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Title: Cyclopedia of Commerce, Accountancy, Business Administration, v. 4
Author: Various
Language: English
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the "Pen Corner," 173 Broadway, New York City]

                        Commerce, Accountancy,
                        Business Administration

                               VOLUME 4

                     _A General Reference Work on_

                        METHODS AND MANAGEMENT

            _Illustrated with Over Two Thousand Engravings_

                              TEN VOLUMES

                      AMERICAN TECHNICAL SOCIETY

                            COPYRIGHT, 1909

                            COPYRIGHT, 1909
                      AMERICAN TECHNICAL SOCIETY

                  Entered at Stationers' Hall, London
                          All Rights Reserved

Authors and Collaborators

JAMES BRAY GRIFFITH, _Managing Editor_
 Head, Dept. of Commerce, Accountancy, and Business Administration,
   American School of Correspondence.

 Of the Firm of Lybrand, Ross Bros. & Montgomery, Certified Public
 Editor of the American Edition of Dicksee's _Auditing_.
 Formerly Lecturer on Auditing at the Evening School of Accounts
   and Finance of the University of Pennsylvania, and the School of
   Commerce, Accounts, and Finance of the New York University.

 Of the Firms of Jones, Caesar, Dickinson, Wilmot & Company, Certified
   Public Accountants, and Price, Waterhouse & Company, Chartered

 Of the Firm of Lybrand, Ross Bros. & Montgomery, Certified Public

 Of the Firm of F. H. Macpherson & Co., Certified Public Accountants.

 Consulting Public Accountant.
 Author of "Loose-Leaf Bookkeeping," and "Anti-Confusion Business

 Of the System Department, Burroughs Adding Machine Company.

 _Editor-in-Chief_, Textbook Department, American School of

 Public Accountant and Auditor.
 President, Incorporated Accountants' Society of Illinois.
 Fellow, Institute of Accounts, New York.

 Of the Cleveland Bar.
 Lecturer on Suretyship, Western Reserve Law School.
 Author of "Principles of Business Law."

 Auditor, Westlake Construction Company.

 Secretary, American School of Correspondence.

 Associate Editor, Textbook Department, American School of

 Formerly Manager, System Department, Elliott-Fisher Company.

 Specialist in Industrial Organization.
 Author of "Machine-Shop Economics and Systems," etc.


 Assistant Editor, Textbook Department, American School of

 Cost Expert.
 Chief Accountant, Fore River Shipbuilding Co.

 Associate Professor of Mathematics, Armour Institute of Technology.

 Advertising Manager, The McCaskey Register Co.

 Registrar and Treasurer, American School of Correspondence.

  Managing Editor, _Engineering-Contracting_.
  Author of "Handbook of Cost Data for Contractors and Engineers."

R. T. MILLER, JR., A. M., LL. B.
  President, American School of Correspondence.

  Manager of Advertising, National Cash Register Co.

  Advertising Manager, Burroughs Adding Machine Company.
  Author of "The Credit Man and His Work" and "Financial Advertising."

  Consulting Engineer.
  Chief Engineer, Construction Service Co.

  Publicity Manager, American School of Correspondence.

  General Manufacturing Agent for the China Mfg. Co., The Webster
    Mfg. Co., and the Pembroke Mills. Author of "Cost Finding"
    and "Cotton Mills."

  Advertising Manager, Elliott-Fisher Co.

  Filing Expert.
  Secretary, Browne-Morse Co.

  Expert on Loose-Leaf Systems.
  Formerly Manager, Business Systems Department, Burroughs
    Adding Machine Co.

  Head, Instruction Department, American School of Correspondence.

=Authorities Consulted=

The editors have freely consulted the standard technical and business
literature of America and Europe in the preparation of these volumes.
They desire to express their indebtedness, particularly, to the
following eminent authorities, whose well-known treatises should be in
the library of everyone interested in modern business methods.

Grateful acknowledgment is made also of the valuable service rendered
by the many manufacturers and specialists in office and factory
methods, whose coöperation has made it possible to include in these
volumes suitable illustrations of the latest equipment for office use;
as well as those financial, mercantile, and manufacturing concerns
who have supplied illustrations of offices, factories, shops, and
buildings, typical of the commercial and industrial life of America.

 Formerly Professor of Principles and Practice of Accounts, School of
   Commerce, Accounts, and Finance, New York University.
 Author of "Accounts of Executors and Testamentary Trustees."

 Specialist in Factory Organization and Accounting.
 Author of "The Complete Cost Keeper," and "Factory Manager and

 Specialist in Corporation Accounts.
 Author of "Quasi Public Corporation Accounting and Management."

 Advertising and Sales Specialist.
 Author of "How to Do Business by Letter," and "Art of Writing and
   Speaking the English Language."

 Author of "Theory of Accounts."

 Managing Editor of _The Engineering Magazine_.
 Associate in Mechanical Engineering, Columbia University.
 Corresponding Member, Canadian Mining Institute.

 Public Accountant.
 Specialist in Factory Accounting.
 Contributor to The Engineering Press.

 Associate Editor of the _New York Journal of Commerce_.
 Author of "The Modern Bank."

 Dean of the New York University School of Commerce, Accounts, and
 Editor, _The Journal of Accountancy_.
 Author of "Money, Exchange, and Banking."

 Of the New York Bar.
 Author of "Classified Corporation Laws of All the States."

 Of the New York Bar.
 Author of "Corporate Management," "Corporate Organization," "The
   Modern Corporation," and "Partnership Relations."

 Author of "The Laws of Business."

 Advertising Manager, Burroughs Adding Machine Company.
 Formerly Manager of Publicity, National Cash Register Co.
 Author of "The Credit Man and His Work," and "Financial Advertising."

T. E. YOUNG, B. A., F. R. A. S.
 Ex-President of the Institute of Actuaries.
 Member of the Actuary Society of America.
 Author of "Insurance."


 Professor of Accounting at the University of Birmingham.
 Author of "Advanced Accounting," "Auditing," "Bookkeeping for Company
   Secretary," etc.

 Author of "Auditors, Their Duties and Responsibilities," and

 General Manager, The Herring-Hall-Marvin Safe Co.
 Formerly General Manager, National Cash Register Co.
 Author of "Profit Making Management."

 Specialist in Cost Analysis and Factory Betterment.
 Author of "Systematic Foundry Operation and Foundry Costing,"
   "Maximum Production through Organization and Supervision," and other

 Consulting Engineer.
 Director of Organization and Betterment Work on the Santa Fe System.
 Originator of the Emerson Efficiency System.
 Author of "Efficiency as a Basis for Operation and Wages."

 Specialist in Accounting Methods.
 Editor, _Beach's Magazine of Business_.
 Founder of The Bookkeeper.
 Editor of _The American Business and Accounting Encyclopedia_.

J. J. RAHILL, C. P. A.
 Member, California Society of Public Accountants.
 Author of "Corporation Accounting and Corporation Law."

 Ex-New York State Examiner of Certified Public Accountants.
 Ex-President, American Association of Public Accountants.
 Author of "American Accountants' Manual."

 Specialist in Industrial Organization.
 Formerly Comptroller, Sears, Roebuck & Co.
 Author of "Organizing a Factory," and "Woods' Reports."

 President of the Union Dime Savings Bank, New York.
 Author of "The Accountancy of Investment," "Extended Bond Tables,"
   and "Problems and Studies in the Accountancy of Investment."

 Author of "Business Education and Accountancy."


 Author of "Bank Directors, Their Powers, Duties, and Liabilities."

 Of the Wharton School of Finance, University of Pennsylvania. Author
   of "Funds and Their Uses."



With the unprecedented increase in our commercial activities has come
a demand for better business methods. Methods which were adequate for
the business of a less active commercial era, have given way to systems
and labor-saving ideas in keeping with the financial and industrial
progress of the world.

Out of this progress has risen a new literature--the literature of
business. But with the rapid advancement in the science of business,
its literature can scarcely be said to have kept pace, at least, not to
the same extent as in other sciences and professions. Much excellent
material dealing with special phases of business activity has been
prepared, but this is so scattered that the student desiring to acquire
a comprehensive business library has found himself confronted by
serious difficulties. He has been obliged, to a great extent, to make
his selections blindly, resulting in many duplications of material
without securing needed information on important phases of the subject.

In the belief that a demand exists for a library which shall embrace
the best practice in all branches of business--from buying to selling,
from simple bookkeeping to the administration of the financial affairs
of a great corporation--these volumes have been prepared. Prepared
primarily for use as instruction books for the American School of
Correspondence, the material from which the Cyclopedia has been
compiled embraces the latest ideas with explanations of the most
approved methods of modern business.

Editors and writers have been selected because of their familiarity
with, and experience in handling various subjects pertaining to
Commerce, Accountancy, and Business Administration. Writers with
practical business experience have received preference over those with
theoretical training; practicability has been considered of greater
importance than literary excellence.

In addition to covering the entire general field of business, this
Cyclopedia contains much specialized information not heretofore
published in any form. This specialization is particularly apparent in
those sections which treat of accounting and methods of management for
Department Stores, Contractors, Publishers and Printers, Insurance, and
Real Estate. The value of this information will be recognized by every
student of business.

The principal value which is claimed for this Cyclopedia is as a
reference work, but, comprising as it does the material used by the
School in its correspondence courses, it is offered with the confident
expectation that it will prove of great value to the trained man who
desires to become conversant with phases of business practice with
which he is unfamiliar, and to those holding advanced clerical and
managerial positions.

In conclusion, grateful acknowledgment is made to authors and
collaborators, to whose hearty cooperation the excellence of this work
is due.

Table of Contents

(For professional standing of authors, see list of Authors and
Collaborators at front of volume.)


  THEORY OF ACCOUNTS                      _By James B. Griffith_ Page 11

 Dictionary of Commercial Terms--Commercial Abbreviations--Objects
 of Bookkeeping--Methods--Single Entry--Double Entry--Advantages
 of Double Entry --Classes of Account Books--Recording
 Transactions--Promissory Notes--Bank Deposits--Sample
 Transactions--Classes of Accounts--Classes of Assets--Revenue
 Accounts--Rules for Journalizing--Rules for Posting--Trial
 Balance--Sample Ledger Accounts--Treatment of Cash Discounts
 --Profit and Loss--Merchandise Inventory Accounts--Balance Sheet
 --Journalizing Notes--Journalizing Drafts

                                         _By James B. Griffith_ Page 119

 Retail Business--Proprietors' Accounts--Inventory--Retail Coal
 Books-- Uncollectible Accounts--Sales Tickets--Departmental
 Records--Partnership Agreements--Kinds of Partners--Participation
 in Profits--Interest on Investments--Capital and Personal
 Accounts--Opening and Closing Partnership Books--Model Set of Books

                                         _By James B. Griffith_ Page 195

 Classification of Corporations--Joint Stock
 Company--Creation of Corporation --Stockholders--Stock
 Certificates--Capitalization--Capital and Capital Stock --Stock
 Subscriptions--Management of Corporations--Powers of Directors
 and Officers--Dividends--Closing Transfer Books--Sale of Stock
 Below Par--Corporation Bookkeeping--Books Required--Opening
 Entries--Changing Books from Partnership to Corporation--Stock
 Donated to Employes--Reserves--Computing Sinking Funds--Premium
 and Interest on Bonds--Manufacturing and Cost Accounts--Factory
 Assets--Factory Expenses--Balance Ledger

  THE VOUCHER SYSTEM OF ACCOUNTING _By James B. Griffith_      Page 273

 Use of Vouchers--Voucher Checks--Journal Vouchers--Voucher
 Register--Operation of System--Auditing Invoices--Executing
 Vouchers--Paying, Filing, and Indexing Vouchers--Voucher
 File--Demonstration of System--Voucher Accounting--Unit System
 --Combined Purchase Ledger and Invoice File--Private Ledger
 --Private Journal--General Ledger--Manufacturing Accounts
 --Charting Accounts--Chart of Trading Business--Chart of
 Manufacturing Accounts--Examples of Charts--Explanation
 of Charts

  REVIEW QUESTIONS                                              Page 325

  INDEX                                                         Page 345




Like every other special branch of study, the Theory and Practice
of Accounts has its own special vocabulary of technical terms. In
all literature of accounting and business methods in general, these
terms are frequently employed; and the student will find it not only
advantageous, but in fact absolutely necessary, to familiarize himself
thoroughly with their use.

The commercial terms and definitions in the following list are the
ones most commonly used in business. Great care has been exercised in
preparing a list that is practical and in making the definitions clear.


_Acceptance_--When a draft or bill of exchange is presented to the
payer, he writes across the face "Accepted" or "Accepted for payment at
..." and signs his name. It is then termed an acceptance.

_Accommodation Note_--A note given without consideration of value
received; usually done to enable the payee to raise money.


(_a_) A statement of debits and credits.

(_b_) A record of transactions with a particular person or persons, or
with respect to a particular object.

_Account Books_--Books in which records of business transactions or
accounts are kept.

_Account Current_--An account of transactions during the present month,
week, or other current period. An open account.

_Account Sales_--A statement in detail covering sales, expenses, and
net proceeds made by a commission merchant to one who has consigned
goods to him.

_Accrued; Accrued Interest_--

(_a_) Accumulated interest not payable until a specified date.

(_b_) Accumulated rent.

[Illustration: Specimen Account]

_Acknowledgment_--A certificate to the genuineness of a document signed
and sworn to before an authorized official, as a Notary Public.

_Administrator_--One appointed by the court to settle an estate.

_Ad Valorem_--According to value. A term used to indicate that duties
are payable on the value rather than on the weight or quantity of

_Adventure_--As used in business, this term signifies a venture or

[Illustration: Account Sales]

_Advice_--Information with reference to a business transaction; notice
of shipment; notice of draft. Transmitted by letter or telegram.

_Affidavit_--A statement or declaration made under oath, before an
authorized official.

_Agent_--One authorized to act or transact business for another.

_Agreement_--A mutual contract entered into by two or more persons.

[Illustration: Acknowledgment]

_Allowance_--An abatement; a credit for inferior goods, error in
quantity, etc.

_Annual Statement_--A yearly summary of the transactions of a business.

_Annuity_--An amount payable to or received from another each year for
a term of years or for life.

_Antedate_--To date a document or paper ahead of the actual time of its

_Appraise_--To place a value on goods or property. An estimate made for
the purpose of assessing duties or taxes.

_Appreciation_--An increase in value. Real estate may increase in value
on account of the demand for property in the immediate vicinity.

_Approbation_ or _Approval Sales_. Goods delivered to customers with
the understanding that if not found satisfactory they are to be
returned within a definite period and without payment.

_Articles_--A collection of merchandise; parts of a written agreement,
as "Articles of Association."

_Arbitrate_--To determine or settle disputes between two or more
parties, as settlement of differences between employer and employees.

_Assets_--All of the property, goods, possessions of value of a person
or persons in business.

_Assign_--To transfer or convey to another for the benefit of creditors.

_Assignee_--The person to whom the property or business is transferred.
Usually acts as a trustee of the creditors.

_Assignment_--The debtor's transfer or conveyance of his property to a

_Assignor_--The debtor who makes an assignment, or transfers property
for the benefit of creditors.

_Association_--A body organized for a common object.

_Attachment_--A legal seizure of goods to satisfy a debt or claim.

_Auxiliary_--Books of record other than books of original entry or
principal books of account. Books used for purposes of distribution or
the gathering of statistics are "auxiliary" books.

_Audit_--To verify the accuracy of accounts by examining or checking
records pertaining thereto.

_Average_--As applied to accounts, the mean time which bills of
different dates have to run, or an average due date for several
accounts. Determining the due date is sometimes referred to as
averaging accounts.

_Balance_--The difference between the debit and credit sides of an
account. To close an account by entering the amount on the lesser side
necessary to make the two sides balance.

_Balance Sheet_--A statement or summary in condensed form made for the
purpose of showing the standing or condition of a business.

_Balance of Trade_--The balance or difference in value between the
imports and exports of a country.

_Bale_--The form in which certain commodities are marketed. A bale of
cotton, bale of hay, etc.

_Bank Balance_--The net amount to the credit of a depositor at the bank.

_Bank Note_--A note issued by a bank, payable on demand, which passes
for money.

_Bank Draft_--An order drawn by one bank on another for the purpose of
paying money.

_Bank Pass-Book_--A small book furnished to a depositor by his bank, in
which are entered the amounts of deposits and sometimes the checks or

_Bankrupt_--A person, firm, or corporation whose liabilities exceed
their assets; who are unable to meet their obligations.

_Bill_--A statement or record of goods bought or sold, or of services

[Illustration: Bill]

_Bill of Exchange_--An order on a given person or bank to pay a
specified amount to the person and at the time named in the bill. The
term is more commonly used to apply to orders on another country, being
made in triplicate.

_Bill of Lading_--A receipt issued by the representative of a common
carrier, for goods accepted for transportation to a specified point and
at a given rate. It is a contract, and, when transferred to a third
party, becomes an absolute title to the goods.

[Illustration: Bill of Lading]

_Bill of Sale_--A written document executed by the seller, transferring
title to personal property.

_Bill Head_--The blank or form on which a bill is made. For
illustration, see Bill.

[Illustration: Bill of Exchange]

_Bills Payable_--Promissory notes and acceptances which we are to pay.

_Bills Receivable_--Promissory notes and acceptances which are to be
paid to us.

_Blanks_--Papers or books ruled or printed in suitable form for
business records.

_Blotter_--A book in which are entered memoranda of transactions which
are later copied into other books. Also known as a _day book_.

_Bond_--A written agreement binding a person to do or not to do certain
things specified therein. A negotiable instrument secured by mortgage
or other security, binding the maker to pay certain sums on specific

_Bonded Goods_--Goods stored in a government warehouse, or in bonded
cars, bonds having been given by the owner for the payment of import
duties or internal revenue taxes when removed.

_Bonus_--An amount paid in excess of the sum originally agreed upon.
A premium or gift--for example, a sum paid to a salesman as extra
compensation for making a certain number of sales.

_Book Account_--A charge or evidence of indebtedness on the books of
account not secured by note or other written promise.

_Brand_--A class of goods. A symbol or name used to designate a
specific article. A trade mark.

_Broker_--One who acts as agent or middleman between buyer and seller.

_Brokerage_--The commissions or fees paid the broker for his services.
Also a term used to designate his business.

_Bullion_--Uncoined gold or silver.

_Call Loans_--Loans made payable on demand or when called for.

_Cancel_--To render null and void; to annul.

_Capital_--Property or money invested in a business.

_Capital Stock_--A term used to indicate the subscriptions of all
stockholders to the capital of a corporation.

_Cartage_--The charges made for hauling goods by wagon, or otherwise
than by freight or express.

_Cash Sales_--Sales for which immediate payment is received in
contradistinction to sales of goods on credit.

[Illustration: Bill of Sale]

_Certificate of Stock_--A written statement or declaration of the
purchase of a specified number of shares of the capital stock of a
corporation. An evidence of ownership.

_Certified Check_--A check, the payment of which is guaranteed by the
bank on which it is drawn.

_Charges_--The expense involved in handling goods or in performing a
specific act--as, for example, charges for storage, freight charges,
etc. Also a synonym for _debits_.

_Chart_--A classified exhibit of the components of a business
organization, showing the authority and responsibilities of the
members. Grouping of the accounts of a business with respect to their
relation to one another.

_Charter_--To hire a car, ship, or other instrument of transportation.
A document defining the rights and duties of a corporation.

_Check_--An order on a bank to pay to a certain person, or to the order
of such person, a specified sum, which sum is to be charged to the
account of the drawer of the check.

_Clearing House_--An exchange established by banks in cities, for their
convenience in making daily settlements. The checks and drafts on the
different banks are exchanged without the formality of presenting them
personally at each bank. A balance is found, and this amount only is
paid in cash.

_Closing an Account_--Making an entry that will balance the account.

_Collateral_--Pledges of security--as stocks, bonds, etc.--to protect
an obligation or insure the payment of a loan.

_Commission_--A percentage or share of the proceeds allowed for the
sale of merchandise--as the pay of a commission merchant for selling a
car of flour.

_Commission Merchant_--One who sells goods on commission. Similar to a

_Commercial Paper_--Negotiable paper used in business.

_Common Law_--Law based upon the precedent of usage, though not
contained in the statutes.

_Company_--A corporation; also used to designate partners whose names
are not known.

_Compromise_--To settle an account for less than the amount claimed. To
agree upon a settlement.

[Illustration: Certificate of Stock]

_Consideration_--The price or money paid or to be paid which induces
the entering into a contract by two or more persons.

_Consignee_--The party to whom goods are shipped. A person to whom
goods are sent to be sold on commission is a consignee. The goods so
sent are known as a _consignment_, and the sender is the _consignor_.

_Consul_--An agent of the Government, residing in a foreign part, who
guards the interests of his own Government.

_Contra_--On the opposite side--as a contra account.

_Contract_--A written agreement between two or more persons to perform
or not to perform some specified act or acts.

_Contingent Assets and Liabilities_--Resources or liabilities whose
value depends upon certain conditions.

_Contingent Fund_--A sum put aside to provide for an anticipated
obligation; a reserve fund.

_Conveyance_--A term used to describe certain forms of legal documents
transferring from one person to another, title to property or

_Copyright_--A right granted to an author or publisher to control
the publication of any writing, or the reproduction of a photograph,
painting, etc.

_Counterfeit_--A spurious coin, or bank or treasury note.

_Coupon_--A certificate detached from a bond, which entitles the holder
to the payment of interest.

_Coupon Bond_--Bonds to which are attached coupons calling for the
payment of interest. The coupons, when detached, become negotiable

_Credentials_--Letters or testimonials conveying authority.

_Creditor_--One whom we owe; one who gives credit.

_Currency_--The coin or paper money constituting the circulating medium
of a country.

_Debenture_--A certified evidence of debt. See Bond.

_Debit_--To charge; to record an amount due.

_Deed_--A written document or contract transferring title to real

_Defalcation_--The appropriating to one's own use, of money intrusted
to him by another; embezzlement.

_Deferred Bonds_--Bonds which are to be paid when some condition is
fulfilled in the future.

_Delivery Receipt_--An acknowledgment of the delivery of goods. Largely
used by merchants in the delivery of goods to customers.

_Demand Note_--A promissory note or acceptance payable on presentation
or on demand.


_Deposit_--The money placed in custody of the bank, subject to order.

_Depreciation_--A reduction in the value of property. In a
manufacturing plant, buildings and machinery depreciate in value
through wear and tear; a residence property may depreciate owing to the
nature of a nearby building.

[Illustration: Delivery Receipt]

_Discount_--An allowance or abatement made for the payment of a bill
within a specified period. The interest paid in advance on money
borrowed from a bank.

_Dishonor_--Refusal to accept a draft, or failure to pay a written
obligation when due.

[Illustration: Demand Note]

_Dividend_--The profits which are distributed among the stockholders of
a corporation.

_Draft_--A written order for the payment of money--usually made through
some bank.

_Drawer_--The person by whom the draft is made; the one who requested
the payment of money by the drawee.

_Drayage_--Synonymous with cartage.

_Due Bill_--A written acknowledgment of an amount due; of the same
effect as a demand note.

_Dunning_--Soliciting or urgently pressing the payment of a debt.

_Duplicate_--A copy of a paper or document; the act of making a copy.

_Duty_--The tax paid on imported goods.

_Doubtful_--Of questionable value. We refer to an account as "doubtful"
when we question the likelihood of its payment.

[Illustration: Draft]

_Earnest_--An advance payment, applying on the purchase price, made to
bind an oral bargain.

_Embezzlement_--See Defalcation.

_Exchange_--The charge made by a bank for the collection of drafts or

_Exports_--Commodities sent to another country.

_Extend_--To set a later date for payment; to add several items and
carry the totals to the proper column.

_Face Value_--The amount for which a commercial paper is drawn.

_Facsimile_--An exact duplicate or exact copy.

_Financial Statement_--A term used in the same sense as _balance sheet_
or _annual statement_.

_Fiscal_--A financial or business year, in contradistinction to a
calendar year. The fiscal year of a business may commence and end on
any date--usually on the date on which it was started.

_Fixed Assets_--Permanent assets acquired by a firm or corporation to
enable them to conduct a business. Includes real estate, building,
machinery, horses and wagons, etc.

_Fixed Charges_--Those charges in connection with the operation of a
business which occur at regular intervals, such as rent, taxes, etc.

_Fixtures_--A fixed asset represented by that part of the furniture not
readily removable, such as gas and electric light fixtures.

_Folio_--A column provided in account books, in which to enter the page
numbers of other books from or to which records are transferred.

_Footing_--The sum or amount of a column of figures.

_Foreign Exchange_--Drafts on foreign cities.

_Freight_--The charges paid for the transportation of goods.

_Gain_--The increase in value of assets or profit resulting from a
transaction or transactions.

_Gauging_--Measuring the liquid contents of casks or barrels.

_Going Business_--A term used to designate a business in actual
operation. Goodwill or the reputation of a business has a value so long
as the business is in operation, or keeps going. When a business is
discontinued, only the physical assets or actual properties owned by
the business are of value.

_Good Will_--The monetary value of the reputation of a business over
and above its visible assets; the value of a business name.

_Gross_--The entire amount in contradistinction to the net amount--as
gross weight or gross profit.

_Guarantee or Guaranty_--Surety for the maintenance of quality or the
performance of contracts.

_Honor_--To pay a promissory note when due; to accept or pay a draft.

_Hypothecate_--To deposit as collateral security for a loan.

_Import_--To bring goods into the country.

_Income_--The receipts of a business.

_Income Bonds_--Bonds on which the payment of interest is contingent on
profits earned. If the interest is passed on account of lack of funds,
the holder of the bond has no claim.

_Indemnity_--Security against a form of loss which has occurred or may
occur--as fire insurance, against loss by fire.

_Indorse_--To guarantee the payment of commercial paper by writing
one's name on the back.

_Indorsee_--The person to whom a paper is indorsed.

[Illustration: Lease]

_Indorser_--The person who guarantees payment; the one who indorses.

_Infringe; Infringement_--To trespass upon another's rights--as
infringement of a patent or copyright.

_Installment_--An account or note the payment of which is to be made in
several parts, at stated intervals.

_Insolvent_--Unable to pay one's obligations.

_Instant_--Principally used in correspondence to indicate the present

_Insurance Policy_--A contract between an insurance company and the

_Interest_--The sum or premium paid for the use of money; one's share
in a business or a particular property.

_Inventory_--An itemized schedule of the property or goods belonging to
a business.

_Investment_--Money paid for goods or property to be held; not for

_Invoice_--A list of goods bought or sold. See Bill.

_Jobber_--One who buys from manufacturers and sells to retailers; a

_Job Lot_--An incomplete assortment of goods to be disposed of in a
lump. Usually indicates small portions or remnants of a stock, the bulk
of which has been sold.

_Joint Stock_--Property owned in common by several individuals known as

_Leakage_--An allowance for waste of liquids in transit; refers
particularly to liquids shipped in casks.

_Lease_--A written agreement covering the use of property during a
specified period, at a stated rental.

_Legal Tender_--The lawful amount to be offered in payment of an
obligation. Bank notes or other currency which passes for money.

_Lessee_--One who receives a lease. The _lessor_ makes it.

_Letter of Advice_--A letter giving notice of some act in which the one
receiving the advice has an interest--as making a shipment, notice of
draft, etc.

_Letter of Credit_--A letter which authorizes the receiving, by the
holder, of credit to a stated amount. Principally used by travelers to
secure credit from foreign bankers.

_Liabilities_--The obligations or debts of a firm, corporation, or

_License_--Permission, usually granted by a municipality, to conduct a
specified business.

_Liquidation_--The closing-out of a business or an estate.

_Loss and Gain_--The amount of profits or losses of a business.

_Maker_--One who signs a note.

_Manifest_--A list or schedule of the articles in a ship's cargo, or of
the goods comprising a shipment.

[Illustration: Order]

_Maturity_--The time when an obligation or an account is due.

_Mercantile Agency_--A company which obtains and keeps for the use of
its customers information showing the standing of business firms.

_Merchandise_--The stock in trade, or goods bought to be sold again.

_Money Order_--An order instructing a third party to pay money to the
person named. A form in which money is transmitted.

_Monopoly_--The exclusive control of the manufacture or sale of an

_Mortgage_--A temporary transfer of title to land, goods, or chattels
to secure payment of a debt.

_Mortgagor_--One who gives a mortgage. The one to whom the mortgage is
given is the _mortgagee_.

_Negotiable_--An agreement or any commercial paper which can be
transferred by delivery or endorsement--as a bank note or promissory

_Net_--Less all charges or deductions. _Gross_ assets less liabilities
leaves _net_ capital; _gross_ income less all expenses leaves _net_
profit; etc.

_Nominal_--Having no actual existence; exists in name only.


_Open Account_--An account which has not been paid.

_Opening Entries_--The entries made in the books when it is desired to
open the accounts of a business.

_Option_--The right to be the first purchaser; a privilege.

_Orders_--Requests for the shipment of goods.

_Original Entry_--The first record made of a charge or credit which
becomes the basis of proof of the account.

_Overdraw_--To draw a check for a greater amount than the drawer has on
deposit in a bank.

_Par_--Face value.

_Partnership_--A firm; a union of two or more persons for the
transaction of business or the ownership of property.

_Payee_--The one to whom money is to be paid. The one who pays the
money is the _payer_.

_Per Annum_--By the year.

_Per Cent_ or _Per Centum_--By the hundred.

_Per Diem_--By the day.

_Personal Account_--Any account with an individual, firm, or

_Personal Property_--All property other than real estate.

_Petty Cash_--A term used to signify small expenditures in actual cash.

_Postdate_--To date ahead; after the real date.

_Post_--To transfer amounts from books of entry to the ledger, which is
the book of final record.

_Power of Attorney_--Authority to act for and in the name of another in
business transactions.

_Preferred Stock_--Stock which participates in the profits before any
dividend can be paid on the common or ordinary stock.

_Premium_--The amount paid above par value; the amount paid to an
insurance company for insurance against loss.

_Present Worth_--The net capital of an individual.

_Proceeds_--The amount realized from a sale of property.

_Profit and Loss_--Synonymous with loss and gain.

_Promissory Note_--A promise, signed by the maker or makers, to pay a
stated sum at a specified time and place.

[Illustration: Promissory Note]

_Pro Rata_--A distribution of money or goods in proportionate parts.

_Protest_--A formal notice acknowledged before a notary that a note
or draft was not paid at maturity, and that the maker will be held
responsible for the payment.

_Quotation_--A price named for a given article or for services.

_Ratify_--To approve; to sanction the acts of an agent.

_Raw Material_--Material to be manufactured into other products--as
iron ore, pig iron, lumber, etc.

_Real Estate_--Primarily refers to land, although buildings are
frequently included.

_Rebate_--An allowance or deduction. See Allowance.

_Receipt_--An acknowledgment that money or something of value has been

_Receiver_--One appointed to take charge of the affairs of a
corporation, either solvent or insolvent, and administer its affairs
under orders of the court.

_Remittance_--Money or funds of any character transmitted from one
place to another.

[Illustration: Power of Attorney]

_Renewal Note_--A new note given to take the place of a note that is

_Rent_--A payment for the use of property owned by another.

_Resources_--Synonymous with assets.

_Revenue_--Income of a business.

_Revoke_--To recall authority of another to act as agent.

_Royalty_--A stipulated amount paid to the owner of a mine, patent,
copyright, etc., usually based on sales. The owner of a copyright
receives a royalty based on the number of books sold.

[Illustration: Receipt]

_Schedule_--Inventory of goods or statement of prices.

_Sight Draft_--A draft payable on presentation or at sight.

_Solvent_--Able to pay one's debts.

_Statement_--Commonly used to designate a list of bills to customers
during a stated period. Also used to designate a financial summary
showing profits and losses of a business.

_Stockholder_--An owner of stock in a corporation or joint stock

_Storage_--The charge for keeping goods in a store or warehouse.

_Surety_--One who has guaranteed or made himself responsible for the
acts of another.

_Syndicate_--A combination of capitalists, usually temporary, for the
conduct of some financial enterprise.

_Tare_--The amount deducted from gross weights to cover weight of
packages--as crates, boxes, barrels, etc.

_Tariff_--A schedule of prices, as freight tariff. The duties imposed
on imports or exports.

_Terms_--The conditions governing a given sale. "Terms cash" means that
payment is to be made as soon as goods are delivered.

_Tickler_--Memoranda of matters requiring attention in the future,
arranged according to dates.

_Time Draft_--A draft which matures at some future date.

_Trade Discount_--The discount allowed by a manufacturer to a jobber or
by a jobber to a retailer.

[Illustration: Statement]

_Trade Mark_--See Brand.

_Ultimo_--Principally used in correspondence to designate last month.

_Valid_--Legal or binding; usually applied to a properly executed

_Value Received_--Used in notes to indicate that value has been given.

_Void_--Without legal force; not binding.

_Voucher_--A receipt; a document which proves the accuracy of an
account or the authority for an expenditure.

[Illustration: Voucher]

_Warehouse_--A building used for storage purposes.

_Warehouse Receipt_--A document acknowledging the receipt of goods for
storage in a warehouse.

_Warranty_--An agreement to assume responsibility if certain facts do
not prove as represented.

_Way Bill_--A document containing a list of goods shipped by a railroad.

_Wholesale_--A business which sells goods in large quantities, usually
in original packages and to the trade only.

_Working Capital_--The capital actually used in the active operations
of a business.


The commercial abbreviations in the following list are in constant use
in the various lines of trade, and should be thoroughly understood by
the student of accounting.

  A 1             First-class
  acct.           Account
  ad              Advertisement
  Agt.            Agent
  amt.            Amount
  Ans.            Answer
  Art.            Article
  asstd.          Assorted
  Ass't.          Assistant
  Atty.           Attorney
  bal.            Balance
  bbl.            Barrel
  B. B.           Bill Book
  bds.            Boards
  bdls.           Bundles
  bgs.            Bags
  bk.             Book
  bkt.            Basket
  B. L. or B/L    Bill of Lading
  bls.            Bales
  bot.            Bought
  B. P. or B/P    Bills Payable
  bro't.          Brought
  B. R. or B/R    Bills Receivable
  B. Ren'd.       Bill Rendered
  bu.             Bushel
  bx.             Box
  C. B.           Cash Book
  ¢ or cts.       Cents
  chgd.           Charged
  c. i. f.        Cost, Insurance, and Freight
  ck.             Check
  cks.            Casks, Checks
  Co.             Company
  C. O. D.        Collect on delivery
  Coll.           Collect or Collector
  Com.            Commission
  Com'l.          Commercial
  Cons'd.         Consigned
  Const.          Consignment
  Cr.             Credit or Creditor
  ctg.            Cartage
  cwt.            Hundredweight
  D. B.           Day Book
  Dept.           Department
  dft.            Draft
  dis. or Disc't. Discount
  div.            Dividend
  do. or ditto    The Same
  doz.            Dozen
  Dr.             Debit or Debtor
  ds.             Days
  ea.             Each
  E. E.           Error excepted
  E. and O. E.    Errors and omissions excepted
  e. g.           For example
  Ent.            Entry or Enter
  Ent'd.          Entered
  etc. or &c.     And others; And so forth
  Exch.           Exchange
  ex.             Express
  exp.            Expense
  Exr.            Executor
  f. o. b.        Free on board
  fol.            Folio; Page of a book
  f'd, ford.      Forward
  frt.            Freight
  ft.             Foot, Feet
  gal.            Gallon
  gr.             Grain
  gro. or gr.     Gross
  guar.           Guaranteed
  hdkf.           Handkerchief
  hhd.            Hogshead
  hund.           Hundred
  I. B.           Invoice Book
  in.             Inches
  Ins.            Insurance
  Inst.           Instant (this month)
  int.            Interest
  inv.            Invoice
  invt.           Inventory
  I. O. U.        I owe you; A due bill
  J.              Journal
  lb.             Pound
  lbr.            Lumber
  lab.            Labor
  Manf.           Manufacture
  Mdse.           Merchandise
  Mem.            Memorandum
  Mfd.            Manufactured
  Mfst.           Manifest
  Mfr.            Manufacturer
  Mo. or mo.      Month
  Mtg.            Mortgage
  Ms.             Manuscript
  Mut.            Mutual
  Nat. or Nat'l.  National
  N. B.           Take notice
  No.             Number
  N. P.           Notary Public, Net Proceeds
  O. B.           Order Book
  O. K.           All Correct; Approved
  oz.             Ounce
  p.              Page
  pp.             Pages
  pay't or pm't.  Payment
  pc.             Piece
  pcs.            Pieces
  P. B.           Pass Book
  P. C. B.        Petty Cash Book
  pd.             Paid
  per.            By; By the
  per an.         By the year
  pk.             Peck
  pkg.            Package
  pop.            Population
  pref.           Preferred
  Prem.           Premium
  Pro.            Proceeds
  prop'r.         Proprietor
  prox.           Next Month
  P. S.           Postscript
  pub.            Publisher
  Qr. or qr.      Quarter, Quire
  Qt. or qt.      Quart
  rec'd.          Received
  ret'd.          Returned
  R. R.           Railroad
  Ry.             Railway
  S. B.           Sales Book
  S. E.           Single Entry
  Sec.            Secretary
  Shipt.          Shipment
  Shs.            Shares
  Sig.            Signature
  S. S.           Steamship
  s. s.           To wit; Namely
  St. dft.        Sight Draft
  Sund.           Sundry
  Supt.           Superintendent
  sq.             Square
  T. B.           Trial Balance; Time Book
  ult.            Ultimo; Last month
  via.            By way of
  viz.            Namely
  Vol.            Volume
  vs.             Against
  W. B.           Way Bill
  Wk.             Week
  Wt. or wt.      Weight
  yr.             Year
  yd. or yds.     Yard or Yards


The signs and characters most commonly used in business are
the following:

  @               To or At
  a/c             Account
  B/L             Bill of Lading
  B/R             Bills Receivable or Bill Rendered
  B/P             Bills Payable
  B/S             Bill of Sale
  ¢               Cents
  c/o             Care of
  D/D             Days after date
  D/S             Days after sight
  F/B             Free on board
  J/A             Joint Account
  L/C             Letter of Credit
  L/M             Letters of Marque
  £               Pounds Sterling
  o/c             On account
  o/c             Out of courtesy
  %               Per cent
  p               Per
  $               Dollars
  #               Number, if written before a figure, as #25; Pounds,
                    if written after, as 25#
  [check mark]    Check Mark
  "               Ditto
  °               Degrees
  '               Prime; Minute; Feet
  "               Seconds; Inches; also used as Ditto marks
  1¹              One and one-fourth
  1²              One and one-half
  1³              One and three-fourths
  +               Plus
  -               Minus
  ×               By or times
  ÷               Divided by
  =               Equals


1. Bookkeeping is the art of recording the transactions of a business
in a manner that makes it possible to determine the accuracy of the

The objects of bookkeeping are:

(_a_) To exhibit a record of the separate transactions of a business.

(_b_) To furnish statistical information in respect to any particular
class of transactions.

(_c_) To exhibit the financial standing or condition of a business.

When properly assembled the bookkeeping records become _accounts_ (for
definition, see Dictionary of Commercial Terms).

If correct methods are used, the bookkeeping records will be assembled
or grouped in a manner to show their exact nature and their bearing on
the status of the business, or the standing of the account.

=2. Debit.= The term _debit_ designates those items in an account
representing values with which we have parted, or transferred to
another person or account. Debits are always placed on the left side
(or in the left-hand column) of an account. Debits to persons are of
the following classes:

(_a_) The transfer of merchandise.

(_b_) The rendering of services.

(_c_) The use of something of value.


(_a_) We sell to John Doe two tons of coal at $7.50 per ton. We _debit_
his account with the amount.

(_b_) We render services to Thos. Ryan for which he is to pay us a
stated fee. We _debit_ his account with the amount of the fee.

(_c_) We are to pay rent for the use of our offices. Our landlord
_debits_ us with the amount.

=3. Credit.= The term _credit_ designates those items in an account
representing value which we have received or which has been transferred
to us. Credits are always placed on the right side (or in the
right-hand column) of an account. Credits to persons are of the
following classes:

(_a_) The receipt of merchandise or money.

(_b_) The rendering of services.

(_c_) The use of something of value.


(_a_) John Doe pays us $10.00 on account. We _credit_ his account with
the amount.

(_b_) Our attorney makes a charge for legal services. We _credit_ his
account with the amount.

(_c_) We rent or lease property to another; and when payment is made,
we _credit_ his account.

=4. Rules for Debit and Credit.= Debit and credit are the fundamental
principles of bookkeeping. The general rules to be followed in debits
and credits are:

 Debit cash when you receive it.

 Debit a person when you trust him.

 Debit a person when you pay him.

 Credit cash when you pay it out.

 Credit a person when he trusts you.

 Credit a person when he pays you.

=5. Balance.= When the two sides of an account differ in amount, it is
said to show a balance. If the debit side of the account is the larger,
the difference is a _debit balance_. If the credit side of the account
is the larger, the difference is a _credit balance_.

_Example_--If we debit John Doe's account for two tons of coal at $7.50
a ton, or $15.00 (see Example (_a_), Article 2), and credit his account
with $10.00 paid (see Example (_a_), Article 3), the debit side of the
account is $5.00 greater than the credit side. Therefore it shows a
debit balance.


6. There are but two methods or systems of bookkeeping, and they are
known as _single entry_ and _double entry_. No matter in what form
bookkeeping records are kept, the method must be either single or
double entry.

Single entry is used only in very small businesses or by those who do
not understand the advantages of double entry.


7. As the name indicates, single entry is a single record of the
transaction--that is, a record of one phase of the transaction only.

_Example_--John Doe's account would show that he received two tons of
coal, but there would be no corresponding account to show that our
supply of coal had been diminished.

Single entry fails to fulfil the object of bookkeeping, as it does not
exhibit the true financial condition of the business, and is incapable
of proof of accuracy.


8. Double entry is a system of making two entries (or a double record)
of every transaction. In every business transaction, two distinct
factors are involved--namely, that which is received, and that which is
parted with. If we sell a given quantity of a commodity, we part with
it, and the sale takes from or decreases the value of that particular
commodity in our possession. If we sell for cash, the transaction adds
to our cash possessions; while if the value of the commodity is debited
or charged to the account of a customer, it adds to the amount we are
to receive from that customer.

=9. Principle of Double Entry.= Double entry is a system of debits and
credits. One writer expresses it as a system of opposing contra things.

_The fundamental principle of double entry is that there must be a
corresponding credit for every debit._

_Example_--When we sell John Doe two tons of coal, we debit his
account; but we have decreased the value of our stock of coal, and to
complete the double entry, we credit coal account (or _Merchandise_, as
the account representing our stock in trade is sometimes known). When
he pays us money, we credit his account, and debit cash.

=10. Advantages of Double Entry.= The principal advantages of double
entry bookkeeping are that the system permits of making an accurate
exhibit of the standing of the business; it exhibits the profits and
losses; it shows the sources of profits and the causes of losses; it
permits of proof of the accuracy of the records.


11. _Account books_ are ruled with special forms which adapt them
to bookkeeping records. The forms of ruling are many and varied to
suit the requirements of different classes of business. Rulings for
double entry bookkeeping do not differ materially from those used in
single entry. For double entry, at least two amount columns must be
provided--one for debits, and one for credits.

The most common form of ruling is known as _journal ruling_. A book
with this ruling is also known as a _journal ledger_.

The words in parentheses explain the purpose of the different columns.
The abbreviations _Dr._ (debit) and _Cr._ (credit) are sometimes
written at the head of the amount column; but most bookkeepers omit
them, as the position of the columns indicates their purpose.


To illustrate the manner of entering transactions in accounts, we show
in the accompanying diagrams how the transactions used in the foregoing
examples would appear in the proper accounts.



1. On journal ruled paper, which can be procured at any stationer's,
write up the account of John Doe as per example given in Articles 2 and

2. Write up the account of John Doe, showing also the accounts
necessary to complete the double entry, as per example in Article 11.

3. Write up the accounts covering the following transactions, by the
single entry method:

Nov. 16. Sold to James Stevenson 4 cords of wood, at $4.75 per cord.
Sold to Andrew White 2½ tons of coal, at $6.00 a ton.

Nov. 17. Sold to Wm. Johnson 1 ton of coal, at $7.00 a ton.

Nov. 19. Received from James Stevenson $12.00 cash, to apply on account.

Nov. 20. Received from Wm. Johnson $7.00 in payment of account.

4. Write up the same accounts by the double entry method, using a
merchandise account to represent all classes of merchandise sold.


12. Account books are of two classes: (_a_) those in which complete
records of transactions, or complete accounts, are kept; (_b_) those
which contain particulars of individual transactions which must
afterward be transferred to books of the (_a_) class.

Books of the (_a_) class are known as _principal books_ or _books of
record_; that is, they contain the final or permanent record of an

Books of the (_b_) class are of two kinds: (_ba_) books of _original
entry_; (_bb_) _auxiliary books_.

Any book which contains the first (or original) record of a transaction
is a book of original entry (_ba_).



Any book in which records contained in books of original entry (_ba_)
are assembled, to be transferred later to principal books (_a_), is an
auxiliary book.

Any book used for the purpose of assembling statistical information is
an auxiliary book.

The books most commonly used in double entry bookkeeping are: _Order
Book_, _Day Book_, _Cash Book_, _Journal_, _Sales Book_, _Purchase
Book_, _Ledger_.

=13. Order Book.= An Order Book is a book of original entry in which is
entered a record of each order or request for the shipment or delivery
of merchandise. The record shows the name and address of the customer,
the kinds and quantities of goods wanted, and the prices at which they
are to be sold.

The ruling of the order book varies according to the nature of the
business. A simple form of ruling is shown.

=14. Day Book.= A Day Book is a book of original entry in which are
entered full particulars of each completed transaction. These records
are afterwards assembled in auxiliary books, from which they are
transferred to the principal books.


The use of the day book was formerly universal, but it has been
discarded by modern bookkeepers as its use involves unnecessary labor.
The records formerly kept in the day book are now made directly in
certain books then known as auxiliary, which makes of them books of
original entry. The ruling of the day book is shown.

=15. Cash Book.= A Cash Book is a book of original entry containing
records of all transactions which involve either the receipt or
payment of cash. The records in the cash book are in fact a complete
account with cash. We debit cash for all money received, and credit
cash with all money paid out; therefore, the difference between the
total footings of the debit and credit sides of the cash book shows
the amount of cash which we should have on hand. Since we cannot pay
out more than we receive, the debit side should be the larger, unless
both sides are equal, which shows that we have paid out all the cash

The amounts entered on the debit side of the cash book are transferred
(or _posted_) to the credit side of the account of the one from whom
the cash is received.

The amounts entered on the credit side of the cash book are posted to
the debit side of the account of the one to whom the cash is paid.


There are many special forms of ruling for cash books, with separate
columns for entering certain classes of receipts and payments of a
special nature. The ruling of the cash book should be made to meet the
requirements of the business in which it is to be used. A simple form
of ruling is shown.

It will be noted that the left-hand page is used for the debit side,
while the right-hand page is used for credits. This is the only account
kept with cash.

=16. Journal.= A Journal is a book in which separate transactions
are entered in a manner to preserve the balance necessary in double
entry--that is, showing the proper debit and credit for each
transaction. The journal is used for making adjusting entries, and it
was formerly the custom to copy into this book from the day book the
particulars of every transaction. Records are now made in the journal
directly, which makes it a book of original entry.

The records in the journal are transferred or posted to the debit and
credit sides of the accounts which they represent.

The journal is frequently combined with the cash book, and is then
called a _cash journal_. An ordinary form of journal ruling is shown in
Article 11.

=17. Sales Book.= A Sales Book is an auxiliary book in which is kept a
record of all goods sold, showing name of purchaser, quantity and kind
of articles, prices, and amounts.

A sales book is a journal of sales. The amounts of individual sales
are posted (transferred) to the debit side of the accounts of the
purchasers. The footings of the sales book are carried forward until
the end of the month, when the total amount is posted as one item to
the credit side of the _merchandise_ account, completing the double

The merchandise account has been universally used in the past, all
purchases being debited and all sales credited to this account. Certain
other accounts (which will be explained later) are now recommended by
leading accountants, to take the place of the merchandise account.

Sales books are usually ruled to meet the special needs of each
business, separate columns being provided for a record of special
classes of sales, or sales of special kinds of goods.

=18. Purchase Book.= A Purchase or Invoice Book is the opposite of the
sales book, being used for a record of all purchases made. Like the
sales book, the totals are carried forward to the end of the month, and
posted as one item to the debit side of the _merchandise_ account. The
amounts of the separate transactions are posted daily to the credit of
the persons from whom the goods are purchased.


The purchase book is a purchase journal, and the ruling is the same as
that of other journals.

=19. Ledger.= The Ledger is the principal book, in which particulars
of every transaction of every nature are summarized. It is, in fact, a
transcript of all other books of the business except those used solely
for statistical purposes.

The ledger is the book which contains the final or complete records of
all dealings, either with an individual or with respect to a specific
class of transactions--as expenditures for a certain purpose, or
receipts of a given character, or sales of a given kind of goods.

A transcript of the ledger accounts exhibits the progress and standing
of the business.

Like other books, ledgers are now made with special forms of ruling,
depending on the purpose for which they are to be used. The old style
or common form of ledger ruling is shown (p. 35).

=20. Invoice or Bill.= An Invoice or Bill is an itemized statement or
record of goods sold by one person to another. The invoice or bill is
used in every line of business. A conventional form of invoice is shown
(p. 5).


=21.= The records of transactions in the journal which show what
accounts are debited and what accounts are credited are called _journal
entries_. The act of making these entries is known as _journalizing_.

It was formerly the custom to journalize each individual transaction
from the day book, but in modern bookkeeping the journal is used only
for adjusting and special entries.

=22. Posting.= When the record of a transaction is transferred to the
ledger from a book of Class (_b_), it is said to be _posted_. The act
of making the transfer is called _posting_.

The original method was to itemize all transactions in the ledger, but
the present custom is to post the totals only.

=23.= When a record is transferred from one book of Class (_b_) to
another, or posted to the ledger, the page number of the book to or
from which it is transferred or posted is entered in the column known
as the _folio column_. This is done that the transaction may be traced
from one book to another. The presence of the page number also serves
as a check to show that the item has been posted.

_Example_--An item is to be posted from page 1 of the sales book to
page 10 of the ledger. In the folio column of the ledger will be
entered "S 1" indicating that the item will be found on page 1 of the
sales book. In the folio column of the sales book will be entered "10"
indicating that the item has been posted to page 10 of the ledger.

=24. Ledger Index.= An index to the ledger is necessary to enable us to
find the accounts. In small ledgers the index is placed in the front of
the book itself, while for large ledgers a separate index book is used.
There is a distinct advantage in this, as the index book can be kept
open on the desk while posting is being done, and the names found much
quicker than when it is necessary to turn the leaves of the ledger to
find the index.

When an account is opened in the ledger, the name should be written
in the index, followed by the page number. The names in the index are
arranged in alphabetical order, each name being written under the
letter of the alphabet corresponding to the first letter in the name.
For example:

      =A=                       =B=                      =C=
  Adams, J. C.       11    Bacon, I. H.        2  Crandall, Jas.     7
  Andrews, Henry     14    Brown, Henry        9  Campbell, Don.    12

In a large index, one or more pages are used for a letter; while in a
small index, several letters may be placed on the same page.


=25.= The following sample transactions are carried through the books
described in this section, showing the proper entries and postings
(see pp. 40-43). The day book has been omitted, as it is practically
obsolete, not being used by progressive bookkeepers.

  Muskegon, Mich., Nov. 1, 1907.

I, ROBERT B. ROBINSON, have this day commenced business as a wholesale
dealer in groceries and provisions. I have rented the store located
at 68 Pine St., from Geo. Baker, at $40.00 a month. My resources and
liabilities are as follows:


  Cash on hand                    $2,462.50
  Merchandise per inventory        1,147.20
  Due me from Roger Bros.            219.40


  C. B. Whitney, Grand Rapids    $   126.90
  My net investment                3,702.20

                        --Nov. 1--

  Bought from Grand Rapids Gro. Co., Grand Rapids, Mich.
      On account
      10 cwt. sugar           $4.85   $ 48.50
      10 bbls. flour           5.25     52.50
      150  "   salt            1.10    165.00
       2   "   molasses 48
               50,98 gals.      .30     29.40    $295.40

  Paid Geo. Baker
      For 1 month's rent       Cash     40.00

  Sold to Geo. Wiggins, 110 Ottawa St.
      On account
      1 box B. B. soap         3.75
      1 case X. X. corn        1.60
      100# soda biscuit        4.25      9.60

  Sold to Smith & Nixon, 262 Western Av.
      On account
      2 bbl. flour             6.15     12.30
      2 cwt. sugar             5.15     10.30
      1 bbl. molasses, 48 gal.  .35     16.80   39.40

  Bought from William Bratton, 48 Jefferson Av., Detroit
      On account
      10 sacks Java coffee,
                    1,000#      .25  250.00

  Sent to C. B. Whitney, Grand Rapids
      Draft to balance account        126.90

  Sold to H. A. Brainerd, 961 Lake Av.
      On account
      2 bbls. salt             1.35        2.70
      10# baking powder         .42        4.20     6.90

  Charge Grand Rapids Gro. Co.
      1 bbl. flour received in bad order   5.25

  Sold to Bryan Bros., Lakeside
      On account
      2 bbls. salt             1.35        2.70
      20# raisins               .08        1.60     4.30

  Bought from H. A. Edwin, Chicago
      On account
      20 bbls. pork           10.30      206.00

  Sold for cash
      3 bbl. pork             11.35       34.05

  Sold to R. C. Ellison, 10 Jefferson Av.
      On account
      2 bbl. pork             11.40       22.80
      5 bu. beans              2.10       10.50     33.30

  Received from Geo. Wiggins
      Cash to balance                                9.60

  Sent to Grand Rapids Gro. Co.
      Draft to balance                             290.15

  Sold for cash
      1 box soap                           3.75

  Received from Smith & Nixon
      Cash on account                     25.00






=26.= A promissory note is a form of commercial paper much used in
business. Goods are sold on specific terms--that is, to be paid for
in a certain time after date. Profits are based on the supposition
that the bills will be paid when due. When not so paid, the debtor is
virtually borrowing money from the creditor, and should pay interest
for the use of that money just as he would if he had borrowed it from a
bank. To settle the account when it is not convenient to pay cash, it
is customary to give a promissory note for the amount, plus interest,
payable on a certain date. The promissory note is more convenient for
the creditor; for when it bears his endorsement, his bankers will
discount it, thus giving him the money for use in his business. Even
though he may not discount it, the promissory note is better for the
creditor, as it gives him a definite promise to pay, which he does not
have when the debt is represented by an open account.

=27. Bills Receivable and Bills Payable.= The commercial term for
promissory notes accepted by us is _Bills Receivable_. The commercial
term for promissory notes given by us is _Bills Payable_. The term
"bill" is used in this connection for the reason that a promissory note
is a negotiable instrument, and when indorsed it becomes practically
a bill of exchange. The accounts in the ledger which represent notes
receivable and notes payable are called _Bills Receivable Account_ and
_Bills Payable Account_.

The bills receivable account is debited when a note is received, and
credited when a note is paid. The balance of bills receivable account
shows the amount of unpaid notes payable to us.

The bills payable account is credited when we give a note and debited
when we pay a note. The balance of bills payable account shows the
amount of the notes that we owe.

=28. Bill Book.= For the purpose of keeping a record of bills
receivable and bills payable, a book known as a _bill book_ is used.
Any draft, note, due bill, or other written promise to pay a specified
sum at a stated time, should be treated as a note or bill--receivable
or payable, as the case may be. The bill book is an auxiliary book, and
the record kept is usually treated as a memorandum only, records of
each transaction being made in the journal. The form shown (p. 45) is
one in common use.


=29. Acceptances.= A draft when accepted--that is, when it becomes
an _acceptance_--has the same value as a promissory note, for it is
a definite promise to pay on a specified date. Drafts are used for
the collection of accounts in other cities than the one in which the
creditor's place of business is located. A draft may call for payment a
certain number of days after date, or it may call for payment at sight.
The former is known as a _time draft_, while the latter is a _sight

=30. Discount and Exchange.= When a promissory note is taken to the
bank for the purpose of raising money, it is customary for the banks to
calculate the interest for the time the note is to run, and to deduct
this from the principal, giving the borrower the net amount only. In
other words, the interest is paid in advance, and such advance payment
of interest is called _discount_.

When a draft is collected through a bank, a small fee is charged,
and this fee is called _exchange_. Exchange is also charged for the
collection of out-of-town checks, especially if they are drawn on banks
in small towns and cities.


=31.= When money is deposited in a bank, a list of the items in the
deposit is made on a blank known as a _deposit ticket_ or _deposit
slip_. These deposit tickets are furnished by the bank for the
convenience of its customers.

=32. Signature Card.= Money deposited in a bank can be withdrawn only
by presenting a written order or _check_, signed by the one in whose
name the money is deposited. That the bank may know that money is not
paid on checks that do not bear the correct signature, each depositor
is required to leave at the bank the signature or signatures which
are to be honored. These signatures are written on a card, known as a
_signature card_, which the bank keeps for reference.

=33. Check Books.= Blank checks are usually bound in book form, the
checks themselves being perforated so that they can be easily removed.
These _check books_ are in most cases furnished by the bank. The number
of checks on a page varies, but is seldom more than four. When a check
is written, the number, date, name, and amount should be written on the
face of the stub. To keep a convenient record of the balance in the
bank, it is well to enter a list of all checks and deposits on the back
of the check stubs.

[Illustration: Signature Card]

=34. Pass Book.= The bank _pass-book_ should be taken to the bank
whenever a deposit is made, as it contains the bank's receipt for all
money deposited.

=35. Indorsement of Checks.= Before a check can be deposited in the
bank, it must be indorsed by writing the name of the payee across the
back. The indorsement should be on the back of the left end of the
check--never on the right end. Several forms of indorsement are shown
(p. 48). When the name only is written, it makes the check payable to
the bearer, and is known as a _blank indorsement_. When the words "Pay
to" are used, the check becomes payable to the one whose, name appears
immediately under the words. It can only be paid to him in person or
credited to his account at any bank at which he may deposit the check.
A check indorsed with the words "Pay to the order of" permits of a
further transfer, and provides a receipt from the one to whom it is so
indorsed. When a check is to be deposited, the proper indorsement is
"For deposit only." This is of special importance when deposits are
sent by messenger. Such indorsements usually include the name of the
bank, and are made with a rubber stamp.

=36. Depositing Cash.= It is a good plan to deposit all cash received
and to pay all bills by check, except such small items as are paid from
petty cash. By doing this, all transactions pass through the bank,
providing a receipt in every case in the form of a canceled check
bearing the indorsement of the payee.

[Illustration: Endorsement]

=37. Treatment of Petty Cash.= It is customary in business
establishments to keep on hand a certain sum of cash out of which to
pay items of expense such as office supplies, etc., when the amount is
too small or it is not convenient to write a check.

The best way to handle this is to draw a check for a certain amount,
and keep this money separate from the cash received from day to day.
At the end of the month, or sooner if the fund is low, draw a check
payable to cash for the amount paid out and charge it to expense. This
will leave the fund intact.

_Example_--We shall suppose the amount of petty cash to be kept on hand
to be $25.00; and the amount paid out, $15.60, leaving $9.40 on hand.
A check will be made for $15.60, to be charged to expense through the
regular cash book. The cash will be drawn from the bank, and the amount
added to the $9.40, making a total of $25.00.

A record of petty cash is usually kept in a small book called a _petty
cash book_. This book has the regular two-column journal ruling. In
handling petty cash, great care should be taken to secure a receipt in
some form for every payment.



=38.= The following sample transactions taken from the books of W.
B. Clark, Ames, Ia., illustrate the use of the papers and accounts
explained in this section, and show how the transactions would appear
on the books.

Mr. Clark is a shipper of produce, and a retail dealer in coal. His
assets and liabilities are as follows:


  Cash in bank                    $1,262.78
  Inventory, Produce                 685.00
      "      Coal                    747.50
  Geo. White--Open account            21.00
  F. H. Russel  "     "                7.00
  Henry Brown   "     "                8.00
  O. L. Duncan--Note due Dec. 1       27.00    $2,758.28


  Iowa Coal Co., Des Moines,
                  Open acct.        $120.00
  Lehigh Coal Co., Chicago, Ill.,
                  Open acct.         325.00
  George Hardy, Open account          60.00       505.00

As he wishes to know how much business he is doing in each department
of his business, he keeps accounts in the ledger with both produce and
coal instead of one merchandise account. In the sales book, one column
is used for coal sales, and one for produce sales. No purchase book is
kept, all purchases being posted from the journal or cash book.

                        --Oct. 22--
  Bought from David Andrews, for cash
      200 bu. potatoes     @             .42c    $84.00
      Paid by check No. 11.

  Sold to Albert Long on account
      2 tons run of mine coal          $3.25       6.50

  Received from Geo. White on account
      Cash                                        10.00

  Sold to Taft Produce Co., Des Moines, on account
      148 bu. beans                     3.10     458.80

  Drew from bank for petty cash        10.00
      Check No. 12.

  Sold to Geo. Hardy on account
      1½ tons nut coal                 9.00      13.50
      Gave him check No. 13.                      46.50

  Gave to Lehigh Coal Co., Chicago.
      60-day note                                200.00
      Check No. 14.                              125.00

  Taft Produce Co. paid sight draft through Iowa
      National Bank                              458.80

  Accepted 30-day draft made by Iowa Coal Co.    120.00
      Payable at Ames State Bank

  Deposited in Ames State Bank
      Draft Iowa National Bank                   458.80
      Cash                                        10.00

  Paid for repairs to stove, cash                  1.20

  Sold for cash, ½ ton egg coal                    4.50











=39.= In double entry bookkeeping, the accounts used may be divided
into the two general classes of _personal_ and _impersonal_. For the
purpose of more complete classification, the second class is further
subdivided into _real_, _representative_, and _nominal_ accounts.

=40. Personal Accounts.= A personal account is a record of transactions
with a particular person or persons.


A record of transactions with persons who buy goods from us.

A record of transactions with persons from whom we buy goods.


=41. Real Account.= A real account is a record of transactions with
respect to a particular property. Properties which we possess are
termed _resources_ or _assets_; therefore all real accounts are also
_asset accounts_.



Real estate (land and buildings), Machinery, Furniture, Merchandise,

=42. Representative Account.= A representative account is a summary of
all debit or credit transactions of a particular class with respect
to several personal accounts. The debit or credit to this account
completes the double entry, and illustrates the rule that in double
entry there must be a credit for every debit.


We sell goods to a number of customers, and the amounts of these sales
are debited to their several accounts. To complete the double entry,
we credit the total amount of these sales to an account called _sales
account_. The total credits to this account during any given period
_represent_ the sales to all customers for the same period, and the
sales account is a _representative_ account.

The total debits to all customers' accounts for goods purchased in
one month amount to $1,423.62. This amount is credited to the sales
account. Likewise the purchases for the same period amount to $947.20,
and the several amounts are credited to the personal accounts of those
from whom the purchases were made, while a like amount is debited to a
representative account known as a purchase account.


=43. Nominal Account.= A nominal account is a record of transactions
having to do with profit and loss; a record of a particular class of
expenditures from which no direct returns are expected; any impersonal
account which does not come under the classification of real or
representative accounts.


We buy coal to be used in heating our building. The coal is not to
be resold, but its use is necessary; it is one of the expenses of
conducting the business, and we charge the amount to an _expense_
account. Expense is a _nominal_ account kept for the purpose of showing
the total expenses of the business.


=44. Merchandise Account.= The merchandise account is a real account
formerly much used, but discarded by modern accountants. When used,
this account is debited with all purchases of merchandise and credited
with all sales. The account is also charged with all goods returned by
our customers, and credited with all goods which we return to those
from whom we have purchased them. Goods returned by our customers are
charged at the prices at which they were purchased by the customers;
consequently the debit side of the merchandise account does not
furnish a true exhibit of our purchases; neither is the credit side
a true exhibit of our sales. Since the merchandise account furnished
no valuable information, other accounts which exhibit more vital
statistics have been substituted.

=45.= _Purchase account_ is one of the accounts substituted for the
merchandise account. This account is charged with all purchases as
represented by the footings of the purchase book or purchase journal.
This completes the double entry, the separate purchases having been
credited to the personal accounts of those from whom the goods were
purchased. All returns or other similar deductions allowed on purchase
invoices are charged to those from whom the purchases were made and
credited to purchase account. The balance of the purchase account then
shows the total net purchases.

=46.= _Sales account_ takes the place of the credit side of the
merchandise account. All sales as shown by the footings of the sales
book are credited to the sales account, completing the double entry.
All returns and allowances are likewise charged to the sales account.
The balance of the sales account shows total net sales.


=47.= The following transactions, properly recorded in journal
sales book, purchase book, and ledger, demonstrate the uses of the
merchandise, purchase, and sales accounts explained in the preceding

                       --Sept. 20--
  Bought from American Furniture Co., Grand Rapids
      2 #four-drawer V F cabinets     $11.00     $22.00
      4 #35 card sections               4.20      16.80
      1 #35 top                                    1.75
      1 #35 base                                   1.25    $41.80

  Bought from Morgan Printing Co., Chicago
      5,000 #1 plain ruled #35 cards     .90       4.50
      3,000 #1 ledger  "   #35  "       1.50       4.50
      2,000 #1   "     "   #46  "       2.00       4.00     13.00

  Sold to Ackers & Co., 224 Randolph St.
      4 #35 sections                    5.50      22.00
      1 #35 top                                    2.25
      1 #35 base                                   1.75     26.00

  Sold to Thompson & Co., 94 Monroe St.
      2,000 #1 plain ruled 35 cards     1.25       2.50

  Received from Ackers & Co.
      1 #35 section                                5.50

  Shipped to American Furniture Co.
      1 #35 section                                4.20
      (Received in bad order)

In the first demonstration, the footings of the sales and purchase
books, as well as the returns entered in the journal, are posted to
a merchandise account. It will be noted that the debit side of the
merchandise account does not represent the actual purchases, and the
credit side does not represent the sales.

In the second demonstration, the purchase and sales accounts are used.
Total sales are credited to sales account from purchase book, and
returns credited from the journal. The balances of these accounts show
actual net purchases and sales.





=48.= Asset accounts are accounts representing resources or assets of
the business. Assets are classified as _Fixed_; _Active_ or _Floating_;
_Passive_ or _Speculative_; _Fictitious_.

_Fixed assets_ are those permanent forms of property which are a
necessary part of the equipment used for conducting the business--such
as real estate, buildings, machinery, etc.

_Active_ or _floating assets_ are those forms of property of which the
quantity in our possession varies from day to day--as merchandise,
accounts, cash, etc.

_Passive_ or _speculative assets_ are those (_a_) whose values are
not readily determined, or (_b_) whose values are subject to market
fluctuations--as, for example, (_a_) franchises, copyrights, patents;
(_b_) stocks, bonds, or other speculative securities.

_Fictitious assets_ are those which are not represented by tangible
property, or which are of value to a going business but would have
no market value if the business were closed out or liquidated. These
assets are frequently represented by an expense account on the books.
The initial advertising expense necessary to launch the business
successfully is frequently carried on the books as an asset. The amount
of such advertising expense is spread over a stated period, a certain
proportion being charged into the regular expense accounts each year
until the entire amount is used.

=49. Examples of Fixed Assets.= The assets of an ordinary mercantile
business are of the first two classes only--fixed and floating. The
most common forms of fixed assets of such a business are:

_Real Estate_--generally understood to include land and buildings owned
and used in the business.

_Furniture and Fixtures_--represented by office and store furniture,
shelving, counters, stoves, furnaces or other heating appliances,
lighting fixtures.

_Horses and Wagons_ or _Trucks_--including all horses, wagons, trucks,
harness, or motor-cars used for hauling goods.

If the business is one in which these classes of property are dealt
in, they become active assets. Land, for example, would be one of the
_active_ assets of a business organized to buy and sell real estate.

=50. Examples of Floating Assets.= The active or floating assets of a
mercantile business are:

_Merchandise_--meaning the stock in trade or goods dealt in.

_Accounts_--the open accounts of customers who owe for goods purchased.

_Notes_ or _Bills Receivable_--all outstanding notes payable to the

_Cash_--the amount of cash on hand and in the bank.

=51. Examples of Passive Assets.= Passive or speculative assets are
more frequently found on the books of a manufacturing business, a
corporation, or a business a part or whole of which has been sold by
the original owners. Examples of these assets are:

_Patents_--A manufacturer owns a patent the value of which depends upon
future profits resulting from the manufacture and sale of the article
which it covers. It is customary to place a value on the patent, and to
consider it an asset of the business.

_Good-Will_--A man has established a business which has become
extremely profitable, and in selling the business he places a certain
value on the reputation or goodwill which he has built up.

_Speculative_--A firm having a surplus not required in the business
sometimes invests it outside of the business with the expectation of
realizing a profit by selling at an advanced price. They buy grain or
provisions, mining or railway stocks, etc. Or an investment may be made
in the stock of some manufacturing business to be established in the
town, because such an enterprise, if successful, will naturally result
in an increase in their own business.

=52. Examples of Fictitious Assets.= Fictitious assets are seldom found
on the books of other than corporations where a large initial promotion
expense is involved. A good example of a fictitious asset is:

_Advertising_--A business house may decide on an average annual
expenditure for advertising; but to be effective, the expenditures for
the first two or three years may necessarily exceed this amount. The
excess is considered as an investment since it is expected that as
the business becomes firmly established the annual expenditure can be
reduced to an amount even less than that estimated, gradually reducing
the amount carried on the books as an asset. To illustrate:

  Annual advertising appropriation for ten years is $10,000.00.

  Expended first year          $18,000.00
  Deduct appropriation          10,000.00
  To advertising inventory                   8,000.00

  Expended second year          15,000.00
  Deduct appropriation          10,000.00
  To advertising inventory                   5,000.00

  Expended third year           10,000.00
  Deduct appropriation          10,000.00
  To advertising inventory         000.00

  Appropriation fourth year     10,000.00
  Expended         "    "        8,000.00
  To credit advertising inventory                        2,000.00

  Appropriation fifth year      10,000.00
  Expended        "    "         9,000.00
  To credit advertising inventory                        1,000.00

  Appropriation sixth year      10,000.00
  Expended        "    "        10,000.00
  To advertising inventory         000.00

  Appropriation seventh year    10,000.00
  Expended         "     "       9,000.00
  To credit advertising inventory                        1,000.00

  Appropriation eighth year     10,000.00
  Expended        "     "        8,000.00
  To credit advertising inventory                        2,000.00

  Appropriation ninth year      10,000.00
  Expended        "    "         7,000.00
  To credit advertising inventory                        3,000.00

  Appropriation tenth year      10,000.00
  Expended        "    "         6,000.00
  To credit advertising inventory                        4,000.00
                                            ---------- ----------
                                            $13,000.00 $13,000.00


=53.= The term _revenue_ (synonymous with _income_) is used to
designate those items which, when brought together in an account,
exhibit the profit or loss of the business.

_Revenue receipts_ are the receipts which originate exclusively from
the sale or exchange of the commodities or things of value for the
handling of which the business has been organized.

_Revenue expenditures_ are those expenditures connected with the
expense of operation or administration of a business, including such
items of expense as postage, printing, salaries, rent, etc.

_Revenue accounts_ is a term used to designate those accounts that
represent revenue receipts or revenue expenditures.

=54. Revenue Receipts.= The account representing revenue receipts in
all lines of business (though it may sometimes be known by another
name) is the _sales account_--a representative account showing net
sales. Net sales, less cost of goods sold, represent gross profits.
Gross profits, less cost of conducting the business (revenue
expenditures) represent net profits.

=55. Expense.= The broad term _expense account_ represents all revenue
expenditures; but in modern bookkeeping the amounts of the different
classes of expense are kept separate as far as possible.

Some of the most commonly used divisions of expense are: Rent;
Insurance; Taxes, Interest and Discount; Out Freight and Express; Heat
and Lights; Labor; Salaries, etc. It is customary to open one account
in the name of _General Expense_, to care for expenditures not included
in special accounts.

=56.= _Insurance_--A nominal account to which is charged all sums
paid to insurance companies (called _premiums_), in consideration of
which our property is insured against loss by fire, cyclones, or other

=57.= _Rent_--A nominal account to which is charged all sums paid for
use of property which we rent or lease from others for the benefit of
our business--usually the buildings in which our business is transacted
or in which our goods are stored.

=58.= _Taxes_--A nominal account to which are charged all taxes and
license fees paid on account of property owned or business transacted.

=59.= _Interest_--This is a nominal account which should include only
interest charges paid or interest earned on account of capital. When we
borrow money or discount a note, we do it because we need cash capital,
and the interest paid is a capital expense or a direct source of loss.
Exchange charged for the collection of notes and drafts belongs in the
same class. All interest paid for the use of money, and exchange paid
for the collection of notes, drafts, and checks, should be debited to
interest account. When we save the discount by prepayment of bills,
the discount is earned by the use of capital. All such earnings are a
direct source of profit and should be credited to interest account.
Discount paid on notes is interest paid in advance, and should not be
confused with discounts allowed to customers for the prompt payment of
bills; the latter is a reduction in the price received for our goods,
and reduces trading profits. This question is discussed under the head
of _Cash Discounts_.

=60.= _Out Freight and Express_--A nominal account which is debited
with all transportation charges paid on goods that we ship, whether
sales are made at delivered prices or freight is paid as an
accommodation to the customer. When goods are sold at f. o. b. prices,
and the freight is paid by us as an accommodation to the customer, out
freight should be credited and the customer debited.

This should not be confused with _in freight_, or freight paid on goods
received, as such charges add to the cost of the goods and should be
charged to the account representing that particular class of goods.

=61.= _Heat and Light_--This account is debited with all sums paid for
fuel, heating bills, lighting bills, and lighting supplies.

=62.= _Labor_--A nominal account which is debited with all sums paid as
wages to mechanics or laborers employed by the business.

=63.= _Salaries_--A nominal account which is debited with all salaries
paid to managers, salesmen, clerks, and others employed in the
administration of the business.


=64.= Journalizing is one of the most important operations in
bookkeeping, since journalizing a transaction involves the selection of
the proper accounts to be debited and credited completing the double
entry. With the use of separate sales and purchase records, the journal
itself is used principally for those entries involving a transfer of
values from one account to another. These are frequently referred to
as _cross entries_. The number of possible entries of this class is
practically unlimited, and they require careful study on the part of
the bookkeeper.

Rules for journalizing are frequently referred to in bookkeeping
textbooks; but, since the custom of journalizing every transaction is
now obsolete, the term is no longer sufficiently descriptive. A better
term to use would be _rules for debit and credit_, for it is the rules
of debit and credit that must be followed when a journal entry is to be


=65. Three-Column Journal.= A three-column journal suitable for a small
business is shown above. The third column is used for sales only, while
the first two columns are used for regular journal entries. The use of
the column for sales answers the same purpose as a sales book, and
total sales are posted to the credit of sales account at the end of the


=66.= For the purpose of demonstrating the principles of debit and
credit as exemplified in the journal, the following transactions except
those involving cash are _journalized_ in a three-column journal. The
third column is used for sales, and it is to be understood that a cash
account is kept in a separate cash book.

                           --April 2--

  Sold to Hiram Watson on account
    10# gran. sugar                5½c.     $.55
    3 bars soap                              .25
    2# starch                      5         .10
    2 cans corn                              .25    $1.15


  Paid electric light bill--cash                     4.75


  Sold for cash sundry merchandise                   8.60


  Bought from Eureka Milling Co. on account
    5 bbls. XXX flour              3.75             18.75


  Sold to J. L. Jarvis on account
    ¼ bbl. flour                            1.25
    2# butter                       .32      .64
    1# coffee                                .30
    10# lard                        .11     1.10     3.29


  Bought from J. L. Jarvis on account
    Fire Insurance on stock and fixtures, $3,000.00 for
      one year from date                            18.00


  Paid Eureka Milling Co. cash                      18.75


  Sold to J. L. Jarvis on account
    1# cheese                                 .16
    1 doz. eggs                               .22
    1# baking powder                          .50
    3 bu. potatoes                     .65   1.95   2.83


  Bought from Atlas Safe Co. on account
    1 office safe                           50.00
  Paid cash for repairs to door lock          .40
  Sold for cash sundry merchandise          16.70




1. After you become familiar with each entry and the nature of the
accounts to be debited or credited, journalize the transactions given
in Article 66, then compare with the model journal, and see if your
work is correct.

2. Journalize the following transactions:

                        --April 10--
  Bought from David Cole & Son on account
    100 bbls. flour at       $4.60    $460.00

  Sold to L. H. Stebbins on account
    20 bbls. flour at         5.10     102.00

  Sold to Henry Waterbury on account
    30 bu. beans              2.00      60.00
    20 " oats                  .37       7.40

  Paid to David Cole & Son
    Cash on account                    160.00
    Gave them my note for 30 days      300.00

  Received note from L. H. Stebbins
    for 30 days to balance account     102.00

  Paid cash for harness oil               .35

  Henry Waterbury paid cash on account  40.00


=67.= The act of transferring all items from the journal, sales book,
purchase book, cash book, or other books to the ledger is called
_posting_. All items relating to one account are posted to that account
in the ledger; thus all sales are posted to the sales account, and all
transactions with a person are posted to the account of that person.
Every debit must be posted to the debit side of the corresponding
account in the ledger.

=68. Routine.= The first operation in posting is to open an account in
the ledger by writing the name of the account on the line at the head
of the ledger page. The month and day are then written in the date
column; the page of the book from which the item is posted is written
in the folio column, and the amount is placed in the money column.
The final operation is to place the number of the ledger page in the
folio column of the book from which the item was transferred, directly
opposite the item posted.

=Posting from Journal.= In posting from the journal, all items in the
left or debit columns are posted to the debit side of the corresponding
ledger accounts, while all items in the credit column are posted to the
credit side of the ledger accounts.

The first item in the journal in the preceding section is a debit to
Hiram Watson, amount $1.15. It is necessary to open an account in the
ledger, which is done by writing Hiram Watson's name at the head of the
page, above the date column on the left side of the page; in the date
column we write the date, April 2; in the folio column we write the
journal page, 1: and in the money column we write the amount, $1.15.
The number of the ledger page is now written in the folio column in the
journal, directly opposite the name of Hiram Watson.

The second transaction recorded in the journal is a purchase which
makes it necessary to open a purchase account in the ledger, to which
is debited the amount of the purchase $18.75. The first transaction
recorded in the journal is a sale, therefore the credit is to the sales
account. Since we are placing all sales in a special column, the amount
will not be posted until the end of the month, when the total sales
will be posted to the credit of the sales account as one item. In the
second transaction, the credit is to a personal account, and we open
an account in the ledger with Eureka Milling Co., following the same
routine in posting as with debit items, except that the item is posted
to the credit side of the account.

=Posting from Cash Book.= When posting from the cash book, it must be
remembered that all items on the left-hand page (which debit cash) must
be posted to the credit of some other account; and that all items on
the right-hand page (which credit cash) must be posted to the debit of
an account in the ledger.

Why cash received is entered on the left-hand page of the cash book,
and cash paid out on the right-hand page, is a point not always clear
to the bookkeeper. To obtain a clear view of this point, it should be
remembered that the cash book is nothing more or less than a ledger
account with cash, and cash received is entered on the left-hand page
(or debit side) for the reason that any account is debited for what is
received or is added to it.

We sell merchandise, for example, and the person is debited because he
receives it. We buy real estate; the real estate account is debited
because our real estate possessions are added to. Broadly speaking, we
(the business) receive the real estate; but, instead of charging the
amount to ourselves (the person), we charge it to _Real Estate_, that
we may know the amount of our real estate investment.

A customer pays us cash; cash is debited because our cash possessions
are added to. We might charge the amount to our account; but we prefer
to charge it to a cash account that we may know how much cash we have
on hand. We pay out cash; cash is credited because cash has gone out of
our possession. The main point of difference is that we post to other
ledger accounts direct from the cash book, which is itself a ledger
account, instead of journalizing cash transactions.

If cash transactions were journalized--

    To Person
    To Cash

the amounts would be posted to the debit or credits of the cash
account in the ledger; but for convenience we keep the cash accounts
in a separate book. Journalizing a few of the transactions given will
clearly demonstrate the point.


=69.= A _trial balance_ is a list of the balances of all accounts
remaining open in the ledger, together with the balance shown by the
cash account. On journal paper, all open accounts are listed by name;
the debit balances are placed in the debit column, and credit balances
are placed in the credit column; the pages of the ledger are placed in
the folio column, opposite the names of the account. Both debit and
credit columns are footed, and the footings of the two columns should

A trial balance is taken for the purpose of testing the accuracy of the
postings to the ledger; to find out if the ledger is in balance. The
trial balance can be taken without considering the balances, by taking
the total debit and credit items posted to all open accounts.

While the trial balance shows that for every debit posted to the ledger
a corresponding credit has also been posted (double entry principle),
it does not absolutely prove the accuracy of the work. If a debit item
of $100.00 were posted to the debit of the wrong account, it would not
affect the balance of the ledger; but if the item were posted to the
credit instead of to the debit of the account, the ledger would be out
of balance and the amount that it was _out_would be shown by the trial


=70.= The arrangement of the accounts in the ledger is of considerable
importance. Since one of the objects of bookkeeping is to exhibit
the standing or condition of the business, the accounts should be
classified in a manner that will make easiest the assembling of
important statistics.

The accounts in the ledger represent either _Assets_ (resources),
_Liabilities_, _Profits_ (gains), or _Losses_. Every account having a
debit balance represents either (_a_) an asset or (_b_) a loss. (_a_) A
personal account having a debit balance represents an asset; (_b_) any
expense account having a debit balance represents a loss, as it reduces
the chance for profit.

Every account having a credit balance represents either (_c_) a
liability or (_d_) a profit. (_c_) A personal account having a credit
balance represents a liability--that is, something we owe; (_d_) a
sales account having a credit balance represents a profit because it
increases our chance of gain.


=71. Arrangement in Ledger.= The foregoing classifications should be
kept in mind in arranging the accounts in the ledger. First provide
space for the asset and liability accounts; then follow with the profit
and loss (or revenue) accounts. As far as possible, keep all asset
accounts together, following the same plan with liability and profit
and loss accounts.

The accounts are arranged in the trial balance in exactly the same
order as they appear in the ledger; and if correctly classified they
will show at a glance the assets (except inventories of merchandise)
and liabilities of the business. Likewise the profit and loss accounts
(also known as revenue accounts--see Article 53) will show total sales,
purchases, and expense of conducting the business.


=72.= The ledger accounts shown on pages 80-81, representing the
transactions given in the preceding set of sample transactions,
demonstrate the proper arrangement of accounts, manner of posting, and
the trial balance.


1. From the copy of the journal (Article 66) which you have made, post
the transactions to the ledger.

2. Post the transactions from the journal you have made (Exercise 2,
preceding section) to the ledger.

3. Make a trial balance of the ledger accounts.




=73.= _Cash discounts_ are discounts allowed for prepayment of bills.
They are frequently confused with bank discounts (or interest collected
in advance when notes are discounted), but are of an entirely different

When the price is made, the profits are calculated with the idea that
the customer may take advantage of the cash discount; that is, the
price after the discount is deducted includes a legitimate profit.
We cannot debit the customer with the amount of the bill less the
discount, for we do not know that he will take advantage of the
discount; and so, the charge to the customer and credit to sales
account is an amount which may never be received.

If the bill is paid less the discount, the amount deducted reduces our
profit on the sale. It is not an allowance for the use of capital, for
we can probably borrow money at 6 per cent, while the discount may be
5 per cent or more for anticipating payment 30 days or less. = 74.
Discounts Allowed.= Cash discounts allowed must eventually come out of
the profits arising from the sale of the commodities in which we are
trading. There are two methods of charging cash discounts, either of
which is considered correct:

(1) Open an account called _Discounts on Sales_, and charge to it all
discounts allowed for the prepayment of bills. When the books are
closed, the total will be charged against trading profits. This method
is coming into general use, and may be considered standard.

(2) Charge to _Sales Account_ directly all discounts allowed, treating
them as allowances. The balance of the sales account will then
represent net sales after returns, rebates, and cash discounts have
been deducted. One feature to recommend this plan is that sales account
does not show a fictitious volume of sales.

=75. Entering Cash Discounts in Cash Book.= When we receive payment
from a customer who has deducted the cash discount, the discount must
be taken account of in entering the payment, as the customer is to
receive credit for the full amount. We might enter the cash payment in
the cash book, and make a journal entry of the cash discount, but this
would necessitate two postings from separate books.

A better method, and one which has become standard, is to provide a
_cash discount column_ in the cash book. When a column has not been
provided for this purpose, a narrow column can be ruled in on the
cash received or debit side of the cash book. This is carried as a
memorandum until the end of the month, when the total is posted to the
debit of discount on sales. Two ways of making the entry are shown (p.

In Example No. 1, the cash discount is entered in the discount column,
and the net cash received is entered in the cash column. When the
payment is posted, two entries are made in the ledger. One advantage in
this is that reference to the account of R. L. Brown & Co. shows at a
glance whether they are taking advantage of cash discounts.

In Example No. 2, the cash discount is entered in the proper column,
but the gross amount is entered in the cash column. The payment is then
posted in one item, and reference to the ledger account does not show
whether the payment of $100.00 is all cash or part discount. It is
necessary, also, to deduct the footing of the discount column from the
footing of the cash column to ascertain the amount of cash received.
For these reasons the method shown in Example No. 1 is recommended.

=76. Cash Discounts Earned.= When we take advantage of the discount
offered for the prepayment of bills, the discount earned can be
considered a legitimate source of profit. Our own selling prices for
goods purchased to be resold are based on the prices at which they are
billed to us, without considering a possible saving by discounting our
bills. Whether or not we discount our bills is largely a question of
capital, and such earnings are legitimate profits entirely outside of
regular trading profits. Discounts earned should be treated as interest
earned and credited to interest account, from which they will find
their way into profit and loss account.



=77.= The _profit and loss account_ is a summary account made up of
the balances of all income and expenditure (revenue) accounts in the
ledger, the balance of this account representing the _net loss_ or _net
gain_ of the business.

It is advisable to show the net profits for each year; and to
accomplish this, it is customary to transfer the balance of profit and
loss account at the end of the year. In single proprietorships and
partnerships, the net gain is transferred to proprietor's or partner's
investment accounts, while in a corporation it is usually transferred
to a surplus account. A loss is transferred to a deficiency account.

=78. Trading Account.= This is a subdivision of profit and loss account
intended to exhibit the gross profit derived from the manufacture
or purchase and sale of goods in which the business is organized to
trade. These profits are known as _trading profits_. Just what items
of income and expenditure enter into trading profits or losses is an
important question in the science of accounts. A safe rule to follow
is to debit trading account with the cost of goods sold, including
cost of preparing them for sale. In a manufacturing business the cost
represents cost of raw materials and cost of manufacture. Credit the
account with net income from sales, arrived at by deducting from gross
sales all returns, allowances, rebates, and cash discounts.

All expenses incurred in selling the goods, and all expense of
administration of the business, should be charged to profit and loss
account proper. All profits arising from other transactions than
trading should be credited to profit and loss. These include interest
received on past due accounts, on notes, or for money loaned; discount
earned by the prepayment of bills; profits from the sale of real estate
or any property other than that in which the business is trading.

=Trading Account, How Constructed.= The trading account is made up by
charging total inventory at the beginning of the year and purchases
during the year; crediting net sales and inventory at the close of the
year, the balance representing the gross profit.


=Turnover.= It is desirable to know the cost of goods sold. This is
known as the _turnover_, on which percentages of profit are based. The
turnover may be found by deducting the present inventory from the debit
side of the trading account.


=79. Manufacturing Account.= In a manufacturing business it is very
desirable to know the cost to produce the goods; and for this purpose
a subdivision of profit and loss, called _manufacturing account_, is
used. The manufacturing account is debited with inventory of materials
at the beginning of the year; purchases of material; labor or wages
in factory, and all other expenses of manufacture; and credited with
inventory of materials at the close of the year. The balance represents
cost of manufactured goods to the trading division.

The principal value of these subdivisions of profit and loss lies in
the fact that they reveal not only the _amount_ but the _sources_
of profits and losses, which is one of the important functions of


The profit and loss account of a professional or other non-trading
concern need not be subdivided as explained for a trading concern. In
a non-trading business, all accounts representing revenue receipts or
revenue expenditures are transferred direct to profit and loss account.

=80. Transfer of Gross Profit.= The gross profit from trading is now
transferred to the credit of profit and loss account, and this account
is debited with the balances of all revenue expenditure accounts.
Continuing the illustration from Article 78, we have:


=81. Transfer of Net Profit.= The net gain is transferred to the credit
of proprietor's account in a single proprietorship.



=82.= The accounts now open in the ledger, other than proprietor's
account, exhibit all assets and liabilities of the business with the
exception of the present inventory, which is included in the trading
account. The amount of the inventory is transferred to the debit of a
merchandise inventory account.


The books are now said to be _closed_, there being no open accounts
except those representing assets or liabilities of the business.


=83.= A statement of the assets and liabilities of a business is called
a _balance sheet_. If the assets exceed the liabilities, the difference
is the _present worth_. If the liabilities exceed the assets, the
business is _insolvent_, and the difference or balance shows the amount
of insolvency.

The balance sheet is prepared from the ledger balances after the books
have been closed. In arranging the accounts on a balance sheet, the
assets should be listed first, followed by the liabilities. The balance
will agree with the balance shown in the proprietor's or investment

For the business of a single proprietor, it is customary to list the
accounts in the following general order:

_First_--Cash in bank and office.

_Second_--Open accounts and bills receivable.

_Third_--Merchandise per inventory, store fixtures, etc.

_Fourth_--Real estate.

The first two classes are termed _active_ or _quick_ assets, as they
can be most readily converted into cash.

The liabilities represented by credit balances, are listed in the order
of their urgency:

_First_--Open accounts due others.

_Second_--Bills payable.

_Third_--Mortgages or bonds payable.

The third class represents secured liabilities, while the first two
represent unsecured liabilities.

Continuing the previous illustration, we find the balance sheet of our
imaginary ledger to be as follows:



=84.= At the end of the first year, the trial balance of a single
proprietorship was as follows:

                  DEBIT BALANCES
  Bank Account                      $   764.20
  Sundry Open Accounts Receivable     1,127.30
  Bills Receivable                      475.00
  Furniture and Fixtures                325.00
  Cash in Office                         68.50
  Purchases                           9,571.40
  Expense                               675.00
  Discount on Sales                      96.75
  Interest                               72.10

                    CREDIT BALANCES

  Proprietor (Investment)             2,500.00
  Bills Payable                       2,000.00
  Sundry Accounts Payable             1,761.60
  Sales                               6,913.65

The inventory at the end of the year was $4,962.30; at the beginning of
the year, there was no merchandise in stock. The books are to be closed
into trading and profit and loss, and a balance sheet prepared.

When closing the books, all entries necessary to adjust the balances
of ledger accounts should be made through the journal. When an audit
is made, it is difficult to trace the entries unless they are plainly
stated in one group, which is provided when they are made in the
journal. The making of entries in the ledger directly, also increases
the opportunity for fraudulent entries. _Never make original entries in
the ledger._


From the following trial balance prepare trading account; profit and
loss account; and balance sheet.

                   TRIAL BALANCE

  Proprietor (Investment)                $7,600.00
  Bills Payable                           4,000.00
  Accounts Payable                        1,470.00
  Bank                      $1,262.84
  Accounts Receivable        2,693.11
  Bills Receivable           4,360.00
  Merchandise Inventory      6,277.76
  Furniture and Fixtures       750.00
  Purchases                  7,105.78
  Expense                    1,416.30
  Discount on Sales            112.65
  Interest                                    44.20
  Sales                                   10,985.70
  Cash                         121.46
                           ----------    ----------
                           $24,099.90    $24,099.90

Inventory at end of year $6,493.06.





Lamson Consolidated Store Service Co.]


=85.= When a note is received by us or we give our note to another,
it is necessary to make a journal entry in order that there may be
a proper record of the transaction on our books. Careful study is
sometimes necessary to determine just how the entry should be made, and
the following illustrations will serve as a guide.

=86. When Received.= When we receive a note, we debit bills receivable
and credit the maker--that is, the person who gives us the note.

We receive a note from Samuel Smart for $100.00 payable in 30 days. The
journal entry is:

  Bills Receivable                 $100.00
      Samuel Smart                             $100.00
  30-day note dated Sept. 10

=87. When Paid.= When this note is paid, we debit cash and credit bills
receivable. The entry is made in the cash book on the debit side which
debits cash and credits bills receivable.

  Bills Receivable   Samuel Smart's note       $100.00
                     due Oct. 10th

=88. When Collected by Bank.= Perhaps the note was collected through
our bank; in that case, the bank, instead of sending us the cash, will
credit the amount to our account. The bank may, also, charge a small
fee for collecting the money; consequently the amount placed to our
credit will be the sum collected, less their fee. The entry in the
journal would then be:

  Bank                             $99.85
  Interest and Discount               .15
      Bills Receivable                         $100.00
  Smart's note due Oct. 10th
  Collected by bank.

=89. When Discounted.= At the time we received Samuel Smart's note, we
may have needed the money for immediate use in our business. We would
then take the note to the bank, endorse it payable to the bank, when
they would discount it, giving us credit for the net proceeds. Since
the money is advanced to us, the bank would charge us interest for its
use, which amount would be deducted from the whole amount, leaving
the net proceeds. This amount would then be available for immediate
use. The note is then the property of the bank; it has gone out of our
possession and we have received the cash. The note is not paid, and in
discounting it we have created a liability to the bank. Remembering
that one of the functions of bookkeeping is to exhibit the true nature
of our assets and liabilities, we open a _Bills Discounted_ account in
the ledger. The entry is:

  Bank                                    $99.50
  Interest                                   .50
      Bills Discounted                              $100.00
  Discounted Smart's note due Oct. 10th.

=90. When a Note Drawing Interest is Discounted.= The above transaction
presupposes that the note is given _without_ interest; but if it were
given _with_ interest, the bank would simply add the interest to the
principal and deduct the discount from the total. In the case the sum
of the principal and interest ($100.00 + .50 = $100.50) is $100.50, and
the discount $.50, which would leave $100.00 as the net proceeds. If
the amount of the note were larger or the interest was figured for a
longer time, it would make a difference. Suppose the amount of the note
to be $2,000.00, time 30 days, interest 6% per annum.

  Principal                       $2,000.00
  Interest 30 days                    10.00
      Total                       $2,010.00
      Less interest on
      $2,010.00 for 30 days           10.05

Since the net amount realized is less than the face of the note, we
need not consider the interest earned, but the entry would be:

  Bank                            $1,999.95
  Interest and Discount                 .05
    Bills Discounted                                $2,000.00

=91. When a Note Drawing Interest is Paid.= But suppose Samuel Smart's
note is $100.00 for 30 days, with 6% interest, and that the note is
kept by us and the money is paid directly to us when due. We shall
then receive the interest, in addition to the face of the note, making
a total of $100.50. The entry would then be made in the cash book on
the debit side, and would be:

  Bills Receivable           $100.00
  Interest and Discount          .50
  Samuel Smart's note due Oct. 10, paid to-day.

=92. When a Discounted Note is Not Paid.= When we discounted Samuel
Smart's note of $100.00 for 30 days without interest at the bank, we
were obliged to endorse it, which had the effect of a guarantee of
payment. If not paid when due, the amount would be charged to our
account at the bank. The note would again come into our possession, and
the amount must be debited to some account, the credit being to the

We have previously credited the amount to bills discounted, and our
entry is:

  Bills Discounted           $100.00
  Bank                                  $100.00
  Samuel Smart's note not paid at maturity.

But suppose the transaction to have been the one described in Article
90. The note returned to us is $2,010.00, that being the amount of
principal and interest. Our bills receivable and bills discounted
accounts show the item as $2,000.00 only. Therefore we must include the
$10.00 in our adjusting entries which will be:

  Bills Receivable              $10.00
  Interest added to Smart's note not paid when due
  Bills Discounted           $2,000.00
    Bank                                  $2,010.00
  Smart's note not paid at maturity.

=93. When a Note is Past Due.= The above entries leave this unpaid
item in the bills receivable account. If the business is one in which
a large number of bills are discounted, it will be advantageous to
show past due bills receivable by themselves, leaving bills receivable
account to represent only paper not due. The entry for a bill unpaid at
maturity would be:

  Bills Receivable Past Due    $2,010.00
      Bills Receivable                       $2,010.00
  Smart's note past due.

=94. When a Note is Renewed.= We shall now suppose that Samuel Smart
finds that he will be unable to pay his note when due. He comes to us
and offers a new note for 30 days, which we accept. He prefers to add
the interest due on the original note to the principal, and makes his
note for $100.50. We then return the original note and the entry is:

  Bills Receivable               $100.50
      Interest and Discount                    .50
      Bills Receivable                     $100.00
  New note given by Samuel Smart to cover note due
        Oct. 10, with interest.

The effect of this transaction is that we have received a new note for
$100.50, and we debit bills receivable. This new note pays an older one
which goes out of our possession, so we credit bills receivable. The
amount of the new note includes the interest on the old, and we credit

We might have gone about this in a roundabout way by making these

  _To cancel the old note:_
  Samuel Smart                 $100.50
      Bills Receivable                    $100.00
      Interest, and Discount                  .50
  Note due Oct. 10th.

  _To enter the new note:_
  Bills Receivable            $100.50
      Samuel Smart                        $100.50
  New note 30 days to take up note due Oct. 10th.

These entries would leave the accounts in exactly the same condition as
our first entry, and would serve no useful purpose. This is given as an
illustration of how several entries may be made when the transaction
could be as clearly explained in one.

=95. When Renewed Note Has Been Discounted.= If the note which Samuel
Smart has renewed has been discounted at the bank, we must reimburse
the bank in some manner before we can obtain possession of the original
note. The most simple way to handle this transaction will be to give
the bank our check to pay the note. The entry is:

  Bills Discounted                     $100.00
  Interest and Discount                    .50
      To Bank                                     $100.50
  Gave check to take up Samuel Smart's note.

We shall then treat the new note as previously explained. If, after
getting it recorded on the books, we wish to discount this note, the
entries will be exactly the same as when we discounted the original

=96. When We Give or Pay a Note.= When we give our note, the effect of
the transaction is just the opposite of the receipt of a note. Instead
of adding to one class of our resources we are increasing one class of
our liabilities, in return for which we either receive something of
value or reduce our liabilities of another class. When we give our note
in payment of a loan, we receive cash; if we buy goods and give a note
in payment, we receive merchandise; if we give a note in payment of an
account, we simply reduce our liabilities of one class and add to those
of another.

The entries necessary to properly record transactions involving
notes given or bills payable, are not so complex as is the case with
transactions involving bills receivable. The following illustrations
cover transactions likely to arise in the average business:

We give our note for $100.00 payable in 30 days, without interest, to
Western Grocer Co. in settlement of an account. The entry is:

  Western Grocer Co.           $100.00
    Bills Payable                         $100.00
  Note 30 days without interest

When we pay the note the entry is:

  Bills Payable              $100.00
    Bank                                $100.00
  Check to Western Grocer Co. to pay note due Oct. 10.

=97. When Our Note Has Been Discounted.= The Western Grocer Co. has
either discounted the note or placed it in the bank for collection, and
it is presented for payment by the Merchants Bank. We give them a check
in payment, and the entry is:

  Bills Payable               $100.00
    Bank                                 $100.00

Check to Merchants Bank to pay our note to Western Grocer Co., due Oct.

The entry in this case is the same as in the previous illustration,
with the exception of the explanation.

=98. When We Pay Our Note With Interest.= We give our note to Western
Grocer Co. for $100.00 payable in 30 days, with interest at 6%. We pay
the note by check, and the entry is:

  Bills Payable                $100.00
  Interest and Discount            .50
    Bank                                   $100.50

Paid Western Grocer Co. note due Oct. 10, by check No. 10.

=99. When We Discount Our Note.= We wish to borrow $100.00 from the
bank, and give our note for the amount, payable in 30 days. The bank
discounts the note, placing the proceeds to our credit. The rate of
interest charged is 6%. Our entry is:

  Bank                        $99.50
  Interest and Discount          .50
    Bills Payable                          $100.00
  Note for $100.00, 30 days discounted at bank.

=100. When We Pay for Goods With Our Note.= We buy goods from Michigan
Milling Co. to the amount of $100.00, and tender our note at 30 days
with interest, in payment. This makes it unnecessary for us to open an
account with Michigan Milling Co. and the entry is:

  Purchases               $100.00
  Bills Payable                       $100.00
  Invoice #16 from Michigan Milling Co.
  Gave note for 30 days with interest at 6%.

=101. When We Renew a Note.= When this note is due, we find it
inconvenient to pay, and give a new note for 30 days, adding the
interest now due to the face of the original note. The amount of the
new note is $100.50, and the entry is:

  Interest and Discount   $   .50
  Bills Payable            100.00
    Bills Payable                      $100.50
  New note given Michigan Grocer Co. to renew note due Oct. 10, $100.00,
    interest $.50, 30 days, with interest.

=102. When We Renew Our Discounted Note.= When our note given to the
bank is due, we find it inconvenient to pay the entire amount. We give
the bank a check for $50.00, and a new note at 30 days for the balance.
The bank always collects interest in advance, so we shall be obliged to
give them our note for $50.00 plus the interest, or $50.25. In effect,
the bank discounts our note for $50.25, the proceeds, $50.00, paying
the balance of our note now due. The entry is:

  Bills Payable                    $100.00
  Interest and Discount                .25
    Bank                                       $50.00
    Bills Payable                               50.25
  Gave check for $50.00 to apply on note
    due at bank to day.
  Discounted new note for $50.25, payable in 30 days.


=103.= When a draft has been accepted, it should be treated the same as
any other form of bill receivable or bill payable. If we make a draft
on a customer, which he accepts, it becomes a bill receivable. If we
accept a draft drawn on us, it becomes a bill payable.

Sight drafts are frequently made use of as a convenient means
of collecting an account. Such drafts are taken to our bank for
collection, but they do not give us credit for the amount until the
draft is paid. Drafts of this kind, which are placed with the bank for
collection only, are not treated as bills receivable, as we do not
credit the account of the one on whom it is drawn until payment is

=104. When Our Sight Draft is Paid.= We draw on Samuel Smart at sight
for $50.00 through our bank. When paid, we receive credit at the bank
for the amount, less collection charges. The entry in our journal is:

  Bank                          $49.90
  Interest and Discount            .10
    Samuel Smart                            $50.00
  Paid sight draft

=105. When Discounting Time Draft.= Samuel Smart owes us $100.00, and
while the amount is not due for 30 days, we have reason to believe that
he will accept a draft payable in 30 days. We accordingly draw on him
through our bank. Our reason for doing this is that his acceptance will
be a promise to pay, and our bank will then discount the draft. The
draft is accepted, and our bank notifies us that the proceeds have been
placed to our credit, the draft being discounted at 6%. The entries are:

  Bills Receivable          $100.00
    Samuel Smart                       $100.00
  Samuel Smart accepted our 30-day draft
  Bank                        99.50
  Interest and Discount         .50
    Bills Discounted                   $100.00
  Discounted Samuel Smart's 30-day acceptance.

=106. When We Accept.= When we accept a draft payable at a future date,
it immediately becomes a bill payable and should be so treated.

We accept the 30-day draft of the Western Grocer Co. for $200.00. Our
journal entry is:

  Western Grocer Co.       $200.00
    Bills Payable                     $200.00
  Accepted 30-day draft.

=107. When We Pay an Acceptance.= When this draft is due, we pay it,
giving our check to the bank. The entry is:

  Bills Payable          $200.00
    Bank                             $200.00
  Gave check to pay draft of Western Grocer Co.

=108. When We Pay a Sight Draft.= Instead of accepting a time draft, we
pay a sight draft of Western Grocer Co. for $200.00. In this case it
has not become a bill payable, and our entry is:

  Western Grocer Co.     $200.00
    Bank                            $200.00
  Check to Merchants Bank to pay sight draft.


The following examples are to be journalized by the student after
he has become thoroughly familiar with the transactions previously

--Nov. 6--

Received from Jackson & Co. their note for $214.00 without interest,
payable in 30 days, in full settlement of account.

--Nov. 6--

Received from David Newman his note for $650.00 with interest at 6%,
payable in 30 days, in settlement of account. We discounted this note
at First National Bank.

--Nov. 7--

Paid our note given Oct. 6, to National Spice Co., amount $150.00 with
interest at 6%. This note was paid by check #11 to Mechanics Bank.

--Nov. 8--

Bought from Valley Mills on our note for 30 days with interest at 6%,
100 bbls. flour at $5.25 per bbl.

--Nov. 9--

Discounted our note for $1,000.00, 30 days, at First National Bank.

--Dec. 6--

Jackson & Co., paid their note due to-day, $214.00.

--Dec. 6--

David Newman paid $300.00 on his note due to-day. Gave new note for
balance due, payable in 30 days with interest at 6%.

--Dec. 8--

Paid our note to Valley Mills by check #11.

--Dec. 9--

Paid $500.00 on our note to First National Bank by check #12. Gave new
note for $500 payable in 30 days, interest at 6%.

--Dec. 9--

Andrew White paid sight draft, $42.60, through First National Bank,
exchange $.10.

--Dec. 9--

J. D. Jenks accepted our 30-day draft for $140.00, which we discounted
at First National Bank at 6%.

--Dec. 10--

Accepted a 30-day draft for $75.00 drawn by Eastern Woodenware Co.

--Dec. 11--

Gave First National Bank our check for $90.00 to pay 60-day draft of
Farwell & Graves accepted by us Oct. 11.

--Dec. 12--

Gave First National Bank our check for $41.00 to pay sight draft of Dun
& Co.




=1.= In this section we demonstrate complete sets of books for a retail
business, showing every necessary step in bookkeeping from the opening
of the business. The first set represents a small business in which
the simplest methods are adequate. The business is owned by a single
proprietor who opens a retail grocery store.

=2. Opening the Books.= Remembering that bookkeeping is the art of
recording the transactions of a business, the first thing to be done
is to make the proper opening entry of the books. Being the opening
entry, it should record the first fact of importance, which is that the
business has been opened. Since bookkeeping should exhibit the exact
financial standing of the business, the next step will be a complete
statement of assets and liabilities.

It is customary to make this opening entry on the first page of the
journal. The entry should be a plain statement of facts which can be
readily understood by anyone.

=3. Books Used.= In this set, the books used are Journal, Cash Book,
and Ledger. In addition a _counter book_ or _blotter_, corresponding
to a day book, is used. This is a rough book in which are recorded
sales on account, cash purchases, and sometimes payments on account.
The entries are merely memoranda of transactions, made when they
occur, to be later entered in the regular books. No bookkeeper being
employed, it would be inconvenient for the proprietor or his clerk to
go to the desk and make a detailed entry every time a sale is made, and
so the transaction is entered in pencil in the blotter. Bookkeeping
records must be permanent, and should always be made in ink; and it is
advisable, when possible, to have all entries made in one handwriting.

A sample page of the blotter, which illustrates its use, is shown (p.
3). The marks // indicate that the item has been transferred to journal
or cash book.

=4.= The ledger used is one with journal ruling. In posting, each item
is entered in the ledger. This is a very satisfactory plan for a small
business, as the items of which each charge is composed can be seen
at a glance. More space is required for an account, but the saving in
time in making statements is a distinct advantage, especially when the
proprietor is his own bookkeeper. With the ordinary style of ledger, it
is necessary to refer to books of original entry to find the items.

[Illustration: Ledger with Journal Ruling]

=5. Statements.= Customers frequently request detailed statements of
account which will give full particulars of each transaction, including
each item. At other times the proprietor sends statements to his
customers, with a request for payment. When this is done, it is not
necessary to enter each item, a statement of the balance due being
sufficient unless an itemized statement is requested by the customer.

=6.= The business is opened by William Webster on the 21st day of
November, 190-. He is to conduct a retail grocery business, and has
rented a store from Wm. Bristol at a monthly rental of $30.00. His
resources consist of cash $600.00; merchandise, consisting of a
miscellaneous stock of groceries, $964.50; personal accounts due him as
follows: Henry Norton, $25.00; L. B. Jenkins, $22.70. His liabilities
consist of two accounts due for goods purchased, as follows: Brewster &
Co., Rochester, N. Y., $115.20; Warsaw Milling Co., $64.00. The opening
entry, which furnishes a permanent record of these facts, is shown (p.

=7. Proprietor's Account.= The proprietor's account is an account
representing capital when the business is owned by a single proprietor.
When the business is started, this account is opened in the name of the
proprietor (Wm. Webster, Proprietor), and to it is credited his net
investment. From time to time the books are closed and the proprietor's
account then receives credit for the net profits or is debited with the
net losses of the business.

[Illustration: Day Book]

[Illustration: Opening Entry in Journal]

Lamson Consolidated Store Service Co.]

When the proprietor withdraws money or goods from the business
for his personal use, the amount may be charged to his investment
or proprietorship account, or to a personal account (Wm. Webster,
Personal) opened in his name. The latter method is recommended by some
writers for the reason that the proprietor's personal expenses, or
those of his family, are then separated from the expenses or capital
expenditures of the business. As a customer of the business, he is
placed on the same basis as any other individual. But the personal
account must be closed some time; he must pay it in cash, or close it
into profit and loss so that it finally operates to reduce his net

It appears, therefore, that the question whether withdrawals are
charged to the investment or a personal account is largely a matter of
personal preference.

=8.= The opening entries having been made, the books are now ready
for the recording of the regular transactions of the business. The
following transactions are shown in the model set, but the blotter is
omitted, all transactions being entered in the journal and cash book.
The sample page of the blotter described in Article 3 is sufficient to
illustrate its use.


  =9.=        --Nov. 21--
  Sold to Henry Norton on account,
  10# sugar                 .05½       $.55
  2 cans corn                           .25
  1 can peas                            .15
  3# rice                               .30

            --Nov. 21--
  Sold to John Smallwood on account,
  5# butter                            1.00
  4# lard                               .50
  1 doz. eggs                           .25

            --Nov. 21--
  Cash sales                          14.10

            --Nov. 22--
  Sold to Harry Webster on account,
    7 bars Lenox soap                   .25
    1 pkg. gold dust                    .20
    matches                             .15
    ¼ bbl. flour                       1.35

            --Nov. 22--
  Bought for cash
    10 doz. eggs             .21       2.10

            --Nov. 22--
  Cash sales                          11.27

            --Nov. 23--
  Bought from H. Klink & Co., Buffalo, N.Y., on account,
    278# hams                .11      30.58
    200# lard                .07½     15.00

            --Nov. 23--
  Sold to F. W. Bradley on account,
    2 bu. potatoes                     1.60

            --Nov. 23--
  Sold to C. D. Glover on account,
    1 bbl. apples                      3.25
    5 gal. vinegar                     1.25

            --Nov. 23--
  Cash sales                          13.20

            --Nov. 24--
  Bought from John Smallwood on account,
    100 bu. potatoes         .60      60.00
    Paid him cash                     25.00

            --Nov. 24--
  Sold John Smallwood on account,
    2# cheese                           .32
    1 bottle vanilla ext.               .35
    1# coffee                           .35
    1# tea                              .60

              --Nov. 24--
  Sold to A. C. Maybury on account,
    1# royal baking powder              .50
    1# corn starch                      .10
    1# soda                             .10
    2 pkgs. jello                       .20

              --Nov. 24--
  Cash sales                          15.10

              --Nov. 25--
  Paid Brewster & Co.
    Cash                             115.20

              --Nov. 25--
  Sold to L. B. Jenkins on account,
    ½# pepper                           .20
    ½# cloves                           .20
    ¼ bbl. flour                       1.35

  Sold to D. E. Johnson on account,
    12# ham              .14           1.68

              --Nov. 25--
  Received from Henry Norton
    Cash                              26.25

              --Nov. 25--
  Cash sales                          13.00

              --Nov. 26--
  Sold to Wm. Bristol on account,
    11# ham              .14           1.54
    1 qt. bottle olives                 .50
    2# coffee                           .70
    20# sugar             .05½         1.10

              --Nov. 26--
  Credit Wm. Bristol
    1 month's rent                    30.00

              --Nov. 26--
  Sold to C. D. Glover on account,
    ¼ bbl. flour                       1.35
    1# baking powder                    .50
    7 cakes borax soap                  .25

              --Nov. 26--
  Paid clerk hire                      8.00

              --Nov. 26--
  Cash sales                          18.70

              --Nov. 28--
  Sold to H. N. Shaw on account,
    1 bu. potatoes                      .80
    1 doz. cans corn                   1.50

              --Nov. 28--
  Sold to Watkins Hotel Co., on account,
    10 bu. potatoes            .75     7.50
    50# lard                   .10     5.00
    20#  ham                   .13½    2.70

              --Nov. 28--
  Cash sales                           9.45

              --Nov. 29--
  Bought from Lowell & Sons
    500# sugar                 .04¾   23.75
    50 gal. molasses           .30    15.00

              --Nov. 29--
  Bought from Star Salt Co.
    10 bbls. salt              .80     8.00

              --Nov. 29--
  Sold to R. H. Sherman on account,
    1# coffee                           .25
    1# chocolate                        .45
    1 qt. olive oil                    1.35
    ¼# ginger                           .15
    ¼# pepper                           .15
    1 pkg. mince meat                   .10
    2# lard                             .25

              --Nov. 29--
  Cash sales                          14.35

              --Nov. 30--
  Received from F. W. Bradley
    Cash                               1.60

              --Nov. 30--
  Paid Warsaw Milling Co.
    Cash                              64.00

              --Nov. 30--
  Sold to John Smallwood on account,
    1 bbl. salt                        1.10

              --Nov. 30--
  Sold to D. E. Johnson on account,
    10# lard                    .10    1.00
    1# baking powder                    .50
    1 pk. apples                        .35

              --Nov. 30--
  Bought for cash
    5 bu. apples                1.00   5.00

              --Nov. 30--
  Cash sales                          17.90

[Illustration: Journal Entrees Recording all Transactions]

[Illustration: Journal Entries Recording all Transactions]

[Illustration: Journal Entries Recording all Transactions]

[Illustration: Cash Book]

[Illustration: Journal Ruled Retail Ledger]

[Illustration: Journal Ruled Retail Journal]

[Illustration: Journal Ruled Retail Ledger]

[Illustration: Journal Ruled Retail Ledger]

[Illustration: Journal Ruled Retail Ledger]

[Illustration: Journal Ruled Retail Ledger]

At the close of business, Nov. 30, a trial balance of the ledger
accounts is taken. No attention is paid to the accounts which are
closed, the open accounts being only included in the trial balance.

The proprietor wishes to know whether the business has made or lost
money, and what the gross and net profits (or the losses) have been. To
obtain this information the books are to be closed. Before this process
can be completed, it is necessary to know the value of goods now in
stock--that is, to _take an inventory_.


=10.= An inventory is taken by counting, measuring, or weighing all
goods in stock. The stock is listed on journal paper or in a day book,
listing first the quantity; second, the name of the article; third, the
price; fourth, the value of each item.

[Illustration: Inventory Sheet]

[Illustration: Trial Balance]

=11. Pricing.= In taking an inventory, _all goods must be priced at
cost--never at the selling price_. If selling prices are used, credit
is being taken for profits which cannot be earned until the goods are
sold. It may even be found advisable at times to list goods at less
than cost. Some classes of goods deteriorate; at other times the stock
may contain merchandise that was purchased on a high market, on which
prices have been materially lowered. To price such goods at actual cost
prices is creating fictitious values. Conservatism is necessary in
pricing an inventory, for the taking of credit for unearned profits is
wrong in principle.

This inventory shows the cost of goods in stock to be $1,042.77.

=12. Closing the Books.= This is the process of balancing all revenue
accounts, and transferring the balances to the profit and loss account,
the balance of the account being finally transferred or closed into the
capital, surplus, or deficiency account, as the case may be. We have
learned that in a single proprietorship, profit and loss is finally
closed into capital or investment account.


This being a trading business, the first step is to open a _trading
account_ for the purpose of finding the gross profit. The accounts now
in the ledger to be closed into trading account are _merchandise_,
_inventory_, and _purchases_, which are entered on the debit side;
and _sales account_, which is entered on the credit side. The present
inventory is now entered on the credit side; the two sides of the
account are footed; and the difference or balance represents the gross
gain or loss.

=13.= The trading account shows a credit balance or gross profit of
$92.00. This balance is now closed into profit and loss, being entered
on the credit side. The only revenue account now open is expense,
which shows a debit balance of $38.00. This is a revenue expenditure,
representing a loss, and is therefore transferred to the debit or loss
side of profit and loss account.

Profit and loss shows a credit balance or net profit of $54.00. The
balance closes into the account of the proprietor, where it is entered
on the credit side increasing his net investment to $1,487.00.

NOTE--Complete postings from page 4 of the journal.

=14.= _A balance sheet_ should now be prepared; and if our work is
correct in every particular, the present worth will correspond in
amount with the net investment shown by the proprietor's account.

                  BALANCE SHEET, Nov. 30


  Cash                   $535.62
  Accounts Receivable      57.63

  Merchandise Inventory 1,042.77     1,042.77   1,636.02


  Sundry Accounts Payable 149.02                  149.02
  Present Worth                                $1,487.00

[Illustration: Closing Entries, Trading and Profit and Loss Accounts]


=15.= On a certain date the assets and liabilities of John Noble are as

ASSETS: cash, $450.00; inventory, $762.50; due from sundry
debtors--John Lane $30.00, Henry Watson $17.60, D. B Olin $27.60.

LIABILITIES: due sundry creditors--Perkins & Co. $90.00, F. C. Watkins

The following transactions take place:

April 1: Sold to Wm. Aultman on account, 1 bbl. apples $4.50; 10 bu.
corn @ 48c. Bought from Mills & Sweet, 114# cheese at 11c.

April 2. Sold to Henry Watson on account, 10 bu. potatoes @ 75c; D. B.
Olin paid his account in cash; sold for cash, miscellaneous merchandise

April 3. Sold to Andrew Nevin on account, 20# lard at 11c, 14-1/2#
ham at 15c; sold to Homer Miller on account, 1/4 bbl. flour, $1.55,
3 doz. eggs @ 26c, 20# sugar @ 5-1/4c; sold for cash, miscellaneous
merchandise $18.60.

April 4. Paid Perkins & Co., cash 90.00; sold Marvin Stetson 1 bbl.
apples $4.50, 2# coffee @ 40c, 1# tea @ 60c; Wm. Aultman paid his
account in full; sold for cash, miscellaneous merchandise $16.30.

April 5. Bought from Geneva Milling Co. 100 bbls. flour @ $3.25; sold
to D. Wiseman 2 bbls. salt @ $1.10, 10# sugar @ 5-1/2c; sold for cash,
miscellaneous merchandise $14.90.

April 6. Sold F. C. Watkins 20 bu. corn @ 35c, 10# butter @ 30c, 1
vinegar cask $1.50; paid F. C. Watkins cash $42.50; Henry Watson paid
his account in full; paid 1 month's rent $35.00; paid clerk hire $7.00;
sold for cash, merchandise $27.90.

At the close of business, the merchandise inventory was $987.75.

Using journal, cash book, and ledger, open the books, enter and post
these transactions Make a trial balance and a balance sheet, showing
present worth. Does the business show a profit or a loss, and how much?
How is the amount determined from the balance sheet?

Close the books into the proper accounts, showing gross and net profit
and loss. To what account is the profit or loss transferred?


=16.= The proprietor wishes to retire from the grocery business, and,
having an opportunity to sell the stock at inventory value, does so,
receiving $1,042.77 in cash. He immediately pays sundry accounts
payable, $149.02. He collects all accounts receivable except the amount
due from L. B. Jenkins, $24.45. This leaves him with assets consisting
of cash $1,462.55; due from L. B. Jenkins, $24.45; and no liabilities.

He next engages in the retail coal business, investing his entire
assets. He rents an office and yards at $40.00 per month, and engages a
teamster who owns a team and wagon, paying him $24.00 per week.

=17.= In this business there are introduced a sales book, with which
the student is familiar, and a form of ledger known as _center ruled_
(p. 25). This form at first appears slightly confusing; but there is
considerable advantage in having the debit and credit columns side by
side, as balances can be calculated more readily.

=18.= The cash book used is one having three columns. On the debit side
the third column is used for cash sales. The footing is carried forward
until the end of the month, or any other time when a trial balance is
desired, when the amount is posted in one item. All bills are paid by
check, the money received being deposited in the bank.

=19.= An auxiliary book used in this business is a _scale book_, in
which are recorded the weight of wagon, gross and net weights. Weighing
the delivery wagons used by the business each morning is sufficient;
this weight can be used on each load hauled for the day. And on
deliveries made by the regular wagons, it is not necessary to record
the weight of each load in the scale book; knowing the tare, the net
weight can be recorded in the sales book.

The principal use of the scale book is to record the weights of coal
sold at the yards and hauled by the purchaser. When a wagon comes to
the yard for a load of coal, it is of course necessary to obtain first
the weight of the empty wagon; and it is important that both this and
the gross weight be permanently recorded to prevent later disputes. The
scale or weight book is usually made with sheets of from four to six
weight tickets, perforated, having stubs which are exact duplicates
of the tickets. The perforated ticket is given to the customer and the
stub remains in the book as a permanent record.

Since it is necessary to enter the weights in two places, and because
this duplication of work is liable to result in errors, a better plan
would be to omit the stub and make the book with carbon duplicate
tickets. Even with the old style of book a sheet of carbon paper can
be placed between two sheets and two copies of the ticket made at one
writing; the record sheet to remain in the book. See illustration, p.


=20. Uncollectable Accounts.= In the closing entries of the last model
set, we have shown that the gross trading profits are represented
by the balance of trading account. All profits from other sources
are credited directly to profit and loss account; likewise all other
losses are charged directly to profit and loss. One such source of
loss is _uncollectable accounts_. To charge the loss resulting from
an uncollectable account against trading profits would create a false
showing in respect to the trading profits during the current period,
for the reason that the account may represent sales made during a
former period.

[Illustration: Scale Book]


=21.= The transactions which follow represent the business for the
period covered:

                       --Dec. 10--
  Commenced business with the following assets:
  Cash                                            $1,415.55
  Due from L. B. Jenkins                              24.45

                       --Dec. 10--
  Bought from Lehigh Coal Co., on account,
  25 tons nut coal                      $4.25        106.25

                       --Dec. 10--
  Bought from Reading Coal Co., on account,
  25 tons egg coal                       4.25        106.25
  15 tons pea coal          3.75                      56.25

                       --Dec. 10--
  Deposited cash                                   1,400.00

                       --Dec. 11--
  Sold to Henry Newton
    2,000# nut                      5.25               5.25

                       --Dec. 11--
  Sold to D. H. Kennedy
    6,000# egg                      5.75              17.25
    4,000# nut                      5.75              11.50

                       --Dec. 11--
  Sold for cash
    1,000# nut                      5.25               2.63

                       --Dec. 12--
  Sold to Andrew White
    4,000# egg                      5.75              11.50
    1,000# pea                      5.25               2.63

                       --Dec. 12--
  Sold to F. W. Francis
    6,000# nut                      5.75              17.25
    1,500# pea                      5.25               3.94

                       --Dec. 12--
  Sold for cash
    4,000# nut                      5.75              11.50

                       --Dec. 13--
  Bought from Lackawanna Coal Co.
    50 tons run of mine             3.25             162.50

                       --Dec. 13--
  Sold to Eastern Foundry Co.
    25 tons run of mine             3.75              93.75

                       --Dec. 13--
  Sold to Geo. Miller
    8,000# egg                      5.75              23.00

                       --Dec. 13--
  Sold for cash
    2,000# nut                      5.75               5.75
    4,000# nut                      5.25              10.50
    2,000# pea                      4.75               4.75

                       --Dec. 13--
  Deposited all cash on hand

                       --Dec. 14--
  Bought from Lehigh Coal Co.
    30 tons nut                     4.25             127.50

                       --Dec. 14--
  Sold to Lotus Club
    10 tons nut                     5.75              57.50

                       --Dec. 14--
  Sold to David Meyer
    4,000# pea                      5.25              10.50

                       --Dec. 14--
  Sold to City Wagon Co.
    10,000# run of mine             4.50              22.50

                       --Dec. 14--
  Sold for cash
    6,000# egg                      5.25              15.75

                       --Dec. 15--
  Paid Lehigh Coal Co.
    Check# 1                                         106.25

                       --Dec. 15--
  Received from D. H. Kennedy
    Cash in full payment of his account.

                       --Dec. 15--
  Sold to Samuel Hartley
    1,000# pea                      4.75               2.38
    2,000# nut                      5.25               5.25

                       --Dec. 15--
  Sold for cash
    2,000# pea                      5.25               5.25
    5,000# nut                      5.25              13.13
    4,000# egg                      5.25              10.50
    2,500# run of mine              4.25               6.38

                       --Dec. 15--
  Paid Henry Wiggins, teamster
    Check #2                                          24.00

                       --Dec. 15--
  Paid D. H. Tuttle
    1 month's rent, check #3                          40.00

                       --Dec. 15--
  Deposited all cash on hand

                       --Dec. 15--
  Charged L. B. Jenkins account to profit and loss


=22.= Open the books, using cash book, sales book, journal, and ledger.
Enter each transaction, and make all postings to ledger. Take off a
trial balance of the ledger accounts.

At the close of business, Dec. 15, the inventory is taken, and shows
the following quantities on hand:

  38 tons nut             @ 4.25
  14  " egg               @ 4.25
   9  " pea               @ 3.75
  18½ " run of mine       @ 3.25

Close all accounts representing trading transactions into a trading
account, and find the gross trading profit or loss.

Close trading and revenue expenditure accounts into profit and loss

Close net profits into proprietor's account.

Bring down the balances in the ledger and take a new trial balance.


=23.= In a retail business it is necessary for the sales person to
record purchases at the time the goods are selected by the customer.
When but one or two clerks are employed, it is possible to record
these sales in a counter book or blotter; but in a larger business
employing several clerks, this method would be extremely inconvenient.
The bookkeeper would be obliged to wait for the books; and even if two
sets of counter books were provided for use on alternate days, the work
would always be at least one day behind.

The increase in the volume of business transacted, and the multiplicity
of transactions in a retail store, have been responsible for the
introduction of many labor-saving methods and devices. One of these now
used in all large stores and in many small ones, is the _sales ticket_.

The sales ticket is to all intents and purposes a small invoice blank.
Sales tickets are put up in pads or in book form, and are numbered
in duplicate. The number is prefixed by a letter--as _H 10_--which
is intended to indicate either the department or the sales person.
When a sale is made, the ticket or bill is made in duplicate by means
of carbon paper; one copy is given to the customer, and the other
retained. If it is a cash sale, the copy retained goes to the cashier
with the money; if a sale on account, to the bookkeeper to be charged.

These sales tickets are also used for taking orders for future
delivery, both copies being retained until the order is filled. When
delivery is made, one copy goes to the customer as a bill. Aside from
the time saved, the sales ticket is a great convenience, as its use
gives the customer a bill for every purchase.


=24.= When the goods sold are divided into departments, it is here
customary to record carefully the purchases and sales for each
department. These records are provided for by the use of purchase
and sales books having as many columns as there are departments.
Let us suppose that the business under consideration is a single
proprietorship, and that the goods sold are clothing, shoes, and
furnishings. Each class of goods is kept in a separate department,
sales and purchases being recorded by departments.

=25.= Purchase and sales books of a special design are used, each
having three special columns. It will be noted that neither purchases
nor sales are recorded in detail, but that both purchase invoices and
sales tickets are recorded by number, and only the totals extended
in the proper column. The charges and credits are posted to personal
accounts from the purchase and sales books. All purchase invoices are
filed in numerical order. The sales tickets are kept in bundles, each
day's tickets by themselves. The tickets of each department and each
sales person are also kept by themselves. If it becomes necessary at
any time to know the items of an invoice or sales ticket, it is an easy
matter to refer to the files under the proper date and number for the
desired information.

The combined totals of the three department columns must equal the
footing of the total column. All footings are carried forward until the
end of the month, when the totals are posted directly to purchase and
sales accounts, completing the double entry. In the ledger, purchase
and sales accounts are kept with each department; but when the books
are closed, the results from all departments are combined in the
trading account. Instead of recording cash sales in a special column
in the cash book, all receipts of this kind are entered in the regular
_cash received_ column. These sales are not posted from the cash book,
but are entered in the sales book daily. Thus they are carried forward
in the footings, and at the end of the month the totals of the sales
book represent all sales, both on account and for cash.

=26.= The cash book in this set presents some new features. Instead
of using both pages of the book, one page is used for both debit and
credit. The bank account is also kept in the cash book, debit and
credit columns being provided for this purpose. Deposits are entered in
the bank debit column and in the cash credit column. Checks are entered
in the bank credit column and posted to individual accounts.

The other books used are the journal and ledger. The journal is used
only for adjusting entries which cannot be made through the other books.


=27.= The business is opened by C. D. Walker, who invests $3,500.00
cash, which he deposits in the bank. The following transactions are

                       --Jan. 12--
  Bought from Hart, Schaffner & Marx, Chicago
    50 suits                      $13.50            $675.00
    15 "                           16.50             247.50
    Net; 2% 10.
    Invoice #1.

                       --Jan. 12--
  Bought from Hamilton Brown Shoe Co., St. Louis
    30 pr. shoes                    2.25              67.50
    30  "    "                      4.25             127.50
    10  "    "                      1.50              15.00
    Net 60; 2% 10.
    Invoice #2.

                       --Jan. 14--
  Bought from Farwell & Co., Chicago
    1 doz. shirts                  13.50              13.50
    2  "    "                       9.00              18.00
    4  "    "                       6.25              25.00
    2  "   sox                      1.50               3.00
    1  "    "                       2.00               2.00
    10 "   underwear                6.50              65.00
    5  "   hdkfs.                   1.10               5.50
    Net 60; 2% 10.
    Invoice #3.

                       --Jan. 14--
  Bought from Barr Dry Goods Co., St. Louis
    12 doz. collars                  .75               9.00
    12  "     "                     1.10              13.20
    Net 30.
    Invoice #3.

                       --Jan. 15--
  Sold to S. W. Martin, 842 3d Av., on account
    Sales ticket A4.                                  25.00
    S.T. B6                                            4.50
    S.T. C18                                           6.00

                       --Jan. 15--
  Sold for cash
    Clothing                                         148.70
    Furnishings                                       26.50
    Shoes                                             54.00

                       --Jan. 15--
  Paid Hart, Schaffner & Marx account
    Check #1                                         894.25
    Discount                                          18.25

                       --Jan. 16--
  Sold to A. R. Crane, 1162 Baker St., on account
    S.T. B7                                            3.00

                       --Jan. 17--
  Sold to D. H. Whipple, 476 Lake St., on account
    S.T. A12                                          27.50
    Paid cash on account                              10.00

                       --Jan. 17--
  Received from S. W. Martin
    1 shirt, for exchange                              1.50
  Sold him on account
    1 shirt                                            2.00
    S.T. B9

                       --Jan. 17--
  Sold for cash
    Department A                                     200.00
        "      B                                      64.00
        "      C                                      87.50

                       --Jan. 19--
  Sold to C. D. Lewis, 64 Ferry Av., on account
    S.T. B11                                          6.50
    S.T. C23                                          3.50

                       --Jan. 19--
  Paid Hamilton Brown Shoe Co., on account
    Check #2                                        205.80
    Discount                                          4.20

                       --Jan. 19--
  Paid clerk hire, cash                              12.00

                       --Jan. 19--
  Paid store rent to D. C. Watson
    Check #3                                         50.00

                       --Jan. 19--
  Sold for cash
    Department B                                     37.50
         "     C                                     35.00

                       --Jan. 19--
  Deposited in bank                                 550.00

                       --Jan. 20--
  Sold to B. E Johnson, 92 King St., on account
    S.T. A15                                         20.00

                       --Jan. 20--
  Sold for cash
    Department A                                     75.00
         "     B                                     21.25

                       --Jan. 20--
  Deposited in bank                                 100.00

                       --Jan. 20--
  Paid freight bills
    Department A                                      8.75
         "     B                                      3.42
         "     C                                      4.20
    Check #4 to C. D. Jenks, Agt.                    16.37
    The inventory on Jan. 20 is:
    Clothing                                       $487.00
    Furnishings                                      30.50
    Shoes                                            64.50

                   BALANCE SHEET, JAN. 20
    Bank             $2,983.58
    Office               97.45
                      --------    $3,081.03
  Accounts Receivable
    Martin               36.00
    Crane                 3.00
    Whipple              17.50
    Lewis                10.00
    Johnson              20.00
  Merchandise (Inventory)            582.00
                                   --------       $3,749.53


  Accounts Payable
    Farwell             132.00
    Barr                 22.20       154.20          154.20
                      --------     --------        --------
    Present Worth                                 $3,595.33

[Illustration: Adjustment Journal and Department Purchase Book]

[Illustration: Departmental Sales Book]

[Illustration: Cash Book Including Bank Account]

[Illustration: Center Ruled Ledger]

[Illustration: Center Ruled Ledger]

[Illustration: Center Ruled Ledger]

[Illustration: Center Ruled Ledger]

[Illustration: Center Ruled Ledger]

[Illustration: Trial Balance]


=28.= Take a trial balance of the ledger accounts as they appear after
the books are closed Jan. 20.

At the close of business, Feb. 28, we find that the following
transactions have been recorded:

Purchased clothing from Hart, Schaffner & Marx, $1,500.00; from Brokau
Bros., $720.00.

Purchased furnishings from Barr Dry Goods Co., $60.00, from Rosenthal &
Co., $437.50.

Purchased shoes from Brown Shoe Co., $460.00.

Sold on account, clothing, $600.00; furnishings, $224.40; shoes,

Sold for cash, clothing, $789.50; furnishings, $302.90; shoes, $447.25.

Received cash on account, $672.20.

Received returned goods: clothing, $15.00; shoes, $7.00.

Deposited cash in bank, $2,230.00.

Paid cash for expenses, $10.00.

Gave checks as follows: Hart, Schaffner & Marx, $1,176.00; Brokau
Bros., $705.60; Brown Shoe Co., $294.00; Farwell & Co., $132.00;
Barr Dry Goods Co., $22.20; Rosenthal & Co., $428.75; rent, $50.00;
expenses, $100.00.

Cash discounts earned on accounts paid as follows: Hart, Schaffner &
Marx, $24.00; Brokau Bros., $14.40; Brown Shoe Co., $6.00; Rosenthal &
Co., $8.75.

Take a new trial balance as the ledger accounts appear after posting
these transactions.

The inventory, Feb. 28, is:

  Clothing                                $1,790.50
  Furnishings                                176.40
  Shoes                                      136.25

Close the books, make statement of trading and profit and loss account.
Make a balance sheet.

What were the gross profits for this period?

What were the net profits?

What is the proprietor's present worth?


=29.= Legal authorities define a partnership as a combination by two
or more persons, of capital, labor, or skill, for the transaction of
business for their common profit.

Partnerships may be formed for the purpose of conducting any legitimate
business or undertaking, and are created by contract, expressed or
implied, between the parties. Partnership agreements need not be in
writing, but may be made by oral assent of the parties. Even though
they are legal if made orally, partnership agreements should always be
made in writing.

=30. Partnership Agreements.= These should state the date on which
the agreement is entered into, the name of the contracting parties,
the name by which the partnership is to be known, and the address of
the place of business. Following should be a statement of the nature
of the business, the amount and form of investment of each partner,
the duration of the partnership, the basis of division of profits,
provisions for the dissolution of the partnership, definition of
the duties of active partners, and a provision for the division of
the assets in the event of dissolution or at the termination of the

=31. Kinds of Partners.= Partners are of different kinds, depending
on the nature of the partnership agreement and the extent of their
liability, expressed or implied, as between themselves or in respect
to third persons. The usual classification of partners is as follows:
_ostensible_, _secret_, _nominal_, _silent_, and _dormant_.

Ostensible partners are those whose names are disclosed to the public
as actual partners.

Secret partners are those whose names are not disclosed to the public,
though participating in the profits.

Nominal partners are those who allow their names to be used as
partners, though they may have no actual interest in the business.
The fact of their being known as partners makes them liable to third

Silent partners are those who, while sharing in the profits, take no
active part in the management of the business. Their names may or may
not be known. Silent partners may also be secret partners,

Dormant partners are those, who are both silent and secret partners.
They are usually included in a general term like _Company_, _Sons_, or

=32. Participation in Profits.= The most simple partnership from an
accounting standpoint is one in which the investments of the several
partners are equal, and profits are to be divided equally.

This condition does not exist in all partnerships. The members of the
partnership may invest unequal amounts and share in the profits on the
basis of their investment. The investment may be equal, but one partner
may receive an extra share of the profits in return for work performed
in lieu of a salary. The investment may be unequal, but the one with
the smaller investment may share equally in the profits in return for
work performed. It is not unusual for a silent partner to furnish all
of the capital and share equally in the profits with an ostensible
partner who assumes full responsibility for the management of the

=33. Interest on Investment.= When the investment of the partners is
unequal, it is customary to allow interest on the capital invested and
to charge interest on all withdrawals. The interest on capital must
be credited, and the interest on withdrawals must be charged, before
profits can be distributed.

=34. Capital and Personal Accounts.= In a partnership a special
account should be opened in the name of each partner to represent his
investment (for example, John Smith, Capital). To this account is
credited his net investment. When the books are closed, the account
is credited with his share of the profits, and debited with his

A personal account should be opened in the name of each partner, to
which is debited all withdrawals, either of money or goods. Even when
the capital invested is equal, some partnership agreements provide
that interest shall be charged on all withdrawals, particularly when
the business is of such a nature that goods traded in are likely to be
withdrawn by the partners, or when, for any reason, withdrawals are
likely to be unequal. The balance of the partner's personal account
is closed into his capital account when the books are closed. Before
closing this account, it should be credited with interest on capital
account and charged with the interest provided on withdrawals.

=35. Opening the Books.= When the books of a partnership are opened,
the essential features of the partnership agreement should be written
at the top of the first page of the journal. Next following the
partnership agreement, are the entries showing the nature and amount of
the investment of each partner, the amounts being posted to the credit
of partners' capital accounts.

=36. Closing the Books.= When the books of a partnership are to be
closed, the revenue accounts are closed into trading and profit and
loss, the same as in any other form of business organization. The net
profit is then apportioned according to agreement, the share of each
partner being credited to his capital account. The balance of his
personal account is then carried to his capital account; the balance of
that account will then show his net investment.

=Illustration of Closing Entries.= A, B, and C form a partnership, each
investing $1,000.00, profits to be shared equally. When the books are
closed, the net profits are found to be $909.60. A's personal account
shows a debit balance of $46.50; B's personal account shows a credit
balance of $100.00; C's personal account shows a credit balance of
$52.00. The entries are as follows:

  Profit and Loss         $909.60
    To A, Capital _a/c_                      $303.20
     " B,   "      "                          303.20
     " C,   "      "                          303.20
  A, Capital _a/c_          46.50
    A, Personal _a/c_                          46.50
  B, Personal _a/c_        100.00
    B, Capital _a/c_                          100.00
  C, Personal _a/c_         52.00
    C, Capital _a/c_                           52.00

The capital accounts after closing are:

                       A, CAPITAL _a/c_

  Dec. 31,  Bal. personal _a/c_  $46.50  $1,000.00               Jan.  1
  Balance                      1,256.70     303.20 (1/3 profits) Dec. 31
                               --------   --------
                              $1,303.20  $1,303.20
                              =========  =========
                                         $1,256.70 net invest.   Dec. 31

                      B, CAPITAL _a/c_

  Dec. 31, Balance    $1,403.20   $1,000.00               Jan.  1
                                     303.20 (1/3 profits) Dec. 31
                                     100.00 pers. _a/c_     Dec. 31
                       --------    --------
                      $1,403.20   $1,403.20
                      =========   =========
                                  $1,403.20 net invest.   Dec. 31

                      C, CAPITAL _a/c_

  Dec. 31, Balance    $1,355.20   $1,000.00               Jan.  1
                                     303.20 (1/3 profits) Dec. 31
                                      52.00 pers. _a/c_     Dec. 31
                       --------    --------
                      $1,355.20   $1,355.20
                      =========   =========
                                  $1,355.20 net invest.   Dec. 31


=37.= The first business taken up for consideration under the head of
partnerships is a retail shoe business. The stock is kept in three
classes: men's, women's, and children's shoes. Purchase and sales
books, ruled to segregate transactions of each class, are used. The
bank account is kept in the cash book, which is also provided with two
columns for discount. All sales, whether for cash or on account, are
recorded on sales tickets.

James Benton, Horace Douglas, and Henry Kemp form a partnership under
the firm name of Benton, Douglas & Kemp, for the purpose of conducting
a retail shoe business in Buffalo, N. Y. The date of the agreement,
which is to continue for ten years, is March 1, 1908. James Benton
invests $1,000.00 in cash and a stock of shoes inventorying $2,000.00
as follows: men's, $800.00; women's, $700.00; children's, $500.00.
Horace Douglas and Henry Kemp each invest $3,000.00 in cash. The three
partners are to share equally in the profits and each is to receive a
salary of $100.00 per month. The books are to be closed and net profits
divided at the end of each three months' period counting from January
1, which brings the first distribution on March 31.

The following transactions are recorded during the month of March:

                          --March 1--
  Deposited in Second National Bank             $7,000.00

                          --March 1--
  Bought from National Fixture Co.
    Store fixtures                               2,000.00
    Invoice #1

                          --March 1--
  Bought from John C. Morrison, Buffalo
    Men's shoes                                    135.00
    Invoice #2

                          --March 1--
  Bought from Hoyt & Co., Rochester, N. Y.
    Women's shoes                                  127.50
    Children's shoes                                84.00
    Net 60; 2% 10.
    Invoice #3

                          --March 2--
  Sold to R. H. Wallace, 842 Delaware Av.
    1 pr. men's shoes                                6.00
    1 pr. men's slippers                             2.50

                          --March 2--
  Sold to D. H. Lyon, 416 Niagara St.
    1 pr. women's                                    3.50
    1 pr. women's                                    4.00
    1 pr. children's                                 2.00

                          --March 2--
  Sold to Henry Norris, 297 Madison Av.
    1 pr. men's                                      5.00
    1 pr. children's                                 1.25
    1 pr. children's                                 1.50

                         --March 2--
  Sold to R. H. Homans, 427 Lafayette Av.
    1 pr. women's                                    5.00

                         --March 2--
  Sold for cash
    Men's                                           44.00
    Women's                                         37.50
    Children's                                      22.00

                         --March 3--
  Sold to H. J. Watson, 197 Locust St.
    2 pr. men's                                     15.00
    1 pr. women's                                    5.50

                         --March 3--
  Sold to H. J. Meyer, 82 Bennett St.
    1 pr. children's                                 1.50
    1 pr. children's                                 2.00
    1 pr. women's                                    3.50

                         --March 3--
  Paid Hoyt & Co. bill by check
  Less cash discount.

                         --March 3--
  Deposited in Second National Bank                 75.00

                         --March 3--
  Paid freight on shoes in cash                      2.60

                         --March 3--
  Sold for cash
    Men's                                           30.00
    Women's                                         24.00
    Children's                                      15.00

                         --March 4--
  Bought from Lee & Co., Rochester
    Women's shoes                                  140.00
    Net 30.
    Invoice #4

                         --March 4--
  Sold to D. Andrews, 84 Peck St.
    1 pr. men's                                      3.50
    1 pr. men's                                      5.00
    1 pr. women's                                    4.00

                         --March 4--
  Sold to Jas. Hayes, 519 Washington St.
    1 pr. women's                                    3.50
    1 pr. children's                                 2.00
    1 pr. children's                                 1.25

                         --March 4--
  Sold for cash
    Men's                                           27.00
    Women's                                         32.00
    Children's                                      12.50

                         --March 5--
  Sold to R. D. Nelson, 842 Niagara St.
    1 pr. men's                                      6.00
    1 pr. women's                                    5.00

                         --March 5--
  Sold to D. Needham, 47 Ames St.
    1 pr. men's                                      3.50
    1 pr. women's                                    2.50
    1 pr. children's                                 1.50

                          --March 5--
  Sold for cash
    Men's                                           31.50
    Women's                                         26.00
    Children's                                      11.00

                          --March 6--
  Deposited in Second National Bank                200.00

                          --March 6--
  Sold to D. B. Wright, 47 Andrews St.
    1 pr. men's                                      5.00

                          --March 6--
  Sold to H. N. Hoyt, 821 Delaware Av.
    1 pr. women's                                    5.00
    1 pr. children's                                 2.50

                          --March 6--
  Sold to Amos Wiggins, 92 Prospect St.
    1 pr. men's                                      5.00
    1 pr. women's                                    3.50

                          --March 6--
  Sold for cash
    Men's                                           52.00
    Women's                                         36.50
    Children's                                      18.25

                          --March 6--
  Paid clerk hire, cash                              9.00

                          --March 6--
  Gave checks as follows:
    Horace Douglas                                  20.00
    Henry Kemp                                      25.00

                          --March 8--
  Sold to D. Altman, 127 Wright St.
    1 pr. men's                                      6.00
    Gave him check                                  44.00
    Credited his account for 1 mo.'s rent           50.00

                          --March 8--
  Sold to R. H. Homans, 427 Lafayette Av.
    1 pr. men's                                      6.00

                          --March 8--
  R. H. Wallace paid his account in full.

                          --March 8--
  Paid account of John C. Morrison by check

                          --March 8--
  Sold for cash
    Men's                                           25.00
    Women's                                         18.00
    Children's                                      10.50

                          --March 9--
  Sold to Walter Jenks, 87 South Av.
    1 pr. men's                                      6.00
    1 pr. women's                                    4.00
    1 pr. children's                                 2.00

                          --March 9--
  Sold to D. W. Mantel, 419 Delaware Av.
    1 pr. women's                                    5.00
    1 pr. children's                                 2.50

                          --March 9--
  Sold to D. C. White, 1160 Main St.
    1 pr. men's                                      5.00
    1 pr. men's                                      3.50

                          --March 9--
  Sold to A. R. Crows, 40 Shaw St.
    1 pr. women's                                    3.50

                          --March 9--
  Sold for cash
    Men's                                           54.00
    Women's                                         41.50
    Children's                                      20.50

                          --March 9--
  Deposited in Second National Bank                275.00

                          --March 10--
  Sold to Henry Brown, 87 Douglas St.
    1 pr. men's                                      6.00
    1 pr. women's                                    4.00

                          --March 10--
  Sold to D. L. Benedict, 80 Adams St.
    1 pr. women's                                    3.50
    1 pr. children's                                 2.00
    1 pr. children's                                 1.50

                          --March 10--
  Sold for cash
    Men's                                           48.50
    Women's                                         39.00
    Children's                                      16.50

                          --March 11--
  Sold to D. H. Lyon, 416 Niagara St.
    1 pr. men's                                      6.00

                          --March 11--
  Received from Henry Norris, cash                   7.75

                         --March 11--
  Sold to D. B. Wright, 47 Andrews St.
    1 pr. women's                                    3.50
    1 pr. children's                                 2.00

                         --March 11--
  Sold to H. J. Meyer, 82 Bennett St.
    1 pr. men's                                      3.50

                         --March 11--
  Sold for cash
    Men's                                           42.00
    Women's                                         39.50
    Children's                                      11.00

                         --March 12--
  Deposited in Second National Bank                195.00

                         --March 12--
  Sold to D. L. Benedict, 80 Adams St.
    1 pr. men's                                      5.00

                         --March 12--
  Sold to H. A. Fisher, 42 Lyons St.
    1 pr. women's                                    4.00
    1 pr. children's                                 1.50

                         --March 12--
  Sold to Andrew Winters, 476 Delaware Av.
    1 pr. men's                                      6.00
    1 pr. children's                                 2.50

                         --March 12--
  Sold for cash
    Men's                                           51.50
    Women's                                         43.00
    Children's                                      17.75

                        --March 13--
  Bought from Rochester Shoe Co., Rochester
    Men's shoes                                    265.00
    Women's  "                                     220.00
    Children's "                                    98.50
    Net 30; 2% 10.

                        --March 13--
  Sold to D. Altman, 127 Wright St.
    1 pr. women's                                    4.00
    1 pr. children's                                 2.50
    1 pr. children's                                 2.00

                        --March 13--
  Sold to D. Alton, 46 Eastern Av.
    1 pr. men's                                      5.00
    1 pr. women's                                    3.50

                        --March 13--
  Sold for cash
    Men's                                           67.00
    Women's                                         52.00
    Children's                                      29.00

                        --March 13--
  Paid clerk hire                                    9.00

Henry Kemp wishes to retire from the business. His partners, Benton and
Douglas, agree to pay him cash for his interest. To close the books,
each partner is credited with one-half a month's salary, and the amount
is charged to expense. The inventory shows the stock to be:


  Men's shoes                                     $759.75
  Women's                                          835.75
  Children's                                       519.00

[Illustration: Journal Showing Opening Entries for a Partnership]

[Illustration: Cash Book with Center Column for Particulars]

[Illustration: Departmental Sales Book]

[Illustration: Departmental Sales and Purchase Books]

[Illustration: Classified Ledger Accounts]

[Illustration: Classified Ledger Accounts]

[Illustration: Classified Ledger Accounts]

[Illustration: Classified Ledger Accounts]

[Illustration: Classified Ledger Accounts]

[Illustration: Classified Ledger Accounts]

[Illustration: Classified Ledger Accounts]

[Illustration: Classified Ledger Accounts]

[Illustration: Classified Ledger Accounts]


=38.= 1. Submit a trading and a profit and loss account as shown by the
books at the close of business March 13.

2. What errors do you find in these books?

3. Submit a balance sheet.

4. Submit the journal entries to be used in apportioning the profits,
and in closing partner's personal account. Show partners' capital
accounts after final closing.

5. Submit proper entries when Kemp's interest is purchased, assuming
that he is paid by check from the funds in hand.

6. Submit trial balance of ledger of Benton & Douglas as the accounts
appear after the purchase of Kemp's interest. Remember that no
additional capital is invested.

=39. Sale of Partnership.= When the business of a partnership is
sold, the net assets must be divided among the partners according to
agreement, unless the partnership is to continue for the transaction of
the same or some other class of business. As a rule, the liabilities
are paid (if possible), from the cash funds on hand, leaving the net
assets for division.

In the division of assets, one partner will frequently agree to accept
a certain class of assets in lieu of cash, but at a discount. To
illustrate, one partner might accept fixtures, which cost $1,000.00, at
10% discount. Deducting 10% from the cost price of the fixtures reduces
the assets just that amount, and it is necessary to debit profit and
loss and to credit fixture account, with the loss.

If any class of assets, other than the goods in which the firm is
trading, bring a price above cost, it is necessary to debit the
purchaser and credit profit and loss with the profit. If the stock
regularly traded in is sold at a profit, no special entry is required;
the sale is recorded in the regular way and credited to sales account,
from which it finds its way into profit and loss in the final closing
of the books.

This class of transactions involves but one of the many kinds of
adjusting entries, all of which necessitate careful study on the part
of the bookkeeper. In making adjusting entries, full explanations
should be given that their meaning or intent may not be misunderstood
by one who later refers to them. It is better to err on the side of
what may appear as too detailed explanation, than to leave anything to
be taken for granted.

Following is an illustration of the entry involving the sale of
fixtures at 10% discount:

  Profit and Loss                          $100.00
    Fixture Account                                    $100.00
    10% discount allowed on fixtures taken
      by A in part payment of his share of
  A's Capital _a/c_                        $900.00
    Fixture Account                                    $900.00
    Fixtures taken at 10% discount in part
      payment of his share of assets.

=40.= Benton and Douglas agree to continue the business and to share
profits equally. At the close of business, Dec. 31, their balance sheet
showed the following:

                   BALANCE SHEET, DEC. 31
    In office                $144.60
    In bank                 1,287.20    $1,431.80
  Accounts Receivable         810.00
  Inventory, Merchandise    3,769.50     4,579.50
  Inventory, Fixtures       2,000.00     2,000.00
    Total Assets                                     $8,011.30

  Accounts Payable                                      925.20
  Present Worth                                      $7,086.10
  Benton's present worth                             $3,543.05
  Douglas's present worth                             3,543.05

They accept an opportunity to sell for cash the stock and fixtures, the
buyer agreeing to pay 15% above cost price for the merchandise, and
cost price for the fixtures. The money received from this transaction,
and the money in the office at time of sale, are deposited in the
bank. Checks are drawn to settle all accounts payable, $7.22 discount
being earned. In liquidating the business of the firm, Benton agrees
to accept the accounts receivable in part payment of his share, on
condition that 10% be first charged off to cover uncollectable accounts.


1. Show all entries required to complete the liquidation of this

2. At the final settlement, how much cash does each partner receive?

=41. Division of Profits.= When the investment of the several partners
is unequal, the partnership agreement usually provides for the
crediting of interest on capital, and the charging of interest on

A and B form a partnership, and commence business Oct. 1. A invests
$7,000.00, and B invests $3,000.00. The agreement provides that
interest at 6% shall be credited on capital and charged on withdrawals
at the time of closing the books, profits to be shared on the basis of
their investments.

The books were closed Oct. 31, with the following results:



The adjustment is made as follows:

  A's investment, $7,000.00  Interest for 30 days (1 month) $35.00
  A's withdrawals    200.00  Interest for 15 days              .50
                   Net interest to be credited to A         $34.50
  B's investment,  $3,000.00 Interest for 30 days           $15.00
  B's withdrawals,    100.00 Interest for 10 days              .17
                   Net interest to be credited to B         $14.83

The journal entry is:

  Interest                               $49.33
    A's personal _a/c_                             $34.50
    B's personal _a/c_                              14.83
    Net interest credited on capital accounts.

After posting the entry, our interest account shows the following:

  Interest on capital                      $49.33

This account is, of course, closed into profit and loss, leaving net
profits to be divided, $954.67, of which A receives 70%, and B 30%.

For the final closing of the books, we would close the personal
accounts of A and B into their capital accounts, and close profit
and loss account into their capital accounts. In actual practice the
interest on withdrawals and investment would be entered and charged
to profit and loss through interest account, before the net profit
is brought down. In our illustration we have first brought down what
appears to be the net profit, for the purpose of emphasizing the fact
that the interest must be considered before profits are divided.


=42.= C, D, and E formed a partnership Nov. 1. C invested $9,000.00
cash; D invested $7,000.00 cash; E invested $4,000.00 cash. The
partnership agreement provided that profits should be shared on the
basis of the capital invested by each; interest at 6% to be credited on
capital and charged on withdrawals.

At the close of business the following statistics are gathered from the

  C's Capital _a/c_        Cr.                 $9,000.00
  D's Capital _a/c_        Cr.                  7,000.00
  E's Capital _a/c_        Cr.                  4,000.00
  Purchases                Dr.                 15,000.00
  Sales                    Cr.                 12,000.00
  Expense                  Dr.                    160.00
  Rent                     Dr.                    150.00
  Salaries                 Dr.                    700.00
  Bank                     Dr.                  7,250.00
  Bills Receivable         Dr.                  6,000.00
  Accounts Receivable      Dr.                  7,220.00
  Bills Payable            Cr.                  3,000.00
  Accounts Payable         Cr.                  2,820.00

  C's personal _a/c_       Dr. Nov. 15           $300.00
  D's personal _a/c_       Dr. Dec.  1            200.00
  E's personal _a/c_       Dr. Nov. 20            100.00
  Inventory                    Dec. 31          7,000.00

Make trading account, profit and loss account, and journal entries to
adjust interest.

Make balance sheet, and show partners' capital accounts after final
closing of the books.




=1.= A corporation is an artificial body created by statute law
and vested with power to act in many respects as an individual--in
particular to acquire, hold, and dispose of property, real or personal;
to make contracts; to sue and be sued, and the like.

It is a legal entity apart from its members. It may sue without joining
its members, and may be sued by others without the necessity of joining
its members. It may transfer property and transact all business, not
inconsistent with the rights granted by its charter, in its own name.
In the transaction of business it is regarded as an individual.


=2.= Corporations may be divided into two general classes--public and
private. A _public_ corporation is a political entity organized for
the purposes of government--as a city, county, or village. A _private_
corporation is one organized to further the interests of its members.
These may be divided into two classes--stock corporations and non-stock

A _stock_ corporation is one organized for the pecuniary gain of its

A _non-stock_ corporation is one organized to further a particular
object--as clubs, charitable associations, societies for scientific
research, etc.

Stock or business corporations are the ones with which we are chiefly
concerned. Such corporations are organized to enable several persons
to unite their capital to conduct a legitimate business enterprise and
such organization accomplishes two important results; the rights of the
members to transfer their interest without affecting the standing of
the business, and exemption from personal liability for contracts or
acts of the corporation.

In a partnership, each individual partner is liable for the debts of
the partnership, and any partner can make contracts in the name of
the partnership, such contracts becoming obligations of net only the
partnership but of each individual partner.

A member or stock holder in a corporation is, as a rule, liable
only for the amount of his subscription to the capital stock of the
corporation. The exception to this is the organization of certain
classes of corporations in which it is provided that a stockholder
shall be liable for twice the amount of his stock subscription.
National Banks are examples of this class. No stockholder, as such, has
the right to make contracts in the name of the corporation, and any
contracts he may make are not binding on the corporation. Contracts
made in the name of the corporation, to be binding, must be executed by
an officer duly authorized to make such contracts.

=3. Joint Stock Companies.= _How distinguished from corporations._
A joint stock company is a large partnership in which the capital
is divided into shares which are distributed among the partners in
proportion to their interests. Joint stock companies differ from
corporations and are like partnerships in the following respects:

Each member is liable for the debts of the company, and if he sells his
shares he is still liable for the debts which were contracted while he
was a shareholder.

Except when otherwise provided by statute, all members must join in any
action at law by the company, and if another brings an action against
the company he must join as many shareholders as he wishes to hold.
In some states the law provides that an action against a joint stock
company may be brought in the name of its president or other designated
officer representing all the members.

=4. Joint Stock Companies.= _How like Corporations._ A joint stock
company is like a corporation and differs from a partnership in the
following respects:

The shares may be transferred. If a member dies his shares pass to his
estate; if bankrupt they pass to his assignee; if he sells his shares
they pass to the purchaser. Partners may withdraw and new partners may
be admitted without the dissolution of the company. A partnership is
dissolved by the withdrawal by death or otherwise of a single partner.

The shareholders do not manage the affairs of the company but elect
directors or other officers in whom the management of the business is
vested. Members, as such, have no authority to bind the company.


=5.= A corporation is created by legislative act. Formerly each
corporation received a special charter from the legislature of the
state, but as the advantages of corporations began to receive universal
recognition it was seen that the delays incident to the granting of
special charters were bound to work a hardship on those desiring to
incorporate. Partly to overcome this, but more particularly to insure
uniformity in the rights and privileges of corporations, and to prevent
the conferring of special privileges through special charters, the
legislature of most states has enacted uniform corporation laws.
These statutes prescribe uniform regulations for the organization of
corporations. State constitutions now very generally prohibit the
granting of special charters to private corporations.

=6. Requirements.= While every state has its own corporation laws, the
requirements of corporations are in many respects uniform. The law
usually provides that a certificate of incorporation shall be filed
with the secretary of state, or some other designated officer. This
certificate must as a rule state:

 The name of the corporation;

 The place of business, where its principal office is located;

 The objects of the corporation, including a statement of the business
 in which it is to engage;

 The amount of the capital stock, and the number and par value of the
 shares into which it is to be divided;

 The period for which the corporation is organized;

 The number of its directors and the names of those who are to serve
 at the outset;

 The names and addresses of the original incorporators with the number
 of shares of the capital stock subscribed for by each.

The form of the certificate required in the state of Illinois is shown
in the illustration, p. 4.


=7.= The members of a business corporation are known as stockholders
or shareholders. At the time of organization the members subscribe for
the shares of the capital stock agreeing to take and pay for them when
issued. When the stock has been delivered and paid for, the stockholder
is under no further obligation, unless the stock is by statute or
contract subject to assessment.


=8. Stock Certificate.= When a stockholder has paid for his shares
a certificate, known as a stock certificate, is issued to him. This
certificate is the written evidence issued by the corporation that the
person whose name appears therein is registered on the company's books
as the owner of shares of the number and par value named.

The owner of a stock certificate can transfer it, and the one to
whom it is transferred becomes a stockholder. Such transfers are not
complete, however, until registered on the books of the company. A
stock certificate is not, strictly speaking, a negotiable instrument,
but it is the custom among business men to indorse stock certificates
in blank and transfer them from hand to hand as negotiable instruments,
until some one inserts his own name and has the transfer registered on
the books of the company.

Such indorsement does not make a stock certificate a negotiable
instrument, and the purchaser can acquire no better title than is
possessed by the seller. Courts have held that the fact that a
certificate of stock is not payable to bearer makes it non-negotiable.


=9.= This is the term commonly used to designate the amount of
stock which the company is authorized to issue. It may have little
reference to the amount subscribed or paid in, for most states
authorize corporations to begin business as soon as a certain number
of shares have been subscribed for, or even when only a small part
of the subscriptions have been paid. For instance, a company with an
authorized capitalization of $100,000 may be permitted to commence
business as soon as $10,000 has been subscribed and $1,000 is actually
paid in.

=10. Capital and Capital Stock.= The _capital_ of a corporation is
usually understood to mean its assets, and is a general term covering
all of its property of every nature. It has no connection with the
capital stock authorized or the number of shares subscribed.

_Capital Stock_ is a term used in many ways each of which implies a
different meaning. It may mean the amount which must be paid in before
it can transact business as a corporation; it may mean the capital
which the corporation is authorized to issue; it may mean the amount
subscribed regardless of the amount actually paid in; or it may mean
the amount actually paid in regardless of the amount subscribed.

=11. Kinds of Stock.= As a rule the capital stock of a corporation is
of two classes--common and preferred--though not all corporations issue
both classes.

_Common Stock_ is the stock of a corporation issued to all stockholders
under the same conditions, and which is to share equally in the

_Preferred Stock_ is stock which gives its owner certain preferences
over the owners of common stock. This preference usually consists of a
provision for the payment of certain dividends out of the net earnings
of the business before any dividends can be paid on common stock. The
officers of a corporation have no power to issue preferred stock unless
it is provided for in the charter. Preferred stock may, however, be
issued with the consent of all common stockholders. Preferred stock
falls into subdivisions depending upon its provisions as follows:

_Cumulative_ preferred stock is stock on which the payment of dividends
is not dependent upon the earnings of one year. If a dividend is
passed in one year or if not paid in full, it must be paid from future
earnings before common stock can draw dividends.

_Non-cumulative_ preferred stock is stock which carries a dividend
preference only in respect to the earnings of the current year. While
dividends are payable prior to dividends on common stock, no liability
attaches to the corporation if earnings in any year are insufficient to
pay dividends.

_Guaranteed Stock_ is another name for cumulative or non-cumulative
preferred stock--any stock on which the payment of dividends is

A corporation may issue more than one series of preferred stock,
as _first preferred_, _second preferred_, etc. These issues take
preference in the payment of dividends in the order of their priority.
Dividends must be paid on _first preferred_ before any surplus is
available for the payment of dividends on _second preferred_.

=12. Treasury Stock.= This is stock subscribed for and issued which
has been acquired by the corporation either by purchase or donation.
The term is often erroneously applied to that part of the authorized
capital stock which has never been issued, and the error has even
been made of referring to it as unsubscribed stock. Treasury stock is
an asset and should be so treated on the books of the corporation.
Unsubscribed or unissued stock is in no sense an asset; or as one
writer puts it, no more an asset than the power of a person to issue
notes is an asset.

=13. Watered Stock.= Any stock which is not represented by actual
assets is called watered stock. It is usually represented by fictitious
assets--as patents, copyrights, franchises, promotion expense,
goodwill, etc.


=14.= It is customary for the first board of directors to state
by resolution in what manner the stock is to be disposed of; if
subscriptions are to be received; if subscriptions are to be paid
immediately or in installments. When the certificate of incorporation
has been filed the subscription list is opened. This may be in book
form, or a written or printed list. The following is a common form of
stock subscription:--

 We, the undersigned, do hereby subscribe to the capital stock of the
 --------company, organized under the laws of the state of
 --------in the amount set forth below, and severally agree to pay
 the amount of such subscription as follows:

 When the board of directors shall, through its secretary or
 treasurer, certify that there has been subscribed----% of the
 authorized capital of $--------, then we severally agree to pay----%
 of said subscriptions, and to pay a further----% on the----day of
 each month thereafter, until the full amount of such subscriptions
 shall have been paid.



=15.= The affairs of a corporation are managed by its directors
who are elected by the stockholders. A director has no authority
individually to bind the company. He can only act in conjunction
with other directors in regular meeting as provided by the by-laws.
The acts of the board are effected by orders or resolutions passed
at such meetings. The number of directors constituting the board and
the number required to form a quorum is specified in the by-laws.
Directors must attend meetings in person to be entitled to vote. They
cannot be represented by proxy. Since it is not practicable for the
directors to attend to all of the details, they usually delegate to
their officers authority to transact all of the every day business of
the company. In larger corporations the directors organize themselves
into subcommittees as executive committee, finance committee, etc. In
small corporations these committees are unnecessary, their acts being
performed by the board of directors.

=16. Powers of Directors and Officers.= The powers of the directors are
extensive and are prescribed by the charter and by-laws. The directors
have the power to bind the corporation in all its dealings with other
persons or corporations. The powers of the stockholders are limited
to the election of the directors; but as the directors are elected by
a majority of the stockholders, the power to control the corporation
through the election of a board of directors who will respect their
wishes is thus conveyed to a majority of the stockholders.

Being representatives of the stockholders as a body, the directors must
at all times be governed by what they honestly consider the wishes
of the majority. Directors have the power to make contracts with the
corporation only when they are manifestly fair contracts. For example,
when not otherwise provided for, they may fix a fair compensation for
their services and for the services of their officers. Except in cases
of actual fraud, it is for the majority of stockholders to complain of
such contracts, and they have the power to remove offending directors.

Officers of a corporation are its agents and have limited powers,
usually prescribed by the by-laws. When not so specified, they are
prescribed by the directors. It is not always necessary that all of the
powers of an officer be specified in detail. If an officer has been
accustomed to perform certain acts with the knowledge and consent of
the directors, his acts become binding on the corporation. The title of
an office does not necessarily convey any special powers. For example,
while it is customary for the directors to confer special powers on
the president, his title does not make him, in the corporation's
dealings with the public, an agent of higher grade than the secretary,
treasurer, or any other officer.


=17. Powers of Corporations.= As such, a corporation possesses certain
necessary powers, and such other special powers as may be conferred by
its charter.

 To have a corporate name which can only be changed by law.

 To sue and be sued.

 To possess a corporate seal.

 To appoint the necessary officers for the conduct of its business.

 To enact by-laws necessary for the management of its business, for
 transferring of its stock, for calling of meetings, etc.

 To acquire and dispose of such property as may be necessary for the
 conduct of the business for which it is organized.

 To make contracts necessary for the carrying out of its purposes.

 In general a corporation can engage in no other business than that
 specified in its charter, but it is granted certain incidental powers
 necessary to carry out its original purpose.

=18. Stockholder's Rights.= Each stockholder has the right to
have a certificate of stock issued to him; to vote at meetings of
stockholders; to inspect the books of the company; to participate in
dividends; to invoke the aid of the courts in restraining the directors
from committing a breach of trust.


=19.= Every business corporation is conducted with a view to earning
profits. When such profits are distributed to its stockholders they are
called dividends, but stockholders cannot participate in the profits
until a dividend has been declared by the directors. The law specifies
that dividends must be paid out of the net surplus of the company, and
provides a penalty for their payment out of capital. Therefore, before
declaring a dividend, the directors must be provided with a balance
sheet and use every care to determine that a surplus actually exists.
For dividend purposes, surplus is usually considered that part of the
profits remaining after paying expenses and providing the necessary
reserve to cover depreciation of machinery and buildings and losses
from uncollectable accounts. Sometimes a further provision is made in
the by-laws for the creation of a sinking fund for the payment of bonds.

The times for the payment of dividends are fixed in the certificate of
incorporation or the by-laws. Provision is usually made for the payment
of dividends either quarterly, semi-annually, or annually.

Directors have full discretion in the declaration of dividends and,
so long as they are acting in good faith, may add profits to capital
instead of declaring a dividend. When the directors have, by proper
resolution, stated that the surplus, or a part of the surplus, shall
be distributed to the stockholders, a dividend is said to have been
declared. When declared, a dividend becomes a debt of the corporation
to its stockholders. It is not necessary that the directors declare
dividends of all the surplus or net profits. Frequently the by-laws
provide that a certain amount be reserved as working capital, and under
any circumstances the questions of the advisability of declaring a
dividend rests with the directors. They cannot be compelled to declare
a dividend unless it can be shown that, in declining to do so, they are
acting in bad faith.

=20. Stock Dividends.= At their discretion, the directors may, instead
of paying a dividend in cash, declare what is known as a stock
dividend. When there remains certain unsubscribed stock, or when
the corporation is in possession of treasury stock, this stock may
be issued to stockholders in payment of dividends. A stock dividend
cannot, however, be declared when it would not be proper to declare
a cash dividend. The assets must exceed all liabilities, and in
determining the existence of a surplus available for dividends, all
capital stock that has been issued must be considered as a liability.


=21.= In large companies it is customary for the board of directors
to close the stock transfer books a certain number of days prior to
the date of payment of a dividend, for the purpose of obtaining the
names and addresses of all stockholders. Notices are then sent to all
stockholders that a dividend will be paid on a certain date and that
the transfer books will be closed for a stated period. Transfer books
are also frequently closed for a certain period prior to the annual
meeting of the stockholders. The laws of some states provide that only
those stockholders whose names have appeared as stockholders on the
books of the company for at least thirty days prior to the date of the
annual meeting, shall be entitled to vote at said meeting.


=22.= Meetings of stockholders are, as a rule, held annually, and the
date of such meeting is usually specified in the charter. At the annual
meeting the board of directors presents, through its president or
other officer, a report of the business for the year, accompanied by a
financial statement. At this meeting the stockholders elect directors
to take the place of those whose terms of office have expired. A
stockholder may vote at stockholders' meetings either in person or by
proxy, and is entitled to one vote for each share of stock registered
in his name at the time of the meeting. Notice of a stockholders'
meeting must in all cases be mailed to each stockholder at his last
known address, a certain number of days prior to the date of the
meeting. This notice is mailed by the secretary of the company.


=23.= Many corporations formed to carry on business of a speculative
nature find it difficult to sell stock at par. This is especially true
when the assets consist largely of patents, an undeveloped mine, or
property of a similar nature. It has become the custom for corporations
to take over such properties, issuing in payment for the same full
paid stock greatly in excess of its value. The original owners of the
property will in turn donate a certain portion of the stock to the
corporation to be sold to provide working capital. This stock then
becomes treasury stock and is offered for sale at a liberal discount.
The selling of property to a corporation at an inflated value is called
the process of watering the stock. It can only be justified when an
uncertainty exists as to the actual value of the property acquired. In
the purchase of a going business, the real value of the goodwill is
largely a matter of opinion, and the judgment of the board of directors
of a corporation making such a purchase must be considered as final.


=24.= Bookkeeping for a corporation as a record of its business
transactions with the public is not different than bookkeeping for a
single proprietorship or a partnership. There are, however, certain
necessary records peculiar to a corporation, including accounts of
a financial nature between the corporation and its stockholders.
It is with these records and accounts that we are concerned in this
discussion of corporation bookkeeping.

=25. Books Required.= The books required for corporation records are,
_Stock Certificate Book_, _Stock Transfer Book_, _Stock Ledger_,
_Minute Book_, (and in certain cases, _Installment Book_, _Stock
Register_, and _Dividend Book_). These are auxiliary books and are
known as _stock_ books.

_Stock Certificate Book._ This is a book of stock certificates, with
stubs giving full particulars of each certificate issued. When a stock
register is used, the record is posted to it from the stub, otherwise
posting is made direct from the stub to the stock ledger.

_Stock Transfer Book._ This is a book in which is kept a record of
all transfers of stock. Each entry is practically a copy of the form
of assignment found on the back of the stock certificate. It is
supposed that each transfer will be signed by the one transferring the
stock, but frequently when certificates are presented with the proper
endorsement, the transfer is signed by the one making the transfer as
_attorney in fact_. The transfer book is made with two, and sometimes
three, transfers to a page. Transfers are posted to the stock register,
when used, or direct to the stock ledger.

[Illustration: Transfer Book]

_Stock Ledger._ This is the book in which an account is kept with each
stockholder showing the number of shares held by him. Sometimes the
amount is included. When a stockholder receives a certificate of stock
it is posted to the credit side of his account in the stock ledger.
When he transfers a certificate it is posted to the debit side of his
account. A trial balance of the stock ledger should be taken at stated
periods, for the stock standing to the credit of the stockholders
should equal the total stock outstanding. The stock ledger is supposed
to show only the stock issued and the names of its holders. For
example, if the authorized stock of a corporation is 1,000 shares and
there remains 300 shares unsubscribed, the stock ledger will show 700
shares--the total issued--to the credit of individual stockholders.
An account should be opened in the stock ledger with _Capital Stock_,
which account will be debited with all stock issued. This is in effect
a representative account since it represents the total stock that
should stand to the credit of other accounts in the stock ledger.

[Illustration: Stock Ledger]

_Minute Book._ This is a record book in which the secretary keeps
records or minutes of the proceedings of all stockholders' and
directors' meetings. This is an official record of the acts of the
corporation, and is frequently called for to be introduced in court as
evidence. The secretary is custodian of the minute book and should see
that it is carefully preserved.

_Installment Book._ When stock subscriptions are payable in
installments, a form of receipt called a scrip or installment
certificate is issued. As payments are made they are endorsed on
the back of this certificate, and when all payments have been made
the scrip is exchanged for a regular stock certificate. These scrip
certificates are bound in book form similar to stock certificates.

Sometimes the scrip certificate takes the form of an installment
receipt for the amount paid, all receipts being surrendered to the
company when payments have been completed.


_Stock Register._ Some large corporations keep, in addition to
the stock ledger and transfer books, a stock register which is a
complete register of all stock issued. This book is kept by the
_registrar_--usually a trust company or bank. All certificates are
entered in the register in numerical order and full particulars of each
are given. When a transfer is made both the old and new certificates
must be taken to the registrar, who cancels the old and places his
indorsement on the new, certifying that it has been registered.

One purpose of having a registrar is to prevent an over-issue of stock.
The number of shares shown on the register must not exceed the number
of shares which the corporation is authorized to issue.

[Illustration: Stock Register]

_Dividend Book._ When the directors declare a dividend it is necessary
to make a list of stockholders entitled to receive a dividend. Large
corporations use a special form similar to the one illustrated. It is
made either in a book or on loose sheets which are placed in a binder.

[Illustration: Dividend Book]

Some stockholders issue written orders to pay all dividends to some
other person, which makes it necessary to record on this list the name
of the person to whom this dividend is payable, as well as the name of
the stockholder.


=26.= In opening the books of a corporation it is necessary to first
get the capital entered. In a proprietorship, the capital is credited
to the owner; in a partnership it is credited to the individual
partners. On the books of a corporation an account called capital stock
is opened, to which capital is credited. This account is opened in the
general ledger and original entries are made in the journal. The manner
of making the opening entries depends upon the method of disposing of
the capital stock.

_If stock is sold for cash only_ and the entire amount is subscribed
and paid for, the entry is simply

  Cash                            $100,000
    To capital Stock                        $100,000
  Stock subscribed and paid
  for by the following:
  John Doe               $50,000
  Richard Roe             25,000
  Henry Snow              25,000
  as per subscription
  list dated--------190----.

_If only a part of the authorized stock is subscribed_, there are two
methods of entering the transaction.

 First:  Debit cash and credit capital stock as above, only as fast as
         stock is subscribed and paid for.

 Second: Debit cash and credit capital stock for the amount actually
         subscribed and paid for. Debit a new account called _unsubscribed
         stock_ and credit capital stock for the balance of the total
         authorized issue of stock.

Illustrating the above, we will suppose that the National Manufacturing
Co. is organized with a capitalization of $100,000, of which $50,000 is
subscribed and paid for in cash. The entries would be:--

  Cash                            $50,000
    To capital stock                       $50,000
  Stock subscribed and paid
  for by the following:
  John Doe               $25,000
  Richard Roe             15,000
  Henry Snow              10,000
  Unsubscribed stock              50,000
    To capital stock                      50,000

_If stock is not paid for when subscribed_ or if it is payable in
installments the entry is:

  John Doe                25,000
  Richard Roe             15,000
  Henry Snow              10,000
    To capital stock                      50,000
  For subscription to stock
  as per subscription list.

Or if it is not desired to enter the names of the subscribers an
account is opened in the name of _subscriptions_, and the entry is:

  Subscriptions                   50,000
    To capital stock                      50,000

The above entries at once place the entire authorized capital stock on
the books. When further subscriptions are made, subscription account
is debited and unsubscribed stock is credited. When subscriptions are
paid, cash is debited and subscriptions credited.

When subscriptions are payable in regular installments, payments may
be credited to subscriptions. The plan is sometimes followed, however,
of opening an account for each installment, as Installment No. 1, to
which payments are credited. When the installment is fully paid this
account would be closed into subscription account.

Or still another formula--when stock has been sold _subject to
assessments to be made by the board of directors_, and an assessment
has been called the entry is:

  Assessment No. 1.       $10,000
    To subscriptions               $10,000
  An assessment of 20%
  as per resolution of
  the board of directors
  John Doe                  5,000
  Richard Roe               3,000
  Henry Snow                2,000

When paid, cash is debited and assessment No. 1 is credited. When the
next assessment is called an account is opened with assessment No. 2.

=27. When a Part of the Stock is Paid for in Property and the Balance
in Money.= A corporation known as The National Manufacturing Company
is formed to take over a manufacturing business owned by John Doe. The
capital stock is $100,000 of which Mr. Doe is to receive $50,000 for
the assets and goodwill of his business, the company agreeing to assume
his liabilities. His statement of affairs shows the following:

  Cash in bank             $2,264.00
  Accounts receivable       4,650.50
  Machinery                 9,000.00
  Manufactured goods        2,100.00
  Material and supplies     3,780.00
  Furniture and fixtures      700.00  $22,494.50
  Accounts payable            864.20      864.20
                            --------    --------

Since the net assets are $21,630.30, and the stock to be issued to John
Doe is $50,000 the difference, or $28,369.70, represents the amount
paid for the goodwill of the business.

The transaction is entered as follows:--

  Property and Goodwill of
  the business of John Doe,
  transferred to this company as
  per resolution of the board
  of directors, Dec. 21st, 1908.

  Goodwill                    $28,369.70
  Cash                          2,264.00
  Accounts receivable           4,650.50
  Machinery                     9,000.00
  Manufactured goods            2,100.00
  Material and supplies         3,780.00
  Furniture and fixtures          700.00
      Accounts payable                       $864.20
      Capital stock                        50,000.00

One half of the capital stock is thus accounted for. The balance is to
be subscribed, and when subscribed the entries will be as explained in
Art. 26, depending upon whether subscriptions are paid in full or in

=28. When Stock is Issued in Payment of Property and a Part of the
Stock is to be Donated to the Company.= John Doe owns a valuable patent
on an automobile attachment and desires to secure capital to carry on
its manufacture. He interests Richard Roe and Henry Snow, who agree to
assist him to form the National Manufacturing Company to take over his
patent and manufacture the attachment. The company is incorporated with
an authorized capitalization of $150,000. Roe and Snow agree that Doe
shall receive $100,000 full paid stock for his patent, and to subscribe
$25,000 each, payable in cash to be used for the purchase of the
necessary machinery. John Doe, in turn, agrees to donate $50,000 of his
stock to provide working capital. The entries are:

  Patents                    $100,000
    Capital stock                      $100,000
  Full paid stock issued to
  John Doe to pay for
  patents transferred to the
  Company by bill of sale dated
  Dec. 2, 1908.

  Subscriptions                     $50,000
      Capital stock                          $50,000
  Subscriptions to capital
  stock as follows:--
  Richard Roe              $25,000
  Henry Snow                25,000
  Treasury stock                     50,000
     Working capital                          50,000
  Full paid stock donated
  by John Doe to provide
  working capital.

When subscriptions are paid:--

  Cash                         50,000
      Subscriptions                    50,000

It is decided to sell $30,000 of the treasury stock at 50% of its face
value, and subscriptions are received for this amount.

  Subscription to treasury stock       30,000
      Treasury stock                           30,000

Subscription account is debited and treasury stock credited for the
full amount since this is the amount of full paid stock to be issued,
regardless of the price at which it is sold.

When this stock is paid for, the entry in the cash book on the debit
side is:

  Subscriptions to treasury stock              15,000

This leaves a debit balance of $15,000 in the account _subscriptions to
treasury stock_, which represents a discount on the stock sold.

The manner of disposing of this discount depends upon the provisions
made by the directors in respect to the creating of working capital.

If their resolution provides that the fund maintained for working
capital shall be only such an amount as may be realized from the sale
of treasury stock, the discount is disposed of by the following entry:

  Working capital                      15,000
    Subscriptions to treasury stock            15,000
  Discount on 30,000 treasury
    stock sold.

Suppose, however, that the directors have provided by resolution for
the maintaining of a working capital of $50,000. In that case the
liability for the full $50,000 must remain on the books until such time
as other provision is made. The entry would then be:

  Bonus                           $15,000
  Subscriptions to treasury stock          $15,000

The discount is, to all intents, a bonus given to the purchasers, and
if, as frequently happens, purchasers are promised a bonus of a share
of stock for every share purchased, it would be proper to make the
following entry in the first place.

  Subscriptions to treasury stock   15,000
  Bonus                             15,000
    Treasury stock                          30,000
  Sold 30,000 treasury stock at 50%
  of face value.

In any dividend distribution the purchasers are entitled to draw
dividends on the face value of their stock, since it was issued to them
as full paid. It would be manifestly unfair to charge the discount
or bonus against profits for the current year, and it is customary
to spread it over a period of several years, charging off a certain
per cent each year. The bonus account is, in the meantime, carried on
the books as an asset, and belongs in the class known as _fictitious_

Treasury stock is an asset, its real value being the market value of
the stock represented. In the event of liquidation of the company,
treasury stock would off-set the liability on account of capital stock.
When all of the treasury stock is sold the account closes itself; or
if it is issued to stockholders in the form of stock dividends, it is
closed into profit and loss.

Working capital is a liability, which may be termed an _assumed_ or
_nominal_ liability. Like capital stock it is a liability only as
between the company and its stockholders. It off-sets whatever form of
asset--cash or otherwise--that represents proceeds from the sale of
treasury stock. The real position of working capital in the balance
sheet is that of a capital liability which must be considered before
any surplus available for dividends can be said to exist. Power is
usually given the directors to reserve a certain amount for working
capital, and even though an actual surplus may exist they have the
right to off-set this with a working capital liability instead of
declaring a dividend.

=29. Premium on Stock.= The stocks of many well-managed enterprises
sell at a premium. In all such cases the amount received above the par
or face value is credited to an account called _premium on stock_. At
the end of the year this account is closed into surplus account. If
any such items are standing on the books it can be used to off-set
bonus account or organization expenses. It is not proper to close
premium account into the current profit and loss account, for while it
represents a profit, it is not earned in the regular operations of the

=30. Reduction of Working Capital.= As before stated, so long as
working capital remains on the books it must be treated as a liability.
Having the right to create working capital, the directors also have the
right to reduce it whenever, in their judgment, the necessities of the
business no longer require its maintenance in the original amount.

A reduction of working capital has the effect of increasing surplus,
since surplus is increased by an increase of assets or a decrease of
liabilities. To reduce working capital, the account is closed into
surplus. It is perhaps necessary to say that the account should not
be closed into profit and loss, since it does not represent current

Suppose that in the case of the National Manufacturing Co., it is
desired to reduce working capital from $50,000 to $25,000; the entry
would be:

  Working capital                 $25,000
    Surplus                                $25,000
  Working capital reduced by
  resolution of the board of
  directors, January 15th, 1909.


=31.= The entries in the stock books are very simple and are just the
opposite of stock entries in the general or financial books of the
company. When certificates of stock are issued, an account is opened
in the stock ledger with each stockholder, to which is credited the
stock issued to him. At the same time an account is opened in this
ledger with capital stock which is debited with all stock issued, thus
preserving the balance of the stock ledger. Taking the example in Art.
26, when stock is issued--

  We debit--
    Capital stock       $150,000
  We credit--
    John Doe                      $100,000
    Richard Roe                     25,000
    Henry Snow                      25,000

When the $50,000 stock is donated to the treasury to provide working

  We debit
    John Doe              50,000
  We credit
    Treasury stock                  50,000

and open an account with treasury stock in the stock ledger.

When treasury stock is sold--

  We debit
    Treasury stock        30,000
  We credit
    Subscribers                     30,000

When a stockholder sells a part or all of his shares to another it has
no effect on capital stock or treasury stock accounts in the stock
ledger. The only change takes place in the accounts of the individual
stockholders involved. The stock transferred is debited to the account
of the _transferor_, and credited to the account of the _transferee_.

Supposing that $30,000 treasury stock was purchased by Henry Benson,
George Dennis, and Richard Carpenter, each purchasing $10,000, the
stock ledger and stock register--if one is used--would appear as shown
in the illustration. Footing the two sides of the stock register we
find a balance of 1,300 shares which is the actual amount outstanding,
the balance of 200 shares remaining in the treasury. A trial balance
also shows that the stock ledger balances with a credit of $20,000
treasury stock.

[Illustration: Stock Ledger]

[Illustration: Stock Ledger]

STORE Applicable to a Moderate-Sized General Store. Lamson Consolidated
Store Service Co.]

[Illustration: Stock Register]


1. A corporation is organized with a capital of $50,000.00, divided
into 500 shares of $100.00 each. The corporation begins business when
250 shares have been subscribed for. Of this amount _A_ subscribes for
100 shares, _B_ for 100 shares, and _C_ for 50 shares. These shares are
paid for in cash within 30 days after the date of subscriptions.

Six months later the balance of the stock is subscribed for,
subscriptions being received from _A_ for 50 shares, _B_, 50 shares,
_D_, 100 shares, and _E_, 50 shares. _C_ sells 50 shares to _B_. These
new shares are paid for in cash.

Make all entries in general books.

Make all entries in stock books.

2. _A_, _B_, and _C_ organize a corporation with an authorized
capitalization of $100,000.00, divided into 1,000 shares of $100.00
each. _A_ subscribes for 400 shares, _B_, 300 shares, and _C_,
200 shares. The corporation buys from _D_ land and buildings for
$20,000.00, paying him $10,000.00 in cash and issuing to him 100 shares
of stock.

Subscriptions are paid as follows: _A_ pays $20,000.00 cash and gives
his note due in 60 days for $20,000.00; _B_ pays $20,000.00 cash and
gives his note for $10,000.00 payable in 30 days; _C_ pays $10,000.00
cash and gives his note for $10,000.00 payable in 10 days.

Make all entries in journal and cash book and post to ledger.

 NOTE.--Land and buildings are grouped under the head of real estate.

3. John Davis and Daniel Greene own the La Belle mine, and to secure
capital for its development they decide to organize a mining company
and to sell shares. A corporation is organized with a capitalization of
$1,000,000.00 in shares of $1.00 each. Of this stock 999,000 shares are
issued to Davis and Greene, each receiving an equal number, and they,
in turn, deed the La Belle mine to the company. The remaining 1,000
shares are subscribed and paid for by Martin Otis. Davis and Greene
donate to the treasury 49,800 shares to be sold for the purpose of
securing working capital. The directors, by proper resolution, decide
to sell 200,000 shares: 50,000 shares to be sold at 20 cents on the
dollar, 50,000 shares at 25 cents, and 100,000 shares at 35 cents. The
resolution also provides that the corporation's liability for working
capital shall be no more than the amount realized from the sale of
treasury stock. Subscriptions are received for the 200,000 shares and
payments are made at the prices specified.

Make all necessary entries to get these transactions properly recorded
on both the general and stock books.


=32.= Frequently when a corporation is organized, stock is issued to
a promoter as payment for his services. An enterprise may have great
latent possibilities provided sufficient capital can be secured for
its development, but until the possibilities for making a profit can
be clearly shown, it is difficult to interest the investing public.
To interest investors in an enterprise yet to be developed requires a
special talent not possessed by the average owner of a patent, mine, or
process. There are men who possess this special talent and who make a
business of promoting companies.

In many cases--probably most cases--the owner of the thing to be
promoted has no money with which to pay the promoter. Consequently, the
promoter first satisfies himself that the enterprise actually holds
possibilities of profit and then agrees to accept all or a part of
his fees in the stock of the company. The portion of his fee that he
is willing to accept in stock, and the number of shares demanded, is
governed largely by his own faith in the enterprise. His fee may be
a certain per cent on the stock sold, or it may be an arbitrary sum
represented by a certain number of shares. When he accepts his entire
fee in stock, it may represent from 25 per cent to 50 per cent of the
entire capitalization, and while the fee may appear exorbitant when
represented by the par value of the stock, its actual value to him is
represented by the _real_ value of the stock, or the price at which he
could sell it.

Volumes might be written on the subject of promotion, but our special
concern is the proper treatment of promotion fees on the books of the
company. Strictly speaking, promotion fees are as much an expense as
the cost of printing the company's prospectus, but to immediately
charge it to expense would, in many cases, cause the accounts to show
an impairment of capital at the outset. Suppose, for example, that a
corporation is organized with a capital of $100,000.00 all paid in
cash. The promoter is paid a fee of $15,000.00. Profits earned--trading
profits--in the first year are $8,000.00, but we have a charge of
$15,000.00 for promotion in the expense account. The books show that
the company is insolvent, the liabilities being $7,000.00 in excess of
the assets, while the business actually is in a healthy condition.

Expenses paid in the regular course of business are expected to be
off-set by earnings. When we pay rent for a store or office we expect
that, by reason of our occupancy of that store or office as a place of
business, our earnings will be increased in an amount greater than that
paid for rent. Promotion expense cannot, in itself, produce earnings.
The cash, or other form of asset, received from the sale of stock--the
direct result of promotion expense--is off-set by the stock liability
created. Earnings to off-set promotion expense must come from future
operations of the business.

It has become quite the general custom, therefore, to allow the expense
incident to the organization of the company to stand on the books as
a fictitious asset, under some such caption as _promotion expense_,
_promotion fund_, or _organization expense_. The amount is gradually
reduced by charging a stated per cent to profit and loss each year.

There is another special reason why it would be manifestly unfair
to immediately charge promotion fees to expense. Suppose a promoter
receives 20% of the stock for his services, while the holders of the
remaining 80% have paid cash for their shares. Since the 80 per cent
paid in cash must earn dividends on the entire 100 per cent of stock,
it would be unjust to the holders of the 80 per cent to withhold
dividends until the par value of the 20 per cent of stock shall have
been added to the assets of the company from profits earned.

=The Entry.= A patent is owned by Geo. Davis, who secures the services
of Wm. Lane to promote a company to undertake its manufacture. The
corporation is capitalized at $500,000.00. Davis sells the patent to
the company receiving $250,000.00 stock in payment, and Lane receives
$25,000.00 stock for promotion, when he has secured subscriptions for
the remaining $225,000.00 at par. The entries to record the issue of
stock to Lane for promotion are:

  Subscriptions              $25,000.00
    Capital stock                       $25,000.00
  Subscription of
  Wm. Lane

  Promotion expense           25,000.00
    Wm. Lane                             25,000.00
  Fee due Wm. Lane for
  promotion of company
  and sale of stock.
  Wm. Lane                    25,000.00
    Subscriptions                        25,000.00
  Amount due to Lane credited
  to subscriptions to pay for
  stock subscribed by him.

The entries for the shares issued to Davis and those sold are the same
as previously explained and illustrated.


=33.= The directors are under no obligation to distribute in dividends
the profits earned in any one year. Instead, the by-laws usually
provide that the decision as to when a dividend shall be declared is
to be left entirely to the directors. They have it in their power
to retain of the profits such an amount as, in their judgment, is
advisable or necessary to safeguard the interests of the company. At
the close of the fiscal year it is customary to close profit and loss
account, and in a corporation it is closed into surplus.

=34. Surplus Sub-divided.= Sometimes the term surplus is used to
designate a part of the profits set aside for a special purpose, as the
creation of a fund to meet an obligation falling due at some future
date. When surplus is treated as a special fund, or when it has been
provided by resolution of the directors "_that a certain sum, or a
certain per cent of the profits shall be set aside as a surplus fund_,"
and remaining profits not distributed as dividends may be placed to
the credit of an account called _Undivided Profits_ or _Undistributed

In reality undivided profits is surplus, and the division of the
account merely serves to show that the amount credited to surplus
is for some reason reserved, while the amount credited to undivided
profits is available for dividends whenever the directors may so elect.
Whether or not the surplus should be shown in the balance sheet under
these various headings, or all under the general head of surplus, with
explanatory notes, is a question which need not concern us at this

=35. Declaring a Cash Dividend.= When a dividend is declared an account
should be opened under the caption _Dividends Payable_ or _Dividend No.
1._, etc. We will suppose that a dividend has been declared out of the
profits of the business for the current year. The entry is:--

  Profit and Loss
    Dividends payable
  Dividend of----% declared
  by the board of directors
  --------1909, payable--------1909.

When the dividend is paid the entry will be--

  Dividends payable
  To pay dividend payable

=36. Declaring a Stock Dividend.= Not all dividends are paid or payable
in cash. Sometimes the directors declare a dividend payable in stock
and this is known as a stock dividend. There may be treasury stock in
possession of the treasurer, and if the books show a surplus, which
would make it proper to declare a cash dividend, a dividend may be
declared payable in treasury stock. When such a dividend is declared
the entry is--

  Profit and Loss
    Stock dividend
  A dividend of----% declared
  by the board of directors
  --------1909 payable--------1909,
  payment to be made in
  treasury stock
  Stock dividend
    Treasury stock
  To pay stock dividend

The shares are then transferred on the stock books debiting treasury
stock and crediting stockholders.

It is not absolutely necessary that a company possess treasury stock
to declare a stock dividend. When current profits are large or a
surplus, larger than the requirements of the business demand, has been
accumulated, a stock dividend may be declared by issuing additional
shares, provided the original stock has not all been subscribed for.

If a large surplus has been accumulated and a part of the stock is
unsubscribed, a stock dividend would require the following entries:

    Stock dividend
  A stock dividend of----%
  declared by the directors--------1909
  payable in the unissued
  stock of this company.
    Capital stock
  Additional stock subscriptions
  received from the following.
  Stock dividends
  Stock dividend due stockholders
  used to off-set subscriptions.

The stock dividend is a device frequently used to conceal actual
profits, or to cover up the fact that dividends are being declared in
excess of a fixed rate. This is especially true of such public service
corporations as lighting companies or street railways. In many cases
a company will go through the necessary formalities to increase its
capital stock for the purpose of absorbing surplus by means of a stock

=37. Treatment of a Loss.= If, during any year, the business has
sustained a loss, it will, of course, appear as a balance on the debit
side of profit and loss account. This will then be transferred to the
debit of undivided profits or surplus, if any, remaining from previous
years. For illustration, suppose the books show a surplus of $5,000.00,
undivided profits $500.00, loss for the current year $2,500.00, the
entry will be:--

  Undivided profits        $500.00
  Surplus                 2,000.00
    Profit and loss                 $2,500.00
  Loss for the year.

If there is no surplus remaining from former years, the business is
insolvent, in which case the capital is said to be impaired. This can
be taken care of in either of two ways. First--by the stockholders
subscribing to a fund to cover the deficiency. Second--by a reduction
of the capital stock.


1. David Francis and Henry Harmon own a large tract of timber land in
Mexico. In connection with F. B. Walker--a promoter--they organize a
corporation to build railways and mills for the purpose of developing
the property and to market the timber. The company is capitalized for
$1,000,000.00. The land is sold to the corporation for $1,000,000.00,
stock for that amount being issued to Francis, Harmon, and Walker.
Francis and Harmon each received $400,000.00 and Walker, $200,000.00.
This $200,000.00 stock is issued to Walker as his fee for promoting the
company. Francis and Harmon each donate 250 shares, of the par value of
$100.00 each, to the treasury to be sold to produce working capital.

Make all necessary entries in general books.

2. The profits of a manufacturing company with a paid up capital of
$100,000.00, are $9,765.00. The directors, by proper resolution,
declare a cash dividend of 6 per cent, set aside a surplus of
$3,000.00, and transfer the balance to undivided profits.

Make all necessary entries in general books, showing ledger accounts
after payment of dividends.

3. The following year's business of the above company showed a loss of
$2,160.00. How is this loss disposed of? Make entries.

4. A company capitalized at $250,000.00 has sold $100,000.00 of its
stock, the balance being unsubscribed. Its accumulated surplus is
$90,000.00, and the directors declare a stock dividend of 50 per cent
to all stockholders. Make all entries.

5. A manufacturing company has a capital stock of $100,000.00. One item
in its assets is machinery $26,750.00. The profits for the year are
$11,640.00. The directors provide for a reserve for depreciation of
machinery of 10% and declare a dividend of 5%.

Make all entries.


=38.= Wilson, Brackett, and Nixon have been conducting a retail
clothing business under a partnership agreement. Appreciating the
advantages of a corporate form of organization, they decide to
incorporate under the name of the Continental Clothing Company.

The first step necessary to prepare for the incorporation of a
partnership is to ascertain the net capital of the business as it
stands. Accordingly, an inventory is taken, the books are closed, and a
balance sheet prepared with the following results:

            _Balance Sheet of Wilson, Brackett, and Nixon_
    Cash                                     $1,650.72
    Bills receivable          $1,725.00
    Accounts receivable        3,264.18       4,989.18
    Merchandise inventory     10,450.00
    Furniture and fixtures     4,000.00      14,450.00     $21,089.90
                               --------       --------
    Bills payable              3,000.00
    Accounts payable           2,089.00       5,089.90
    Wilson, capital account    7,000.00
    Brackett, capital account  5,000.00
    Nixon, capital account     4,000.00       16,000.00    21,089.90
                               --------        --------

From this balance sheet it is seen that the net capital is $16,000.00,
of which Wilson owns $7,000.00, Brackett, $5,000.00, and Nixon,
$4,000.00. On this showing, it is decided to form the company with
a capital stock of $20,000.00, all of which is to be issued as full
paid stock to the partners in proportion to their interests in the

New books are opened for the corporation and the next step is to
transfer the accounts of the partnership to the corporation. An account
is opened in the partnership ledger with the Continental Clothing
Company and the following entry is made:

  Continental Clothing Co.     $21,089.90
    Cash                                       $1,650.72
    Bills receivable                            1,725.00
    Accounts receivable                         3,264.18
    Merchandise inventory                      10,450.00
    Furniture and fixtures                      4,000.00

The above entry closes all of the asset accounts and shows that they
have been transferred to the new company.

The next entry is:

  Bills payable             $3,000.00
  Accounts payable           2,089.90
  Wilson                     7,000.00
  Brackett                   5,000.00
  Nixon                      4,000.00
    Continental Clothing Co.              $21,089.90

The above entry closes the liability and partners' accounts showing
that they have been transferred to the new company and also closes the
account of the Continental Clothing Co.

=39. Entries on the Corporation Books.= We are now ready to open
the books of the new company. Subscription books are opened and the
following subscriptions are received:

  Wilson                     8,750.00
  Brackett                   6,250.00
  Nixon                      5,000.00

The net assets of the partnership are $4,000.00 less than the capital
stock of the new company. No money is to be invested to cover this
discrepancy, so it will be necessary to account for it on the books by
opening a fictitious asset account under some such name as _goodwill_.
Having made this provision, the books of the new company are opened by
the following entries:

  Subscriptions             20,000.00
    Capital stock                         20,000.00
  Subscriptions received
  as per subscription books.
  Cash                       1,650.72
  Bills receivable           1,725.00
  Accounts receivable        3,264.18
  Merchandise inventory     10,450,00
  Furniture and fixtures     4,000.00
  Goodwill                   4,000.00
    Bills payable                          3,000.00
    Accounts payable                       2,089.90
    Subscriptions                         20,000.00

  The business and goodwill of the
  firm of Wilson, Brackett, and
  Nixon transferred to this company
  in payment of subscriptions
  to capital stock.

These entries serve to get the capital stock, also the assets and
liabilities of the partnership properly recorded on the books of the
new company.


=40.= A partnership composed of Benson, Black, and Mabley is conducting
a retail hardware business. They desire to give their bookkeeper
(Parker) an interest in the business. The firm has the following assets
and liabilities:

  Cash                        $3,000.00
  Accounts receivable          2,000.00
  Merchandise                 15,000.00
    Total assets                            $20,000.00
  Accounts payable             2,000.00
  Benson capital               6,000.00
  Black capital                6,000.00
  Mabley capital               6,000.00
    Total liabilities                        20,000.00

They incorporate the Benson Company with a capitalization of $40,000.00
divided into 400 shares of $100.00 each. Benson, Black, and Mabley
each subscribe for 100 shares, and 20 shares are presented to Parker.
The balance of the stock is to remain unsubscribed until such time
as it is decided to accept further subscriptions. The business of
the partnership is to be accepted by the company in payment of
subscriptions which have been made, and which are for 320 shares
or $32,000.00. The net assets of the partnership being $18,000.00,
goodwill must represent the balance of $14,000.00. The entries on the
books of the partnership follow--

  The Benson Co.            $20,000.00
    Cash                                   $ 3,000.00
    Accounts receivable                      2,000.00
    Merchandise inv.                        15,000.00
  Accounts payable            2,000.00
  Benson                      6,000.00
  Black                       6,000.00
  Mabley                      6,000.00
    The Benson Co.                          20,000.00

=41. On Books of the Benson Co.= The entries on the books of the new
company are the same as in previous illustrations, the stock donated to
Parker having been a gift from the partnership and the amount included
in the goodwill.

  Subscriptions              32,000.00
    Capital stock                           32,000.00
  Cash                        3,000.00
  Accounts receivable         2,000.00
  Merchandise inventory      15,000.00
  Goodwill                   14,000.00
    Accounts payable                         2,000.00
    Subscriptions                           32,000.00

=42. When the Gift is Made by an Existing Corporation.= We will suppose
that the Benson Co. wishes to donate 10 shares of stock to each of
three employes, _A_, _B_, and _C_. Having 80 shares unsubscribed, the
donation will be made from that stock. Supposing that the company has
accumulated a surplus, the transaction will be entered on the "books"
as follows:

  Subscriptions               3,000.00
    Capital stock                        3,000.00
  Subscriptions of _A_, _B_, & _C_
  per subscription book.
  Surplus                     3,000.00
    Subscription                         3,000.00
  Surplus appropriated to subscriptions
  per resolution of the
  board of directors
  Jan. 25th, 1909.

The above would be a rather unusual proceeding as the stock is fully
paid, though such gifts are sometimes made. The tendency of the present
times is toward profit sharing for the employes of corporations. The
plan of profit sharing takes many forms, and there are some notable
examples among very large corporations which have given employes stock
in the corporation, or afforded them an opportunity to acquire stock on
very favorable terms.

Among smaller corporations it is quite common to enable employes to
acquire its stock subject to certain special conditions. Frequently
employes are permitted to subscribe for stock with an agreement that
they are to pay no money, but that dividends declared are to be applied
to the payment of subscriptions. In this way the stock is made to pay
for itself out of its own earnings. Sometimes provision is made for the
payment of small annual installments on the subscriptions in addition
to applying the dividends. When stock is issued to employes under these
conditions, the contract sometimes specifies that in the event of the
subscriber leaving its employ before the subscription is paid in full,
the ownership of the stock shall revert to the company, and in such
cases the stock, until it becomes full paid, is usually placed in the
hands of a trustee. The principal object in issuing stock to an employe
and surrounding the transaction with these restrictions is, of course,
to insure his continuous service by making it an object to him to
remain in the employ of the company.

When stock is so issued, the entry is--

    Capital stock

  Subscriptions to stock
  by employes, said stock
  to be issued subject to the
  conditions named in the resolution
  authorizing its issue,
  passed by the board of
  directors January 25th, 1909.

The subscription account is left open until such time as it is closed
by the payments credited. When a dividend is declared the entries are--

    Dividends payable
  Being a dividend of----%
  declared by the board of
  directors on--------1909
  Dividends payable
  Dividend applied to the
  payment of subscriptions.

Another provision sometimes met with in the issue of stock to an
employe is that in lieu of an increase in salary he shall receive, at
the end of the year, a certain amount in stock. He is then permitted to
subscribe for a stated amount of stock and to apply the bonus, or added
salary, as a payment. The bonus is usually a stated per cent of sales
or of net profits. When such a contingency arises the entry is--

    John Jones
  ----% of sales as
  per agreement.
  John Jones
  Amt. due applied in
  payment of stock subscription.

If he has no account, on the books the transaction may be recorded by
one entry--

  Salaries        $1,500.00
    Subscriptions              $1,500.00


=43.= Corporations are sometimes organized with all capital stock
subscribed but only paid for in part, and the balance of subscriptions
never called for. T. C. Harris, John Alfred, and M. B. Hatch organize
a company to conduct the business of buying, selling, and renting
automobiles with a capital stock of $15,000.00, each subscribing for
$5,000.00. A cash payment of 25% is made on the stock and the balance
is to be paid in when called for. The entries stand on the books as

  Subscriptions      $15,000.00
    Capital stock                    $15,000.00
  Cash                 3,750.00
    Subscriptions                      3,750.00

The business prospers to such an extent that the profits provide
sufficient money and it is not likely that the stockholders will be
called upon for further payments. It is decided to reduce the stock to
$5,000.00 and to declare a dividend to make this stock full paid. The
entries for these transactions follow:

  Capital stock                 10,000.00
    Subscriptions                             10,000.00
  Capital stock reduced in accordance
  with resolution of board of directors
  passed Jan. 27, 1909.
  Surplus                        1,250.00
    Dividends payable                          1,250.00
  Dividend declared by board
  of directors Jan. 27, 1909,
  payable immediately.
  Dividends payable              1,250.00
    Subscriptions                              1,250.00
  Dividends applied to the
  payment of stock subscriptions.

The original stock certificates are now surrendered and new ones issued
in their place. In the stock ledger the stockholders are debited and
capital stock credited for the shares surrendered. Then, capital stock
is debited and stockholders credited for the new shares issued.

It might happen that a corporation wishes to reduce the capital stock
held by stockholders without having it appear that capital stock has
been reduced. This has been done by purchasing its stock and placing it
in the treasury. Payment for the stock may be made in cash or notes, or
it may be taken from surplus. The entries would be--

  Treasury stock                10,000.00
  Cash                                        10,000.00


  Treasury stock          10,000.00
    Bills payable                        10,000.00


  Treasury stock          10,000.00
    Surplus                              10,000.00

If the capital stock is to be reduced on the books, capital stock will
take the place of treasury stock in these entries as--

  Capital stock           10,000.00
    Cash                                10,000.00


1. Parsons, Young, and Searles are partners and decide to form a
corporation with capital stock of $40,000.00, which is to be issued as
full paid stock in exchange for their present business. Each partner is
to receive stock in proportion to his interest in the present business.
The balance sheet of the partnership is as follows:

  Cash                    3,500.00
  Bills receivable        6,000.00
  Accounts receivable     6,500.00
  Merchandise            14,000.00
    Total                                 30,000.00
  Bills payable           4,000.00
  Accounts payable        2,000.00
  Parsons                10,000.00
  Young                   8,000.00
  Searles                 6,000.00
    Total                                 30,000.00

Make entries on books of the partnership.

Make entries on books of the corporation.


2. Hoadley and Stockton are partners and desire to incorporate a
company with a capital of $10,000.00 to take over their business. It
being necessary to have three incorporators they agree to give Hopper,
an employee, 10 shares--$1,000.00--of the stock of the new company.
The stock is to be divided equally between Hoadley and Stockton after
giving Hopper $1,000.00. The balance sheet of the partnership is as

  Cash                           $960.00
  Accounts receivable           1,570.00
  Merchandise                     720.00
    Total                                    $3,250.00
  Accounts payable                460.00
  Bills payable                   500.00
  Hoadley                       1,145.00
  Stockton                      1,145.00
    Total                                     3,250.00

Make all necessary entries on the books of the partnership.

Make open entries on the books of the new company.

3. The National Manufacturing Co., has an authorized capital of
$100,000.00 of which $60,000.00 is paid up and $40,000.00 unsubscribed.
It is decided to permit employes to subscribe for $10,000.00 of the
stock by paying 10 per cent in cash, all dividends declared to be
applied to the payment of subscriptions.

What entries are made when this stock is subscribed for?

A 10 per cent dividend being declared at the end of the first year what
entry is required?

4. The Atlas Novelty Co. has a capital stock of $50,000.00. All of the
stock has been subscribed for, but only 40 per cent has been paid. A
surplus of $10,000,00 has been accumulated. It is desired to reduce the
stock to $25,000.00 full paid. What is the necessary proceeding, and
what entries are required?

5. A company has a capital stock of $50,000.00 full paid, and a surplus
of $11,172.00. A stockholder who owns $7,000.00 stock in the company
wishes to dispose of his stock and, to secure cash, offers to sell it
to the company at par. His offer is accepted and the stock purchased,
but the company does not wish to reduce its capitalization. What is the


=44.= A reserve is an amount retained from current earnings to meet a
future contingency. According to a prominent authority whose recent
discussions of this subject have attracted attention, _a reserve is an
expression of the judgment of the accountant as to what amount will
be necessary to meet a contingency_. Reserves are created for many
purposes, among which the following are good examples.

_Reserves for bad debts._ An amount--usually a stated per cent
of accounts receivable--annually set aside to cover losses from
uncollectable accounts.

_Reserves for depreciation._ The plant--buildings and machinery--will
wear out, no matter how substantially built. A charge is made against
current earnings to create a reserve which will provide for a renewal
of the plant, or any part of it, when worn out. Separate reserves are
usually maintained for buildings and machinery.

_Reserves for Patents, Franchise, Goodwill_ and similar fictitious
assets. An annual charge of an amount sufficient to extinguish the
value at which the fictitious asset has been placed on the books.

_Reserves for permanent improvements on leased property._ Permanent
buildings, title to which will revert to the lessor at the expiration
of the lease, are sometimes erected on leased property. A reserve is
created to absorb the cost of such improvements during the life of the

_Reserves for buildings in hazardous undertakings._ In certain lines
of business, manufacturing plants are erected with the expectation of
having a permanent supply of raw material. If the supply gives out, the
plant may be valueless for other purposes. Examples are oil wells and
mines. A reserve is created to absorb the cost.

The reserve is coming into more general use every year, especially
by corporations, whose managers see the necessity of providing for
these contingencies. When a machine wears out it must be replaced. If
no reserve has been created, the money for its replacement must come
from current earnings, or be provided by borrowing money or increasing
capital. The better plan is to make provision in advance by creating a

The amount of the reserve should be the value of the asset, and the
sum set aside annually should be sufficient to equal the value of the
asset at the end of its estimated life. To illustrate, if a machine is
estimated to last 10 years, the annual reserve for depreciation should
be 10% of its cost. The reserve is carried on the books as a liability
and is an off-set to the asset which it is to replace. If we were to
prepare a statement of the value of machinery as shown by the books we
would state it in this form--

  Machinery                       $20,000
  Less reserve for depreciation     2,000

This shows the exact amount at which this asset is valued. Taking the
illustration referred to--at the end of 10 years the liability _reserve
for depreciation_ will equal the asset _machinery_, and the funds
which have been reserved from profits during the past 10 years will be
available for the purchase of new machinery.

=45. Reserve Funds.= A term frequently used to designate a reserve
created for a certain purpose is reserve fund. This term is somewhat
confusing for when we speak of a _fund_ we are more likely to think
of it as an asset than as a liability. When the principle underlying
reserves is thoroughly understood, however, it is readily seen that
the use of the term _reserve fund_ is merely a question of the use of
English and does not affect the principle. A reserve or _reserve fund_
is a nominal liability artificially created to off-set a decrease in
value of an asset. On the principle that an increase of liabilities
represents a loss, the amount reserved each year represents a loss, but
since the liability created is not a real but a nominal liability it
does not affect the real assets of the business.

=46. Sinking Funds.= A sinking fund is an amount set aside out of
profits to meet an anticipated liability, or an obligation which is
to fall due at some future date. Sinking funds are set aside for such
purposes as the payment of bonds at maturity, mortgages, etc. The
sinking fund is the amount which, invested at compound interest, will
produce the desired amount at the end of the period.

A sinking fund is an asset and may or may not be withdrawn from the
business. Frequently a sinking fund is invested in securities, such
as government bonds, which are placed in the hands of a trustee, thus
insuring against the withdrawal of the funds from actual use in the

Unlike a reserve, a sinking fund has no effect on the apparent profits
of the period in which it is created. It does, however, tie up or
render unavailable for dividends a certain part of those profits.
Whether or not it is carried on the books in a separate account, a
sinking fund is a part of the surplus of a business.

=47. Computing Sinking Funds.= The amount necessary to set aside at the
end of the year to provide a given sum in a stipulated number of years
at a stated rate of interest, compounded annually, may be found as

Divide the interest for one year upon the sum to be accumulated by the
compound interest upon $1.00 for the stipulated time. The result will
be the amount necessary to invest at the end of each year.

If the amount is to be invested at the beginning of the year, divide
the result obtained as above by the amount of $1.00 for one year.

_Example._ To provide for payment of $50,000.00 at the end of 15
years, what amount must be put into a sinking fund at the end of each
year, if the fund is invested to earn 3% compound interest? Interest
on $50,000.00 for 1 year at 3% is $1,500.00. Compound interest on
$1.00 for 15 years at 3% is .55797. Dividing $1,500.00 by .55797 gives
$2,688.32, the amount necessary to put into the fund annually. If this
amount is to be invested at the beginning of each year, divide the
above result ($2,688.32) by $1.03 (the amount of $1.00 for one year at
3%) and we obtain $2,610.02 the amount needed.


=48.= In the sense here used a _bond_ is the written obligation of a
corporation to pay a certain amount at a specified future date. Bonds
are usually secured by a mortgage on all or a part of the property of
the corporation.

A bond issue is a favorite method of borrowing money with corporations.
Bonds can be issued in any denomination, and by reason of this a loan
can be distributed among a large number of investors. Being secured
by mortgage on the company's property the bonds of a corporation are
very frequently more desirable investments than its stocks. Interest on
bonds must be paid before dividends can be declared.

Bonds can only be issued with the consent of the holders of a certain
per cent of the stock.

=49.= _Classes of Bonds._ The bonds of corporations are of several
classes, as follows:

A first mortgage bond is one secured by first mortgage on the company's

A second mortgage bond is one secured by second mortgage. Interest
cannot be paid on second mortgage bonds until it has been paid on the
first mortgage bonds.

General mortgage bonds are those secured by a general mortgage on all
of the company's property.

Collateral bonds are secured by the deposit of collateral security.

A debenture is a bond with no other security than the good name of the

Refunding bonds are those issued in place of maturing bonds which the
company does not wish to pay in cash.

Equipment bonds are those secured by the rolling stock of a railway,
and are also known as car trust certificates.

A gold bond is any form of bond, the terms of which specify that it
shall be paid in gold.

Registered bonds are those, the names of the owners of which must be
registered on the books of the company. Ownership of a registered bond
can be transferred only on the books of the company.

=50. Bond Liability.= When bonds are issued by a corporation, either
public or private, an account is opened under some such caption as
_bond issue_ or _bonds payable_. As fast as bonds are sold the proceeds
are credited to this account, which represents a liability. A new
account should be opened for each issue of bonds.

The bonds of a given issue will all bear the same date, with interest
payable from that date. We will suppose that a corporation issues its
bonds for $100,000.00 in denominations of $1,000.00 each. These bonds
are dated Feb. 1st, and bear interest at 5 per cent payable annually.
They are payable at the end of 10 years from date. The company agrees
to maintain a sinking fund of an amount sufficient to pay the bonds at
maturity if invested in securities drawing 4 per cent interest, and to
invest the fund in such securities which are to be placed in the hands
of a trustee.

During the first year bonds are sold in the amounts and under the
conditions which follow:

_First._ On the date of issue $10,000.00 of these bonds are sold at par.

_Second._ At the end of three months $10,000.00 of the bonds are sold
at 101 and accrued interest, yielding $10,225.00 of which $10,000.00 is
principal, $100.00 premium, and $125.00 interest.

_Third._ The next sale is $10,000.00 of the bonds at 98, interest
accrued $250.00, yielding $10,050.00 made up of principal $10,000.00,
less discount $200.00, and interest $250.00.

[Illustration: Ledger Accounts of a Bond Issue]

=51. Premium on Bonds.= When bonds are sold at a price above par, the
premium should be credited to a _premium on bonds_ account. When sold
below par, the discount may be charged to the same account.

=52. Interest on Bonds.= The interest paid on bonds may be charged
to an _interest on bonds_ account, which keeps it separate from the
regular interest account. When bonds are sold with accrued interest,
which is paid by the purchaser, the accrued interest is credited to
interest on bonds.

=53. Expense of Bond Issue.= All expenses incurred in the issue and
sale of bonds should be charged to _expense of bond issue_ account. The
account can be closed into profit and loss immediately, or it is proper
to spread it over the life of the bonds, charging off the proper amount
each year. It is also considered proper to charge discount on bonds to
this account.

=54.= Continuing the example in Art. 50, we find that the amount of
bonds outstanding is $30,000.00, and a sinking fund must be established
which will equal this amount when the bonds mature. Following the rule
in Art. 38, we divide the interest on $30,000.00 for one year at 4 per
cent ($1,200.00) by the compound interest on $1.00 for 10 years at 4 =
(.48024) obtaining as a result $2,498.75, the amount necessary to be
invested at the end of each year. This amount must be provided each
year for permanent investment to meet the principal and an additional
$1,500.00 must be provided each year for interest.

The entries which follow are the ones necessary to record the sales
shown in Art. 50.

                     --Feb. 1--
  Cash                          $10,000.00
    Bond issue                                 $10,000.00
                     --May 1--
  Cash                           10,225.00
    Bond issue                                  10,000.00
    Premium on bonds                               100.00
    Interest on bonds                              125.00
                         --Aug. 1--
  Cash                           10,050.00
  Expense of bond issue
           (discount)               200.00
    Bond issue                                  10,000.00
    Interest on bonds                              250.00

At the end of the year when the interest is paid and the first
installment of the sinking fund is set aside, these entries are made:

                        --January 31--
  Interest on bonds               1,500.00
    Cash                                         1,500.00
  Sinking fund                    2,498.75
    Cash                                         2,498.75

The illustrations (page 240) show the status of all of these ledger
accounts at the end of the year.


=55.= Manufacturing began in this country many years ago and was for a
long time confined to the eastern and New England states. Encouraged
and fostered by national, state, and local governments, and by
discoveries of sources of supplies, it has extended to all parts of
the country. Manufacturing has grown to proportions which place it at
the very head of our industries, if we except agriculture, the growth
of which has been largely influenced by the progress in manufactures.
One result is that the business of manufacturing has perhaps more than
any other, attracted capital from great numbers of investors, large and
small. Owing to its very nature, manufacturing readily lends itself to
the corporate form of organization, and it is for manufacturing that a
very great number of corporations have been formed. Manufacturing has,
therefore, been selected for a more complete exposition of corporation

The accounts of a manufacturing business are to a certain extent
peculiar to itself. Regardless of the nature of the product, there
are certain underlying principles which should govern the devising of
a system of accounts for a manufacturing business. Perhaps the most
important feature to be kept in mind is to so arrange the system that
the cost of manufacturing the goods will be shown.

Correct cost accounting methods are of greater importance to the
manufacturer than the method of keeping accounts with his customers.
He cannot afford to wait until the end of the year for results; he
must know what his goods cost him if he is to intelligently make
selling prices. There are so many opportunities for fluctuations in
manufacturing costs that the accounts must at least show approximate
results at all times.

Cost accounting is a profession in itself, and it is not our purpose to
discuss, in this paper, all of the details of collecting data in the
factory and shop. The purpose of this paper is to show the accounts
with which a bookkeeper for a manufacturing business should become
familiar. Even when a manufacturer does not maintain a complete cost
accounting system the bookkeeper can produce some valuable statistics
by a proper arrangement of the accounts.


=56.= For the purpose of illustration we have selected a representative
schedule of the accounts of a manufacturing business. The following
accounts are those which have a direct bearing on the manufacturing
branch of a business and do not include the administrative and selling


1. _Real Estate._ Includes the cost of land and factory buildings.

2. _Machinery._ Charged with the cost of all machinery including total
cost of installation. Freight, cartage, and cost of erecting the
machine ready for use should be included.

3. _Patterns and Tools._ Charged through cash and purchase book
for all patterns and tools purchased. Charged through cash book
and journal--with proper credit to material and labor accounts--if
manufactured in the factory.

4. _Material Purchases._ Charged through purchase and cash books for
all purchases of material that enters into the product. Cost includes
charges for delivery. Credited for all material used in the factory.
This may be subdivided into several accounts to represent the different
classes of material used--as iron, steel, lumber, leather, hardware,

5. _Supplies Purchases._ Charged through purchase and cash books for
all purchases of factory supplies, like oil, waste, belt lacing, and
similar items. Credited for all supplies used in the factory.

6. _Finished Goods._ Charged for all goods finished, usually at cost of
manufacture. Sometimes a small factory profit is added. This account
represents a purchase account to the commercial department, as it
represents the cost of goods to them,


7. _Salaries._ Charged for salaries of superintendent, assistant
superintendent, and factory clerks.

8. _Labor._ Charged through cash and pay roll books for the amount of
all factory pay-rolls.

9. _Experimental._ Charged through cash and pay-roll books and journal
for all labor and material used in experimental work carried on for the
purpose of improving the product.

10. _General Factory Expense._ Charged through cash and purchase books
for cost of miscellaneous factory expense items not otherwise accounted

11. _Power, Heat, and Light._ Charged for fuel, oils, water, wages of
engineer and firemen, electricity (when purchased), and all other items
entering into their cost.

12. _Building Maintenance and Repairs._ Charged through cash and
purchase books for materials purchased specially for repairs to
buildings. Charged through journal and pay-roll book for labor and
materials or supplies consumed in maintenance and repairs to buildings.

13. _Repairs to Machinery._ Treated the same as No. 12.

14. _Repairs to Patterns and Tools._ Treated the same as No. 13.

15. _Insurance._ Charged through cash book for all premiums paid for
insurance on buildings and contents.

16. _Taxes._ Charged for all state, county, and city taxes.

17. _Depreciation of Buildings._ An amount charged off each year to
cover depreciation.

18. _Depreciation of Machinery._ Treated the same as No. 17.
Depreciation based on estimated life of machine.

19. _Depreciation of Patterns and Tools._ Treated the same as No. 18.


20. _Manufacturing Account._ Charged for cost of labor and material
consumed in manufacture of goods; charged for proper proportion of all
expense accounts; credited with cost of all finished goods. Balance
represents cost of all goods in process.


=57. Routine Followed.= The notes following the names of the accounts
in the above schedule explain their purpose and show clearly how
charges are made direct to the expense accounts. Further explanations
are necessary in regard to charges and credits to manufacturing account.

Labor is easily disposed of as the amount standing to the debit of
labor account at the end of the month is transferred to the debit of
manufacturing account, closing labor account.

Material charges are more difficult to handle. In all well-regulated
factories all material is as carefully accounted for as cash. Proper
storage rooms are provided in which all material is stored. These rooms
are placed in charge of a man known as stockkeeper or stores clerk,
and no one is allowed to take material from the storerooms without
first presenting a written order, signed by the foreman, showing for
what purpose the material is to be used. This order is retained by the
stockkeeper and after he has posted the material to his own records he
sends it to the bookkeeper. From these orders, the bookkeeper compiles
a record of material withdrawn and, at the end of the month, the amount
is debited to manufacturing account and credited to material purchases.

The stockkeeper keeps a record of all material received and delivered
and the balance of his accounts shows the quantities of the different
materials which he should have in stock. His record should agree with
the balance of material purchases account.

When a stockkeeper is not employed it is necessary to have reports from
the factory. The bookkeeper should arrange to obtain daily reports from
the foremen showing all materials taken into their departments which
are to be used in the manufacture of the regular product. If any of
this material is to be used for the manufacture of tools or patterns
for use in the factory, or for repairs to tools, patterns, machinery,
or buildings, it should be noted on the report with a statement of
the exact purpose for which it is intended. From these reports, the
bookkeeper will compile his material records which will be credited
to material purchases, and charged to manufacturing account and the
different repair accounts at the end of the month.

Supplies are handled the same as materials, except that where this is
a small item it is sometimes treated as an expense account. Where a
considerable value is involved it is preferable to consider it as a
subdivision of the material account.

The expense accounts must be charged on a percentage basis for the
reason that the amounts actually expended vary in different months, and
an expense item paid in one month may cover that particular expense for
an entire year. Such items are insurance premiums and taxes, paid once
a year to cover twelve months. Other expense items like experimental,
power, and repairs are difficult to determine for a single month. It
is customary to base the charge for these items on the records for
the previous year. The amount of such expenses for a year is divided
by twelve and each month one twelfth of the amount is charged to the
manufacturing account and credited to the expense account. If there is
any discrepancy at the end of the year it is adjusted by a debit or
credit to finished goods.

Reports should be made daily by all foremen showing exactly what partly
finished goods are received in their department and the quantity
delivered to the next department. A record of these reports should be
kept, which will show at all times the quantity of goods in process in
each department. Reports of finished goods received in the stock room
will show the quantity manufactured, or rather finished, during the
month. See report form illustrated on page 53.

If all goods on which work had been started were finished, the charges
to manufacturing account would represent their exact cost, but there is
always a certain quantity of goods in various stages of manufacture,
and the amount already expended on them must be considered. Therefore
an inventory is taken of goods in process. Great care must be
exercised, in taking this inventory, that too high a value is not
placed on partly finished goods, for if the valuation is too high the
apparent cost of finished goods will be less than actual cost. It is
of utmost importance that the cost of manufacture be not understated,
for it is on this cost that selling prices will be based. This is
one reason why some manufacturers add a small-factory profit. Unless
a complete system of cost accounting is maintained, this inventory
of goods in process must be an estimate, but the record of goods in
process in each department will be of considerable assistance in making
the estimate.

[Illustration: Daily Report of Work in Process]

When the inventory is complete the amount should be deducted from the
total debits to manufacturing account, which will show the cost of
goods manufactured. This cost should then be credited to manufacturing
account and charged to finished goods account. Manufacturing account
will now show a debit balance representing cost of goods in process.

This method will produce very satisfactory results for factories in
which but one line of goods is manufactured, but does not supply the
information required where several styles, sizes, or lines are made.
For one line of goods it is only necessary to divide the total cost by
the quantity produced, as pounds, feet, dozen, or gross to find the
cost of a single unit. In the more complicated business a detailed cost
system would be required.


=58.= In connection with the labor account, the manner of keeping the
pay-roll record is of considerable importance. Like most other forms
of record, pay-roll books are made to suit the needs of the individual
concern. For a manufacturing business a feature to be kept in mind is
such an arrangement as will give the most complete record of the cost
of labor in each separate department. Where men are never transferred
from one department to another during a weekly or monthly pay-roll
period, this result would be obtained by a simple grouping of the names
by departments. In many manufacturing lines, however, workmen are
frequently transferred so that to obtain costs for departments it is
necessary to provide special forms for distribution.

But why go to the trouble of distributing the pay-roll by departments?
That we may more closely watch expenses and costs. The reports which
the bookkeeper receives from foremen show quantities of goods passing
through each department. If the pay-roll is sectionalized it will
enable the bookkeeper to determine the labor cost per unit of goods
manufactured in each department. A comparison of these costs from
month to month will be of value in showing changes in cost. The form
illustrated provides for a business having four departments and paying
employes both on piece work and day wage plans.

[Illustration: Pay-roll Register for Time and Piece Work]


=59.= When the books are closed, it usually happens that certain
expense accounts show expenditures for items of expense that are not
accrued. Illustrations are insurance and taxes paid yearly in advance.
Suppose insurance premiums to the amount of $150.00 are paid on April
1st to cover insurance for one year. If the books are closed July 1st,
9/12 of this amount will have been paid for insurance that we have not
received--the premium has not been earned. The inventory will also show
unused material which has been charged to such expense accounts as
repairs. It is proper to take an inventory of these amounts, treating
them as assets in the balance sheet.

To properly record all such unearned expenses and make the books agree
with the balance sheet, an account should be opened under the title
of _Expense Inventory_, to which these items will be charged, with
corresponding credits to the proper expense accounts. After the books
have been closed, these items will be changed to the expense accounts,
and credited to expense inventory, closing the latter account.


=60.= Certain expenses will have accrued which have not been paid. Such
an item is interest on bills payable, bonds, or mortgages, or taxes
due and unpaid. These items should be treated as liabilities in the
balance sheet. An account called _Expense Accrued_ should be opened
and credited with these items, with corresponding debits to expense
accounts. When the books have been closed, this account is closed
by crediting the items to the expense accounts from which they were


61. A form of ledger now in quite common use is known as the _balance
ledger_. The form differs from the standard ledger form in being
provided with an extra column in the center in which balances are
extended. If the bookkeeper when posting, extends the balance after
each item is posted, much time is saved in looking up accounts and in
taking trial balances. The nature of the account will usually indicate
whether there is a debit or credit balance. Accounts in the sales
ledger will usually show a debit balance, while one in the purchase
ledger will have a credit balance. If the balance is the opposite from
what is to be expected it may be indicated by placing the letter _D_ in
front of the amount in the balance column for debits, or the letter _C_
after the amount for credits.


[Illustration: Center-Ruled Balance Ledger]


62. The following transactions exhibit the accounts which are special
to a manufacturing business without including the commercial accounts
which record sales. The manner of keeping those accounts is the same
for a manufacturing business as for any other.

Being a business conducted by a corporation these accounts include the
stock accounts usually kept in the general books. The auxiliary stock
books are omitted, it being felt that the special illustrations of
such books will have been sufficient to give the student a thorough
understanding of their uses.

The books required in the manufacturing business, omitting sales
accounts, are _invoice register_ or _purchase book_, _cash book_,
_journal_, _pay-roll distribution book_, _purchase ledger_, and
_general ledger_.

A corporation known as the Atlas Manufacturing Co., is organized with
an authorized capitalization of $100,000.00, with the provision that
business is to begin when $50,000.00 of the stock has been subscribed,
and $25,000.00 paid in. The incorporators are Henry Biddle, John
Noonan, David Snow, Henry Farwell, and George Dunn. Each incorporator
subscribes for $10,000.00 stock payable one-half down and one-half in
30 days. The detailed record follows:

                 --March 1--

  Received subscriptions to the capital stock,
  payable one-half down, and one-half in 30
  days, from the following. Stock is to be
  issued when paid in full.

  Henry Biddle       $10,000.00
  John Noonan         10,000.00
  David Snow          10,000.00
  Henry Farwell       10,000.00
  George Dunn         10,000.00

  Received cash in payment of subscriptions
  from the following:

  Henry Biddle         5,000.00
  John Noonan          5,000.00
  David Snow           5,000.00
  George Dunn          5,000.00

  Received from

  Henry Farwell

  His note at 30 days with 6% interest in payment
  of installment on his subscription                5,000.00
  Deposited cash in Second National Bank           20,000.00


  Received from

  Derby Desk Co.
  Invoice #1, terms N/30
  Charge to office fixtures                           350.00


  Leased for two years from Jacob Newman
  a factory building at an annual rental of
  $1,800.00, payable quarterly in advance.
  Gave him check No. 1 for 3 months' rent.


  The following invoices are entered--

      Meyers Engine Co.
      Invoice No. 2, terms N/30
      Charge to machinery                           1,500.00


      Patton Machine Co.
      Invoice No. 3, terms N/30
      Charge to machinery                           3,500.00


      Danforth & Co.
      Invoice No. 4, terms N/30
      Charge to material                              960.00


  The following invoices are entered--

      Franklin Printing Co.
      Invoice No. 5, terms 2/10, N/30
      Charge to office supplies                       165.40


      Slade Oil Co.
      Invoice No. 6, terms 3/10, N/30
      Charge to supplies                               54.25


      Norwich Machine Co.
      Invoice No. 7, terms N/30
      Charge to machinery                           8,500.00


      Paid freight by check No. 2 to
      T. Fogarty, Agt.
      Machinery                    216.20
      Materials                     11.60             227.80


      Francis & Co.
      Invoice No. 8, terms 3/10, N/30
      Charge to materials                             640.00


      Stevens & Co.
      Invoice No. 9, terms 3/10, N/30
      Charge material                                 225.00


      Gave Danforth & Co.
      Check No. 3
      To pay bill of March 2       960.00
      Less 2%                       19.20             940.80


      Lackawana Coal Co.
      Invoice No. 10, terms N/30
      Charge power, heat, & light                     185.00


      Gave Franklin Printing Co.
      Check No. 4.
      To pay bill of March 4       165.40
      Less 2%                        3.31             162.09


      Danforth & Co.
      Invoice No. 11, terms 2/10, N/30
      Charge material                                 315.00


      Drew check No. 5.
      for 2 weeks' pay-roll                           220.50
      Charge machinery
      for cost of installing       178.50
      Building maintenance
      for repairs to building
      per pay-roll distribution     42.00


      Gave Derby Desk Co.
      Check No. 6
      To pay bill of March 1                          350.00


      Gave Slade Oil Co.
      Check No. 7
      To pay bill of March 5         54.25
      Less 3%                         1.63             52.62


      Gave Francis & Co.
      Check No. 8
      To pay bill of March 7       640.00
      Less 3%                       19.20             620.80


      Gave Stevens & Co.
      Check No. 9
      To pay bill of March 8       225.00
      Less 3%                        6.75             218.25


      Eureka Tool Co.
      Invoice No. 12, terms N/30
      Charge tools                                     250.00


      Check No. 10
      for 1 week's pay-roll
      Charge labor                 326.25
      Charge tools                  27.50             353.75
      (Making tools for shop per
      pay-roll distribution)


      Received from Danforth & Co.
      Credit memo
      for damaged goods in lot
      covered by invoice dated 3/12                   63.00
      Credit material
      Gave them check No. 11
      For acct.                    252.00
      Less 2%                        5.04             246.96


      Check No. 12
      for 1 week's pay-roll                         $ 342.70
      Charge labor per
      pay-roll distribution


      Gave Norwich Machine Co.
      Note of Henry Farwell      5,000.00
      Accrued interest              25.00           5,025.00
      Gave them check No. 13
      to pay their account                          3,475.00


      Salaries check No. 14
      for salaries of Supt. & Clerks                  350.00

=63. Manufacturing Data.= The following data has been collected by the
bookkeeper from the reports of superintendent and foremen, and from the
inventories taken at the end of the month.

  Material issued to factory              1,003.35
  Material used for building repairs         50.00

  Supplies                                   45.00
  Rent (unexpired)                          300.00
  Power, heat, and light (Coal)             150.00
  Office supplies                           140.40
  Goods in process--material   602.00
  Labor                        400.00     1,002.00

We will now close the ledger to ascertain manufacturing results for the
month, by making the following adjusting entries in the journal--

  Debit Manufacturing Account
    for material issued to factory.

  Debit Building Maintenance and Repairs
    for material used in repairs.

  Credit Material Purchases
    for both of the above.

  Debit Manufacturing Account
    for Labor Account
    for Supplies used--found by deducting
      inventory from supplies purchases.
    for Salaries Account
    for Rent one month
    for Power, Heat, and Light--found as above
    for Building Repairs
    for Office Supplies--found as above
  Credit accounts representing above
    for amounts charged.

The manufacturing account will now show, on the debit side the total
manufacturing expense for the month. The next step is to find the cost
of finished goods to be credited to manufacturing account and charged
to finished goods account. Our inventory of goods in process, which
includes material and labor only, amounts to $1,002.00. The labor
account and reports from foremen show that the amount of these items
used in the factory is $1,672.30. In round numbers, the former is 60%
of the latter, that is, sixty per cent of the work started is still in
process. We will assume, therefore, that this is a fair percentage to
be used in determining the expense items invested in goods in process.
Taking 60% of the total manufacturing expense gives $1,400.13, which,
deducted from the total, leaves $933.42 as the cost of finished goods.

In this case the per cent of goods in process is large for the reason
that it is the first month of operation. The results in succeeding
months will be more nearly equal. If the factory is running regularly,
turning out practically the same quantities each month, the quantity of
finished goods will just about equal the work started in any one month.

Should we wish to show a factory profit of 10%, it will be necessary
to add 10% to the cost of finished goods which will then represent the
cost to be used by the sales end of the business. Since we have no
account to which this amount can properly be credited, we will open
a new account called _contingent profits_, which will be closed into
profit and loss at the end of the year.

Since we are not closing the books for the purpose of making a balance
sheet, we do not close the expense accounts into an expense inventory
account as explained in article 59. Instead, the balances are allowed
to stand until such time as the books are finally closed.

[Illustration: Invoice Register with Distribution Columns.]

[Illustration: Invoice Register with Distribution Columns]

[Illustration: Check and Disbursement Record]

[Illustration: Manufacturing Journal]

[Illustration: Manufacturing Journal]

[Illustration: Manufacturing General Ledger]

[Illustration: Manufacturing General Ledger]

[Illustration: Manufacturing General Ledger]

[Illustration: Manufacturing General Ledger]

[Illustration: Purchase Ledger]

[Illustration: Purchase Ledger]

[Illustration: General Ledger Trial Balance]

[Illustration: Purchase Ledger Statement]


The transactions given in this exercise are a continuation of the
business referred in to the preceding articles. During the month of
April the following transactions are recorded.

  Material purchases                       $2,670.00
  Supplies purchases                          127.50
  Patterns and tools purchases                150.00
  Cash received on subscriptions           25,000.00
  Deposited in Bank                        25,000.00
  Checks drawn
  Purchase accounts                         5,500.00
  Salaries                                    375.00
  Pay-rolls                                 1,670.20
  distributed as follows:
  Labor                         $1,652.70
  Machinery repairs                 17.50
  David Snow                               10,000.00
  (Stock purchased at par by Company)

The following data is obtained from the reports of foremen and
inventories taken at the end of the month:

  Material issued to factory
  to be used in manufacturing goods.        2,261.00
  Material used in machinery
  repairs                                      16.70
  Inventories, April 30
  Supplies                                    147.00
  Rent (unexpired)                            150.00
  Power, heat, and light (Coal)                75.00
  Office supplies                             118.40
  Goods in process--material    615.00
  Labor                         410.00      1,025.00

1. Find value of goods in process, using the same percentages in
estimating expense items as shown for material and labor.

2. Make journal entries closing accounts into manufacturing account to
show cost of goods completed during the month.

 NOTE:--To find total cost of material and labor, used and partly
 used, add to the amounts shown for one month the inventory of the
 same items at end of preceding month.

3. Make trial balance of general ledger after books are closed as shown
in model set.




1. _Voucher._ A document which vouches the truth of accounts.

_Receipt._ An acknowledgment of money paid.

The voucher system is sometimes referred to as a modern system of
accounting, but a study of the above standard definitions indicates
that it is modern only in respect to forms of records and routine.

In the nomenclature of accounting the term voucher is quite commonly
used in the same sense as the term receipt. The only distinction
appears to be that a voucher is usually understood to be an
acknowledgment of the payment of a particular item on account, while
a receipt may be an acknowledgment of the payment of money without
reference to the item or items covered.

Since the transaction of business began receipts or vouchers in some
form have undoubtedly been used. Some form of acknowledgment of money
paid has always occupied a place in business. But at first, receipts
were not required--they were incidental; given as a matter of courtesy;
a "thank you" in written form.

When the first man, after paying his grocery bill, was forced to pay
it a second time because the merchant had failed to mark his account
"paid," he _demanded_ a receipt. He learned then and there that
accounts, and those who keep them, are not infallible. He told his
neighbors, and the custom of demanding receipts for money paid, came
into being.

The receipt was demanded as a matter of self-protection, to prevent
the possibility of payment of an amount being successfully demanded a
second time. But the receipt was not an integral part of the accounting
records of a business; it might or might not be demanded without
affecting the records. So long as business was conducted by single
proprietors or small partnerships, this was satisfactory, since the
receipt was not required as a record between partners.

With the advent of joint-stock companies and corporations, came
ownership by a large number of investors. Having their capital
invested, these owners had a right to know what was being done with
their property, and there came a demand for a more strict accounting
of money and property entrusted to the care of the managers of the

As business expanded and corporations grew in size and power, with
wider spheres of activity, it became necessary to divide the operations
of business concerns into departments, with corresponding divisions of
authority. This meant the creation of a central authority to whom an
accounting must be made by the departments or branches.

Audits were introduced. Not only did stockholders want to know that
the business was honestly conducted, but the managers demanded proof
that property entrusted to subordinates was accounted for and that
the accounts were accurate--that is, truthful. Not satisfied with
the evidence offered by entries in account books, auditors asked
for further proof of the payments recorded; they demanded receipts,

The voucher as used in modern accounting practice is then something
more than a receipt for the payment of money; it is a proof that
property has been administered as claimed by the accounting records. "A
document which vouches the truth of accounts,"

=2. Use of Vouchers.= The most general use of the voucher still is as
an acknowledgment of the payment of money. In fact, when we speak of a
voucher it is usually understood to mean a receipt or acknowledgment of
the payment of money for a specific purpose.

A voucher states the exact purpose for which the money is paid, the
items either being listed or reference made to a specific invoice or
account. Then when receipted it becomes a voucher in fact and takes its
place as an integral part of the accounting records. The voucher may
be said to form a connecting link, furnishing proof that the money was
expended as shown in the records and that it was received by the payee.
In this respect it acts as a check against a misappropriation of funds.

As the system of vouchers for payment of money came into more general
use, many accountants argued that it should be carried still further.
Sales records were vouchered by original orders, shipping receipts,
and invoice copies, and purchases by the regular vouchers, but there
was no voucher for transactions involving transfers of values from one
account to another. In making journal entries involving such transfers,
many opportunities for fraud were opened. Just such entries have been
frequently used to cover up fraudulent transactions.

The logical step to make the voucher system complete in every detail
was the introduction of the journal voucher. If a voucher is provided
for each journal entry, the bookkeeper can produce authority for every
transaction recorded in his books.

The journal voucher is a voucher of authority, that is, it authorizes
the entry involved and must be signed by an officer having power
to make such authorization. To the bookkeeper, it is in many cases
a protection, for if a question arises as to the legality of a
transaction, he can produce his authority for the entry, which will
place the responsibility where it belongs.

We have come in contact with cases in which the bookkeeper, following
the explicit instructions of an officer of a company, has made entries
clearly intended to defraud either creditors or stockholders, only to
be later made the "scapegoat" and held jointly responsible with his
superior officer.

Not all such entries show their clear intent, though their real
purpose be fraudulent. Some of them are so ingenuous and supported by
such plausible explanations, that the bookkeeper has no suspicion of
their real nature. A case in point: a corporation was organized in a
small town to engage in a manufacturing enterprise. Like many another
corporation of similar character, the benefits which would accrue to
the town, were dwelt upon at length by the promoters, and citizens
were induced to invest their savings in small blocks of stock. Also,
like many another enterprise entered into and managed by men with no
technical training, this little factory struggled along for a few
years, always operated at a loss. But a change came; an experienced
manager was secured and the business began to exhibit symptoms of a
healthy growth. The second year showed a profit; almost enough to wipe
out the deficit. The third year the business outgrew the capacity of
the plant, and $20,000.00 was invested in new machinery. Not an old
machine was discarded. The manager instructed the bookkeeper to charge
$15,000.00 of the amount to repairs, explaining that it would off-set
the amount which should have been charged off as depreciation in former
years. Perhaps,--but it made the books show a small loss instead of a
substantial profit for the year. And it is significant that several
holders of stock, worth face value, and more, sold their holdings to
the manager at an average price of .65. If no profit could be made on
such a volume of business as had been transacted that year, what hope
for the future?

[Illustration: Fig. 1. Voucher to be Receipted and Returned]

To what extent a bookkeeper is justified in presuming to conserve the
morals of his employer, is not a subject for present discussion. Just
where the line should be drawn between moral and legal responsibility,
is sometimes difficult to determine. But that bookkeeper innocently
assisted in robbing unsuspecting stockholders. Had he insisted on the
signed authority of the manager--that is, demanded a voucher--the entry
might never have been made; he, at least, would have been freed from
any possible charge of complicity.

=3. Forms of Vouchers.= The essential feature of a voucher is that it
must show clearly the purpose for which it is drawn, and provide a
proper form of receipt. There are many forms of vouchers designed to
meet the requirements of different businesses.

[Illustration: Fig. 2. Back of Voucher Showing Distribution]

The most simple form of voucher is a statement of items paid, with a
receipt to be signed by the payee. A remittance in the form of cash or
a check accompanies the voucher, the receipted voucher being returned
by the payee. A form of voucher of this class is shown in Fig. 1.

The items paid can be listed on the voucher, or there may be a
reference to certain invoices included in the payment. Some accountants
attach the original invoice to the voucher, but for certain reasons we
do not advocate this practice. Until the receipted voucher is returned
there is no record of the items covered, unless the invoice has been

[Illustration: Fig. 3. Combined Voucher and Check Used by the
Pennsylvania Railroad Company]

Some houses are slow in returning receipted invoices, resulting in many
annoying delays. If the invoice is kept on file we at least have a
record of the transaction, and it may be very necessary to refer to the
invoice for prices or other information.

The back of the voucher is usually printed with a form for a
distribution of the amount to the account or accounts to which it
should be charged. A typical form is shown in Fig. 2. For permanent
filing a voucher of this style is folded so that the number appears at
the top, followed by the name of the payee, and the distribution record.

=4. Voucher Checks.= A step in advance of the early form of voucher
with separate check is the voucher check. This is a form which combines
the voucher and check.

Of voucher checks there are many forms, each designed to meet some
special condition, or to conform with the ideas of the accountant.
While these forms exhibit many variations in detail they may be divided
into two general classes: folded voucher checks and single voucher

The folded voucher check is usually twice the width of an ordinary
check, making it regular check size when folded. This is intended to
provide a receipt for the payment of items listed, by the endorsement
of the check. Several such forms are illustrated.

Fig. 3 is a form of combined voucher and check used by the Pennsylvania
Railroad Company, The account is transcribed on _A_, this being a
sheet twice the width of a check. This form is made in duplicate, _B_
being the carbon copy which is filed as a record of authority for the
issuance of the voucher. The check itself, shown in _C_, is written on
the back of the original voucher. _A_. When folded, this form is the
size of a regular check and goes through the bank in the usual manner.
The endorsement of the payee is a receipt in full for the items covered
by the voucher.

This is a representative form of the folded voucher check. Naturally
the details recorded will vary in different businesses, but the general
plan is subject to slight changes. Some objection is raised by banks to
the folded form. The claim is made that considerable inconvenience is
caused in handling in the bank, by checks slipping between the folds.

Many of the earlier forms of voucher checks were not checks until
certain conditions had been complied with. On the face of the voucher
was printed "when properly receipted this voucher will be paid through
... Bank." This required a receipt in some special place, instead of
the usual endorsement of a check, and it was not always easy to tell,
at a glance, the amount to be paid.

Very naturally, objections were raised by the banks against the use of
these complicated forms, but forms have been simplified in ways that
have largely overcome these objections.

[Illustration: Fig. 4. Form of Voucher Check that Requires no Folding]

An improvement is the ordinary check form arranged to provide a valid
receipt for stated items. Such a form is illustrated in Fig. 4. This is
an ordinary check form of regulation size, on which is noted the item
or items paid. The checks are put up in pads and numbered as used. When
endorsed, the check provides a valid receipt for the items covered.

[Illustration: Fig. 5. Duplicate Voucher Check in Loose Leaf Form]

[Illustration: Fig. 6. Voucher Distribution Sheet]

A voucher check with some advantageous features is shown in Fig. 5.
This is made in duplicate. _A_ is the original voucher check, while _B_
is the duplicate. When sent out, the stub shown in _B_, a duplicate of
the statement on the original check, is attached to the check. This is
detached by the payee for his records, and enables him to deposit the
check without waiting to make the entry in his cash book.

These voucher checks are made in sheets and punched for filing in a
loose-leaf binder. The balance of the form shown in _B_, the part
remaining after the check and duplicate statement have been removed, is
a copy of the check, and remains in the binder.

The checks are numbered consecutively, but the voucher number is
entered when used and corresponds with the number of the voucher paid.

The office record of the items paid is made on the voucher form shown
in Fig. 6. These are numbered consecutively, in the order in which they
are approved, and when paid are filed in numerical sequence.

Another style of loose-sheet voucher check is illustrated in Fig. 7.
This form is made on the typewriter, in triplicate, and includes the
original check, a receipt and a copy of the check. The forms are made
two to a sheet, and when a check is to be written the triplicate sheet
is placed in the machine, three copies being made at one writing.

[Illustration: Fig. 7. Triplicate Form of Voucher Check that Provides a
Receipt and a Copy of the Check]


The triplicate form, or copy of the check, is the permanent record
from which posting is done. Both the check and receipt are mailed and
the payee is expected to return the receipt. If not returned within a
reasonable time, the payee is followed up by letter and asked to return
the receipt, as this becomes a part of the permanent office records.

[Illustration: Fig. 8. Duplicate Voucher with Check Attached]

An excellent form of voucher with check attached is shown in Fig. 8.
The voucher is made in duplicate, the check being attached to the
original. The duplicate is kept on file for the office record, while
the original, with check attached, is mailed to the vendor. He detaches
the check and deposits it, keeping the original statement in his files.
In the event of discrepancies, the vendor is expected to return both
voucher and check, endorsement being considered as a receipt in full
for items included in the statement.

=5. Journal Vouchers.= As previously explained, a journal voucher is
a properly signed authorization of a journal entry. Journal vouchers
are not intended to be used for the ordinary journal entries of a
business, as closing entries and ordinary adjusting entries. They are
more particularly intended for special credit items or allowances, and
special transfer or adjusting entries.

Fig. 9 illustrates a convenient form of journal voucher. This form is
intended to be filed in a loose-leaf binder, and when so filed, becomes
the journal itself, posting being made direct to ledger accounts. The
usual method, however, is to make the entry in the journal and file
this voucher as an evidence of authority.

A journal voucher should require the final approval of some one man
before it becomes valid. The head of a business can keep in touch with
all special allowances by having the journal vouchers brought to him
for his signature.

[Illustration: Fig. 9. Journal Voucher for Adjusting Entries]

One reason for the use of journal vouchers in large establishments
having several departments is that special credits and allowances
are constantly coming up, with which only one department manager is
familiar. His O. K. is obtained, and the voucher must be approved by
the manager, which makes these men responsible for the transaction.

=6. The Voucher Register.= Though the form of voucher is of
considerable importance, and should be designed to meet the
requirements of the business, the keystone of the voucher system
of accounting is the voucher register. Wherever used, the voucher
register possesses certain uniform characteristics, but in each
business the form takes on special features; in fact, the voucher
register is distinctively a special form.

The voucher register is really a form of purchase book, with other
features added, and takes the place of these records. In addition
to the usual features of the purchase book or invoice register, the
voucher register furnishes a complete record of payment of bills, and
shows at all times the net amount of Accounts Payable. Another most
important feature is that it exhibits all expenditures, for whatever
purpose. A voucher is provided and properly registered for every check
issued, insuring a receipt in proper form for every dollar paid out.

When properly handled, the voucher system does away with the purchase
ledger, no ledger accounts with creditors being necessary. The
register in connection with a file of unpaid vouchers, furnished a
complete record of each individual creditor's account. At the same
time, a controlling account is provided, which exhibits the total of
outstanding accounts, and balances with the voucher register.

To furnish representative illustrations, we show several forms of
voucher registers, which exhibit the special features usually found in
such records. These may be used as guides in designing registers for
any business.

Figs. 10 and 11 show forms identical in general arrangement, except
that one is designed for a mercantile business, while the other is
intended for a manufacturing establishment. The columns beginning at
the extreme left are as follows: _Date Entered_, _Voucher Number_,
_Name of Payee_ and nature of account, _Date of Invoice_, _Vouchers
Payable_ (the total), and _Date Due_. The columns following are for
distribution of the total to the different accounts. Columns are
provided for those accounts in each group to which most frequent
charges are made. The amounts of the vouchers are extended in these
columns and footings carried forward to the end of the month.

In every business there are certain expense accounts to which charges
are infrequent, not more than one charge a month, and in some cases
one or two in a year. Examples of these accounts are insurance, taxes,
rent, etc. To add columns to an already large voucher register for the
accommodation of these few items is impractical, hence the Sundries
column is provided for charges to accounts for which special columns
are not provided. Space is allowed for entering the names of the
accounts, and each item is posted direct to the ledger account.

[Illustration: Fig. 10]

[Illustration: Fig. 11]

[Illustration: Fig. 12]

[Illustration: Fig. 13]

Typical Forms of Voucher Registers

[Illustration: Designed for Use in Different Businesses]

The form of voucher register illustrated in Fig. 12 is designed for use
where a complete voucher system, including the use of journal vouchers,
is maintained. The special feature of this form is the addition of
several columns for credit accounts. Space is provided for entering
the names of the accounts to be credited, the amounts being carried to
the proper ledger columns. This makes it possible to enter any journal
voucher, and since full particulars are shown in the voucher itself, no
explanations are required in the register.

At the right of these forms are columns for recording particulars of
settlement. A column headed _Unpaid Vouchers_ will also be noted.
On the last day of the month, when all items have been entered, the
amounts of all unpaid vouchers are extended in this column, and the
total is carried forward to the next month's sheet, where it is
entered in the _vouchers payable_ column. When these vouchers are
paid, particulars of payment are entered on the sheets containing the
original record; as would have been done if they were paid in the month
in which they were entered.

The footings of all columns are carried forward to the end of the
month, when the totals of all distribution columns, excepting sundries,
are posted to the debit of the corresponding ledger accounts. The
footing of the _vouchers payable_ column, less unpaid amount brought
forward, must agree with the total footings of all distribution
columns, since it represents the total of all vouchers registered. The
net amount, that is, the footing of the _vouchers payable_ column, less
the amount of unpaid vouchers brought forward, is posted to the credit
of a vouchers payable account.

On the credit side of the cash book, two columns headed _Vouchers
Payable_ are provided for the entry of payments. One column is headed
Discount and the other _Amount of Check_, the discount column being a
memorandum only. At the end of the month the total of these columns is
posted to the debit of the vouchers payable account, the controlling
account of the voucher register. When the footing of _unpaid vouchers_
is brought forward at the end of the month, it should agree with the
balance of the vouchers payable account.

Another method of handling unpaid vouchers is to provide both _debit_
and _credit_ columns on the voucher register, headed _Suspense
Accounts_, as shown in Fig. 13. All unpaid vouchers are carried to
the credit column at the end of the month, and when paid the entry
is made in the debit column. Footings of the suspense columns are
carried forward in pencil, for, when all amounts on one sheet have been
paid, those items need not be considered in obtaining the balance.
One advantage claimed for this method is that it keeps the _vouchers
payable_ column free of all but current items.

Another feature of this form, Fig. 13, is the absence of a check number
in the _payment_ column. In this case, a voucher check is used, which
necessitates but one series of numbers. When bills are audited, the
voucher checks are made out and numbered, but the dates are omitted
until payment is made, when they are entered with other particulars
under the head of _Payments_.

An objection is sometimes made that with the voucher system, allowing
but one line to an invoice, no provision is made for partial payments.
This can be easily overcome with this form of register. Any unpaid
balance of a current item will be carried to the _suspense_ column.
If further partial payments are likely to be made, the amount should
be entered in the _credit_ column and the name of the payee in the
_remarks_ column. Several lines should then be allowed for the account,
permitting the entry of as many separate payments.

When all bills are paid as soon as audited, taking advantage of cash
discounts, there is no necessity for columns intended to care for
suspense items. All vouchers will be paid not later than during the
month next following the date of entry, and there will be no unpaid
vouchers not found on the current or next preceding month's record.

=7. Operation of Voucher System.= While accountants have introduced
many details into the operation of the voucher system, all intended
to make the application of the system more nearly perfect in some
particular business, the general routine of conducting the system is
summed up in the following:

  1. Auditing of invoices.
  2. Executing and registering vouchers.
  3. Filing audited vouchers.
  4. Paying vouchers.
  5. Filing paid vouchers.
  6. Indexing paid vouchers.

=8. Auditing of Invoices.= When invoices are received they should
immediately go to the purchasing agent. If there is no regularly
appointed purchasing agent, or in a business like a department store
where there are several buyers, the invoices should be kept by the
auditor, comptroller, or chief accountant until the goods are received,
when he will obtain the O. K. of the person who ordered the goods or
incurred the obligation.

Pending the receipt of the goods, the invoices should be filed
alphabetically, under the name of the vendor. The file may be one
of the flat files which can be kept on the desk or if the number of
invoices be large, a section of a vertical file drawer can be used.

When the goods have been received, which will be attested by a report
in some form by the receiving clerk, the invoice is O. K.'d for
quantities and prices by the buyer, and extensions are checked by the
auditor or chief accountant.

=9. Executing and Registering Vouchers.= As soon as the invoices are
audited, vouchers are executed and entered in the invoice register.
Extensions are made to the proper columns, placing the accounts on the
books, just as would be done if invoices were credited to accounts of
the vendors in the general or purchase ledgers.

Vouchers should never be made for invoices in dispute, as to prices
or on account of claims for shortage, damaged goods or other cause.
Until such claims are adjusted, the invoices should be kept in a file
reserved for items in suspense. When the books are closed, such items
must be included under liabilities in the balance sheet. To avoid
actually entering them on the books, they may be entered in the balance
sheet under some such caption as "_Suspense Accounts_."

=10. Filing Audited Vouchers.= The vouchers are now ready for filing
until date of payment. This does not apply if invoices are always paid
as soon as audited, but in the majority of business houses at least a
part of the vouchers will not be paid until the last due date; or if
discounts are taken, they will be paid on the last discount date.

Some provision must be made for bringing these vouchers to notice on
the date at which they should be paid. For this purpose, a "tickler"
or date file is used. This consists of a file with an index of 31
numbered index sheets, intended to represent the days of the month, and
sometimes a set of twelve index sheets printed with the names of the

The audited vouchers are filed under the date when payment is to
be made, either the discount date or the last due date, by placing
them back of the index sheet bearing the corresponding number. To
illustrate; if an invoice is dated the 2nd of the month, and terms are
2/10, the last discount day will be the 12th, and the voucher will be
filed back of the No. 12 index sheet. If payment is due in a subsequent
month, the voucher is filed back of the corresponding monthly index,
then on the first of the month these vouchers are distributed under the
proper dates.

=11. Paying Vouchers.= Each day the vouchers filed back of that day's
index are removed from the file for attention. If for any reason they
are not to be paid that day, they should be filed under the next date
when it is desired to bring them to notice. It may be well to note at
this point that the vouchers and invoices are usually filed together in
the date file.

The check is now written and entered in the cash book or the check
register, attached to the voucher, and mailed. Or if a voucher check is
used it is only necessary to date and enter. These payments are posted
from the cash book to the voucher register. It is not a safe plan to
enter the voucher check direct in the voucher register, as postings to
the cash book are liable to be overlooked. Payments in one day may be
recorded on widely separated pages of the voucher register, while in
the cash book or check register they would be entered consecutively,
making posting much less difficult.

When the voucher and check have been mailed the invoices are placed in
a temporary file, indexed alphabetically, where they are kept until
the return of the receipted voucher. It will be noted that we do not
advocate mailing the original invoice with the voucher. This temporary
file is examined from time to time, and if any vouchers have been out
an unreasonable length of time, the vendors are asked to sign and
return them, or sign duplicates sent for the purpose.

When the voucher check is used, the temporary file for invoices is not
required. The checks, if cashed, must be returned through the bank, and
the invoices can be filed permanently.

=12. Filing Paid Vouchers.= On the return of the voucher, properly
receipted, the invoices which it pays are removed from the temporary
file, when all are ready for permanent filing.

The invoices are permanently filed in an alphabetically indexed file,
under the names of the vendors, keeping all invoices from each firm
together. At some time before filing, preferably when the voucher is
executed, the voucher number should be entered on the invoice, and
when several invoices are paid by one check, they should be fastened
together with a staple or other suitable device.

The paid vouchers should be filed in numerical sequence, with indexes
numbered by 100's and 20's to separate them and to assist in locating
any desired number. If we want to find voucher No. 964, we turn to the
index 900, constituting the main division, then to index 60, back of
which the desired voucher will be quickly located. A file should be
procured of suitable size to accommodate the voucher to be filed.

[Illustration: Fig. 14. Card Index of Vouchers Paid]

=13. Indexing Vouchers.= With the permanent filing of the paid
voucher the transaction is closed, with one exception. There must be
another index to the voucher file. Knowing the number, we can quickly
locate any voucher or find its record on the register, but if we want
to locate the voucher paid to Jackson & Co.--without knowing the
number--we have no guide.

Reference to the original invoices, filed alphabetically, on which the
numbers are noted, will locate the voucher, but there are vouchers for
which no invoices are on file. To locate these by name of payee, an
alphabetical index is necessary, and it is advisable to include all
vouchers even when invoices are on file.

For this purpose, a card index is recommended, and a suitable form
is shown in Fig. 14. A card is used for each person or firm to whom
vouchers are issued, and all vouchers are listed by date and number.
The cards are filed alphabetically, making it easy to find any name.

=14. Voucher File.= The manner of filing and indexing invoices and
vouchers, from the receipt of the invoices to the permanent filing of
the paid voucher, has been explained. For the file itself, the vertical
file is recommended.

[Illustration: Fig. 15. File Showing Method of Indexing Vouchers]

Fig. 15 illustrates one drawer of a vertical file, subdivided with the
different indexes required, showing how in a small business a single
drawer can be made to answer all purposes.

In a large business several drawers would be required. The first drawer
would be for pending invoices, where would be filed invoices for which
shipments have not been received. The second drawer would contain
audited vouchers held for payment, and suspense items; the latter
including invoices held for adjustment of claims. Paid invoices and
paid vouchers would each require a separate drawer.

Files should be selected with reference to the size of the papers to be
filed. Manufacturers of such equipment now supply cabinets in sections,
in a great variety of sizes, making it possible to build up a filing
cabinet with drawers to fit every paper of standard size.


=15.= The operation of the voucher system in respect to the records in
the register is demonstrated in the illustration, Fig. 16, the record
showing how the following transactions are handled. Invoices listed
have been audited for payment.

[Illustration: Fig. 16. Voucher Register Showing Entries]

                 --Jan. 12th--
  National Mercantile Co.
    100 bbls. flour                $4.25     $425.00
    Dated Jan. 9th
    Terms 2/10, N/30

                 --Jan. 12th--
  Western Grocer Co.
    50 cases soap                   2.10      105.00
    Dated Jan. 8th
    Terms 2/10, N/30

                 --Jan. 14th--
  Morton Salt Co.
    100 bbls. salt                   .85       85.00
    Dated Jan. 11th
    Terms 1/10, N/30

                 --Jan. 15th--
  Paid voucher No. 1 to
    National Mercantile Co.

                 --Jan. 15th--
  Paid voucher No. 2 to
    Western Grocer Co.

                 --Jan. 16th--
  Watson & Snow
    60 bbls. vinegar, 3000 gals.     .14      420.00
    Dated Jan. 12th
    Terms N/30

                 --Jan. 17th--
  Jennings Coal Co.
    3 tons coal                     6.50       19.50
    Dated Jan. 17th
    Terms N/30

                 --Jan. 18th--
  Paid pay roll
    Wages of laborers                         125.50
    Office salaries                            37.50

                  --Jan. 19th--
  Paid voucher No. 3 to
    Morton Salt Co.

The illustration, Fig. 16, shows the complete record of these
transactions in the voucher register. The total footings of all
distribution columns agree with the total of vouchers payable column,
proving the extensions to be correct. The combined totals of checks and
discounts equal the total payment column. Unpaid vouchers are extended,
and the total of this column added to the total payments equals the
total of vouchers payable.

[Illustration: Fig. 17. Cash Disbursement Book]

Our voucher register being in balance, footings are now posted. The
total of _vouchers payable_ column is posted to the credit of that
account in the general or private ledger, and the footings of the
distribution columns are posted to the debit of their respective

Fig. 17 illustrates how the payments are recorded on the disbursement
or credit side of the cash book. When the checks are written they are
entered in the cash book, from which they are posted to the voucher
register. Voucher numbers are entered when the amounts are posted.

At the end of the month the columns are footed, and the totals of the
discount and check columns are posted to the debit of vouchers payable.
Footings of _discount_ and _total_ columns are posted to the credit of
discount on purchases and bank accounts.

The vouchers payable account in the ledger would now appear as follows:

              _Vouchers Payable_
    Dr.            Cr.          Balance
  $777.00       $1,216.50       $439.50

We have already seen that the voucher register balances, and turning to
that record, we find the footing of the unpaid vouchers column to be
$439.50, which agrees with the balance of vouchers payable account.


Prepare a form of voucher register providing for distribution to the
following accounts: Merchandise, Purchases, In-Freight, Expense,
Salaries, and Sundries. One of the chief requisites of the accountant
is the ability to prepare suitable forms for accounting records. Care
should be used in preparing this form to omit no detail that should be
included in such a voucher register.

When the register has been prepared, record the following transactions.

               --Feb. 12th--
  Enter the following invoices
  #1 Jones & Laughlin
  For merchandise                 $164.20
  Date 2/10, Terms 2/10, N/30.
  #2 Francis & Roberts
  For expense
  Date 2/12, Terms cash             27.50

               --Feb. 13th--
  #3 David Nelson & Sons
  For merchandise                  239.80
  Date 2/11, Terms 3/10, N/30
  Paid Henry Meyer
  For salary                        25.00
  Check #1

               --Feb. 14th--
  Paid Jones & Laughlin
  by check #2, Voucher #1
  less cash discount

               --Feb. 15th--
  Paid Francis & Roberts
  by Check #3, Voucher #2
  less cash discount

               --Feb. 16th--
  Paid David Newman
  for rent                        40.00
  Check #4

               --Feb. 17th--
  Enter the following invoices
  #4 National Furniture Co.
  For office furniture            65.00
  Date 2/16, Terms 2/10, N/30
  #5 Watkins & Hollister
  For merchandise                 84.00
  Date 2/15, Terms 2/10, N/30

               --Feb. 19th--
  Paid David Gillette, Agt.
  For in-freight                   9.62
  Check #5

Foot all columns as for posting at end of the month.


=16.= In all classes of accounting records, the unit system is rapidly
gaining in popularity. The unit system, so called, consists of
individual records of each transaction or each item recorded, instead
of a combination of several transactions in one record.

The increase in the use of the unit system has been brought about very
largely by the improvements in typewriters, which make it possible to
produce several copies of a given document at one writing. An example
of the application of the unit idea is seen in modern sales records,
where duplicate invoices are made, one copy serving as a sales sheet
and posting medium.


The unit system has been very successfully applied to voucher
accounting, saving much time and resulting in very complete records.
Compared with ordinary voucher systems, the most prominent feature of
the unit system is a method of distribution by filing, rather than by
means of a voucher register.

All vouchers are made on the typewriter, in manifold, one or more
copies being used for record purposes only. The original is used
exactly as described in the preceding pages.

An essential feature of the system is that a copy of the voucher is
provided for each account to which it is to be distributed. When one
account only is involved, the voucher is made in duplicate, but if the
amount is to be distributed to two accounts an extra copy is required.
The voucher should be so arranged that the distribution can be shown on
the face of the duplicate and triplicate copies.

The duplicate voucher is filed according to its distribution, instead
of recording the amount in the voucher register. A vertical file is
used for this purpose. The index cards are headed with the names of the
accounts, and are arranged in the order of the accounts in the ledger;
this being the order in which the same accounts would be arranged in a
voucher register. Back of each index is a folder in which the vouchers
are filed.

Each voucher copy is filed in the folder representing its proper
account, and is securely fastened to the folder with a staple or paper
fastener. When this voucher is filed it is also recorded on the outside
of the folder, which is printed as shown in Fig. 18.

This form is designed for a record of amounts, distributed under the
proper monthly headings. The amount of each voucher is carried to the
current month's column. At the end of the month, the footing of the
column shows the amount to be charged to that particular account in the
general ledger.

To arrive at the total of vouchers payable account, a recapitulation
sheet, ruled as shown in Fig. 19, is used. This is an index card, and
is placed in the front of the file. Totals of all account folders
are entered in the proper columns of this sheet, at the end of each
month. Payments are posted to this sheet at the end of the month, from
the cash book, and the balance extended. This balance, of course,
represents the unpaid vouchers and is checked against the unpaid
voucher file.

[Illustration: Fig. 18. Front of Folder for Unit System of Voucher

[Illustration: Fig. 19. Monthly Recapitulation for Unit System of
Voucher Accounting]

The totals of the different account columns are posted to their
respective accounts in the general ledgers, either directly from the
recapitulation sheet, or through the journal. The recapitulation sheet,
as here shown, is a transcript of the vouchers payable account, and
might be used as a ledger card, but it is generally considered better
practice to carry the account in the general or private ledger, as

Such a voucher system furnishes a complete record, with much less
transcribing of items, than is involved in the use of the voucher
register. The copy of the voucher is made at the same writing as the
original, the amount of each individual voucher is entered but once,
on the account folder, and monthly totals, only, are carried to the
distribution columns on the recapitulation card.

This system is equally well adapted to the loose-leaf method. A sheet
is used for each account, behind which the vouchers are filed, and a
monthly recapitulation sheet is provided for distribution.


=17.= Not every business readily adapts itself to a complete voucher
system. Special conditions sometimes arise which make it seem advisable
to keep ledger accounts with all firms from whom the business is making
purchases. A case in point is a business, lacking capital to pay all
bills promptly, necessitating payments on account, or by note, instead
of payments covering certain invoices in full.

To obviate the difficulties, in maintaining a complete voucher record,
under these and similar conditions, many substitutes have been devised.
As an example of what may be accomplished in this direction, we
illustrate a system which is in successful operation in a manufacturing

In the ledger, the usual nominal accounts are kept but no purchase or
voucher register is used. Columns are provided on the credit side of
the cash book for such expense accounts as are usually paid in cash,
that is, for which no invoices are rendered, and for accounts payable.

For the purchase accounts with firms and individuals, a vertical file
is used. Each creditor is assigned a folder, on the front of which a
suitable record form is printed. This form is shown in Fig. 20. The
name and address are written at the top, and the ledger account is kept
in the columns at the extreme left of the form. All of the columns for
distribution are left blank, it being seldom that purchases from one
firm are distributed to more than a half dozen different accounts.

When an invoice has been O. K.'d it is immediately filed in the proper
folder. The total is entered in the credit column and distributed to
the proper accounts, the names of which are written at the head of the
distribution columns. Payments on account are posted to these ledger
accounts from the cash book.

If the distribution is properly made, the totals of all distribution
columns will agree with the total of the credit column. At the end of
the month the total of these distribution columns on the individual
account folders are drawn off on the monthly recapitulation sheet
illustrated by Fig. 21. The totals shown by the recapitulation are
posted to the debit of the corresponding ledger accounts, while the
grand total is posted to the credit of accounts payable account;--which
is the controlling account of the purchase ledger. Totals of payments
on account are posted to the controlling account from the cash book.

The proof of accuracy of the controlling account is found in the usual
way, by checking against the balances of the individual purchase

With this system, invoices are filed, and the amounts posted, with
practically one operation. The items which make up each ledger account
are distributed as soon as posted, totals only being carried to the
recapitulation sheet, from whence they reach the ledger.

Accounts are quickly located, as the folders are indexed
alphabetically. When an account is balanced it must be left in its
place until the end of the month, provided credits have been entered in
the current month, so that totals of distribution will be carried to
the recapitulation sheet. At the end of the month, all accounts which
balance may be transferred to a section of the file reserved for closed
accounts. Should any of these accounts again become active, they are
transferred to the regular file without the slightest confusion.

For the purpose of saving time, the balances of all open accounts may
be drawn off when the totals of the distribution columns are obtained.

[Illustration: Fig. 20. Combined Purchase Ledger and Voucher System]

[Illustration: Fig. 21. Monthly Recapitulation and Distribution Sheet]

While not recommended for general adoption this system has its points
of merit, and in certain contingencies would undoubtedly prove very
satisfactory. The main reason for its publication in this work is to
show the possibilities of modifying a system, in respect to details,
without destroying its more important features. The voucher feature,
the obtaining of a formal receipt for every payment, can be maintained
just as effectively with this system as with a more formal voucher


=18.= A ledger, devised to contain such accounts as the principals
of a business desire to keep from the knowledge of the bookkeeper or
other office employes, is known as a private ledger. The title is also
frequently used to designate an ordinary general ledger.

The accounts most frequently found in the private ledger are Capital
accounts, Profit and Loss, Reserves, Surplus, Bills Payable, Bonds
and Mortgages Payable, and Controlling accounts with the general or
personal ledgers. It may also contain such accounts as Salaries of
Officers, or Partners, Investment and Drawing accounts, and accounts
with real or nominal assets. If it is desired to keep from the
employes, knowledge of the exact nature of any transaction, or the
standing of a particular account, it can be done by making use of the
private ledger.

When both ledgers are used, the private ledger contains only those
accounts which it is desired to keep _private_, while the general
ledger is kept for all other accounts, except those included in the
personal ledgers.

The private ledger is most commonly used in large businesses where, for
various reasons, a number of employes have access to the books, and
it is desired to keep them in ignorance of the private affairs of the
concern. The private ledger is usually kept by one of the partners, an
officer, the auditor, or the chief accountant.

=19. Advantages of Private Ledger.= The primary advantage of the
private ledger to the principals of a business, is that by its use,
they can keep to themselves all details of transactions of a special

Some other advantages that accrue to the principal may be enumerated as

He can, through the private ledger, keep an eye on the activities and
condition of the business as a whole, or of any particular department
or branch of that business.

He can keep in touch with the liabilities, or with the total amount of
personal accounts outstanding.

He can absolutely control the distribution of expense in manufacturing

He can keep from his employes, knowledge of the profits or losses of
the business.

Partners can keep private the amount of their investments, or the
salaries drawn.

Salaries paid to individual officers or employes can be kept private.

Dividends declared, capital subscribed, investments of a special
nature, or amount of assets of any kind, can all be kept from the
knowledge of employes.

=20. How Operated.= Accounts in the private ledger must not conflict
with accounts in general or personal ledgers, and the fact that
private accounts are kept should not interfere with the balance of the
general books. To insure against any such conflict, a private ledger
controlling account is kept in the general ledger.

In the general cash book, and sometimes in the journal, debit and
credit columns headed _Private Ledger_ are provided. All entries
affecting private ledger accounts are extended in these columns, but no
particulars are recorded. At the end of the month, the totals of these
columns are posted to a private ledger account in the general ledger.
This controlling account then appears in the general ledger trial
balance, and must agree with the balance of accounts in the private

With the private ledger a private journal is used, in which entries
affecting private ledger accounts are made, with explanations in detail.

As an example of the use of the private ledger we will suppose that a
payment of $500.00 is to be made to a certain party, and it is desired
to keep that transaction private. The bookkeeper is instructed to draw
a check for the amount, to be charged to private ledger account. He
enters the check in the general cash book, debiting private ledger and
crediting cash or bank. The entry is posted from the general cash book
to the private journal, where full particulars are recorded, from which
it is posted to the private ledger. In the case referred to, the amount
of the check is debited to the proper nominal account, and credited to
a general ledger account.

The general ledger account in the private ledger is a controlling
account which agrees with the private ledger account in the general
ledger. Only entries affecting general ledger accounts are posted to
this account. Entries involving changes in private ledger accounts
only, are made in the private journal direct.

Some concerns keep the controlling accounts with the sales and purchase
ledgers in the private ledger. At the end of the month, total debits
and credits to accounts in these ledgers are entered in the private
journal. These totals are obtained from the general cash book, sales
book, purchase book, and any other books from which postings are
regularly made.

[Illustration: Fig. 22. Cash Book with Columns for Private Ledger

When a private ledger is kept, it precludes the possibility of forced
balances in the general ledger trial balance, since the balances of the
private ledger accounts must agree with the private ledger controlling
account in the general ledger, and if sales and purchase ledger
controlling accounts are kept in the private ledger, these must balance
with the personal accounts in those ledgers. The use of a private
ledger not only acts as a check on trial balance errors, but simplifies
the trial balance by making possible a proof of ledgers in sections.

Fig. 22 is an illustration of a cash book with columns for the private
ledger account.

=21. Manufacturing Accounts in the Private Ledger.= Not infrequently,
manufacturers find it advisable to keep private certain details
which affect costs, or even all knowledge of the exact cost of their
manufactured product. This may be done by keeping certain manufacturing
controlling accounts in the private ledger.

In determining the cost of manufacture of any class of goods, three
elements enter into the computation; material, labor, and expense. To
determine the cost of the first two items is comparatively simple,
requiring only an efficient system of records in the factory. But to
determine the amount of expense of all classes, included in the cost of
a given article, job, or operation, is more difficult.

A system of records that will show the exact cost of such items as
power, heat, or taxes properly chargeable to an individual job or
operation is obviously impossible, and it has been found necessary to
apportion these, and all similar items of expense, on a percentage
basis. Usually this percentage is based on some element of cost which
can be determined with accuracy.

Cost accountants and engineers have worked out this percentage on the
basis of various elements of cost, as direct labor, material, machine
hour, man hour, or a combination of two or more of these elements. The
exact method used, which must be adapted to the conditions existing in
the individual factory, does not enter into this discussion.

Since there are numerous items of expense of the character referred
to, it is customary to group them, for purposes of cost computation.
Sometimes all such expense items are grouped under the one head of
General Expense. It is by means of a controlling account in the private
ledger, that the distribution of expense is made, thereby keeping
private the exact cost of manufacture.

The known cost of a certain job or article--the cost of material and
labor--is frequently referred to as the prime cost. The duties of the
cost clerk may end with determining the prime cost, his computations
not including expense items.

The total cost of material and labor for the month is charged to
private ledger account, material and labor accounts receiving proper
credit. The exact amounts of the various items of expense for the month
are also charged to private ledger account, with credits to expense

In the private journal, these items are charged to various controlling
accounts, and credited to the general ledger controlling account. The
usual entries are:

  Manufacturing Account          $______
    General Ledger                         $______
  For material         $______
  For labor            $______
  Expense Distribution           $______
    General Ledger                         $______
  For rent             $______
  For power            $______
  For repairs          $______
  Etc.    Etc.

The percentage of expense for the current month on whatever element
based, has been determined from the actual results of the preceding
month. To illustrate, we will suppose that expense is apportioned on
the basis of direct labor; the cost of this item during the month was
$1,600.00, and the amount of expense charged to operation of the plant
during the same period was $240.00;--which gives us a ratio of 15%.

We wish to determine the cost of jobs as they are completed during the
current month. The records turned in by the cost department give us the
actual cost of material and direct labor, but not knowing the exact
ratio of expense to direct labor for this month, we use last month's
ratio, and add an amount equal to 15% of the known cost of direct
labor. When the actual results for the month are determined it is quite
probable that the ratio will vary from last month's record, as either
factor may change. It will be necessary to adjust this difference,
which is the reason for an expense distribution or expense adjustment
account in the private ledger.

By keeping the expense controlling account in the private ledger, the
principal can keep private, not only the actual cost of an article, but
the percentage of expense and the basis of the expense apportionment.
If thought desirable, he can add further amounts for the purpose of
establishing a selling price.

In actual operation, the amount of expense to be charged against
completed work will be computed, and the following entry made:

  Manufacturing Account          $______
    Expense Distribution                   $______
  The amount of expense charged
  to jobs completed.

If the expense ratio used were exact, the expense distribution account
would balance at the end of each month, but owing to the fluctuations,
a balance will remain. This is adjusted by increasing or decreasing
the percentage used during the following month, and in this way the
accounts are kept in balance.

Manufacturing account has been charged with labor, material, and
expense,--the total manufacturing cost. Completed goods are charged to
a finished goods account, the entry being:

  Finished Goods                $______
    Manufacturing Account                 $______
  Net cost of goods completed

But manufacturing account will not balance, for there always will be
work in process, and the balance of the account will be the cost to
date of this work in process, a most important record.

This discussion is not intended to cover every possible use of
the private ledger, but, by means of examples, to suggest its
possibilities. The explanations and examples should afford the student
many hints of value.


On a certain date, the following transactions are recorded on the books
of Carter & Adams:

  Purchases on account      $560.00
  Sales on account           420.00
  Paid for rent               75.00
  Sales for cash              82.00
  Henry Carter (partner)
  Withdrew cash               50.00
  John Adams (partner)
  Advanced to the business   300.00

What items in the above list of transactions should, in your opinion,
be posted to the private ledger? On journal paper, make the entries and
show necessary private ledger accounts.


=22.= The proper arrangement of the accounts of a business is best
shown by a chart, in which the accounts to be kept are grouped
according to their relative importance. In laying out a chart of
accounts, they should be first separated into their proper divisions.
The natural divisions are capital, trading, and profit and loss.

Each division contains only those accounts that naturally belong
in that particular class. These divisions are then subdivided into
groups containing specific kinds of accounts, the groups being
arranged in logical sequence. As an example, the trading division of
a manufacturing business is divided into manufacturing and trading.
There may be several subdivisions of the manufacturing account; several
classes of goods may be manufactured and a manufacturing account kept
for each class, or it may be necessary to manufacture completed parts,
each requiring a complete manufacturing process. Detailed costs being
required for each of these completed parts, manufacturing accounts
are kept for each, the main division representing the cost of the
finished product, as a result of the assembling of the parts. The
completed parts are treated as raw material, when drawn for use in the
finished product, the total costs being finally absorbed by the main
manufacturing account. One of the many examples that might be cited
is a packing business, operating its own can factory and keeping a
manufacturing account to show the cost of cans. Other accounts show the
cost of the product packed in those cans, and both costs are absorbed
in the cost of the commodity as marketed.

The trading account is similarly subdivided. In a department store,
the manager of a department may receive a certain percentage of the
profits of his department. This necessitates trading accounts for each
department. A mercantile concern may operate branch stores and keep
trading accounts with each, on the books of the main office; a factory
may produce several lines of goods, with a corresponding subdivision of
trading accounts.

A chart of accounts not only furnishes a guide to the bookkeeper,
but presents in the most logical form, the natural divisions of the
business. It is both a working guide and a mirror of the accounting

=23. Chart of Small Trading Business.= The most simple chart of
accounts is one for a small trading business conducted by a single
proprietor. Following is a chart of the accounts of such a business.

[Illustration: Fig. 23. Chart of Profit and Loss Accounts]

A study of this chart will disclose the reasons for the general
grouping of the accounts. The first general group, capital accounts is
subdivided into assets and liabilities. The assets are grouped in the
order of their availability; the order in which they can most readily
be converted into cash. The liabilities are grouped according to the
security; unsecured, secured and capital.

There being but one trading account, it is represented by a single
group, purchases and in-freight representing the cost of goods, and
sales the gross proceeds. The balance of this account exhibits the
gross profits.

[Illustration: Fig. 24. Chart of Profit and Loss Accounts]

We now come to the profit and loss account by which the trading or
gross profits are absorbed. This group contains, first, the revenue
producing accounts not represented in the trading account; second, the
revenue expenditures or expense accounts. The outer brackets of the
chart group all of the accounts under _Debit_ and _Credit_. This shows
that the balances of the accounts are debit or credit as the case may

We have traced the profits to the profit and loss account, but in
closing the books they will finally be absorbed by the proprietor's
capital account. The chart, Fig. 23, traces the profits from trading
to proprietor's account. In the trading account, the gross profit
completes the balance. This profit is now absorbed by the profit and
loss account. Net profit completes the balance of profit and loss
account, and is, in turn, absorbed by the proprietor's account. Here,
the net profit added to previous investment, equals the present worth.
The chart, Fig. 24, also traces profits to the proprietor's account.

=24. Chart of Manufacturing Accounts.= A chart of the accounts of a
manufacturing business follows similar lines to that of a trading
business, the only change being the addition of the accounts of the
manufacturing group. The accounts of this group will depend both upon
the nature of the business and the extent to which the details of
operation are recorded.

A chart of the accounts of a harness and saddlery manufacturing
business is given herein. This business is divided into three
departments; harness, collar, and saddlery.

A record of the gross profits, resulting from the operation of each
department, being desired, we have three manufacturing and three
trading accounts.

The chart shows the accounts classified to exhibit detailed operations
of each department. The number of accounts in this chart is 98. This is
rather more than is required in the average business of this character,
but the chart furnishes a good illustration of the possibility of
segregating accounts of various classes.

Even so large a number of accounts, with the minute subdivisions here
shown, does not present the difficulties that might appear at first
glance. The principal requirement is a thorough knowledge of the items
entering into each account; the actual keeping of the accounts is a
matter of close attention to these details. When an elaborate chart of
accounts is laid out, it should be accompanied by detailed explanations
and instructions. Some large concerns issue printed instructions which
are given to all officers and employes who may be called upon to
determine, to what account an item should be charged.


               1 Cash
               2 Bills Receivable
               3 Accounts Receivable
  Inventories--Harness Department
               4 Finished Stock
               5 Leather
               6 Hardware
               7 Supplies

  Inventories--Collar Department
               8 Finished Stock
               9 Leather
              10 Hardware
              11 Supplies

  Inventories--Saddlery Department
              12 Finished Stock
              13 Leather
              14 Hardware
              15 Supplies

              16 Machinery--Harness
              17 Machinery--Collar
              18 Machinery--Saddlery

              19 Tools--Harness
              20 Tools--Collar
              21 Tools--Saddlery

              22 Office Fixtures and Supplies
              23 Delivery Equipment
              24 Real Estate--Land and Buildings

              25 Accounts Payable
              26 Bills Payable
              27 Mortgages

              28 Depreciation of Buildings
              29 Depreciation of Machinery
              30 Depreciation of Tools and Fixtures
              31 Bad Debts
              32 Capital Stock
              33 Surplus


            _A_ Harness Department
              34 Purchases--Leather
              35 Purchases--Hardware
              36 Purchases--Supplies
              37 In-Freight
              38 Labor--Cutting Department
              39 Labor--Manufacturing Department
              40 Inventory Adjustment

          _B_ Collar Department
              41 Purchases--Leather
              42 Purchases--Hardware
              43 Purchases--Supplies
              44 In-freight
              45 Labor--Cutting Department
              46 Labor--Manufacturing Department
              47 Inventory Adjustment

          _C_ Saddlery Department
              48 Purchases--Leather
              49 Purchases--Hardware
              50 Purchases--Supplies
              51 In-Freight
              52 Labor--Cutting Department
              53 Labor--Manufacturing Department
              54 Inventory Adjustment

  _D_ Manufacturing Expense Adjustment
              55 Power, Heat and Light
              56 Engine Room Supplies
              57 Salaries--Superintendent and Factory Clerks
              58 Wages Engineers and Miscellaneous
              59 General Factory Expense
              60 Repairs and Maintenance--Buildings
              61 Repairs and Maintenance--Machinery
              62 Repairs and Maintenance--Tools

  Trading Accounts
          _E_  Harness Department
              63 Sales
              64 Returns and Allowances
              65 Inventory Adjustment
          _F_ Collar Department
              66 Sales
              67 Returns and Allowances
              68 Inventory Adjustment
          _G_ Saddlery Department
              69 Sales
              70 Returns and Allowances
              71 Inventory Adjustment
  _H_ Profit and Loss
              72 Interest Credits
              73 Cash Discount Credits
              74 Rent Credits
  _I_ Administration
              75 Insurance and Taxes
              76 Salaries--Officers
              77 Salaries--Bookkeepers and Clerks
              78 Printing and Stationery
              79 Legal Expenses
              80 Postage, Telegraph and Telephone
              81 Office Expenses
              82 Traveling Expense--Officers
              83 Misc. General Expense
  _J_ Sales Expense
              84 Advertising
              85 Salaries--Salesmen
              86 Commission
              87 Traveling Expense--Salesmen
              88 Trade Show Expense
              89 Out-Freight and Express
  _K_ Collecting
              90 Collection Fees
              91 Cash Discounts Allowed
  _L_ Delivery Expense
              92 Wages
              93 Maintenance Horses and Wagons
              94 Maintenance Motor Trucks
  _M_ Depreciation Adjustment
              95 Buildings
              96 Machinery
              97 Tools and Fixtures
              98 Bad Debts

=25. Chart Explained.= The following explanations will give the student
a working knowledge of the operation of these accounts. Accounts, 1 to
33, inclusive, comprising assets and liabilities, are omitted, as no
instructions will be required for keeping these accounts. All accounts
are referred to by number.

34. _Purchases--Leather._ Charged with all purchases of leather for use
in harness department. Credited with all leather transferred to other

35. _Purchases--Hardware._ Charged with all purchases of hardware for
use in harness department. Credited with all hardware transferred to
other departments,

36. _Purchases--Supplies._ Charged with all purchases of supplies
and materials, other than leather and hardware, for use in harness
department. Credited with all transfers to other departments.

37. _In-Freight._ Charged with the cost of freight and cartage on all
purchases for the harness department. Totals pro-rated to department
purchase accounts at the end of each month.

38. _Labor--Cutting Department._ Charged with the wages of all men
employed in cutting department, including foreman.

39. _Labor--Manufacturing Department._ Charged with the wages of all
harness makers, and others employed in the harness manufacturing

40. _Inventory Adjustment._ An account used for the temporary
adjustment of inventories for the purpose of obtaining monthly
balances. At the end of the fiscal period, or whenever the books
are closed, the balance of this account is transferred to inventory

Accounts 34 to 40, inclusive, are finally closed into a harness
manufacturing account.

The same instructions apply to accounts 41 to 47, inclusive, in respect
to the collar department, and to accounts 48 to 54, inclusive, in
respect to the saddlery department.

55. _Power, Heat and Light._ Charged with all fuel and electric power,
consumed for power, heat and light.

56. _Engine Room Supplies._ Charged with all oils, waste and other
supplies, used in the engine room.

57. _Salaries--Superintendents and Factory Clerks._ Charged with
salaries of general superintendent, superintendent's clerk and all
clerks employed exclusively in the factory, as time keepers and clerks.

58. _Wages--Engineers and Miscellaneous._ Charged with wages of
engineer and assistants, wages of shipping clerk and assistants, wages
of receiving and stock clerks, wages of all general laborers whose time
is not chargeable to a specific department.

59. _General Factory Expense._ Charged with all miscellaneous items of
factory expense not provided for in other accounts.

60. _Repairs and Maintenance--Buildings._ Charged with all material and
labor consumed in the repairs and maintenance of buildings.

61. _Repairs and Maintenance--Machinery._ Charged with same items as
No. 60, as applied to machinery.

62. _Repairs and Maintenance--Tools._ Same as No. 61, applied to tools.

Accounts 55 to 62, inclusive, are closed into a manufacturing expense
adjustment account, monthly. This account is credited with expense
charged to each departmental manufacturing account, the distribution
being made on a percentage basis.

63. _Sales--Harness Department._ Credited with the amount of all sales
in the harness department.

64. _Returns and Allowances._ Charged with all returns and allowances
on account of harness sales, except cash discount.

65. _Inventory Adjustment._ An account used for the temporary
adjustment of inventories of finished stock, for the purpose of
obtaining monthly statements of gross profits. At the end of the
fiscal year, the balance of the account is transferred to inventory of
finished goods account, through the trading account.

Accounts 63 to 65, inclusive, are closed into a harness trading
account, at the end of the fiscal year. For purposes of comparison,
monthly trading statements are made, leaving these accounts undisturbed
until the end of the year.

Accounts 66 to 68, inclusive, and 69 to 71, inclusive, are handled
exactly the same manner, in relation to the collar and saddlery

72. _Interest Credits._ Credited with all interest collected on past
due accounts, or received on outside investments.

73. _Cash Discount Credits._ Credited with all discounts earned by the
prepayment of bills.

74. _Rent Credits._ Credited with all amounts received from rentals
of property owned by the company, or as a result of subletting leased

75. _Insurance and Taxes._ Charged with all sums paid for fire,
liability or other insurance, state and municipal taxes, and license

76. _Salaries--Officers._ Charged with the salaries of all
administrative officers, and directors' fees.

77. _Salaries--Bookkeeper and Clerks._ Charged with amounts of salaries
of all bookkeepers, stenographers, and other office clerks.

78. _Printing and Stationery._ Charged with the cost of all stationery
and printed matter used in the offices.

79. _Legal Expense._ Charged with attorney's fees and all expense of

80. _Postage, Telegraph and Telephone._ Charged with all sums paid for
postage, and telegraph and telephone service.

81. _Office Expenses._ Charged with sundry items of office expense, not
provided for in other accounts.

82. _Traveling Expense--Officers._ Charged with all legitimate
traveling expenses incurred by officers in the interest of the company.

83. _Misc. General Expenses._ Charged with all expense items not
otherwise accounted for.

Accounts 72 to 83, inclusive, are closed into an administration account.

84. _Advertising._ Charged with all sums paid for advertising,
including periodical advertising, catalogs, circulars, and novelties.

85. _Salaries--Salesmen._ Charged with the salaries of all traveling

86. _Commissions._ Charged with all commissions paid to brokers or

87. _Traveling Expenses--Salesmen._ Charged with all legitimate
expenses of salesmen, incurred in the interest of the company.

88. _Trade Show Expense._ Charged with all expenses incurred on
account of exhibitions at trade shows. Sometimes treated as a part of
advertising expense.

89. _Out-Freight and Express._ Charged with all freight and express
paid on goods sold at delivered prices.

Accounts 84 to 89, inclusive, are closed into a sales expense account.

90. _Collection Fees._ Charged with all fees paid to banks, attorneys
or others, for the collection of accounts.

91. _Cash Discounts Allowed._ Charged with all allowances to customers,
for prompt payment of bills.

Accounts 90 and 91 are closed into a collecting account.

92. _Wages._ Charged with the wages of drivers and barn men.

93. _Maintenance.--Horses and Wagons._ Charged with cost of feed,
stable supplies, repairs to harness and wagons, blacksmithing and

94. _Maintenance--Motor Trucks._ Charged with all expense of up-keep
and repairs to delivery trucks.

Accounts 92 to 94, inclusive, are closed into a delivery expense

95. _Depreciation--Buildings._ Credited monthly with current charges
for depreciation.

96, 97, and 98. Handled the same as No. 95.

Accounts 95 and 98 are closed into a depreciation adjustment account.

[Illustration: Manufacturing Ledger with Closing Entries]

[Illustration: Manufacturing Ledger with Closing Entries]

[Illustration: Manufacturing Ledger with Closing Entries]

The illustrations (pp. 48-50) show how all of these accounts are
assembled into main groups, and finally closed into profit and loss,
and capital accounts. An explanation of the accounts in the harness
department will be sufficient to show how all of the accounts are

Harness manufacturing, account _A_, is charged with accounts 34 to 39,
inclusive, and the proper portion of account _D_. It is credited with
the cost of all finished goods, the amount being transferred to account
_E_, harness trading. It is credited with the increase in inventories
over the preceding month, this amount being transferred to account 40;
if inventories show a decrease, the amount is charged.

Harness trading, account _E_, is charged with cost of finished goods
from account _A_; with account 64; with gross profits, transferred to
profit and loss, account _H_. It is credited with sales, account 63;
with increase in inventory, account 65.

Gross profits on account of trading are closed into profit and loss.

Inventory adjustment accounts Nos. 40 and 65, are still open and the
balances show total inventories. The actual amounts of inventories are
transferred to accounts 4 to 7, inclusive. This will leave a balance
in inventory adjustment account No. 40, representing work in process
in the harness factory. These inventory adjustment accounts are closed
only at the end of the fiscal year, or when the books are closed. At
the beginning of a new fiscal period the inventories are again charged
to inventory adjustment accounts, and adjusting entries made monthly in
manufacturing and trading accounts.



In the foregoing sections of this Cyclopedia numerous illustrative
examples are worked out in detail in order to show the application of
the various methods and principles. Accompanying these are examples for
practice which will aid the reader in fixing the principles in mind.

In the following pages are given a large number of test questions
and problems which afford a valuable means of testing the reader's
knowledge of the subjects treated. They will be found excellent
practice for those preparing for Civil Service Examinations. In some
cases numerical answers are given as a further aid in this work.



1. Name three objects of bookkeeping.

2. Define and give examples of three classes of debits; of credits.

3. What are the general rules for debit and credit?

4. What is meant by the term _balance_? When is an account said to show
a debit balance, and when a credit balance?

5. How many methods of bookkeeping are in use? Name them.

6. How is double entry distinguished from single entry bookkeeping?

7. What is the fundamental principle of double entry bookkeeping?

8. Name two or more advantages of double entry bookkeeping.

9. What name is given to books used for bookkeeping records?

10. Into how many classes are account books divided? Give examples.

11. Name and give the principal uses of the most commonly used books.

12. What is meant by _journalizing_? by _posting_?

13. What is a promissory note?

14. What is your understanding of the term _bills receivable_ and
_bills payable_?

15. What is the name of the book in which a record of bills receivable
and bills payable is kept?

16. What is _an acceptance_?

17. What is _discount_? _exchange_?

18. What is a _deposit slip_ and how is it used?

19. What is a _signature card_ and what are its uses?

20. What is meant by _indorsement of checks_?

21. Prepare three forms of indorsement and explain the meaning of each.

22. What is meant by _petty cash_? How is the account of petty cash

23. Mr. H. B. Emerson is a dealer in coal and lumber. That he may know
what profits are made in each branch of his business, he keeps accounts
in his ledger with coal and lumber. In his sales book, one column is
used for lumber sales and one for coal sales. No purchase book is kept.
His assets and liabilities are as follows:

  Cash in State bank           $1,427.30
  Inventory, coal                 600.00
     "       lumber             1,750.00
  Frank Knowlton, note due Aug.
    2nd                            75.00   $3,852.30
  Eastern Coal Co., open account  260.00
  Northern Lumber Co.,   "        420.00      680.00

The following transactions are recorded:

May 3. Bought from John Weber, for cash, lumber $130.00; paid by check
No. 19.

May 4. Sold to Edward Walsh, on account, 2 tons coal @ 7.00, $14.00.

May 5. Drew from bank for petty cash, check No. 20, $10.00; sold to
Franklin & Co., lumber, $256.00.

May 6. Sold for cash, coal $17.50; received from Edward Walsh, on
account, $10.00.

May 7. Gave Northern Lumber Co., check No. 21, $220.00, 60-day note,

May 8. Accepted 30-day draft of Eastern Coal Co., $260.00; paid for
repairs to desk, cash, $1.50.

Make all necessary entries in books of original entry to properly
record the above.



1. Into what two _general_ and what three _special classes_ are
accounts divided in double entry bookkeeping?

2. Define and give examples of _personal_, _real_, _representative_,
and _nominal accounts_.

3. What is a _merchandise account_? What accounts are substituted for
the merchandise account in modern bookkeeping? In what particular is
the use of these accounts an improvement over the older method of using
a merchandise account?

4. Name and define four classes of assets, giving examples of each.

5. Give two examples of fixed assets in one business which become
floating assets in another business. Give two examples of floating
assets in one business which become fixed assets in another business.

6. What are revenue receipts? revenue expenditures? What accounts are
designated by the term _revenue accounts_?

7. What is the broad term by which all revenue expenditure accounts are
designated? Name and define five commonly used subdivisions of this

8. What is meant by _journalizing_? When purchase and sales books
are used, what class of entries are made in the journal? Give three
examples of journal entries involving transfers of value from one
account to another.

9. What is a _three column journal_, and how is it used?

10. Journalize the following transactions:

  April 15. Bought from Reliance Mills, on account
            94 bbls. flour @                $4.75
            Sold to D. H. Pointer, on account
            15 bbls. flour @                 5.35
            Sold to H. S. Fleming, on account
            60 bu. wheat @                   1.05
  April 16. Gave to Reliance Mills, my note
            payable in 60 days, to balance account
            Received from D. H. Pointer
            note for 30 days to balance account.

11. What is meant by _posting_? Explain the operation of posting, using
one of the above transactions as an example.

12. In what particular does posting from the cash book differ from
posting from the journal? Explain this difference, and illustrate with
two examples.

13. What is a _trial balance_, and for what purpose is it taken? What
does a trial balance prove?

14. What are _cash discounts_? Are cash discounts a proper charge
against capital, or against revenue? Why?

15. Name two ways of treating cash discounts in the ledger, based on
your answer to the previous question.

16. Illustrate two methods of entering cash discounts allowed in the
cash book; illustrate the customer's ledger account as it would appear
after posting the credit, from each of these entries. Which method, in
your opinion, most clearly shows how the account was settled?

17. Should cash discounts earned be credited against the cost of goods
purchased, or credited to profits? Why?

18. What is a _profit and loss account_? What does the balance of
this account represent? How frequently is the balance of profit and
loss account transferred? To what accounts, in a proprietorship or
partnership? in a corporation?

19. What is a _trading account_, and what is its purpose? With what
classes of items should trading account be debited and credited? How is
the trading account constructed?

20. What is meant by the _turnover_? How can the amount of the turnover
be shown in the trading account?

21. What is a _manufacturing account_, and of what items is it made up?
What does the balance of the manufacturing account represent?

22. What is a _merchandise inventory account_, and when and for what
purpose is it used? When are the books said to be closed?

23. What is a _balance sheet_? In what order should the asset and
liability accounts be listed on the balance sheet?

24. From the following trial balance prepare trading account, profit
and loss account, and balance sheet.

                     TRIAL BALANCE
  Proprietor (Investment)                      $7,500.00
  Bill Payable                                  3,000.00
  Accounts Payable                              1,550.00
  Bank                        $1,254.84
  Accounts Receivable          2,685.11
  Bills Receivable             3,860.00
  Merchandise Inventory        6,277.76
  Furniture and Fixtures         750.00
  Purchases                    7,605.78
  Expense                      1,416.30
  Discount on Sales              112.65
  Interest                                         44.20
  Sales                                        11,990.70
  Cash                           122.46
                             ----------       ----------
                             $24,084.90       $24,084.90

  Inventory at end of period $6,807.09.

25. Give examples of the proper journal entries when the following
transactions occur in respect to notes receivable:

  When a note is received;
  When a note is paid;
  When a note is collected by the bank.

26. Complete the explanations of the following entries, and state under
what circumstances they would be made:

  Bank                          $199.00
  Interest                         1.00
    Bills Discounted                             $200.00
  Bills Discounted               200.00
    Bank                                          200.00
  Bills Receivable                 5.00
  Bills Discounted             1,000.00
    Bank                                        1,005.00

27. Make the proper journal entries under the following circumstances:

  When a note is past due;
  When a note is renewed;
  When a renewed note has been discounted.

28. We buy from Marshall Field & Company a bill of dry goods, amounting
to $978.40, and give them our note @ 60 days in payment. What entry?

29. Marshall Field & Company discount our note, and it is presented for
payment by the Continental National Bank. We give our check in payment
of the note, with interest @ 5%. How much do we pay, and what is the

30. We borrow $1,000.00 from our bank on our note @ 30 days, interest @
6%. What is the exact entry?

31. When a draft has been accepted how should it be treated on the

32. What is the proper entry when a customer pays our sight draft?

33. We draw on George Johnson for $650.00 @ 60 days sight. He accepts
the draft, which we discount at our bank 3 days later, the bank
charging us 7% interest. What entries are necessary?

34. We accept a draft from John V. Farwell & Co. for $416.00 payable in
90 days. What is the entry on our books? What is the entry on the books
of Farwell & Co.?

35. We pay a sight draft drawn by Cable Piano Co. What entry?


1. What books are generally used in a small retail business? What is a
blotter, and how is it used?

2. What is the special feature of the journal ruled ledger, and of what
advantage is such a ledger in a retail business?

3. In a single proprietorship, what does the proprietor's account

4. Name one good reason why withdrawals of the proprietor should be
charged to a personal account.

5. When the books are closed, what account absorbs the profit or loss?

6. What is meant by _taking an inventory_, and what processes are

7. Should an inventory be based on _cost_ or on _selling_ prices? Why?

8. What is meant by _closing the books_?

9. In a retail business, such as is discussed in the text, what regular
accounts are closed into trading account?

10. What does the balance of trading account represent? Into what
account is this balance closed?

11. What does the difference between assets and liabilities, as shown
by the balance sheet, represent? In a single proprietorship, with what
ledger account does this balance agree?

12. George Thompson commences business to-day, with assets consisting
of cash, $1,650.00; an account due from Henry Watson, $84.60. His
transactions consist of purchases on account as follows:

  From Henry Karl & Co.             $460.00
  " White & Black                    320.50
  Purchases for cash                 129.00
  Sales for cash                      87.50
  " on account                       274.80
  Paid on account to Karl & Co.      300.00
  Collected on account               124.80
  Paid for sundry expenses            63.70
  Inventory at close of business     655.50

Open the books, enter the transactions in journal, cash book, and sales
book, and make all postings to the ledger. Prepare a trial balance,

At the close of business, prepare a trading account, close into profit
and loss, and close net profits into proprietor's account, Prepare a
balance sheet,

13. What is a sales ticket, and for what purpose is it used?

14. What benefit is derived from keeping departmental purchase and
sales records.

15. Prepare suitable forms for departmental purchase and sales records
for a business divided into three departments.

16. What is a partnership?

17. What is the purpose of a partnership agreement?

18. By what names are the different classes of partners known?

19. On what basis are the profits of a partnership usually divided?

20. How are the _personal_ and _capital_ accounts of partners
distinguished? What is the purpose of each of these accounts?

21. When the books of a partnership are closed, into what accounts are
the _revenue_ accounts closed? Into what accounts is the _profit_ and
_loss_ account closed?

22. When the business of a partnership is sold, or liquidated, how are
the net assets divided?

23. If any part of the assets, other than the goods in which the firm
is trading, brings a price above cost, what journal entry is necessary?
What entry if the price is below cost?

24. When partners invest unequal amounts in the business, what is the
usual method of adjusting the inequality?

25. White, Black, and Brown who have been conducting business under a
partnership agreement, decide to liquidate the business and dissolve
the partnership. In the final settlement White agrees to accept the
accounts receivable, which amount to $6,432.00, in part payment of the
amount due him, provided 10% is first charged off to cover doubtful
accounts. What journal entry is necessary?

26. H. W. Hackett has been conducting a grocery business. His books
have been kept by double entry, and were last closed December 31st,
1908. At that time, his net worth was $2,698.50. April 30th, 1909, he
sold to John Ransom a half interest in the business for $1,500.00.
Ransom made a cash payment of $1,000.00, and gave his note for $500.00
payable on demand, with interest at 6%. The profits for the four months
ending April 30th, 1909, (estimated from the books), were $325.00. This
amount was to be allowed to Mr. Hackett and placed to his credit on the
books. Make journal entries for the allowed profit and for the sale of
the half interest. The books are not to be closed at the beginning of
the new partnership.

27. Prepare in proper form a solution of the problem given in Art. 40,
Page 72.

28. Prepare a complete solution of the problem given in Art. 42, Page


1. Into what two general classes are corporations divided? Name and
give examples of two classes of private corporations.

2. How are joint stock companies distinguished from corporations? In
what ways are they like corporations?

3. How are corporations created? Name 5 common requirements of the
certificate of incorporation or application for a corporate charter.

4. What is meant by a _stockholder_, and how may a person become a
stockholder in a corporation? What is a _stock certificate_?

5. What is meant by the _capitalization of a corporation_? What is the
difference in meaning of the terms _capital_ and _capital stock_, as
these terms are usually understood?

6. Define the two principal classes of stock issued by corporations.
Name and define two kinds of preferred stock. What is meant by the term
_treasury stock_? _Watered stock?_

7. By whom are the affairs of a corporation managed? From whom do
they receive their authority? Has a director, as such, the power
individually to bind the corporation?

8. What special powers have the directors? In what way do the powers of
officers and directors differ?

9. Name five of the necessary powers of a corporation, as such. Name
three of the rights of an individual stockholder.

10. What is meant by a _dividend_? By whose authority are dividends
declared? What is your understanding of the term _stock dividend_?

11. What class of records is implied by the term _corporation
bookkeeping_? Name, and describe briefly, the books used in corporation

12. Give examples of the proper entries on the books, under the
following conditions:

(a) The entire capital stock ($100,000.00) is subscribed and paid for
in cash.

(b) Only $60,000.00 of the stock is subscribed, but this is paid in
cash. It is not desired to show on the books more capital than is paid

(c) Cash subscriptions are received for $49,000.00 of an authorized
issue of $100,000.00, but it is desired to show the total
capitalization on the books.

(d) The entire capital stock ($150,000.00) is subscribed but not paid
in. It is desired to show the capital stock, without opening accounts
in the general books with individual subscribers.

(e) A payment of 20% is called for on the above stock.

13. A corporation is organized with a capitalization of $50,000.00 to
take over the business of Henry Thompson. He is to pay his liabilities
out of his assets, and transfer the balance of the property belonging
to the business to the corporation, receiving $25,000.00 full paid
stock. The following discloses the condition of his affairs:

  Cash in Bank              $1164.50
  Accounts Receivable        3760.00
  Real Estate               10000.00
  Merchandise Inventory      7642.50
  Furniture and Fixtures      600.00    $23167.00

  Bills Payable              1000.00      1000.00
                            --------     --------
  Balance                               $22167.00

What is the proper entry on the books of the corporation, the balance
of the stock being unsubscribed?

14. A corporation agrees to purchase a mine, issuing $1,000,000.00
full paid stock in payment. The owner of the mine, to whom the stock
is issued, agrees to donate to the company $500,000.00 of his stock to
provide working capital. Subsequently, $100,000.00 of this stock is
sold at 50% of its face value; $200,000.00 at 60%; $100,000.00 at 70%;
and $100,000.00 at par. Working capital is maintained at the amount
realized from the sale of the donated stock. Make all entries to show
these transactions, it being understood that all subscriptions are paid
in cash.

15. If the stock of a corporation sells at a premium, how would you
enter the amount received above par? To what account would you transfer
the premium when closing the books?

16. What would be the entries in the stock books to record the
transactions shown in questions 12 and 14?

17. A promoter organizes a corporation to develope a mine, receiving as
his fee $50,000.00 in stock. What are the entries on the books of the

18. The profits of a corporation with a paid up capital of $200,000.00,
are $18,750.00. The directors declare a cash dividend of 6%, and create
a special surplus fund of $5,000.00. Make all necessary entries.

19. The losses of the above corporation during the following year were
$2,750.00. Make proper entries, with full explanations.

20. The accumulated surplus of a corporation capitalized at
$1,000,000.00, with a paid up capital of $600,000.00, is $110,000.00;
the current profits are $100,000.00. The directors declare a cash
dividend of 7%, and a stock dividend of 25%. Make all entries to record
these transactions on the general books of the corporation.

21. The following statistics are taken from the books of a corporation:

  Capital Stock              $300,000.00
  Merchandise Inventory        97,600.00
  Machinery                   110,800.00
  Undivided Profits               600.00
  Profit and Loss (Credit)     31,210.00

It is desired to set aside a special surplus fund as a machinery
depreciation reserve, the depreciation being figured at 10% a year, and
to pay a dividend of 6%. What entries are necessary?

22. Parsons, Young, and Searles are partners and decide to form a
corporation with capital stock of $40,000.00, which is to be issued as
full paid stock in exchange for their present business. Each partner is
to receive stock in proportion to his interest in the present business.
The balance sheet of the partnership is as follows:

  Cash                      $3,500.00
  Bills Receivable           6,000.00
  Accounts Receivable        6,500.00
  Merchandise               14,000.00
      Total                                $30,000.00

  Bills Payable              4,000.00
  Accounts Payable           2,000.00
  Parsons                   10,000.00
  Young                      8,000.00
  Searles                    6,000.00
      Total                                30,000.00

Make entries on books of the partnership.

Make entries on books of the corporation.

23. Hoadley and Stockton are partners and desire to incorporate a
company. The stock is to be divided equally between Hoadley and
Stockton after giving Hopper $1,000.00. The balance sheet of the
partnership is as follows:


  Cash                          $ 960.00
  Accounts Receivable           1,570.00
  Merchandise                     720.00
      Total                                   $3,250.00


  Accounts Payable                460.00
  Bills Payable                   500.00
  Hoadley                       1,145.00
  Stockton                      1,145.00
      Total                                   3,250.00

Make all necessary entries on the books of the partnership.

Make open entries on the books of the new company.

24. The National Manufacturing Co. has an authorized capital
of $100,000.00 of which $60,000.00 is paid up and $40,000.00,
unsubscribed. It is decided to permit employes to subscribe for
$10,000.00 of the stock by paying 10 per cent in cash, all dividends
declared to be applied to the payment of subscriptions.

What entries are made when this stock is subscribed for?

A 10 per cent dividend being declared at the end of the first year,
what entry is required?

25. The Atlas Novelty Co. has a capital stock of $50,000.00. All of the
stock has been subscribed for, but only 40 per cent has been paid. A
surplus of $10,000.00 has been accumulated. It is desired to reduce the
stock to $25,000.00 full paid. What is the necessary proceeding, and
what entries are required?

26. A company has a capital stock of $50,000.00 full paid, and a
surplus of $11,172.00. A stockholder who owns $7,000.00 stock in the
company wishes to dispose of his stock and, to secure cash, offers to
sell it to the company at par. His offer is accepted and the stock
purchased, but the company does not wish to reduce its capitalization.
What is the entry?

27. What is a reserve? Give three examples showing purposes for which
reserves are created.

28. What is a _reserve fund_? Why is a reserve fund treated as a

29. What is a _sinking fund_, and what is its purpose?

30. What is a _bond_? Describe three classes of bonds.

31. When bonds are issued, by what account are they represented in the
ledger? Does this account represent an asset, or a liability?

32. If bonds are sold at a premium, to what account is the premium
credited? Would it be correct to credit this premium to profit and
loss? Why?

33. To what account is the interest paid on bonds charged? When bonds
are sold with accrued interest, which is paid by the purchaser, what
disposition is made of the interest received? What disposition should
be made of expense incurred in the sale of bonds?

34. What is the most important point to be kept in mind when devising a
system of accounts for a manufacturing business?

35. From what items is the manufacturing account made up? What does the
balance of manufacturing account represent?

36. Describe, briefly, a method of obtaining the necessary statistics
to make up the manufacturing account for a business in which but one
line of goods are manufactured? What is the object of sectionalizing
the pay-roll by departments?

37. What is an _expense inventory account_; when is it used; and how is
it made up? When is an expense liability considered; by what account is
it represented; and how is the account made up?

38. What is meant by a _balance ledger_? Illustrate a form of balance

39. For what purpose is an invoice register used? Explain the general
plan of such a book.

40. Make up a manufacturing account from the data given on Page 76.
Show the journal entries used in making up this account.


1. State, in your own words, the generally accepted meaning of the term
_voucher_, as used in business.

2. What is the nature of a journal voucher, and for what purpose is it

3. Prepare a form of voucher to be accompanied by a separate check.

4. Prepare a form of voucher check.

5. For what book is the voucher register substituted? What book is
dispensed with?

6. Explain the purpose of the _sundries_ and _unpaid voucher_ columns
in the voucher register.

7. With what _controlling_ account must the total of unpaid vouchers as
shown by the register, agree? Explain the sources of debits and credits
posted to this controlling account.

8. Prepare a form of voucher register, suitable for a manufacturing
business using three classes of raw material, operating five shops, and
selling the product through traveling salesmen.

9. What are the necessary steps in _auditing_, _executing_, and
_registering_ vouchers? How should audited vouchers be filed?

10. Describe the routine in paying vouchers, and in filing invoices and
paid vouchers. How should vouchers be indexed?

11. What is the distinguishing feature of the _unit system_ of voucher

12. If a voucher pays items to be charged to three accounts, how many
copies are required and how is the distribution shown?

13. Explain the method of filing and recording vouchers in the unit
system. How are monthly totals recorded?

14. What routine should be followed to carry the totals to the ledger?

15. Describe, and illustrate with the necessary forms, a system in
which a purchase ledger and invoice file are combined.

16. What is a private ledger and for what purposes is it used?

17. Name some of the special advantages of the private ledger.

18. Describe, briefly, the operation of the private ledger, giving an

19. Describe, and illustrate with journal entries, in what way a
manufacturer can make use of the private ledger.

20. Transactions of the following classes are recorded on the books of
Dane & Whitney:

  Purchases on Account
  Sales on Account
  Paid for Rent
  Paid Dane's Salary
  Sales for Cash
  Whitney advanced cash to the business.

What items, in the above, should be recorded in the private ledger?

21. In charting the accounts of a business, into what three main groups
should they be divided? Give an example of the subdivision of one of
these groups.

22. Prepare a chart of the accounts of a small trading business
conducted by a partnership. Explain this chart.

23. Prepare a chart of the accounts of a manufacturing business making
three classes of goods.

24. What are the principal characteristics of a chart of accounts of a
manufacturing business?

25. Using the above manufacturing chart, explain how profits are traced
from group to group until they reach the surplus account.



  Acceptances, 56
    definition of, 11

  Accommodation note, definition of, 11

  Account books
    classes of, 42
    definition of, 11

  Account current, definition of, 11

  Account sales, definition of, 11

  Accounting charts, 309-323
    explanation of chart, 316
    of manufacturing business, 313
    of small trading business, 310

    classification of, 90
    definition of, 11
    merchandise, 71
    merchandise inventory, 100
    nominal, 70
    personal, 69
    profit and loss, 97
    purchase, 71
    real, 69
    representative, 70
    sales, 72

  Accrued interest, definition of, 12

  Acknowledgment, definition of, 12

  Ad valorem, definition of, 12

  Administrator, definition of, 12

  Adventure, definition of, 12

  Advice, definition of, 13

  Affidavit, definition of, 13

  Agent, definition of, 13

  Agreement, definition of, 13

  Allowance, definition of, 13

  Annual statement, definition of, 13

  Annuity, definition of, 13

  Antedate, definition of, 13

  Appraise, definition of, 14

  Appreciation, definition of, 14

  Approval sales, definition of, 14

  Arbitrate, definition of, 14

  Articles, definition of, 14

    definition of, 14
    fictitious, 78
    fixed, 77
    floating, 78
    passive, 78

  Assign, definition of, 14

  Assignee, definition of, 14

  Assignment, definition of, 14

  Assignor, definition of, 14

  Association, definition of, 14

  Attachment, definition of, 14

  Audit, definition of, 14

  Auxiliary, definition of, 14

  Average, definition of, 14


  Balance, definition of, 14, 39

  Balance sheet, 100, 139
    definition of, 14

  Balance of trade, definition of, 15

  Bale, definition of, 15

  Bank balance, definition of, 15

  Bank deposits, 56
    check books, 56
    depositing cash, 57
    indorsement of checks, 57
    pass book, 57
    signature card, 56

  Bank draft, definition of, 15

  Bank note, definition of, 15

  Bank pass book, definition of, 15

  Bankrupt, definition of, 15

  Bill, definition of, 15

  Bill of exchange, definition of, 16

  Bill head, definition of, 16

  Bill of lading, definition of, 16

  Bill of sale, definition of, 16

  Bills payable, definition of, 18

  Bills receivable, definition of, 18

  Bills receivable and bills payable, 54

  Blanks, definition of, 18

  Blotter, definition of, 18

  Bond liability, 239

  Bonded goods, definition of, 18

  Bonds, 238
    classes of, 239
    definition of, 18
    expense of issue of, 241
    interest on, 241
    premium on, 241

  Bonus, definition of, 18

  Book account, definition of, 18

    for corporation, 205
    definition and objects of, 37
    methods of, 39

  Brand, definition of, 18

  Broker, definition of, 18

  Brokerage, definition of, 18

  Bullion, definition of, 18


  Call loans, definition of, 18

  Cancel, definition of, 18

  Capital, definition of, 18

  Capital of corporation, 199

  Capital stock, 199
    definition of, 18

  Capitalization, 199
    capital, 199
    capital stock, 199
    treasury stock, 200
    watered stock, 201

  Cartage, definition of, 18

  Cash book, 43
    posting from, 89

  Cash discounts, 94
    allowed, 94
    earned, 95
    entering in cash book, 94

  Cash dividend, declaring, 224

  Cash sales, definition of, 18

  Center-ruled ledger, 143

  Certificate of stock, definition of, 18

  Certified check, definition of, 20

  Charges, definition of, 20

  Chart, definition of, 20

  Charter, definition of, 20

  Charting the accounts, 309

  Check, definition of, 20

  Check books, 56

  Clearing house, definition of, 20

  Closing an account, definition of, 20

  Collateral, definition of, 20

  Commercial abbreviations, 35

  Commercial paper, definition of, 20

  Commercial signs and characters, 37

  Commercial terms, dictionary of, 11

  Commission, definition of, 20

  Commission merchant, definition of, 20

  Common law, definition of, 20

  Common stock, definition of, 200

  Company, definition of, 20

  Compromise, definition of, 20

  Consideration, definition of, 22

  Consignee, definition of, 22

  Consul, definition of, 22

  Contingent assets and liabilities, definition of, 22

  Contingent fund, definition of, 22

  Contra, definition of, 22

  Contract, definition of, 22

  Conveyance, definition of, 22

  Copyright, definition of, 22

  Corporation accounts, 195-270
    bonds, 238
    bookkeeping, 205
    changing books from partnership to corporation, 227
    closing transfer books, 204
    entries on corporation books, 228
    entry of stock for promotion, 222
    reserves and their treatment, 235
    stock donated to employes, 229
    when stock subscriptions are never full paid, 232
    surplus and dividends, 223
    treatment of loss, 225

  Corporation bookkeeping, 205
    books required, 206
    entries in stock books, 215
    opening entries, 209

    capitalization, 199
    classification of, 195
    creation of, 197
    definition of, 195
    dividends, 203
    management of, 201

    management of
      powers of corporations, 203
      powers of directors and officers, 202
      stockholders' rights, 203
    stock certificate, 199
    stockholders, 197
    stock issued for promotion, 221
    stock subscriptions, 201

  Counterfeit, definition of, 22

  Coupon, definition of, 22

  Coupon bond, definition of, 22

  Credentials, definition of, 22

  Credit, rules for, 38

  Creditor, definition of, 22

  Cumulative preferred stock, definition of, 200

  Currency, definition of, 22


  Day book, 43

  Debenture, definition of, 22

    definition of, 22
    rules for, 38

  Deed, definition of, 22

  Defalcation, definition of, 22

  Deferred bonds, definition of, 23

  Delivery receipt definition of, 23

  Demand note, definition of, 23

  Departmental records, 148

  Deposit, definition of, 24

  Depositing cash, 57

  Depreciation, definition of, 24

  Discount, definition of, 24

  Discount and exchange, 56

  Discounts allowed, 94

  Dishonor, definition of, 24

  Dividend, 203
    definition of, 24

  Dividend book, 208

  Dormant partners, 165

  Double entry, 39
    advantages of, 40
    books used in, 43
    principle of, 40

  Doubtful, definition of, 25

    definition of, 24
    journalizing, 113

  Drawer, definition of, 25

  Drayage, definition of, 25

  Due bill, definition of, 25

  Dunning, definition of, 25

  Duplicate, definition of, 25

  Duty, definition of, 25


  Earnest, definition of, 25

  Embezzlement, definition of, 25

  Exchange, definition of, 25

  Expense account, 80
    heat and light, 81
    insurance, 81
    interest, 81
    labor, 82
    out freight and express, 81
    rent, 81
    salaries, 82
    taxes, 81

  Exports, definition of, 25

  Extend, definition of, 25


  Face value, definition of, 25

  Facsimile, definition of, 25

  Fictitious assets, example of, 78
    advertising, 78

  Financial statement, definition of, 25

  Fiscal, definition of, 25

  Fixed assets
    definition of, 25
    examples of, 77
      furniture and fixtures, 77
      horses and wagons, 77
      real estate, 77

  Fixed charges, definition of, 26

  Fixtures, definition of, 26

  Floating assets, examples of, 78
    accounts, 78
    cash, 78
    merchandise, 78
    notes or bills receivable, 78

  Folio, definition of, 26

  Footing, definition of, 26

  Foreign exchange, definition of, 26
    account sales, 12
    acknowledgment, 13
    adjustment journal and departmental purchase book, 154
    balance sheet, 101
    bill, 15
    bill of exchange, 17
    bill of lading, 16
    bill of sale, 19
    bills payable, 55
    bills receivable, 55
    cash book, 44, 131
    cash book including bank account, 156
    cash book with center column for particulars, 177
    cash book with column for private ledger accounts, 306
    cash disbursement book, 296
    center-ruled ledger, 143, 157-161
    certificate of stock, 21
    chart of profit and loss accounts, 311, 312
    check register, 260
    classified ledger accounts, 180-188
    closing entries, trading and profit and loss account, 140
    combined purchase ledger and voucher system, 303
    daily report, 247
    day book, 43
    day book or blotter, 121
    delivery receipt, 24
    demand note, 24
    departmental sales book, 155, 178
    departmental sales and purchase books, 179
    draft, 25
    endorsement, 58
    file showing method of indexing vouchers, 293
    installment certificate, 208
    inventory sheet, 137
    invoice register, 258
    journal, 74
    journal entries recording all transactions, 128-130
    journal ruled retail ledger, 132-137
    journal showing opening entries for partnership, 176
    journal voucher for adjusting entries, 284
    lease, 27
    ledger accounts, classified, 180-188
    ledger with journal ruling, 120
    manufacturing account, 99
    manufacturing ledger with closing entries, 320-322
    merchandise inventory, 100
    monthly recapitulation and distribution sheet, 303
    opening entry in journal, 122
    order, 29
    order book, 42
    pay-roll, 249
    power of attorney, 32
    profit and loss account, 99
    promissory note, 31
    proprietor's account, 99
    purchase book, 75
    purchase ledger, 267
    receipt, 33
    retail ledger, journal ruled, 132-137
    sales book, 74
    scale book, 144
    signature card, 57
    special account, 12
    statement, 34
    statement of incorporation on stock plan, 198
    trading account, 98
    transfer book, 206
    trial balance, 138, 162, 269
    unit system of voucher accounting, monthly recapitulation for, 300
    voucher, 35
    voucher, back of, showing distribution, 277
    voucher with check attached, duplicate, 283
    voucher check in loose-leaf form, duplicate, 280
    voucher check that requires no folding, 280
    voucher check, triplicate form of, 282
    voucher and check combined, 278
    voucher distribution sheet, 281
    voucher register showing entries, 294
    voucher registers, typical forms of, 286
    voucher to be receipted and returned, 276
    vouchers paid, card index of, 292

  Freight, definition of, 26


  Gain, definition of, 26

  Gauging, definition of, 26

  Going business, definition of, 26

  Goodwill, definition of, 26

  Gross, definition of, 26

  Gross profit, transfer of, 99

  Guarantee or guaranty, definition of, 26

  Guaranteed stock, 200


  Honor, definition of, 26

  Hypothecate, definition of, 26


  Import, definition of, 26

  Income, definition of, 26

  Income bonds, definition of, 26

  Indemnity, definition of, 26

  Indorse, definition of, 26

  Indorsee, definition of, 26

  Indorsement of checks, 57

  Indorser, definition of, 28

  Infringe, definition of, 28

  Installment, definition of, 28

  Installment book, 207

  Insolvent, definition of, 28

  Instant, definition of, 28

  Insurance policy, definition of, 28

  Interest, definition of, 28

  Inventory, 137
    definition of, 28

  Investment, definition of, 28

  Invoice, definition of, 28

  Invoice or bill, 46


  Job lot, definition of, 28

  Jobber, definition of, 28

  Joint stock, definition of, 28

  Joint stock companies, 196

  Journal, 45
    posting from, 88

  Journal vouchers, 283

  Journalizing drafts, 113
    when we accept draft, 114
    when discounting time draft, 114
    when we pay an acceptance, 114
    when we pay a sight draft, 114
    when our sight draft is paid, 113

  Journalizing notes, 107
    when collected by bank, 107
    when discounted, 107
    when discounted note is not paid, 109
    when note drawing interest is discounted, 108
    when note drawing interest is paid, 108
    when note is past due, 109
    when note is renewed, 110
    when our note has been discounted, 111
    when paid, 107
    when received, 107
    when renewed note has been discounted, 110
    when we discount our note, 112
    when we give or pay note, 111
    when we pay for goods with our note, 112
    when we pay our note with interest, 112
    when we renew a note, 112
    when we renew our discounted note, 113

  Journalizing, rules for, 82


  Leakage, definition of, 28

  Lease, definition of, 28

  Ledger, 46
    arrangement of accounts in, 91

  Ledger accounts, sample, 92, 93

  Ledger index, 47

  Legal tender, definition of, 28

  Lessee, definition of, 28

  Letter of advice, definition of, 28

  Letter of credit, definition of, 28

  Liabilities, definition of, 29

  License, definition of, 29

  Liquidation, definition of, 29

  Loss and gain, definition of, 29


  Maker, definition of, 29

  Manifest, definition of, 29

  Manufacturing account, 98

  Manufacturing and cost accounts, 242
    accounts used
      factory assets, 243
      factory expenses, 244
      summary accounts, 245
    balance ledger, 250
    expense inventory, 250
    expense liability, 250
    manufacturing data, 256
    pay-roll records, 248
    routine followed, 245
    sample transactions, 251

  Maturity, definition of, 29

  Mercantile agency, definition of, 29

  Merchandise, definition of, 29

  Merchandise account, 71

  Merchandise inventory account, 100

  Minute book, 207

  Money order, definition of, 29

  Monopoly, definition of, 29

  Mortgage, definition of, 29

  Mortgagor, definition of, 30


  Negotiable, definition of, 30

  Net, definition of, 30

  Net profit, transfer of, 99

  Nominal, definition of, 30

  Nominal account, 70

  Nominal partners, 164

  Non-cumulative preferred stock, 200

  Notes, journalizing, 107


  Obligation, definition of, 30

  Open account, definition of, 30

  Opening entries, definition of, 30

  Option, definition of, 30

  Order book, 43

  Orders, definition of, 30

  Original entry, definition of, 30

  Ostensible partners, 164

  Overdraw, definition of, 30


  Par, definition of, 30

  Partnership, definition of, 30

  Partnership accounts, 164-193
    capital and personal accounts, 165
    closing the books, 166
    division of profits, 191
    illustration of closing entries, 166
    interest on investment, 165
    kinds of partners, 164
    opening the books, 166
    participation in profits, 165
    partnership, defined, 164
    partnership agreements, 164
    sale of partnership, 189
    sample transaction, 167-175

  Pass book, 57

  Passive assets, examples of, 73
    goodwill, 78
    patents, 78
    speculative, 78

  Pay-roll records, 248

  Payee, definition of, 30

  Per annum, definition of, 30

  Per cent, definition of, 30

  Per diem, 30

  Personal accounts, 69
    definition of, 30

  Personal property, definition of, 30

  Petty cash
    definition of, 30
    treatment of, 58

  Post, definition of, 30

  Postdate, definition of, 30

  Posting, 46
    from cash book, 89
    from journal, 88
    routine, 88

  Power of attorney, definition of, 30

  Preferred stock, definition of, 30, 200

  Premium, definition of, 31

  Present worth, definition of, 31

  Private ledger, 304
    advantages of, 304
    how operated, 305
    manufacturing accounts in, 306

  Proceeds, definition of, 31

  Profit and loss, definition of, 31

  Profit and loss account, 97
    manufacturing, 98
    trading, 97
    transfer of gross profit, 99
    transfer of net profit, 99
    turnover, 98

  Promissory notes, 54
  acceptance, 56
  bill book, 54
  bills payable, 54
  bills receivable, 54
  definition of, 31
  discount and exchange, 56

  Promotion, stock issued for, 221

  Pro rata, definition of, 31

  Protest, definition of, 31

  Purchase account, 71

  Purchase book, 45

  Purchase ledger and invoice file combined, 301


  Quotation, definition of, 31


  Ratify, definition of, 31

  Raw material, definition of, 31

  Real account, 69

  Real estate, definition of, 31

  Rebate, definition of, 31

  Receipt, definition of, 31, 273

  Receiver, definition of, 31

  Recording transactions, 46

  Remittance, definition of, 31

  Renewal note, definition of, 33

  Rent, definition of, 33

  Representative account, 70

  Reserves for bad debts, 236

  Reserves for buildings in hazardous undertakings, 236

  Reserves for depreciation, 236

  Reserve funds, 237

  Reserves for patents, franchise, goodwill, 236

  Reserves for permanent improvements on leased property, 236

  Resources, definition of, 33

  Retail business, 119
    balance sheet, 139
    books used, 119
    closing the books, 138
    exercise, 141
    inventory, 137
    opening the books, 119
    proprietor's account, 120
    sample transactions, 123-127
    statements, 120

  Retail coal books, 142
    sample transaction, 144
    uncollectible accounts, 143

  Revenue, definition of, 33

  Revenue accounts, 80

  Revenue receipts, 80

  Revoke, definition of, 33

  Royalty, definition of, 33


  Sale of stock below par, 205

  Sales, 72

  Sales books, 45

  Sales tickets, 147

  Sample ledger accounts, 91

  Sample transactions, 72, 83, 101, 149

  Schedule, definition of, 33

  Secret partners, 164

  Sight draft, definition of, 33

  Signature card, 56

  Silent partners, 164

  Single entry, 39

  Single proprietorship accounts, 119-163

  Sinking funds, 237

  Solvent, definition of, 33

  Statement, definition of, 33

  Stock certificate book, 206

  Stock dividends, 204
    declaring, 224

  Stock ledger, 207

  Stock register, 208

  Stock subscriptions, 201

  Stock transfer book, 206

  Stockholders, 197
    definition of, 33
    meetings of, 205
    rights of, 203

  Storage, definition of, 33

  Surety, definition of, 33

  Syndicate, definition of, 33

  Surplus subdivided, 223


  Tare, definition, 33

  Tariff, definition of, 33

  Terms, definition of, 33

  Theory of accounts, 11-116

  Three-column journal, 82

  Tickler, definition of, 34

  Time draft, definition of, 34

  Trade discount, definition of, 34

  Trade mark, definition of, 34

  Trading account, 97

  Transactions, 46
    ledger index, 47
    posting, 46
    sample, 47, 59, 72, 83, 101, 149

  Treasury stock, 200

  Trial balance, 90

  Turnover, 98


  Ultimo, definition of, 34

  Unit system of voucher account, 298


  Valid, definition of, 34

  Value received, definition of, 34

  Void, definition of, 35

  Voucher checks, 279

  Voucher file, 293

  Voucher register, 284

  Voucher system of accounting, 273-303
    auditing of invoices, 290
    combined purchase ledger and invoice file, 301
    demonstration of, 293
    executing and registering vouchers, 290
    filing audited vouchers, 290
    filing paid vouchers, 291
    indexing vouchers, 292
    operation of, 289
    paying vouchers, 291
    unit system of, 298
    voucher file, 293

    definition, 35, 273
    filing, 290
    forms of, 277
    indexing, 292
    paying, 291
    use of, 274


  Warehouse, definition of, 35

  Warehouse receipt, definition of, 35

  Warranty, definition of, 35

  Watered stock, 201

  Way bill, definition of, 35

  Wholesale, definition of, 35

  Working capital, definition of, 35

                          TRANSCRIBER'S NOTE

-Obvious print and punctuation errors were corrected.

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