pays it by voucher check in favor of the bank, includ- ing interest and protest fees, $1.25. Make the necessary entries. 11. What would be the advantage of using Notes Receivable and Notes Payable books as books of entry instead of as auxiliary books? 12. How should the Notes Receivable and Notes Payable . books be posted daily and monthly if these books were used as books of entry? 13. The present market value of raw material is higher than the cost. At what price should it be inventoried? Why? 14. The present market value of raw material is below cost. At what price should it be inventoried? Why? 15. A factory that manufactures wire fence, manufactures also the machines that make the wire fence, both for its factory and for other factories. At what price should a machine of this kind manufactured and used by the same company be charged? Should it be the cost to manufacture, the selling price to other factories, or a price between these two? 16. A retail store has four departments; hardware, stoves and ranges, farm imple- ments, and automobile supplies. Cash sales are kept by departments and entered in the cash book only. The purchase book and sales book are kept by departments. Three ledgers are used. The business receives many notes on account of sales of farm imple- ments and discounts these notes at the bank. All payments are made by check but the voucher system is not used. Draw up books of entry suitable for this business and make entries in them to show that you understand their use. Then show the closing of each of these books of entry. 17. The sales of merchandise for a year amounted to $13750; the purchases amounted to $9325; the inventory on hand at the beginning of the year amounted to $7386. Find the inventory at the end of the year if the sales were made at a profit of 20%. Show the Merchandise Trading account closed. 18. A business shows a profit of $3125 for the year, and a net worth at the end of the year of $7394.50. What was the capital at the beginning of the year if there were withdrawals amounting to $500? 19. The business of Hiller & White shows a profit for the year of $3762.50. They are equal partners. Hiller's net worth is $1276 after his share of the profit has been entered and White's is $1125.80. Hiller withdrew during the year $450, and White, $350. Find the condition of each account at the beginning of the year and show each capi- tal account closed. 20. The C. L. Landers Mfg. Co. has sustained losses by fire, as follows: Raw Material, $1375.60; Finished Goods, $1998.25; Machinery, $3750; Buildings, $5250. The insurance company has settled for the insurance and paid cash as follows: Raw Material, 80%; Finished Goods, 80%; Machinery, 70%; Buildings, 75%. There is on the books an unexpired premium of $135.80, of which $62.70 is lost on account of the fire. There are also accounts for Depreciation on Machinery for $150 on a total valuation of $7500, and for Depreciation on Buildings amounting to $250, on a total valuation of $12500. Make the necessary entries to adjust the fire loss. In making the entries for this problem, the depreciation on the assets that were destroyed must be taken out of the Depreciation accounts and placed in the asset accounts. The final entries should be made in such a way as to leave in the asset accounts the cost value of the assets remaining after the loss by fire. . APPENDIX ANOTHER METHOD OF KEEPING THE BANK ACCOUNT The most common method of keeping a bank account has been given, but many accountants and bookkeepers prefer a different method based on the statements rendered by banks at the end of each month. When a bank renders a statement of account to a depositor at the end of the month, the sum of the balance at the beginning of the month and of the deposits during the month is shown in one column. In another column, the checks are listed in detail and the total found. Then, the balance is found by deducting the total checks from the sum of the balance at the beginning of the month and the deposits during the month. Because of this method of making out the bank statement, it is very desirable to show the results in the check book in the same way. If this is done, as in the illustration on page ii, deposits, including collections and notes discounted, would be entered on the left check stub only. Each deposit would be added to the amount already deposited, and at the foot of each left check stub, the total would be forwarded to the top of the next left check stub. At the end of the month, the total shown on the last left check stub should agree with the sum of the balance and the deposits on the bank statement. In the same way, on the right check stub, the amount of each check is added to those previously written during the month and the total of each page of the right check stub is forwarded to the top of the next right check stub. Nothing is entered on the right check stub but checks, and notes and drafts charged. At the end of the month the total on the right check stub should agree with the total checks on the bank statement, unless some of the checks issued have not yet been. paid by the bank. This can easily be proved by reconciling the bank statement with the check book. In proving cash at any date during the month, the difference between the total deposits, including the balance at the beginning of the month, and the total checks for the month is found. If desired, the balance may be inserted in the explanatory column of the left check stub like the illustration, but the two stubs must not be balanced till the end of the month. At the end of each month, the two stubs are balanced and the balance brought down below the ruling on the left check stub, like the illustration on page ii. This bal- ance is the only amount from the previous month that should be used for the next month. As has been explained, it must agree with the balance on the bank statement, unless there are checks outstanding which have not yet been paid by the bank. Although this method is not as simple for the beginner as the method of adding deposits and subtracting checks, it is preferred by many because it is easier to compare the results at the end of the month with the bank statement, it is easier to check results with the cash book, and also because most persons make fewer mistakes in adding than in subtracting. 11. METROPOLITAN SYSTEM OF BOOKKEEPING METHOD OF KEEPING THE BANK ACCOUNT Left Check Stub Right Check Stub 3o 3/ Forwarded /3o>So fOj2- /■3*J^ /7*t/. So / 4-/3 c 1&> Date. 30 1 Forwarded Nn. 7 7-2- 5^ U?w?s 1^_19^=. -*£L<^?y 3/ 19— . £Lda&^EL4gCg2£» ^ Fnr ^(Ls,**SlZ*(-f72jr. y- j£ Discount 2^% Z^_ I! ^ K Amount ^rX J^~ 33S~0 7/0 C fo J~0 ■ Uam/. 3/ Forwarded A^-a^iz^yi^c^^- SW/ S¥iA/ /3fo 7